< Back to S. 1162 (108th Congress, 2003–2004)

Text of the Working Taxpayer Fairness Restoration Act

This bill was introduced on June 3, 2003, in a previous session of Congress, but was not enacted. The text of the bill below is as of Jun 3, 2003 (Placed on Calendar in the Senate).

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S 1162 PCS

Calendar No. 118

108th CONGRESS

1st Session

S. 1162

To amend the Internal Revenue Code of 1986 to accelerate the increase in the refundability of the child tax credit, and for other purposes.

IN THE SENATE OF THE UNITED STATES

June 2, 2003

Mrs. LINCOLN (for herself, Ms. SNOWE, Mr. WARNER, Mr. ROCKEFELLER, Ms. COLLINS, Mr. REED, Mr. JEFFORDS, Mr. BINGAMAN, Ms. LANDRIEU, Mr. JOHNSON, Mr. HARKIN, Mr. KENNEDY, Mr. PRYOR, Mrs. CLINTON, Mr. CORZINE, Mr. DURBIN, Mr. Breaux, Mr. Edwards, Mr. LIEBERMAN, Mr. REID, Mr. Schumer, Mr. Lautenberg, Mr. Kerry, Mr. Graham of Florida, Mr. Baucus, Mr. Sarbanes, Ms. Mikulski, Mrs. Murray, Mr. Leahy, Mr. Nelson of Nebraska, Mr. Nelson of Florida, Mr. Levin, Mr. Carper, Mr. Hollings, Mr. Biden, Mr. SPECTER, Ms. Cantwell, Mr. Daschle, Ms. Stabenow, Mr. Dodd, Mr. Conrad, Mr. Voinovich, Mr. Akaka, Mr. Dorgan, Mr. Chafee, Mr. Kohl, Mrs. Feinstein, Mrs. BOXER, and Mr. Bayh) introduced the following bill; which was read the first time

June 3, 2003

Read the second time and placed on the calendar


A BILL

To amend the Internal Revenue Code of 1986 to accelerate the increase in the refundability of the child tax credit, and for other purposes.

    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 ‘Working Taxpayer Fairness Restoration Act’.

TITLE I--ACCELERATION OF INCREASE IN REFUNDABILITY OF THE CHILD TAX CREDIT

SEC. 101. ACCELERATION OF INCREASE IN REFUNDABILITY OF THE CHILD TAX CREDIT.

    (a) IN GENERAL- Section 24(d)(1)(B)(i) of the Internal Revenue Code of 1986 (relating to portion of credit refundable) is amended by striking ‘(10 percent in the case of taxable years beginning before January 1, 2005)’.

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after December 31, 2002.

TITLE II--REVENUE PROVISIONS

Subtitle A--Enron-Related Tax Shelter Provisions

SEC. 201. LIMITATION ON TRANSFER OR IMPORTATION OF BUILT-IN LOSSES.

    (a) IN GENERAL- Section 362 of the Internal Revenue Code of 1986 (relating to basis to corporations) is amended by adding at the end the following new subsection:

    ‘(e) LIMITATIONS ON BUILT-IN LOSSES-

      ‘(1) LIMITATION ON IMPORTATION OF BUILT-IN LOSSES-

        ‘(A) IN GENERAL- If in any transaction described in subsection (a) or (b) there would (but for this subsection) be an importation of a net built-in loss, the basis of each property described in subparagraph (B) which is acquired in such transaction shall (notwithstanding subsections (a) and (b)) be its fair market value immediately after such transaction.

        ‘(B) PROPERTY DESCRIBED- For purposes of subparagraph (A), property is described in this subparagraph if--

          ‘(i) gain or loss with respect to such property is not subject to tax under this subtitle in the hands of the transferor immediately before the transfer, and

          ‘(ii) gain or loss with respect to such property is subject to such tax in the hands of the transferee immediately after such transfer.

        In any case in which the transferor is a partnership, the preceding sentence shall be applied by treating each partner in such partnership as holding such partner’s proportionate share of the property of such partnership.

