[Senate Report 112-152]
[From the U.S. Government Printing Office]
Calendar No. 327
112th Congress } { Report
2d Session } SENATE { 112-152
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HIGHWAY INVESTMENT, JOB CREATION, AND ECONOMIC GROWTH ACT OF 2012
_______
February 27, 2012.--Ordered to be printed
_______
Mr. Baucus, from the Committee on Finance,
submitted the following
R E P O R T
together with
ADDITIONAL VIEWS
[To accompany S. 2132]
The Committee on Finance, having considered original
legislation to amend the Internal Revenue Code of 1986 to
provide for the exclusion of highway-related taxes and trust
fund expenditures, to provide revenues for highway programs,
and for other purposes, having considered the same, reports
favorably thereon and recommends that the bill, do pass.
CONTENTS
Page
I. LEGISLATIVE BACKGROUND..........................................2
II. EXPLANATION OF THE BILL.........................................3
TITLE I.--EXTENSION OF TAXES AND TRUST FUNDS............... 3
A. Extension of Highway Trust Fund Expenditure
Authority and Related Taxes (secs. 101 and 102 of
the bill and secs. 4041, 4051, 4071, 4081, 4221,
4481 4483, 6412, 9503, 9504, and 9508 of the Code). 3
TITLE II.--OTHER PROVISIONS................................ 6
A. Small Issuer Exception to Tax-Exempt Interest
Expense Allocation Rules for Financial Institutions
(sec. 201 of the bill and sec. 265 of the Code).... 6
B. Temporary Modification of Alternative Minimum Tax
Limitations on Tax-Exempt Bonds (sec. 202 of the
bill and secs. 56 and 57 of the Code).............. 8
C. Issuance of TRIP Bonds by State Infrastructure Banks
(sec. 203 of the bill)............................. 9
D. Extension of Parity for Exclusion From Income for
Employer-Provided Mass Transit and Parking Benefits
(sec. 204 of the bill and sec. 132 of the Code).... 10
E. Private Activity Volume Cap Exemption for Sewage and
Water Facility Bonds (sec. 205 of the bill and sec.
146(g) of the Code)................................ 11
TITLE III.--REVENUE PROVISIONS............................. 13
A. Leaking Underground Storage Tank Trust Fund (secs.
301 and 302 of the bill, and secs. 9503 and 9508 of
the Code).......................................... 13
B. Claims and Credit Carryovers Related to Unprocessed
and Excluded Fuels (sec. 303 of the bill and secs.
40(a) and 9503(b) of the Code)..................... 14
C. Dedication of Gas Guzzler Tax to the Highway Trust
Fund (sec. 304 of the bill and sec. 9503 of the
Code).............................................. 16
D. Revocation or Denial of Passport in Case of Certain
Unpaid Taxes (sec. 305 of the bill and new secs.
7345 and 6103(l)(23) of the Code).................. 17
E. 100 Percent Continuous Levy on Payments to Medicare
Providers and Supplier (sec. 306 of the bill and
sec. 6331(h) of the Code).......................... 19
F. Appropriation to the Highway Trust Fund of Amounts
Attributable to Certain Duties on Imported Vehicles
(sec. 307 of the bill)............................. 21
G. Treatment of Securities of a Controlled Corporation
Exchanged for Assets in Certain Reorganizations
(sec. 308 of the bill and sec. 361 of the Code).... 21
H. Internal Revenue Service Levies and Thrift Savings
Plan Accounts (sec. 309 of the bill)............... 24
I. Modification of Required Distribution Rules for
Pension Plans (sec. 310 of the bill and sec.
401(a)(9) of the Code)............................. 25
J. Depreciation and Amortization Rules for Highway and
Related Property Subject to Long-Term Leases (sec.
311 of the bill and secs. 168, 197, and 147 of the
Code).............................................. 31
K. Transfer of Excess Pension Assets (secs. 312 and 313
of the bill and sec. 420 of the Code).............. 33
III. BUDGET EFFECTS OF THE BILL.....................................37
IV. VOTES OF THE COMMITTEE.........................................44
V. REGULATORY IMPACT AND OTHER MATTERS............................45
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED..........46
VII. ADDITIONAL VIEWS...............................................47
I. LEGISLATIVE BACKGROUND
The taxes dedicated to the Highway Trust Fund generally do
not apply after March 31, 2012. The Highway Trust Fund
expenditure authority also terminates on March 31, 2012. On May
17, 2011, the Committee on Finance held a hearing on highway
taxes. The Committee heard from a variety of witness regarding
the financing for the Highway Trust Fund, including
representatives from industry and government. With respect to
the Highway Trust Fund, the Committee has been advised that a
shortfall of $5.6 billion is forecast for fiscal year 2013.
The Senate Committee on Finance marked up original
legislation (the ``Highway Investment, Job Creation, and
Economic Growth Act of 2012'') on February 7, 2012, to be
included in S. 1813 (the ``Moving Ahead for Progress in the
21st Century Act'') and, with a majority and quorum present,
ordered the bill favorably reported, with amendments on that
date.\1\ This report describes the provisions of the bill.
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\1\It is the understanding of the Committee that the Chairman will
work with Members of the Committee to replace the provisions explained
in sections III.B. and III.I (infra) with alternative revenue
provisions that are sufficient to meet or exceed the revenue total in
the Reported legislation.
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II. EXPLANATION OF THE BILL
TITLE I.--EXTENSION OF TAXES AND TRUST FUNDS
A. Extension of Highway Trust Fund Expenditure Authority and Related
Taxes (secs. 101 and 102 of the bill and secs. 4041, 4051, 4071, 4081,
4221, 4481 4483, 6412, 9503, 9504, and 9508 of the Code)
PRESENT LAW HIGHWAY TRUST FUND EXCISE TAXES
In general
Six separate excise taxes are imposed to finance the
Federal Highway Trust Fund program. Three of these taxes are
imposed on highway motor fuels. The remaining three are a
retail sales tax on heavy highway vehicles, a manufacturers'
excise tax on heavy vehicle tires, and an annual use tax on
heavy vehicles. A substantial majority of the revenues produced
by the Highway Trust Fund excise taxes are derived from the
taxes on motor fuels. The annual use tax on heavy vehicles
expires October 1, 2012. Except for 4.3 cents per gallon of the
Highway Trust Fund fuels tax rates, the remaining taxes are
scheduled to expire after March 31, 2012. The 4.3-cents-per-
gallon portion of the fuels tax rates is permanent.\2\ The six
taxes are summarized below.
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\2\This portion of the tax rates was enacted as a deficit reduction
measure in 1993. Receipts from it were retained in the General Fund
until 1997 legislation provided for their transfer to the Highway Trust
Fund.
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Highway motor fuels taxes
The Highway Trust Fund motor fuels tax rates are as
follows:\3\
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\3\Secs. 4081(a)(2)(A)(i), 4081(a)(2)(A)(iii), 4041(a)(2),
4041(a)(3), and 4041(m). Some of these fuels also are subject to an
additional 0.1-cent-per-gallon excise tax to fund the Leaking
Underground Storage Tank Trust Fund (secs. 4041(d) and 4081(a)(2)(B)).
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Gasoline 18.3 cents per gallon
Diesel fuel and kerosene 24.3 cents per gallon
Special motor fuels 18.3 cents per gallon
generally\4\
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Non-fuel Highway Trust Fund excise taxes
In addition to the highway motor fuels excise tax revenues,
the Highway Trust Fund receives revenues produced by three
excise taxes imposed exclusively on heavy highway vehicles or
tires. These taxes are:
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\4\See secs. 4041(a)(2), 4041(a)(3), and 4041(m).
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1. A 12-percent excise tax imposed on the first
retail sale of heavy highway vehicles, tractors, and
trailers (generally, trucks having a gross vehicle
weight in excess of 33,000 pounds and trailers having
such a weight in excess of 26,000 pounds);\5\
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\5\Sec. 4051.
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2. An excise tax imposed on highway tires with a
rated load capacity exceeding 3,500 pounds, generally
at a rate of 0.945 cents per 10 pounds of excess;\6\
and
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\6\Sec. 4071.
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3. An annual use tax imposed on highway vehicles
having a taxable gross weight of 55,000 pounds or
more.\7\ (The maximum rate for this tax is $550 per
year, imposed on vehicles having a taxable gross weight
over 75,000 pounds.)
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\7\Sec. 4481.
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The taxable year for the annual use tax is from July 1st
through June 30th of the following year. For the period July 1,
2012, through September 30, 2012, the amount of the annual use
tax is reduced by 75 percent.\8\
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\8\Sec. 4482(c)(4) and (d).
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PRESENT LAW HIGHWAY TRUST FUND EXPENDITURE PROVISIONS
In general
Under present law, revenues from the highway excise taxes,
as imposed through March 31, 2012, generally are dedicated to
the Highway Trust Fund. Dedication of excise tax revenues to
the Highway Trust Fund and expenditures from the Highway Trust
Fund are governed by the Code.\9\ The Code authorizes
expenditures (subject to appropriations) from the Highway Trust
Fund through March 31, 2012, for the purposes provided in
authorizing legislation, as such legislation was in effect on
the date of enactment of the Surface Transportation Extension
Act of 2011, Part II.
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\9\Sec. 9503. The Highway Trust Fund statutory provisions were
placed in the Internal Revenue Code in 1982.
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Highway Trust Fund expenditure purposes
The Highway Trust Fund has a separate account for mass
transit, the Mass Transit Account.\10\ The Highway Trust Fund
and the Mass Transit Account are funding sources for specific
programs.
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\10\Sec. 9503(e)(1).
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Highway Trust Fund expenditure purposes have been revised
with each authorization Act enacted since establishment of the
Highway Trust Fund in 1956. In general, expenditures authorized
under those Acts (as the Acts were in effect on the date of
enactment of the most recent such authorizing Act) are
specified by the Code as Highway Trust Fund expenditure
purposes.\11\ The Code provides that the authority to make
expenditures from the Highway Trust Fund expires after March
31, 2012. Thus, no Highway Trust Fund expenditures may occur
after March 31, 2012, without an amendment to the Code.
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\11\The authorizing Acts that currently are referenced in the
Highway Trust Fund provisions of the Code are: the Highway Revenue Act
of 1956; Titles I and II of the Surface Transportation Assistance Act
of 1982; the Surface Transportation and Uniform Relocation Act of 1987;
the Intermodal Surface Transportation Efficiency Act of 1991; the
Transportation Equity Act for the 21st Century, the Surface
Transportation Extension Act of 2003, the Surface Transportation
Extension Act of 2004; the Surface Transportation Extension Act of
2004, Part II; the Surface Transportation Extension Act of 2004, Part
III; the Surface Transportation Extension Act of 2004, Part IV; the
Surface Transportation Extension Act of 2004, Part V; the Safe,
Accountable, Flexible, Efficient Transportation Equity Act: A Legacy
for Users; the SAFETEA-LU Technical Corrections Act of 2008; the
Surface Transportation Extension Act of 2010; the Surface
Transportation Extension Act of 2010, Part II; the Surface
Transportation Extension Act of 2011; and the Surface Transportation
Extension Act of 2011, Part II.
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As noted above, section 9503 appropriates to the Highway
Trust Fund amounts equivalent to the taxes received from the
following: the taxes on diesel, gasoline, kerosene and special
motor fuel, the tax on tires, the annual heavy vehicle use tax,
and the tax on the retail sale of heavy trucks and
trailers.\12\ Section 9601 provides that amounts appropriated
to a trust fund pursuant to sections 9501 through 9511, are to
be transferred at least monthly from the General Fund of the
Treasury to such trust fund on the basis of estimates made by
the Secretary of the Treasury of the amounts referred to in the
Code section appropriating the amounts to such trust fund. The
Code requires that proper adjustments be made in amounts
subsequently transferred to the extent prior estimates were in
excess of, or less than, the amounts required to be
transferred.
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\12\Sec. 9503(b)(1).
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S. 1813, MOVING AHEAD FOR PROGRESS FOR THE 21ST CENTURY
(MAP-21)
On November 9, 2011, the Senate Environment and Public
Works Committee passed MAP-21, a two-year reauthorization of
Highway Trust Fund programs. Among other purposes, the bill
reauthorizes the Federal highway, public transportation,
highway safety, and motor carrier safety programs for fiscal
year 2012 through fiscal year 2013.
REASONS FOR CHANGE
Communities and business depend on effective transportation
to help them grow. The projects funded by the Highway Trust
Fund ensure safety and mobility, sustain and create jobs,
reduce traffic congestion, improve air quality and fund
infrastructure projects of regional and national significance
across the country. Therefore, the Committee believes it is
appropriate to reauthorize Highway Trust Fund expenditures
through September 30, 2013, and to extend current Federal taxes
payable to the Highway Trust Fund.
EXPLANATION OF PROVISION
The expenditure authority for the Highway Trust Fund is
extended through September 30, 2013. The Code provisions
governing the purposes for which monies in the Highway Trust
Fund may be spent are updated to include the reauthorization
bill, S. 1813, Moving Ahead for Progress for the 21st Century
(MAP-21).\13\
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\13\The provision also replaces cross-references to the Surface
Transportation Extension Act of 2011, Part II, with MAP-21, and
replaces April 1, 2012 references with October 1, 2013 in the Code
provisions governing the Leaking Underground Storage Tank Trust Fund,
and the Sport Fish Restoration and Boating Trust Fund.
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The provision extends the motor fuel taxes, and all three
non-fuel excise taxes at their current rates through September
30, 2015.\14\ The provision resolves the projected deficit in
the Highway Trust Fund, assures a cushion of $2.8 billion in
each account of the Highway Trust Fund, and creates a solvency
account available for use by either highways or mass transit.
