Summary: S.722 — 104th Congress (1995-1996)All Information (Except Text)

There is one summary for S.722. Bill summaries are authored by CRS.

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Introduced in Senate (04/25/1995)


Title I: Findings; Need to Replace the Income Tax

Title II: USA Tax for Individuals

Title III: New Business Tax

Title IV: Deferred Compensation Plans

Title V: Technical and Administrative Changes

USA Tax Act of 1995 - Title I: Findings; Need to Replace the Income Tax - States the findings of the Congress regarding the replacement of the current income tax with a new USA Tax and outlines features of the new system.

Title II: USA Tax for Individuals - Amends the Internal Revenue Code to replace the current individual income tax with a new USA Income Tax. Imposes the tax only upon individuals who are U.S. citizens or resident aliens.

Excludes from gross income the following: (1) returns or benefits from certain previously taxed income, including social security benefits and insurance (including health plan) amounts; (2) compensation for certain kinds of service, including as a minister, a member of the military, or a foster care provider; (3) certain gratuitous, charitable, and governmental transfers, including public assistance program benefits; (4) state and local bond interest; (5) injury and sickness compensation; (6) certain fringe benefits and other benefits furnished primarily for the convenience of an employer; (7) borrowing proceeds and other receipts the taxpayer is legally obligated to return; (8) certain income and housing costs of citizens and residents abroad; (9) discharges of indebtedness; (10) rollovers of savings on which tax is deferred under this Act and of gain from principal residence sales; (11) certain amounts paid by an employer as savings on behalf of an employee; (12) a business entity's receipts that are taxable under the business tax provisions; and (13) casualty and property insurance proceeds.

Reduces gross income by the amount deducted for alimony, child support, and separate maintenance payments and by the Unlimited Savings Allowance established by this Act (Allowance).

Allows deductions of the following in computing taxable income: (1) personal and dependency exemptions; (2) a sum known as the Family Living Allowance, to be adjusted for inflation beginning in 1997; (3) interest paid on indebtedness to acquire a principal residence; (4) qualified educational expenses; (5) philanthropic transfers (charitable contributions); and (6) a transition basis amount, calculated using the savings assets that determine the Unlimited Savings Allowance.

Sets forth tax rate schedules for married individuals filing joint returns and surviving spouses, heads of households, unmarried individuals, and married individuals filing separate returns. Prescribes rules for the tax treatment of unearned income of a child under the age of 14.

Allows the following credits against income tax: (1) the foreign tax credit, with respect only to foreign taxes on amounts included in gross income; (2) a payroll tax credit equal to the sum of the employee's share of basic social security taxes, the Tier 1 railroad retirement tax, and one-half of the social security taxes imposed on self-employment income; (3) an earned income tax credit; and (4) a taxes-paid credit equal to the sum of withholding tax amounts, special refunds of social security taxes, overpayments of prior-year tax obligations applied to the current tax year, and estimated tax payments.

Establishes a tax-deferred Unlimited Savings Allowance, comprised of deductible additions to savings (including payments of life insurance premiums and retirement account contributions). Prescribes rules for the treatment of deferred income withdrawn from savings, borrowing, and qualification of additions to the Allowance. Grants each taxpayer a general basis account into which may be withdrawn amounts saved that had been includible in income before the Allowance was made applicable or because the savings were considered nondeductible for certain reasons.

Defines the basis of property sold or exchanged and nonrecognition transactions, including sale of a principal residence and involuntary conversions.

Excludes from the Allowance contributions to a business entity (business) of personal-use property. Taxes a withdrawal of such property from business use only to the extent of the value of changes or repairs made by the business entity.

Treats the rental of real estate (except for property rented not more than 14 days during the taxable year) as a business activity to which the business tax applies and ineligible for deductions other than those owing to savings additions.

Excludes from the Allowance contributions to a hobby activity.

Provides a rule for the tax treatment of ownership interests in land companies.

Makes the taxable year for all individuals, except in cases of birth or death during the year, the calendar year.

Requires use of the cash receipts and disbursements method of accounting by all individual taxpayers.

Imposes the greater of the following on nonresident aliens: (1) a tax on the nonbusiness income (with exceptions) and capital gains of such aliens; or (2) an alternate tax without exceptions (based on the rate of tax on unmarried individuals) if the alien lost U.S. citizenship within the ten previous years, unless the loss of citizenship was not principally to avoid the income or estate and gift taxes. Provides rules for treatment of community income. States the intention of the Internal Revenue Code (renamed the USA Tax Code by this Act) to promote a worldwide system in which each nation taxes under an individual tax and a business tax, respectively, only the income of individuals who are residents or citizens and only the business activity in such nation. Gives effect to exemptions of nonresident aliens from tax under treaty with the United States and provides reciprocity when a nation with a tax information sharing agreement with the United States exempts a U.S. resident or citizen from its income and withholding taxes.

Provides rules for the tax treatment of contributions to and distributions from trusts and estates.

