Tax (Democratic Alternative) bill

Tax Fairness and Economic Growth Act of 1992 - Declares that any change in budget authority, outlays, or receipts resulting from this Act shall not be considered for sequestration or pay-as-you-go calculations under the Balanced Budget and Emergency Deficit Control Act of 1985 (Gramm-Rudman-Hollings Act).

Title I: Middle Class Tax Relief - Amends the Internal Revenue Code to allow a credit for 20 percent of a taxpayer's social security taxes, limited to $200 ($400 in the case of a joint return) and applicable to years beginning after December 31, 1991, and before January 1, 1994.

Amends the Internal Revenue Code to allow a credit for interest paid or incurred on a qualified education loan for a six-year period (whether or not consecutive). Limits such credit to $300 per individual whose education expenses are being financed by such loan. Allows higher limits for taxpayers with large amounts of education loan interest (not to exceed $500). Sets forth limits on the gross income of taxpayers eligible for such credit. Allows the carryover of unused credit limited to the fifth taxable year for which the credit was originally determined.

Allows penalty-free withdrawals from individual retirement plans for a first-home purchase. Limits such distribution to $10,000, or other applicable amount if previous distributions have been made.

Allows penalty-free withdrawals from qualified retirement plans for qualified higher education expenses and deductible medical expenses. Declares that for purposes of medical expenses all children, grandchildren, and ancestors of the employee or the employee's spouse are to be treated as dependents.

Allows the one-time exclusion on gain from the sale of a principal residence to be taken if the taxpayer is permanently and totally disabled. Indexes the exclusion amount for inflation. Allows a taxpayer to include farm property contiguous to such principal residence in the exclusion, if such property is being actively farmed.

Excludes from the gross income of an individual the following qualified employer-provided transportation fringe benefits: (1) the value of transportation in a commuter highway vehicle between the employee's residence and workplace; and (2) up to $60 per month of the value of any transit pass entitling the employee to transportation on mass transit facilities.

Provides that the exclusion from gross income for the working condition fringe benefit includes employer-provided parking on or near a location from which the employee commutes to work by mass transportation, by vanpool, or by carpool.

Extends the deduction for health insurance costs for self-employed individuals from June 30, 1992, to December 31, 1992.

Title II: Job Creation, Growth, and Investment Incentives - Subtitle A: Temporary Investment Incentives - Increases the amount of certain depreciable business assets by small business for taxable years 1992 and 1993.

Permits an additional depreciation allowance for the purchase of new equipment as investment property after February 1, 1992, and before January 1, 1993, which is placed in service before July 1, 1993. Reduces the basis adjustment of such property by the amount of the additional allowance. Allows such deduction in determining the alternative minimum tax.

Subtitle B: Capital Gain Provisions - Requires indexing, based on the consumer price index, of the adjusted basis of certain assets (corporate stock and tangible property that is a capital asset or property used in a trade or business) acquired on or after February 1, 1992, and held for more than one year at the time of sale or other transfer, solely for the purpose of determining gain.

Provides that gains and losses from the disposition of indexed assets are not taken into account as investment income in computing the limitation on the deductibility of investment interest.

Sets forth a special rule to recapture the entire amount of depreciation for such indexed property.

Allows noncorporate taxpayers to elect to recognize gain on readily tradable securities held on February 1, 1992.

Permits both corporate and noncorporate taxpayers an income tax exclusion of 50 percent of the net capital gain from an investment in the stock of a qualified small business if the stock is issued after February 1, 1992, and held for at least five years.

Adds the amount of the exclusion for capital gain from such investments as a tax preference item for purposes of determining alternative minimum tax liability.

Subtitle C: Real Estate Provisions - Part I: Modification of Passive Loss Rules - Provides for the treatment of rental and nonrental real estate activities under the limitations on losses from passive activities.

Part II: Provisions Relating to Real Estate Investments by Pension Funds - Modifies exceptions to the exclusion of real property acquired by a qualified organization from the meaning of acquisition indebtedness. Makes certain exceptions inapplicable to sales out of foreclosure by a financial institution.

Applies the meaning of acquisition indebtedness to investments in certain large partnerships where the principal purpose of partnership allocation is not tax avoidance.

Repeals the special rule for publicly traded partnerships with respect to the treatment of unrelated business taxable income.

Permits a tax-exempt title-holding company to receive unrelated business taxable income of up to ten percent of its gross income, if the unrelated income is incidentally derived from the holding of real property.

Excludes from unrelated business taxable income any gains from the sale, exchange or other disposition of real property acquired from financial institutions that are in conservatorship or receivership. Provides for the tax treatment of pension fund investments in real estate investment trusts.

Subtitle D: Extension of Certain Expiring Tax Provisions - Makes permanent after June 30, 1992, the tax credit for increasing research activities and the low-income housing credit. Allows certain building owners to elect to use apartment size or family size in determining the credit's gross rent limitation.

