Small Business Taxes & Management--Copyright 2004, A/N Group, Inc.

Introduction

The main purpose of the new law is to repeal the extraterritorial income exclusion and replace it with a tax break for domestic production activities. But the law runs to several hundred pages and includes a large number of other provisions. We've reviewed the law and presented below a synopsis of the provisions of most interest to small- to mid-sized business owners, CPAs, etc. Please keep in mind that this is only a synopsis. Moreover, there are a number of provisions of interest to special interest groups. At the end of the review we've included a table of contents of the new law. If we haven't covered a provision you've heard about, check this index.

Business Provisions

Deduction Relating to Income Attributable to Domestic Production Activities.

The new law provides a deduction from taxable income (or, in the case of an individual, adjusted gross income) that is equal to a portion of the taxpayer's qualified production activities income. For taxable years beginning after 2009, the deduction is equal to nine percent of the lesser of (1) the qualified production activities income for the year, or (2) taxable income (determined without regard to this provision) for the taxable year. For taxable years beginning in 2005 and 2006, the deduction is three percent of income and, for taxable years beginning in 2007, 2008 and 2009, the deduction is six percent of income. However, the deduction for a taxable year is limited to 50 percent of the wages paid by the taxpayer during the calendar year that ends in such taxable year. In the case of corporate taxpayers that are members of certain affiliated groups, the deduction is determined by treating all members of such groups as a single taxpayer and the deduction is allocated among such members in proportion to each member's respective amount (if any) of qualified production activities income.

In general, "qualified production activities income" is equal to domestic production gross receipts, reduced by the sum of: (1) the costs of goods sold that are allocable to such receipts; (2) other deductions, expenses, or losses that are directly allocable to such receipts; and (3) a proper share of other deductions, expenses, and losses that are not directly allocable to such receipts or another class of income.

Example--Madison LLC is a manufacturer of waffle irons. For the year 2005 it has sales of $1,000,000, cost of goods sold of $500,000 and overhead and related costs of $200,000. Madison's wages are $150,000. All of its income is qualified production activities income. It has no interest income, rents, etc. It's net income is $300,000. Based solely on its income, Madison would be entitled to a deduction of $9,000. Since Madison's wages are $150,000 the 50% of wages limitation doesn't apply.

However, domestic production gross receipts do not include any gross receipts that are derived from (1) the sale of food or beverages prepared by the taxpayer at a retail establishment, or (2) the transmission or distribution of electricity, natural gas, or potable water. In addition, domestic production gross receipts do not include any gross receipts derived from property that is leased, licensed or rented for use by any related person.

"Qualifying production property" generally includes any tangible personal property, computer software, or sound recordings. "Qualified film" includes any motion picture film or videotape (including live or delayed television programming, but not including certain sexually explicit productions) if 50 percent or more of the total compensation relating to the production of such film (including compensation in the form of residuals and participations) constitutes compensation for services performed in the U.S. by actors, production personnel, directors, and producers.

With respect to domestic production activities of an S corporation, partnership, estate, trust or other passthrough entity (other than an agricultural or horticultural cooperative), although the wage limitation is applied first at the entity level, the deduction under the conference agreement generally is determined at the shareholder, partner or similar level by taking into account at such level the proportionate share of qualified production activities income of the entity.

For purposes of applying the wage limitation at the level of a shareholder, partner, or similar person, each person who is allocated qualified production activities income from a passthrough entity also is treated as having been allocated wages from such entity in an amount that is equal to the lesser of: (1) such person's allocable share of wages, as determined under regulations to be prescribed; or (2) twice the appropriate deductible percentage of qualified production activities income that actually is allocated to such person for the taxable year.

With regard to member-owned agricultural and horticultural cooperatives formed under Subchapter T of the Code, the new law provides the same treatment of qualified production activities income derived from agricultural or horticultural products that are manufactured, produced, grown, or extracted by cooperatives, or that are marketed through cooperatives, as it provides for qualified production activities income of other taxpayers (i.e., the cooperative may claim a deduction from qualified production activities income).

2-year Extension of Increased Expensing for Small Business.

The $100,000 limit (indexed for inflation) on the Sec. 179 expense option is extended for two years (it was set to expire at the end of 2005).

In addition to the extension of the $100,000 ceiling, the new law limits the ability of taxpayers to claim deductions under Section 179 for certain vehicles not subject to Section 280F to $25,000. The provision applies to sport utility vehicles rated at 14,000 pounds gross vehicle weight or less (in place of the present law 6,000 pound rating). For this purpose, a sport utility vehicle is defined to exclude any vehicle that: (1) is designed for more than nine individuals in seating rearward of the driver's seat; (2) is equipped with an open cargo area, or a covered box not readily accessible from the passenger compartment, of at least six feet in interior length; or (3) has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.

The change is effective for property placed in service after the date of enactment (October 22, 2004).

The definition of a sport utility vehicle is worded in a convoluted way, most likely to try and close potential loopholes. The lowered Section 179 writeoff doesn't apply to vans with seating for more than nine individuals behind the driver, pickup trucks (as long as the bed is at least six feet in length), or flat front vans (no protrusion of more than 30 inches in front of the windshield) with no seating behind the driver (i.e., most vans with no rear seating such as used by most tradesmen, delivery personnel, etc. In fact, the change was designed to avoid effecting taxpayers who use the vehicle for true business purposes. However, white collar professionals who are looking to write off a $70,000 Hummer will be out of luck.

Example--In December, 2004 Fred pays $65,000 for an SUV that he uses 100% for business. Under the new law, the taxpayer is first allowed a $25,000 deduction under Section 179. The taxpayer is also allowed an additional first-year depreciation deduction (Sec. 168(k)) of $20,000 based on $40,000 ($65,000 original cost less the section 179 deduction of $25,000) of adjusted basis. Finally, the remaining adjusted basis of $20,000 ($40,000 adjusted basis less $20,000 additional first-year depreciation) is eligible for an additional depreciation deduction of $4,500 under the general depreciation rules (automobiles are five-year recovery property). The remaining $13,000 of cost ($65,000 original cost less $47,000 deductible currently) would be recovered in 2005 and subsequent years pursuant to the general depreciation rules.

Tax Tip--The new law doesn't affect the depreciation limits. That is, while the maximum first year depreciation on a $50,000 car would be limited to $2,960 (ignoring the 50% additional depreciation limit), a vehicle that qualifies under the old SUV rules, wouldn't be subject to this limitation. Thus, while you won't be able to write off the $70,000 Hummer in the year of purchase, you could still fully depreciate it over 5 years. Something you can't do with a car.

Recovery Period for Depreciation of Certain Leasehold Improvements and Restaurant Property.