Specifically, the Secretary of the Treasury is to transfer the
excess of (1) any amount appropriated to the Highway Trust Fund
before October 1, 2013, by reason of the provisions of this
bill, over (2) the amount necessary to meet the required
expenditures from the Highway Trust Fund as authorized in
section 9503(c) of the Code (which provides expenditure
authority from the Highway Trust Fund) for the period ending
before October 1, 2013. Amounts in the solvency account are
available for transfers to the Highway Account and the Mass
Transit Account in such amounts as determined necessary by the
Secretary to ensure that each account has a surplus balance of
$2.8 billion on September 30, 2013. The solvency account
terminates on September 30, 2013 and any remainder in the
solvency account remains in the Highway Trust Fund. The
Committee expects that the Secretary of the Treasury will
consult with the Secretary of Transportation in making
determinations concerning amounts necessary to meet required
expenditures and amounts necessary to ensure the cushion of
$2.8 billion.
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\14\The Leaking Underground Storage Tank Trust Fund financing rate
of 0.1 cent per gallon also is extended through September 30, 2015.
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EFFECTIVE DATE
The provision is effective on April 1, 2012.
TITLE II.--OTHER PROVISIONS
A. Small Issuer Exception to Tax-Exempt Interest Expense Allocation
Rules for Financial Institutions (sec. 201 of the bill and sec. 265 of
the Code)
PRESENT LAW
Present law disallows a deduction for interest on
indebtedness incurred or continued to purchase or carry
obligations the interest on which is exempt from tax.\15\ In
general, an interest deduction is disallowed only if the
taxpayer has a purpose of using borrowed funds to purchase or
carry tax-exempt obligations; a determination of the taxpayer's
purpose in borrowing funds is made based on all of the facts
and circumstances.\16\
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\15\Sec. 265(a).
\16\See Rev. Proc. 72-18, 1972-1 C.B. 740.
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Financial institutions
In the case of a financial institution, the Code generally
disallows that portion of the taxpayer's interest expense that
is allocable to tax-exempt interest.\17\ The amount of interest
that is disallowed is an amount which bears the same ratio to
such interest expense as the taxpayer's average adjusted bases
of tax-exempt obligations acquired after August 7, 1986, bears
to the average adjusted bases for all assets of the taxpayer.
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\17\Sec. 265(b)(1). A ``financial institution'' is any person that
(1) accepts deposits from the public in the ordinary course of such
person's trade or business and is subject to Federal or State
supervision as a financial institution or (2) is a corporation
described by section 585(a)(2). Sec. 265(b)(5).
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Exception for certain obligations of qualified small
issuers
The general rule in section 265(b), denying financial
institutions' interest expense deductions allocable to tax-
exempt obligations, does not apply to ``qualified tax-exempt
obligations.''\18\ Instead, as discussed in the next section,
only 20 percent of the interest expense allocable to
``qualified tax-exempt obligations'' is disallowed.\19\ A
``qualified tax-exempt obligation'' is a tax-exempt obligation
that is (1) issued after August 7, 1986, by a qualified small
issuer, (2) not a private activity bond, and (3) designated by
the issuer as qualifying for the exception from the general
rule of section 265(b).
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\18\Sec. 265(b)(3).
\19\Secs. 265(b)(3)(A), 291(a)(3) and 291(e)(1).
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A ``qualified small issuer'' is an issuer that reasonably
anticipates that the amount of tax-exempt obligations that it
will issue during the calendar year will be $10 million or
less.\20\ The Code specifies the circumstances under which an
issuer and all subordinate entities are aggregated.\21\ For
purposes of the $10 million limitation, an issuer and all
entities that issue obligations on behalf of such issuer are
treated as one issuer. All obligations issued by a subordinate
entity are treated as being issued by the entity to which it is
subordinate. An entity formed (or availed of) to avoid the $10
million limitation and all entities benefiting from the device
are treated as one issuer.
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\20\Sec. 265(b)(3)(C).
\21\Sec. 265(b)(3)(E).
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Composite issues (i.e., combined issues of bonds for
different entities) qualify for the ``qualified tax-exempt
obligation'' exception only if the requirements of the
exception are met with respect to (1) the composite issue as a
whole (determined by treating the composite issue as a single
issue) and (2) each separate lot of obligations that is part of
the issue (determined by treating each separate lot of
obligations as a separate issue).\22\ Thus a composite issue
may qualify for the exception only if the composite issue
itself does not exceed $10 million, and if each issuer
benefitting from the composite issue reasonably anticipates
that it will not issue more than $10 million of tax-exempt
obligations during the calendar year, including through the
composite arrangement.
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\22\Sec. 265(b)(3)(F).
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Special rules providing modifications to qualified small
issuer exception for certain issues in 2009 and
2010
With respect to tax-exempt obligations issued during 2009
and 2010, the special rules increased from $10 million to $30
million the annual limit for qualified small issuers.
In addition, in the case of a ``qualified financing issue''
issued in 2009 or 2010, the special rules applied the $30
million annual volume limitation at the borrower level (rather
than at the level of the pooled financing issuer). Thus, for
the purpose of applying the requirements of the section
265(b)(3) qualified small issuer exception, the portion of the
proceeds of a qualified financing issue that are loaned to a
``qualified borrower'' that participates in the issue were
treated as a separate issue with respect to which the qualified
borrower is deemed to be the issuer.
A ``qualified financing issue'' was any composite, pooled,
or other conduit financing issue the proceeds of which were
used directly or indirectly to make or finance loans to one or
more ultimate borrowers all of whom are qualified borrowers. A
``qualified borrower'' meant (1) a State or political
subdivision of a State or (2) an organization described in
section 501(c)(3) and exempt from tax under section 501(a).
Thus, for example, a $100 million pooled financing issue that
was issued in 2009 would qualify for the section 265(b)(3)
exception if the proceeds of such issue were used to make four
equal loans of $25 million to four qualified borrowers.
However, if (1) more than $30 million were loaned to any
qualified borrower, (2) any borrower were not a qualified
borrower, or (3) any borrower would, if it were the issuer of a
separate issue in an amount equal to the amount loaned to such
borrower, fail to meet any of the other requirements of section
265(b)(3), the entire $100 million pooled financing issue
failed to qualify for the exception.
For purposes of determining whether an issuer meets the
requirements of the small issuer exception, under the special
rules, qualified 501(c)(3) bonds issued in 2009 or 2010 were
treated as if they were issued by the 501(c)(3) organization
for whose benefit they were issued (and not by the actual
issuer of such bonds). In addition, in the case of an
organization described in section 501(c)(3) and exempt from
taxation under section 501(a), requirements for ``qualified
financing issues'' were applied as if the section 501(c)(3)
organization were the issuer. Thus, in any event, an
organization described in section 501(c)(3) and exempt from
taxation under section 501(a) was limited to the $30 million
per issuer cap for qualified tax exempt obligations described
in section 265(b)(3).
REASONS FOR CHANGE
The Committee believes that it is appropriate to increase
the volume limitation for qualified small issuers and make
other modifications to the aggregation rules, for several
reasons. For example, because the $10 million volume limit was
not indexed for inflation when it was enacted in 1986, the real
value of $10 million of such bond proceeds is less than half of
what it was in 1986. Regarding the aggregation rules, today
more borrowers are aggregating their bond issues or issuing
bonds through State-wide financing authorities; this pooling
increases economic efficiency and decreases borrowing costs for
small issuers.
EXPLANATION OF PROVISION
The provision extends the special rules providing
modifications to the qualified small issuer exception to bonds
issued after the date of enactment and before January 1, 2013.
EFFECTIVE DATE
The provision is effective for obligations issued after the
date of its enactment.
B. Temporary Modification of Alternative Minimum Tax Limitations on
Tax-Exempt Bonds (sec. 202 of the bill and secs. 56 and 57 of the Code)
PRESENT LAW
Present law imposes an alternative minimum tax (``AMT'') on
individuals and corporations. AMT is the amount by which the
tentative minimum tax exceeds the regular income tax. The
tentative minimum tax is computed based upon a taxpayer's
alternative minimum taxable income (``AMTI''). AMTI is the
taxpayer's taxable income modified to take into account certain
preferences and adjustments. One of the preference items is
tax-exempt interest on certain tax-exempt bonds issued for
private activities.\23\ Also, in the case of a corporation, an
adjustment based on current earnings is determined, in part, by
taking into account 75 percent of certain items, including tax-
exempt interest, excluded from taxable income but included in
the corporation's earnings and profits.\24\
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\23\Sec. 57(a)(5).
\24\Sec. 56(g)(4)(B).
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The American Recovery and Reinvestment Act of 2009 provided
that tax-exempt interest on private activity bonds issued in
2009 and 2010 is not an item of tax preference for purposes of
the AMTI and interest on tax exempt bonds issued in 2009 and
2010 is not included in the corporate adjustment based on
current earnings.
For these purposes, a refunding bond generally is treated
as issued on the date of the issuance of the refunded bond (or
in the case of a series of refundings, the original bond).
However, the Act provided that tax-exempt interest on private
activity bonds issued in 2009 and 2010 to currently refund a
private activity bond issued after December 31, 2003, and
before January 1, 2009, is not an item of tax preference for
purposes of the AMT and is not included in the corporate
adjustment based on current earnings.
REASONS FOR CHANGE
The Committee believes that the AMT treatment of interest
on tax-exempt bonds restricts the number of persons willing to
hold tax-exempt bonds, resulting in higher financing costs.
Accordingly, the bill eliminates the AMT adjustments for
interest on tax-exempt bonds issued in the portion of calendar
year 2012 after the date of enactment.
EXPLANATION OF PROVISION
The provision provides that tax-exempt interest on private
activity bonds issued after the date of enactment and before
January 1, 2013, is not an item of tax preference for purposes
of the AMT and interest on tax exempt bonds issued during this
period is not included in the corporate adjustment based on
current earnings. For these purposes, a refunding bond is
treated as issued on the date of the issuance of the refunded
bond (or in the case of a series of refundings, the original
bond).
EFFECTIVE DATE
The provision applies to interest on bonds issued after the
date of enactment.
C. Issuance of TRIP Bonds by State Infrastructure Banks (sec. 203 of
the bill)
PRESENT LAW
There are no Code provisions for the issuance of
transportation and regional infrastructure project (``TRIP'')
bonds.
REASONS FOR CHANGE
The Committee believes that this provision, which amends
Title 23, provides an opportunity for the Congress to consider,
at a later date, the further development of the framework for
the TRIP bond program.
EXPLANATION OF PROVISION
The provision amends Title 23 to provide that a State,
through a State infrastructure bank, may issue TRIP bonds and
deposit the proceeds from such bonds into a TRIP bond account
of the bank. A ``TRIP bond'' means any bond issued as part of
an issue if (1) 100 percent of the available project proceeds
of such issue are to be used for expenditures incurred after
the date of enactment for one or more qualified projects
pursuant to an allocation of such proceeds to such project or
projects by a State infrastructure bank, (2) the bond is issued
by a State infrastructure bank and is in registered form
(within the meaning of section 149 of the Internal Revenue
Code), (3) the State infrastructure bank designates such bond
for purposes of the provision and (4) the term of each bond
that is part of such issue does not exceed 30 years. A
``qualified project'' means the capital improvements to any
transportation infrastructure project of any governmental unit
or other person, including roads, bridges, rail and transit
systems, ports and, inland waterways proposed and approved by a
State infrastructure bank, but does not include costs of
operations or maintenance with respect to such project.
The provision requires a State to develop a transparent and
competitive process for the award of funds deposited into the
TRIP bond account that considers the impact of qualified
projects on the economy, the environment, state of good repair,
and equity. The requirements of any Federal law, including
Title 23 and Titles 40 and 49, which would otherwise apply to
projects to which the United States is a party or to funds made
available under such law and projects assisted with those funds
shall apply to (1) funds made available under the TRIP bond
account for similar qualified projects and (2) similar
qualified projects assisted through the use of such funds.
EFFECTIVE DATE
The provision is effective on the date of enactment.
D. Extension of Parity for Exclusion From Income for Employer-Provided
Mass Transit and Parking Benefits (sec. 204 of the bill and sec. 132 of
the Code)
PRESENT LAW
Qualified transportation fringe benefits provided by an
employer are excluded from an employee's gross income for
income tax purposes and from an employee's wages for payroll
tax purposes.\25\ Qualified transportation fringe benefits
include parking, transit passes, vanpool benefits, and
qualified bicycle commuting reimbursements. No amount is
includible in the income of an employee merely because the
employer offers the employee a choice between cash and
qualified transportation fringe benefits (other than a
qualified bicycle commuting reimbursement). Qualified
transportation fringe benefits also include a cash
reimbursement by an employer to an employee. In the case of
transit passes, however, a cash reimbursement is considered a
qualified transportation fringe benefit only if a voucher or
similar item which may be exchanged only for a transit pass is
not readily available for direct distribution by the employer
to the employee.
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\25\Secs. 132(f), 3121(b)(2), and 3306(b)(16) and 3401(a)(19).
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Prior to February 17, 2009, the amount that could be
excluded as qualified transportation fringe benefits was
limited to $100 per month in combined vanpooling and transit
pass benefits and $175 per month in qualified parking benefits.
All limits are adjusted annually for inflation, using 1998 as
the base year (for 2012 the limits are $125 and $240,
respectively). The American Recovery and Reinvestment Act of
2009,\26\ however, provided parity in qualified transportation
fringe benefits by temporarily increasing the monthly exclusion
for employer-provided vanpool and transit pass benefits to the
same level as the exclusion for employer-provided parking,
effective for months beginning on or after the date of
enactment (February 17, 2009) and before January 1, 2011. The
Tax Relief, Unemployment Insurance Reauthorization, and Job
Creation Act of 2010\27\ extended the parity in qualified
transportation fringe benefits through December 31, 2011.