Makes permanent after June 30, 1992: (1) the targeted jobs credit; and (2) the authority to issue qualified mortgage bonds and qualified mortgage credit certificates. Provides for the tax treatment of resale price control and subsidy lien programs.

Makes permanent after June 30, 1992: (1) the authority to issue qualified small issue bonds to finance manufacturing facilities and farm property; and (2) the tax exclusion for employer-provided educational assistance.

Postpones the termination date of the excise tax on certain vaccines and the authority to make expenditures from the Vaccine Injury Compensation Trust Fund. Requires the Secretary of Health and Human Services to study certain aspects of the Trust Fund and report to specified congressional committees.

Amends the Railroad Retirement Solvency Act of 1983 to make permanent the transfer of proceeds from the tax on certain railroad retirement benefits from the general fund of the Treasury to the Railroad Retirement Account.

Subtitle E: Modifications to Minimum Tax - Amends the Internal Revenue Code to repeal the alternative minimum tax provision which treats as a preference item the amount by which the value of contributed capital gain property exceeds the basis of the property. Requires the Secretary of the Treasury (Secretary) to develop and implement a procedure to determine the value of donated property for income tax purposes prior to the charitable transfer.

Restricts the determination of adjusted current earnings for purposes of computing alternative minimum taxable income to property placed in service after 1989 and before February 1, 1992.

Subtitle F: Repeal of Certain Luxury Excise Taxes; Imposition of Tax on Diesel Fuel Used in Noncommercial Motorboats - Repeals the luxury excise tax on boats, aircraft, jewelry, and furs.

Modifies the luxury excise tax on automobiles to index the $30,000 threshold for inflation occurring after 1990 and make such tax applicable to the first retail sale. Terminates such tax after 1999.

Extends the current diesel fuel excise tax to diesel fuel used by motorboats. Exempts vessels used for commercial fishing, transportation for compensation or hire, or for business use other than predominantly for entertainment, amusement, or recreation.

Retains excise taxes for diesel fuels used in motor boats in the General Treasury. (Current law requires transfer of such amounts to the Highway Trust Fund and the Leaking Underground Storage Tank Trust Fund).

Subtitle G: Urban Tax Enterprise Zones and Rural Development Investment Zones - Declares it to be the purpose of this Act to establish a demonstration program of providing incentives for the creation of tax enterprise zones in order to: (1) revitalize economicaly and physically distressed areas; (2) promote meaningful employment for zone residents; and (3) encourage individuals to reside in the zones in which they are employed.

Part I: Designation and Tax Incentives - Amends the Internal Revenue Code to provide for the designation of tax enterprise zones during calendar years 1993 through 1995: (1) by the Secretary of Housing and Urban Development, in the case of an urban tax enterprise zone; and (2) by the Secretary of Agriculture, in consultation with the Secretary of Commerce, in the case of a rural development investment zone.

Sets forth the eligibility criteria for designation of urban tax enterprise zones, including: (1) a population of not less than 4,000; (2) pervasive poverty, unemployment, and general distress; (3) a specified size; (4) a high unemployment rate and poverty rate; and (5) a required course of action designed to reduce the various burdens borne by employers or employees in the area.

Sets forth the eligibility criteria for designation of rural development investment zones, including: (1) a population of not less than 1,000; (2) an area of general distress; (3) a specified size; (4) a high unemployment rate, poverty rate, and job loss rate; and (5) a required course of action designed to reduce the various burdens borne by employers or employees in the area.

Provides that a course of action, which may not be federally funded, may include: (1) a reduction of tax rates or fees; (2) an increase in public services; (3) a reduction in government paperwork requirements; (4) business community commitments to provide jobs and job training; (5) special preference to minority contractors; (6) gifts of land for the operation of neighborhood businesses; (7) pooled health insurance; (8) loans by local financial institutions for business start-ups; and (9) special preference to low-income housing projects and private activity bonds.

Allows an enterprise zone employment credit to small employers as a general business credit of 7.5 percent of the qualified zone wages. Allows such credit for the first five years of the employee's employment.

Allows a deduction for the purchase of enterprise zone stock paid in cash. Limits such amount to: (1) $25,000 for any taxable year; (2) the overall limitation on zone incentives; or (3) $250,000 during the taxpayer's lifetime.

Provides an additional depreciation allowance for the first taxable year that the property is placed in service.

Establishes an annual overall limitation on the amount of tax incentives that can be provided with respect to an enterprise zone.

Part II: Studies - Requires the Secretary and the Comptroller General each to report to the House Committee on Ways and Means and the Senate Committee on Finance on the effectiveness of the incentives provided by this subtitle in achieving its purposes.

Title III: Revenue Increases - Subtitle A: Treatment of Wealthy Individuals - Creates a 35 percent tax bracket for certain higher incomes. Increases the tentative minimum tax for taxpayers other than corporations. Increases the individual minimum tax rate.