        ‘(C) IMPORTATION OF NET BUILT-IN LOSS- For purposes of subparagraph (A), there is an importation of a net built-in loss in a transaction if the transferee’s aggregate adjusted bases of property described in subparagraph (B) which is transferred in such transaction would (but for this paragraph) exceed the fair market value of such property immediately after such transaction.

      ‘(2) LIMITATION ON TRANSFER OF BUILT-IN LOSSES IN SECTION 351 TRANSACTIONS-

        ‘(A) IN GENERAL- If--

          ‘(i) property is transferred by a transferor in any transaction which is described in subsection (a) and which is not described in paragraph (1) of this subsection, and

          ‘(ii) the transferee’s aggregate adjusted bases of such property so transferred would (but for this paragraph) exceed the fair market value of such property immediately after such transaction,

        then, notwithstanding subsection (a), the transferee’s aggregate adjusted bases of the property so transferred shall not exceed the fair market value of such property immediately after such transaction.

        ‘(B) ALLOCATION OF BASIS REDUCTION- The aggregate reduction in basis by reason of subparagraph (A) shall be allocated among the property so transferred in proportion to their respective built-in losses immediately before the transaction.

        ‘(C) EXCEPTION FOR TRANSFERS WITHIN AFFILIATED GROUP- Subparagraph (A) shall not apply to any transaction if the transferor owns stock in the transferee meeting the requirements of section 1504(a)(2). In the case of property to which subparagraph (A) does not apply by reason of the preceding sentence, the transferor’s basis in the stock received for such property shall not exceed its fair market value immediately after the transfer.’.

    (b) COMPARABLE TREATMENT WHERE LIQUIDATION- Paragraph (1) of section 334(b) of the Internal Revenue Code of 1986 (relating to liquidation of subsidiary) is amended to read as follows:

      ‘(1) IN GENERAL- If property is received by a corporate distributee in a distribution in a complete liquidation to which section 332 applies (or in a

transfer described in section 337(b)(1)), the basis of such property in the hands of such distributee shall be the same as it would be in the hands of the transferor; except that the basis of such property in the hands of such distributee shall be the fair market value of the property at the time of the distribution--

        ‘(A) in any case in which gain or loss is recognized by the liquidating corporation with respect to such property, or

        ‘(B) in any case in which the liquidating corporation is a foreign corporation, the corporate distributee is a domestic corporation, and the corporate distributee’s aggregate adjusted bases of property described in section 362(e)(1)(B) which is distributed in such liquidation would (but for this subparagraph) exceed the fair market value of such property immediately after such liquidation.’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to transactions after February 13, 2003.

SEC. 202. NO REDUCTION OF BASIS UNDER SECTION 734 IN STOCK HELD BY PARTNERSHIP IN CORPORATE PARTNER.

    (a) IN GENERAL- Section 755 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

    ‘(c) NO ALLOCATION OF BASIS DECREASE TO STOCK OF CORPORATE PARTNER- In making an allocation under subsection (a) of any decrease in the adjusted basis of partnership property under section 734(b)--

      ‘(1) no allocation may be made to stock in a corporation (or any person which is related (within the meaning of section 267(b) or 707(b)(1)) to such corporation) which is a partner in the partnership, and

      ‘(2) any amount not allocable to stock by reason of paragraph (1) shall be allocated under subsection (a) to other partnership property.

    Gain shall be recognized to the partnership to the extent that the amount required to be allocated under paragraph (2) to other partnership property exceeds the aggregate adjusted basis of such other property immediately before the allocation required by paragraph (2).’.

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to distributions after February 13, 2003.

SEC. 203. REPEAL OF SPECIAL RULES FOR FASITS.

    (a) IN GENERAL- Part V of subchapter M of chapter 1 of the Internal Revenue Code of 1986 (relating to financial asset securitization investment trusts) is hereby repealed.

    (b) CONFORMING AMENDMENTS-

      (1) Paragraph (6) of section 56(g) of the Internal Revenue Code of 1986 is amended by striking ‘REMIC, or FASIT’ and inserting ‘or REMIC’.

