INSTALLMENT TAX CORRECTION ACT OF 2000
(House of Representatives - December 15, 2000)

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[Pages H12097-H12100]
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                 INSTALLMENT TAX CORRECTION ACT OF 2000

  Mr. ARCHER. Mr. Speaker, I move to suspend the rules and pass the 
bill
(H.R. 3594) to repeal the modification of the installment method.
  The Clerk read as follows:

                               H.R. 3594

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Installment Tax Correction 
     Act of 2000''.

     SEC. 2. REPEAL OF MODIFICATION OF INSTALLMENT METHOD.

       (a) In General.--Subsection (a) of section 536 of the 
     Ticket to Work and Work Incentives Improvement Act of 1999 
     (relating to modification of installment method and repeal of 
     installment method for accrual method taxpayers) is repealed 
     effective with respect to sales and other dispositions 
     occurring on or after the date of the enactment of such Act.
       (b) Applicability.--The Internal Revenue Code of 1986 shall 
     be applied and administered as if that subsection (and the 
     amendments made by that subsection) had not been enacted.

  The SPEAKER pro tempore (Mr. Pease). Pursuant to the rule, the 
gentleman from Texas (Mr. Archer) and the gentleman from Wisconsin (Mr. 
Kleczka) each will control 20 minutes.
  The Chair recognizes the gentleman from Texas (Mr. Archer).


                             General Leave

  Mr. ARCHER. Mr. Speaker, I ask unanimous consent that all Members may 
have 5 legislative days within which to revise and extend their remarks 
and to include extraneous material on H.R. 3594.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Texas?
  There was no objection.
  Mr. ARCHER. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, while the nature of this bill is complex, the purpose is 
quite simple; and that purpose is to protect as many as 260,000 small 
businesses from a harmful tax provision. More important, it should 
serve as a lesson to all politicians who talk about closing loopholes.
  This was presented originally in President Clinton's fiscal year 2000 
budget and included in the 1990 Tax Extenders package at the insistence 
of the White House and it outlawed the use of the installment sales 
method byN O T I C E

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[[Page H12098]]