Imposes a surtax on incomes in excess of $1,000,000, including estates and trusts.

Delays for two years the expiration date of the overall limitation on itemized deductions and the phaseout of personal exemptions for high-income taxpayers.

Disallows a deduction as a trade or business expense remuneration to certain employees in excess of $1,000,000.

Subtitle B: Administrative Provisions - Modifies rules with respect to the failure of individuals and corporations to pay estimated income tax.

Expands the 45-day interest-free period for refunding tax overpayments to all returns, as well as to amended returns and claims for refunds. Provides that if interest is not refunded within 45 days after the taxpayer files an amended return or claim for refund, interest will be paid only for periods after the date on which the return or claim is filed.

Subtitle C: Other Revenue Provisions - Requires taking into account: (1) certain Federal Savings and Loan Insurance Corporation (FSLIC) assistance as compensation for loss; and (2) any FSLIC assistance for any debt for determining whether such debt is worthless and in determining the amount of any addition to a reserve for bad debts arising from such worthlessness or partial worthlessness.

Requires the depreciation deduction for certain residential rental property to be determined by using a recovery period of 31 years. Requires such deduction for nonresidential real property to be determined by using a recovery period of 40 years.

Increases the mileage requirement for the moving expense deduction.

Requires a partner who contributes appreciated property to a partnership to include pre-contribution gain in income to the extent that the value or other property distributed by the partnership exceeds his adjusted basis in his partnership interest.

Requires any dealer in securities that holds any security or hedge at the close of any taxable year to: (1) recognize gain or loss as if the security or hedge were sold on the last business day of the taxable year; and (2) take into account any such gain or loss in determining gross income for such year (the mark-to-market requirement). Provides that the uniform cost capitalization rules do not apply to any security or hedge to which the mark-to-market requirement applies.

Title IV: Simplification Provisions - Subtitle A: Provisions Relating to Individuals - Repeals the supplemental young child credit and the supplemental health insurance credit. Increases the earned income credit for taxpayers with two or more qualifying children.

Allows gain to be rolled over from one residence to another in the order the residences are purchased and used, regardless of reasons for the sale of the old residence.

Sets forth a two-year residence rule for taxpayers who sell a residence pursuant to a divorce or marital separation for purposes of determining the rollover of gain on the sale of a principal residence.

Provides an exception to the passive loss rules if the loss does not exceed $200.

Permits the payment of taxes by credit cards to the extent provided by regulations.

Provides for inflation adjustment of the dollar amounts involved in the election to claim a child's unearned income on the parent's return.

Establishes a foreign tax credit limitation for individuals whose gross income is from sources outside the United States, consists entirely of qualified passive income, and the amount of creditable foreign taxes does not exceed $200.

Excludes certain personal transactions from foreign currency rules.

Limits the exclusion of combat pay from withholding to the amount excludable from gross income.

Requires the Secretary to report to specified congressional committees on expanded access to simplified individual income tax returns and other actions taken to simplify them.

Provides that the amount allowed as a deduction to rural mail carriers for the business expense of a vehicle shall be equal to qualified reimbursements. Amends the Technical and Miscellaneous Revenue Act of 1988 to repeal the rule on the business use of automobiles by rural mail carriers.

Exempts from the luxury excise tax parts or accessories installed for use of passenger vehicles by disabled individuals.

Subtitle B: Pension Simplification - Part I: Simplified Distribution Rules - Amends the Internal Revenue Code to allow distributions from qualified pension plans to be rolled over tax-free to an individual retirement account or another qualified plan or annuity.

Repeals: (1) the $5,000 limitation on the exclusion of employees' death benefits; (2) the five-year forward income averaging for lump-sum distributions; and (3) the exclusion of net unrealized appreciation of employer securities.

Establishes a method of taxing annuity payments by taking into account the investment in the contract and the number of anticipated payments.

Requires qualified plans to allow participants to elect to have distributions transferred directly to another qualified plan.

Part II: Increased Access to Pension Plans - Establishes a simplified employee pension plan that allows salary reduction arrangements for employers of fewer than 100 employees.

Allows nongovernmental and tax-exempt organizations to participate in cash or deferred arrangements.

Authorizes the Secretary, as a condition of sponsorship, to prescribe rules defining the duties and responsibilities of sponors of certain master and prototype retirement plans.

Part III: Miscellaneous Simplification - Revises the definition of a leased employee to mean one whose services are performed under the control of a service recipient, instead of one whose services are historically performed by employees.

Modifies the two-part nondiscrimination test for elective contributions under cash or deferred arrangements by permitting the use of the average deferral percentage for nonhighly compensated employees for the preceding year to be used in determining the permitted average deferral percentage for highly compensated employees for the current year.

Provides alternative methods of satisfying the special nondiscrimination requirements applicable to elective deferrals and employer matching contributions.

