Free Cross Motion [Dispositive] - District Court of Federal Claims - federal

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98 STAT. 494

PUBLIC LAW 98-369-JULY 18, 1984

Public Law 98-369
98th Congress

An Act
~18~~S_4
IH.R 41701

To provide for ta reform, and for deficit reuction.

Deficit
1984

Reduction Act of

Unite State of Ameria in Cong asembled,
SECTION L SHORT TITLE.
Act ofl984".

Be it enate by the Senate and House of Representatives of the

2fi use I note.

(a) SHORT Tr.-Th Act may be cite as the "Deficit Reuction
(h) ACT DIVIDED INT 2 DIVISIONS.-Th Act consists of 2 divisions
as follows:

(I) DIVISION A.-Tax Reform Act of 1984. (2) DIVISION B.-Spenmng Reuction Act of 1984.
Tax Reform Act
of 1984

DIVISION A-TAX REFORM ACT OF 1984
SEC- 5_ SHORT TITLE; ETC.
(a) SHORT TrrLE.-This diviion may be cite as the "Tax Reform
Act of 1984".

2ti use 1 note

expres in terms of an amendment to, or repeal of, a setion or other proviion, the reference shall be considered to be made to a
26 use 1 ei seq
setion or other provision of the Internal Revenue Coe of 1954.

provided, whenever in this division an amendment or repeal is

(h) AMENDMENT 0'- 1954 CoDE.-Except as otherwise expresly

SEC. 10. TABLE OF CONTENTS.

Setion 1. Short title.
DIVISION A-TAX REFORM AC'l OF 1984 Se. 5. Short title. etc.

TI I -TAX FREEZE; TAX REFORMS GENERALLY
Se. 10. Table of contents.

Subtitle A-Deferr of Cert Tax Reuctions
PART I-INCOME TAX PROVISIONS

Se. 1 i Amount of us property eligble for investment ta creit
Se. 12. Finance lea provisions Se. 13. Elecion to expense certin depreiable busines asts

Se. 14. Employee stok ownership credit.
Se. 15. Cot-of-iiving adjustments in pension plan limitations_

Se. 16. Repe of partial Înterest exclusion. Se. 17. Foreign eaed income of individuals. Se. 18. Effective date.
PART II-EsATE AND GiFT TAX RATE

Se. 21. Maxmum rate.
PART III-ExCISE TAXES

Se. 25. Tax rate on newly discovere oiL.
Se. 26. Excis ta on communications service.

Se. 27. Excis tax on ditilled spirits.

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98 STAT. 682

PUBLIC LAW 98-369-JUL Y lR, 1984
(b) PENALTY FOR FAILURE To MAINTAIN LIST.-Subchapter B of

chapter 68 (relating to asessble penalties) is amended by adding at the end thereof the following new setion:
26 use 6708.
Post. p. 912

"SEC. 6708. FAILURE TO MAINTAIN LISTS OF INVESTORS IN POTENTIALLY ABUSIVE TAX SHELTERS.

Ante. p_ 6Rl

impose by setion 6112 shall pay a penalty of $50 for each person with respet to whom there is such a failure, unles it is shown that such failure is due to reasnable caus and not due to willful neglect. The maximum penalty impose under this subsection for
any calendar year shall not excee $50,000.

"(a) IN GENERAL.-Any person who fails to meet any requirement

imposed by this section shall be in addition to any other penalty
provided by law."
(c) CONFORMING AMENDMENT.-

"(b) PENALTY IN ADDITION TO OrER PENALTIES.-The penalty

(1) The table of sections for subchapter B of chapter 61 is
"Se. 6112. Organizers and sellern of potentially abusive ta shelters must
keep lists of investors.

amended by striking out the item relating to section 6112 and
inserting in lieu thereof the following new items:
"Se. 6113. Cro reference."

amended by adding at the end thereof the following new item:

(2) The table of setions for subchapter B of chapter 68 is
"Se. 6708. Failure to maintan lists of investors in potentially abusive tax shelters."

26 use 6112

note

apply to any interest which is first sold to any investor after
August 31, 1984.

(d) EFFECTIVE DATE.-The amendments made by this section shall

SEC. 143. INCREASE IN PENALTY FOR PROMOTING ABUSIVE TAX SHEL. TERS; INJUNCTION AGAINST AIDING OR ABETTING UNDER. STATEMENT OF TAX LIABILITY.
26 use 6700.

6700 (relating to promotion of abusive ta shelters) is amended by striking out "10 percent" and inserting in lieu thereof "20 percent' .
(h) INJUNCTON AGAINST AIDING OR ABETNG UNDERSATEMENTS
OF TAX LIABILITY.-

(a) INCREASE IN PROMOTR PENALTY.-Subsection (a) of section

26 use 7408.

(1) Subsections (a) and (h) of section 7408 (relating to action to enjoin promoters of abusive ta shelters, etc.) are each amended by inserting "or section 6701 (relating to penalties for aiding

and abetting understatement of tax liability)" after "etc.J.
sentence.
26 use 6700

(2) Subsection (a) of section 7408 is amended by inserting
(3) Subsection (b) of section 7408 is amended by inserting

"or section 6701" before the period at the end of the second

before the period "or section 6701".

note_

take effect on the day after the date of the enactment of this Act.