      (2) Clause (ii) of section 382(l)(4)(B) of such Code is amended by striking ‘a REMIC to which part IV of subchapter M applies, or a FASIT to which part V of subchapter M applies,’ and inserting ‘or a REMIC to which part IV of subchapter M applies,’.

      (3) Paragraph (1) of section 582(c) of such Code is amended by striking ‘, and any regular interest in a FASIT,’.

      (4) Subparagraph (E) of section 856(c)(5) of such Code is amended by striking the last sentence.

      (5) Paragraph (5) of section 860G(a) of such Code is amended by adding ‘and’ at the end of subparagraph (B), by striking ‘, and’ at the end of subparagraph (C) and inserting a period, and by striking subparagraph (D).

      (6) Subparagraph (C) of section 1202(e)(4) of such Code is amended by striking ‘REMIC, or FASIT’ and inserting ‘or REMIC’.

      (7) Subparagraph (C) of section 7701(a)(19) of such Code is amended by adding ‘and’ at the end of clause (ix), by striking ‘, and’ at the end of clause (x) and inserting a period, and by striking clause (xi).

      (8) The table of parts for subchapter M of chapter 1 of such Code is amended by striking the item relating to part V.

    (c) EFFECTIVE DATE-

      (1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall take effect on February 14, 2003.

      (2) EXCEPTION FOR EXISTING FASITS- The amendments made by this section shall not apply to any FASIT in existence on the date of the enactment of this Act to the extent that regular interests issued by the FASIT before such date continue to remain outstanding in accordance with the original terms of issuance of such interests.

SEC. 204. EXPANDED DISALLOWANCE OF DEDUCTION FOR INTEREST ON CONVERTIBLE DEBT.

    (a) IN GENERAL- Paragraph (2) of section 163(l) of the Internal Revenue Code of 1986 is amended by striking ‘or a related party’ and inserting ‘or equity held by the issuer (or any related party) in any other person’.

    (b) EXCEPTION FOR CERTAIN INSTRUMENTS ISSUED BY DEALERS IN SECURITIES- Section 163(l) of the Internal Revenue Code of 1986 is amended by redesignating paragraphs (4) and (5) as paragraphs (5) and (6) and by inserting after paragraph (3) the following new paragraph:

      ‘(4) EXCEPTION FOR CERTAIN INSTRUMENTS ISSUED BY DEALERS IN SECURITIES- For purposes of this subsection, the term ‘disqualified debt instrument’ does not include indebtedness issued by a dealer in securities (or a related party) which is payable in, or by reference to, equity (other than equity of the issuer or a related party) held by such dealer in its capacity as a dealer in securities. For purposes of this paragraph, the term ‘dealer in securities’ has the meaning given such term by section 475.’.

    (c) CONFORMING AMENDMENT- Paragraph (3) of section 163(l) of the Internal Revenue Code of 1986 is amended by striking ‘or a related party’ in the material

preceding subparagraph (A) and inserting ‘or any other person’.

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to debt instruments issued after February 13, 2003.

SEC. 205. EXPANDED AUTHORITY TO DISALLOW TAX BENEFITS UNDER SECTION 269.

    (a) IN GENERAL- Subsection (a) of section 269 of the Internal Revenue Code of 1986 (relating to acquisitions made to evade or avoid income tax) is amended to read as follows:

    ‘(a) IN GENERAL- If--

      ‘(1)(A) any person acquires stock in a corporation, or

      ‘(B) any corporation acquires, directly or indirectly, property of another corporation and the basis of such property, in the hands of the acquiring corporation, is determined by reference to the basis in the hands of the transferor corporation, and

      ‘(2) the principal purpose for which such acquisition was made is evasion or avoidance of Federal income tax by securing the benefit of a deduction, credit, or other allowance,

    then the Secretary may disallow such deduction, credit, or other allowance.’.

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to stock and property acquired after February 13, 2003.

