Summary: H.R.2777 — 102nd Congress (1991-1992)All Information (Except Text)

There is one summary for H.R.2777. Bill summaries are authored by CRS.

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Introduced in House (06/26/1991)

Tax Simplification Act of 1991 - Title I: Provisions Relating to Individuals - Amends the Internal Revenue Code to allow gain to be rolled over from one residence to another residence in the order the residences are purchased and used. Allows more than one rollover within a two-year period.

Changes the due date for the second required installment for individuals who pay estimated tax.

Permits the payment of taxes by credit cards to the extent provided by regulations.

Provides for inflation adjustment of the dollar amounts involved in the election to claim a child's unearned income on the parent's return.

Establishes a foreign tax credit limitation for individuals whose gross income is from sources outside the United States, consists entirely of qualified passive income, and the amount of creditable foreign taxes does not exceed $200.

Excludes certain personal transactions from foreign currency rules.

Establishes a different due date for large partnerships to file information returns.

Limits the exclusion of combat pay from withholding to the amount excludable from gross income.

Requires the Secretary of the Treasury to report to specified congressional committees on expanded access to simplified individual income tax returns and other actions taken to simplify them.

Provides that the amount allowed as a deduction to rural mail carriers for the business expense of a vehicle shall be equal to qualified reimbursements. Amends the Technical and Miscellaneous Revenue Act of 1988 to repeal the rule on the business use of automobiles by rural mail carriers.

Exempts from the luxury excise tax parts or accessories installed for use of passenger vehicles by disabled individuals.

Title II: Treatment of Large Partnerships - Subtitle A: General Provisions - Establishes special rules for large partnerships (250 or more partners) with respect to: (1) determining the income tax of a partner; (2) computing the taxable income of a large partnership; and (3) treatment of contributed property. Provides that a large partnership does not include one where: (1) substantially all of the activities involve the performance of personal services by individuals owning interests in such partnership; or (2) 50 percent or more of partnership assets consist of oil or gas properties.

Establishes simplified audit procedures for large partnerships. Requires a partner's return to be consistent with the partnership return.

Allows partnerships to take adjustments into account through an imputed underpayment procedure or a flow-through-to-partners procedure.

Authorizes and directs the Secretary of the Treasury to make adjustments at the partnership level in any partnership item to the extent necessary to have such item treated in the manner required, after notifying the partnership of such adjustment through certified or registered mail. Specifies certain restrictions on such adjustments.

Provides for judicial review of such adjustment with the Tax Court, the appropriate district court, or the Claims Court. Prohibits any adjustments from being made three years after the later of the date on which the return was filed, or the last day for filing such return was filed, or the last day for filing such return, except in specified cases. Allows a partnership to file a request for an administrative adjustment of partnership items during such time periods and provides for judicial review where such request is not allowed in full.

Authorizes the Secretary to require large partnerships, or any other partnership with 250 or more partners, to file their returns on magnetic media.

Subtitle B: Provisions Related to TEFRA Partnership Proceedings - Revises and sets forth new provisions relating to TEFRA (Tax Equity and Fiscal Responsibility Act of 1982) partnership proceedings.

Provides for a declaratory judgment procedure in the Tax Court for treatment of non-partnership items with respect to an oversheltered return. Describes an oversheltered return as one which shows no taxable income and a net loss from partnership items.

Provides for the partnership return to be determinative of the audit procedure to be followed.

Suspends the period of limitations for making assessments for a partner who is named in a bankruptcy petition.

Permits a small partnership to have a C corporation as a partner.

Excludes a partial settlement agreement from the one-year limitation on assessment.

Provides that if a TEFRA statute extension agreement is entered into, that agreement also extends the statute of limitations for filing refund claims until six months after the expiration of the limitations period for assessments.

Provides a prepayment forum and a refund forum for raising the innocent spouse defense in TEFRA cases.

Provides that partnership level proceedings include a determination of the applicability of penalties at the partnership level. Allows partners to raise any partner-level defenses in a refund forum.

Specifies that an action to enjoin premature assessments of deficiencies attributable to partnership items may be brought in the Tax Court. Permits a party to appear before a court for the sole purpose of asserting that the period of limitations for assessing any tax attributable to partnership items has expired for that person.

Provides for the treatment of premature petitions filed by notice partners or five-percent groups.

Provides that the amount of the bond to stay assessment and collection should be based on the Tax Court's estimate of the aggregate liability of the parties to the action (and not all of the partners in the partnership).

Suspends interest where there is a delay in computational adjustment resulting from TEFRA settlements.

Title III: Foreign Provisions - Subtitle A: Simplification of Treatment of Passive Foreign Corporations - Repeals foreign personal holding company rules and foreign investment company rules. Exempts foreign corporations from the accumulated earnings tax and personal holding company rules. Provides for the treatment of personal service contracts under controlled foreign corporation rules.