(c) EFFECTIVE DATE.-The amendments made by this sectIon shall

SEe. l..l. INCREASED RATE OF INTEREST ON SUBSTANTIAL llNDERPA YMENTS ATTRIBUTABLE TO CERTAIN TAX MOTIVATED
TRANSACTIONS.
26 use 6621.

rate of interest) is amended by adding at the end thereof the
following new subsection:

(a) GENERAL HULK-Section 6621 (relating to determination of

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PUBLIC LAW 98-369-JUL Y 18, 1984 98 STAT. 683
"(d) INTEREST ON SUBSTANTIAL UNDERPAYMENTS ATTRIBUTABLE TO TAX MOTIVATED TRANSACTlONS.-

"0) IN GENERAL.-In the case of interest payable under sec. tion 6601 with respect to any substantial underpayment attributable to tax motivated transactions, the annual rate of interest
adjusted rate established under subsection (h).
"(2) SUBSTANTIAL UNDERPAYMENT ATrRIBUTABLE TO TAX MOTI-

established under this section shall be 120 percent of the
VATED TRANSACTIONs.-For purposes of this subsection, the term

'substantial underpayment attributable to tax motivated transactions' means any underpayment of taxes imposed by subtitle
such year so attributable exceeds $1,000.

A for any taxable year which is attributable to 1 or more tax motivated transactions if the amount of the underpayment for
"(3) TAX MOTIVATED TRANSACTIONS.-

"(A) IN GENERAL.-For purposes of this subsection, the term 'tax motivated transaction' means-

of section 6659(c)), PO,'. p. 69:3
"(ii) any loss disallowed by reason of section 465(a)
and any credit disallowed under section 46(c)(81, Pm'. pp. 805, 810

"(i) any valuation overstatement (within the meaning

"(iii) any straddle (as defined in section I 092(c) without regard to subsections (d) and (e) of section 1092),

and "(iv) any use of an accounting method specified in

regulations prescribed by the Secretary as a use which may result in a substantial distortion of income for any period.

ulations specify other types of transactions which wil be
treated as tax motivated for purposes of this subsection and

"(H) REGULATORY AUTHORITV.-The Secretary may by reg-

may by regulations provide that specified transactions
being treated as tax motivated will no longer be so treated.
the Secretary shall take into accountH(i) the ratio of tax benefits to cash invested,
In prescribing regulations under the preceding sentence,

"(ii) the methods of promoting the use of this type of transaction, and "(iii) other relevant considerations.
prescribed under subparagraph (A)(iv) or (H) shall apply
only to interest accruing after a date (specified in such
tions are prescribed.

"(C) EFFECTIVE DATE FOR REGULATIONs.-Any regulations

regulations) which is after the date on which such regula"(4) JURISDICTION OF TAX COuRT.-In the case of any proceed-

ing in the Tax Court for a redetermihation of a deficiency, the
Tax Court shall also have jurisdiction to determine the portion (if any) of such deficiency which is a substantial underpayment

attributable to tax motivated transactions."
new subsection: "(e) CROSS REFERENCE.-

(b) CROSS REFERENCE.-Section 6214 (relating to determinations by 26 use 6214.

Tax Court) is amended by adding at the end thereof the following

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98 STAT. 68.1

PUBLIC LAW 98-369-JUL Y 18, 1984
motivated transactions. see s&tion 6621(d)(4)."

Ante. p. fi82.
26 USC 6621

"For provision giving Tax Court jurisdiction to determine whether any portion of deficiency is a substantial underpayment attributable to tax

note.

(C) EFFECTIVE DATE.-The amendments made by this section shall
apply with respect to interest accruing after December 31, 1984.

PART II-INFORMATION REPORTING PROVISIONS
SEC. 145. RETURNS RELATING TO MORT(;AGE INTEREST RECEIVED II'
TRADE OR BUSINESS FROM INDIVIDUALS.

61 (relating to information concerning transactions with other persons) is amended by adding at the end thereof the following new section:
26 USC 6050H. "SEe. 6050H. RETURNS RELATING TO MORTGAGE INTEREST RECEIVED 1:TRADE OR BUSI:-ESS FROM INDIVIDUALS.

(a) IN GENERAL.-Subpart B of part II of subchapter A of chapter

"(a) MORTGAGE INTREST OF $600 OR MORE.-Any person-

"(l) who is engaged in a trade or business, and "(2) who, in the course of such trade or business, receives from
any individual interest aggregating $600 or more for any calen-

shall make the return described in subsection (b) with respect to
as the Secretary may by regulations prescribe. "(b) FORM AND MANNER OF RETURNs.-A return is described in

dar year on any mortage,

each individual from whom such interest was received at such time

this subsection if such return-

"(1) is in such form as the Secretary may prescribe,

"(2) contains"(A) the name and address of the individual from whom
the interest described in subsection (a)(2) was received,

year, and

"(B) the amount of such interest received for the calendar

"(e) such other information as the Secretary may

prescribe.
"(e) ApPUCATION TO GOVERNMENTAL UNITs.-For purposes of subsection (a)-

"0) TREATED AS PERSONS.-The term 'person' includes any governmental unit (and any agency or instrumentality thereof).
¡'(2) SPECIAL RULE.-In the case of a governmental unit or any agency or instrumentality thereof-

trade or business requirement contained therein, and

"(A) subsection (a) shall be applied without regard to the

"(B) any return required under subsection (a) shall be made by the officer or employee appropriately designated for the purpose of making such return.
"(d) STATEMENTS To BE FURNISHED TO INDIVIDUALS WITH RESPECT TO WHOM INFORMATION Is FURNISHED.-Every person making a
return under subsection (a) shall furnish to each individual whose

name is set forth in such return a written statement showingand "(2) the aggregate amount of interest described in subsection (aX2) received by the person making such return from the individual to whom the statement is furnished.
"(1) the name and address of the person making such return,

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PUBLIC LAW 101-239 (H.R. 32991: December 19, 1989

OMNIBUS BUDGET RECONCILIATION ACT OF 1989
For Legislative History of Act, see p. 1906.
An Act to pro,.l. for recondllation puraant to i~lon 5 of Hl. cana,rr.nt .-lutlon on the bvd. get for the flieal year 199.