Redefines the term "highly compensated employee" for pension, profit sharing, stock bonus plan, etc. purposes. Makes such an employee one who is a five-percent owner (as under current law) or who has compensation from the employer in excess of $50,000 (or $62,345, as adjusted for 1992). Provides a special rule where no employees are treated as highly compensated.

Provides that the cost-of-living adjustment with respect to any calendar year is based on the increase in the applicable index as of the close of the calendar quarter ending September of the preceding calendar year. Requires the rounding of such amounts to the nearest $1,000, except that elective deferrals and elective contributions to simplified employee pensions are rounded to the nearest $100.

Permits certain employers to elect an alternative full funding limitation with respect to any defined benefit plan based solely on the accrued liability under such plan. Requires the Secretary to adjust the 150-percent current liability full funding limit for other plans if there is a revenue shortfall.

Allows rural cooperative plans which include cash or deferred arrangements to make distributions to participants after attainment of age 59 1/2.

Expands current rules treating union air pilots as a separate class of employees for minimum coverage requirements to include nonunion air pilots as well. Excludes from such special treatment air pilots whose principal duties are not customarily performed aboard aircraft in flight.

Eliminates the special full vesting rule after ten years of service for employees subject to collective bargaining agreements under multiemployer plans.

Provides special rules for distributions of deferred compensation plans of State and local governments and tax-exempt organizations. Permits in-service distributions of accounts that do not exceed a specified amount if no amount has been deferred under such account for two years and there has been no prior distribution under the cash-out rule. Increases the number of elections that can be made with respect to the time distributions must begin. Provides for the indexing of the dollar limit on deferrals.

Modifies the treatment of governmental plans with repect to limits on contributions and benefits.

Allows excess assets in qualified black lung benefit trusts to be used to pay accident and health benefits or premiums for insurance for such benefits for retired coal miners and their spouses and dependents.

Provides that, for purposes of the excise tax, an employer reversion does not include certain amounts paid to the Federal Government by reason of certain government contracting regulations.

Requires continuation of health coverage for employees, including retired employees, of failed financial institutions.

Subtitle C: Treatment of Large Partnerships - Part I: General Provisions - Establishes special rules for large partnerships (250 or more partners) with respect to: (1) determining the income tax of a partner; (2) computing the taxable income of a large partnership; and (3) treatment of contributed property. Provides that a large partnership does not include one where: (1) substantially all of the partners (including retired partners, spouses, and certain personal service corporations) perform substantial services in addition to partnership activities; or (2) 25 percent or more of the average percentage of partnership assets consist of oil or gas properties. Establishes special rules for partnerships holding oil and gas properties.

Establishes simplified audit procedures for large partnerships. Requires a partner's return to be consistent with the partnership return.

Allows partnerships to take adjustments into account through an imputed underpayment procedure or a flow-through-to-partners procedure.

Authorizes and directs the Secretary to make adjustments at the partnership level in any partnership item to the extent necessary to have such item treated in the manner required, after notifying the partnership of such adjustment through certified or registered mail. Specifies certain restrictions on such adjustments.

Provides for judicial review of such adjustment with the Tax Court, the appropriate district court, or the Claims Court. Prohibits any adjustments from being made three years after the later of the date on which the return was filed, or the last day for filing such return, except in specified cases. Allows a partnership to file a request for an administrative adjustment of partnership items during such time periods and provides for judicial review where such request is not allowed in full.

Requires large partnerships to furnish information returns to partners by the first March 15 following the close of the partnership's tax year.

Authorizes the Secretary to require large partnerships, or any other partnership with 250 or more partners, to file their returns on magnetic media.

Part II: Provisions Related to TEFRA Partnership Proceedings - Revises and sets forth new provisions relating to TEFRA (Tax Equity and Fiscal Responsibility Act of 1982) partnership proceedings.

Provides for a declaratory judgment procedure in the Tax Court for treatment of non-partnership items with respect to an oversheltered return. Describes an oversheltered return as one which shows no taxable income and shows a net loss from partnership items.

Provides for the partnership return to be determinative of the audit procedure to be followed.

Suspends the period of limitations for making assessments for a partner who is named in a bankruptcy petition. Provides a special rule for a tax matters partner in bankruptcy.

Permits a small partnership to have a C corporation as a partner and remain exempt from unified audit rules.

Excludes a partial settlement agreement from the one-year limitation on assessment.

Provides that if a TEFRA statute extension agreement is entered into, that agreement also extends the statute of limitations for filing refund claims until six months after the expiration of the limitations period for assessments.

Provides a prepayment forum and a refund forum for raising the innocent spouse defense in TEFRA cases.

Provides that partnership level proceedings include a determination of the applicability of penalties at the partnership level. Allows partners to raise any partner-level defenses in a refund forum.

Specifies that an action to enjoin premature assessments of deficiencies attributable to partnership items may be brought in the Tax Court. Permits a party to appear before a court for the sole purpose of asserting that the period of limitations for assessing any tax attributable to partnership items has expired for that person.

