Technical Corrections to Tax Reform Act of 1986
Makes a technical adjustment to an assessment rule applicable when the owner of a large amount of cash is not identified.
Revises the rate of the accumulated earnings tax on corporations from a variable rate based on income below and in excess of $100,000 to a flat 28 percent of accumulated taxable income.
Makes a technical amendment relating to the exemption of certain individuals from the requirement to file an income tax return.
States that reimbursement by a third party (rather than by an employer) shall not affect the permissibility of the tax deduction for reimbursed employee expenses.
Revises the definition of "exempt function" in the context of taxation of political organizations.
Amends Internal Revenue Code (IRC) and Social Security Act provisions relating to nonresident aliens temporarily in the United States for the purpose of studying at vocational or other recognized nonacademic institutions.
Deletes provisions describing the treatment of Social Security benefits for purposes of defining earned income.
Amends provisions relating to the two percent floor on miscellaneous itemized deductions to:
(1) add provisions concerning the coordination of such limitation with the limitation on the tax deduction for trade and business expenses; and
(2) revise the determination of adjusted gross income of estates and trusts with respect to such limitation.
Adds provisions relating to the deductibility of meal and entertainment expenses incurred during a move reimbursed by an employer.
Limits the tax deduction of expenses in connection with portions of dwelling units allocated to business uses.
Amends provisions governing the computation of the earnings and profits of certain foreign corporations for purposes of determining the effect of depreciation on such earnings and profits.
Amends the IRC with regard to the application of the accelerated cost recovery system (ACRS) in cases of:
(1) certain property placed in service in churning transactions;
(2) certain transfers; and
(3) certain property subject to U.S. tax and used by a foreign person or entity.
Permits greater taxpayer discretion in using the 150 percent declining balance method of depreciation for ACRS purposes and specifies the applicable recovery period to be used in such cases.
Terminates special rules for the tax treatment of sound recordings for property placed in service after 1985.
Makes other technical amendments and corrections relating to provisions:
(1) modifying the ACRS; and
(2) limiting expensing of depreciable assets.
Revises Tax Reform Act (TRA) provisions that specify effective dates of new law.
Makes technical amendments and corrections to a number of transitional rules provided in the TRA with respect to urban renovation projects.
Makes technical amendments and corrections to the Tax Reform Acts of both 1986 and 1984 concerning property treated under prior tax Acts. Adds a number of projects to those covered under special transitional rules.
Amends the TRA concerning the applicability of modifications of the ACRS to a number of specific properties.
Makes technical amendments and corrections to IRC and TRA provisions relating to transition property with respect to the former regular investment tax credit.
(1) an exception to the application of certain adjustment rules relating to such credit; and
(2) a number of properties to be considered as transition property.
Makes technical revisions of the ordering rules in connection with components of the investment credit and certain credits no longer extant for purposes of the general business credit.
Makes technical amendments to TRA provisions relating to the effective 15-year carryback of existing carryforwards of steel companies.
Establishes rule criteria to apply to overpayments under this section.
Amends the IRC with respect to the income tax research credit.
Amends the IRC to disallow use of any depreciation deduction with respect to:
(1) any trademark or trade name expenditure; or
(2) any railroad grading or tunnel bore.
Makes technical amendments and corrections to TRA provisions relating to the modification of the investment tax credit for certain rehabilitation expenditures.
Makes technical amendments to the IRC with respect to the low-income housing credit, including:
(1) amendments of special rules for nontaxable transfers;
(2) the addition of an exception to rules governing basis reduction for certain residential rental units;
(3) the exclusion from the eligible basis of a building of amounts deducted for depreciation;
(4) the addition of provisions applicable to rent-restricted units in cases when Federal rental assistance is reduced as a tenant's income increases;
(5) provisions relating to limitations on the aggregate credit allowable with respect to projects located in a State;
(6) a prohibition of any carryback of the credit before 1987; and
(7) a revision of the definition of "qualified low-income housing project" to include, under certain circumstances, residential rental property having units occupied by persons making de minimis equity contributions.
Corrects a reference in the Merchant Marine Act, 1936.
Makes technical amendments and corrections to IRC and TRA provisions relating to capital gains.