Omih., Budgt

Renciiation
Act of 1989.

Unite Stala of A meria in Cong 08embled,
SEcrON i. SHORT TITL

& it enaud by the Senate and House of Repreentatives of the

of1989". SEe. i. TABLE OF CONT Title I-Agcuture and relate proam

Th Act may be cited as the "Omnibus Budget Reonciliation Act

Title n-Sdent 10r and penson fiduci &.endmenl..

Title IV ~vü -i!'ce and polervoe TiU. V-V... ¡i maternal and pro heath. and other heath pro Title VI-Medca medcad. chid
TiU. VU--iue pr..
Titl VI-Hum i-ro and income ~ty proviiona.

TiU. m-Il.lory a¡ncy r_

oi..

Title Xl-Mieoua

Title IX-o oil poUution compenation fud. Title X-Mi.llaneo and tehnica Soal Sety Act amendment&

A¡tu Rencition
Act of 1989.

TITLE I-AGRICULTUE AN RELATED PROGRAS
SEe. 1001. SHORT TI; TABLE OF CONT

7 use 1421 note.

Rencition Act of 1989". (h) TABLE OF CoNT.-The tale of contents is as follows:
Se. lOCH. Short title¡ tal. or conteta

(a) SHoaT Tr.-Th title may be cite as the "Agricultur

Sa. 1002. -l. ow... and ii""er plati pMl; roo ¡r ac

Sa 100. Ilpaymeul or _co defci.nc paymeull.
Sra WltutiODL

Se 100. Reucton ~q peymenUi for 199 crpa

-~0J

Se 1005. Reucon of upnditw. under the exrt enhcement pr an

fo Sa 100. ~ tate apo ..co. Corption Ilk by Far Cnt of Fianci Aoco
Se 100. Adu.nta in da price aupport Pri.

SEe. 1001. SOYBEA. SUNWER, AN BAWER Pl.G PROGRA, FED GRA ACRGE UMITATION PROGRA

I' ACRGL-Efecve only for the 1990 crops. subson
amended to re as follow:
"(e) Notthdi any other proviion of th Act-

(a) PiG or SoYBEAS, SUNWI. AN SAPWE ON

(e) of -=on 50 nf the Agcutur Act of 1949 l1 U.S.C. 1464(e)) is

L 103 STAT. 2106J

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P.L. 101-239 Sec. 7701

LAWS OF 101,t CONG.-Ist SESS.

Dec. 19

Impred
T.. Act.

Pety Adiration
26 use 1 note.

Subtitle G-Revision of Civil Penalties
SEe. 7701. SHORT TI

an Compliace

tion and Complice Tai Ac",

Th subtitle may be cite .. the "Improved Penalty Adi
PENALTIES

PART I-DOCUENT AN INORMTION RETU
SEe. 7711. UNRM PENALTIES FOR FAILURS TO COMPLY WIT CER-

TAI INRMTION RERTG REQUIREMEN. (a) GENER Rui.-Par IT of subchapter B of chapter 68 (relatin
to faiur to fie cert inormation return or statements) is

amended to red .. follows:

"PART II-FAILURE TO COMPLY WITH CERTAIN

INORMATION REPORTING REQUIREMENT
"S 6721. Faiure to fie co inormtion re.
"Se. 6722 FaiUA to fu coIT payee ltteenti. "Se. 6723. FaUM to comply with oter inormtion report reui

meta

"Se. 6724. Waiver; detitioM and çe ni...

"SEe. 8721. FAIUR TO FI CORRCT INORMTION RES.

"(a) IMPOmON orI'ALTY.-

grpb (2) by any persn with repe to an inormRtion retur, such persn sh pay a penaty of $5 for each retur with

"(1) IN Glt-In the ca of a faiur deali in pa-

repe to which such a faiur ocur, hut the tota amount

enda yea sha not exce $25,00.

impo on such persn for al such faiur durg any ca"(2) FAIUU SU TO PEALTY.-For pur of pa-

grph (1), the faiure desribe in th paph ar
Seta on or before the reuir fiin date, and
inormation.

"(A) any faiure to fie an inormation retur with the
"(B) any faiur to include al of the information reui

to be shown on the retur or the inclusion of incorr
"(h) REUCTON WHE CoRRON IN SPECIFIED PnOD.the reuire fi date

"(1) CoRRON WI 30 DAYB.-If any faiure deali in
'(A) the penalty impo by subson (a) sha be $15 in lieu of$50, and

subsion (aX2) is corr on or before the day 30 daY" afr

faiure duri any caenda yea which ar 80 corr shal not excee $75,00. 14(2) FAIURIr CORREC ON OR BEFRJ AUGUST i.-If any
faiure desribe in subsion (aX2) is corr afr the 30t
day referr to in paph (1 but on or before Aug 1 of the

"(B) the tota amount impo on the Persn for al such

caenda yea in which the reui fi date oc

lieu of $5, and

"(A) the penalty impo by subson (a) sha be $30 in

l103 STAT. 238iU

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Dec.