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\26\Pub. L. No. 111-5.
\27\Pub. L. No. 111-312.
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Effective January 1, 2012, the amount that could be
excluded as qualified transportation fringe benefits is limited
to $125 per month in combined vanpooling and transit pass
benefits and $240 per month in qualified parking benefits.
REASONS FOR CHANGE
Maintaining parity in transportation benefits provides
American workers with an incentive to use public transportation
and vanpools for their commute rather than driving to work in
their personal vehicles. The Committee believes that this
provision will help to ease traffic congestion and reduce
America's dependence on foreign sources of oil.
EXPLANATION OF PROVISION
The provision extends the parity in qualified
transportation fringe benefits for the entire 2012. In order
for the extension to be effective retroactive to January 1,
2012, the Committee intends that expenses incurred prior to
enactment by an employee for employer-provided vanpool and
transit benefits may be reimbursed by employers on a tax free
basis to the extent they exceed $125 per month and are less
than $240 per month, but only to the extent that such amount
has not already been excluded from such employee's taxable
compensation.
EFFECTIVE DATE
The provision is effective for months after December 31,
2011.
E. Private Activity Volume Cap Exemption for Sewage and Water Facility
Bonds (sec. 205 of the bill and sec. 146(g) of the Code)
In general
Subject to certain Code restrictions, interest on bonds
issued by State and local government generally is excluded from
gross income for Federal income tax purposes. Bonds issued by
State and local governments may be classified as either
governmental bonds or private activity bonds. Governmental
bonds are bonds the proceeds of which are primarily used to
finance governmental functions or which are repaid with
governmental funds. Private activity bonds are bonds in which
the State or local government serves as a conduit providing
financing to nongovernmental persons. For this purpose, the
term ``nongovernmental person'' generally includes the Federal
Government and all other individuals and entities other than
State or local governments. The exclusion from income for
interest on State and local bonds does not apply to private
activity bonds, unless the bonds are issued for certain
permitted purposes (``qualified private activity bonds'') and
other Code requirements are met.
Qualified private activity bonds
Interest on private activity bonds is taxable unless the
bonds meet the requirements for qualified private activity
bonds. Qualified private activity bonds permit States or local
governments to act as conduits providing tax-exempt financing
for certain private activities. The definition of qualified
private activity bonds includes an exempt facility bond, or
qualified mortgage, veterans' mortgage, small issue,
redevelopment, qualified 501(c)(3), or student loan bond.\28\
The definition of exempt facility bond includes bonds issued to
finance certain transportation facilities (airports, ports,
mass commuting, and high-speed intercity rail facilities);
qualified residential rental projects; privately owned and/or
operated utility facilities (sewage, water, solid waste
disposal, and local district heating and cooling facilities,
certain private electric and gas facilities, and hydroelectric
dam enhancements); public/private educational facilities;
qualified green building and sustainable design projects; and
qualified highway or surface freight transfer facilities.\29\
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\28\Sec. 141(e).
\29\Sec. 142(a).
---------------------------------------------------------------------------
In most cases, the aggregate volume of these tax-exempt
private activity bonds is restricted by annual aggregate volume
limits imposed on bonds issued by issuers within each State.
Certain types of private activity bonds are exempted from the
annual volume limits.
For calendar year 2012, the State volume cap, which is
indexed for inflation, equals $95 per resident of the State, or
$284,560,000, whichever is greater.
REASONS FOR CHANGE
The Committee believes that the types of infrastructure
projects funded by the proceeds of these bonds are important in
the current economic circumstances. It is anticipated that
exempting these types of bonds from the volume limitation will
encourage issuers to undertake more infrastructure spending for
sewage and water facilities.
EXPLANATION OF PROVISION
The provision exempts two types of exempt facility bonds
from the annual private activity volume limits. The newly-
exempted bonds are exempt facility bonds for sewage and water
facilities.
The provision only applies to bonds issued before January
1, 2018.
EFFECTIVE DATE
The provision is effective for bonds issued after the date
of enactment.
TITLE III.--REVENUE PROVISIONS
A. Leaking Underground Storage Tank Trust Fund (secs. 301 and 302 of
the bill, and secs. 9503 and 9508 of the Code)
PRESENT LAW
Leaking Underground Storage Tank Trust Fund financing rate
Fuels of a type subject to other trust fund excise taxes
generally are subject to an add-on excise tax of 0.1-cent-per-
gallon to fund the Leaking Underground Storage Tank (``LUST'')
Trust Fund.\30\ For example, the LUST excise tax applies to
gasoline, diesel fuel, kerosene, and most alternative fuels
subject to highway and aviation fuels excise taxes, and to
fuels subject to the inland waterways fuel excise tax. This
excise tax is imposed on both uses and parties subject to the
other taxes, and to situations (other than export) in which the
fuel otherwise is tax-exempt. For example, off-highway business
use of gasoline and off-highway use of diesel fuel and kerosene
generally are exempt from highway motor fuels excise tax.
Similarly, States and local governments and certain other
parties are exempt from such tax. Nonetheless, all such uses
and parties are subject to the 0.1-cent-per-gallon LUST excise
tax.
---------------------------------------------------------------------------
\30\Secs. 4041, 4042, and 4081.
---------------------------------------------------------------------------
Liquefied natural gas, compressed natural gas, and
liquefied petroleum gas are exempt from the LUST tax.
Additionally, methanol and ethanol fuels produced from coal
(including peat) are taxed at a reduce rate of 0.05 cents per
gallon.
The LUST tax is scheduled to expire after March 31,
2012.\31\
---------------------------------------------------------------------------
\31\For Federal budget scorekeeping purposes, the LUST Trust Fund
tax, like other excise taxes dedicated to trust funds, is assumed to be
permanent.
---------------------------------------------------------------------------
Overview of Leaking Underground Storage Tank Trust Fund expenditure
provisions
Amounts in the LUST Trust Fund are available, as provided
in appropriations Acts, for purposes of making expenditures to
carry out sections 9003(h)-(j), 9004(f), 9005(c), and 9010-9013
of the Solid Waste Disposal Act as in effect on the date of
enactment of Public Law 109-168. Any claim filed against the
LUST Trust Fund may be paid only out of such fund, and the
liability of the United States for claims is limited to the
amount in the fund.
The monies in the LUST Trust Fund are used to pay expenses
incurred by the Environmental Protection Agency (the ``EPA'')
and the States for preventing, detecting, and cleaning up leaks
from petroleum underground storage tanks, as well as programs
to evaluate the compatibility of fuel storage tanks with
alternative fuels, MTBE additives, and ethanol and biodiesel
blends.
The EPA makes grants to States to implement the program,
and States use cleanup funds primarily to oversee and enforce
corrective actions by responsible parties. States and EPA also
use cleanup funds to conduct corrective actions where no
responsible party has been identified, where a responsible
party fails to comply with a cleanup order, in the event of an
emergency, and to take cost recovery actions against parties.
In 2005, Congress authorized the EPA and States to use trust
fund monies for non-cleanup purposes as well, specifically for
administration and enforcement of the leak prevention
requirements of the UST program.\32\
---------------------------------------------------------------------------
\32\Pub. L. No. 109-58.
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REASONS FOR CHANGE
Revenues deposited in the LUST Trust Fund have exceeded
outlays and the Fund has a surplus balance. The Highway Trust
Fund primarily relies on motor fuel excise taxes for its
revenues. The Committee believes that since the LUST tax is
collected on motor fuels, it is appropriate to fund highway
projects with a portion of such motor fuel tax receipts.
EXPLANATION OF PROVISION
The provision transfers $3 billion from the LUST Trust Fund
to the Highway Trust Fund. The provision also provides that
.033 cent of the 0.1 cent LUST Trust Fund financing rate is
dedicated to the Highway Trust Fund.\33\
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\33\As noted above, the Leaking Underground Storage Tank Trust Fund
financing rate of 0.1 cent per gallon is also extended through
September 30, 2015.
---------------------------------------------------------------------------
EFFECTIVE DATE
The provision is effective on the date of enactment.
B. Claims and Credit Carryovers Related to Unprocessed and Excluded
Fuels (sec. 303 of the bill and secs. 40(a) and 9503(b) of the Code)
PRESENT LAW
Cellulosic biofuel producer credit
The ``cellulosic biofuel producer credit'' is a
nonrefundable income tax credit for each gallon of qualified
cellulosic fuel production of the producer for the taxable
year. The amount of the credit is generally $1.01 per
gallon.\34\
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\34\In the case of cellulosic biofuel that is alcohol, the $1.01
credit amount is reduced by the credit amount of the alcohol mixture
credit, and for ethanol, the credit amount for small ethanol producers,
as in effect at the time the cellulosic biofuel fuel is produced.
---------------------------------------------------------------------------
``Qualified cellulosic biofuel production'' is any
cellulosic biofuel which is produced by the taxpayer and which
is: (1) sold by the taxpayer to another person (a) for use by
such other person in the production of a qualified cellulosic
biofuel mixture in such person's trade or business (other than
casual off-farm production), (b) for use by such other person
as a fuel in a trade or business, or (c) who sells such
cellulosic biofuel at retail to another person and places such
cellulosic biofuel in the fuel tank of such other person; or
(2) used by the producer for any purpose described in (1)(a),
(b), or (c).
``Cellulosic biofuel'' means any liquid fuel that (1) is
produced in the United States and used as fuel in the United
States, (2) is derived from any lignocellulosic or
hemicellulosic matter that is available on a renewable or
recurring basis, and (3) meets the registration requirements
for fuels and fuel additives established by the EPA under
section 211 of the Clean Air Act. Cellulosic biofuel does not
include fuels that (1) are more than four percent (determined
by weight) water and sediment in any combination, (2) have an
ash content of more than one percent (determined by weight), or
(3) have an acid number greater than 25 (``unprocessed or
excluded fuels'').\35\
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\35\Section 40(b)(6)(e)(iii). Water content (including both free
water and water in solution with dissolved solids) is determined by
distillation, using for example ASTM method D95 or a similar method
suitable to the specific fuel being tested. Sediment consists of solid
particles that are dispersed in the liquid fuel and is determined by
centrifuge or extraction using, for example, ASTM method D1796 or D473
or similar method that reports sediment content in weight percent. Ash
is the residue remaining after combustion of the sample using a
specified method, such as ASTM D3174 or a similar method suitable for
the fuel being tested.
---------------------------------------------------------------------------
The cellulosic biofuel producer credit cannot be claimed
unless the taxpayer is registered by the Internal Revenue
Service (``IRS'') as a producer of cellulosic biofuel. The IRS
permits a taxpayer to register as a cellulosic biofuel producer
after the cellulosic biofuel has been produced. Thus, a person
may register as a cellulosic biofuel producer in 2010 for
cellulosic biofuel produced in 2009 and then claim the credit.
Cellulosic biofuel eligible for the section 40 credit is
precluded from qualifying as biodiesel, renewable diesel, or
alternative fuel for purposes of the applicable income tax
credit, excise tax credit, or payment provisions relating to
those fuels.\36\
---------------------------------------------------------------------------
\36\See secs. 40A(d)(1), 40A(f)(3), and 6426(h).
---------------------------------------------------------------------------
Because it is a credit under section 40(a), the cellulosic
biofuel producer credit is part of the general business credits
in section 38. However, the credit can only be carried forward
three taxable years after the termination of the credit. The
credit is also allowable against the alternative minimum tax.
Under section 87, the credit is included in gross income. The
cellulosic biofuel producer credit terminates on December 31,
2012.
The kraft process for making paper produces a byproduct
called black liquor, which has been used for decades by paper
manufacturers as a fuel in the papermaking process. Black
liquor is composed of water, lignin, and the spent chemicals
used to break down the wood. The amount of the biomass in black
liquor varies. The portion of the black liquor that is not
consumed as a fuel source for the paper mills is recycled back
into the papermaking process. Black liquor has ash content
(mineral and other inorganic matter) significantly above that
of other fuels.
In informal guidance, the IRS concluded that black liquor
is a liquid fuel from biomass and may qualify for the
cellulosic biofuel producer credit, as well as the refundable
alternative fuel mixture credit.\37\ A taxpayer cannot claim
both the alternative fuel mixture credit and the cellulosic
biofuel producer credit. The alternative fuel credits and
payment provisions expired December 31, 2011.
---------------------------------------------------------------------------
\37\Chief Counsel Advice 200941011 (June 30, 2009).
---------------------------------------------------------------------------
Alternative fuel mixture credit and payment
The Code provided for a tax credit of 50 cents for each
gallon of alternative fuel used to produce an alternative fuel
mixture that is used or sold for use as a fuel.\38\ Under
Notice 2006-92, an alternative fuel mixture is a mixture of
alternative fuel and a taxable fuel (such as diesel) that
contains at least 0.1 percent taxable fuel. Liquid fuel derived
from biomass is an alternative fuel.\39\ Diesel fuel has been
added to black liquor to qualify for the alternative fuel
mixture credit and the mixture is burned in a recovery boiler
as fuel. Persons that have an alternative fuel mixture credit
amount in excess of their taxable fuel excise tax liability may
make a claim for payment from the Treasury in the amount of the
excess under section 6427 for black liquor fuel mixtures
produced before January 1, 2010.\40\ If a timely claim has not
been made under section 6427, alternatively, a taxpayer may use
section 34 (a refundable income tax credit) to make a claim in
the amount of the alternative fuel mixture credit payable under
section 6427(e).
---------------------------------------------------------------------------
\38\Sec. 6426(e).