Provides for the treatment of premature petitions filed by notice partners or five-percent groups.

Provides that the amount of the bond to stay assessment and collection should be based on the Tax Court's estimate of the aggregate liability of the parties to the action (and not all of the partners in the partnership).

Suspends interest where there is a delay in computational adjustment resulting from TEFRA settlements.

Subtitle D: Foreign Provisions - Part I: Simplification of Treatment of Passive Foreign Corporations - Repeals foreign personal holding company rules and foreign investment company rules. Exempts foreign corporations from the accumulated earnings tax and personal holding company rules. Provides for the treatment of personal service contracts under controlled foreign corporation rules.

Replaces repealed provisions with revised rules for passive foreign corporations. Provides for taxing U.S. income on stock in passive foreign corporations through three alternative methods: (1) mark-to-market; (2) current inclusion; and (3) interest charge on excess distributions.

Subjects less-than-25-percent shareholders of passive foreign corporations that are not U.S.-controlled, and who do not elect current inclusion, to the mark-to-market method or the interest-charge method for taxing income.

Provides that, if a passive foreign corporation is U.S.-controlled, then every U.S. person owning stock in such corporation is subject to income inclusions under a modified version of controlled foreign corporation rules.

Declares with regard to the mark-to-market method that: (1) if the fair market value of stock exceeds its adjusted basis, then the U.S. person shall include in gross income an amount equal to the amount of the excess; and (2) if the adjusted basis of stock exceeds the fair market value then the person shall be allowed a deduction equal to the lesser of the amount of such excess, or the unreversed inclusions.

Describes a passive foreign corporation as any foreign corporation if: (1) 60 percent or more of its gross income is passive income; (2) the average percentage of assets which produce passive income or which are held for the production of passive income is at least 50 percent; or (3) such corporation is registered under the Investment Company Act of 1940, either as a management company or as a unit investment trust.

Provides for the treatment of mark-to-market gain for purposes of the excise tax on undistributed income of regulated investment companies.

Part II: Treatment of Controlled Foreign Corporations - Provides that if a controlled foreign corporation sells or exchanges stocks in other foreign corporations, then gain recognized on such sale or exchange shall be included in the gross income of such corporation as a dividend to the same extent that it wold have been included if such corporation were a U.S. person.

Authorizes the Secretary to prescribe simplified methods for determining the amount of increase of limitations on the foreign tax credit.

Revises provisions concerning: (1) determining pro rata share of gain from certain sales or exchanges of stock in certain foreign corporations; (2) basis adjustments in stock held by lower-tier foreign corporations; (3) determination of previously taxed income in redemptions through use of related corporations; and (4) treatment of branch profits tax exemptions or reductions

Extends the application of the indirect foreign tax credit to certain controlled corporations below the third tier.

Part III: Other Provisions - Establishes new rules for the translation of certain accrued foreign taxes. Modifies present rules for translating all other foreign taxes.

Permits the use of the simplified limitation on the foreign tax credit in determining the alternative minimum tax foreign tax credit.

Repeals the excise tax on outbound transfers to avoid income tax. Requires the full recognition of gain on a transfer of property by a U.S. person to a foreign corporation as paid-in surplus, or as a contribution to capital, or to a foreign estate, trust, or partnership. Allows the Secretary, in lieu of applying the full recognition rule, to provide regulations with principles similar to the principles for foreign corporations transferring property from the United States.

Requires recognition of income under regulations issued to prevent Federal tax avoidance in the case of any corporate organization, reorganization or liquidation in which the status of a foreign corporation as a corporation is a condition for nonrecognition by a party to the transaction.

Subtitle E: Treatment of Intangibles - Amends the Internal Revenue Code to allow an amortization deduction with respect to certain intangible property that is acquired and held by a taxpayer in connection with the conduct of a trade or business or an activity engaged in for the production of income. Provides for determining such deduction by amortizing the adjusted basis (for purposes of determining gain) of such intangible ratably over the 14-year period beginning with the month in which the intangible was acquired. Disallows any other depreciation or amortization deduction with respect to such intangible.

Describes an amortizable intangible as: (1) goodwill; (2) going concern value; (3) certain specified types of intangible property that generally relate to workforce, information base, know-how, customers, suppliers, or other similar items; (4) any license, permit, or other right granted by a governmental unit, agency, or instrumentality; (5) any covenant not to compete (or other arrangement to the extent that the arrangement has substantially the same effect as a covenant not to compete) entered into in connection with the direct or indirect acquisition of an interest in a trade or business or substantial portion thereof; and (6) any franchise, trademark, or trade name.

Excludes from treatment as an amortizable intangible: (1) any interest in a corporation, partnership, trust, or estate; (2) any interest under an existing futures contract, foreign currency contract, notional principal contract, interest rate swap, or other similar financial contract; (3) any interest in land; (4) certain computer software; (5) certain interests in films, sound recordings, video tapes, books, or other similar property; (6) certain rights to receive tangible property or services; (7) certain interests in patents or copyrights; (8) any interest under an existing lease of tangible property; (9) any interest under an existing indebtedness (except for the deposit base and similar items of a financial institution); and (10) a franchise to engage in any professional sport, and any item acquired in connection in such a franchise.

