Summary and Background
Senate Democrats are committed to promoting American jobs,
energy, and families with targeted tax relief and incentives. Similar to
legislation previously introduced by Senator Baucus (S. 3125), the
Jobs, Energy, Families and Disaster Relief Act of 2008 (S. 3335),
would protect millions of American taxpayers from getting hit by the
alternative minimum tax and provide brand-new incentives for alternative
energy, business tax relief to help companies innovate and create jobs, and
critical tax relief for families and college students. Specifically, S. 3335
would:
- Extend expiring temporary tax provisions
for individuals and businesses,
including the research and development credit, special rules for active
financing income, the state and local sales tax deduction, the deduction
for out-of-pocket expenses for teachers, and the deduction for qualified
tuition expenses; and
The bill would be primarily offset by closing a tax loophole that
allows individuals who work for certain offshore corporations, such as hedge
fund managers, to defer tax on their compensation, would delay the effective
date of a tax benefit that has not yet taken effect for multinational
corporations operating overseas, and basis reporting by brokers on stock sales.
The Senate is expected to consider
this legislation the week of July 28, 2008.
This Legislative Bulletin provides
a description of major
provisions, anticipated amendments, legislative history,
the Statement of Administration
Policy, and links to related reading
resources.
Major Provisions
Energy Tax Incentives
Energy Production Incentives
S. 3335 would provide renewable energy incentives,
including:
Long-term extension and modification of renewable energy
production tax credit. To provide additional incentives for the production
of electricity from renewable resources, which will help limit the
environmental consequences of continued reliance on power generated by using
fossil fuels, S. 3335 would extend the placed-in-service date for
wind facilities for one year. The legislation would also extend the
placed-in-service date for three years for certain other qualifying facilities;
add facilities that generate electricity from marine renewables (e.g., waves
and tides) as a new category of qualifying facilities that will benefit from
the longer placed-in-service date; and cap the aggregate amount of tax credits
that can be earned for these qualifying facilities.
Long-term extension and modification of solar energy and fuel
cell investment tax credit. To ensure the continued development of
alternative energy resources, S. 3335 would extend the 30 percent
investment tax credit for solar energy property and qualified fuel cell property
and the 10 percent investment tax credit for microturbines for eight years.
The legislation would also increase the $500 per half kilowatt of capacity cap
for qualified fuel cells to $1,500 per half kilowatt of capacity; remove
an existing limitation that prevents public utilities from claiming the
investment tax credit; and provide a new 10 percent investment tax
credit for combined heat and power systems.
Long-term extension and modification of residential
energy-efficient property credit. To provide an additional incentive to
invest in solar electric and fuel cell property, S. 3335 would
raise the cap on the amount of the available credit for such property. The legislation
would extend the credit for residential solar property for eight years; increase
the annual credit cap from $2,000 to $4,000; and include residential small wind
equipment and geothermal heat pumps as property qualifying for this
credit.
Extension of deferral on sales of electric transmission
property. To facilitate the "unbundling" of electric transmission assets
held by vertically integrated utilities, S. 3335 would extend the
present-law deferral of gain on sales of transmission property by vertically
integrated electric utilities to approved independent transmission companies.
Creation of New Clean Renewable Energy Bonds. To
encourage the development of facilities that produce electricity from renewable
resources will help limit the environmental consequences of continued reliance
on power generated using fossil fuels, S. 3335 would authorize $2 billion
of new clean renewable energy bonds to finance facilities that generate
electricity from certain resources.
S. 3335 also provides for carbon mitigation
measures, including:
- Creation of carbon capture and sequestration (CCS)
demonstration projects. If electricity continues to be produced
from coal, then it must be done in as clean and efficient a manner as
possible. To provide additional investment incentives to encourage the
construction of advanced coal facilities that both capture and sequester
carbon dioxide and reduce the emissions of other pollutants, S. 3335
would provide $1.5 billion in tax credits for the creation of advanced
coal electricity projects and certain coal gasification projects that
demonstrate the greatest potential for CCS technology.