19

BUDGET RECONCILIATION ACT

P.L. 101-239 Sec. 7721

"SEe. 6665. APPLICABLE RULS.
U(a) ÅDDmON9 TREATED AS TAX.-Except as otherw provided in

thi titlealties provided by this chapter shall be paid upon notice and
manner as taes; and
"(1 the additions to the ta, additional amounts, and pen-

demand and shall be asss, collec, and paid in the sae

"(2) any reference in this title to 'ta' impo by this title

shall be deemed also to refer to the additions to the ta,

H(b) PROCEDURE FOR As&SING CERTAIN ADDmONS TO TAX.-For purposes of subchapter B of chapter 63 (relating to deficiency proce-

additional amounts, and penalties provided by this chapter.

dures for income, estate, gift, and cert excise taes), subsetion (a)
shall not apply to any addition to ta under setion 6651, 6654, or

6655; except that it sha applythat portion of 6uch addition which is attributable to a deficiency in ta describe in setion 6211; or

"(1 in the cae of an addition describe in seion 6651, to

"(2) to an addition desribe in seion 6654 or 6655, if no

return is fied for the taable year."
(b) REPEAL OF INCREAE IN INTRES ON CERTAIN SUBSANTIAL
UNDERPAYMENTS.-Subsetion (c) of

setion 6621 (relating to interest

on substantial underpayments attributable to ta motivate trans-

Rctions) is hereby repealed. (c) TECHNICAL AND CoNFORMING AMENDME.-

(1) Setion 6653 is amended to read as follows:
.SEC. 6653. FAILUR TO PAY STAMP TAX

"AIy persn (as defined in setion 6671(h)) who"(1) wilfully fails to pay any ta impoed by this title which is payable by stamp, coupons, tickets, boks, or other devices or

method prescribe by thi title or by regulations under the
authority of this title, or

such ta or the payment thereof, shall, in addition to other penalties provided by law, be liable for a penalty of 50 percent of the tota amount of the underpayment of
the ta."

"(2) willully attempts in any manner to evade or defeat any

(2) Setions 6659, 6659A, 6660, and 6661 are hereby repealed.
(3) Subsection (h) of setion 5684 is amended(A) by striking "6662(a)" and inserting "6665(a)", and

(B) by string "6662" in the subsection heading and
inserting "6665".

(4) Subsection (a) of setion 5761 is amended by striking "or
6653" and inrting "or 6653 or par II of subchapter A of

chapter 68".

(5) Subsion (c) of setion 5761 is amended(A) by striking "6662(a)" and inrting "6665(a)", and
insrting "6665".

(B) by striking "6662" in the subsion heading and
(6) Subparagaph (A) of setion 6013(hX5) is amendedsubchapter A of chRpter 68", and

(A) by striking "seion 6653" and inrting "part II of
(B) by string "SECIION 6653" in the subparagaph

heading and inserting "PART II OF SUBCHAPTER A OF CHAPTER 68".

L103 STAT. 239gJ

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P.L. 101-239 Sec. 7721

LAWS OF 10lst CONG.-Ist SESS.

Dec.

19

(7) Subsection (d) of setion 6222 is amended by strikig
"setion 6653(a)" and inrting "part II of subchapter A of

chapter 68".
(8) Paragaph (2) of setion 6601(e) is amended by striking "setion 665l(aXI), 6653, 6659, 6660, or 6661" each place it
ilpears and inrting chapter 68". of subchapter A of "setion 665l(aXI) or 6653 or under part

(9) Subsection (a) of setion 6672 is amended by striking
(10) SubparagRph (e) of seion 46l(iX3) is amended by stri-

"under setion 6653" and insrting "under seion 6653 or part

II of subchapter A of chapter 68".

ing "setion 6662(X2xexw" and inserting , setion
6662(dX2Xexü)" .

(ll Claus (i) of setion 1274(bX3XB) is amended by strin~ "seion 6661(bX2xexü)" and inrting "seion 6662(dX2xexü)' . (12) Subparagaph (B) of seion 7519(fX4) is amended by
strikig "setion 6653" and inserting "par II of subchapter A of

chapter 68".

(13) Subchapter A of chapter 68 is amended by inserting afr the subchapter heading the followig:
"Par i. General proviions

"Par U. Accuracy-relate and fraud penalties.
"Part m. Applicable rules.

"PART I-GENERAL PROVISIONS".
68 (as amended by paragaph (1) is amended6659A, 6660, and 6661, and

(14) The table of setions for par I of subchapter A of chapter
(A) by strig out the itern relating to seions 6659,

inrting:

(B) by strikng the item relating to seion 6653 and

"Se. 6653. Failure to pay stp w."

26 use 461 note Cd) EFFECTVE DATE.-The amendments made by thi setion shall
apply to returns the due date for which (determined without regard

to extensions) is afr Deember 31, 1989.
PART II-PRE

PARER, PROMOTER, AND

PROTESTER PENALTIES
SEe. 7731. PENALTY FOR INSTlTU!NG PROCEEDINGS BEFORE TAX
COURT PRIMARILY FOR DELAY, ET.

for ínstituting proceeings before the Tax Court priarly for delRY,
etc.J is amended to read as follows:
.SEC. 6673. SANCTIONS AND COSTS AWARED BY COUR.

(a) GENERAL RUL.-Stion 6673 (relatíng to damages asble

"(a) TAX CoURT PiOCEEDlNGS.-

"(I) PROCEDURE INSTD PRIY FOR DKL", &".Whenever it appears to the Tax Court that-

lous or ground ea, or

taned by the tapayer priarr for delay, "(B) the tat.ayer's poition In such procee is frive.

"(A) proceegs before it have ben intitute or mai-

003 STAT. 2400J

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P.L. 101-239 Sec. 7743

LAWS OF 10Ist CONG.-Ist SESS.
AL TIES.

