General Explanations of the Administration’s Fiscal Year 2004 Revenue Proposals Department of the Treasury February 2003 GENERAL EXPLANATIONS OF THE ADMINISTRATION’S FISCAL YEAR 2004 REVENUE PROPOSALS ...............................................................................................................................................................1 INTRODUCTION..........................................................................................................................................................1 ADMINISTRATION PROPOSALS..........................................................................................................................3 ECONOMIC GROWTH PACKAGE........................................................................................................................3 RATIONALE ...............................................................................................................................................................3 Accelerate 10-percent individual income tax rate bracket expansion....................................................................5 Accelerate reduction in individual income tax rates ..............................................................................................6 Accelerate 15-percent individual income tax rate bracket expansion for married taxpayers filing joint returns .............................................................................................................................................................7 Accelerate increase in standard deduction for married taxpayers filing joint returns...........................................8 Accelerate increase in child tax credit ...................................................................................................................9 Eliminate the double taxation of corporate earnings ...........................................................................................11 Increase expensing for small business..................................................................................................................23 Provide minimum tax relief to individuals............................................................................................................25 TAX INCENTIVES...................................................................................................................................................27 PROVIDE INCENTIVES FOR CHARITABLE GIVING .....................................................................................................27 Provide charitable contribution deduction for non-itemizers ..............................................................................27 Permit tax-free withdrawals from IRAs for charitable contributions...................................................................28 Expand and increase the enhanced charitable deduction for contributions of food inventory ............................30 Reform excise tax based on investment income of private foundations................................................................32 Modify tax on unrelated business taxable income of charitable remainder trusts ...............................................34 Modify basis adjustment to stock of S corporations contributing appreciated property......................................36 Repeal the $150 million limitation on qualified 501(c)(3) bonds.........................................................................37 Repeal restrictions on the use of qualified 501(c)(3) bonds for residential rental property ................................38 STRENGTHEN AND REFORM EDUCATION .................................................................................................................40 Provide refundable tax credit for certain costs of attending a different school for pupils assigned to failing public schools................................................................................................................................................40 Extend, increase and expand the above-the-line deduction for qualified out-of-pocket classroom expenses ......43 INVEST IN HEALTH CARE.........................................................................................................................................45 Provide refundable tax credit for the purchase of health insurance ....................................................................45 Provide an above-the-line deduction for long-term care insurance premiums ....................................................49 Allow up to $500 in unused benefits in a health flexible spending arrangement to be carried forward to the next year........................................................................................................................................................51 Provide additional choice with regard to unused benefits in a health flexible spending arrangement................52 Permanently extend and reform Archer Medical Savings Accounts.....................................................................54 Provide an additional personal exemption to home caregivers of family members .............................................56 Allow the orphan drug tax credit for certain pre-designation expenses...............................................................58 ENCOURAGE TELECOMMUTING ...............................................................................................................................59 Exclude from income the value of employer-provided computers, software and peripherals..............................59 INCREASE HOUSING OPPORTUNITIES.......................................................................................................................60 Provide tax credit for developers of affordable single-family housing ................................................................60 ENCOURAGE SAVING...............................................................................................................................................63 Establish Individual Development Accounts (IDAs) ............................................................................................63 PROTECT THE ENVIRONMENT ..................................................................................................................................66 Permanently extend expensing of brownfields remediation costs ........................................................................66 Exclude 50 percent of gains from the sale of property for conservation purposes...............................................67 INCREASE ENERGY PRODUCTION AND PROMOTE ENERGY CONSERVATION ............................................................69 Extend and modify the tax credit for producing electricity from certain sources ................................................69 Provide tax credit for residential solar energy systems........................................................................................71 Modify treatment of nuclear decommissioning funds...........................................................................................72 Provide tax credit for purchase of certain hybrid and fuel cell vehicles..............................................................75 Provide tax credit for energy produced from landfill gas ....................................................................................79 Provide tax credit for combined heat and power property...................................................................................81 i Provide excise tax exemption (credit) for ethanol................................................................................................83 TAX ADMINISTRATION AND UNEMPLOYMENT INSURANCE .................................................................85 IMPROVE TAX ADMINISTRATION.............................................................................................................................85 Modify the IRS Restructuring and Reform Act of 1998 (RRA98) .........................................................................85 Make Section 1203 of the IRS Restructuring and Reform Act of 1998 more effective and fair........................................... 85 Curb the use of frivolous submissions and filings made to impede or delay tax administration .......................................... 87 Authorize partial-liability installment agreements................................................................................................................ 89 Allow for the termination of installment agreements for failure to file returns and for failure to make tax deposits ........... 90 Consolidate judicial review of collection due process cases in the United States Tax Court ............................................... 91 Eliminate the monetary threshold for counsel review of offers in compromise ................................................................... 93 Initiate IRS Cost Saving Measures .......................................................................................................................94 Allow the Financial Management Service to retain transaction fees from levied amounts .................................................. 94 Extend the due date for electronically filed returns .............................................................................................................. 95 Repeal section 132 of the Revenue Act of 1978 and amend the tax code to authorize