Tax Equity Act of 1979

Tax Equity Act of 1979 - Provides that the Secretary of the Treasury shall, within 90 days after the date of the enactment of this Act, submit to the Committee on Ways and Means a draft of any technical and conforming changes in the Internal Revenue Code which should be made to reflect the substantive amendments made by this Act. Provides that every amendment made by this Act shall apply notwithstanding that its application may be contrary to the provisions of some treaty in effect on the date of the enactment of this Act.

Title I: Capital Gains and Losses - Repeals the alternative tax on long term capital gains for individuals, corporations, and life insurance companies.

Provides, in lieu of the present 60 percent tax deduction for net long term capital gains, an exclusion from gross income of so much of the gain as does not exceed one half of one percent of the adjusted basis of property (capital assets or property used in a trade or business) at the time of its sale or exchange times the number of months such property is held over 12 months. Repeals provisions of the Internal Revenue Code related to the preferential tax treatment of long term capital gains.

Allows the deduction of capital losses for corporations only to the extent of the gains which such corporations realize from the sale or exchange of capital assets and property used in its trade or business. Allows the deduction of capital losses for other taxpayers only to the extent of gains realized by such taxpayers plus the taxable income of the taxpayer or $3,000, whichever is smaller.

Permits a one year carryover of net capital losses which exceed the limitations on deductibility in the current or preceding taxable years. Permits a three year carryback of such losses which are in excess of $10,000. Limits the deduction for net capital losses to the amount of the net capital gain in the year in which the loss is carried back. Allows a carryback of net capital losses without regard to the $10,000 limit for a decedent who sustains a capital loss in the year of his death.

Allows the executor of a decedent's estate to include in the gross income of a decedent for his last taxable year any unrealized capital gains on a capital asset held by the decedent at the time of his death, if the decedent had a net capital loss during such year. Requires the amount of gain included in the decedent's gross income to be added to the adjusted basis of the property for purposes of computing the basis of property passing to the heirs.

Provides that periodic income from the sale or exchange of patent rights shall be treated as royalties (ordinary income) rather than as gain from the sale or exchange of a capital asset.

Title II: Income Derived from Extraction of Minerals - Repeals the percentage depletion allowance for taxable years beginning after 1979.

Allows an income tax deduction for expenditures (including intangible drilling costs) incurred in the exploration and development of mineral properties (including geothermal deposits), but only to the extent of taxable income derived from such properties. Terminates the income tax deductions for expenditures for the development of mines or other natural deposits (other than an oil or gas well) and for expenditures for mining exploration after 1979.

Provides an exclusion from gross income of amounts derived from foreign mineral properties, provided that such income is not derived from: (1) a nonoperating mineral interest; (2) distributions received with respect to the stock of a corporation; and (3) amounts includible in gross income as undistributed profits of controlled foreign corporations.

Limits the losses allowable from the disposition of mineral property to the extent of the gains from the sale or exchange of such properties during the taxable year.

Title III: Reform Measures Affecting Primarily Individuals - Revises the income tax rates for individuals to limit the maximum rate to 50 percent.

Provides, in lieu of certain itemized personal income tax deductions, an income tax credit equal to 30 percent of the itemized deductions which the taxpayer would normally take for the taxable year. Specifies those deductions which qualify as personal deductions. Limits to $10,000 the amount of interest and taxes paid on a personal residence which may qualify for the 30 percent credit. Allows a standard credit allowance (in lieu of the zero bracket amount) for taxpayers who do not itemize income tax deductions.

Authorizes the President to increase or decrease by not more than two percent the amount of the credit if he determines that such action is in the public interest. Provides that either House of Congress may disapprove Presidential action to increase or decrease the credit.

Requires a taxpayer who is claiming a child for purposes of the 30 percent income tax credit, to include in his gross income any income received by the child during the taxable year from a trust created by the taxpayer, and also any dividends, interest, or royalties received by the child from any property given to him by the taxpayer.