SEC. 206. MODIFICATIONS OF CERTAIN RULES RELATING TO CONTROLLED FOREIGN CORPORATIONS.

    (a) LIMITATION ON EXCEPTION FROM PFIC RULES FOR UNITED STATES SHAREHOLDERS OF CONTROLLED FOREIGN CORPORATIONS- Paragraph (2) of section 1297(e) of the Internal Revenue Code of 1986 (relating to passive investment company) is amended by adding at the end the following flush sentence:

      ‘Such term shall not include any period if there is only a remote likelihood of an inclusion in gross income under section 951(a)(1)(A)(i) of subpart F income of such corporation for such period.’.

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years on controlled foreign corporation beginning after February 13, 2003, and to taxable years of United States shareholder in which or with which such taxable years of controlled foreign corporations end.

SEC. 207. CONTROLLED ENTITIES INELIGIBLE FOR REIT STATUS.

    (a) IN GENERAL- Subsection (a) of section 856 of the Internal Revenue Code of 1986 (relating to definition of real estate investment trust) is amended by striking ‘and’ at the end of paragraph (6), by redesignating paragraph (7) as paragraph (8), and by inserting after paragraph (6) the following new paragraph:

      ‘(7) which is not a controlled entity (as defined in subsection (l)); and’.

    (b) CONTROLLED ENTITY- Section 856 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

    ‘(l) CONTROLLED ENTITY-

      ‘(1) IN GENERAL- For purposes of subsection (a)(7), an entity is a controlled entity if, at any time during the taxable year, one person (other than a qualified entity)--

        ‘(A) in the case of a corporation, owns stock--

          ‘(i) possessing at least 50 percent of the total voting power of the stock of such corporation, or

          ‘(ii) having a value equal to at least 50 percent of the total value of the stock of such corporation, or

        ‘(B) in the case of a trust, owns beneficial interests in the trust which would meet the requirements of subparagraph (A) if such interests were stock.

      ‘(2) QUALIFIED ENTITY- For purposes of paragraph (1), the term ‘qualified entity’ means--

        ‘(A) any real estate investment trust, and

        ‘(B) any partnership in which one real estate investment trust owns at least 50 percent of the capital and profits interests in the partnership.

      ‘(3) ATTRIBUTION RULES- For purposes of this paragraphs (1) and (2)--

        ‘(A) IN GENERAL- Rules similar to the rules of subsections (d)(5) and (h)(3) shall apply; except that section 318(a)(3)(C) shall not be applied under such rules to treat stock owned by a qualified entity as being owned by a person which is not a qualified entity.

        ‘(B) STAPLED ENTITIES- A group of entities which are stapled entities (as defined in section 269B(c)(2)) shall be treated as one person.

      ‘(4) EXCEPTION FOR CERTAIN NEW REITS-

        ‘(A) IN GENERAL- The term ‘controlled entity’ shall not include an incubator REIT.

        ‘(B) INCUBATOR REIT- A corporation shall be treated as an incubator REIT for any taxable year during the eligibility period if it meets all the following requirements for such year:

          ‘(i) The corporation elects to be treated as an incubator REIT.

          ‘(ii) The corporation has only voting common stock outstanding.

          ‘(iii) Not more than 50 percent of the corporation’s real estate assets consist of mortgages.

          ‘(iv) From not later than the beginning of the last half of the second taxable year, at least 10 percent of the corporation’s capital is provided by lenders or equity investors who are unrelated to the corporation’s largest shareholder.

          ‘(v) The corporation annually increases the value of its real estate assets by at least 10 percent.

          ‘(vi) The directors of the corporation adopt a resolution setting forth an intent to engage in a going public transaction.

        No election may be made with respect to any REIT if an election under this subsection was in effect for any predecessor of such REIT.

        ‘(C) ELIGIBILITY PERIOD-

          ‘(i) IN GENERAL- The eligibility period (for which an incubator REIT election can be made) begins with the REIT’s second taxable year and ends at the close of the REIT’s third taxable year, except that the REIT may, subject to clauses (ii), (iii), and (iv), elect to extend such period for an additional 2 taxable years.

