Economic Recovery Tax Act of 1981

Economic Recovery Tax Act of 1981- Title I: Individual Income Tax Provisions - Amends the Internal Revenue Code to reduce individual and estate and trust income tax rates for 1982, 1983, and 1984 and thereafter. Reduces the highest marginal tax rate on all types of income from 70 to 50 percent, effective in 1982. Repeals the 50 percent maximum tax rate on personal service income, effective in 1982. Reduces the alternative minimum tax and the personal holding company tax to correspond with the reductions in the highest marginal tax rates. Establishes a maximum tax rate on long-term capital gains of 20 percent for sales and exchanges occurring and or after June 9, 1981. Decreases from one year to six months the holding period required for long-term capital gain or loss treatment.

Allows a tax credit equal to one and one-fourth of an individual's regular tax liability for taxable year 1981. Revises withholding requirements to provide for withholding reductions of five percent in 1981, ten percent in 1982, and ten percent in 1983. Authorizes the Secretary of the Treasury to issue regulations permitting workers to increase or decrease their withholding allowances.

Allows married individuals filing a joint return an income tax deduction from gross income of ten percent of the lesser of $30,000 or the earned income of the lower income spouse. Specifies that the rate of such deduction will be five percent, instead of ten, in taxable year 1982.

Requires annual cost of living adjustments, based on the Consumer Price Index, to individual income tax rates, the personal tax exemption, withholding requirements, and minimum income tax return amounts, beginning in 1985.

Increases from $20,000 to $75,000 in 1982 (with annual adjustments up to $95,000 in 1986 and thereafter) the earned income exclusion for U.S. citizens working abroad who are bona fide residents of a foreign country. Repeals the requirement that, as a condition of their employment, such individuals reside in a hardship area. Reduces from 17 to 11 months the residency requirement for such exclusion. Permits the tax exclusion of the housing costs of such individuals in the amount by which the taxpayer's housing costs exceed 16 percent of a GS-14, step 1 salary level for a Federal employee. Permits a tax deduction for excess housing costs which are not excludable.

Waives the residency requirements for such exclusion if the Secretary of the Treasury determines that the taxpayer would otherwise have met the residency requirement but for the occurrence of civil unrest, war, or other adverse conditions precluding the normal conduct of business. Repeals the existing income tax deduction for certain living expenses of U.S. citizens abroad.

Provides for an income tax exclusion for the value of employer-provided lodging in a camp in cases where satisfactory housing is not generally available.

Amends the Foreign Earned Income Act of 1978 to revise the reporting requirements to provide that the Secretary and certain Federal Government agencies report to specified congressional committees on the operation and effects of the foreign earned income exclusion quadrennially beginning after the enactment of this Act.

Permits taxpayers who do not itemize income tax deductions to claim a deduction from gross income for a specified percentage of their charitable contributions. Terminates such deduction for such taxpayers after 1986.

Increases from $100,000 to $125,000 the amount of the one-time exclusion of gain from sale of a principal residence by an individual who has attained age 55. Increases from 18 months to 2 years the rollover period for deferral of tax on gain from the role of a principal residence.

Title II: Business Incentive Provisions - Amends the Internal Revenue Code to revise the method for determining useful lives of business assets for purposes of computing allowable depreciation deductions. Replaces the asset depreciation range (ADR) method with a schedule of capital cost recovery periods for four classes of business property.

Establishes cost recovery periods for the following classes of business property: (1) three-year property, including certain tangible personal property with a present class life of four years or less or property used for research or experimentation; (2) five- year property, including certain tangible personal property which is not three-year property, ten-year property or 15 year public utility property; (3) ten-year property, including certain real property, public utility property or three-year property with a present class life of more than 18 but less than 25 years, certain real property with a present class life of 12.5 years or less, and railroad tank cars; (4) 15-year public utility property, including all personal property with a present class life of more than 25 years.

Sets forth separate recovery schedules for property placed in service before 1985 and property placed in service after 1985.

Establishes as a separate class of business property 15-year real property which includes real property with a present class life of more than 12.5 years. Directs the Secretary to prescribe a schedule of recovery for such property which provides for a 15-year recovery period and which utilizes the declining balance method of depreciation in the early years of recovery with a switch to the straight-line method in the remaining years.

Permits taxpayers to elect to use the straight-line method of depreciation with specified other recovery periods in lieu of the prescribed accelerated method.