The new law reduces to 15 years the depreciation period for qualified leasehold improvements and for qualified restaurant property. Qualified leasehold improvement property is any improvement to an interior portion of a building that is nonresidential real property, provided certain requirements are met. The improvement must be made under or pursuant to a lease either by the lessee (or sublessee), or by the lessor, of that portion of the building to be occupied exclusively by the lessee (or sublessee). The improvement must be placed in service more than three years after the date the building was first placed in service. Qualified leasehold improvement property does not include any improvement for which the expenditure is attributable to the enlargement of the building, any elevator or escalator, any structural component benefiting a common area, or the internal structural framework of the building. However, if a lessor makes an improvement that qualifies as qualified leasehold improvement property, such improvement does not qualify as qualified leasehold improvement property to any subsequent owner of such improvement. An exception to the rule applies in the case of death and certain transfers of property that qualify for non-recognition treatment.

Qualified restaurant property includes improvements placed in service more than 3 years after the date the building was first placed in service and where more than 50% of the building's square footage is devoted to preparation and seating for on-premises consumption of prepared meals. The rules apply to property placed in service before January 1, 2006 and after the date of enactment.

Provide Consistent Amortization Period for Intangibles

Under prior law a taxpayer had to capitalize start-up and organizational expenditures. An election could be made to amortize the expenditures over a period of not less than 60 months, beginning with the month in which the trade or business began. Start-up expenditures are amounts that would have been deductible as trade or business expenses, had they not been paid or incurred before business began. Many small businesses failed to make the election or otherwise treat the expenditures correctly. Moreover, accounting for the small dollar amount incurred by most small businesses could be costly.

Section 197 requires most acquired intangible assets (such as goodwill, trademarks, franchises, and patents) that are held in connection with the conduct of a trade or business or an activity for the production of income to be amortized over 15 years beginning with the month in which the intangible was acquired.

The new law modifies the treatment of start-up and organizational expenditures. A taxpayer can now elect to deduct up to $5,000 of start-up and $5,000 of organizational expenditures in the taxable year in which the trade or business begins. However, each $5,000 amount is reduced (but not below zero) by the amount by which the cumulative cost of start-up or organizational expenditures exceeds $50,000, respectively. Startup and organizational expenditures that are not deductible in the year in which the trade or business begins would be amortized over a 15-year period consistent with the amortization period for Section 197 intangibles. The new rule is effective for start-up and organizational expenditures incurred after the date of enactment. Start-up and organizational expenditures that are incurred on or before the date of enactment would continue to be eligible to be amortized over a period not to exceed 60 months. However, all start-up and organizational expenditures related to a particular trade or business, whether incurred before or after the date of enactment, would be considered in determining whether the cumulative cost of start-up or organizational expenditures exceeds $50,000.

Special Rules for livestock Sold on Account of Weather-Related Conditions

The new law extends to 4 years the replacement period for livestock sold on account of drought, flood, or other weather-related conditions. The provision also allows the livestock to be replaced with other ranch equipment or property.

Change in Timber Rules

The new law allows capital gain treatment under Sec. 631(b) to apply to outright sales of timber by landowners without requiring the retention of an economic interest, effective December 31, 2004.

The Act also provides for expensing of certain reforestation expenditures.

S Corporation Changes

The new law allows taxpayers to elect to treat all members of a family as a single shareholder for S corporation purposes. A family is defined as the common ancestor and all lineal descendants of the common ancestor, as well as the spouses, or former spouses, of these individuals. An individual shall not be a common ancestor if, as of the later of the time of the election or the effective date of this provision, the individual is more than three generations removed from the youngest generation of shareholders who would (but for this rule) be members of the family. For purposes of this rule, a spouse or former spouse is treated as in the same generation as the person to whom the individual is (or was) married.

The new law increase the number of eligible shareholders of an S corporation to 100.

Under the new law the beneficiary of a qualified subchapter S trust is generally allowed to deduct suspended losses under the at- risk rules and the passive loss rules when the trust disposes of the S corporation stock.

The new law also allows suspended losses to be transferred in the case of transfers of stock to a spouse or former spouse incident to a divorce.

The new law provides relief from certain invalid subchapter S subsidiary elections and terminations.

Deduction for Personal Use of Company Aircraft and Other Entertainment Expenses

Generally, no deduction is allowed with respect to (1) an activity generally considered to be entertainment, amusement or recreation, unless the taxpayer establishes that the item was directly related to (or, in certain cases, associated with) the active conduct of the taxpayer's trade or business, or (2) a facility (e.g., an airplane) used in connection with such activity. The law includes a number of exceptions to the general rule disallowing deductions of entertainment expenses. Under one exception, the deduction disallowance rule does not apply to expenses for goods, services, and facilities to the extent that the expenses are reported by the taxpayer as compensation and wages to an employee. The deduction disallowance rule also does not apply to expenses paid or incurred by the taxpayer for goods, services, and facilities to the extent that the expenses are includible in the gross income of a recipient who is not an employee (e.g., a nonemployee director) as compensation for services rendered or as a prize or award. The exceptions apply only to the extent that amounts are properly reported by the company as compensation and wages or otherwise includible in income. In no event can the amount of the deduction exceed the amount of the actual cost, even if a greater amount is includible in income.

In general, the value of a non-commercial flight, and the amount to be included as compensation to the employee is determined under the base aircraft valuation formula, also known as the Standard Industry Fare Level formula or "SIFL". If the SIFL valuation rules do not apply, the value of a flight on a company-provided aircraft is generally equal to the amount that an individual would have to pay in an arm's-length transaction to charter the same or a comparable aircraft for that period for the same or a comparable flight.

In the context of an employer providing an aircraft to employees for nonbusiness (e.g., vacation) flights, the exception for expenses treated as compensation has been interpreted as not limiting the company's deduction for operation of the aircraft to the amount of compensation reportable to its employees,963 which can result in a deduction multiple times larger than the amount required to be included in income. In many cases, the individual including amounts attributable to personal travel in income directly benefits from the enhanced deduction, resulting in a net deduction for the personal use of the company aircraft.