Dec. 19

SEC. 7743. EFFECl OF PAYMENT OF TAX BY RECIPIENT ON CERTAIN PEN-

(a) GENERA RUL.-Setion 1463 (relating to ta paid by recipient
of income) is amended to read as follows:
"SEC. 1463. TAX PAID BY RECIPIENT OF INCOME.

llIf_ "(1) any persn, in violation of the proviions of this chapter, faia to deduct and withhold any ta under this chapter, and
"(2) thereafr the ta against which such tax may be credite

is paid,
the ta 80 required to be deducte and withheld shall not be collec from such persn; but this subsetion shall in no ca

relieve such persn from liabilty for interest or any penalties or
additions to the ta otherw applicable in respet of such failure to
deduct and withhold."
26 use 1463

note

shall apply to failures afr Deember 31, 1989.

(b) EYF DATX.-The amendment made by subsection (a)

Subtitle H-Technical Corrections
SEC. 7801. DEFINITIONS: COORDINATIOS WITH OTHER SUBTITLES.

(8) DEFINmONs.-For purpses of this subtitleMiscellaneous Revenue Act of 1988.
of 1987.

(1) 1988 ACT.-The term "1988 Act" mean the Technical and

(2) 1987 ACT.-The term "1987 Act" means the Revenue Act
26 use 1 note

this subtitle, the proviiona of thi subtitle shall be treate as havig ben enacte immediately before the proviions of such other subtitles.

ing the amendmenta made by any subtitle of thi title other than

(b) CoRDINATION WIT OrER SUBTI.-For purps of apply-

PART I-AMENDMENTS RELATED TO TECHNICAL AND MISCELLAEOUS REVENUE ACT OF 1988
SEC. 7811. AMENDMENT RELATED TO TIT I OF THE 1988 ACT.

(a) AMENDMEN RELTE TO SECTON 1002 OF THE 1988 ACT.(l The heading for subparagaph (C) of section 42(dX5) is amended by inrting "SECON" before "167(k)".

"claus (ii)" and inrting "claus (i)".

(2) Claus (Ü) of seion 42(hX5XDJ is amended by striking

(b) AMENDMEN RELATE TO SECON 1003 OF THE 1988 ACT.(1) Subparagaph (e) of seion 643(aX6) is amended by striing "(i" and by string ", and (Ü)" and all that follows and inrting a period.

(2) Paragraph (6) of setion 643(a) is amended by striking subparagaph (0).

(c) AMENDMEN RELTE TO SECON 1006 OF THE 1988 ACT.-

(1) Subpaagaphs (C) and (0) of setion 26(X2) are amended

to read as follows:

"(C) subsion (mX5)(), (q), (t), or (v) of setion 72 (relatin to additional taes on certn distributions),

L03 STAT. 2406J

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PUBLIC LAW 99-141H.R. 3838): October 22,1986

TAX REFORM ACT OF 1986
An Ad to r-l' tt IrtmllI rev.nu. la.. of th Unll Stat..

Be it enacted by the Senate and House of Representatives of the

United States of America in Congrss assembled,
SEl'ION 1. SHORT

Tax Reform Act
of i9il6

TITLE: TABLE 0, CONTENTS.

26 i:SC i ('i seq

fal SHORT TITLE.-This Act may be cite as the "Tax Reform Act of

1986".
(b) TABLE OF CONTENTS.TITLE i-Ii-D1VIDUAL INCOME TAX PROVISIONS

Subtitle A-Rate Reductions; Increas in Standard Deuction and Persnal
Exemptions Se 101 Rate reductions. Se 102 Increas in standard deduction.
Se. 103. Increas in persnal exemptions.

Se 104 Technical amendments

Subtitle B-Provisions Relate to Tax Creits
Se 111 IncreaS( in earned Încome credit Se 112 Repeal of credit fOT contributions to candidates for public offce
Subtitle C-Provisions Relate to Exclusions

Se. 121. Taxation of unemployment compensation.
Se. 122. Prize and awards Se. 123 Scholarships

Subtitle D-Provisions Relate to Deuctions
Se 131. Repeal of deductÎon fOT 2-earner married couples.

Se 132. 2-percnt floor on mÎscllaneous itemize deductions Se 133 Medical expense deduction limitation increas. Se 134. Repeal of deduction for State and local sales tax.
Se. 135_ Repeal of deduction for adoption expense.

Subtitle E-Miscellaneous Provisions
Se 141 Repeal of income averaging Se 142. Limitations on deductions for meals, travel, and entertinment Se 143 Changes in treatment of hobby los, etc

Se 144_ Deuction for mortage interet and real property taxes allowable when' parsnage allowance or military housing allowance reeived

Subtitle F -Effective Date
Se_ 151 Effective datE'
TITLE II-PROVISIONS RELATING TO CAPITAL COST

Subtitle A-Depreciation Provisions
Se. 201. Modification or acclerate cot recovery system.

Se. 203. Efft:tive date; general transitional rules Subtitle B-Repeal or Regular Investment Tax Creit

Se 202. Expensing of depreiable asts.

Se 211. Repeal of relar investment tax creit.
Se :n2 Effective IS-year carryback of existing carry

forwards of stel companies

Se 213. Effective IS-year carryback of existing carryforward of Qualified farmers.

DOO STAT. 208SJ

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P.L. 99-14
Sec. 1511

LAWS OF 99th CONG.-2nd SESS.