Defines "unadjusted basis" for purposes of determining gain or loss on the disposition of accelerated recovery property. Sets forth rules for the nonrecognition of gain on the disposition of assets from mass asset accounts.

Excludes from eligibility for accelerated cost recovery the following types of property: (1) property placed in service before January 1, 1981; (2) property depreciable on a basis other than time; (3) public utility property for which the normalization method of accounting is not used; (4) certain property placed in service prior to 1981 which is transferred or leased in a transaction occurring after 1981 which does not alter its use; and (5) certain property transferred in corporate liquidations and reorganizations, and certain contributions to and distributions by partnerships.

Revises component depreciation rules to provide that the taxpayer must utilize the same recovery period and method of depreciation for a building and its structural components. Allows separate depreciation of substantial improvements.

Provides special rules for the depreciation of recovery property used predominantly outside of the United States.

Repeals the retirement-replacement-betterment methods of depreciation allowed for certain types of property. Specifies that such property shall be depreciated using a ratable method.

Sets forth rules for determining the eligibility of lessors of recovery property for accelerated depreciation deductions and for the investment tax credit.

Specifies that the salvage value of cost recovery property shall not be taken into account in computing allowable depreciation.

Provides special rules for determining allowable deductions for recovery property in the case of certain corporate transfers and liquidations.

Provides that gain on the disposition of single purpose agricultural or horticultural facilities and petroleum product storage facilities shall be treated as ordinary income to the extent of prior depreciation taken.

Permits a taxpayer to elect to expense (i.e. currently deduct) the cost of new or used tangible personal property used in the taxpayer's business during a taxable year in lieu of current provisions permitting additional first year depreciation. Sets the amount of such deduction at $5000 in 1982 increased by biennial increments of $2,500, up to $10,000 in 1986.

Requires the recapture as ordinary income of excess depreciation from recovery property which is subsequently sold or exchanged.

Treats the accelerated cost recovery deduction as an item of tax preference for purposes of the minimum tax.

Revises the method of computing the adjustment to earnings and profits for depreciation. Specifies that such adjustment shall be determined using the straight-line method of depreciation over prescribed extended recovery periods.

Extends the carryover periods for certain net operating losses and tax credits.

Revises the applicable percentage for determination of the investment tax credit to make eligible for such credit: (1) 100 percent of the basis of ten-year, five-year recovery property, or 15-year public utility property; and (2) 60 percent of the basis of three-year recovery property.

Revises the progress expenditure rules to eliminate the useful life requirement for depreciable property being constructed by or for a taxpayer for use in a trade or business (qualified process expenditure property) and to apply to such property the revised percentages for determining the investment tax credit under this Act.

Qualifies petroleum product storage facilities for the investment tax credit.

Limits the amount of the investment tax credit to the amount that the taxpayer has at risk. Sets forth special at risk limitations for certain third-party lenders.

Revises the recapture rules for recovery property eligible for the investment tax credit. Prescribes recapture percentages for recovery property which ceases to be investment tax credit property based on the type of property and the amount of time such property is in service.

Increases the investment tax credit for qualified rehabilitation expenditures based upon the age of a building or its certification as a historic structure. Repeals the special 60-month amortization rules for certified historic structures and rules permitting accelerated depreciation for rehabilitated certified historic structures.

Increases the limit on the amount of used property eligible for the investment tax credit.

Allows a nonrefundable income tax credit for 25 percent of the qualified research expenses incurred by a taxpayer in carrying on any trade or business to the extent that such expenses exceed the average amount of the taxpayer's expenses in a specified base period. Defines "qualified research expenses" an amount paid or incurred for in-house and contract research. Allows such credit for basic research contracted out to colleges, universities, and tax-exempt scientific research institutes. Excludes from eligibility for such credit research conducted outside the United States, research in the social sciences or humanities, and research funded by any other person or governmental entity. Provides for a three-year carryback and a seven-year carryover of any unused credit amounts. Terminates such credit after 1985.

Increases the limits on the allowable deduction for corporate charitable contributions of inventory property which is contributed to an institution of higher education and used for research purposes. Sets forth eligibility requirements for such deduction, including the following: (1) that such property be scientific equipment or apparatus; (2) that the donee use such property in the United States; and (3) that the use of the property be for research in the physical or biological sciences. Excludes certain small business corporations, personal holding companies, and service organizations from eligibility for such increased deduction. Requires that research and experimental expenditures for activities conducted in the United States be allocated to income from sources within the United States for purposes of the deduction of such expenses.