Replaces repealed provisions with revised rules for passive foreign corporations. Provides for taxing U.S. income on stock in passive foreign corporations through three alternative methods: (1) mark-to-market; (2) current inclusion; and (3) interest charge on excess distributions.

Subjects less-than-25-percent shareholders of passive foreign corporations that are not U.S.-controlled, and who do not elect current inclusion, to the mark-to-market methods or the interest-charge method for taxing income.

Provides that if a passive foreign corporation is U.S.-controlled then every U.S. person owning stock in such corporation is subject to income inclusions under a modified version of controlled foreign corporation rules.

Declares with regard to the mark-to-market method that: (1) if the fair market value of stock exceeds its adjusted basis, then the U.S. person shall include in gross income an amount equal to the amount of the excess; and (2) if the adjusted basis of stock exceeds the fair market value then the person shall be allowed a deduction equal to the lesser of the amount of such excess, or the unreversed inclusions.

Describes a passive foreign corporation as any foreign corporation if: (1) 60 percent or more of its gross income is passive income; (2) the average percentage of assets which produce passive income or which are held for the production of passive income is at least 50 percent; or (3) such corporation is registered under the Investment Company Act of 1940, either as a management company or as a unit investment trust.

Subtitle B: Treatment of Controlled Foreign Corporations - Provides that if a controlled foreign corporation sells or exchanges stock in other foreign corporations, then gain recognized on such sale or exchange shall be included in the gross income of such corporation as a dividend to the same extent that it would have been included if such corporation were a U.S. person.

Repeals the special rules for foreign tax credits applicable to the receipt of previously taxed earnings.

Revises provisions concerning: (1) determining pro rata share of gain from certain sales or exchanges of stock in certain foreign corporations; (2) basis adjustments in stock held by lower-tier foreign corporations; (3) determination of previously taxed income in redemptions through use of related corporations; and (4) treatment of branch profits tax exemptions or reductions.

Subtitle C: Other Provisions - Allows the use of the average exchange rate for the period during which the taxes or adjustment is paid instead of the exchange rate as of the time of such payment.

Permits the use of the simplified limitation on the foreign tax credit in determining the alternative minimum tax foreign tax credit.

Title IV: Other Income Tax Provisions - Subtitle A: Provisions Relating to Subchapter S Corporations - Provides for determining whether a corporation has one class of stock, thus qualifying as an S corporation.

Allows the Secretary of the Treasury to validate an invalid S corporation election by a small business corporation where the failure to properly elect S status was inadvertent or untimely.

Provides that adjustments for distributions by an S corporation during a taxable year are taken into account before applying the loss for a year in determining the amount in the accumulated adjustment account.

Repeals the rule that treats an S corporation in its capacity as a shareholder of another corporation as an individual. Repeals the rule that an S corporation may not be a member of an affiliated group of corporations. Eliminates the need to keep records of certain generally small amounts of earnings arising before 1983. Allows selling shareholders to be certain that their share of income will not be affected by income earned after the sale. Provides for the treatment of inherited stock.

Subtitle B: Account Provisions - Revises the look-back method for long-term contracts and provides that for purposes of such method, only one rate of interest is to apply for each accrual period. Provides a method for capitalizing certain indirect costs.

Subtitle C: Provisions Relating to Minimum Tax - Revises the corporation minimum tax depreciation preference. Repeals the special treatment of ownership changes in determining adjusted current earnings.

Subtitle D: Tax-Exempt Bond Provisions - Repeals the $100,000 limitation on unspent proceeds under the one-year exception from arbitrage rebate. Provides an exception from rebate for earnings on bona fide debt service funds under the construction bond rules. Provides an automatic extension of the initial temporary period for construction issues. Provides an automatic extension of the initial temporary period for construction issues. Provides that discrete issues of governmental bonds issued simultaneously will not be treated as a single issue in cases where one of the issues is a tax and revenue anticipation note reasonably expected to satisfy the arbitrage rebate safe harbor.

Authorizes the Secretary of the Treasury to provide exceptions from the requirement that taxpayers report interest on State and local government bonds on income tax returns in cases where it is determined that such information is not useful to the administration of tax laws.

Repeals certain expired provisions.

Subtitle E: Other Provisions - Provides for treating certain revocable trusts as estates.

Defers the deduction of guaranteed payments by a partnership until the year in which they are includible in the partner's income.

Provides that the taxable year of a partnership closes with respect to a partner whose entire interest in the partnership terminates, whether by death, liquidation or otherwise.

Conforms the rules for determining gain where securities are exchanged in a corporate reorganization with other rules allocating amounts in a debt instrument between principal and interest.