Oct. 22

Subtitle B-Interest Provisions
SEe. 1511. DIFFERE:\TIAL INTEREST RATE.

rate of interest) is amended by striking Qut subsections tal, (bi, and
(cl and inserting in lieu thereof the following:
"(a) GENERAL RULE."(1) OVERPAYMENT RATE.-The overpayment rate established

(a) GENERAL RULE.-Section 6621 (relating to determination of

under this section shall be the sum of- rate u(A) the short-term Federal

determined under

lished under this section shall be the sum of~
subsection (bi, plus i 3 percentage points. "IS

subsection (bl. plus "1s12 percentage points. "(2) UNDERPAYMENT RATE.--The underpayment rate est3b"(Al the short-term Federal rate determined under

"(bl SHORT-TERM FEDERAL RATE.-For purposes of this section-

term Federal rate for the first month În each calendar quarter.
"(2) PERIOD DURING WHICH RATE APPUES.-

"(1 GENERAL RULE.-The Secretary shall determine the short.

(BJ, the Federal shoTt-term rate determined under paragraph (l for any month shall apply during the first cal
endar quarter beginning after such month.

"(Al I:' GENERAL.-Except as provided in subparagraph

determining the addition to tax under section 6tj:)-l for

"(Bl SPECIAL RULE FOR INDIVIDUAL ESTIMATED TAx.~In

failure to pay estimated tax for any taxable year. the
Federal short-term rate which applies during the 3rd
month following such taxable year

shall also apply during

the first 1.5 days of the 4th month following such taxable year
"(:~i FEDERAL SHORT-TERM RATE.- The Federal short-term rate

for any month shall be the Federal short-term rate determined during such month by the Secretary in accordance with section 1274(dl Any such rate shall be rounded to the nearest full percent (or, if a multiple of 112 of 1 percent, such rate shall be increased to the next highest full percenil"
(b) COORDINATION BY REGULATION.-The Seretary of the Treasury

or his delegate may issue regulations to coordinate section 6ti21 of

the Internal Revenue Code of 1954 (as amended by this section) with
section 660l(f) of such Coe. Such regulations shall not apply to any
Act.

period after the date :~ years after the date of the enactment of this
(c) TECHNICAL AMENDMF.NTS.-

(1) Section 6621 is amended-

(AJ by redesignating suh!lction (dJ as subsection (el, and

subsection (bi" in subsection (c)(1 ) (as so redesignated i and

(Bi by striking out "the adjusted rate established under

inserting in lieu thereof "the underpayment rat£' established under this section", and
redesignatedJ_

iei by striking out "annual" in subsection 1(i11l las so

out "determined under section fifi21" and inserting in iü~u

121 Subparagraph iGI of section 471dlCiiis amended by stnking

L100 STAT 274'0

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P.L. 99-514
Sec. 1531

LAWS OF 99th CONG.-2nd SESS.

Oct.

22

Internal Revenue Code of 1986 as amended by this section) interests in which are first offered for sale after December 31.1986.
S¡;C. IS32. ISCREASED PESALTY FOR FAILLRE TO REGISTER TAX
SHELTERS.

(al IN GENERAL.-Paragraph (21 of section 670,(al (relating to penalty for failure to register tax shelters) is amended to read as
follows:

graph (1) with respect to any tax shelter shall be an amount equal to the greater of"(A) 1 percent of the aggregate amount invested in such
tax shelter, or

"(2) AMOUNT OF PENALTY.~ The penalty imposed under para-

apply to failures with respect to tax shelters interests in which are
fIrst offered fa" sale after the date of the enactment of this Act.
FlCATIO!\ ~l')tBER OS RETlRl' I:"CREASED TO $2;"j0.

"(H) $500" (hI EFFECTIVE DATE.-The amendment made by this section shall

SEe. 1533. PESALTY FOR FAILCRE TO I:\ClXDE TAX SHELTER IDE:-TI-

(a) IN GENERAL.-Paragraph (2) of section 67071bl (relating to
penalty for failure to furnish tax shelter identification number) is

apply to returns filed after the date of the enactment of this Act.
SEC. 153-1. I:'CREASED PE~ALTY FOR FAILl"RE TO MAI~TAJN LISTS UF IIWESTORS IN POTENTIALLY ABi:SIVE TAX SHELTERS.
to maintain lists of investors in potentially abusive tax shelters

amended by striking out "$50" and inserting in lieu thereof "$250"'. (bl EFFECTIVE DATK-The amendment made by this section shall

amended by striking out "$50,000" and inserting in lieu thereof
"$100,000". (b) EFFECTIVE DATE.-The amendments made by this setion shall
apply to failures occurring or continuing after the date of the

(a) IN GENERAL.-Subsection (a) of setion 6708 (relating to failure I is

enactment of this Act.
SEe. 1535. CLARIFICATION OF TREATMENT OF SHAM OR FRACOL'LE~T
TRANSACTIONS UNDER SECTION 66211"

(a) CLARIFICATION OF TREATMENT OF SHAM OR FRAUDULENT TRANSACTIONS.-Subparagraph (A) of section 662l(cX3) (as so redesignate

is amended by striking out "and" at the end of clause (iII), by

i

shall apply to interest accruing after Deember 31, 1984; except that such amendment shall not apply in the case of any underpayment

striking out the period at the end of clause (iv) and inserting in lieu thereof ", and", and by adding at the end thereof the following new clause: "(vl any sham or fraudulent transaction." (bl EFFECTIVE DATE.-The amendment made by subsection (a)

with respet to which there was a final court decision before the
date of the enactment of this Act.