\39\Sec. 6426(d)(2)(G).
\40\For fuel sold or used after December 31, 2009, alternative fuel
does not include any fuel derived from the production of paper or pulp.
Sec. 6426(d)(2) (flush language).
---------------------------------------------------------------------------
REASONS FOR CHANGE
The kraft process for making paper produces a byproduct
called black liquor, which has been used for more than seven
decades by paper manufacturers as a fuel in the papermaking
process. Congress's intent in creating the alternative fuel
mixture tax credit and the cellulosic biofuels tax credit was
to give taxpayers an additional financial incentive to create
new fuels, in part to displace imported petroleum. However, in
an unintended outcome, black liquor qualified for the
alternative fuel mixture tax credit and the cellulosic biofuels
tax credit. Congress never intended for black liquor to qualify
for these credits and, in 2010, prohibited the credits for
black liquor sold or used on or after January 1, 2010. This
provision further closes the unintended black liquor loophole
by preventing taxpayers from claiming the cellulosic biofuels
credit on any new or amended tax returns.
EXPLANATION OF PROVISION
The provision prohibits taxpayers from claiming the
cellulosic biofuels credit (including any portion of the unused
general business credit carryover attributable to such credit)
for unprocessed or excluded fuels, as defined in section
40(b)(6)(e)(iii),\41\ such as black liquor, sold or used before
January 1, 2010. However, taxpayers will be permitted to claim
the 50 cents-per-gallon alternative fuel mixture credit or
payment for these fuels sold or used before January 1, 2010. As
under present law, a taxpayer may use section 34, in
conjunction with section 6427(e) to claim the 50-cents-per-
gallon benefit of the alternative fuel mixture credit.
---------------------------------------------------------------------------
\41\Section 1408(a) of the Health Care and Education Reconciliation
Act of 2010, Pub. L. No. 111-152, added section 40(e)(6)(E)(iii)(I) and
(II), excluding from the definition of cellulosic biofuel any fuel
having in any combination water and sediment of more than 4 percent of
such fuel, and any fuel with an ash content of more than 1 percent.
Section 2121(a) of the Small Business Jobs Act of 2010, Pub. L. No.
111-240, added section 40(e)(6)(iii)(III), which excluded any fuel with
an acid number greater than 25 from the definition of cellulosic
biofuel. Together, these amendments comprise section 40(e)(6)(iii).
---------------------------------------------------------------------------
Under the provision, out of money in the Treasury not
otherwise appropriated, amounts equivalent to the revenue
resulting from the provision are transferred to the Highway
Trust Fund.
EFFECTIVE DATE
The provision is effective for claims (including returns
and amended returns) filed on or after February 3, 2012.
C. Dedication of Gas Guzzler Tax to the Highway Trust Fund (sec. 304 of
the bill and sec. 9503 of the Code)
PRESENT LAW
Under present law, the Code imposes a tax (``the gas
guzzler tax'') on automobiles that are manufactured primarily
for use on public streets, roads, and highways and that are
rated at 6,000 pounds unloaded gross vehicle weight or
less.\42\ The tax is imposed on the sale by the manufacturer of
each automobile of a model type with a fuel economy of 22.5
miles per gallon or less. The tax range begins at $1,000 and
increases to $7,700 for models with a fuel economy less than
12.5 miles per gallon.
---------------------------------------------------------------------------
\42\Sec. 4064.
---------------------------------------------------------------------------
Emergency vehicles and non-passenger automobiles are exempt
from the tax. The tax also does not apply to non-passenger
automobiles. The Secretary of Transportation determines which
vehicles are ``non-passenger'' automobiles, thereby exempting
these vehicles from the gas guzzler tax based on regulations in
effect on the date of enactment of the gas guzzler tax.\43\
Hence, vehicles defined in Title 49 C.F.R. sec. 523.5 (relating
to light trucks) are exempt. These vehicles include those
designed to transport property on an open bed (e.g., pick-up
trucks) or provide greater cargo-carrying than passenger
carrying volume including the expanded cargo-carrying space
created through the removal of readily detachable seats (e.g.,
pick-up trucks, vans, and most minivans, sports utility
vehicles, and station wagons). Additional vehicles that meet
the ``non-passenger'' requirements are those with at least four
of the following characteristics: (1) an angle of approach of
not less than 28 degrees; (2) a breakover angle of not less
than 14 degrees; (3) a departure angle of not less than 20
degrees; (4) a running clearance of not less than 20
centimeters; and (5) front and rear axle clearances of not less
than 18 centimeters each. These vehicles would include many
sports utility vehicles.
---------------------------------------------------------------------------
\43\Sec. 4064(b)(1)(A).
---------------------------------------------------------------------------
REASONS FOR CHANGE
The gas guzzler tax serves as a deterrent to purchasing
fuel inefficient vehicles, thus encouraging the purchase of
more fuel efficient vehicles, which in turn reduces motor fuel
tax contributions to the Highway Trust Fund. Thus, to
compensate for that underpayment, the Committee believes this
tax on automobiles is appropriate to dedicate to the Highway
Trust Fund.
EXPLANATION OF PROVISION
The provision requires that amounts equivalent to the gas
guzzler taxes received in the Treasury be transferred to the
Highway Trust Fund.
EFFECTIVE DATE
The provision is effective on the date of enactment.
D. Revocation or Denial of Passport in Case of Certain Unpaid Taxes
(sec. 305 of the bill and new secs. 7345 and 6103(l)(23) of the Code)
PRESENT LAW
The administration of passports is the responsibility of
the Department of State.\44\ State may refuse to issue or renew
a passport if the applicant owes child support in excess of
$2,500 or owes certain types of Federal debts, such as expenses
incurred in providing assistance to an applicant to return to
the United States. The scope of this authority does not extend
to rejection or revocation of a passport on the basis of
delinquent Federal taxes. Issuance of a passport does not
require the applicant to provide a social security number or
taxpayer identification number.
---------------------------------------------------------------------------
\44\``Passport Act of 1926,'' 22 U.S.C. sec. 211a et seq.
---------------------------------------------------------------------------
Returns and return information are confidential and may not
be disclosed by the IRS, other Federal employees, State
employees, and certain others having access to such information
except as provided in the Internal Revenue Code.\45\ There are
a number of exceptions to the general rule of nondisclosure
that authorize disclosure in specifically identified
circumstances, including disclosure of information about
federal tax debts for purposes of reviewing an application for
a Federal loan\46\ and for purposes of enhancing the integrity
of the Medicare program.\47\
---------------------------------------------------------------------------
\45\Sec. 6103.
\46\Sec. 6103(l)(3).
\47\Sec. 6103(l)(22).
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee is aware that the amount of unpaid Federal
tax debts continues to present a challenge to the IRS. The
Committee is also aware that a significant amount of unpaid
Federal tax debt is owed by persons to whom passports have been
issued. In 2011, for example, the Government Accountability
Office reported that approximately 224,000 persons issued U.S.
passports in 2008 owed in aggregate $5.8 billion.\48\ Federal
law currently permits the Department of State to refuse an
application for a passport or revoke a passport based on the
existence of certain debts, including delinquent child support,
but does not have authority to consider the existence of tax
debt. In addition, the IRS is not authorized to provide
information to the Department of State about persons who owe
tax debts. The Committee believes that tax compliance will
increase if issuance of a passport is linked to payment of
one's tax debts.
---------------------------------------------------------------------------
\48\Government Accountability Office, Potential for Using Passport
Issuance to Increase Tax Compliance, (GAO-11-272), April, 2011.
---------------------------------------------------------------------------
EXPLANATION OF PROVISION
If the Commissioner of Internal Revenue certifies to the
Secretary of the Treasury the identity of persons who have
seriously delinquent Federal taxes, the Secretary of the
Treasury or his delegate is authorized to transmit such
certification to the Secretary of State for use in determining
whether to issue, renew, or revoke a passport. Applicants whose
names are included on the certifications provided to the
Secretary of State are ineligible for a passport. The provision
bars the Secretary of State from issuing a passport to any
individual who has a seriously delinquent tax debt. It also
requires revocation of a passport previously issued to any such
individual. Exceptions are permitted for emergency or
humanitarian circumstances, as well as short term use of a
passport for return travel to the United States by the
delinquent taxpayer.
A seriously delinquent tax debt generally includes any
outstanding debt for Federal tax in excess of $50,000,
including interest and any penalties, for which a notice of
lien or a notice of levy has been filed. This amount is to be
adjusted for inflation annually, using calendar year 2011, and
a cost-of-living adjustment. Even if a tax debt otherwise meets
the statutory threshold, it may not be considered seriously
delinquent if (1) the debt is being paid in a timely manner
pursuant to an installment agreement or offer-in-compromise, or
(2) collection action with respect to the debt is suspended
because a collection due process hearing or innocent spouse
relief has been requested or is pending.
EFFECTIVE DATE
The provision is effective on January 1, 2013.
E. 100 Percent Continuous Levy on Payments to Medicare Providers and
Suppliers (sec. 306 of the bill and sec. 6331(h) of the Code)
PRESENT LAW
In general
Levy is the administrative authority of the IRS to seize a
taxpayer's property, or rights to property, to pay the
taxpayer's tax liability.\49\ Generally, the IRS is entitled to
seize a taxpayer's property by levy if a Federal tax lien has
attached to such property,\50\ the property is not exempt from
levy,\51\ and the IRS has provided both notice of intention to
levy\52\ and notice of the right to an administrative hearing
(the notice is referred to as a ``collections due process
notice'' or ``CDP notice'' and the hearing is referred to as
the ``CDP hearing'')\53\ at least 30 days before the levy is
made. A levy on salary or wages generally is continuously in
effect until released.\54\ A Federal tax lien arises
automatically when: (1) a tax assessment has been made; (2) the
taxpayer has been given notice of the assessment stating the
amount and demanding payment; and (3) the taxpayer has failed
to pay the amount assessed within 10 days after the notice and
demand.\55\
---------------------------------------------------------------------------
\49\Sec. 6331(a). Levy specifically refers to the legal process by
which the IRS orders a third party to turn over property in its
possession that belongs to the delinquent taxpayer named in a notice of
levy.
\50\Ibid.
\51\Sec. 6334.
\52\Sec. 6331(d).
\53\Sec. 6330. The notice and the hearing are referred to
collectively as the CDP requirements.
\54\Secs. 6331(e) and 6343.
\55\Sec. 6321.
---------------------------------------------------------------------------
The notice of intent to levy is not required if the
Secretary finds that collection would be jeopardized by delay.
The standard for determining whether jeopardy exists is similar
to the standard applicable when determining whether assessment
of tax without following the normal deficiency procedures is
permitted.\56\
---------------------------------------------------------------------------
\56\Secs. 6331(d)(3), 6861.
---------------------------------------------------------------------------
The CDP notice (and pre-levy CDP hearing) is not required
if: (1) the Secretary finds that collection would be
jeopardized by delay; (2) the Secretary has served a levy on a
State to collect a Federal tax liability from a State tax
refund; (3) the taxpayer subject to the levy requested a CDP
hearing with respect to unpaid employment taxes arising in the
two-year period before the beginning of the taxable period with
respect to which the employment tax levy is served; or (4) the
Secretary has served a Federal contractor levy. In each of
these four cases, however, the taxpayer is provided an
opportunity for a hearing within a reasonable period of time
after the levy.\57\
---------------------------------------------------------------------------
\57\Sec. 6330(f).
---------------------------------------------------------------------------
Federal payment levy program
To help the IRS collect taxes more effectively, the
Taxpayer Relief Act of 1997\58\ authorized the establishment of
the Federal Payment Levy Program (``FPLP''), which allows the
IRS to continuously levy up to 15 percent of certain
``specified payments'' by the Federal government if the payees
are delinquent on their tax obligations. With respect to
payments to vendors of goods, services, or property sold or
leased to the Federal government, the continuous levy may be up
to 100 percent of each payment.\59\ The levy (either up to 15
percent or up to 100 percent) generally continues in effect
until the liability is paid or the IRS releases the levy.
---------------------------------------------------------------------------
\58\Pub. L. No. 105-34.
\59\Sec. 6331(h)(3). The word ``property'' was added to ``goods or
services'' in section 301 of the ``3% Withholding Repeal and Job
Creation Act,'' Pub. L. No. 112-56.
---------------------------------------------------------------------------
Under FPLP, the IRS matches its accounts receivable records
with Federal payment records maintained by the Department of
the Treasury's Financial Management Service (``FMS''), such as
certain Social Security benefit and Federal wage records. When
these records match, the delinquent taxpayer is provided both
the notice of intention to levy and the CDP notice. If the
taxpayer does not respond after 30 days, the IRS can instruct
FMS to levy the taxpayer's Federal payments. Subsequent
payments are continuously levied until such time that the tax
debt is paid or the IRS releases the levy.
Payments to Medicare providers
In 2008, the Government Accountability Office (``GAO'')
found that over 27,000 Medicare providers (i.e., about six
percent of all such providers) owed more than $2 billion of tax
debt, consisting largely of individual income and payroll
taxes.\60\ In one case, a home health company received over $15
million in Medicare payments but did not pay $7 million in
federal taxes.\61\ As of 2008, the Centers for Medicare &
Medicaid Services (``CMS'') had not incorporated most of its
Medicare payments into the continuous levy program, despite the
IRS authority to continuously levy up to 15 percent of these
payments. Thus, for calendar year 2006, the government lost the
chance to possibly collect over $140 million in unpaid Federal
taxes.\62\ The GAO noted that CMS officials promised to
incorporate about 60 percent of all Medicare fee-for-service
payments into the levy program by October 2008 and the
remaining 40 percent in the next several years.