- Solvency for the Black Lung Disability Trust Fund. To
bring the Black Lung Disability Trust Fund out of debt, S. 3335 would
enact the President's budget proposal that the current excise tax
rate should continue to apply beyond 2013 until all amounts borrowed from
the general fund of the Treasury have been repaid with interest.
- Refund of certain coal excise taxes unconstitutionally
collected from exporters. Courts have determined that the Export
Clause of the U.S. Constitution prevents the imposition of the coal excise
tax on exported coal and, therefore, taxes collected on such exported coal
are subject to a claim for refund. S. 3335 would create a new
procedure under which certain coal producers and exporters may claim a
refund of these excise taxes that were imposed on coal exported from the United States.
- Carbon audit of the tax code. To aid
decisionmakers in the formulation of tax policies aimed at reducing
emissions and mitigating climate change, S. 3335 directs the
Secretary of the Treasury to request that the National Academy of Sciences
undertake a comprehensive review of the federal tax code to identify the
types of specific tax provisions that have the largest effects on carbon
and other greenhouse gas emissions and to estimate the magnitude of those
effects.
Transportation and Domestic Fuel
Security Provisions
Expansion of allowance for property to produce cellulosic
alcohol. Under current law, taxpayers are allowed to immediately write off
50 percent of the cost of facilities that produce cellulosic ethanol if
such facilities are placed in service before January 1, 2013. To promote
technology-neutral policies, S. 3335 would allow this write-off to
be available for the production of other cellulosic biofuels in addition to
cellulosic ethanol.
Extension of biodiesel production tax credit and renewable
diesel tax credit. To encourage the development and use of biodiesel and
renewable diesel incentives, S. 3335 would extend the $1 per
gallon production tax credits for biodiesel and the small biodiesel
producer credit of 10 cents per gallon. The bill would also extend the
$1 per gallon production tax credit for diesel fuel created from
biomass.
Establishment of plug-in electric drive vehicle credit. To
encourage further investments in advanced technology vehicles, S. 3335
would establish a new credit for each qualified plug-in electric drive
vehicle placed in service during each taxable year by a taxpayer. The base
amount of the credit is $3,000.
Provision of incentives for idling reduction units and
advanced insulation for heavy trucks. Because idling of the main
drive engine of heavy trucks consumes significant amounts of fuel, S. 3335
would provide an exemption from the heavy vehicle excise tax for the cost
of idling reduction units. The bill would also exempt the installation of
advanced insulation, which can reduce the need for energy consumption by
transportation vehicles carrying refrigerated cargo.
Provision of fringe benefit for bicycle commuters. Bicycle
commuting achieves both goals of reducing fossil fuel reliance and encouraging
conservation. S. 3335 would allow employers to provide employees who
commute to work using a bicycle limited fringe benefits to offset the costs of
such commuting.
Extension and increase of alternative refueling stations tax
credit. Widespread adoption of advanced technology and alternative-fuel
vehicles is necessary to transform automotive transportation in the United States to be cleaner, more fuel efficient, and less reliant on petroleum fuels. S. 3335
would increase the 30 percent alternative refueling property credit (capped
at $30,000) to 50 percent (capped at $50,000). The credit provides a tax credit
to businesses (e.g., gas stations) that install alternative fuel pumps,
such as fuel pumps that dispense E85 fuel.
Treatment of Publicly Traded Partnership Income Treatment of
Alternative Fuels. S. 3335 would permit publicly traded
partnerships to treat the income derived from the transportation, storage or
marketing of certain alternative fuels as qualifying income for purposes of the
publicly traded partnership rules.