taxpayers using the accrual method of accounting.
  The accrual method of accounting generally requires that taxpayers 
recognize income in the year in which the right to receive the income 
occurs regardless of whether the taxpayer actually receives the cash in 
that year.
  The installment method of accounting allows a taxpayer to defer 
recognition of income until the taxpayer actually receives the payment, 
and that is appropriate.
  During the negotiations in the 1999 tax package, we were told this 
provision was a ``loophole closer,'' that it was noncontroversial, and 
that no one would be heard. Months after the bill became law, however, 
we learned from the small business community that this harmless 
loophole closure would, in fact, hurt and hurt significantly. So now 
there is strong bipartisan support to undo this mistake and to go back 
to the way things were before this tax change was made. But this should 
serve as a lesson to all of us, not just today but in future 
Congresses. ``Closing loopholes'' always is a good sound bite for 
politicians. Whereas the real-life result is usually a bigger tax bite 
on American workers or businesses.
  Today we will right the wrong and provide a little more peace of mind 
to thousands of small business owners across the country.
  I urge my colleagues to support this important and time sensitive 
legislation.
  Mr. Speaker, I reserve the balance of my time.
  Mr. KLECZKA. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I rise today in support of the Installment Tax 
Correction bill.
  As the author of the first bill introduced in the House of 
Representatives to reinstate the installment method of accounting for 
accrual basis taxpayers, I commend the gentleman from Texas (Mr. 
Archer) for his efforts on this issue.
  Mr. Speaker, this legislation is needed to correct a flaw in the 
Ticket to Work and Work Incentives Improvement Act, which was passed by 
Congress last year.
  Although the Ticket to Work bill contained many important provisions, 
it repealed the installment method of accounting for most accrual basis 
taxpayers. The bill before us is necessary to fix this repeal.
  The installment sales method is frequently used in the sale and 
purchase of a small business where bank financing is unavailable. Under 
the Ticket to Work Act, small business owners selling a business using 
the installment sales are required to pay all capital gains taxes on 
the sale of a business all at once even if the proceeds are to be 
received in installments over the years.
  As a result, some small businesses now face lump sum income tax 
payments that are more than the immediate proceeds of the actual sale. 
In other words, taxpayers have had to pay taxes on money they will not 
receive for many years in the future or, in some cases, money that they 
will never receive due to the buyer defaulting on future payments.
  The intention behind repealing the installment method of accounting 
was to crack down on large corporations deferring taxes for extended 
periods of time. Instead of simply addressing a tax avoidance scheme, 
the Ticket to Work bill also eliminated a perfectly legitimate method 
of financing sales transactions for small business owners. Clearly, 
Congress did not consider the full ramifications of this change in the 
law.
  It is estimated that more than 250,000 small businesses may have 
already been adversely affected by this repeal. Many small business 
sales that were not finalized when the Ticket to Work bill was enacted 
on December 17, 1999, have fallen apart and countless others have never 
occurred before because of the repeal contained in the Ticket to Work 
bill.
  Furthermore, those business owners who are looking to purchase 
additional assets in order to expand their operations will now find it 
more difficult to find a potential seller. As a result, the value of 
some small businesses may have been reduced by as much as 20 percent.
  Mr. Speaker, I believe the broad partisan interest that this bill has 
attracted underscores the importance of passing this legislation to 
reinstall and to reinstate the installment method of sales.
  Mr. Speaker, I guess we can deal in a blame game this morning, but I 
should point out to the Members that in both Republican tax bills, the 
massive tax bills that were introduced in the House, both of those 
bills contained this repeal also. So while some may take to the floor 
to blame the administration, know full well that the blame should be 
equally spread on all of us. However, the important thing is that the 
Congress will correct this inequity today.
  I urge my colleagues to vote yes on H.R. 3594.
  Mr. Speaker, I reserve the balance of my time.
  Mr. ARCHER. Mr. Speaker, I yield such time as he may consume to the 
gentleman from California (Mr. Herger) a highly respected member of the 
Committee on Ways and Means who has spent such terrific effort in 
bringing this issue to fruition on the floor today.
  Mr. HERGER. Mr. Speaker, I say to the chairman, as this is the last 
bill that will be considered by the House under his chairmanship, I 
want to thank him for helping to bring this important legislation to 
the floor and for all he has done to improve the Tax Code and make it 
fairer for all Americans. Our Nation owes him a great debt of 
gratitude.
  Mr. Speaker, earlier this year I was pleased to join with my 
colleagues from both sides of the aisle to introduce the legislation 
before us today, the Installment Tax Correction Act. This bill corrects 
a change in tax law which has had serious, unanticipated consequences 
for small business owners.
  Last year, Congress passed and the President signed a change in law 
to disallow the installment method by accrual basis taxpayers. An 
unexpected result of this new law has been to erect a serious barrier 
to small business ownership. Many small business sales across the 
country have been canceled, while others have simply been put on hold 
while waiting for Congress to act. Additionally, the value of some 
businesses has been reduced by as much as 10 or 20 percent. And perhaps 
most urgently, business owners who have sold their business under the 
new tax law now face a large unexpected tax burden.
  The time has come to correct this situation. This legislation, which 
is retroactive to the time of the tax change last December, will ensure 
that small business owners who find themselves facing a large tax 
burden as a result of an installment sale will receive tax relief 
before having to file their tax returns next year.
  This much needed measure will make certain that elderly small 
business owners waiting to finance their retirement through the sale of 
their business would not have to wait any longer.
  Mr. Speaker, most small business owners have chosen to use the 
installment sales method when selling their business because bank 
financing is often unavailable. Under an installment sale, the buyer 
makes a down payment up front and pays for the rest of the business 
over a period of years. Such sales grant greater flexibility to both 
the buyer and seller and have enabled thousands of Americans who would 
otherwise be unable to buy a business the opportunity to make their 
dream of small business ownership a reality.
  This chart clearly demonstrates the impact the new tax treatment is 
having on small business sales. Imagine a small business being sold for 
$100,000 with the buyer paying $10,000 each year over 10 years. Under 
the old rule, the seller would pay tax on the gain from the sale as he 
received the payments. In other words, he would be taxed on $10,000 
each year. However, under the new rule, the seller is taxed on the 
entire $100,000 up front even though he has only received the initial 
$10,000 payment.
  We believe it is simply unfair to ask small business owners to pay 
tax on money they have not yet received. Our legislation will fix this 
problem by once again allowing business owners to pay the tax as they 
receive the payments. And because our legislation is retroactive to the 
time of the tax change last December, small business owners who have 
completed installment sale this year would no longer face an unexpected 
tax burden.