Under the new law, in the case of certain employees, the exceptions to the general entertainment expense disallowance rule for expenses treated as compensation or includible in income apply only to the extent of the amount of expenses treated as compensation or includible in income. No deduction is allowed with respect to expenses for (1) a nonbusiness activity generally considered to be entertainment, amusement or recreation, or (2) a facility (e.g., an airplane) used in connection with such activity to the extent that such expenses exceed the amount treated as compensation or includible in income to the covered employee. For example, a company's deduction attributable to aircraft operating costs for a covered employee's vacation use of a company aircraft is limited to the amount reported as compensation to the employee. As under present law, the amount of the deduction cannot exceed the actual cost. This provision applies to individuals who, with respect to an employer or other service recipient, are subject to the requirements of section 16(a) of the Securities and Exchange Act of 1934, or would be subject to such requirements if the employer or service recipient were an issuer of equity securities referred to in section 16(a). Such individuals generally include officers (as defined by section 16(a)), directors, and 10-percent-or-greater owners of private and publicly-held companies. The change is effective for amounts deferred after the date of enactment.

Exclusion of Incentive Stock Options and Employee Stock Purchase Plan Stock Options from Wages

There has been uncertainty in the past as to employer withholding obligations on the exercise of statutory stock options. The new law provides specific exclusions from FICA and FUTA wages for remuneration on account of the transfer of stock pursuant to the exercise of an incentive stock option or under an employee stock purchase plan, or any disposition of such stock. Thus, FICA and FUTA taxes do not apply upon the exercise of a statutory stock option. The also provides that such remuneration is not taken into account for purposes of determining Social Security benefits. The new law also provides that Federal income tax withholding is not required on a disqualifying disposition, nor when compensation is recognized in connection with an employee stock purchase plan discount. Prior law reporting requirements continue to apply. This provision is effective for stock acquired pursuant to options exercised after the date of enactment.

Individual Changes

Deduction of State and Local General Sales Tax.

The new law will allow taxpayers to deduct state and local sales taxes in lieu of state and local income taxes. You can deduct either your actual sales tax paid for the year based on your receipts or you could claim an amount based on tables, taking into account the average consumption, filing status, number of dependents, adjusted gross income, and rates of tax in the state to be compiled by the IRS. Sales taxes for items that may be added to the tables would not be reflected in the tables themselves. Special rules may apply where the tax rate varies by item. Except in the case of a lower rate of tax applicable with respect to food, clothing, medical supplies, or motor vehicles, no deduction is allowed for any general sales tax imposed with respect to an item at a rate other than the general rate of tax. However, in the case of motor vehicles, if the rate of tax exceeds the general rate, such excess shall be disregarded and the general rate is treated as the rate of tax. The provision would apply to taxable years beginning after December 31, 2003 and before January 1, 2006.

Recognition of Gain on Sale of Principal Residence.

Under the new law if you acquire property in a like-kind exchange the gain exclusion on the sale of a principal residence will not apply if the property is sold during the 5-year period beginning with the date of the acquisition of the property. For example, you acquire a new rental property in a like-kind exchange. A year later you convert it to your principal residence. Two years after that you sell the property. Any gain that would be excludable under the $250,000/$500,000 principal residence rule, is taxable

Change in Nonqualified Deferred Compensation Rules.

This is a major change that will affect all employers and employees who have nonqualified deferred compensation plans. While existing plans are technically not affected, they must be examined to see if there are anything in the plan that will trigger the provisions of the new law.

Under prior law, nonqualified deferred compensation (NQDC) offers considerable flexibility and advantages for all employees, but particularly so for smaller companies seeking to avoid the complexity and cost of qualified plans. As long as a NQDC arrangement is unfunded and remain subject to the general creditors of the company, the compensation is generally taxable only when actually or constructively received. As usual, the amounts are not constructively received if the recipient is not in control of the timing of receipt or there is a substantial limitation or restriction on receipt. The election to defer is flexible and acceleration of payments can be triggered by a range of specified future events.

Under the new law, all amounts deferred under a nonqualified deferred compensation plan for all taxable years are currently includible in gross income to the extent the amounts are not subject to a substantial risk of forfeiture and not previously included in gross income, unless certain requirements are satisfied. If the requirements of the provision are not satisfied, in addition to current income inclusion, interest at the tax underpayment rate plus one percentage point is imposed on the underpayments that would have occurred had the compensation been includible in income when first deferred, or if later, when not subject to a substantial risk of forfeiture. The amount required to be included in income is also subject to a 20-percent additional tax. If a particular requirement affects only some participants, the income inclusion, etc. applies only to participants to whom the requirements of the provision are not met.

The election to defer must be made no later than the close of the preceding taxable year. Thus, in order to defer any compensation for 2005, the election must be made no later than December 31, 2004. In the case of any performance-based compensation based on services performed over a period of at least 12 months, such election may be made no later than six months before the end of the service period. It is not intended that the provision override the constructive receipt doctrine, as constructive receipt rules continue to apply. It is intended that the term "performance-based compensation" will be defined by regulation to include compensation to the extent that an amount is: (1) variable and contingent on the satisfaction of preestablished organizational or individual performance criteria and (2) not readily ascertainable at the time of the election. For the purposes of the provision, it is intended that performance-based compensation may be required to meet certain requirements similar to those under Section 162(m), but would not be required to meet all requirements under that section. For example, it is expected that the IRS will provide that performance criteria would be considered preestablished if it is established in writing no later than 90 days after the commencement of the service period, but the requirement of determination by the compensation committee of the board of directors would not be required.

The time and form of distributions must be specified at the time of initial deferral. A plan could specify the time and form of payments that are to be made as a result of a distribution event (e.g., a plan could specify that payments upon separation of service will be paid in lump sum within 30 days of separation from service) or could allow participants to elect the time and form of payment at the time of the initial deferral election. If a plan allows participants to elect the time and form of payment, such election is subject to the rules regarding initial deferral elections under the provision. It is intended that multiple payout events are permissible. For example, a participant could elect to receive 25 percent of their account balance at age 50 and the remaining 75 percent at age 60. A plan could also allow participants to elect different forms of payment for different permissible distribution events. For example, a participant could elect to receive a lump-sum distribution upon disability, but an annuity at age 65.

Under the provision, a plan may allow changes in the time and form of distributions subject to certain requirements. A nonqualified deferred compensation plan may allow a subsequent election to delay the timing or form of distributions only if: (1) the plan requires that such election cannot be effective for at least 12 months after the date on which the election is made; (2) except in the case of elections relating to distributions on account of death, disability or unforeseeable emergency, the plan requires that the additional deferral with respect to which such election is made is for a period of not less than five years from the date such payment would otherwise have been made; and (3) the plan requires that an election related to a distribution to be made upon a specified time may not be made less than 12 months prior to the date of the first scheduled payment.

Distributions from a nonqualified deferred compensation plan may be allowed only upon separation from service (based on to-be-issued rules), death, a specified time (or pursuant to a fixed schedule), change in control of a corporation, occurrence of an unforeseeable emergency, or if the participant becomes disabled. A nonqualified deferred compensation plan may not allow distributions other than upon the permissible distribution events and, may not permit acceleration of a distribution.