          ‘(ii) GOING PUBLIC TRANSACTION- A REIT may not elect to extend the eligibility period under clause (i) unless it enters into an agreement with the Secretary that if it does not engage in a going public transaction by the end of the extended eligibility period, it shall pay Federal income taxes for the 2 years of the extended eligibility period as if it had not made an incubator REIT election and had ceased to qualify as a REIT for those 2 taxable years.

          ‘(iii) RETURNS, INTEREST, AND NOTICE-

            ‘(I) RETURNS- In the event the corporation ceases to be treated as a REIT by operation of clause (ii), the corporation shall file any appropriate amended returns reflecting the change in status within 3 months of the close of the extended eligibility period.

            ‘(II) INTEREST- Interest shall be payable on any tax imposed by reason of clause (ii) for any taxable year but, unless there was a finding under subparagraph (D), no substantial underpayment penalties shall be imposed.

            ‘(III) NOTICE- The corporation shall, at the same time it files its returns under subclause (I), notify its shareholders and any other persons whose tax position is, or may reasonably be expected to be, affected by the change in status so they also may file any appropriate amended returns to conform their tax treatment consistent with the corporation’s loss of REIT status.

            ‘(IV) REGULATIONS- The Secretary shall provide appropriate regulations setting forth transferee liability and other provisions to ensure collection of tax and the proper administration of this provision.

          ‘(iv) Clauses (ii) and (iii) shall not apply if the corporation allows its incubator REIT status to lapse at the end of the initial 2-year eligibility period without engaging in a going public transaction if the corporation is not a controlled entity as of the beginning of its fourth taxable year. In such a case, the corporation’s directors may still be liable for the penalties described in subparagraph (D) during the eligibility period.

        ‘(D) SPECIAL PENALTIES- If the Secretary determines that an incubator REIT election was filed for a principal purpose other than as part of a reasonable plan to undertake a going public transaction, an excise tax of $20,000 shall be imposed on each of the corporation’s directors for each taxable year for which an election was in effect.

        ‘(E) GOING PUBLIC TRANSACTION- For purposes of this paragraph, a going public transaction means--

          ‘(i) a public offering of shares of the stock of the incubator REIT;

          ‘(ii) a transaction, or series of transactions, that results in the stock of the incubator REIT being regularly traded on an established securities market and that results in at least 50 percent of such stock being held by shareholders who are unrelated to persons who held such stock before it began to be so regularly traded; or

          ‘(iii) any transaction resulting in ownership of the REIT by 200 or more persons (excluding the largest single shareholder) who in the aggregate own at least 50 percent of the stock of the REIT.

        For the purposes of this subparagraph, the rules of paragraph (3) shall apply in determining the ownership of stock.

        ‘(F) DEFINITIONS- The term ‘established securities market’ shall have the meaning set forth in the regulations under section 897.’.

    (c) CONFORMING AMENDMENT- Paragraph (2) of section 856(h) of the Internal Revenue Code of 1986 is amended by striking ‘and (6)’ each place it appears and inserting ‘, (6), and (7)’.

    (d) EFFECTIVE DATE-

      (1) IN GENERAL- The amendments made by this section shall apply to taxable years ending after May 8, 2003.

      (2) EXCEPTION FOR EXISTING CONTROLLED ENTITIES- The amendments made by this section shall not apply to any entity which is a controlled entity (as defined in section 856(l) of the Internal Revenue Code of 1986, as added by this section) as of May 8, 2003, which is a real estate investment trust for the taxable year which includes such date, and which has significant business assets or activities as of such date. For purposes of the preceding sentence, an entity shall be treated as such a controlled entity on May 8, 2003, if it becomes such an entity after such date in a transaction--

        (A) made pursuant to a written agreement which was binding on such date and at all times thereafter, or

        (B) described on or before such date in a filing with the Securities and Exchange Commission required solely by reason of the transaction.