(1) the description of taxable income from foreign sources for capital gains purposes;
(2) the definition of a "capital gains rate differential" and its applicability to the calculation of the bad debt reserves of certain financial institutions;
(3) a special rule relating to the withholding of tax on dispositions of U.S. real property interests by domestic partnerships, trusts, or estates; and
(4) provisions dealing with incentive stock options.
Makes technical amendments to the TRA and the IRC to revise and limit the tax exclusion for the discharge of qualified farm indebtedness and to provide for its coordination with other tax exclusions.
Makes a technical amendment relating to the taxation of capital gains from dispositions of interests in oil, gas, geothermal, or other mineral properties.
Makes technical amendments and corrections to the IRC and the TRA with respect to tax shelter and interest limitations, revising provisions relating to:
(1) methods of accounting, including revisions of the phase-in of the disallowance of passive activity losses or credits held before the date of enactment of the Tax Reform Act of 1986 (October 22, 1986);
(2) the definition of a "qualified investor" for purposes of the transitional rule for interests in low-income housing projects;
(3) the phase-in of the limitation on investment interest; and
(4) determinations of indebtedness for purposes of the personal interest disallowance, including provisions related to qualified residence interest.
Makes technical amendments and corrections to TRA and IRC corporate tax provisions.
Revises the percentage to be used in computing the deduction for dividends received from certain foreign sales corporations.
Includes amendments relating to:
(1) the reduction of corporate shareholders' basis in stock by the nontaxed portion of extraordinary dividends;
(2) the limitation on net operating loss carryforwards and certain built-in losses following a change in corporate ownership, including provisions relating to built-in gains and gains attributable to stock acquisitions (section 338 gains), rules relating to constructive stock ownership, and provisions applicable when the old loss corporation is in a title 11 or similar proceeding; and
(3) recognition of gain and loss on distributions of property in corporate liquidations.
Restructures IRC provisions dealing with transfers of partnership and trust interests by corporations.
Makes technical amendments relating to:
(1) transfers of property from the United States to foreign corporations;
(2) sales or exchanges of stock in certain foreign corporations;
(3) accounting provisions in connection with distributions of installment obligations by an S corporation in complete liquidation; and
(4) the taxation of C corporations that elect subchapter S status, including revisions of provisions dealing with the tax imposed when passive investment income exceeds 25 percent of the gross receipts of certain S corporations.
Adds to the IRC provisions dealing with special allocation rules for certain partnership transactions.
Makes technical amendments and corrections concerning:
(1) the definition of "related persons" with respect to the installment method of accounting;
(2) the treatment of amortizable bond premium as interest;
(3) certain entities not to be treated as corporations, including a special rule for persons holding income interests;
(4) the taxation generally of regulated investment companies and their shareholders, including changes of definitions and revisions of the excise tax on undistributed income of such companies.
Makes technical amendments to TRA and IRC provisions with respect to real estate investment trusts, including:
(1) provisions specifying asset and income requirements;
(2) certain definitions;
(3) distribution requirements; and
(4) the excise tax on undistributed income of such trusts.
Makes technical amendments to IRC provisions dealing with the taxation of real estate mortgage investment conduits (REMICs). Imposes a 34 percent tax on a REMIC's net income from foreclosure property.
Reduces the amount of taxable income of a REMIC by the amount of such tax.
Imposes a tax on contributions to a REMIC after the startup day in an amount equal to the amount of the contribution.
Permits specified exceptions.
Imposes a 15 percent tax on:
(1) any transfer of a residual interest in a REMIC to a disqualified organization (certain political entities, tax-exempt organizations, and rural utility cooperatives); and
(2) a pass-through entity if a disqualified organization is the record holder of an interest in the entity at any time during the year.
Makes corrections to TRA and IRC rules for accruing the original discount on regular interests and similar debt instruments.
Amends the TRA to direct the Secretary of the Treasury (Secretary) to:
(1) study the operation of these REMIC-related amendments and their impact on the competitiveness of savings and loan and similar institutions; and
(2) report the results to specified congressional committees by January 1, 1990.
