SELF-Tax Plan Act of 1985

SELF-Tax Plan Act of 1985 - Title I: Reduction of Individual and Corporate Tax Rates - Subtitle A: Reduction of Rates - Amends the Internal Revenue Code to provide lower income tax rates for individuals, estates, and trusts and to reduce the number of tax brackets to four (three for estates and trusts). Imposes a flat tax rate of 30 percent on the taxable income of corporations for the taxable year.

Subtitle B: Repeals and Changes Related to Reduction in Rates - Repeals: (1) the tax tables for individuals; (2) the minimum tax for tax preferences; (3) the surplus accumulation rules for corporations; (4) the personal holding company rules; and (5) the graduated corporate tax rates.

Applies the trust throwback rules only to foreign trusts.

Disallows a taxpayer who was a student during the base period from using the income averaging provisions in determining their tax liability.

Title II: Base Broadening - Subtitle A: Credits - Repeals the tax credits for: (1) household and dependent care; (2) the elderly and permanently and totally disabled; (3) residential energy; (4) contributions to candidates for public office; (5) possessions; (6) clinical testing expenses for certain drugs; (7) nonconventional sources for fuel production; (8) increasing research activities; (9) earned income; (10) investment; (11) alcohol used as fuel; (12) employee stock ownership; (13) certain depreciable property; and (14) employment of certain new employees.

Establishes a per-country limitation on the foreign tax credit.

Subtitle B: Exclusions - Repeals the exclusions for: (1) compensation for injuries and sickness; (2) contributions by employers to accident and health plans; (3) rental value of parsonages; (4) certain combat pay of members of the Armed Forces; (5) mustering-out payments for members of the Armed forces; (6) dividends received by individuals; (7) contributions to the capital of certain regulated public utilities; (8) meals or lodging furnished for the convenience of the employer; (9) amounts received under qualified group legal service plans; (10) gain from the sale of principal residence by an individual; (11) qualified transportation provided by the employer; (12) cafeteria plans; (13) certain cost-sharing payments; (14) educational assistance programs; (15) dependent care assistance programs; (16) dividend reinvestment in public utilities; (17) payments to encourage exploration, development, and mining for defense purposes; (18) earned income of citizens or residents of the United States living abroad; (19) exemption for certain allowances; (20) income from sources within the United States; (21) income from sources within Puerto Rico; and (22) patronage dividends and per-unit retain allocations for cooperatives.

Includes in gross income amounts received as prizes and awards.

Provides that the cost of group-term life insurance purchased for an employee shall be included in the income of the employee to the extent such cost exceeds the amount, if any, paid by the employee toward the purchase of such insurance.

Includes in income any unemployment compensation and any governmental welfare or assistance benefit received by the taxpayer during the taxable year.

Repeals the tax exemption for industrial development bonds and mortgage subsidy bonds. Repeals the tax exemption for private purpose bonds, the proceeds of which are used to finance loans to individuals for educational expenses, or by a tax-exempt organization.

Limits the exclusion of scholarship and fellowship amounts to such amounts as are used for tuition and related expenses. Requires the inclusion in income of amounts received which represent payment for teaching, research, or other services in the nature of part-time employment required as a condition to receiving a scholarship or fellowship if not required of all candidates for a particular degree.

Subtitle C: Deductions - Repeals the deduction for: (1) additional personal exemptions for the elderly and blind; (2) certain depreciable business assets; (3) amortization of certain railroad rolling stock; (4) amortization of railroad grading and tunnel bores; (5) tertiary injectants; (6) amortization of reforestation expenditures; (7) certain unused business credits; (8) two-earner married couples; (9) adoption expenses; (10) all consumer interest other than interest payments on residential property; and (11) State and local taxes.

Terminates the tax exemption for deposits into and withdrawals from the capital construction fund under Section 607 of the Merchant Marine Act, 1936.

Subtitle D: Adjustment to Basis; Changes in Certain Special Capital Gains Treatment Provisions - Provides for the adjustment to basis on the sale of an interest in land, property which would normally be included in inventory, or any other property which is not a financial asset to allow for inflation for purposes of determining gain or loss from the sale of such property. Sets forth rules governing the methods by which such adjustment are made.

Allows corporations a deduction of 33 and one-half percent of the amount of the net capital gain from gross income. Repeals the alternative tax for corpoations.

Denies the special capital gains treatment for recovery property and indexed assets. Provides that the limitation on capital losses shall be applied without regard to the distinctions between long-term and short-term losses on the sale of capital assets.

Eliminates the distinction between short-term and long-term gains and losses based on holding periods.

Repeals the provisions relating to: (1) the sale of land with unharvested crops; (2) the disposal of coal and domestic iron ore; (3) reduction in certain corporate preference items; (4) collapsible corporations; (5) gain or loss in the case of timber, coal, or domestic iron ore; (6) distributions of property; (7) collapsible partnerships; (8) defining capital assets; (9) property used in the trade or business and involuntary conversions; (10) sale or exchange of patents; (11) amortization in excess of depreciation; (12) gain from the sale of depreciable property between certain related taxpayers; (13) gain from the disposition of certain depreciable property; (14) gain on foreign investment company stock; (15) election by foreign investment companies to distribute income currently; (16) gain from certain sales or exchanges of stock in certain foreign corporations; (17) gain from certain sales or exchanges of patents, etc., to foreign corporations; (18) gain from disposition of certain depreciable realty; (19) gain from the disposition of farm land; (20) gain from the disposition of interest in oil, gas, or geothermal property; (21) gain from the disposition of property subject to cost-sharing payments; and (22) capital gain of subchapter S corporations.