Title V: Estate and Gift Tax Provisions - Allows the right of recovery with respect to qualified terminable interest property (for which a marital deduction is allowed) to be waived in a will only by specific reference.

Provides that a transfer from a revocable trust within three years of death does not result in the inclusion of the transfer in the gross estate.

Revises the qualified terminable interest rules with respect to a trust and the marital deduction.

Provides that a trust created before the enactment of the Revenue Reconciliation Act of 1990 is treated as satisfying the withholding requirement if its trust instrument require that all trustees be U.S. citizens or domestic corporations.

Directs the Secretary to prescribe procedures which provide that executors will have the opportunity to submit subsequent information on a recapture agreement in the filing of an estate tax return.

Title VI: Excise Tax Simplification - Subtitle A: Fuel Tax Provisions - Consolidates diesel and aviation fuel tax provisions. Consolidates the user credit and refund provisions for the fuels excise taxes. Combines the three refund procedures for fuels taxes into a uniform refund procedure. Eliminates the waiver requirement for fuels tax refunds for cropdusters and other fertilizer applicators.

Provides exceptions to the mandatory information return requirement for certain sales of diesel and aviation fuels.

Subtitle B: Provisions Related to Distilled Spirits, Wines, and Beer - Makes refunds available for imported bottled distilled spirits returned to distilled spirits plants.

Permits records of exportation to be maintained by the exporter for purposes of canceling or crediting bonds furnished when distilled spirits are removed from bonded premises.

Permits distilled spirits plants to maintain records of their activities at locations other than the premises where the operations covered by the records are performed.

Allows beer to be transferred without payment of tax from a brewery to a distilled spirits plant to be used in the production of distilled spirits regardless of whether the brewery is contiguous to the distilled spirits plant.

Repeals the requirement that wholesale liquor dealers post a sign outside their place of business indicating that they are wholesale liquor dealers.

Repeals the requirement that wine returned to bonded premises be unmerchantable in order for tax to be refunded to the proprietor of the bonded wine cellar to which the wine is delivered.

Allows the use of ameliorating material in certain wines made exclusively from a fruit or berry.

Allows domestically-produced beer to be withdrawn from the place of production without payment of tax for the official or family use of representatives of foreign governments or public international organizations.

Allows beer to be removed from a brewery without payment of tax for purposes of destruction.

Allows drawback on exported beer without submission of records.

Provides for imported beer to be withdrawn from customs custody for transfer to a brewery without payment of tax.

Subtitle C: Other Excise Tax Provisions - Authorizes the exemption from registration requirements of certain tax-free sales. Repeals expired provisions concerning piggy-back trailers and deep seabed mining.

Title VII: Administrative Provisions - Subtitle A: General Provisions - Changes the threshold for withholding and paying social security taxes from $50 a quarter to $300 a year for domestic service in a private home. Requires employers of household employees to report any social security or Federal unemployment tax obligation for wages paid to such employees on their income tax returns. Includes a household employer's social security and employment taxes in the estimated tax provisions. Authorizes the Secretary of the Treasury to enter into agreements with States to collect State unemployment taxes in the same manner.

Incorporates into the general penalty structure the penalties for failure to provide information reports relating to pension payments.

Allows reproductions of returns in digital image format by the Internal Revenue Service.

Requires the Comptroller General of the United States to conduct a study of available digital image technology and report to specified congressional committees.

Repeals: (1) the requirement to register tax shelters; (2) the authority to disclose whether a prospective juror has been audited; and (3) special audit provisions regarding the tax treatment of subchapter S corporations.

Provides an explanation of the statute of limitations with respect to the return of a taxpayer.

Subtitle B: Tax Court Procedures - Provides that an order to refund an overpayment is appealable in the same manner as a decision of the Tax Court. Declares that the Tax Court shall not have jurisdiction over the validity or merits of the credits or offsets that reduce or eliminate the refund to which the taxpayer was otherwise entitled.

Provides that a taxpayer who seeks an award of administrative costs must apply for such costs within 90 days of the date on which the taxpayer was determined to be a prevailing party. Provides that a taxpayer who appeals a denial of administrative costs must petition the Tax Court within 90 days after the date that the IRS mails the denial notice.

Provides that a taxpayer must file a motion (rather than a petition) to seek a redetermination of interest in the Tax Court.

Provides that the net worth limitations applicable to individuals also apply to estates and trusts. Provides that individuals who file a joint tax return shall be treated as one individual for purposes of computing the net worth limitations.

Subtitle C: Authority for Certain Cooperative Agreements - Authorizes the Secretary to enter into cooperative agreements with State tax authorities for purposes of enhancing joint tax administration.