Makes technical amendments and corrections to IRC provisions with respect to the alternative minimum tax, including provisions relating to:
(1) the phase-out of the exemption amount with respect to married individuals filing separate returns;
(2) the treatment of taxes on dividends from Puerto Rico and U.S. possession corporations;
(3) adjustments applicable to taxpayers in computing alternative minimum taxable income, including disallowance of the standard deduction and the deduction for personal exemptions in calculations to determine the taxable income of noncorporate taxpayers;
(4) tax preference items;
(5) the denial of certain losses and the determination of their amount; and
(6) transitional provisions.
Revises provisions limiting the amount of the general business tax credit.
Amends accounting provisions of the TRA and the IRC. Directs the Secretary to prescribe regulations as necessary to prevent the use of related parties, pass-through entities, or intermediaries to evade certain limitations on the use of the cash method of accounting.
Includes technical amendments of provisions relating to:
(1) the special rule for the spudding of oil or gas wells;
(2) capitalization and inclusion in inventory costs of certain expenses;
(3) accounting methods for long-term contracts, including the addition of provisions permitting the Secretary to prescribe a simplified procedure for allocation of costs in certain cases and a prohibition against applying the look-back method to certain contracts;
(4) the taxable years of certain entities, such as partnerships and common trust funds;
(5) allocation of installment indebtedness, including provisions dealing with dispositions of personal property under revolving credit plans and installment obligations arising out of certain stock or securities sales;
(6) disallowance of the use of the installment method of accounting for certain obligations; and
(7) income attributable to utility services.
Makes technical amendments and corrections to TRA and IRC provisions concerning financial institutions.
Includes amendments with respect to:
(1) the credit for investment in certain depreciable property in cases when the mutual savings bank or other financial institution is a lessee;
(2) the tax deduction for bad debt reserves of banks;
(3) the pro rata allocation of interest expense to tax-exempt interest; and
(4) the treatment of losses on deposits or accounts in insolvent financial institutions, including provisions allowing an institution whose deposits are not insured under Federal law to elect to treat losses on account of its bankruptcy or insolvency as ordinary losses.
Amends the IRC to state that charitable gift annuities (those owned by an individual who made a tax-deductible charitable contribution to the annuities' issuer) are not commercial-type insurance for purposes of determining the tax-exempt status of organization.
Directs the Secretary of the Treasury to revise the tables used to determine the amount of a charitable contribution to reflect interest rates and recent mortality experience.
Makes technical amendments to the TRA and IRC with respect to insurance products and companies.
Includes amendments relating to:
(1) phase-in provisions for insurance companies whose income is now taxable but was not previously subject to taxation;
(2) the treatment of certain dividends and interest;
(3) the discounting of unpaid losses and certain unpaid expenses;
(4) the alternative tax for certain small companies; and
(5) adjustments of the shareholders surplus account when alternative minimum tax is imposed.
Amends provisions of the Tax Reform Act of 1984 that permit a mutual life insurance company to elect to treat individual noncancellable accident and health policies as cancellable.
Amends IRC and TRA provisions dealing with limitation and nondiscrimination requirements applicable to pensions and deferred compensation plans.
Includes amendments relating to:
(1) the treatment of married individuals filing separate returns and living apart for purposes of the limitation on the deduction for qualified retirement contributions;
(2) nondeductible contributions to individual retirement plans, including the institution of a $50 penalty for failure to report designated nondeductible contributions;
(3) distributions on deferrals in excess of the $7,000 limitation on the exclusion from gross income;
(4) adjustments to limitations on contributions and benefits under qualified plans;
(5) modifications of provisions governing tax-deferred compensation plans of State and local government and of tax-exempt organizations;
(6) special rules for simplified employee pensions (SEPs), including a technical amendment to the Social Security Act and a new provision prohibiting employee election of a salary reduction arrangement in cases when the SEP does not meet the requirements necessary to ensure the distribution of excess contributions;
(7) the application of nondiscrimination rules to integrated plans;
(8) minimum employee coverage requirements for qualified plans, including new provisions to address employers having only highly compensated employees;
(9) certain definitions;
(10) cash or deferred arrangements, including new provisions to govern distributions upon the termination of a plan or the disposition of either a corporation's assets or its interest in a subsidiary; and
(11) nondiscrimination requirements for employer matching contributions, employee contributions, and tax-sheltered annuities.
Amends TRA and IRC provisions dealing with the treatment of distributions and various other aspects of pensions and deferred compensation plans.