Title III: Capital Cost Recovery - Subtitle A: Accelerated Cost Recovery System Reform - Establishes a recovery account system for calculating the depreciation deduction for recovery property. Provides that all recovery property shall be placed in one of five different classes of property, each class having a separate class life (in number of years). Determines the deduction each year by applying the recovery percentage for each class of property to the balance in the recovery account for each class for such year. Provides for an annual inflation adjustment to each recovery account on the first day of each calendar quarter. Sets forth rules and guidelines for maintaining and operating each recovery account.

Subtitle B: Other Changes - Repeals the tax provisions relating to: (1) intangible drilling and development costs in the case of oil and gas wells and geothermal wells; (2) depreciation; (3) amortization of pollution control facilities; (4) trademark and tradename expenditures; (5) depreciation or amortization of improvements made by a lessee on a lessor's property; (6) the election to expense certain depreciable business assets; (7) amortization of reforestation expenditures; (8) percentage depletion; (9) development expenditures; and (10) deduction and recapture of certain mining exploration expenditures.

Provides that a taxpayer may elect to treat the amortizable basis of any certified pollution control facility as class two recovery property and add an amount equal to such basis to the recovery account which is established.

Provides that expenditures to establish, maintain, or increase the circulation of a newspaper, magazine, or other periodical shall be treated as class one recovery property and added to the recovery account for such property. Provides that this rule shall not apply to any portion of the expenditure which is chargeable to the capital account if the taxpayer elects to treat such expenditure in that manner.

Provides that any trademark or tradename expenditure paid or accrued during a taxable year beginning after December 31, 1955, may, at the election of the taxpayer, be treated as class two recovery property and added to the recovery account for such property.

Provides that construction period interest and taxes which are paid or accrued shall be treated as class three recovery property and added to the recovery account for such property.

Provides that any startup expenditures may, at the election of the taxpayer, be treated as class two recovery property and added to the recovery account for such property.

Title IV: Miscellaneous Provisions - Subtitle A: Foreign Income - Requires a taxpayer who is a United States shareholder of stock in a controlled foreign corporation to include in gross income for the taxable year in which or with which such taxable year of the controlled foreign corporation ends the pro rata share of the corporation's earnings and profits for such year. Reduces this amount by any amount the taxpayer is required to include in income under the personal holding company tax provisions.

Terminates the taxation of controlled foreign corporation income for taxable years beginning after December 31, 1985.

Repeals the exemption of foreign trade income of a foreign sales corporation from taxation for taxable years beginning after December 31, 1985. Provides that no corporation shall be treated as a foreign sales corporation after December 31, 1985.

Provides that the tax exemption for domestic international sales corporations shall not apply for taxable years beginning after December 31, 1985.

Subtitle B: Miscellaneous Provisions - Reduces the amount of a corporation's tax liability by the amount of qualified dividends paid by the corporation during the taxable year on eligible qualified stock of the corporation. Requires that the stock be issued after December 31, 1985, be a new issue, be designated as such stock by the corporation, and not be treasury stock. Requires that the dividends be paid in cash, be pro rata, and not be in redemption or in partial or complete liquidation. Permits dividends on certain preferred stock to qualify for this provision.

Requires a corporation to elect this treatment in the manner prescribed by the Secretary of the Treasury. Establishes certain recordkeeping requirements which the corporation must follow to maintain eligibility for this provision.

Requires the number of shares of eligible stock to be reduced by the number of shares of stock in another corporation which the electing corporation acquires or by the number of any shares of its own stock which is acquired.

Allows dividends paid after the close of the taxable year but before the 15th day of the third month following the close of such taxable year to be treated as paid during such taxable year.

Provides that eligible dividends shall not be treated as a dividend for purposes of the deduction of dividends received by corporations.

Provides that these rules shall not apply to: (1) insurance companies; (2) regulated investment companies; (3) corporations eligible for the possession tax credit; or (4) any corporation in which 20 percent or more of the dividends paid by the corporation are paid to a tax-exempt organization or an accumulation trust.

Requires that taxpayers engaged in farming must compute their taxable income from farming (including timber) on the accrual method of accounting and must capitalize preproductive expenditures where the taxpayer has gross receipts exceeding $1,000,000. Provides that farming syndicates are subject to the accrual method of accounting without regard to the amount of their gross receipts.

Provides that taxpayers subject to the accrual method of accounting in calculating farm income may not expense soil and water conservation expenditures, expenditures for fertilizer, or expenditures for clearing land.

Makes modifications in the rules for determining tax liability under the completed contract method of accounting. Eliminates the exception for contracts completed within three years from the definition of "extended period long-term contract".

Repeals the tax exemption for credit unions.

Requires a corporation to recognize gain or loss on the distribution of property with respect to its stock in the same manner as if the property distributed had been sold at its fair market value. Provides that this rule does not apply with respect to any distribution of an obligation of the corporation.

Provides that gain or loss shall be recognized to a corporation on the distribution of property in complete liquidation in the same manner as if the property distributed had been sold.

Repeals the tax exemptions of: (1) voluntary employee beneficiary associations; (2) supplemental unemployment compensation benefit trusts; and (3) Black Lung trusts.

Repeals the exclusion of real property from the at-risk rules.

Eliminates the special bad debt reserves of financial institutions.

Provides that certain employee benefits must be taken into account as income for purposes of computing FICA taxes, railroad retirement taxes, unemployment, and withholding taxes.

Repeals the last-in, first-out inventory conformity requirement.

Title V: Effective Dates - Sets forth the effective dates for the various provisions of this Act.