In the case of a specified employee who separates from service, distributions may not be made earlier than six months after the date of the separation from service or upon death. Specified employees are key employees of publicly-traded corporations.

Amounts payable at a specified time or based on a fixed schedule must be specified under the plan at the time of deferral. Amounts payable upon the occurrence of an event are not treated as amounts payable at a specified time. For example, amounts payable when an individual attains age 65 are payable at a specified time, while amounts payable when an individual's child begins college are payable upon the occurrence of an event.

Distributions upon a change in the ownership or effective control of a corporation, or in the ownership of a substantial portion of the assets of a corporation, may only be made under rules to be provided by the IRS. It is intended that the IRS use a similar, but more restrictive, definition of change in control as is used for purposes of the golden parachute provisions of Section 280G consistent with the purposes of the provision.

An unforeseeable emergency is defined as a severe financial hardship to the participant: (1) resulting from an illness or accident of the participant, the participant's spouse, or a dependent (as defined in Sec. 152(a)); (2) loss of the participant's property due to casualty; or (3) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant. The amount of the distribution must be limited to the amount needed to satisfy the emergency plus taxes reasonably anticipated as a result of the distribution. Distributions may not be allowed to the extent that the hardship may be relieved through reimbursement or compensation by insurance or otherwise, or by liquidation of the participant's assets (to the extent such liquidation would not itself cause a severe financial hardship).

A participant is considered disabled if he or she (1) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; or (2) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the participant's employer.

Except as provided in regulations to be issued, no accelerations of distributions may be allowed. In general, changes in the form of distribution that accelerate payments are subject to the rule prohibiting acceleration of distributions. However, it is intended that the rule against accelerations is not violated merely because a plan provides a choice between cash and taxable property if the timing and amount of income inclusion is the same regardless of the medium of distribution. For example, the choice between a fully taxable annuity contract and a lump-sum payment may be permitted. It is also intended that the IRS provide rules under which the choice between different forms of actuarially equivalent life annuity payments is permitted.

The new law intends that the IRS will provide other, limited, exceptions to the prohibition on accelerated distributions, such as when the accelerated distribution is required for reasons beyond the control of the participant and the distribution is not elective. For example, it is anticipated that an exception could be provided if a distribution is needed in order to comply with Federal conflict of interest requirements or a court-approved settlement incident to divorce. It is intended that regulations provide that a plan would not violate the prohibition on accelerations by providing that withholding of an employee's share of employment taxes will be made from the employee's interest in the nonqualified deferred compensation plan. It is also intended that Treasury regulations provide that a plan would not violate the prohibition on accelerations by providing for a distribution to a participant to pay income taxes due upon a vesting event subject to section 457(f), provided that such amount is not more than an amount equal to the income tax withholding that would have been remitted by the employer if there had been a payment of wages equal to the income includible by the participant under section 457(f). It is also intended that Treasury regulations provide that a plan would not violate the prohibition on accelerations by providing for automatic distributions of minimal interests in a deferred compensation plan upon permissible distribution events for purposes of administrative convenience. For example, a plan could provide that upon separation from service of a participant, account balances less than $10,000 will be automatically distributed (except in the case of specified employees).

Under the provision, a transfer of property in connection with the performance of services under Section 83 also occurs with respect to compensation deferred under a nonqualified deferred compensation plan if the plan provides that upon a change in the employer's financial health, assets will be restricted to the payment of nonqualified deferred compensation. An amount is treated as restricted even if the assets are available to satisfy the claims of general creditors. For example, the provision applies in the case of a plan that provides that upon a change in financial health, assets will be transferred to a rabbi trust.

A nonqualified deferred compensation plan is defined as any plan that provides for the deferral of compensation other than a qualified employer plan or any bona fide vacation leave, sick leave, compensatory time, disability pay, or death benefit plan.813 A qualified employer plan means a qualified retirement plan, tax-deferred annuity, simplified employee pension, and SIMPLE. A qualified governmental excess benefit arrangement (sec. 415(m)) is a qualified employer plan. An eligible deferred compensation plan (sec. 457(b)) is also a qualified employer plan under the provision. A tax-exempt or governmental deferred compensation plan that is not an eligible deferred compensation plan is not a qualified employer plan. The application of the provision is not limited to arrangements between an employer and employee. It is intended that the provision does not apply to annual bonuses or other annual compensation amounts paid within 2 1/2 months after the close of the taxable year in which the relevant services required for payment have been performed.

Under the provision, employer aggregation rules generally apply. For example, it is intended that aggregation rules would apply in the case of separation from service so that the separation from service from one entity within a controlled group, but continued service for another entity within the group, would not be a permissible distribution event. It is also intended that aggregation rules would not apply in the case of change in control so that the change in control of one member of a controlled group would not be a permissible distribution event for participants of a deferred compensation plan of another member of the group.

Amounts required to be included in income under the provision are subject to reporting and Federal income tax withholding requirements. Amounts required to be includible in income are required to be reported on an individual's Form W-2 (or Form 1099) for the year includible in income.

The provision also requires annual reporting to the Internal Revenue Service of amounts deferred. Such amounts are required to be reported on an individual's Form W-2 (or Form 1099) for the year deferred even if the amount is not currently includible in income for that taxable year. It is expected that annual reporting of annual amounts deferred will provide the IRS greater information regarding such arrangements for enforcement purposes. It is intended that the information reported would provide an indication of what arrangements should be examined and challenged.

The provision is effective for amounts deferred in taxable years beginning after December 31, 2004. Earnings on amounts deferred before the effective date are subject to the provision to the extent that such amounts deferred are subject to the provision. Amounts deferred in taxable years beginning before January 1, 2005, are subject to the provision if the plan under which the deferral is made is materially modified after October 3, 2004. The addition of any benefit, right or feature is a material modification. The exercise or reduction of an existing benefit, right, or feature is not a material modification. For example, an amendment to a plan on November 1, 2004, to add a provision that distributions may be allowed upon request if participants are required to forfeit 10 percent of the amount of the distribution (i.e., a "haircut") would be a material modification to the plan so that the rules of the provision would apply to the plan. Similarly, accelerating vesting under a plan after October 3, 2004, would be a material modification. A change in the plan administrator would not be a material modification. As another example, amending a plan to remove a distribution provision (e.g., to remove a "haircut") would not be considered a material modification.

For purposes of the effective date, an amount is considered deferred before January 1, 2005, if the amount is earned and vested before such date. To the extent there is no material modification after October 3, 2004, present law applies with respect to vested rights.

Changes Affecting Businesses and Individuals

Charitable Contributions of Patents and Similar Property.