[[Page H12099]]

  Mr. Speaker, this is a serious problem. The National Federation of 
Independent Business estimates that as much as 200,000 small business 
sales each year could be adversely affected if we do not act. I believe 
we owe it to small businessmen and businesswomen to have a Tax Code 
which treats them fairly, and I look forward to our approval today of 
this very worthy legislation, thus ensuring that small business remains 
a path to prosperity for millions of Americans.

                              {time}  1015

  Mr. KLECZKA. Mr. Speaker, I yield 3 minutes to the gentleman from 
Maryland (Mr. Cardin), a member of the Committee on Ways and Means.
  Mr. CARDIN. Mr. Speaker, let me thank the gentleman from Wisconsin 
(Mr. Kleczka) for his leadership on this issue, for yielding me this 
time and in helping us make sure that we get this change indeed enacted 
before the Congress adjourns for this session.
  Mr. Speaker, this is an example of unintended consequence of 
legislation that was previously passed by this body and was enacted 
into law. Sometimes we look to try to get revenue raisers attached to 
bills in order to pay for them and we do not really realize the 
consequences of that action. This is an example of that. The changes 
that we made to the Installment Sales Act of 1999 will have and has had 
adverse consequence on small businesses in our country.
  Let me try to explain why. The reason why we put the installment 
sales provisions in the Tax Code was very logical. If you sell a 
business and you get part of the proceeds and you get the proceeds over 
a number of years, it is almost impossible for the person who sells the 
business to be able to pay all the taxes up front. If you do that, you 
do not have enough cash to pay all the taxes up front. That is the 
reason why we developed the installment sales provisions within our tax 
code. What we did in 1999 for many of the installment sales is require 
the business owner who sold the business to pay 100 percent of the 
taxes up front. That did not make any sense. I do not think we really 
intended that to be the consequence because we were dealing with the 
differences between accrual accounting and cash accounting, not 
realizing the fact that we have mandated that most small businesses 
must use accrual accounting procedures.
  Therefore, on one section of the code, we require them to use an 
accounting method that would require them to pay 100 percent of the 
taxes up front. This legislation corrects it. I applaud my colleagues 
on both sides of the aisle for bringing it forward. It makes sense. It 
will help small businesses in our country. It is the right tax policy.
  Mr. Speaker, I am disappointed that we are not going to have a more 
comprehensive tax bill this year, because I think there are many 
provisions that Republicans and Democrats have worked out and we had 
hoped to have had a broader bill. But I applaud the gentleman from 
Texas (Mr. Archer) for at least making it possible to correct this 
mistake this year to get it enacted. It is the right thing to do. I 
fully support it. I hope that we will pass it with broad support on 
both sides of the aisle.
  Mr. ARCHER. Mr. Speaker, I yield myself such time as I may consume to 
thank my friend from Maryland for all of his contributions in the years 
that I have been chairman of the Committee on Ways and Means and also 
to thank the gentleman from Wisconsin (Mr. Kleczka) for his independent 
thinking and the contributions that he has made to the committee.
  I would say to my friend from Maryland that I am also saddened that 
we did not get the pension reform bill passed. We had over 400 votes 
here on the floor of the House in support of it. He, along with the 
gentleman from Ohio (Mr. Portman), did tremendous work in putting that 
package together. It would benefit all working Americans with greater 
retirement security opportunities.
  But it will come another day. It will come, I am sure, in the next 
Congress; and all of the work that our committee has put into it and 
the gentleman from Maryland along with the gentleman from Ohio (Mr. 
Portman) has put into it will not be lost.
  I think we finish this year on a very positive note. This bill is a 