Energy Conservation and Efficiency
Provisions
S. 3335 contains
measures that are intended to reduce national energy consumption, which in turn
will decrease reliance on foreign suppliers of oil and reduce pollution in
general, including:
Creation of qualified energy conservation bonds. S. 3335
would create a new category of tax credit bonds to finance state and local
government programs and initiatives designed to reduce greenhouse gas
emissions;
Extension and modification of energy-efficiency improvements
to existing homes credit. S. 3335 would extend the
tax credits for energy-efficient existing homes and includes energy-efficient
biomass fuel stoves as a new class of energy efficient property eligible
for a consumer tax credit of $300;
Extension of energy-efficient commercial buildings deduction. S. 3335
would extend the energy-efficient commercial buildings deduction for
five years;
Modification and extension of credit for energy-efficient
appliance credit. S. 3335 would modify the
existing energy-efficient appliance credit and extend this credit for three
years;
Provision of accelerated depreciation for smart meters and
smart grid systems. Under current law, taxpayers are generally able to
recover the cost of smart electric meters and smart electric grid systems over
the course of 20 years. S. 3335 would cut the cost recovery time
in half by allowing taxpayers to recover the cost of this property over a ten-year
period; and
Extension and modification of qualified green building and
sustainable design project bond. S. 3335 would extend
the authority to issue qualified green building and sustainable design
project bonds through the end of 2012.
Creation of accelerated depreciation for investments in recycling.
An additional provision allows companies to claim accelerated depreciation for
the purchase of equipment used to collect, distribute or recycle a variety of
commodities.
Alternative Minimum Tax
- AMT Patch. Currently, a taxpayer receives an
exemption of $33,750 (individuals) and $45,000 (married filing jointly)
under the AMT. Current law also does not allow personal credits
against the AMT. At the end of last year, H.R. 3996
increased the exemptions to $44,350 and $66,250, respectively, and allowed
the personal credits against the AMT to hold the number of taxpayers
subject to the AMT at bay. The provision expired December 31,
2007. The proposal increases the exemption amounts to $46,200
(individuals) and $69,950 (married filing jointly) for 2008. The
proposal will also allow the personal credits against the AMT.
- AMT credit allowance against incentive stock options. Exercise
of incentive stock options is a preference in the individual alternative minimum
tax. In the past, many individuals exercised these options and
there were dramatic reductions in the value of the stock after
exercise, resulting in a minimum tax liability far exceeding any gain
from the exercise of the option. S. 3335 would waive past
underpayments and would guarantee that minimum tax actually paid on
the exercise of these options would be returned to the taxpayer.
Extension of Temporary Tax Provisions
Extenders Primarily Affecting
Individuals
- State and local taxes deduction. Millions of
taxpayers live in Alaska, Florida, Nevada, Washington, South Dakota, Tennessee, Texas and Wyoming - states that have deductible sales taxes but no state income
tax. To continue to provide similar federal tax treatment to residents of
states that rely on sales taxes rather than income taxes to fund state and
local governmental functions, S. 3335 would extend the option
of deducting state and local sales taxes in lieu of deducting state and
local income taxes.
- Qualified
tuition deduction. The average
cost of a public, four-year college education has soared by 61 percent
during the Bush Administration. (The College Board, Trends in College Pricing 2007, available here) To mitigate the impact of rising tuition costs
on students and their families and to provide an incentive for individuals
to pursue higher education, S. 3335would extend the
above-the-line tax deduction for qualified education expenses. The
deduction is reduced to $2,000 for couples filing jointly with incomes
between $130,000 and $160,000.
- Regulated investment company dividends. S. 3335
would extend the tax treatment of interest-related dividends, short-term capital gain dividends, and other special rules applicable to foreign shareholders
that invest in regulated investment companies. This legislation would
also extend the estate tax look-through for certain RIC stock; and extend
the treatment of RICs as "qualified investment entities" under section 897
of the Internal Revenue Code.
- IRA rollover. To increase giving to charitable
organizations, S. 3335 would extend the provision that permits
tax-free charitable contributions from an Individual Retirement Account
(IRA) of up to $100,000 per taxpayer, per taxable year.
- Elementary and secondary schoolteachers' out-of-pocket
expense deduction. Since 2002, teachers have been able to deduct up
to $250 a year for money that they spend out of their own pockets to buy
supplies for their classrooms. More than three million teachers
nationwide have taken advantage of this deduction each year. S. 3335
would extend this tax deduction for one year for teachers and other
school professionals for expenses paid or incurred for books, certain supplies and supplementary materials used by the educator in the classroom.
Group legal services plans. S. 3335 would allow
individuals to exclude certain amounts received under qualified group legal
services plans from income for one year.