000 STAT 27SQJ

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DEFICIT REDUCTION ACT OF 1984
P.L 9&36

HOUSE CONFERENCE REPORT NO. 98-861 . . . . .
(page 757)

JOINT EXPLANATORY STATEMENT OF THE CoMMITTEE OF CoNFERENCE

The managers on the part of the House and the Senate at the conference on the disagreeing votes of the two Houses on the amendment of the House to the amendments of the Senate to the
bil (H.R. 4170) to provide for tax reform, and for other purposes,

submit the following joint statements to the House and the Senate in explanation of the effect of the action agreed upon by the managers and recommended in the accompanying conference report:
The joint statement of managers which follows was prepared by

the committee of jurisdiction and is arranged by title of the confer-

ence agreement.

REVENUE PROVISIONS: p.., i. Tax Freze; Tax Reforms Generally 766
ILL Charitable Deuction Rules; Private Foundation Proviions; Exempt Or-

SUMMARY TABLE OF CONTENTS

n. Life Insurance Tax Provisions.. 1042

VII. Enterpri Zones.. 1218 VIII.Technical Corrtions1227 ix. Highway Revenue Proviions.. 1228
XU Misellaneous Tariff Proviions. .. ..............................................._.. 1284

IV. Simplification Proviions ........ 1115 V. Proviions Relating to Employers and Employee and to Retirement 1131 VI. T..-E.empIObligations.. ... ..................................... 1185

ganiztions ......... 1081

XI Studies .............. ..................... ......................... 1283

X. Misllaneous Revenue Prviions.. 1235

TABLE OF CONTENTS FOR REVENUE PROVISIONS
I. TAX FREE; TAX REFORMS GENERALLY.

A. Tax Freze and Relate Provisions..
investment ta creit..

1. Postponement of finance leas provisions ....

766 766 766 772

2. Postponement of increas in amount of us property eligble for

3. Postponement of increas in amount of property eligble for
4~~tn¡~~t.~~~ï~~i~~::: ................:..:::::.::...::......:.:::.::............_n_____

5. P08tponement of increas in foreig earned income exclinion..
r page 758 J

772 773 773
774 774

6. Defer scheduled reuctions in maximum gift and estate ta rate

7. Windfall profit ta on rate newly disovered oil..

8. Percentae depletion for seondary and tortiary production after 1983......................................................................................................... 9. Modification of excise ta rate on cigarettes and distilled spirits.

10 Modification of time and manner of paying excis taes on ciga-

a. Cigarette excis ta......................................-.............................__. b. Distilled spirits excise ta.................__......__..._..............................._._

775 776 776 776
777 778 778 778 778 780 782 784
7R5

B Leasing Provisions.. 1. T8x~xempt entity leasing ..
s. General rule ....

rette and alcohol products...._.........__..................._..._.......... 11. Extension of excise ta on communications services..

b. Definition tax-exempt entity.. c. Tax-exempt use property..
d. Tax treatment of tax-exempt use personal property.

e. Tax treatment of tax-exempt use real property

f. Depreciation of certin short-lived property..

786

( 1445)

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LEGISLATIVE HISTORY
PL 98-369
(page 9841

tivities subjec to penalty under either section 6700 or setion 6701, or both, RS appropriate. Both amendments take effect on the day after the date of enactment.
of the district court under setion 7402(a) is, . in any way, limite by the action to enjoin promoters of abusive ta shelters (sec. 7408)
No inference should be drawn that the general injunctive power

or the action to enjoin income ta return preparers (sec. 7407). This

is in accordance with Us. v. Landsberger, 692 F.2d 501 (8th Cir.,
1982).

d. Increased rate of interest for tax shelter cases
Prsent law

ferent interest rate for ta shelter cass. House bill

rate (generally, the prime rate, compounded daily). There is no dif-

Interest must be paid by the tapayer on underpayments of ta and by the Unite States on overpayments of ta at the statutory

No proviion. Senate amendment
In the cas of ta shelter items, the rate of interest paid to ta-

payers on refunds or due the IRS on underpayments is 150 percent
of the statutory rate (generally, the prime rate, compounded daily).

This rule applies to items arising from any plan or arrangement
the principal purpo of which is the avoidance or evasion of ta in

which more than 34 persons participate. The provision is effective
for interest accruing after December 31, 1984.

Conference agement

ter underpayments to 120 percent of the otherwise applicable rate

Senate amendment, which increases the interest rate on tax shel-

The conference ageement contains a modified form of the

and modifies the definition of ta shelter in the Senate amend-

tivity with respet to which a loss or an investment ta credit is
any use of any accounting method speified in regulations as potentially resulting in a substntial distortion of income. The conferees

of the underpayment excees $1,000. A ta motivate transaction is 0) any valuation overstatement of 150 percent or more, (2) any acdisallowed by reason of the at-risk rules, (3) any ta straddle, or (4)

ment. The increas interest rate applies to an underpayment of ta attributable to one or more ta motivated transactions, if the amount

anticipate that the following deductions and other claimed ta ben. efits might be considered by the Seretary to arise from accounting method that may result in a substantial distortion of income:

disllowe under setion 461(g), relating to prepaid interest;
fective rate of interest, such RS under the rule of 78's;

ing syndicate; (2) In the cas of a cash method tapayer, interest deductions

(1) Deuctions disllowed under section 464, relating to farm-

(3) Interest dedctions disallowed beause they excee the ef(4) Improper deductions for syndication expenditures;
L1672 J

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DEFICIT REDUCTION ACT OF 1984
P.L. 98-369

(page 985 J

(5) Deuctions disallowed under setion 267(aX2), relating to transactions between related tapayers with different accounting methods;

(6) Failure to take into account deferred rental payments in accordance with the principles section 467, as added by this
Act; and

(7) Deuctions disallowed under the principles of setion

46l(), as added by this Act, relating to prepayments of ex-

other type of transactions that will be treated as ta motivate.
other factors he considers relevant.