Subtitle B--Extension of Internal Revenue Service User Fees

SEC. 211. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES.

    (a) IN GENERAL- Chapter 77 of the Internal Revenue Code of 1986 (relating to miscellaneous provisions) is amended by adding at the end the following new section:

‘SEC. 7528. INTERNAL REVENUE SERVICE USER FEES.

    ‘(a) GENERAL RULE- The Secretary shall establish a program requiring the payment of user fees for--

      ‘(1) requests to the Internal Revenue Service for ruling letters, opinion letters, and determination letters, and

      ‘(2) other similar requests.

    ‘(b) PROGRAM CRITERIA-

      ‘(1) IN GENERAL- The fees charged under the program required by subsection (a)--

        ‘(A) shall vary according to categories (or subcategories) established by the Secretary,

        ‘(B) shall be determined after taking into account the average time for (and difficulty of) complying with requests in each category (and subcategory), and

        ‘(C) shall be payable in advance.

      ‘(2) EXEMPTIONS, ETC-

        ‘(A) IN GENERAL- The Secretary shall provide for such exemptions (and reduced fees) under such program as the Secretary determines to be appropriate.

        ‘(B) EXEMPTION FOR CERTAIN REQUESTS REGARDING PENSION PLANS- The Secretary shall not require payment of user fees under such program for requests for determination letters with respect to the qualified status of a pension benefit plan maintained solely by 1 or more eligible employers or any trust which is part of the plan. The preceding sentence shall not apply to any request--

          ‘(i) made after the later of--

            ‘(I) the fifth plan year the pension benefit plan is in existence, or

            ‘(II) the end of any remedial amendment period with respect to the plan beginning within the first 5 plan years, or

          ‘(ii) made by the sponsor of any prototype or similar plan which the sponsor intends to market to participating employers.

        ‘(C) DEFINITIONS AND SPECIAL RULES- For purposes of subparagraph (B)--

          ‘(i) PENSION BENEFIT PLAN- The term ‘pension benefit plan’ means a pension, profit-sharing, stock bonus, annuity, or employee stock ownership plan.

          ‘(ii) ELIGIBLE EMPLOYER- The term ‘eligible employer’ means an eligible employer (as defined in section 408(p)(2)(C)(i)(I)) which has at least 1 employee who is not a highly compensated employee (as defined in section 414(q)) and is participating in the plan. The determination of whether an employer is an eligible employer under subparagraph (B) shall be made as of the date of the request described in such subparagraph.

          ‘(iii) DETERMINATION OF AVERAGE FEES CHARGED- For purposes of any determination of average fees charged, any request to which subparagraph (B) applies shall not be taken into account.

      ‘(3) AVERAGE FEE REQUIREMENT- The average fee charged under the program required by subsection (a) shall not be less than the amount determined under the following table:

Average

‘Category

Fee

Employee plan ruling and opinion

$250

Exempt organization ruling

$350

Employee plan determination

$300

Exempt organization determination

$275

Chief counsel ruling

$200.

    ‘(c) TERMINATION- No fee shall be imposed under this section with respect to requests made after September 30, 2013.’.

    (b) CONFORMING AMENDMENTS-

      (1) The table of sections for chapter 77 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item:

‘Sec. 7528. Internal Revenue Service user fees.’.

      (2) Section 10511 of the Revenue Act of 1987 is repealed.

      (3) Section 620 of the Economic Growth and Tax Relief Reconciliation Act of 2001 is repealed.

    (c) LIMITATIONS- Notwithstanding any other provision of law, any fees collected pursuant to section 7528 of the Internal Revenue Code of 1986, as added by subsection (a), shall not be expended by the Internal Revenue Service unless provided by an appropriations Act.

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to requests made after the date of the enactment of this Act.

Calendar No. 118

108th CONGRESS

1st Session

S. 1162

A BILL

To amend the Internal Revenue Code of 1986 to accelerate the increase in the refundability of the child tax credit, and for other purposes.


June 3, 2003

Read the second time and placed on the calendar