Includes technical amendments and corrections with respect to:
(1) the taxation of distributions, including revisions of special rules for partial distributions;
(2) the additional tax on early distributions from qualified retirement plans, including the repeal of provisions triggering additional tax when an employee receives certain distributions before reaching age 59 1/2;
(3) the class of taxpayers permitted to elect to treat certain lump-sum distributions received in 1987 as if they were received in 1986;
(4) the tax on nondeductible contributions to qualified employer plans;
(5) the excise tax on the reversion of qualified plan assets to an employer, including revisions relating to employee stock ownership plans;
(6) the excise tax on excess distributions from qualified retirement plans, including an addition to the rules for computing excess retirement accumulation; and
(7) the tax treatment of the Federal Thrift Savings Fund. Makes technical amendments and corrections to TRA and IRC provisions relating to employee benefits and employee stock ownership plans (ESOPs). Includes amendments with respect to:
(1) the loss of the tax-exempt status of any organization that is part of a plan failing to meet certain requirements;
(2) cafeteria plans;
(3) technical amendments of the Social Security Act;
(4) the definition of the terms "wages" and "compensation" for certain purposes;
(5) taxes relating to funded welfare benefit plans, including the imposition of a new excise tax on funds that include discriminatory employee benefit plans;
(6) additional requirements for certain tax-exempt organizations;
(7) the deductibility of the health insurance costs of self-employed individuals;
(8) the employee tax exclusion of amounts paid by an employer for dependent care assistance, including a new paperwork requirement for employers;
(9) the estate tax deduction for proceeds from sales of employer securities;
(10) loans used to acquire employer securities, including provisions relating to the period of applicability of the exclusion of interest on such securities acquisitions loans; and
(11) qualification requirements for ESOPs. Makes technical amendments and corrections to foreign tax provisions of the TRA and the IRC. Includes amendments relating to:
(1) limitations on the foreign tax credit, including a definition of "financial services income" for purposes of such limitations;
(2) source rules for personal property sales, including the addition of a special rule for certain stock sales by residents of Puerto Rico;
(3) the treatment of gain from the sale of stock of a foreign corporation when the gain would ordinarily be sourced in the United States but, pursuant to a treaty obligation of the United States, the taxpayer chooses to treat the gain as foreign source income;
(4) the tax exemption of certain transportation-related income of foreign corporations;
(5) income from U.S. sources with respect to companies meeting foreign business requirements;
(6) rules for allocating interest to foreign source income, including revisions to phase-in rules;
(7) the taxation of income earned through foreign corporations, including special rules for certain captive insurance companies and for determining the earnings and profits of a controlled foreign corporation for purposes of computing amounts to be included in the gross income of U.S. shareholders;
(8) a new provision requiring certain shareholders in foreign corporations to file information returns;
(9) subpart F income generally (types of income particularly suited to tax haven activity);
(10) deductions for dividends received from certain foreign corporations;
(11) the disposition of investment in U.S. real property;
(12) passive foreign investment companies, including the interest charge on tax deferrals, the treatment of qualified electing funds, and a special rule for the treatment of certain foreign corporations owning at least 25 percent stock in a domestic corporation;
(13) treatment of passive foreign investment company stock owned by a pooled income fund;
(14) the branch profits tax on foreign corporations;
(15) exemptions from the excise tax on policies issued by foreign insurers;
(16) the treatment of deferred payments and appreciation arising out of business conducted by foreign corporations or by nonresident aliens within the United States;
(17) withholding tax on foreign partners' share of a partnership's "effectively connected taxable income";
(18) income of foreign governments, including the addition of limitations on the tax exclusion from gross income of certain employees;
(19) the treatment of losses of separate business units of dual residence corporations;
(20) foreign currency transactions, including provisions for determining foreign taxes and the earnings and profits of foreign corporations;
(21) tax treatment of the Virgin Islands (V.I.), including provisions for the coordination of U.S. and V.I. income taxes;
(22) the addition of provisions relating to the coordination of U.S. treaty obligations, amendments made by the TRA, and technical corrections effected by this Act;
(23) taxation of domestic international sales corporation (DISC) income to tax-exempt shareholders; and
(24) treatment of shared foreign sales corporations, including a revision of rules governing the deduction for dividends received from such corporations.