Reduces the corporate income tax rates for corporations with a taxable income of $50,000 or less. Revises the method of computing the income tax on mutual insurance companies .

Increases from $150,000 to $250,000 the amount which corporations may accumulate for reasonable needs of the business without being subject to the tax on accumulated earnings. Disallows such increase for corporations performing services in the areas of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting. Increases the allowable number of shareholders in a Subchapter S corporation from 15 to 25. Permits qualified trusts to be shareholders of Suchchapter S corprations. States that the beneficiary of such trust shall be treated as the owner of the Subchapter S trust.

Revises the Last-In-First-Out (LIFO) inventory accounting rules. Directs the Secretary to prescribe regulations permitting the use of certain governmental indexes in inventorying goods under such method. Allows businesses with average gross receipts of $1,000,000 for three years (ending with the taxable year) to elect one inventory pool for purposes of dollar value LIFO inventory accounting. Permits three-year averaging of inventory value for taxpayers who elect LIFO accounting. Requires the Secretary to study and report to Congress on simplified methods of tax accounting for inventory.

Sets forth special rules for the tax treatment of reorganizations involving financially-troubled thrift institutions.

Permits tax-free reorganizations of building and loan associations, cooperative banks, and mutual savings banks which are subject to the jurisdiction of the Federal Home Loan Bank Board or the Federal Savings and Loan Insurance Corporation without regard to judicially-created requirements as to the distribution of stocks and securities of the transferee corporation.

Specifies rules for the limitation of net operating loss carryovers for certain financial institutions in reorganization.

Exempts distributions to the Federal Savings and Loan Insurance Corporation with respect to certain interests in a domestic building and loan association from recapture requirements for distributions out of excess bad debt reserves.

Excludes from the gross income of a domestic building and loan association all money or property contributed to such association by the Federal Savings and Loan Insurance Corporation under its financial assistance program without reduction in the basis of the association's property.

Revises rules for the exemption from income taxation of any income resulting from the transfer of stock to an individual exercising a stock option under a restricted stock option plan. Repeals the termination date of such exemption.

Limits the amount of the aggregate fair market value of the stock for stock option in any year.

States that an option by its terms is not exercisable while there is outstanding any restricted stock option which was granted to an individual at an earlier time. Allows options which require the employee to pay for the stock with property to qualify as restricted stock options. Eliminates such options as items of tax preference for purposes of the minimum tax. Revises certain employment requirements for disabled employees exercising such options.

Title III: Savings Provisions - Excludes from gross income interest received on a savings certificate issued after September 30, 1981, and before January 1, 1983, by a qualified bank, savings and loan institution, credit union, or industrial loan association or bank. Requires that such certificates be made available in $500 denominations have a maturity of one year, and have an investment yield which does not exceed 70 percent of the Treasury bill rate. Permits such exclusion only to the extent that the interest income received by the taxpayer exceeds the amount of such income received in the previous year, up to $1,000 ($2,000 for joint returns). Requires institutions issuing such certificates to invest 75 percent of the amount of such certificates or other qualified net savings per calendar quarter in residential financing and agricultural loans. Requires the Secretary to report to Congress on such exemption's effectiveness in generating additional savings.

Provides for the exclusion from gross income of interest from specified sources, beginning in 1985. Limits the amount of such exclusion to 15 percent of the lesser of $3,000 ($6,000 for joint returns) or the amount of net interest received by the taxpayer in a taxable year. Amends the Crude Oil Windfall Profit Tax Act of 1980 to repeal the partial exclusion of interest and dividends from gross income after 1981.

Revises rules for the retirement savings deduction. Increases the amount of such deduction to the lesser of $2,000 or 100 percent of an individual's compensation. Allows such deduction for contributions to an individual retirement account (IRA) or for voluntary contributions to a qualified employer plan or government plan. Increases the maximum deductible contribution for IRA's which cover a nonworking spouse to $2,250.

Allows employees a deduction for employer contributions to a simplified employee pension. Limits such deduction to the lesser of 15 percent of the taxpayer's compensation or the amount of such contributions (up to $7,500).