Provides that shareholder-employees of closely held corporations must include in gross income: (1) that part of contributions paid by an employer-corporation (and deductible by it) to trusts, annuities, or bond purchase plans for the benefit of the shareholder-employee in excess of (a) the lesser of 15 percent of his compensation; or (b) $7,500, unless 75 percent of the contributions made during the year by the corporation under the plans are for the benefit of employees who are not shareholder-employees; (2) payments to an accident or health plan for the benefit of a shareholder- employee unless employees who are not shareholder-employees received 75 percent or more of all such payments made by the employer-corporation during the taxable year; and (3) the value of lodging and meals furnished by the employer-corporation.

Repeals the $100 exclusion from gross income for dividend income.

Requires a taxpayer who claims a business expense deduction for attendance at a foreign convention that such convention was: (1) directly related to the active conduct of his trade or business; and (2) more properly held outside the United States than within it, considering all the circumstances. Disallows any deduction for the expenses of attending a convention held on a cruise ship.

Revises the formula for computing the income tax deduction for the maintenance of a vacation home to lower the amount of the allowable deduction.

Limits the amount of the allowable income tax deduction attributable to farming to the gross income derived from the business of farming for a taxable year plus, in the case of an individual, the greater of $10,000 or the amount of the special deductions (taxes, interest, casualty or theft losses, drought losses, and capital losses) attributable to farming, or in the case of other taxpayers, the amount of the special deductions for the taxable year.

Provides that the earnings and profits of a parent corporation, for the purpose of paying taxable dividends, shall not be less than the earnings and profits of the consolidated group for the taxable year.

Provides for the recognition of gain from the transfer of appreciated property to a controlled corporation by a related corporation to the extent that such transfer qualifies as the payment of a dividend.

Provides that stock options granted to officers and employees of a corporation will not have an ascertainable fair market value at the time they are granted unless such options are traded on a stock exchange or over the counter.

Provides that an individual who establishes a trust for his minor children and retains an interest in such trust which will revert to him after ten years will be taxed on the interest which is distributed to his children during the ten year period.

Extends to business enterprises formed to invest in real estate the rule which limits income tax deductions for business losses to amounts which such enterprises actually have at risk.

Prohibits an individual from basing his estimated tax payments on the prior year's tax (or at the current year's rates applied to the prior year's facts) if in any one of the three preceding taxable years the tax shown on his return was in excess of $100,000.

Treats a partnership which is required to file a registration statement with the Securities and Exchange Commission or a comparable State agency after July 1, 1979, as a corporation for taxable years ending after the date of the filing of the registration statement.

Title IV: Reform Measures Affecting Primarily Corporations - Repeals the investment tax credit with respect to property placed in service on or after January 1, 1980.

Repeals the asset depreciation range system of computing the allowance for depreciation. Reinstates the reserve ratio test for determining the useful life of property subject to the allowance for depreciation.

Prohibits a corporation from claiming an income tax deduction for depreciation which is greater than the amount of depreciation carried on its books for purposes of reporting earnings to shareholders. Limits the business expense deduction for repairs to the amount which a corporation reports on its books as current expenses.

Limits the amount of the income tax deduction for dividends received by corporations to 85 percent of its taxable income computed without regard to the operating loss deduction or any capital loss carryback. Permits a carryover of any amount disallowed due to such limitation to the following taxable year. Provides that any dividend received by a corporation from an unaffiliated corporation shall be reduced, for purposes of the dividends received deduction, by the amount of any interest costs incurred to purchase or carry the stock of the unaffiliated corporation. Disallows the dividends received deduction for dividends received from an unaffiliated corporation to the extent that such dividends exceed the amount of dividends paid by the receiving corporation during the taxable year.

Permits the nonrecognition of gain in the case of a corporation which distributes appreciated property in redemption of its stock pursuant to a court proceeding under the antitrust laws, if such stock was acquired before January 1, 1970.

Repeals provisions permitting the nonrecognition of gain from the bulk sale of inventory in a 12 month corporate liquidation. Imposes a tax at the corporate level on a portion of the gain from the distribution of property by a corporation to tax-exempt shareholders pursuant to a 12 month liquidation. Permits the nonrecognition of gain from a distribution of corporate property pursuant to a plan of complete liquidation, if , at the time of the adoption of the plan, the corporation has more than 15 shareholders.

Disqualifies as a tax free reorganization a transaction in which share-holders of a merging corporation own, as a result of such transaction, less than 20 percent of the total combined voting power of all classes of stock of the surviving corporation.