Makes technical amendments and corrections to TRA and IRC provisions with respect to tax-exempt bonds.
Includes amendments relating to:
(1) various types of State and local bonds, including qualified small issue bonds, qualified student loan bonds; and qualified 501(c)(3) bonds;
(2) requirements applicable to certain private bonds, such as issues of scholarship funding bonds and volunteer fire department bonds;
(3) arbitrage rebate requirements and refunding bond provisions with respect to governmental units issuing $5,000,000 or less of bonds;
(4) the definition of "investment property" for arbitrage bond purposes;
(5) provisions, including transitional rules, relating to refundings and to the volume cap;
(6) termination of the mortgage bond policy statement requirement;
(7) provisions relating to certain established State programs, including a technical amendment of the Mortgage Subsidy Bond Tax Act of 1980; and
(8) transitional rules for specific facilities.
Enacts into positive law a specified Treasury Regulation governing amounts held in a sinking fund for a bond issue.
Makes technical amendments and corrections to IRC and TRA provisions dealing with the income taxation of trusts and estates, including provisions relating to:
(1) reversionary interests;
(2) charitable remainder trust beneficiaries; and
(3) an exception for charitable trusts, private foundations, and certain estates and trusts from the penalty tax for failure to pay estimated income tax.
Makes technical amendments and corrections of the IRC and TRA relating to the unearned income of minor children, including new provisions addressing the alternative minimum tax.
Makes technical amendments and corrections to IRC and TRA provisions with respect to the generation-skipping transfer tax, including provisions concerning:
(1) special rules for determining the inclusion ratio for charitable lead annuity trusts, certain inter vivos transfers, and certain direct skips that are nontaxable gifts, as well as valuation of property in connection with the GST exemption for inclusion ratio purposes;
(2) disregard of certain support obligations arising under State law when determining a person's interest in a trust; and
(3) special rules governing certain transfers to grandchildren.
Makes technical amendments and corrections to compliance and tax administration sections of the TRA and the IRC, including amendments relating to:
(1) the penalty for tax underpayment due to negligence and fraud; and
(2) reporting requirements applicable to real estate transactions, including provisions excluding certain farm managers from the definition of "broker" and prohibiting a real estate reporting person from separately charging a customer for making certain required filings.
Creates an exception from information reporting requirements for certain classified and confidential contracts between a Federal executive agency and another person.
Declares that certain salary recommendations submitted by the President for special trial judges shall not be effective to the extent such salaries are not equal to 90 percent of the rate for Tax Court judges and are not paid in the same installments as Tax Court judges' salaries.
Makes technical amendments and corrections to TRA and IRC provisions with respect to retirement pay for U.S. Tax Court judges.
Amends provisions of the IRC relating to tax administration.
Revises levy exemptions related to service-connected disability payments to:
(1) remove the exemption for certain veterans' life insurance benefits; and
(2) add exemptions for wartime and peacetime death compensation, burial benefits, and dependency and indemnity compensation for service-connected deaths.
Includes the refundable earned income credit in deficiency assessments.
Makes technical amendments and corrections to TRA and IRC provisions with respect to the tax-exempt status of certain title holding corporations or trusts (an exception initiated by the TRA). Makes other technical amendments and corrections to TRA and IRC provisions, including amendments relating to the excise tax on gasoline.
Increases the rate of the gasoline tax on gasoline used to produce gasohol.
Makes technical amendments and corrections to the IRC and to the Tax Reform Acts of both 1984 and 1986 relating to:
(1) tax-exempt entity leasing provisions as applicable to tax-exempt controlled entities;
(2) the nonrecognition of gain or loss with respect to certain transfers in connection with corporate reorganizations and the treatment of distributions in such cases;
(3) the deductibility of excess golden parachute payments;
(4) accounting changes with respect to designated settlement funds;
(5) the exclusion from gross investment income of dividends from certain subsidiaries of life insurance companies;
(6) special rules for stripped bonds of tax-exempt organizations;
(7) technical amendments related to the Medicare program;
(8) the status of certain loans of artwork for purposes of gift tax liability; and
(9) pension plans, including technical amendments related to the Retirement Equity Act of 1984.