Increases the limit on deductible contributions to owner-employee retirement plans from $7,500 to $15,000 or 15 percent of the earned income derived by employees from the trade or business, whichever is less. Increases the amount of compensation which may be used to determine permitted annual benefit accruals for purposes of applying limits on deductible contributions. Revises requirements for such plans relating to loans to owner-employees and correction of excess contributions. Allows distributions from a terminated plan without regard to the five-year ban on contributions by an owner-employee.

Revises rules relating to the taxation of the beneficiaries of qualified bond purchase plans and for the rollover of the proceeds from redemption of such bonds into IRA's or other annuities.

Treats investments by IRA's in collectibles as distributions for income tax purposes.

Permits the exclusion from income of up to $1500 ($3000 for joint returns) per year of public utility stock dividends by shareholders who choose to receive a common stock dividend rather than other property under a qualified plan established by a domestic public utility corporation. Requires that the stock be newly issued common stock and that the number of shares distributed to any shareholder be determined by reference to a value which is not less than 95 and not more than 105 percent of the stock's fair market value before distribution. Disallows such exclusion if the corporation has repurchased any of its stock within one year before or after the distribution date unless the corporation establishes a business purpose for such purchase. Excludes trusts and estates, nonresident aliens, and five percent shareholders from eligibility for such exclusion. Provides for the recapture of tax benefits upon disposition of such stock.

Title IV: Estate and Gift Tax Provisions - Increases the unified credit against the estate and gift taxes from $47,000 to $192,800 by specified annual increments through 1987. Increases from $175,000 to $600,000, by specified annual increments through 1987, the minimum gross estate requirement for filing of a return.

Reduces the maximum estate and gift tax rates to 50 percent by specified annual decrements through 1985.

Repeals the existing limitations on the marital deduction for gift and estate taxes. Revises the definition of "qualified joint interest" for purposes of the 50 percent valuation of interests in property held by the decedent and the decedent's spouse. Qualifies certain terminable interests for the marital deduction. Requires the inclusion in the gross estate of any property in which the decedent had an income interest for life if the marital deduction was allowed with respect to the transfer of such property to the decedent. Provides that any disposition of an income interest for life in any property shall be treated as a transfer of such property if the marital deduction was allowed when such property was transferred to the donor. Provides for a right of recovery of estate and gift tax in the case of certain marital deduction property.

Increases the maximum reduction (currently $500,000) in fair market value under the special estate tax valuation based on use for certain farms and small businesses annually to $1,000,000 in 1983 and thereafter.

Allows property put to a qualified use by a family member to qualify for special use valuation.

Qualifies estates of decedents who were disabled or retired for the special valuation of certain farms based on use if such decedents materially participated in the operation of the farm for five out of eight years preceding the year in which they became disabled or eligible for disability benefits under title II (Old Age, Survivors and Disability Insurance) of the Social Security Act.

Permits the spouse of a decedent to use such valuation if the spouse takes over active management upon the decedent's death.

Reduces from 15 to ten years the length of time a qualified property must be held and put to a qualified use following the decedent's death before it can be disposed of without incurring a recapture of estate tax benefits.

Permits active management rather than material participation as a test for qualification of the estate for special use valuation for spouses, children under 21, students, and disabled individuals who receive property from a decedent who qualified for special use valuation.

Allows the like kind exchange of property without loss of special use valuation eligibility. Allows valuation based on net crop share rentals as an alternative method of valuing farms. Repeals the requirement that an heir elect special treatment for involuntary conversions of qualified real property, thus making such treatment automatic upon such conversion.

Includes in the value of woodlands which qualify for the special use valuation the value of the trees growing on such property. Requires the recapture of estate tax benefits upon the disposition or severance of standing timber on such property.

Permits an increase in basis of specially valued property on which a recapture tax is paid. Redefines "family member" for purposes of the special use valuation. Qualifies certain property transferred to a discretionary trust and certain property purchased from a decedent's estate for such valuation.

Requires that an election of specially valued property be made on the decedent's estate tax return (rather than by the due date of that return as under present law).

Provides that any period of ownership, qualified use, or material participation in the operation of a farm or other business by the decedent or family member shall be applied to qualified replacement property in the case of a like-kind exchange or involuntary conversion of the original property.

Sets forth a procedure for making binding determinations of the farm market value of property eligible for the special use valuation.