Sets forth special rules governing the application of the amortization deduction.

Provides for the treatment of certain computer software and leased property depreciation deductions excluded from the amortization rules.

Continues the present-law treatment of certain contingent amounts that are paid or incurred on account of the transfer of a franchise, trademark, or trade name.

Provides for the treatment of assumption reinsurance transactions of insurance companies.

Provides for the treatment of certain payments to retired or deceased partners.

Subtitle F: Other Income Tax Provisions - Part I: Provisions Relating to Subchapter S Corporations - Provides for determining whether a corporation has one class of stock, thus qualifying as an S corporation.

Allows the Secretary to validate an invalid S corporation election by a small business corporation where the failure to properly elect S status was inadvertent or untimely.

Provides that adjustments for distributions by an S corporation during a taxable year are taken into account before applying the loss for a year in determining the amount in the accumulated adjustment account.

Repeals the rule that treats an S corporation in its capacity as a shareholder of another corporation as an individual. Repeals the rule that an S corporation may not be a member of an affiliated group of corporations. Eliminates the need to keep records of certain generally small amounts of earnings arising before 1983. Provides for the treatment of inherited stock.

Part II: Accounting Provisions - Revises the look-back method for long-term contracts and provides that for purposes of such method, only one rate of interest is to apply for each accrual period. Provides a method for capitalizing certain indirect costs.

Part III: Provisions Relating to Regulated Investment Companies - Repeals the requirement that less than 30 percent of the gross income of a regulated investment company be derived from the sale or disposition of any of the following which were held for less than three months: (1) stocks or securities; (2) options, futures, or forward contracts (other than those on foreign currencies); or (3) certain foreign currencies.

Requires a broker to include on an information return with respect to gross proceeds from any disposition of stock in an open-end regulated investment company: (1) the basis of the stock disposed of; and (2) the portion of gross proceeds attributable to stock held for more than one year and the portion not so attributable (using a first-in, first-out basis). Defines an open-end regulated investment company as one which offers for sale or has outstanding any redeemable security of which it is the issuer. Sets forth special rules for determining the basis of stock in such companies.

Permits a common trust fund to transfer substantially all of its assets to a regulated investment company without gain or loss being recognized by the fund or its participants under specified circumstances.

Part IV: Tax-Exempt Bond Provisions - Repeals the $100,000 limitation on unspent proceeds under the one-year exception from arbitrage rebate requirements.

Exempts earnings on bond proceeds invested in bona fide debt service funds from the arbitrage rebate requirements and the penalty requirement of the 24-month exception if the spending requirements of that exception are otherwise satisfied.

Extends the initial temporary period for construction bonds for a period of 12 months if at least 85 percent of the available construction proceeds are spent within the original temporary period and the issuer reasonably expects to spend the remaining proceeds within the 12-month extension period.

Provides for the treatment of tax or revenue anticipation bonds as separate issues.

Repeals the five-percent disproportionate private business use test for private activity bonds.

Increases the annual issuance limit for small issuers whose governmental bonds are not subject to rebate.

Repeals the debt service-based limitation on investment in certain nonpurpose investments.

Repeals certain expirated provisions.

Part V: Election of Alternative Taxable Years - Revises provisions with respect to electing alternative taxable years. Allows a partnership, S corporation, or personal service corporation to elect a taxable year other than the required taxable year if the annual financial statements (if any) of the entity used for credit purposes or provided to the partners, shareholders, or other proprietors of the entity are based on a fiscal year ending in the same month as the taxable year elected.

Increases the amount of the required payment that must be made by a partnership or S corporation that elects a taxable year other than the required taxable year. Requires an initial payment for any taxable year that a partnership or S corporation first makes or changes a taxable year election to increase the deferral period.

Modifies the minimum distribution requirement for personal service corporations that elect a taxable year other than the required taxable year.

Part VI: Other Provisions - Provides for treating certain revocable trusts as estates.

Revises the provision that the taxable year of a partnership closes with respect to a partner whose entire interest in the partnership terminates, whether by death, liquidation or otherwise.

Repeals the adjusted current earnings rule relating to the treatment of built-in-losses after a change of ownership.

Subtitle G: Estate and Gift Tax Provisions - Allows the right of recovery with respect to qualified terminable interest property (for which a marital deduction is allowed) to be waived in a will only by specific reference.

Provides that a transfer from a revocable trust within three years of death does not result in the inclusion of the transfer in the gross estate if it is a gift worth $10,000 or less.

Revises the qualified terminable interest rules with respect to a trust and the marital deduction.

Revises provisions concerning estate bequests to a surviving spouse to declare that a "specific portion" of such estate only includes a portion determined on a fractional or percentage basis.