Title III: New Business Tax - Replaces the current corporate income tax with a new tax on corporations and businesses. Imposes a business tax on the sale of goods and services in the United States equal to 11 percent of the gross profits of the business entity less a payroll tax credit (a credit for the social security, railroad retirement, and hospital insurance taxes paid by an employer. Defines gross profits as the excess of the business entity's taxable receipts over its deductible amounts. Excludes from taxable receipts, for purposes of calculating gross profits, certain receipts resulting from investments and financial transactions.

Makes the following amounts deductible: (1) the cost of business purchases, consisting of amounts expended, including specified production and consumption taxes, for acquisition of property (or its use) and services; (2) a loss carryover for the taxable year; and (3) the sum of allowances for amortization of bases of depreciable property determined ratably beginning January 1, 1996 (the "transition basis deduction").

Provides rules for the treatment of: (1) capital contributions to a business entity by an individual or another business which becomes a partial or full owner; (2) distributions of property by a business to its owners, to a controlling business, or to an individual who contributed personal use property; and (3) consideration received for asset transfers by a business. Treats consideration allocable to savings assets as generally not included in the transferor's taxable receipts and not a business purchase of the purchaser. Allows an election to treat a substantial sale of a business's assets as if it were a stock acquisition having no direct consequences under the business tax. Treats mergers of one business into another or two into a third business or spinoffs, splitoffs, or split-ups or similar transactions as also having no direct business tax consequences.

Requires all businesses to use an accrual method of accounting, except that a business that was permitted to use the cash receipts and disbursements method under the Internal Revenue Code and one which has the permission of the Secretary of the Treasury to use such method shall be permitted to do so. Sets forth accounting rules for: (1) determination of taxable year; (2) long-term contract expenses and receipts; and (3) treatment of post-sale price adjustments and refunds and bad debts.

Disallows as a business purchase (and thus makes nondeductible) acquisition of unimproved land if the land is not acquired for use in a business activity or is acquired for speculation, development, temporary leasing or other use not commensurate with the land's value, indefinite future business use, or use in compensating employees. Makes the cost of land not used in business its tax basis.

Includes as business purchases (thereby making deductible) fees paid for financial intermediation services (including lending, insurance, market making, and other services in which a person acts as an intermediary in property or financial transfers or risk pooling and derives gross receipts from financial flows associated with such transfers) but not costs of financial instruments. Prescribes rules for the treatment and allocation of "implicit" fees for such services.

Makes deductible the cost of insurance premiums on business loss policies and includes proceeds from such insurance as taxable receipts.

Provides for the taxation of a financial intermediation business by substituting financial receipts (all receipts other than amounts received as contributions to capital) for taxable receipts and including financial expenses as business purchases in the calculation of gross profits. Defines receipts and expenses for such purpose differently in the case of banks, insurance companies, and financial pass-thru entities.

Provides rules for the treatment of tax-exempt organizations, including governmental entities, and imposition of the tax on unrelated business activity.

Provides rules for the treatment of patronage dividends of supply and marketing cooperatives.

Provides rules for determining the source of business income, including that: (1) amounts received for exports of property or services for use or consumption outside the United States shall be excluded from a business's taxable receipts; (2) imports of property or services for use in the United States in a business activity (including sale or retail) shall be treated as a business purchase; (3) communications services shall be treated as provided at the point of origin and not as imported or exported; and (4) insurance services shall be treated as provided at the location of the insurance company when both the services are provided and the risk is located in the United States. Makes payment of any import tax nondeductible. Provides rules for the treatment of receipts from the international transportation of property and passengers. Requires the Secretary to prescribe regulations regarding the location and source of banking services.

Treats U.S. possessions as not part of the United States for purposes of the business tax. Prohibits the claiming of a payroll tax credit for payroll taxes paid with respect to income of residents of U.S. possessions.

Allows business entities a payroll tax credit equal to the sum of the employer's share of old-age, survivors and disability insurance and hospital insurance and railroad retirement taxes and one-half of the allocable portion of the self-employment tax. Provides rules for the crediting of tax on the income of partnerships and proprietorships and a 15-year carryover of the payroll credit.

Imposes a tax on all property entered into the United States for consumption (except property granted a personal exemption under the Harmonized Tariff Schedule of the United States) and all services treated as imported.

Applies C corporation rules on tax administration to business entities until the Internal Revenue Code procedural and administrative provisions are amended to reflect this Act. Permits individuals engaged in business activities on their own or with their spouses, under rules prescribed by the Secretary, to file business tax returns with their individual returns and subjects such taxpayers to the estimated tax rules for individual returns. Provides rules for the filing of consolidated returns by business entities and financial intermediation businesses. Repeals Internal Revenue Code consolidated return provisions.

Title IV: Deferred Compensation Plans - Redesignates Code provisions regarding deferred compensation plans, stating that: (1) they are included in the income tax provisions primarily for purposes of cross reference and determining the exemption of plans from the business tax; and (2) none of the deferred compensation provisions operates to create an individual or business income tax deduction or credit or disqualify an addition to savings under this Act.

Title V: Technical and Administrative Changes - Redesignates the Internal Revenue Code as the USA Tax Code. States a rule for the general application of the procedural and administrative provisions of the Internal Revenue Code to the USA Income Tax and the business tax until such provisions are amended to reflect this Act.