bill that can be supported by all of us. The tax provisions that will 
go in the ultimate package that we will vote on later today are 
provisions that I believe all of us should be able to support. I am 
pleased that we finish this Congress on this high level of harmony. I 
hope that it can extend into the next Congress.
  Mr. Speaker, I urge full support of this bill.
  Mr. Speaker, I reserve the balance of my time.
  Mr. KLECZKA. Mr. Speaker, I yield 3 minutes to the gentleman from 
Tennessee (Mr. Tanner).
  Mr. TANNER. Mr. Speaker, I am afraid we are getting into the area of 
everything having been said about this bill but not everybody having 
said it. Nonetheless I think it is important to reflect and realize 
that this action that was taken last year by the House was done at the 
end of the session, with a lot of unfinished work poured into one huge 
package, and I am afraid we are going to do that again today. It was 
thought to end abusive practices within the code as it relates to 
businesses with accrual accounting and installment sales and to 
actually pay for the ticket to work which was a smaller part of a 
broader welfare reform bill, that this was a desirable change in the 
code. After it was discovered by almost everyone connected with it, it 
was quickly realized that this covered far more than those abusive 
practices that were being closed to pay for the ticket to work, and so 
the gentleman from California (Mr. Herger) and others, myself and 
others, put a bill in, H.R. 3594, some time ago. I am glad we are 
getting this done.
  This is truly, I think by anyone's definition, the law of unintended 
consequences at work. It demands that one who has an accrual basis of 
accounting in one's business when one sells it to report all of the 
income at the time of the sale when one has, as Members know under 
accrual accounting, a right to the income.
  This makes no sense, as the gentleman from Maryland (Mr. Cardin) 
said; and so we changed it back to the way it was and the way that is 
sensible, sane, and reasonable. And so what we will do is by this 
change assure every small business owner, every small business 
prospective buyer that on the installment sales contract method of 
transaction, one may count on not having a tax liability until the 
money is actually realized.
  I want to thank the gentleman from Texas (Mr. Archer) for working 
with us on this this year and also the gentleman from New York (Mr. 
Rangel) and the gentleman from Wisconsin (Mr. Kleczka), who is the 
ranking member of the subcommittee. I think this is a good thing we do 
to straighten out an obvious error that was made last year in the haste 
of closing up shop for the year. I hope we do not have to do this again 
next year.
  Mr. KLECZKA. Mr. Speaker, I yield myself such time as I may consume.
  What I would like to indicate at this point is that this is the last 
tax bill that will be managed by the able chairman of the Committee on 
Ways and Means, the gentleman from Texas (Mr. Archer). I know this is 
not the tax bill he really wanted to bring to the floor to manage for 
his last bill but nevertheless that was not to be this session.
  But I would want to tell the gentleman and the Members who are 
listening that the gentleman will be missed. He was a real gentleman on 
the committee. I really appreciated the opportunity to work with him. 
What was especially heartening was his knowledge of the Tax Code and 
the fairness with which he treated all members of the committee, both 
Democrat and Republican. He is moving on to a much deserved retirement.
  However, with the new administration taking over, there are some of 
us who would like to put together a letter to recommend to President-
elect Bush that he look very seriously upon him as the new Secretary of 
the Treasury. So if he gives me a wink and a nod, I am sure we can put 
something together on that score.
  However, if that is not to be, I personally wish him the very, very 
best. He is going to be missed sorely in the House.
  Mr. BOEHNER. Mr. Speaker, will the gentleman yield?
  Mr. KLECZKA. I yield to the gentleman from Ohio.
  Mr. BOEHNER. I thank the gentleman from Wisconsin for yielding and