Provides that a trust created before the enactment of the Revenue Reconciliation Act of 1990 is treated as satisfying the withholding requirement if its trust instrument requires that all trustees be U.S. citizens or domestic corporations.

Directs the Secretary to prescribe procedures which provide that executors will have the opportunity to submit subsequent information on a recapture agreement in the filing of an estate tax return with respect to the special use valuation of farm property.

Subtitle H: Excise Tax Simplification - Part I: Fuel Tax Provisions - Consolidates diesel and aviation fuel tax provisions. Consolidates the user credit and refund provisions for the fuels excise taxes. Combines the three refund procedures for fuels taxes into a uniform refund procedure. Eliminates the waiver requirement for fuels tax refunds for cropdusters and other fertilizer applicators.

Provides exceptions to the mandatory information return requirement for certain sales of diesel and aviation fuels.

Part II: Provisions Related to Distilled Spirits, Wines, and Beer - Makes tax refunds available for imported bottled distilled spirits returned to distilled spirits plants.

Permits records of exportation to be maintained by the exporter for purposes of canceling or crediting bonds furnished when distilled spirits are removed from bonded premises.

Permits distilled spirits plants to maintain records of their activities at locations other than the premises where the operations covered by the records are performed.

Allows beer to be transferred without payment of tax from a brewery to a distilled spirits plant to be used in the production of distilled spirits regardless of whether the brewery is contiguous to the distilled spirits plant.

Repeals the requirement that wholesale liquor dealers post a sign outside their place of business indicating that they are wholesale liquor dealers.

Repeals the requirement that wine returned to bonded premises be unmerchantable in order for tax to be refunded to the proprietor of the bonded wine celler to which the wine is delivered.

Allows the use of ameliorating material in certain wines made exclusively from a fruit or berry.

Allows domestically-produced beer to be withdrawn from the place of production without payment of tax for the official or family use of representatives of foreign governments or public international organizations.

Allows beer to be removed from a brewery without payment of tax for purposes of destruction.

Allows drawback on exported beer without submission of records.

Provides for imported beer in bulk containers to be withdrawn from customs custody for transfer to a brewery without payment of tax.

Part III: Other Excise Tax Provisions - Authorizes the exemption from registration requirements of certain tax-free sales. Repeals expired provisions concerning piggy-back trailers and deep seabed mining.

Subtitle I: Administrative Provisions - Part I: General Provisions - Includes railroad retirement taxes under rules for deposits of social security and withheld income taxes. Revises such rules to change required days of deposits, take into account small depositors, and provide a safe harbor for depositors with a shortfall. Amends the Railroad Retirement Solvency Act of 1983 to conform to such revisions.

Changes the threshold for withholding and paying social security taxes from $50 a quarter to $300 a year for domestic service in a private home. Requires employers of household employees only to report any social security or Federal unemployment tax obligation for wages paid to such employees on their income tax returns. Includes a household employer's social security and employment taxes in the estimated tax provisions. Authorizes the Secretary to enter into agreements with States to collect State unemployment taxes in the same manner.

Revises the rules on required installments of estimated income tax by small corporations where such corporations have no tax liability for a preceding year.

Allows corporations to disregard any letter or notice of assessment or proposed assessment of tax if the deficiency or proposed deficiency is less than $100,000.

Incorporates into the general penalty structure the penalties for failure to provide information reports relating to pension payments.

Allows reproductions of returns in digital image format by the Internal Revenue Service.

Requires the Comptroller General of the United States to conduct a study of available digital image technology and report to specified congressional committees.

Repeals: (1) the requirement to register tax shelters; (2) the authority to disclose whether a prospective juror has been audited; and (3) special audit provisions regarding the tax treatment of subchapter S corporations.

Provides that the statute of limitations with respects to the return of a taxpayer begins running from the time the taxpayer's return is filed, not someone else's return (where the taxpayer has received an item of income, gain, loss, credit or deduction from that other person).

Part II: Tax Court Procedures - Provides that an order to refund an overpayment is appealable in the same manner as a decision of the Tax Court. Declares that the Tax Court shall not have jurisdiction over the validity or merits of the credits or offsets that reduce or eliminate the refund to which the taxpayer was otherwise entitled.

Provides that a taxpayer who seeks an award of administrative costs must apply for such costs within 90 days of the date on which the taxpayer was determined to be a prevailing party. Provides that a taxpayer who appeals a denial of administrative costs must petition the Tax Court within 90 days after the date that the IRS mails the denial notice.

Provides that a taxpayer must file a motion (rather than a petition) to seek a redetermination of interest in the Tax Court.

Provides that the net worth limitations applicable to individuals also apply to estates and trusts. Provides that individuals who file a joint tax return shall be treated as one individual for purposes of computing the net worth limitations.

Part III: Authority for Certain Cooperative Agreements - Authorizes the Secretary to enter into cooperative agreements with State tax authorities for purposes of enhancing joint tax administration.