Extenders Primarily Affecting
Businesses
Research and development tax credit. Research can be the
basis for new products, industries, and jobs for the domestic economy. To
encourage firms to increase their spending on research and experimentation, S. 3335
extends the research tax credit equal to 20 percent o f the amount by which
a taxpayer's qualified research expense for a taxable year exceed its base
amount for that year. S. 3335 would also increase the
alternative simplified credit from 12 percent to 14 percent, and repeal the
alternative incremental research credit.
Indian employment credit.
To encourage economic development in and employment on Indian reservations, S. 3335 would extend the business tax
credit for employers of qualified employees that work and live on or near an
Indian reservation. The credit is for wages and health insurance costs paid to
qualified employees (up to $20,000) in the current year over the amount paid in
1993.
New markets tax credit. To encourage investment in
economically underdeveloped areas throughout the country, S. 3335 would extend the provision for
one year and allow additional counties the new markets tax credit, which
permits taxpayers to receive a credit against federal income taxes for making
qualified equity investments in designated Community Development Entities.
- Railroad track maintenance. To enable small and
mid-sized railroads to update and upgrade their track capacities in order
to promote railroads as an alternative to shipping freight on roadways, S. 3335 would extend a 50 percent
general business credit for qualified railroad track maintenance
expenditures, and allow the credit against the AMT.
- Mine Rescue Team Training Credit. S. 3335 would
extend for one year a credit of up to $10,000 for the training of mine
rescue team members.
- Leasehold improvements. In recognition of the fact
that leaseholds and restaurants have shorter lives than industrial and
commercial structures in general, S. 3335 would extend the special
15-year cost recovery period for qualified leasehold and restaurant
improvements. The proposal would also allow retail owners and new
restaurants the shortened recovery period. Absent an extension of this
provision, the cost recovery period for these facilities would be 39
years.
- Motorsports entertainment complexes. To encourage
economic development, S. 3335
would extend the special seven-year cost recovery period for
property used for land improvement and support facilities at motorsports
entertainment complexes. Absent an extension of this provision, the cost recovery period for these facilities would be 15 years.
- Indian reservation business property. To encourage
economic development within Indian reservations and expand employment
opportunities on such reservations, S. 3335 would extend the
placed-in-service date for the special depreciation recovery period for
qualified Indian reservation property.
- Advanced Mine Safety Equipment. To encourage
mining companies to invest in safety equipment that goes above and beyond
current safety equipment requirements, S. 3335 would provide 50
percent immediate expensing for qualified underground mine safety
equipment that goes above and beyond current safety equipment requirements.
- Brownfields clean-up. To promote the goal of
environmental remediation and promote new investment and employment
opportunities by lowering the net capital cost of a development project, S. 3335 would extend the provision
that allows for the immediate expensing (rather than over time as a
depreciation) of costs associated with cleaning up hazardous sites.
- Domestic production activities in Puerto Rico. To
encourage investment in Puerto Rico, S. 3335 would extend the provision
extending special domestic production activities rules afforded to
manufacturing activities in the United States to activities in Puerto Rico.
- Certain payments to controlling exempt organizations.
In general, interest, rent, royalties, and annuities paid to a tax-exempt
organization from a controlled entity are treated as unrelated business
income of tax-exempt organizations. S. 3335 extends treatment
under which a payment to a tax-exempt organization by a controlled entity is
excludable from the tax-exempt organization's unrelated business income if
the payment is less than fair market value.
- Qualified zone academy bonds. School districts use
Qualified Zone Academy bonds (QZAB) as an innovative way to fund school
renovation in economically distressed areas at a much lower cost.
Investors receive a federal tax credit in lieu of an interest payment, and, over the life of the bond, the district can save 50 percent. S. 3335 would allow an additional
$400 million of QZAB issuing authority to state and local governments, which can be used to finance renovations, equipment purchases, developing course material, and training teachers and personnel at a qualified zone academy.
- District of Columbia investment. S. 3335 would extend a package of
tax incentives (including a wage credit, additional Section 179 expensing,
tax-exempt financing, zero-percent capital gains for certain assets, and
the $5,000 first-time homebuyer credit for individuals) for businesses and
individual residents within certain economically depressed census tracts
within the District of Columbia that have been designated as the District
of Columbia Enterprise Zone.