[[Page H12100]]

thank all the members of the Committee on Ways and Means, especially 
the chairman, for moving this piece of legislation. This was, in fact, 
an oversight that was affecting thousands of businesses if not more 
across the country. I know a number of people in my district, small-
business people, have asked to have this corrected. I am glad that we 
are, in fact, doing it.
  Let me add to the chorus of remarks to my good friend the gentleman 
from Texas (Mr. Archer). The gentleman from Texas and I have worked 
very closely together during the years that I served in the Republican 
leadership and as the gentleman from Texas was the chairman of the 
Committee on Ways and Means. I do not think one could find a more 
dedicated public servant, someone who believed in reforming the Tax 
Code and worked hard on behalf of not only his constituents but 
taxpayers all across the country. After 30 years in the Congress, he 
deserves a little rest. He has been a pleasure to work with and I think 
a model Member of this body. I wish him well in his retirement.
  Mr. BEREUTER. Mr. Speaker, this Member wishes today to express his 
support for H.R. 3594, the Installment Tax Correction Act of 2000, of 
which this Member is a cosponsor. This bill, which is being considered 
under suspension of the rules, will have a positive effect on small 
businesses nationwide.
  At the outset, this Member would like to thank both the distinguished 
gentleman from California [Mr. Herger] for introducing this legislation 
and the distinguished Chairman of the House Ways and Means Committee 
from Texas [Mr. Archer] for his efforts in bringing this measure to the 
House Floor.
  This legislation, H.R. 3594, eliminates the provision of the tax code 
which repealed the use of the installment method of accounting for 
accrual method taxpayers. This bill is necessary because of a provision 
in the Ticket to Work and Work Incentives Improvement Act (P.L. 106-
170), which was signed into law in 1999. Unfortunately, this Act 
included a prohibition on the use of the installment method by accrual 
method taxpayers. As a result of this provision, these type of 
taxpayers are currently required to pay tax on all capital gains in the 
first year of an installment sale, regardless of when cash payment is 
received.
  This provision is particularly onerous for small businesses. For 
example, installment sales methods are common for situations where the 
seller continues to stay involved in the transferred small business or 
when a family business transfers from one generation to the next. 
Furthermore, this Member has been told that neither the Administration 
nor the Ways and Means Committee anticipated nor understood the effect 
the inclusion of this prohibition in the Ticket to Work and Work 
Incentives Improvement Act would have on small businesses. Fortunately, 
H.R. 3594 remedies this by situation by repealing the prohibition on 
using the installment method of accounting for accrual method 
taxpayers.
  Therefore, for these reasons, this Member urges his colleagues to 
support H.R. 3594, the Installment Tax Correction Act of 2000. Thank 
you.
  Mr. UDALL of Colorado. Mr. Speaker, as a cosponsor of H.R. 3594, I 
rise in strong support of the bill. I am very glad that it is being 
considered today rather than being left to languish until the new 
Congress convenes next month.
  The bill would repeal a change in the tax law that was part of the 
``Ticket to Work'' bill enacted last year.
  It evidently was included as a way to help offset the costs of that 
bill by increasing tax receipts. However, I do not think that it was 
necessary or appropriate.
  The 1999 change prohibited use of the ``installment method'' for 
calculating taxes on certain asset sales where the seller is paid over 
time rather than all at once. The effect of this is to make it much 
harder for small-business owners to sell their businesses or to 
seriously reduce the amount they can receive if they do sell. I have 
heard from many people in Colorado who have been and remain concerned 
about this aspect of the changes made in 1999.
  H.R. 3594 would repeal that, restoring the ability of sellers to 
spread their receipts--and taxes--over several years. I think that is a 
good idea, which is why I joined as a cosponsor.
  I urge the House to approve the bill.
  Mr. KLECZKA. Mr. Speaker, I yield back the balance of my time.
  Mr. ARCHER. Mr. Speaker, I have no further requests for time, and I 
yield back the balance of my time.
  The SPEAKER pro tempore (Mr. Pease). The question is on the motion 
offered by the gentleman from Texas (Mr. Archer) that the House suspend 
the rules and pass the bill, H.R. 3594.
  The question was taken; and (two-thirds having voted in favor 
thereof) the rules were suspended and the bill was passed.
  A motion to reconsider was laid on the table.

                          ____________________