Modifies the alternate extension of time for payment of the estate tax the where the estate consists largely of an interest in a closely held business to: (1) allow an installment payment election if the value of the interest in the closely held business is 35 percent of the value of the gross estate; (2) revise the formula regarding the inclusion in the value of a gross estate of interests in two or more closely held business; (3) increase to 50 percent the value of an interest disposed of which will accelerate the payment of tax; (4) permit payment, but with a penalty, of an installment within six months after the due date; and (5) provide that payment of tax will not be accelerated upon the death of decedent's heir or a subsequent transferee if the interest passes to a family member. Authorizes the Tax Court to issue declaratory judgments with respect to controversies involving the extension of time for payment of the estate tax.

Provides that, for purposes of the estate and gift tax charitable deduction, a work of art and the coypright on such work of art shall be treated as separate properties.

Provides that the gifts made within three years of a decedent's death shall not be included in the gross estate of a decedent dying after 1981. Disallows such exclusion for certain transfers. Allows a step-up in basis for appreciated property acquired by the decedent by gift within one year of death.

Allows a disclaimer of an interest in property for estate tax purposes in specified circumstances where a written transfer of the transferor's entire interest in the property is executed and the transfer meets certain other requirements. Repeals the estate tax deduction for bequests to certain minor children.

Increases from $3,000 to $10,000 the annual gift tax exclusion.

Provides an unlimited gift tax exclusion for certain transfers for educational or medical expenses. Permits the payment of gift taxes annually rather than quarterly.

Title V: Tax Straddles - Amends the Internal Revenue Code to allow taxpayers to deduct straddle losses only to the extent of the sum of straddle gains and net non-straddle commodity gains. Permits the carry forward of any disallowed straddle losses. Defines "straddle transaction" as the sale, exchange, or disposition of: (1) a futures contract; (2) a forward contract; (3) a commodity (including metals); (4) Treasury bills and other debt instruments; (5) currency; or (6) any interest in such assets.

Exempts hedging transactions from the rule limiting straddle losses. Specifies that syndicates are not entitled to the hedging exemption.

Disallows as a deduction, and makes chargeable to capital account, interest and carrying charges with respect to personal property which is part of a straddle. Exempts hedging transactions from such capitalization rule.

Exempts futures traders from the capitalization rule and sets forth special rules allowing such traders to offset gains from commodity-related transactions. States that a taxpayer shall be considered to hold an offsetting position if there is a substantial reduction of the taxpayer's risk of loss from holding any position with respect to personal property because the taxpayer also holds one or more other positions with respect to such property.

Creates a rebuttable presumption that two or more positions in a straddle are offsetting if: (1) the positions are in the same personal property, even if in an altered form; (2) the positions are sold or marketed as offsetting positions; (3) the aggregate margin requirement for the positions is less than the sum of the margin requirements for each position; (4) the positions are in debt instruments; or (5) the positions are determined under regulations prescribed by the Secretary of the Treasury to be offsetting positions.

Provides that obligations of the United States, a State or local government, or a U.S. possession issued on a discount basis and payable without interest in less than one year shall be treated as capital assets in determining tax consequences of gain or loss with respect to such obligations. Specifies that the discount on such obligations shall be treated as ordinary income.

Excludes from capital gain tax treatment gain by a securities dealer from the sale or exchange of any security, unless the security was clearly identified in the dealers's records before the end of the day after the date of acquisition as a security held for investment (currently, before the end of the 30th day after the date of acquisition).

Provides that gain or loss attributable to the certain terminations of a right or obligation with respect to personal property which is a capital asset in the hands of the taxpayer shall be treated as gain or loss from the sale of a capital asset.

States that the straddle loss limitations shall apply to property acquired and positions established after January 27, 1981. Requires the Secretary of the Treasury to study and report to Congress on the effects of such limitation.

Title VI: Energy Provisions - Increases from $1,000 to $2,500 the amount of the credit for any windfall profit tax paid in connection with taxable crude oil which is attributable to a qualified royalty interest and which is removed from the premises during 1981. Exempts royalty interests from the windfall profit tax after 1982 in an amount limited per quarter to the number of days in a quarter multiplied by two barrels for 1982 through 1984, and by four barrels in 1985 and thereafter.