- American Samoa economic development. To
encourage investment in American Samoa, S. 3335 would extend the tax credit
providing certain domestic corporations operating in American Samoa with a
possessions tax credit to offset their U.S. tax liability on certain
income related to business operations earned in American Samoa.
- Food inventory contributions to charitable
organizations. To encourage contributions of food to charitable
organizations, S. 3335
would extend the provision allowing unincorporated businesses to
claim an enhanced deduction for the contribution of certain food
inventory. The proposal would also expand the rule to allow farmers to
treat the basis of the contributed food as being equal to 25 percent of
the food's fair market value.
- Book contributions to public schools. To encourage
contributions of books to public schools, S. 3335 would extend the provision
allowing C Corporations to claim an enhanced deduction for contributions
of book inventory to public schools (kindergarten through grade 12).
- Computer donations for educational purposes. To
encourage contributions of computer technology and equipment to public
libraries and educational organizations, S. 3335 would extend an enhanced
deduction that encourages businesses to contribute computer equipment and
software to elementary, secondary, and post-secondary schools.
- Stock of an S Corporation making charitable contributions
of property. S. 3335
would extend the provision allowing S Corporation shareholders to
take into account their pro rata share of charitable deductions even if
such deductions would exceed such shareholder's adjusted basis in the S
Corporation. S. 3335
would also make a technical correction clarifying the application
of this provision.
- Hurricane Katrina employees. To encourage
employers to hire individuals who were affected by Hurricane Katrina, S. 3335 would extend the provision
that expired in August 2007 that allowed employers to claim the work
opportunity tax credit for hiring employees employed within the core
disaster area of Hurricane Katrina.
- Active financing exception. S. 3335 would extend the active
financing exception from Subpart F foreign personal holding company
income, foreign base company services income, and insurance income for
certain income that is derived in the active conduct of a banking,
financing or similar business, or in the conduct of an insurance business..
- Payments between related
controlled foreign corporations. To allow U.S. taxpayers to deploy
capital from one commonly-controlled foreign corporation to another, S. 3335
would extend current law look-through treatment of payments between
related controlled foreign corporations under current foreign personal
company income rules. Under the ''look-through rule'' dividends,
interest, rents, and royalties received by one controlled foreign
corporation (CFC) from a related CFC are not treated as foreign personal
holding company income to the extent attributable or properly allocable to
income of the payor that is neither subpart F nor treated as ECI.
- Film and television
productions. To encourage domestic film production, S. 3335 would
extend special expensing rules for U.S. film and television productions.
Wool Trust Fund. To promote the competitiveness
of American wool, S. 3335 would extend a provision that reduces
import duties on a limited quantity of imported wool fabrics and places duties
otherwise collected on the import of certain wool products into the Wool Trust
Fund.
Extenders Related to Tax Administration
Information related to terrorist activities. S. 3335
would permanently extend disclosure provisions relating to terrorist activities
to assist in the country's investigations of and response to terrorism.
- Undercover IRS operations. To provide the IRS with
an important enforcement tool similar to that provided to other law
enforcement agencies, S. 3335 would extend the authorization
for the IRS to engage in certain activities related to undercover
operations.
- "Cover over" of tax on rum. Given the current
fiscal needs of Puerto Rico and the U.S. Virgin Islands, S. 3335
would extend the provision providing for an increased rebate of certain
taxes on distilled spirits produced in or imported into the United States from Puerto Rico and the U.S. Virgin Islands.
Additional Tax Relief
Tax Relief for Individuals
- Refundable child credit. S. 3335 would
increase the eligibility for the refundable child tax credit in 2008. The
changes in this legislation increase the credit
for families who lose a part of the credit due to inflation.
Under
current law, a taxpayer receives $1,000 tax credit for each qualifying
child under the age of 17. If the amount of a taxpayer's child tax credit
is greater than the amount of the taxpayer's income tax, the taxpayer may
receive a refund if the income threshold is met. The threshold for 2008
is $12,050. S. 3335 lowers the refundable threshold for the child
tax credit to $8,500 for the 2008 tax year.