Title V: Taxpayer Bill of Rights - Subtitle A: Additional Safeguards to Protect Taxpayers' Rights - Part I: Taxpayers' Advocate - Amends the Internal Revenue Code to establish in the Internal Revenue Service (IRS) the Office of Taxpayers' Advocate, headed by the Taxpayers' Advocate, appointed by the President, by and with the advice and consent of the Senate. Requires the Office to: (1) assist taxpayers in resolving problems with the IRS; (2) identify areas in which taxpayers have problems in dealings with the IRS; (3) propose changes in the administrative practices of the IRS to mitigate such problems; and (4) identify potential legislative changes which may be appropriate to mitigate such problems. Requires the Taxpayers' Advocate to report annually to specified congressional committees on Office activities.

Requires the Commissioner of Internal Revenue to establish procedures requiring a formal response to all recommendations submitted to the Commissioner by the Taxpayers' Advocate.

Authorizes the terms of a Taxpayer Assistance Order to require the Secretary to take certain actions (currently, only to cease or refrain from taking such actions).

Part II: Modifications to Installment Agreement Provisions - Requires prior notification to taxpayers under an installment agreement to pay tax liability before altering, modifying, or terminating such an agreement. Provides for administrative review of denials of requests for installment agreements.

Suspends the failure to pay penalty during any period an installment agreement is in effect.

Part III: Interest - Extends from ten days to 21 days the period for which interest will not be imposed after notice and demand for payment, if such payment is less than $100,000.

Provides for the abatement of interest in the case of an assessment due to the error or delay of an IRS managerial act.

Part IV: Joint Returns - Allows the disclosure of collection activities to an individual requesting such information in the case of a joint return where such individual is no longer married to or residing in the same household as the other joint filer.

Removes limitations on filing a joint return after filing separate returns.

Part V: Collection Activities - Authorizes the Secretary, if it is determined to be in the best interest of the taxpayer and the United States, to: (1) withdraw a notice of a lien; (2) return property that has been levied upon; and (3) offer compromises in civil or criminal cases. Requires the Secretary, at the request of the taxpayer, to make reasonable efforts to notify credit reporting agencies and financial institutions of a withdrawal notice.

Part VI: Erroneous and Fraudulent Information Returns - Requires payee statements to provide the phone number of the person providing payment.

Establishes civil damages for the fraudulent filing of information returns.

Requires the Secretary, when determining a deficiency based on an information return filed by a third party, to take reasonable steps to corroborate the accuracy of such information, when such return is disputed by the taxpayer.

Part VII: Modifications to Penalty for Failure to Collect and Pay Over Tax - Declares that a person shall not be liable for any penalty for failure to collect and pay over tax if such person: (1) is not a significant owner, or highly compensated employee of the trade or business; (2) notifies the Secretary within ten days after such failure; and (3) such notification was given before any notice by the Secretary with respect to such failure.

Requires the Secretary to disclose certain information where more than one person is liable for a penalty.

Part VIII: Awarding of Costs and Certain Fees - Makes IRS employees personally liable in certain cases in which the prevailing party is awarded a judgment for legal costs if the court determines that such proceedings resulted from the arbitrary, capricious, or malicious act of such employee.

Provides that any failure to agree to an extension of time for the assessment of any tax shall not be taken into account in determining whether a prevailing party has exhausted all administrative remedies.

Part IX: Other Provisions - Revises provisions on the required content of tax due, deficiency, and other notices.

Provides for the treatment of returns prepared for or executed by the Secretary for purposes of certain tax penalties.

Subtitle B: Form Modifications; Studies - Part I: Form Modifications - Directs the Secretary to: (1) ensure that taxpayers are aware of Internal Revenue Code permission to pay tax in installments, extensions of time for payment of tax, and compromises of tax liability; (2) improve procedures for taxpayers to notify the Secretary of changes in names and addresses; (3) include in a specified publication a section on the rights and responsibilities of divorced individuals; (4) ensure that employees are aware of their responsibilities under the Federal tax depository system and that the public is aware of penalties for failure to collect and pay over tax; and (5) notify taxpayers of any payments that cannot be associated with any outstanding tax liability.

Part II: Studies - Requires the Secretary to report to the congressional tax-writing committees on: (1) a pilot program for appeals of certain enforcement actions (including lien, levy, and seizure actions); (2) a study of ways to assist the elderly, physically impaired, foreign-language speaking, and other taxpayers with special needs to comply with tax laws; (3) the scope and content of the IRS taxpayer-rights education program for its officers and employees; and (4) cases involving complaints about misconduct of IRS employees and the disposition of such complaints.

Requires the Comptroller General to report to the tax-writing committees on: (1) a study of notices of deficiency; (2) the accuracy and clarity of 25 of the most commonly used IRS forms, notices, and publications; and (3) a study of IRS employee-suggestion programs.