Reduces from 30 to 15 percent the amount of the windfall profit tax on newly discovered tier three oil by specified annual decrements through 1986.

Exempts from the windfall profit tax, beginning in 1983, the stripper well oil of independent producers. Specifies that exempt stripper well oil does not include production attributable to an interest in any property which after July 22, 1981, was owned by a person other than independent producer.

Exempts from the windfall profit tax oil produced from interests held by or for a residential child care agency. Defines such an agency as a tax-exempt charitable organization operated primarily for the residential placement, care, or treatment of delinquent, dependent, neglected, or handicapped children.

Eliminates the phased reduction of the rate of the percentage depletion allowance for independent oil and gas producers and royalty owners (reduced to 15 percent by 1984) and retains the 22 percent rate for taxable years ending after 1980.

Makes wood stoves and furnaces eligible for the residential energy tax credit.

Title VII: Administrative Provisions - Provides that Federal law shall not be construed to require the disclosure of methods for the selection of tax returns for audits.

Revises rules for the determination of the interest rate on overpayment or underpayments of taxes. Changes such rate of interest from 90 percent to 100 percent of the prime rate.

Changes certain penalties for providing false information with respect to the withholding of tax. Requires an addition to tax for underpayments of tax by individuals and certain corporations attributable to a valuation overstatement that results in an underpayment of taxes of at least $1,000. Requires an addition to tax for underpayments attributable to negligent or intentional disregard of rules or regulations.

Increases penalties for failure to file certain returns or furnish certain registration statements. Increases the penalty for overstated deposit claims.

Provides that no declaration of estimated tax by individuals is required if such estimated tax is less than a specified amount.

Increases from 60 to 80 percent the amount in total tax liability which certain large corporations must pay in estimated taxes.

Increases the rate of the employer and employee railroad retirement taxes. Allows the Railroad Retirement Account to borrow funds from the Treasury if the balance of such Account is insufficient to pay annuity amounts due.

Title VIII: Miscellaneous Provisions - Allows motor carriers a loss deduction for the decrease in value of motor carrier operating authorities held by the taxpayer on July 1, 1980. Requires the deduction of such amount over a 60-month period.

Makes permanent the tax deduction for living expenses of State legislators engaged in legislative business away from their home districts. Limits such deduction to 110 percent of the daily amount allowable for Federal employees away from home but serving in the United States. Disallows such deduction for State legislators whose district residence is within 50 miles of the State capital.

Permits the exclusion from gross income of interest on certain industrial development bonds if the proceeds of such bonds are used to finance qualified mass commuting vehicles which are leased to a publicly owned transportation system. Terminates such exclusion after 1984.

Extends the targeted jobs credit through 1983. Extends eligibility for such credit to registrants of the WIN work incentive program, recipients of Aid to Families with Dependent Children, and involuntarily terminated CETA employees. Limits eligibility for cooperative education students for the targeted jobs credit program to those who are economically disadvantaged. Revises the certification requirements for such credit. Eliminates the age requirement applicable to Vietnam veterans. Repeals provisions limiting qualifying first-year wages to 30 percent of the unemployment insurance wages paid by an employer. Disallows such credit with respect to amounts paid to certain relatives of the taxpayer or shareholders of the taxpayer corporation.

Extends through May 31, 1983 the prohibition on the issuance of regulations on the taxation of fringe benefits and on the deducton of commuting expenses to temporary job sites.

Extends through 1982 the exemption of low-income housing from the requirement that construction period interest and taxes be amortized (instead of expensed as an immediate deduction).

Prohibits that, for purposes of the taxation of property transferred to an employee as compensation for services, such property shall be considered subject to a substantial risk of forfeiture and not transferable if the sale of such property could subject a person to a suit under certain provisions of the Securities and Exchange Act of 1934 or if transfer of the property is restricted under the pooling-of-interests accounting rules.

Provides that bonds issued by a volunteer fire department to finance the acquisition, construction, reconstruction, or improvement of firefighting property shall be treated as obligations of a local government and the property shall be treated as obligations of a local government and the interests on such bonds shall be excluded from gross income. Provides that a volunteer fire department qualifies for such tax treatment of its bonds if it: (1) is organized and operated to provide firefighting services in an area which does not have any other firefighting services; (2) is required by a local government to furnish firefighting services; (3) receives over half of its funding from local government; and (4) makes no charge for its services.