---------------------------------------------------------------------------
\60\Government Accountability Office, Medicare: Thousands of
Medicare Providers Abuse the Federal Tax System, GAO-08-618 (June 13,
2008).
\61\Ibid., p. 4.
\62\Ibid.
---------------------------------------------------------------------------
Following the GAO study, Congress directed CMS to
participate in the FPLP and ensure that all Medicare provider
and supplier payments are processed through it, in specified
graduated percentages, by the end of fiscal year 2011.\63\
---------------------------------------------------------------------------
\63\Medicare Improvement for Patients and Providers Act of 2008,
Pub. L. No. 110-275, sec. 189.
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee believes that the rate of nonpayment of
Federal taxes by Medicare providers is not acceptable. The
Committee further believes that such payments should be subject
to ongoing levy in full. Changing the levy provisions of the
Code to ensure that payments to Medicare providers may be fully
offset under the FPLP will improve the integrity of the
Medicare program and improve tax compliance.
EXPLANATION OF PROVISION
The provision allows Treasury to levy up to 100 percent of
a payment to a Medicare provider to collect unpaid taxes.
EFFECTIVE DATE
The provision is effective for payments made after the date
of enactment.
F. Appropriation to the Highway Trust Fund of Amounts Attributable to
Certain Duties on Imported Vehicles (sec. 307 of the bill)
PRESENT LAW
Customs duties are deposited into the general fund of the
Treasury of the United States. This includes customs duties
collected on imported vehicles classified under Chapter 87 of
the Harmonized Tariff Schedule of the United States.
REASONS FOR CHANGE
The Congressional Budget Office has estimated that the
Highway Trust Fund will exhaust its available revenues for
highway projects in fiscal year 2013. To assist in keeping the
Highway Trust Fund solvent, the Committee believes it is
appropriate to dedicate certain customs duties collected on
imported vehicles to the Highway Trust Fund.
EXPLANATION OF PROVISION
The provision would appropriate from the General Fund and
deposit into the Highway Trust Fund amounts equivalent to
amounts received in the General Fund, for fiscal year 2012
through fiscal year 2016, on articles classified under
subheadings 8703.22.00 and 8703.24.00 of Chapter 87.
EFFECTIVE DATE
The provision is effective on the date of enactment.
G. Treatment of Securities of a Controlled Corporation Exchanged for
Assets in Certain Reorganizations (sec. 308 of the bill and sec. 361 of
the Code)
PRESENT LAW
The transfer of assets by a transferor corporation to
another corporation, controlled (immediately after the
transfer) by the transferor or one or more of its shareholders,
qualifies as a tax-free reorganization if the transfer is made
by one corporation (``distributing'') of a part of its assets
consisting of an active trade or business meeting certain
requirements to a controlled subsidiary corporation
(``controlled''), followed by the distribution of the stock and
securities of the controlled subsidiary in a divisive spin-off,
split-off, or split-up which was not used principally as a
device for the distribution of earnings and profits (``divisive
D reorganization'').\64\
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\64\Secs. 355 and 368(a)(1)(D). Section 355 imposes requirements
for a qualified spin-off, split-off, or split-up. Among other
requirements, in order for a transaction to qualify under section 355,
the distributing corporation must either (i) distribute all of the
stock and securities of the controlled corporation that it holds, or
(ii) distribute at least an amount of stock constituting control under
section 368(c) and establish to the satisfaction of the Secretary of
the Treasury that the retention of stock (or stock and securities) was
not in pursuance of a plan having as one of its principal purposes the
avoidance of Federal income tax. Sec. 355(a)(1)(D). Section 355 imposes
other requirements to avoid gain recognition at the corporate level
with respect to the spin-off, split-up, or split-off, e.g., secs.
355(d) and (e).
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No gain or loss is recognized to a corporation if the
corporation is a party to a reorganization and exchanges
property, in pursuance of the plan of reorganization, solely
for stock or securities in another corporation that is a party
to the reorganization.\65\ If property other than stock or
securities is received (``other property''), gain is recognized
to the extent the other property is not distributed.\66\
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\65\Sec. 361(a).
\66\Sec. 361(b).
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In addition, in the case of a transfer to the corporation's
creditors of money or other property received in the exchange,
in connection with the reorganization, gain is recognized to
the extent the sum of the money and the fair market value of
the other property exceeds the adjusted bases of the assets
transferred (net of liabilities).\67\ Such a transfer to
creditors is aggregated with other assumptions of the
transferor corporation's liabilities by the transferee, which
generally cause gain recognition if they exceed the adjusted
basis of assets transferred.\68\
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\67\The last sentence of sec. 361(b)(3).
\68\Sec. 357(c).
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For example, if in a divisive D reorganization the
controlled corporation either (1) directly assumes the debt of
the distributing corporation, or (2) borrows and distributes
cash to the distributing corporation to pay the distributing
corporation's creditors, such debt assumption or cash
distribution is treated as money received by the distributing
corporation, and is taxable to the extent it exceeds the
distributing corporation's basis in the assets transferred to
the controlled corporation. By contrast, if the controlled
corporation leverages itself by issuing its debt securities to
the distributing corporation, the controlled corporation's debt
securities are not treated as money or other property received
by the distributing corporation. Thus, the distributing
corporation could use the controlled corporation's securities
to retire the distributing corporation's own debt, recognize no
gain, and be in the same economic position as if its debt had
been directly assumed by the controlled corporation or as if it
had retired its debt with cash received from the controlled
corporation.
REASONS FOR CHANGE
The Committee is concerned that securities of a controlled
subsidiary corporation that are exchanged for assets in a
divisive D reorganization may be used to provide an economic
benefit to the distributing corporation that is equivalent to
the subsidiary's direct assumption of the distributing
corporation's indebtedness, without subjecting the distributing
corporation to tax in the same manner as in the case of such an
assumption. For example, securities of the controlled
subsidiary corporation may be distributed to creditors of the
distributing corporation, effectively relieving the
distributing corporation of the obligation to such creditors
and shifting the obligation to the controlled entity.
Similarly, under present law, securities of the controlled
corporation might be issued to and in some situations retained
by the distributing corporation without treating such
securities as equivalent to the receipt of taxable property.
The Committee also is concerned that present law may
encourage excessive leverage in some divisive D reorganization
situations. For example, a controlled subsidiary could be
distributed that is bearing excessive debt through its
securities, from which the distributing corporation receives a
tax-free economic benefit.
EXPLANATION OF PROVISION
Under the provision, in the case of a divisive D
reorganization, no gain or loss is recognized to a corporation
if the corporation is a party to a reorganization and exchanges
property, in pursuance of the plan of reorganization, solely
for stock other than nonqualified preferred stock (as defined
in section 351(g)(2)).\69\ Thus, under the provision,
securities and nonqualified preferred stock are treated as
``other property.''
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\69\Section 351(g)(2) defines nonqualified preferred stock as
preferred stock if (i) the holder has a right to require the issuer or
a related person to redeem or purchase the stock, which right may be
exercised within the 20-year period beginning on the issue date and is
not subject to a contingency which, as of the issue date, makes remote
the likelihood of redemption or purchase; (ii) the issuer or a related
person is required to redeem or purchase the stock (within such 20-year
period and not subject to such a contingency); (iii) the issuer or a
related person has the right to redeem or purchase the stock (which
right is exercisable within such 20-year period and not subject to such
a contingency) and as of the issue date, it is more likely than not
that such right will be exercised, or (iv) the dividend on such stock
varies in whole or in part (directly or indirectly) with reference to
interest rates, commodity prices, or other similar indices. There are
exceptions for certain rights that are exercisable only on the death,
disability or mental incompetency of the holder, or only upon the
separation from service of a service provider who received the right as
reasonable compensation for services, and for certain situations
involving publicly traded stock. Nonqualified preferred stock is
treated in the same manner as securities under section 351 and thus is
not qualified consideration that may be received tax free by a
contributing shareholder. Sections 354(a)(2)(C) and 356(e) treat
nonqualified preferred stock as taxable consideration if received in
exchange for stock by shareholders of a corporation that itself is a
party to a reorganization (except to the extent received in exchange
for other nonqualified preferred stock); and section 355 contains a
similar rule (sec. 355(a)(3)(D)).
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Under the provision, the transferor corporation's gain on
the exchange is recognized to the extent of the sum of money
and the value of other property, including securities and
nonqualified preferred stock, not distributed in pursuance of
the plan of reorganization. Also, gain on the exchange is
recognized to the extent that the sum of money and the value of
all property other than stock that is not nonqualified
preferred stock which is transferred to creditors exceeds the
adjusted bases of the assets transferred (net of liabilities).
For example, under the provision, in a divisive D
reorganization, the exchange of the controlled corporation's
securities for the distributing corporation's securities would
be treated in the same manner as (1) the assumption of the
distributing corporation's debt by the controlled corporation,
or (2) the use of a cash distribution from the controlled
corporation to retire debt of the distributing corporation.
EFFECTIVE DATE
The provision applies to exchanges occurring after the date
of enactment.
However, the provision does not apply to any exchange in
connection with a transaction which is (1) made pursuant to a
written agreement which was binding on February 6, 2012 and at
all times thereafter, (2) described in a ruling request
submitted to the IRS on or before such date, or (3) described
on or before such date in a public announcement or in a filing
with the Securities and Exchange Commission.
H. Internal Revenue Service Levies and Thrift Savings Plan Accounts
(sec. 309 of the bill)
PRESENT LAW
In general
Levy is the IRS's administrative authority to seize a
taxpayer's property, or rights to property, to pay the
taxpayer's tax liability.\70\ Generally, the IRS is entitled to
seize a taxpayer's property by levy if a Federal tax lien has
attached to such property,\71\ the property is not exempt from
levy,\72\ and the IRS has provided both notice of intention to
levy\73\ and notice of the right to an administrative hearing
(the notice is referred to as a ``collections due process
notice'' or ``CDP notice'' and the hearing is referred to as
the ``CDP hearing'')\74\ at least 30 days before the levy is
made. A levy on salary or wages is generally continuously in
effect until released.\75\ A Federal tax lien arises
automatically when: (1) a tax assessment has been made; (2) the
taxpayer has been given notice of the assessment stating the
amount and demanding payment; and (3) the taxpayer has failed
to pay the amount assessed within 10 days after the notice and
demand.\76\
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\70\Sec. 6331(a). Levy specifically refers to the legal process by
which the IRS orders a third party to turn over property in its
possession that belongs to the delinquent taxpayer named in a notice of
levy.
\71\Ibid.
\72\Sec. 6334.
\73\Sec. 6331(d).
\74\Sec. 6330. The notice and the hearing are referred to
collectively as the CDP requirements.
\75\Secs. 6331(e) and 6343.
\76\Sec. 6321.
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The notice of intent to levy is not required if the
Secretary finds that collection would be jeopardized by delay.
The standard for determining whether jeopardy exists is similar
to the standard applicable when determining whether assessment
of tax without following the normal deficiency procedures is
permitted.\77\
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\77\Secs. 6331(d)(3) and 6861.
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The CDP notice (and pre-levy CDP hearing) is not required
if: (1) the Secretary finds that collection would be
jeopardized by delay; (2) the Secretary has served a levy on a
State to collect a Federal tax liability from a State tax
refund; (3) the taxpayer subject to the levy requested a CDP
hearing with respect to unpaid employment taxes arising in the
two-year period before the beginning of the taxable period with
respect to which the employment tax levy is served; or (4) the
Secretary has served a Federal contractor levy. In each of
these four cases, however, the taxpayer is provided an
opportunity for a hearing within a reasonable period of time
after the levy.\78\
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\78\Sec. 6330(f).
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Thrift Savings Plan
Present law includes an anti-alienation rule that provides
that the balance of an employee's Thrift Savings Plan (``TSP'')
Account is subject to taking only for the enforcement of one's
obligations to provide for child support or alimony payments,
restitution orders, certain forfeitures, or certain obligations
of the Executive Director.\79\ The authority for the IRS to
levy an employee's TSP Account to satisfy tax liabilities is
not mentioned in the anti-alienation rule; TSP Accounts are not
specifically enumerated in the Code provisions identifying
property that is exempt from levy.
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\79\5 U.S.C. sec. 8437(e)(3).
---------------------------------------------------------------------------
REASONS FOR CHANGE
This amendment to title 5, United States Code, provides
that monies in the Thrift Savings Fund accounts of Federal
employees shall be subject to legal process by the IRS for
payment of delinquent taxes, thus explicitly allowing the
Thrift Investment Board to honor an IRS notice of levy. The
Committee is aware that the Thrift Investment Board has
previously taken the position that money in the TSP cannot be
levied, and that the Thrift Investment Board cites in support
an apparent conflict between the TSP authorizing statute and
the Internal Revenue Code. The Committee believes that the
continuing failure to honor levies on TSP Accounts of Federal
employees or retirees after issuance of a legal opinion from
the Office of Legal Counsel at the Department of Justice in May
of 2010,\80\ concluding that TSP accounts are subject to levy,
undermines the program integrity of tax administration
generally and has an adverse affect on tax compliance. The
Committee believes that this amendment resolves the perceived
statutory conflict and will enhance respect for tax
administration. Because this amendment is intended as a
clarification of current law, it should not be interpreted as
implying that property rights of taxpayers governed by Federal
law are only subject to levy if the statute governing those
rights expressly so provides. The Committee believes that
Section 6334 of title 26 contains the exclusive list of
exemptions from the federal tax levy.
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\80\Office of Legal Counsel, Dept. of Justice, ``Applicability of
Tax Levies under 26 U.S.C. Sec. 6334 To Thrift Savings Plan Accounts,''
Opinions of Office of Legal Counsel, Vol. 34 (May 3, 2010), reprinted,
Tax Analysts, Doc. 2012-2479.