The new law will reduce the charitable contribution deduction of patents and similar property by the amount of any capital gain that would have occurred if the property had been sold. For example, if your cost basis in a patent was $5,000 but it was now worth $100,000, your deduction would be limited to $5,000. On the other hand, your deduction could be increased by an amount equal to at least a portion of any income the donee receives from the property. If the donee of any charitable deduction property sells, exchanges, or otherwise disposes of the property within 2 years after its receipt, the donee has to report the name, address and identification number of the donor, a description of the property, the date of the contribution, the amount received on the disposition and the date of such disposition. The rule would apply if the claimed value of the property (plus the claimed value of all similar items of property donated by the donor to 1 or more donees) exceeded $5,000. The rule would not apply to publicly traded securities.

Increased Reporting for Noncash Charitable Contributions.

The new law allows the IRS require additional documentation for property contributions in excess of $500. The provision requires increased donor reporting for certain charitable contributions of property other than cash, inventory, or publicly traded securities. The provision extends to all C corporations the prior law requirement, applicable to an individual, closely-held corporation, personal service corporation, partnership, or S corporation, that the donor must obtain a qualified appraisal of the property if the amount of the deduction claimed exceeds $5,000. The provision also provides that if the amount of the contribution of property other than cash, inventory, or publicly traded securities exceeds $500,000, then the donor must attach the qualified appraisal to the donor's tax return. For purposes of the dollar thresholds under the provision, property and all similar items of property donated to one or more donees are treated as one property.

The provision provides that a donor that fails to substantiate a charitable contribution of property, as required by the Secretary, is denied a charitable contribution deduction. If the donor is a partnership or S corporation, the deduction is denied at the partner or shareholder level. The denial of the deduction does not apply if it is shown that such failure is due to reasonable cause and not to willful neglect.

Appraisals are not required for charitable contributions of certain vehicles that are sold by the donee organization without a significant intervening use or material improvement of the vehicle by such organization, and for which the organization provides an acknowledgement to the donor containing a certification that the vehicle was sold in an arm's length transaction between unrelated parties, and providing the gross sales proceeds from the sale, and a statement that the donor's deductible amount may not exceed the amount of such gross proceeds.

This provision is effective for contributions made after June 3, 2004.

Donations of Motor Vehicles, Boats, and Aircraft.

Under the new law the amount of deduction for charitable contributions of vehicles (generally including automobiles, boats, and airplanes for which the claimed value exceeds $500 and excluding inventory property) depends upon the use of the vehicle by the donee organization. If the donee organization sells the vehicle without any significant intervening use or material improvement by the organization (e.g., donation to a trade school), the amount of the deduction cannot exceed the gross proceeds received from the sale. That is, the fair market value of the vehicle would be immaterial.

The new law imposes new substantiation requirements for contributions of vehicles for which the claimed value exceeds $500 (excluding inventory). A deduction is not allowed unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgement by the donee. The acknowledgement must contain the name and taxpayer identification number of the donor and the vehicle identification number (or similar number) of the vehicle. In addition, if the donee sells the vehicle without performing a significant intervening use or material improvement of such vehicle, the acknowledgement must provide a certification that the vehicle was sold in an arm's length transaction between unrelated parties, and state the gross proceeds from the sale and that the deductible amount may not exceed such gross proceeds. (In many cases the proceeds to the charity are nominal.) In all other cases, the acknowledgement must contain a certification of the intended use or material improvement of the vehicle and the intended duration of such use, and a certification that the vehicle will not be transferred in exchange for money, other property, or services before completion of such use or improvement. The donee must notify the IRS of the information contained in an acknowledgement, in a time and manner provided by the Secretary. An acknowledgement is considered contemporaneous if provided within 30 days of sale of a vehicle that is not significantly improved or materially used by the donee, or, in all other cases, within 30 days of the contribution.

Penalties apply if a donee organization knowingly furnishes a false or fraudulent acknowledgement, or knowingly fails to furnish an acknowledgement in the manner, at the time, and showing the required information.

Example-- The following example is a general illustration of the provision. A taxpayer makes a charitable contribution of a used automobile in good running condition and that needs no immediate repairs to a charitable organization that operates an elder care facility. The donee organization accepts the vehicle and immediately provides the donor a written acknowledgment containing the name and TIN of the donor, the vehicle identification number, a certification that the donee intends to retain the vehicle for a year or longer to transport the facility's residents to community and social events and deliver meals to the needy, and a certification that the vehicle will not be transferred in exchange for money, other property, or services before completion of such use by the organization. A few days after receiving the vehicle, the donee organization commences to use the vehicle three times a week to transport some of its residents to various community events, and twice a week to deliver food to needy individuals. The organization continues to regularly use the vehicle for these purposes for approximately one year and then sells the vehicle. Under the provision, the donee's use of the vehicle constitutes a significant intervening use prior to the sale by the organization, and the donor's deduction is not limited to the gross proceeds received by the organization.

These changes will significantly restrict contributions of vehicles. Most auto donations were transferred to resellers or junk yards where the charity received only a nominal amount. The increased reporting requirement by charities further reduces the attractiveness of such contributions. Such contributions are still viable if you make a donation to a trade school or similar organization that will repair the vehicle in a training program or if you contribute a vehicle in good condition that's used in the organization's activities such as delivering meals, etc.

It now makes sense to check with your tax advisor before making any significant property contributions.

This provision is effective for contributions made after December 31, 2004.

Authorize IRS to Enter into Installment Agreements that Provide for Partial Payment.

The new law clarifies that the IRS is authorized to enter into installment agreements with taxpayers which do not provide for full payment of the taxpayer's liability over the life of the agreement. The proposal also requires the IRS to review partial payment installment agreements at least every two years. The primary purpose of this review is to determine whether the financial condition of the taxpayer has significantly changed so as to warrant an increase in the value of the payments being made.

Penalty on Failure to Report Interests in Foreign Financial Accounts

The IRS must require citizens, residents, or persons doing business in the United States to keep records and file reports when that person makes a transaction or maintains an account with a foreign financial entity. In general, individuals must fulfill this requirement by answering questions regarding foreign accounts or foreign trusts that are contained in Part III of Schedule B of the IRS Form 1040. Taxpayers who answer "yes" in response to the question regarding foreign accounts must then file Treasury Department Form TD F 90-22.1. This form must be filed with the Department of the Treasury, and not as part of the tax return that is filed with the IRS.

