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[JOINT COMMITTEE PRINT] DESCRIPTION OF REVENUE PROVISIONS CONTAINED IN THE PRESIDENT’S FISCAL YEAR 2007 BUDGET PROPOSAL Prepared by the Staff of the JOINT COMMITTEE ON TAXATION March 2006 U.S. Government Printing Office Washington: 2006 JCS-1-06 [JOINT COMMITTEE PRINT] DESCRIPTION OF REVENUE PROVISIONS CONTAINED IN THE PRESIDENT’S FISCAL YEAR 2007 BUDGET PROPOSAL Prepared by the Staff of the JOINT COMMITTEE ON TAXATION March 2006 U.S. Government Printing Office Washington: 2006 JCS-1-06 CONTENTS Page INTRODUCTION .......................................................................................................................... 1 I. MAKING PERMANENT TAX CUTS ENACTED IN 2001 AND 2003............................. 2 A. Permanently Extend Certain Provisions Expiring Under EGTRRA and JGTRRA ....... 2 II. TAX INCENTIVES............................................................................................................... 6 A. Provisions Related to Savings.......................................................................................... 6 1. Expansion of tax free savings opportunities .............................................................. 6 2. Consolidation of employer-based savings accounts ................................................ 18 3. Individual development accounts ............................................................................ 30 B. Increase Section 179 Expensing .................................................................................... 34 C. Health Care Provisions.................................................................................................. 37 1. Facilitate the growth of HSA-eligible health coverage............................................ 37 2. Modify the refundable credit for health insurance costs of eligible individuals...... 51 3. Expand human clinical trial expenses qualifying for the orphan drug tax credit .... 58 D. Provisions Relating to Charitable Giving ...................................................................... 61 1. Permit tax-free withdrawals from individual retirement arrangements for charitable contributions............................................................................................ 61 2. Expand and increase the enhanced charitable deduction for contributions of food inventory.......................................................................................................... 65 3. Reform excise tax based on investment income of private foundations.................. 71 4. Modify tax on unrelated business taxable income of charitable remainder trusts... 75 5. Modify the basis adjustment to stock of S corporations contributing appreciated property.................................................................................................................... 78 6. Repeal the $150 million limit for qualified 501(c)(3) bonds................................... 79 7. Repeal the restrictions on the use of qualified 501(c)(3) bonds for residential rental property.......................................................................................................... 81 E. Extend the Above-the-Line Deduction for Qualified Out-of-Pocket Classroom Expenses ........................................................................................................................ 85 F. Establish Opportunity Zones.......................................................................................... 89 G. Permanently Extend Expensing of Brownfields Remediation Costs............................. 96 H. Restructure Assistance to New York ............................................................................. 99 III. SIMPLY THE TAX LAWS FOR FAMILIES .................................................................. 105 A. Clarify Uniform Definition of Child............................................................................ 105 B. Simplify EIC Eligibility Requirements Regarding Filing Status, Presence of Children, and Work and Immigrant Status .................................................................. 111 C. Reduce Computational Complexity of Refundable Child Tax Credit......................... 117 i Page IV. PROVISIONS RELATED TO THE EMPLOYER-BASED PENSION SYSTEM.......... 120 A. Provisions Relating to Cash Balance Plans ................................................................. 120 B. Strengthen Funding for Single-Employer Pension Plans............................................. 138 1. Background and summary ..................................................................................... 138 2. Funding and deduction rules.................................................................................. 139 3. Form 5500, Schedule B actuarial statement and summary annual report.............. 158 4. Treatment of grandfathered floor-offset plans....................................................... 163 5. Limitations on plans funded below target levels ................................................... 165 6. Eliminate plant shutdown benefits......................................................................... 171 7. Proposals relating to the Pension Benefit Guaranty Corporation (“PBGC”) ........ 174 C. Reflect Market Interest Rates in Lump-Sum Payments............................................... 186 V. TAX SHELTERS, ABUSIVE TRANSACTIONS, AND TAX COMPLIANCE............. 190 A. Combat Abusive Foreign Tax Credit Transactions ..................................................... 190 B. Modify the Active Trade or Business Test for Certain Corporate Divisions .............. 192 C. Impose Penalties on Charities that Fail to Enforce Conservation Easements ............. 198 D. Eliminate the Special Exclusion from Unrelated Business Taxable Income (“UBIT”) for Gain or Loss on Sale or Exchange of Certain Brownfield Properties ... 201 E. Limit Related-Party Interest Deductions ..................................................................... 211 F. Modify Certain Tax Rules for Qualified Tuition Programs......................................... 214 VI. TAX ADMINISTRATION PROVISIONS AND UNEMPLOYMENT INSURANCE... 223 A. IRS Restructuring and Reform Act of 1998 ................................................................ 223 1. Modify section 1203 of the IRS Restructuring and Reform Act of 1998.............. 223 2. Modifications with respect to frivolous returns and submissions.......................... 226 3. Termination of installment agreements ................................................................. 228 4. Consolidate review of collection due process cases in the United States Tax Court ...................................................................................................................... 230 5. Office of Chief Counsel review of offers in compromise...................................... 231 B. Initiate Internal Revenue Service (“IRS”) Cost Saving Measures............................... 233 1. Allow the Financial Management Service to retain transaction fees from levied amounts ....................................................................................................... 233 2. Expand the authority to require electronic filing by large businesses and exempt organizations ............................................................................................. 233 C. Other Provisions...........................................................................................................235 1. Allow Internal Revenue Service (“IRS”) to access information in the National Directory of New Hires (“NDNH”)....................................................................... 235 2. Extension of IRS authority to fund undercover operations ................................... 236 D. Reduce the Tax Gap..................................................................................................... 238 1. Implement standards clarifying when employee leasing companies can be held liable for their clients' Federal employment taxes ................................................. 238 2. Increased information reporting on payment card transactions............................. 242 3. Increased information reporting for certain government payments for goods and services............................................................................................................ 243 ii Page 4. Amend collection due process procedures for employment tax liabilities ............ 245 5. Expand the signature requirement and penalty provisions applicable to paid preparers................................................................................................................. 247 E. Strengthen the Financial Integrity of Unemployment Insurance................................. 249 1. Reduce improper benefit payments and tax avoidance.......................................... 249 2. Extension of Federal Unemployment Surtax......................................................... 251 VII. MODIFY ENERGY POLICY ACT OF 2005................................................................ 253 A. Repeal Temporary 15-Year Recovery Period for Natural Gas Distribution Lines...... 253 B. Modify Amortization for Certain Geological and Geophysical Expenditures ............ 256 VIII. EXPIRING PROVISIONS ............................................................................................. 258 A. Extend Alternative Minimum Tax Relief for Individuals............................................ 258 B. Permanently Extend the Research and Experimentation
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