Terminates the special treatment of bad debt reserves of financial institutions after December 31, 1979.

Taxes, on a current basis, the undistributed profits of a controlled foreign corporation to its domestic shareholders based upon each shareholder's pro rata share of such undistributed profits.

Terminates the tax exemption for a domestic international sales corporation (DISC) after December 31, 1979.

Reduces the basis of property owned by a corporation which is similar or related in service or use to property which has been involuntarily converted by the amount of gain which is not recognized as a result of the purchase of stock in such corporation.

Prohibits a corporation from basing its estimated tax payments on the prior year's tax (or on the basis of the prior year's facts and the current year's rates) if in any one of the three preceding taxable years the tax shown on the corporation's return was in excess of $300,000.

Disallows the income tax deduction for interest paid by banks and other financial institutions to depositors and other creditors to the extent that their investments in tax exempt bonds constitutes a percentage of their total assets.

Title V: Reforms Affecting Individuals and Corporations - Repeals provision which permits the deduction of an individual's or corporation's income tax liability from the sum of the items of tax preference for purposes of the minimum tax. Repeals provisions designating reserves for bad debts of financial institutions, percentage depletion, and capital gains as items of tax preference. Designates tax exempt interest on State and local bonds and the foreign tax credit as items of tax preference.

Requires the inclusion in the gross income of a corporation the difference between the value on the open market of the use of the corporation's property or money and the amount charged to a shareholder for the use of such property or money. Treats such amount as a dividend to the shareholder.

Disallows an income tax deduction for depreciation of a rental building to the extent that such depreciation would reduce the adjusted basis of the building below the unpaid balance of the mortgage on the land and building.

Reduces the allowable amount of the charitable deduction for the contribution of appreciated property to a charitable organization by the amount of gain which would have been realized if the property contributed had been sold by the taxpayer at its fair market value.

Requires the capitalization of expenditures attributable to the planting, cultivation, maintenance, or development of any fruit or nut grove, or any vineyard, and which is incurred before the time when the productive stage is reached.

Repeals the tax exemption of foreign individuals or corporations which operate ships documented under the laws of a foreign country which grant an equivalent tax exemption to United States citizens or corporations.

Empowers the Internal Revenue Service to conduct all civil proceedings involving the enforcement of the internal revenue laws in any court (including the United States Supreme Court).

Title VI: Reforms Affecting Private Foundations and Estate and Gift Taxes - Provides that a trust shall not be treated as a public charity if the trustees have discretion to distribute as they see fit more than 50 percent of the trust income between two or more organizations named in the trust instrument as permissible beneficiaries. Treats an individual's contribution to a private foundation as public support only to the extent that such contribution does not exceed one-half of one percent of the foundation's support.

Eliminates the five percent reversionary interest test for determining whether the value of trust property passing to its beneficiaries upon the death of the grantor will be included in the estate of the grantor.

Requires the inclusion in the gross estate of a decedent the value of an annuity or other plan of compensation receivable by a beneficiary under an agreement of the decedent's employer which arose out of services rendered by the decedent, whether or not the beneficiary has an enforceable right to receive the compensation. Provides that the exclusion from the gross estate of a decedent of annuity payments attributable to employer contributions shall apply only if such payments go to the decedent's surviving spouse.

Requires the inclusion of life insurance proceeds in the gross estate of a decedent in the proportion that the premiums paid by the decedent or his spouse bears to all premiums paid for the insurance.

Limits the charitable estate tax deduction to the greater of $1,000,000 or 50 percent of the gross estate minus expenses for administration and payment of the decedent's debts. Excludes from the gross estate any transfer made by the decedent during his lifetime for which an estate tax charitable deduction is permitted.

Permits the donor of property to a charitable organization a gift tax deduction for the value of such property even if he retains an interest in the property donated.

Title VII: State and Local Obligations - Repeals the income tax exclusion for interest on State and local bonds issued after December 31, 1979.

Provides that the Federal Government will pay 35 percent of the interest yield on State and local bonds, other than industrial development bonds, issued after December 31, 1979.

Title VIII: Withholding of Income Tax on Dividends and Interest - Requires the withholding of income tax on interest and dividends equal to ten percent of such interest or dividends. Defines "interest" and "dividends" for purposes of this Title.