The IRS may impose a civil penalty on any person who willfully violates this reporting requirement. The civil penalty is the amount of the transaction or the value of the account, up to a maximum of $100,000; the minimum amount of the penalty is $25,000. In addition, any person who willfully violates this reporting requirement is subject to a criminal penalty. The criminal penalty is a fine of not more than $250,000 or imprisonment for not more than five years (or both); if the violation is part of a pattern of illegal activity, the maximum amount of the fine is increased to $500,000 and the maximum length of imprisonment is increased to 10 years.

The new law adds an additional civil penalty that may be imposed on any person who violates this reporting requirement (without regard to willfulness). This new civil penalty is up to $10,000. The penalty may be waived if any income from the account was properly reported on the income tax return and there was reasonable cause for the failure to report. In addition, the new law increases the present-law penalty for willful behavior to the greater of $100,000 or 50 percent of the amount of the transaction or account. The provision is effective with respect to failures to report occurring on or after the date of enactment.

Reportable Transactions

Introduction. Regulations under Section 6011 require a taxpayer to disclose with its tax return certain information with respect to each "reportable transaction" in which the taxpayer participates. There are six categories of reportable transactions.

The first category is any transaction that is the same as (or substantially similar to) a transaction that is specified by the Treasury Department as a tax avoidance transaction whose tax benefits are subject to disallowance under prior law (referred to as a "listed transaction").

The second category is any transaction that is offered under conditions of confidentiality. In general, a transaction is considered to be offered to a taxpayer under conditions of confidentiality if the advisor who is paid a minimum fee places a limitation on disclosure by the taxpayer of the tax treatment or tax structure of the transaction and the limitation on disclosure protects the confidentiality of that advisor's tax strategies (irrespective if such terms are legally binding).

The third category of reportable transactions is any transaction for which (1) the taxpayer has the right to a full or partial refund of fees if the intended tax consequences from the transaction are not sustained or, (2) the fees are contingent on the intended tax consequences from the transaction being sustained.

The fourth category of reportable transactions relates to any transaction resulting in a taxpayer claiming a loss (under section 165) of at least (1) $10 million in any single year or $20 million in any combination of years by a corporate taxpayer or a partnership with only corporate partners; (2) $2 million in any single year or $4 million in any combination of years by all other partnerships, S corporations, trusts, and individuals; or (3) $50,000 in any single year for individuals or trusts if the loss arises with respect to foreign currency translation losses.

The fifth category of reportable transactions refers to any transaction done by certain taxpayers458 in which the tax treatment of the transaction differs (or is expected to differ) by more than $10 million from its treatment for book purposes (using generally accepted accounting principles) in any year.

The final category of reportable transactions is any transaction that results in a tax credit exceeding $250,000 (including a foreign tax credit) if the taxpayer holds the underlying asset for less than 45 days.

Under prior law, there is no specific penalty for failing to disclose a reportable transaction; however, such a failure can jeopardize a taxpayer's ability to claim that any income tax understatement attributable to such undisclosed transaction is due to reasonable cause, and that the taxpayer acted in good faith.

Penalty for failure to include reportable transaction. The new law provide penalties to include adequate information about a reportable transaction in any return or statement.

Accuracy related penalty for listed transactions, other reportable transactions having a significant tax avoidance purpose, etc.

Statute of limitations extended. If a taxpayer fails to include on any return or statement for any taxable year any information with respect to a listed transaction (as defined in Section 6707A(c)(2)) which is required under Section 6011 to be included with such return or statement, the time for assessment of any tax imposed by this title with respect to such transaction shall not expire before the date which is 1 year after the earlier of--the date on which the IRS is furnished the information so required or the date a material advisor meets the requirements of Section 6112 with respect to a request by the IRS.

Material advisors. The bill provides new rules for material advisors with respect to reportable transactions for the maintenance of lists, penalties for failure to furnish information regarding reportable transactions, etc.

Exclusion from gross income for interest on overpayments. Interest on overpayments of income tax by individuals would be excludable from a taxpayer's gross income.

Foreign Provisions

Incentives to Reinvest Foreign Earnings in the U.S.

Under the new law, certain dividends received by a U.S. corporation from a controlled foreign corporation are eligible for an 85% dividends-received deduction. This deduction is available for dividends received either: (1) during the first six months of the taxpayer's first taxable year beginning on or after the date of enactment of the bill; or (2) during any six-month or shorter period after the date of enactment of the bill, during the taxpayer's last taxable year beginning before such date. Dividends received after the election period will be taxed in the normal manner under prior law. The deduction applies only to dividends and other amounts included in gross income as dividends (e.g., amounts described in Section 1248(a)).

10-year Foreign Tax Credit Carryover; 1-year Foreign Tax Credit Carryback.

The carryforward of foreign tax credit would be extended to 10 years from 5, but the carryback period would be reduced to one year from two.

Repeal of Exclusion for Extraterritorial Income.

The new law repeals this income exclusion. The effective date would be December 31, 2004.

TITLE I

Provisions Relating to Repeal of Exclusion for Extraterritorial Income

Sec. 101. Repeal of exclusion for extraterritorial income.
Sec. 102. Deduction relating to income attributable to domestic production activities.

TITLE II

Business Tax Incentives

Subtitle A -- Small Business Expensingg

Sec. 201. 2-year extension of increased expensing for small business.

Subtitle B -- Depreciation

Sec. 211. Recovery period for depreciation of certain leasehold improvements and restaurant property.

Subtitle C -- Community Revitalization

Sec. 221. Modification of targeted areas and low-income communities for new markets tax credit.
Sec. 222. Expansion of designated renewal community area based on 2000 census data.
Sec. 223. Modification of income requirement for census tracts within high migration rural counties.

Subtitle D -- S Corporation Reform and Simplification

Sec. 231. Members of family treated as 1 shareholder.
Sec. 232. Increase in number of eligible shareholders to 100.
Sec. 233. Expansion of bank S corporation eligible shareholders to include IRAs.
Sec. 234. Disregard of unexercised powers of appointment in determining potential current beneficiaries of ESBT.
Sec. 235. Transfer of suspended losses incident to divorce, etc.
Sec. 236. Use of passive activity loss and at-risk amounts by qualified subchapter S trust income beneficiaries.
Sec. 237. Exclusion of investment securities income from passive income test for bank S corporations.
Sec. 238. Relief from inadvertently invalid qualified subchapter S subsidiary elections and terminations.
Sec. 239. Information returns for qualified subchapter S subsidiaries.
Sec. 240. Repayment of loans for qualifying employer securities.