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EXPLANATION OF PROVISION
The provision amends the statutory provisions governing the
TSP to clarify that the anti-alienation provisions therein do
not bar the IRS from issuing a notice of levy on a TSP Account.
EFFECTIVE DATE
The provision is effective upon date of enactment.
I. Modification of Required Distribution Rules for Pension Plans (sec.
310 of the bill and sec. 401(a)(9) of the Code)
PRESENT LAW
Minimum distribution rules apply to employer-sponsored tax-
favored retirement plans and individual retirement arrangements
(``IRA'').\81\ In general, under these rules, distribution of
minimum benefits must begin no later than the required
beginning date and a minimum amount must be distributed each
year. Minimum distribution rules also apply to benefits payable
with respect to an employee or IRA owner who has died. The
regulations under section 401(a)(9) provide a methodology for
calculating the required minimum distribution from an
individual account under a defined contribution plan or from an
IRA. In the case of annuity payments under a defined benefit
plan or an annuity contract, the regulations provide
requirements that the annuity stream of payments must satisfy.
Failure to comply with the minimum distribution requirement
results in an excise tax imposed on the individual who was
required to be the distributee equal to 50 percent of the
required minimum distribution not distributed for the year. The
excise tax may be waived in certain cases.
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\81\There are two types of IRA, Roth and traditional. The lifetime
and after-death minimum distribution requirements apply to traditional
IRAs. Only the after-death requirements apply to Roth IRAs.
---------------------------------------------------------------------------
Required beginning date
For traditional IRAs, the required beginning date is April
1 following the calendar year in which the employee or IRA
owner attains age 70\1/2\. For employer-sponsored tax-favored
retirement plans, for an employee other than an employee who is
a five-percent owner in the year the employee attains age 70\1/
2\, the employee's required beginning date is April 1 after the
later of the calendar year in which the employee attains age
70\1/2\ or retires. For an employee who is a five-percent owner
under an employer-sponsored tax-favored retirement plan in the
year the employee attains age 70\1/2\, the required beginning
date is the same as for IRAs even if the employee continues to
work past age 70\1/2\.
Lifetime rules
While an employee or IRA owner is alive, distributions of
the individual's interest are required to be made (in
accordance with regulations) over the life or life expectancy
of the employee or IRA owner, or over the joint lives or joint
life expectancy of the employee or IRA owner and a designated
beneficiary.\82\ For defined contribution plans and IRAs, the
required minimum distribution for each year is determined by
dividing the account balance as of the end of the prior year by
a distribution period which, while the employee or IRA owner is
alive, is the factor from the uniform lifetime table included
in the regulations.\83\ This table is based on the joint life
and last survivor expectancy of the individual and a
hypothetical beneficiary 10 years younger.
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\82\Sec. 401(a)(9)(A).
\83\Treas. Reg. sec. 1.401(a)(9)-5. For an individual with a spouse
as designated beneficiary who is more than 10 years younger (and thus
the number of years in the couple's joint life and last survivor
expectancy is greater than the uniform lifetime table), the joint life
expectancy and last survivor expectancy of the couple (calculated using
the table in the regulations) is used.
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Distributions after death
Payments over a distribution period
The after death rules vary depending on (1) whether an
employee or IRA owner dies on or after the required beginning
date or before the required beginning date, and (2) whether
there is a designated beneficiary for the benefit.\84\ Under
the regulations, a designated beneficiary is an individual
designated as a beneficiary under the plan.\85\ Similar to the
lifetime rules, for defined contribution plans and IRAs, the
required minimum distribution for each year after the death of
the employee or IRA owner is generally determined by dividing
the account balance as of the end of the prior year by a
distribution period.
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\84\Special rules apply if the beneficiary of the employee or IRA
owner is the individual's surviving spouse. In that case, for example,
distributions are not required to commence until the year in which the
employee or IRA owner would have attained age 70\1/2\. Similarly, if
the surviving spouse dies before the employee or IRA owner would have
attained age 70\1/2\, the after-death rules for death before
distributions have begun are applied as though the spouse were the
employee or IRA owner. Further, there are rules that allow a surviving
spouse to treat an IRA as the spouse's own IRA or roll over an amount
received as a beneficiary to an IRA established in the spouse's own
name.
\85\Treas. Reg. sec. 1.401(a)(9)-4, A-1. The individual need not be
named as long as the individual is identifiable under the terms of the
plan. There are special rules for multiple beneficiaries and for trusts
named as beneficiary (where the beneficiaries of the trust are
individuals). However, if an individual is named as beneficiary through
the employee or IRA owner's will or the estate is named as beneficiary,
there is no designated beneficiary for purposes of the minimum
distribution requirements.
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Under the Code, if an employee or IRA owner dies on or
after the required beginning date, the remaining interest must
be distributed at least as rapidly as under the minimum
distribution method being used as of the date of death.\86\
Under the regulations, for individual accounts, if there is a
designated beneficiary, the distribution period is the
beneficiary's life expectancy calculated using the life
expectancy table in the regulations, calculated in the year
after the year of the death.\87\ If there is no designated
beneficiary, the distribution period is equal to the remaining
years of the employee or IRA owner's life, as of the year of
death.\88\
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\86\Sec. 401(a)(9)(B)(i)
\87\Treas. Reg. sec. 1.401(a)(9)-5, A-5(b).
\88\Treas. Reg. sec. 1.401(a)(9)-5, A-5(a).
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If an employee or IRA owner dies before the required
beginning date and any portion of the benefit is payable to a
designated beneficiary, distributions are permitted to begin
within one year of the employee's (or IRA owner's) death (or
such later date as prescribed in regulations) and to be paid
(in accordance with regulations) over the life or life
expectancy of the designated beneficiary. Under the
regulations, for individual accounts, the distribution period
is measured by the designated beneficiary's life expectancy,
calculated in the same manner as if the individual dies on or
after the required beginning date.\89\
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\89\Treas. Reg. sec. 1.401(a)(9)-5, A-5(b).
---------------------------------------------------------------------------
In all cases where distribution after death is based on
life expectancy (either the remaining life expectancy of the
employee or IRA owner or a designated beneficiary), the
distribution period generally is fixed at death and then
reduced by one for each year that elapses after the year in
which it is calculated. If the designated beneficiary dies
during the distribution period, distributions continue to the
subsequent beneficiaries over the remaining years in the
distribution period.\90\
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\90\If the distribution period is based on the surviving spouse's
life expectancy (whether the employee or IRA owner's death is before or
after the required beginning date), the spouse's life expectancy
generally is recalculated each year while the spouse is alive and then
fixed the year after the spouse's death.
---------------------------------------------------------------------------
Five-year rule
If an employee or IRA owner dies before the required
beginning date and there is no designated beneficiary, then the
entire remaining interest of the employee or IRA owner must
generally be distributed by the end of the fifth year following
the individual's death.\91\
---------------------------------------------------------------------------
\91\Treas. Reg. sec. 1.401(a)(9)-3, A-2.
---------------------------------------------------------------------------
Defined benefit plans and annuity distributions
The regulations provide rules for annuity distributions
from a defined benefit plan or an annuity purchased from an
insurance company paid over life or life expectancy. Annuity
distributions generally are required to be nonincreasing with
certain exceptions, which include, for example, increases to
the extent of certain specified cost of living indexes, a
constant percentage increase (for a qualified plan, the
constant percentage cannot exceed five percent per year),
certain accelerations of payments, increases to reflect when an
annuity is converted to a single life annuity after the death
of the beneficiary under a joint and survivor annuity or after
termination of the survivor annuity under a qualified domestic
relations order.\92\ If distributions are in the form of a
joint and survivor annuity and the survivor annuitant both is
not the surviving spouse and is younger than the employee or
IRA owner, the survivor annuitant is limited to a percentage of
the life annuity benefit for the employee or IRA owner.\93\ The
survivor benefit as a percentage of the benefit of the primary
annuitant is required to be smaller (but not required to be
less than 52 percent) as the difference in the ages of the
primary annuitant and the survivor annuitant become greater.
---------------------------------------------------------------------------
\92\Treas. Reg. sec. 1.401(a)(9)-6, A-14.
\93\Treas. Reg. sec. 1.401(a)(9)-6, A-2.
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REASONS FOR CHANGE
The Committee believes that it is appropriate to allow
extended distributions after the death of the employee or IRA
owner only to certain types of beneficiaries, such as the
employee's spouse (or other beneficiary close to the same age
as the employee or IRA owner) or a beneficiary who is disabled
or chronically ill. The Committee believes that, for other
beneficiaries, tax deferral of benefits should not continue for
an extended period after the death. Thus, it is appropriate for
the benefits to be paid out within five years of the employee
or IRA owner's death. Similarly, after the death of the
beneficiary, any interest remaining should be paid out within
five years of the beneficiary's death.
EXPLANATION OF PROVISION
Required beginning date
Under the provision, if an employee becomes a five-percent
owner after age 70\1/2\, but before retiring and thus before
the employee's required beginning date with respect to tax
favored retirement plans of the employee's employer, the
required beginning date for that employee becomes April 1
following the year that the employee becomes a five-percent
owner.
Other than the modification to the required beginning date
for five-percent owners, the provision makes no change to the
rules for required minimum distributions during the lifetime of
the employee or IRA owner. Thus, for example, the provision is
not expected to result in a change in the regulations for
required minimum distributions during the lifetime of the
employee or IRA owner under which the required minimum
distribution for each year generally is determined by dividing
the account balance as of the end of the prior year by a
distribution period which is the number corresponding to the
employee or IRA owner's age for the year from the uniform
lifetime table included in the regulations.
After-death rules
Under the provision, the five-year rule is the general rule
for all distributions after death (regardless of whether the
employee or IRA owner dies before, on, or after the required
beginning date) unless the beneficiary is an eligible
beneficiary as defined in the provision. Eligible beneficiaries
include any beneficiary who, as of the date of death, is the
surviving spouse of the employee or IRA owner, is disabled, is
a chronically ill individual, is an individual who is not more
than 10 years younger than the employee or IRA owner, or is a
child who has not reached the age of majority.\94\ For these
beneficiaries, the exception to the five-year rule (for death
before the required beginning date) applies whether or not the
IRA owner or employee dies before or after the required
beginning date. That rule allows distributions over the life or
life expectancy of the beneficiary beginning in the year
following the year of death.
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\94\The provision does not change the rules that allow a surviving
spouse to treat an IRA as the spouse's own IRA or roll over an amount
received as a beneficiary to an IRA established in the spouse's own
name.
---------------------------------------------------------------------------
However, unlike present law, under the provision, the five-
year rule applies after the death of the eligible beneficiary.
Thus, for example, if a disabled child is an eligible
beneficiary of a parent who dies when the child is age 20 and
the child dies at age 30, even though 52.1 years remain in the
life expectancy of the child calculated for the child's age
(21) in the year after the employee's death, the disabled
child's remaining beneficiary interest must be distributed by
the end of the fifth year following the death of the disabled
child. If a child is an eligible beneficiary based on having
not reached the age of majority before the employee or IRA
owner's death, the five-year rule applies beginning with the
date that the child reaches the age of majority. Thus the
child's entire interest must be distributed by the end of the
fifth year following that date.
Definition of disabled and chronically ill individual
Under the provision, disabled means unable to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected
to end in death or to be for long-continued and indefinite
duration.\95\ Further, an individual is not considered to be
disabled unless proof of the disability is furnished in such
form and manner as the Secretary may require.
---------------------------------------------------------------------------
\95\This is the definition under section 72(m)(7), which the
provision incorporates by reference.
---------------------------------------------------------------------------
Under the provision, a chronically ill individual is any
individual who (1) is unable to perform (without substantial
assistance from another individual) at least two activities of
daily living for an indefinite period (expected to be lengthy
in nature) due to a loss of functional capacity, (2) has a
level of disability similar (as determined under regulations
prescribed by the Secretary in consultation with the Secretary
of Health and Human Services) to the level of disability
described above requiring assistance with daily living based on
loss of functional capacity, or (3) requires substantial
supervision to protect the individual from threats to health
and safety due to severe cognitive impairment.\96\ The
activities of daily living for which assistance is needed for
purposes of determining loss of functional capacity are eating,
toileting, transferring, bathing, dressing, and continence.
---------------------------------------------------------------------------
\96\This is generally the definition under section 7702B(c)(2),
which the provision incorporates by reference, except that section
7702B(c)(2)(A)(i) requires the period for which an individual is unable
to perform at least two activities of daily living to be at least 90
days.
---------------------------------------------------------------------------
EFFECTIVE DATE
Required beginning date change for five-percent owners
For the provision changing the definition of required
beginning date for employees who become five-percent owners
after age 70\1/2\, if an employee became a five-percent owner
with respect to a plan year ending before January 1, 2012, and
the employee has not retired before 2013, the employee is
treated as having become a five-percent owner in 2013. Thus,
the employee's required beginning date is April 1, 2014.
Otherwise, the provision is effective upon date of enactment
without regard to whether the employee became a five-percent
owner before, on, or after the date of enactment.
Required distributions after death
For determining minimum required distributions after the
death of an employee or IRA owner, the provision is generally
effective for distributions with respect to employees or IRA
owners who die after December 31, 2012.
In the case of an employee who dies before January 1, 2013,
if the designated beneficiary of the employee or IRA owner dies
after December 31, 2012, the provision applies to any
beneficiary of the designated beneficiary as though the
designated beneficiary were an eligible beneficiary. Thus, the
entire interest must be distributed by the end of the fifth
year after the death of the designated beneficiary.