Tax Relief for Businesses
- Film and television
productions. Taxpayers have not been able to take full advantage of
tax incentives that are intended to encourage film and television companies
to produce films here in the United States rather than overseas because of
a number of technical issues. S. 3335 would fix these
issues.
- Wooden practice arrows used by children. S. 3335
would exempt certain shafts from an excise tax of 39 cents, adjusted for
inflation, on the first sale by the manufacturer, producer, or importer of
any shaft of a type used to produce certain types of arrows.
- Mental health parity requirements applicable to group
health plans. Current law requires certain group health plans to
provide the same coverage for mental health benefits that they provide for
medical and surgical health benefits. S. 3335 would extend the imposition of a
$100-per-day excise tax on group health plans that fail to comply with
this requirement.
Modification of Penalty on Tax Return Preparer
Penalty on understatement of taxpayer's liability by tax
return preparer. To harmonize the standards of conduct for taxpayers
and return preparers, S. 3335 would conform the respective penalty
standards.
Secure Rural Schools
Reauthorization. S. 3335 would
reauthorize the Secure Rural Schools program through 2011. It also
adjusts the funding distribution formula to make it more equitable, by taking
into account historic payment levels to counties, average income levels in
counties and acreage of federal land. Finally, the provision also
provides for full funding for the Payment in Lieu of Taxes program for
2009.
Uniform Definition of a Qualifying Child. S. 3335
would restore eligibility for the earned income credit to certain
lower-income siblings while eliminating a tax planning opportunity for more
affluent families, and was part of the President's Fiscal Year 2009
budget. S. 3335 would provide that a taxpayer is not a
qualifying child of another individual if that taxpayer is older than the
individual. The exception to this rule is if the individual is a sibling
and the taxpayer is permanently or totally disabled.
S. 3335 would also
provide that if an individual is married and files a joint return (unless that
return is solely as a claim for refund), that individual is not a qualifying
child for the child-related tax incentives (e.g., child tax credit). The
proposal would also provide that if a parent resides with his child for over half
the year, only that parent is eligible to claim the child as a qualifying
child. The parent, however, can waive the child-related tax incentives to
another member of the household who has a higher AGI and is eligible for the
child tax incentive.
Disaster
Relief
The bill features a variety of provisions to help Americans
that have suffered significant loss from natural disasters, including:
- Qualified Disaster Expenses. S. 3335 would
allow disaster victims to write off and immediately recover demolition,
clean up, repair, and environmental remediation expenses. Under current
law, taxpayers may be required to capitalize these expenses and recover
the costs over an extended period of time.
- Treatment of net operating losses attributable to
Qualified Disaster Casualty expenses. S. 3335 would
extend from two to five years the time period taxpayers can claim casualty
losses or qualified disaster expenses. When taxpayers carry
losses back to prior years, they receive a refund of the taxes that they paid
in the earlier year. This prompt refund can help them reinvest
in their businesses or make ends meet in the aftermath of a
disaster.
- Mortgage Revenue Bonds. S. 3335 would
permit states to issue tax-exempt bonds to finance low-interest loans
to taxpayers whose principal residence has been damaged as a result of a
disaster. Disaster victims could use these low-interest loans to
repair or reconstruct their homes.
- Individual Loss Provision. S. 3335 would
reform casualty loss rules to allow more disaster victims to claim
individual property losses. Under current law, taxpayers can
only claim a loss that exceeds $100 and 10 percent of the taxpayer's
adjusted gross income. This bill would waive the restrictive 10 percent
rule, raise the $100 floor to $500, and allow non-itemizers to use these
losses as a standard deduction.
- Qualified Disaster Recovery Assistance Distributions. S. 3335
would waive the 10 percent penalty tax if a distribution from
an individual retirement account or tax favored retirement plan that is
considered a qualified Disaster Recovery Assistance distribution. A
distribution is considered a qualified distribution if it is made on or
after the Presidentially-declared disaster date and before January 1, 2010
and is made to an individual whose principal residence on the applicable
declaration date is located in a Presidentially-declared disaster area and
who sustained an economic loss by reason of the disaster..