Subtitle E -- Other Business Incentives

Sec. 241. Phaseout of 4.3-cent motor fuel excise taxes on railroads and inland waterway transportation which remain in general fund.
Sec. 242. Modification of application of income forecast method of depreciation.
Sec. 243. Improvements related to real estate investment trusts.
Sec. 244. Special rules for certain film and television productions.
Sec. 245. Credit for maintenance of railroad track.
Sec. 246. Suspension of occupational taxes relating to distilled spirits, wine, and beer.
Sec. 247. Modification of unrelated business income limitation on investment in certain small business investment companies.
Sec. 248. Election to determine corporate tax on certain international shipping activities using per ton rate.

Subtitle F--Stock Options and Employee Stock Purchase Plan Stock Options

Sec. 251. Exclusion of incentive stock options and employee stock purchase plan stock options from wages.

TITLE III

Agricultural Tax Relief and Incentives

Subtitle A--Volumetric Ethanol Excise Tax Credit

Sec. 301. Alcohol and biodiesel excise tax credit and extension of alcohol fuels income tax credit.
Sec. 302. Biodiesel income tax credit.
Sec. 303. Information reporting for persons claiming certain tax benefits.

Subtitle B--Agricultural Incentives

Sec. 311. Special rules for livestock sold on account of weather- related conditions.
Sec. 312. Payment of dividends on stock of cooperatives without reducing patronage dividends.
Sec. 313. Apportionment of small ethanol producer credit.
Sec. 314. Coordinate farmers and fishermen income averaging and the alternative minimum tax.
Sec. 315. Capital gain treatment under section 631(b) to apply to outright sales by landowners.
Sec. 316. Modification to cooperative marketing rules to include value added processing involving animals.
Sec. 317. Extension of declaratory judgment procedures to farmers' cooperative organizations.
Sec. 318. Modification of safe harbor rules for timber REITs.
Sec. 319. Expensing of certain reforestation expenditures.

Subtitle C--Other Incentives

Sec. 321. Net income from publicly traded partnerships treated as qualifying income of regulated investment companies.
Sec. 322. Simplification of excise tax imposed on bows and arrows.
Sec. 323. Reduction of excise tax on fishing tackle boxes.
Sec. 324. Sonar devices suitable for finding fish.
Sec. 325. Charitable contribution deduction for certain expenses incurred in support of Native Alaskan subsistence whaling.
Sec. 326. Modification of depreciation allowance for aircraft.
Sec. 327. Modification of placed in service rule for bonus depreciation property.
Sec. 328. Expensing of capital costs incurred in complying with Environmental Protection Agency sulfur regulations.
Sec. 329. Credit for production of low sulfur diesel fuel.

TITLE IV

Tax Reform and Simplification for U.S. Businesses

Sec. 401. Interest expense allocation rules.
Sec. 402. Recharacterization of overall domestic loss.
Sec. 403. Look-thru rules to apply to dividends from noncontrolled Section 90 corporations.
Sec. 404. Reduction to 2 foreign tax credit baskets.
Sec. 405. Attribution of stock ownership through partnerships to apply in determining section 902 and 960 credits.
Sec. 406. Clarification of treatment of certain transfers of intangible property.
Sec. 407. United States property not to include certain assets of controlled foreign corporation.
Sec. 408. Translation of foreign taxes.
Sec. 409. Repeal of withholding tax on dividends from certain foreign corporations.
Sec. 410. Equal treatment of interest paid by foreign partnerships and foreign corporations.
Sec. 411. Treatment of certain dividends of regulated investment companies.
Sec. 412. Look-thru treatment for sales of partnership interests.
Sec. 413. Repeal of foreign personal holding company rules and foreign investment company rules.
Sec. 414. Determination of foreign personal holding company income with respect to transactions in commodities.
Sec. 415. Modifications to treatment of aircraft leasing and shipping income.
Sec. 416. Modification of exceptions under subpart F for active financing.
Sec. 417. 10-year foreign tax credit carryover; 1-year foreign tax credit carryback.
Sec. 418. Modification of the treatment of certain REIT distributions attributable to gain from sales or exchanges of United States real property interests.
Sec. 419. Exclusion of income derived from certain wagers on horse races and dog races from gross income of nonresident alien individuals.
Sec. 420. Limitation of withholding tax for Puerto Rico corporations.
Sec. 421. Foreign tax credit under alternative minimum tax.
Sec. 422. Incentives to reinvest foreign earnings in United States.
Sec. 423. Delay in effective date of final regulations governing exclusion of income from international operation of ships or aircraft.
Sec. 424. Study of earnings stripping provisions.

TITLE V

Deduction of State and Local General Sales Taxes

Sec. 501. Deduction of State and local general sales taxes in lieu of State and local income taxes.

TITLE VI

Fair and Equitable Tobacco Reform

Sec. 601. Short title.

Subtitle A--Termination of Federal Tobacco Quota and Price Support Programs

Sec. 611. Termination of tobacco quota program and related provisions.
Sec. 612. Termination of tobacco price support program and related provisions.
Sec. 613. Conforming amendments.
Sec. 614. Continuation of liability for 2004 and earlier crop years.

Subtitle B--Transitional Payments to Tobacco Quota Holders and Producers of Tobacco

Sec. 621. Definitions.
Sec. 622. Contract payments to tobacco quota holders.
Sec. 623. Contract payments for producers of quota tobacco.
Sec. 624. Administration.
Sec. 625. Use of assessments as source of funds for payments.
Sec. 626. Tobacco Trust Fund.
Sec. 627. Limitation on total expenditures.

Subtitle C--Implementation and Transition

Sec. 641. Treatment of tobacco loan pool stocks and outstanding loan costs.
Sec. 642. Regulations.
Sec. 643. Effective date.

TITLE VII

Miscellaneous Provisions

Sec. 701. Brownfields demonstration program for qualified green building and sustainable design projects.
Sec. 702. Exclusion of gain or loss on sale or exchange of certain brownfield sites from unrelated business taxable income.
Sec. 703. Civil rights tax relief.
Sec. 704. Modification of class life for certain track facilities.
Sec. 705. Suspension of policyholders surplus account provisions.
Sec. 706. Certain Alaska natural gas pipeline property treated as 7- year property.
Sec. 707. Extension of enhanced oil recovery credit to certain Alaska facilities.
Sec. 708. Method of accounting for naval shipbuilders.
Sec. 709. Modification of minimum cost requirement for transfer of excess pension assets.
Sec. 710. Blue Ribbon Commission on Comprehensive Tax Reform.
Sec. 711. Expansion of credit for electricity produced from certain renewable resources.
Sec. 712. Certain business credits allowed against regular and minimum tax.
Sec. 713. Inclusion of primary and secondary medical strategies for children and adults with sickle cell disease as medical assistance under the Medicaid program.
Sec. 714. Ceiling fans.
Sec. 715. Certain steam generators, and certain reactor vessel heads and pressurizers, used in nuclear facilities.