In the case of an employee who dies after December 31,
2012, the provision does not apply to a qualified annuity which
is a binding annuity contract in effect on the date of the
enactment and at all times thereafter. To be a qualified
annuity, the annuity must be a commercial annuity (as defined
in section 3405(e)(6)) or an annuity payable by a defined
benefit plan, and (2) an annuity under which the annuity
payments are substantially equal periodic payments (not less
frequently than annually) over the lives of such employee and a
designated beneficiary (or over a period not extending beyond
the life expectancy of such employee or the life expectancy of
such employee and a designated beneficiary) in accordance with
the required minimum distribution regulations for annuity
payments (as in effect before enactment of this provision). In
addition to these requirements, to be a qualified annuity,
annuity payments to the employee (or IRA owner) must have begun
before January 1, 2013, and the employee (or IRA owner) must
have made an irrevocable election before that date as to the
method and amount of the annuity payments to the employee or
any designated beneficiaries. Alternatively, if an annuity is
not a qualified annuity solely based on annuity payments not
having begun irrevocably before January 1, 2013, an annuity can
be a qualified annuity if the employee or IRA owner has made an
irrevocable election before the date of enactment as to the
method and amount of the annuity payments to the employee or
any designated beneficiaries.
J. Depreciation and Amortization Rules for Highway and Related Property
Subject to Long-Term Leases (sec. 311 of the bill and secs. 168, 197,
and 147 of the Code)
PRESENT LAW
Depreciation and amortization for highways and related property
A taxpayer generally must capitalize the cost of property
used in a trade or business and recover such cost over time
through annual deductions for depreciation or amortization.
Tangible property generally is depreciated under the modified
accelerated cost recovery system (``MACRS''), which determines
depreciation by applying specific recovery periods, placed-in-
service conventions, and depreciation methods to the cost of
various types of depreciable property.\97\ The alternative
depreciation system (``ADS'') applies with respect to tangible
property used predominantly outside the United States during
the taxable year, tax-exempt use property, tax-exempt bond
financed property, and certain other property. ADS generally
requires the use of the straight-line method without regard to
salvage value, and requires longer recovery periods than MACRS.
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\97\Sec. 168.
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Under MACRS, the cost of land improvements (such as roads
and fences) is recovered over 15 years.\98\ Land improvements
subject to ADS are recovered over 20 years using the straight-
line method.\99\
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\98\Rev. Proc. 87-56, 1987-42 I.R.B. 4.
\99\Ibid. The longest MACRS recovery period is 50 years and applies
to railroad gradings and tunnel bores. Sec. 168(c).
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Amortization of intangible property
The cost recovery of many intangible assets is governed by
the rules of section 197. In particular, section 197 provides
that any amortizable section 197 intangible, including rights
granted by a governmental unit and franchise rights, is
amortized over a 15-year period.\100\
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\100\Secs. 197(d)(1)(D) and (F). The 15-year amortization provision
does not apply to various types of rights, including any interest in
land. Sec. 197(e)(2).
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Private activity bond financing for highways
In general, interest on a private activity bond that is a
qualified bond is excludable from taxable income.\101\ Under
present law, a private activity bond is not a qualified bond,
interest on which is tax-exempt, if any portion of the proceeds
of the issue of which the bond is a part is used to provide any
airplane, skybox, or other private luxury box, health club
facility, facility primarily used for gambling, or store the
principal business of which is the sale of alcoholic beverages
for consumption off premises.\102\
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\101\Sec. 141.
\102\Sec. 147(e).
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REASONS FOR CHANGE
The Committee is concerned that, under present law,
accelerated cost recovery methods provide a tax benefit to the
private purchaser of a public road or highway which was
originally financed and built with taxpayer money.\103\ To
eliminate the Federal subsidy for public roads or highways that
are privatized through a long-term lease, the Committee
believes that the appropriate recovery period for the leased
property is 45 years, using the straight-line method.
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\103\In practice, the privatization of public roads is often
referred to as a ``brownfield'' project.
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The Committee also is concerned that the current
amortization period for amounts paid or incurred for the right
to operate and maintain the public road or highway and collect
tolls (i.e., 15 years) does not relate to, and is frequently
significantly shorter than, the term of the lease or
arrangement under which the right is exercised. The Committee
believes that the taxpayer who acquires the right to operate
and maintain the public road or highway and collect tolls
should recover the costs incurred for such rights over the term
of the lease.
Further, the Committee is concerned that tax-exempt private
activity bonds might be issued to assist the private purchaser
in acquiring the public road or highway. Thus, the Committee
believes that the private activity bonds, any portion of the
proceeds which is used to privatize the public road or highway,
should not be tax-exempt.
EXPLANATION OF PROVISION
Under this provision, the depreciation for applicable
leased highway property is determined under ADS with a
statutory 45-year recovery period and requirement to use the
straight-line method. Further, this provision requires that any
amortizable section 197 intangible acquired in connection with
an applicable lease must be recovered over a period not less
than the term of the applicable lease.
Under this provision, private activity bonds are not
qualified bonds, interest on which is tax-exempt, if the bonds
are part of an issue, any portion of the proceeds of which is
used to finance any applicable leased highway property.
For purposes of this provision, applicable leased highway
property is defined as property subject to an applicable lease
and placed in service before the date of such lease. An
applicable lease is defined as an arrangement between the
taxpayer and a State or political subdivision thereof, or any
agency or instrumentality of either, under which the taxpayer
leases a highway and associated improvements, receives a right-
of-way on the public lands underlying such highway and
improvements, and receives a grant of a franchise or other
intangible right permitting the taxpayer to receive funds
relating to the operation of such highway. As under present
law, a contract that purports to be a service contract or other
arrangement (including a partnership or other passthrough
entity) is treated as a lease if the contract or arrangement is
properly treated as a lease.\104\
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\104\Sec. 7701(e).
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EFFECTIVE DATE
The provision is effective for leases entered into, and
private activity bonds issued, after the date of enactment.
K. Transfer of Excess Pension Assets (secs. 312 and 313 of the bill and
sec. 420 of the Code)
PRESENT LAW
Defined benefit pension plan reversions
Defined benefit plan assets generally may not revert to an
employer prior to termination of the plan and satisfaction of
all plan liabilities.\105\ Upon plan termination, the accrued
benefits of all plan participants are required to be 100-
percent vested. A reversion prior to plan termination may
constitute a prohibited transaction and may result in plan
disqualification. Any assets that revert to the employer upon
plan termination are includible in the gross income of the
employer and subject to an excise tax. The excise tax rate is
20 percent if the employer maintains a replacement plan or
makes certain benefit increases in connection with the
termination; if not, the excise tax rate is 50 percent. Medical
benefits and life insurance benefits provided under a pension
plan
---------------------------------------------------------------------------
\105\In addition, a reversion may occur only if the terms of the
plan so provide.
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Retiree medical accounts
A pension plan may provide medical benefits to retired
employees through a separate account that is part of a defined
benefit plan (``retiree medical accounts'').\106\ Medical
benefits provided through a retiree medical account are
generally not includible in the retired employee's gross
income.\107\
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\106\Sec. 401(h) and Treas. Reg. sec. 1.401-1(b).
\107\Treas. Reg. sec. 1.72-15(h).
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Transfers of excess pension assets
In general
A qualified transfer of excess assets of a defined benefit
plan, including a multiemployer plan,\108\ to a retiree medical
account within the plan may be made in order to fund retiree
health benefits.\109\ A qualified transfer does not result in
plan disqualification, is not a prohibited transaction, and is
not treated as a reversion. Thus, transferred assets are not
includible in the gross income of the employer and are not
subject to the excise tax on reversions. No more than one
qualified transfer may be made in any taxable year. No
qualified transfer may be made after December 31, 2013.
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\108\The Pension Protection Act of 2006 (``PPA''), Pub. L. No. 109-
280, extended the application of the rules for qualified transfers to
multiemployer plans with respect to transfers made in taxable years
beginning after December 31, 2006. However, the rules for qualified
future transfers and collectively bargained transfers do not apply to
multiemployer plans.
\109\Sec. 420.
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Excess assets generally means the excess, if any, of the
value of the plan's assets\110\ over 125 percent of the sum of
the plan's funding target and target normal cost for the plan
year. In addition, excess assets transferred in a qualified
transfer may not exceed the amount reasonably estimated to be
the amount that the employer will pay out of such account
during the taxable year of the transfer for qualified current
retiree health liabilities. No deduction is allowed to the
employer for (1) a qualified transfer, or (2) the payment of
qualified current retiree health liabilities out of transferred
funds (and any income thereon). In addition, no deduction is
allowed for amounts paid other than from transferred funds for
qualified current retiree health liabilities to the extent such
amounts are not greater than the excess of (1) the amount
transferred (and any income thereon), over (2) qualified
current retiree health liabilities paid out of transferred
assets (and any income thereon). An employer may not contribute
any amount to a health benefits account or welfare benefit fund
with respect to qualified current retiree health liabilities
for which transferred assets are required to be used.
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\110\The value of plan assets for this purpose is the lesser of
fair market value or actuarial value.
---------------------------------------------------------------------------
Transferred assets (and any income thereon) must be used to
pay qualified current retiree health liabilities for the
taxable year of the transfer. Transferred amounts generally
must benefit pension plan participants, other than key
employees, who are entitled upon retirement to receive retiree
medical benefits through the separate account. Retiree health
benefits of key employees may not be paid out of transferred
assets.
Amounts not used to pay qualified current retiree health
liabilities for the taxable year of the transfer are to be
returned to the general assets of the plan. These amounts are
not includible in the gross income of the employer, but are
treated as an employer reversion and are subject to a 20-
percent excise tax.
In order for the transfer to be qualified, accrued
retirement benefits under the pension plan generally must be
100-percent vested as if the plan terminated immediately before
the transfer (or in the case of a participant who separated in
the one-year period ending on the date of the transfer,
immediately before the separation).
In order for a transfer to be qualified, there is a
maintenance of effort requirement under which, the employer
generally must maintain retiree health benefits at the same
level for the taxable year of the transfer and the following
four years.
In addition, the Employee Retirement Income Security Act of
1974 (``ERISA'')\111\ provides that, at least 60 days before
the date of a qualified transfer, the employer must notify the
Secretary of Labor, the Secretary of the Treasury, employee
representatives, and the plan administrator of the transfer,
and the plan administrator must notify each plan participant
and beneficiary of the transfer.\112\
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\111\Pub. L. No. 93-406.
\112\ERISA sec. 101(e). ERISA also provides that a qualified
transfer is not a prohibited transaction under ERISA or a prohibited
reversion.
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Qualified future transfers and collectively bargained
transfers
If certain requirements are satisfied, transfers of excess
pension assets under a single-employer plan to retiree medical
accounts to fund the expected cost of retiree medical benefits
are permitted for the current and future years (a ``qualified
future transfer'') and such transfers are also allowed in the
case of benefits provided under a collective bargaining
agreement (a ``collectively bargained transfer'').\113\
Transfers must be made for at least a two-year period. An
employer can elect to make a qualified future transfer or a
collectively bargained transfer rather than a qualified
transfer. A qualified future transfer or collectively bargained
transfer must meet the requirements applicable to qualified
transfers, except that the provision modifies the rules
relating to: (1) the determination of excess pension assets;
(2) the limitation on the amount transferred; and (3) the
maintenance of effort requirement. The general sunset
applicable to qualified transfer applies (i.e., no transfers
can be made after December 31, 2013).
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\113\The rules for qualified future transfers and collectively
bargained transfers were added by the PPA and apply to transfers after
the date of enactment (August 17, 2006).
---------------------------------------------------------------------------
Qualified future transfers and collectively bargained
transfers can be made to the extent that plan assets exceed 120
percent of the sum of the plan's funding target and the normal
cost for the plan year. During the transfer period, the plan's
funded status must be maintained at the minimum level required
to make transfers. If the minimum level is not maintained, the
employer must make contributions to the plan to meet the
minimum level or an amount required to meet the minimum level
must be transferred from the health benefits account. The
transfer period is the period not to exceed a total of ten
consecutive taxable years beginning with the taxable year of
the transfer. As previously discussed, the period must be not
less than two consecutive years.
Employer provided group-term life insurance
Group-term life insurance coverage provided under a policy
carried by an employer is includible in the gross income of an
employee (including a former employee) but only to the extent
that the cost exceeds the sum of the cost of $50,000 of such
insurance plus the amount, if any, paid by the employee toward
the purchase of such insurance.\114\ Special rules apply for
determining the cost of group-term life insurance that is
includible in gross income under a discriminatory group-term
life insurance plan.
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\114\Sec. 79.
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A pension plan may provide life insurance benefits for
employees (including retirees) but only to the extent that the
benefits are incidental to the retirement benefits provided
under the plan.\115\ The cost of term life insurance provided
through a pension plan is includible in the employee's gross
income.\116\
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\115\Treas. Reg. sec. 1.401-1(b).
\116\Secs. 72(m)(3) and 79(b)(3).
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REASONS FOR CHANGE
The Committee believes that it is appropriate to provide a
temporary extension of the present law rules permitting an
employer to make a qualified transfer, a qualified future
transfer, or a collectively bargained transfer of excess
pension assets to a retiree medical account as long as the
security of employees' pensions is not threatened. The
Committee also believes it is appropriate to permit an employer
to make such a transfer to a separate account under a defined
benefit plan to fund group-term life insurance and, for group-
term life insurance policies purchased with transferred assets,
to provide the same tax treatment for the life insurance
benefits as is provided under the plan.
EXPLANATION OF PROVISION
Extension of existing provisions
The provision allows qualified transfers, qualified future
transfers, and collectively bargained transfers to retiree
medical accounts to be made through December 31, 2021. No
transfers are permitted after that date.
