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66-617 NEW Txt Wais.Ps [JOINT COMMITTEE PRINT] DESCRIPTION OF REVENUE PROVISIONS CONTAINED IN THE PRESIDENTS FISCAL YEAR 2012 BUDGET PROPOSAL Prepared by the Staff of the JOINT COMMITTEE ON TAXATION June 2011 U.S. Government Printing Office Washington: 2011 JCS-3-11 JOINT COMMITTEE ON TAXATION 112TH CONGRESS, 1ST SESSION ________ HOUSE SENATE Dave Camp, Michigan Max Baucus, Montana Chairman Vice Chairman Wally Herger, California John D. Rockefeller IV, West Virginia Sam Johnson, Texas Kent Conrad, North Dakota Sander M. Levin, Michigan Orrin G. Hatch, Utah Charles B. Rangel, New York Chuck Grassley, Iowa Thomas A. Barthold, Chief of Staff Bernard A. Schmitt, Deputy Chief of Staff CONTENTS Page INTRODUCTION .......................................................................................................................... 1 PART I − TAX CUTS FOR FAMILIES AND INDIVIDUALS ................................................... 2 A. Provide $250 Economic Recovery Payment and Special Tax Credit................................. 2 B. Increase in the Earned Income Tax Credit.......................................................................... 4 C. Expand the Child and Dependent Care Tax Credit............................................................. 7 D. Automatic Enrollment in Individual Retirement Arrangements......................................... 9 E. Extend American Opportunity Tax Credit........................................................................ 27 F. Provide Exclusion from Income for Certain Student Loan Forgiveness .......................... 33 G. Tax Qualified Dividends and Net Long-Term Capital Gains at a 20-Percent Rate for Upper-Income Taxpayers.................................................................................... 35 PART II − TAX CUTS FOR BUSINESS .................................................................................... 49 A. Eliminate Capital Gains Taxation on Investments in Small Business Stock.................... 49 B. Enhance and Make the Research Credit Permanent ......................................................... 51 C. Provide Additional Tax Credits for Investment in Qualified Property Used in a Qualifying Advanced Energy Manufacturing Project ...................................................... 71 D. Provide Tax Credit for Energy Efficient Commercial Building Property Expenditures in Lieu of Existing Tax Deduction ............................................................. 75 PART III − INCENTIVES TO PROMOTE REGIONAL GROWTH ......................................... 84 A. Extend and Modify the New Markets Tax Credit............................................................. 84 B. Reform and Extend Build America Bonds ....................................................................... 90 C. Allow Low-Income Housing Tax Credit Properties to Elect to Use Average Tenant Incomes for Purposes of Applicable Income Tests .............................................. 96 D. Expand the Low-Income Housing Additional Basis Rule to Certain Properties Which Also Receive Tax-Exempt Bond Financing.......................................................... 98 E. Designate Growth Zones................................................................................................. 101 F. Restructure Transportation Infrastructure Assistance to New York City....................... 128 PART IV − CONTINUE CERTAIN EXPIRING PROVISIONS THROUGH CALENDAR YEAR 2012.......................................................................................................... 130 PART V − OTHER REVENUE CHANGES AND LOOPHOLE CLOSERS........................... 131 A. Reform Treatment of Financial Institutions and Products.............................................. 131 1. Impose a financial crisis responsibility fee............................................................... 131 2. Require accrual of the time-value element on forward sale of corporate stock........ 147 3. Require ordinary treatment for dealer activities with respect to section 1256 contracts .................................................................................................................... 151 i 4. Modify the definition of control for purposes of the section 249 deduction limitation................................................................................................................... 155 B. Reinstate Superfund Environmental Income Tax........................................................... 158 C. Reform the U.S. International Tax System..................................................................... 161 1. Defer deduction of interest expense related to deferred income............................... 161 2. Determine the foreign tax credit on a pooling basis ................................................. 182 3. Tax currently excess returns associated with transfers of intangibles offshore........ 197 4. Limit shifting of income through intangible property transfers................................ 218 5. Disallow the deduction for nontaxed reinsurance premiums paid to affiliates......... 236 6. Limit earnings stripping by expatriated entities........................................................ 254 7. Proposal to modify the tax rules for dual-capacity taxpayers................................... 267 D. Reform Treatment of Insurance Companies and Products ............................................. 274 1. Modify rules that apply to sales of life insurance contracts...................................... 274 2. Modify dividends received deduction for life insurance company separate accounts..................................................................................................................... 278 3. Expand pro rata interest expense disallowance for company-owned life insurance (COLI)................................................................................................... 289 E. Miscellaneous Changes................................................................................................... 295 1. Increase Oil Spill Liability Trust Fund financing rate by one cent........................... 295 2. Permanent extension of Federal Unemployment Surtax .......................................... 296 3. Provide short-term tax-relief to employers and expand Federal Unemployment Tax Act base ............................................................................................................. 297 4. Expand Short-Time Compensation (STC) Unemployment Program.................... 299 5. Repeal last-in, first-out inventory accounting method.............................................. 300 6. Repeal gain limitation on dividends received in reorganization exchanges............. 304 7. Treat income of partners for performing services as ordinary income..................... 317 8. Deny deduction for punitive damages ...................................................................... 330 9. Repeal the lower-of-cost-or-market inventory accounting method.......................... 333 PART VI − ELIMINATE FOSSIL FUEL TAX PREFERENCES ............................................ 336 A. Eliminate Oil and Gas Company Preferences................................................................. 336 PART VII − SIMPLIFY THE TAX CODE ............................................................................... 363 A. Plug-In Electric-Drive Motor Vehicle Credit ................................................................. 363 B. Eliminate Required Minimum Distribution Rules for Balances of $50,000 or Less...... 365 C. Allow 60-Day Rollover by Nonspouse Beneficiaries of Eligible Retirement Plans ...... 376 D. Clarify Exception to Recapture of Unrecognized Gain on Sale of Stock to an ESOP ... 381 E. Repeal Nonqualified Preferred Stock (NQPS) Designation ........................................... 385 F. Revise and Simplify the Fractions Rule...................................................................... 395 G. Repeal Preferential Dividend Rule for Publicly Traded Real Estate Investment Trusts (REITs) ................................................................................................................ 410 H. Reform Excise Tax Based on Investment Income of Private Foundations .................... 415 I. Simplify Tax-Exempt Bonds .......................................................................................... 421 1. Simplify rules relating to arbitrage investment restrictions...................................... 421 2. Simplify qualified mortgage bond targeting requirements ....................................... 424 ii 3. Repeal the five percent limit on unrelated or disproportionate private business use for governmental bonds...................................................................................... 426 PART VIII − REDUCE THE TAX GAP AND MAKE REFORMS......................................... 430 A. Expand Information Reporting ....................................................................................... 430 1. Require information reporting on payments to corporations.................................... 430 2. Require information reporting for private separate accounts ................................... 433 3. Require a certified taxpayer identification number from contractors and allow certain withholding ................................................................................................... 436 B. Improve Compliance by Business .................................................................................. 440 1. Require
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