- Recontribution of Withdrawals for Home Purchases. S. 3335
would allow distributions for home purchases that were made from a
Code section 401(k) or 403(b) plan or IRA after the date which is 6 months
before the applicable declaration date and before the day after the
applicable declaration date and that were not finalized because of the
tornadoes and floods giving rise to the designation of the area as a
disaster area to be re-contributed to the plan or IRA tax-free (i.e.,
the recontributions would be treated as rollovers).
- Loans from Qualified Plans. S. 3335 would
effectively double the limitation on loans from a 401(k), 403(b), or a
governmental 457(b) plan by allowing participants located in a
Presidentially-declared disaster area and who sustained economic loss by
reason of the tornadoes and floods giving rise to the designation of the
area as a disaster area to receive loans up to the lesser of $100,000, or
100 percent of the vested accrued benefit for loans made after the date of
enactment and before January 1, 2010. In addition, outstanding loan
payments due on or after the applicable declaration date and before
January 1, 2010 may be deferred an additional 12 months, with appropriate
adjustments for interest.
- Additional Personal Exemption for Housing Victims. Current
law provides a personal exemption for taxpayers, their spouses, and
dependents. S. 3335 would allow taxpayers who house up to
four dislocated persons from the Presidentially-declared disaster for a
minimum of sixty days in their principal residences an additional personal
exemption of $500 per dislocated person (maximum additional personal
exemption increase of $2,000). Family members (other than spouses and
dependents) staying with the taxpayer may qualify, and the housing must be
provided rent-free. S. 3335 would not affect any deductions
or exemptions for the dislocated person on the dislocated person's tax
return.
- Exclusion for Certain Cancellations of Indebtedness. Under
current law, gross income generally includes any amount realized from the
discharge of indebtedness. S. 3335 would ensure that
individuals are not taxed on personal debt that is discharged in response
to damage suffered from the Presidentially-declared disaster. For
example, if a house is damaged or destroyed and the mortgage lender
discharges all or part of this mortgage debt, the amount discharged is not
treated as income as a result of the proposal.
- Extension of Replacement Period for Property
Lost. Present law allows taxpayers not to recognize gain with
respect to homes that are damaged or destroyed as a result of a
Presidentially-declared disaster if the taxpayer replaces the property
within a four-year period. Business property that is destroyed must be
replaced within a two-year period to avoid gain recognition. S. 3335
would extend the replacement period to five years for principal
residences and business property that was damaged or destroyed within any
Presidentially-declared disaster area.
- Employee Retention Credit. S. 3335 would
provide a 40 percent tax credit for wages paid up to $6,000 if paid after
the applicable disaster date, and before January 1, 2010, by employers
with 200 or fewer employees located in a Presidential disaster area who
continue to pay their employees while their business is inoperable.
Temporary suspension of limitations on charitable contributions.
The amount allowed as a charitable deduction in any taxable year may not
exceed ten percent of the corporation's taxable income or fifty percent of an
individual's adjusted gross income. S. 3335 would temporarily waive
these limits regarding charitable cash contributions dedicated to
Presidentially-declared disaster relief efforts.
- Increase in standard mileage rate for charitable use of
vehicles. The mileage rate individuals may use to compute a tax
deduction for personal vehicle expenses associated with charitable work is
statutory and has not been increased since 1997 and is currently at 14
cents per mile. For a taxpayer assisting in relief efforts related to the
Presidentially-declared disaster, S. 3335 would set the
charitable mileage rate at seventy percent of the standard business
mileage rate.
- Exclusion from income of mileage reimbursements for
charitable volunteers. In general, reimbursements received for
operating expenses of a personal vehicle used in connection with
charitable work in excess of the statutory charitable mileage rate are
taxable income to the recipient. Under S. 3335, reimbursements
for charitable mileage attributable to the Presidentially-declared
disaster up to the amount of the standard business mileage rate would not
be considered taxable income.
Restructuring of New York Liberty Zone tax credits. S. 3335 would
implement a proposal included in the President's Fiscal Year 2009 Budget to
provide the City of New York and the State of New York with tax credits for
expenditures made for transportation infrastructure projects connecting with
the New York Liberty Zone.