Transfers to fund retiree group-term life insurance permitted
The provision allows qualified transfers, qualified future
transfers, and collectively bargained transfers to be made to
fund the purchase of retiree group-term life insurance. The
assets transferred for the purchase of group-term life
insurance must be maintained in a separate account within the
plan (``retiree life insurance account''), which must be
separate both from the assets in the retiree medical account
and from the other assets in the defined benefit plan.
Under the provision, the general rule that the cost of
group-term life insurance coverage provided under a defined
benefit plan is includable in gross income of the participant
does not apply to group-term life insurance provided through a
retiree life insurance account. Instead, the general rule for
determining the amount of employer-provided group-term life
insurance that is includible in gross income applies. However,
group-term life insurance coverage is permitted to be provided
through a retiree life insurance account only to the extent
that it is not includible in gross income. Thus, generally,
only group-term life insurance not in excess of $50,000 may be
purchased with such transferred assets.
Generally, the present law rules for transfers of excess
pension assets to retiree medical accounts to fund retiree
health benefits also apply to transfers to retiree life
insurance accounts to fund retiree group-term life. However,
generally, the rules are applied separately. Thus, for example,
the one-transfer-a-year rule generally applies separately to
transfers to retiree life insurance accounts and transfers to
retiree medical accounts. Further, the maintenance of effort
requirement for qualified transfers applies separately to life
insurance benefits and health benefits. Similarly, for
qualified future transfers and collectively bargained transfers
for retiree group-term life insurance, the maintenance of
effort and other special rules are applied separately to
transfers to retiree life insurance accounts and retiree
medical accounts.
Reflecting the inherent differences between life insurance
coverage and health coverage, certain rules are not applied to
transfers to retiree life insurance accounts, such as the
special rules allowing the employer to elect to the determine
the applicable employer cost for health coverage during the
cost maintenance period separately for retirees eligible for
Medicare and retirees not eligible for Medicare. However, a
separate test is allowed for the cost of retiree group-term
life insurance for retirees under age 65 and those retirees who
have reached age 65.
The provision makes other technical and conforming changes
to the rules for transfers to fund retiree health benefits and
removes certain obsolete (``deadwood'') rules.
The same sunset applicable to qualified transfers,
qualified future transfers, and collectively bargained
transfers to retiree medical accounts applies to transfers to
retiree life insurance accounts (i.e., no transfers can be made
after December 31, 2021).
EFFECTIVE DATE
The provision applies to transfers made after the date of
enactment.
III. BUDGET EFFECTS OF THE BILL
A. Committee Estimates
In compliance with paragraph 11(a) of rule XXVI of the
Standing Rules of the Senate, the following statement is made
concerning the estimated budget effects of the revenue
provisions of the ``Highway Investment, Job Creation, and
Economic Growth Act of 2012'' as reported.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
B. Budget Authority and Tax Expenditures
Budget authority
In compliance with section 308(a)(1) of the Budget Act, the
Committee states that no provisions of the bill as reported
involve new or increased budget authority.
Tax expenditures
In compliance with section 308(a)(2) of the Budget Act, the
Committee states that the revenue-reducing provisions of the
bill involve increased tax expenditures (see revenue table in
Part A., above). The revenue-increasing provisions of the bill
involve reduced tax expenditures (see revenue table in part A.,
above).
C. Consultation with Congressional Budget Office
In accordance with section 403 of the Budget Act, the
Committee advises that the Congressional Budget Office has not
submitted a statement on the bill. The letter from the
Congressional Budget Office will be provided separately.
IV. VOTES OF THE COMMITTEE
In compliance with paragraph 7(b) of rule XXVI of the
standing rules of the Senate, the Committee states that, with a
majority and quorum present, the ``Highway Investment, Job
Creation, and Economic Growth Act of 2012,'' as amended, was
ordered favorably reported on February 7, 2012 as follows:
The Chairman's Mark and Modification were amended as
follows:
Amendment #7, Bingaman, #1:
The Transportation Access for All Americans Act (S. 836), as
modified
Approved by Voice Vote
Amendment #42, Thune #1:
To ensure the Solvency of the Highway Trust Fund
Failed by roll call vote, 11 ayes, 13 nays.
Ayes: Hatch, Grassley (proxy), Snowe, Kyl (proxy), Crapo
(proxy), Roberts (proxy), Enzi, Cornyn (proxy), Coburn, Thune,
Burr (proxy)
Nays: Baucus, Rockefeller, Conrad (proxy), Bingaman, Kerry,
Wyden (proxy), Schumer, Stabenow, Cantwell, Nelson, Menendez,
Carper, Cardin
Amendment #27, Menendez #1:
Sustainable water infrastructure act
Approved by voice vote
Thune #3 (as modified):
To strike tax extender items included in the Chairman's
modification to the Mark
Failed, Roll Call Vote, 11 ayes, 13 nays
Ayes: Hatch, Grassley (proxy), Snowe, Kyl (proxy), Crapo
(proxy), Roberts (proxy), Enzi, Cornyn (proxy), Coburn (proxy),
Thune, Burr (proxy)
Nays: Baucus, Rockefeller, Conrad (proxy), Bingaman, Kerry
(Proxy), Wyden, Schumer, Stabenow, Cantwell, Nelson, Menendez,
Carper, Cardin
Final Passage of the Highway Investment, Job Creation, and
Economic Growth Act of 2012 Approved by Roll Call Vote,
17 ayes, 6 nays, and 1 present
Ayes: Baucus, Rockefeller, Conrad (proxy), Bingaman, Kerry
(proxy), Wyden, Schumer, Stabenow, Cantwell, Nelson, Menendez,
Carper, Cardin, Snowe, Crapo (proxy), Roberts (proxy), Thune
Nays: Hatch, Grassley (proxy), Enzi, Cornyn (proxy), Coburn
(proxy), Burr (proxy)
Present: Kyl (proxy)
V. REGULATORY IMPACT AND OTHER MATTERS
A. Regulatory Impact
Pursuant to paragraph 11(b) of rule XXVI of the Standing
Rules of the Senate, the Committee makes the following
statement concerning the regulatory impact that might be
incurred in carrying out the provisions of the bill as amended.
Impact on individuals and businesses, personal privacy and paperwork
The bill extends: (1) the highway motor fuels excise taxes;
(2) the 12-percent excise tax imposed on the first retail sale
of heavy highway vehicles, tractors, and trailers; (3) the
excise tax imposed on highway tires with a rated load capacity
exceeding 3,500 pounds, generally at a rate of 0.945 cents per
pound of excess; and (4) the annual use tax imposed on highway
vehicles having a taxable gross weight of 55,000 pounds or
more. For individuals and businesses engaged in activities
subject to these taxes, the provisions should not result in
additional recordkeeping responsibilities beyond that required
for present law. The provisions increasing revenues to the
Highway Trust Fund will fund improvements to the nation's
highway and mass transit system from which individuals and
businesses using such system will benefit. The bill does not
have any impact on personal privacy.
B. Unfunded Mandates Statement
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
The Committee has determined that the following tax
provisions of the reported bill contain Federal private sector
mandates within the meaning of Public Law 104-4, the Unfunded
Mandates Reform Act of 1995: (1) claims and credit carryovers
related to unprocessed and excluded fuels; (2) revocation or
denial of passport in the case of certain tax delinquencies;
and (3) modification of required minimum distribution rules for
pension plans.
The tax provisions of the reported bill do not impose a
Federal intergovernmental mandate on State, local, or tribal
governments within the meaning of Public Law 104-4, the
Unfunded Mandates Reform Act of 1995.
The costs required to comply with each Federal private
sector mandate generally are no greater than the aggregate
estimated budget effects of the provision.
C. Tax Complexity Analysis
Section 4022(b) of the Internal Revenue Service
Restructuring and Reform Act of 1998 (the ``IRS Reform Act'')
requires the Joint Committee on Taxation (in consultation with
the Internal Revenue Service and the Department of the
Treasury) to provide a tax complexity analysis. The complexity
analysis is required for all legislation reported by the Senate
Committee on Finance, the House Committee on Ways and Means, or
any committee of conference if the legislation includes a
provision that directly or indirectly amends the Internal
Revenue Code (the ``Code'') and has widespread applicability to
individuals or small businesses.
The staff of the Joint Committee on Taxation has determined
that a complexity analysis is not required under section
4022(b) of the IRS Reform Act because the bill contains no
provisions that have ``widespread applicability'' to
individuals or small businesses.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
In the opinion of the Committee, it is necessary in order
to expedite the business of the Senate, to dispense with the
requirements of paragraph 12 of rule XXVI of the Standing Rules
of the Senate (relating to the showing of changes in existing
law made by the bill as reported by the Committee).
VII. ADDITIONAL VIEWS
----------
Additional Views of Senators Hatch, Grassley, Kyl, Roberts, Cornyn,
Coburn, Thune, and Burr
We are pleased that the Finance Committee is maintaining
its key role in reauthorizing the highway program. It is
critical to the functioning of the Senate that its committees
be allowed to perform their work. As members of the committee,
we fulfill our obligations to our constituents to put all the
highway program financing issues on the record. Taking this
bill through the Finance Committee process allows for a full
examination of the funding stream for the current program. The
formality of this process, with the opportunity to debate and
amend the Chairman's mark, ensures that the policy is properly
vetted for everyone to see.
The authorizing committees' actions place a heavy burden on
the Finance Committee. In 2004, the Finance Committee found
roughly $24 billion in additional revenue for the next six
years of the program. Some of that revenue consisted of
permanent policy changes that raised revenue in the trust fund
and did not impair the trust fund. Other policy changes grossed
up the trust fund and then used unrelated general fund revenue
raisers to hold harmless the general fund.
In the meantime, demands on the trust fund grew. What's
more, the recession and other factors caused highway revenues
to decline. The combination of these events compounded the
difficulties the committee experienced in reaching resolution
of the funding gap for the trust fund regarding the two year
reauthorization bill (2012/2013).
What we found during consideration of the financing title
was this: the meeting of the minds that led to the 2005 highway
bill--with this committee in the lead--will shortly reach a
dead end. Trust fund spending far outpaces trust fund revenues,
and there is no getting around the fact that we need to find a
new path that directly aligns trust fund revenues and trust
fund spending.
A consensus product is not enough if it does not
fundamentally address this critical shortcoming with current
federal surface transportation financing.
Senator Hatch referred to a quote from former British Prime
Minister Margaret Thatcher that bears on the dilemmas this
committee faced. This is what Lady Thatcher said:
For me, pragmatism is not enough. Nor is that
fashionable word consensus. . . .
To me consensus seems to be the process of abandoning
all beliefs, principles, values and policies in search
of something in which no one believes, but to which no
one objects--the process of avoiding the very issues
that have to be solved, merely because you cannot get
agreement on the way ahead. . .
For those of us concerned about the integrity of the
highway trust fund, consensus on highway funding is not enough
unless it addresses costs and benefits in a meaningful way that
provides the foundation for lasting and sustainable federal
transportation investment policy.
When the Finance Committee last acted on highway funding,
in 2005, we reached a basic agreement. Some of us dissented and
still others supported it, but with reservations. For a short
while that consensus worked. We provided more trust fund
revenue for the authorizers to spend. And they spent it. Today,
we are maintaining that level of spending and patching the hole
that opened in the trust fund.
We fear this committee has strayed from the principles that
formed the basis of trust in the highway trust fund. These
principles were articulated in a letter sent by Republican
members of this committee last year. The amendments we filed
follow-up on that letter.
What are the principles Republican members put forward?
The first principle is that users of the highway
trust fund pay for the building and maintenance of the roads.
The second principle is that revenues and spending
should line up on a year-by-year basis.
The third principle is that we should avoid
spending down the balance of the trust fund. That is, we should
keep a healthy cushion to ensure against funding crises and
disruption.
The fourth principle is we should provide for as
long a multi-year authorization as possible.
The fifth principle is that since the Finance
Committee moved the revenue level up significantly in 2005, we
should preserve it and not raise taxes now.
Chairman Baucus worked hard to meet these principles. We
appreciate the Chairman's efforts. We also appreciate the
commitment he made during the markup to replace two of the more
objectionable offsets in the mark with more acceptable ones.
The reported bill will include the objectionable offsets. The
Chairman, however, has indicated he will replace the
objectionable offsets with acceptable ones in the Finance
Committee amendment when that amendment is considered by the
full Senate. But in our view, we can do better. That is why we
filed a few amendments--far fewer than the members on the other
side.
One amendment filed on the Republican side and debated in
committee was designed to insure that the traditional
allocation of funds in the Highway Trust Fund was maintained.
Unfortunately, that amendment was rejected on a party-line
vote. For us, that action shows a risk of sliding down a
slippery slope to a place where the highway trust fund is no
longer a trust fund of roads and is further disadvantaged by
users who don't contribute to the highway trust fund. We also
felt strongly that, given the short window of time to prepare
and debate the financing title, the markup should have focused
on the shortfall in the trust fund. We did not believe that the
financing title of the highways bill was the appropriate place
to consider, on a selective basis, proposals such as expired
tax provisions. The majority chose to single out for special
treatment one traditional tax extender--the tax-free treatment
of mass transit benefits--and two expired items from the 2009
stimulus bill. Cherry-picking these three items while ignoring
the other 58 extender provisions is bad policy. It was
unfortunate that decision was upheld on a party-line vote.
We were glad to debate the merits of the Chairman's mark
during the markup. We were not successful in changing the basic
direction of the funding proposal. The Finance Committee
approved a short-term measure. We look forward to again
considering a change in direction in the financing of the
highway program. When this committee next considers financing
of the highway program, we hope to reach a consensus that will
result in a sustainable long-term highway financing system.