TITLE VIII

Revenue Provisions

Subtitle A--Provisions to Reduce Tax Avoidance Through Individual and Corporate Expatriation

Sec. 801. Tax treatment of expatriated entities and their foreign parents.
Sec. 802. Excise tax on stock compensation of insiders in expatriated corporations.
Sec. 803. Reinsurance of United States risks in foreign jurisdictions.
Sec. 804. Revision of tax rules on expatriation of individuals.
Sec. 805. Reporting of taxable mergers and acquisitions.
Sec. 806. Studies.
Subtitle B--Provisions Relating to Tax Shelters

PART I--Taxpayer-Related Provisions

Sec. 811. Penalty for failing to disclose reportable transactions.
Sec. 812. Accuracy-related penalty for listed transactions, other reportable transactions having a significant tax avoidance purpose, etc.
Sec. 813. Tax shelter exception to confidentiality privileges relating to taxpayer communications.
Sec. 814. Statute of limitations for taxable years for which required listed transactions not reported.
Sec. 815. Disclosure of reportable transactions.
Sec. 816. Failure to furnish information regarding reportable transactions.
Sec. 817. Modification of penalty for failure to maintain lists of investors.
Sec. 818. Penalty on promoters of tax shelters.
Sec. 819. Modifications of substantial understatement penalty for nonreportable transactions.
Sec. 820. Modification of actions to enjoin certain conduct related to tax shelters and reportable transactions.
Sec. 821. Penalty on failure to report interests in foreign financial accounts.
Sec. 822. Regulation of individuals practicing before the Department of Treasury.

PART II--Other Provisions

Sec. 831. Treatment of stripped interests in bond and preferred stock funds, etc.
Sec. 832. Minimum holding period for foreign tax credit on withholding taxes on income other than dividends.
Sec. 833. Disallowance of certain partnership loss transfers.
Sec. 834. No reduction of basis under section 734 in stock held by partnership in corporate partner.
Sec. 835. Repeal of special rules for FASITS.
Sec. 836. Limitation on transfer or importation of built-in losses.
Sec. 837. Clarification of banking business for purposes of determining investment of earnings in United States property.
Sec. 838. Denial of deduction for interest on underpayments attributable to nondisclosed reportable transactions.
Sec. 839. Clarification of rules for payment of estimated tax for certain deemed asset sales.
Sec. 840. Recognition of gain from the sale of a principal residence acquired in a like-kind exchange within 5 years of sale.
Sec. 841. Prevention of mismatching of interest and original issue discount deductions and income inclusions in transactions with related foreign persons.
Sec. 842. Deposits made to suspend running of interest on potential underpayments.
Sec. 843. Partial payment of tax liability in installment agreements.
Sec. 844. Affirmation of consolidated return regulation authority.
Sec. 845. Expanded disallowance of deduction for interest on convertible debt.

PART III--Leasing

Sec. 847. Reform of tax treatment of certain leasing arrangements.
Sec. 848. Limitation on deductions allocable to property used by governments or other tax-exempt entities.
Sec. 849. Effective date.

Subtitle C--Reduction of Fuel Tax Evasion

Sec. 851. Exemption from certain excise taxes for mobile machinery.
Sec. 852. Modification of definition of off-highway vehicle.
Sec. 853. Taxation of aviation-grade kerosene.
Sec. 854. Dye injection equipment.
Sec. 855. Elimination of administrative review for taxable use of dyed fuel.
Sec. 856. Penalty on untaxed chemically altered dyed fuel mixtures.
Sec. 857. Termination of dyed diesel use by intercity buses.
Sec. 858. Authority to inspect on-site records.
Sec. 859. Assessable penalty for refusal of entry.
Sec. 860. Registration of pipeline or vessel operators required for exemption of bulk transfers to registered terminals or refineries.
Sec. 861. Display of registration.
Sec. 862. Registration of persons within foreign trade zones, etc.
Sec. 863. Penalties for failure to register and failure to report.
Sec. 864. Electronic filing of required information reports.
Sec. 865. Taxable fuel refunds for certain ultimate vendors.
Sec. 866. Two-party exchanges.
Sec. 867. Modifications of tax on use of certain vehicles.
Sec. 868. Dedication of revenues from certain penalties to the Highway Trust Fund.
Sec. 869. Simplification of tax on tires.
Sec. 870. Transmix and diesel fuel blend stocks treated as taxable fuel.
Sec. 871. Study regarding fuel tax compliance.

Subtitle D--Other Revenue Provisions

Sec. 881. Qualified tax collection contracts.
Sec. 882. Treatment of charitable contributions of patents and similar property.
Sec. 883. Increased reporting for noncash charitable contributions.
Sec. 884. Donations of motor vehicles, boats, and airplanes.
Sec. 885. Treatment of nonqualified deferred compensation plans.
Sec. 886. Extension of amortization of intangibles to sports franchises.
Sec. 887. Modification of continuing levy on payments to Federal venders.
Sec. 888. Modification of straddle rules.
Sec. 889. Addition of vaccines against hepatitis A to list of taxable vaccines.
Sec. 890. Addition of vaccines against influenza to list of taxable vaccines.
Sec. 891. Extension of IRS user fees.
Sec. 892. COBRA fees.
Sec. 893. Prohibition on nonrecognition of gain through complete liquidation of holding company.
Sec. 894. Effectively connected income to include certain foreign source income.
Sec. 895. Recapture of overall foreign losses on sale of controlled foreign corporation.
Sec. 896. Recognition of cancellation of indebtedness income realized on satisfaction of debt with partnership interest.
Sec. 897. Denial of installment sale treatment for all readily tradable debt.
Sec. 898. Modification of treatment of transfers to creditors in divisive reorganizations.
Sec. 899. Clarification of definition of nonqualified preferred stock.
Sec. 900. Modification of definition of controlled group of corporations.
Sec. 901. Class lives for utility grading costs.
Sec. 902. Consistent amortization of periods for intangibles.
Sec. 903. Freeze of provisions regarding suspension of interest where Secretary fails to contact taxpayer.
Sec. 904. Increase in withholding from supplemental wage payments in excess of $1,000,000.
Sec. 905. Treatment of sale of stock acquired pursuant to exercise of stock options to comply with conflict-of-interest requirements.
Sec. 906. Application of basis rules to nonresident aliens.
Sec. 907. Limitation of employer deduction for certain entertainment expenses.
Sec. 908. Residence and source rules relating to United States possessions.
Sec. 909. Sales or dispositions to implement Federal Energy Regulatory Commission or State electric restructuring policy.

--Last Update 10/26/04