Transportation and Infrastructure
- Highway Trust Fund fix. To avert a funding
shortfall in the coming fiscal year, S. 3335 would add $8.017
billion to the Highway Trust Fund. This fix is needed to keep as many as
380,000 good-paying jobs available to American workers, and to sustain
infrastructure projects that will make the U.S. highway and bridge system
safer. This proposal passed the House of Representatives on
July 23, 2008, by a vote of 387 to 37.
Revenue
Provisions
- Current inclusion of deferred compensation paid by
certain tax indifferent parties. To close a tax loophole that allows individuals
who work for certain offshore corporations (such as hedge fund
managers) to defer tax on their compensation, S. 3335 would
tax individuals on a current basis if such individuals receive deferred
compensation from a tax indifferent party.
Current law generally allows
executives and other employees to defer paying tax on compensation until the
compensation is paid. This deferral is made possible by rules that require the
corporation paying the deferred compensation to defer the deduction that relates
to this compensation until the compensation is paid. Matching the timing of
the deduction with the income inclusion ensures that the executive is not able
to achieve the tax benefits of deferred compensation at the expense of the
Treasury. Instead, the corporation paying the compensation bears the expense
of paying deferred compensation as a result of the deferred deduction. Where
an individual is paid deferred compensation by a tax indifferent party (such as
an offshore corporation in a tax haven jurisdiction), there is no offsetting
deduction that can be deferred. As a result, individuals receiving deferred
compensation from a tax indifferent party are able to achieve the tax benefits
of deferred compensation at the expense of the Treasury.
- Delay implementation of worldwide allocation of
interest. In 2004, Congress provided taxpayers with an election to
take advantage of a liberalized rule for allocating interest expense
between United States sources and foreign sources for purposes of determining
a taxpayer's foreign tax credit limitation. Although enacted in 2004, this
election is not available to taxpayers until taxable years beginning after
2008. The bill would delay the phase-in of this new liberalized rule for
ten years (for taxable years beginning after 2018). The proposal is
effective for tax years beginning after December 31, 2007. This
proposal is estimated to raise $22.335 billion over ten years.
- Basis reporting by brokers on sales of stock.
This revenue raising provision creates mandatory basis reporting measures
to the IRS by brokers for transactions involving publicly traded
securities, such as stock, debt, commodities, derivatives and other items
as specified by the Treasury. The proposal is estimated to raise
$7.98 billion over ten years.
Legislative
History
On July 24, 2008, Chairman
Baucus, along with Leader Reid, introduced the Jobs, Energy, Families and
Disaster Relief Act of 2008 (S. 3335). On July 25, 2008, S. 3335
was placed on Senate Legislative Calendar under General Orders (Calendar No.
898).
The Senate is expected to
consider S. 3335 the week of July 28, 2008.
Possible Amendments
The DPC will distribute information on
amendments as it becomes available.
Statement of Administration
Policy
The Administration has not yet released
a Statement of Administration Position (SAP) concerning S. 3335.
Related Reading
Senate Committee on Finance, Estimated Budget Effects of
S. 3125, available here.
CRS, Alternative Minimum Taxpayers by State, available here.
CRS, Energy Tax Policy: History and Current
Issues, available here.
CRS, Certain Temporary Tax Provisions ('Extenders') Expired in 2007, available here.
CRS, Charitable Contributions of Food Inventory: Proposals for
Change, available here
CRS, Energy Efficiency and Renewable Energy Legislation in the
110th Congress, available here.
CRS, Energy Tax Policy: History and Current Issues,
available here.
CRS, Federal Deductibility of State and Local Taxes,
available here.
CRS, New Markets Tax Credit: An Introduction, available here.
CRS, Qualified Charitable Distributions from Individual
Retirement Accounts: A Fact Sheet, available here
CRS, Research and Experimentation Tax Credit: Current Status
and Selected Issues for Congress, available here
CRS, Tax Credit Bonds: A Brief Explanation, available here.
CRS, The Tax Deduction for Classroom Expenses of Elementary
and Secondary School Teachers, available here.
CRS, Taxation of Hedge Fund and Private Equity Managers,
available here.
CRS, The Work Opportunity Tax Credit (WOTC), available here.