penses by ta shelters. In addition, the Secretary is given regulatory authority to speify

He shall take into account the ratio of ta benefits to cash invest-

ed, the method of promoting this type of transaction, as well as
The provision is effective with respect to interest accruing afr December 31, 1984, regardles of the date the return was fied.
The conferee note that a number of the proviions of recent legislation have ben designed, in whole or in part, to deal with the

damages assessble for instituting or maintaining Tax Court proceedings primarily for delay or that are frivolous or groundles
(sec. 6673), the adjustment of interest rates (sec. 6621), the valu-

Tax Court backlog. Examples of these proviions are the increas

ation overstatement and substantial understatement penalties
provision of the House bill permitting cert',;"d public accountats
(see. 6659 and 6661), and the ta straddle rules (ses. 1092 and 1256). AdditioORlly, the conference ageeIlQI t did not follow the

and enrolled agents to represent a taxpaye. in a small ta cas be cause the Tax Court state that permitting this would jeopardiz
the integrity of the small ta case process, which is working welL.

The conferees believe that, with this amendment, the Congres has given the Tax Court suffcient tols to manage its docket, and
that the responsibility for effectively managing that docket and re-

ducing the backlog now lies with the Tax Court. The positive re
ment swifty these and other appropriate management initiatives. The conferees also note favorably the steps the Court has begun to
tae in consolidating similar ta shelter cases and dispensing with lengthy opinions in routine ta proteter cases. The Court should

sponse that the Court has made to several recent GAO recommendations is encouragng and the conferees expect the Court to imple-

take further action in these two areas, as well as to assert, without
has provided.

hesitancy in appropriate instances, the penalties that the Congres

The Internal Revenue Service also has significant responsibilties
in reducing the Tax Court backlog. The Servce's settlement policy should be fair and flexible, and only appro¡:riate cases should be litigate. Although in the recent past the Servce has offered to

settle many ta shelter cass by permitting tapayers to deduct out

of poket expenses, the Service no longer routinely offers this as a
settlement. This is a constructive change in policy, in that a ta-

payer should not expet to be able to deduct out of poket expense

regardless of the circumstaces of his cas. The Servce should

asrt, without hesitancy in appropriate circumstaces, the penalties that the Congress has provided. In particular, the negligence

and fraud penalties are not currently being applied in a large
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LEGISLATIVE HISTORY
P.L 98-369
(page 986 J

number of cass where their application is fully justified. The con-

ferees note with approval the steps the Service has recently taken
to eliminate the backlog in the Appeals Division.

2. Information reporting provisions

8. Returns relating to mortgage interest received in a trade or
business'
Present law

There is no requirement that recipients of mortgage interest
report interest received to the Internal Revenue Service.

House bill A person who, in the course of his trade or business, or a governmental agency that receives interest on obligations secured by real
property must report to the Internal Revenue Service payments

from a payor aggregating $600 or more and provide a copy of that report to the payor. Present law penalties for other failures to fie
information returns and furnish statements apply (generally, $50

tion in existence on December 31, 1984, for amounts received before
January 1, 1986.
Senate amendment

is effective with respect to amounts received after December 31, 1984, except that no penalty is imposed on persons reporting for failure to furnish identification numbers with respect to an obliga-

per failure except in cases of intentional disregard). The provision

The Senate amendment generally is the same as the House bill,
except that the reporting threshold is $2,300 and the provision is

effective with respect to amounts received after December ai, 1984,
and except for technical differences.
Conference agreement

tions. Thus, recipients of $600 or more of mortgage interest with respect to any obligation secured by real property will be required
to report that interest to the Internal Revenue Service. The confer,

The conference ageement follows the House bill, with modifica-

ees choose the lower reporting threshold of the House bill because
more complete reporting reduces the likelihoo that the Internal

Revenue Service will have to contact a taxpayer concerning

claimed deductions.

At the same time, the ageement seeks to eliminate any unneces-

old will apply on an obligation by obligation basis. In terest received on two different obligations secured by the same real property does
vides that the Seretary may provide exceptions from this reporting requirement where such exceptions are consistent with effec.

sary burden to interest recipients. The agreement provides that reporting is required only on payments received from an individuaL. Under the ageement, the $600 aggregate annual reporting thresh-

not have to be aggregate into one report; thus, interest on each obligation may be report separately. The ageement also pro-

tive reporting of mortage interest and the matching of these reL1674J

port with a speific line on the ta return. Therefore, the Sere-

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TAX REFORM ACT OF 1986
PL. 9!H14, 8ee pae 100 Stat. 208
DATES OF CONSIDERATION AND PASSAGE

House: December 17,1985; September 25, 1986
Senate: June 24, September 27, 1986

House Report (Ways and Means Committee) No, 99-26,

Dec. 7, 1985 (To accompany H.R. 3838)

Senate Report (Finance Committee) No. 99-13,
May 29, 1986 (To accompany H.R. 3838)
House Conference Report No. 99-841,

Sept. 18, 1986 (To accompany H.R. 3838) Congo Reord Vol. 131 (1985) Congo Reord Vol. 132 (1986)
Conference Report is sel out below, and the Signing Statement of the
President follows.

HOUSE CONFERENCE REPORT NO. 99-841

L 4075 J

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(page II)

JOINT EXPLANATORY STATEMENT OF THE COMMITTEE
OF CONFERENCE
The managers on the par of the Hous and the Senate at the
conference on the dieeing vote of the two Hous on the

of the action agee upon by the managers and reommended in the accompayig conference report:

amendment of the Senate to the bil (H.R. 3838) to reform the internal revenue laws of the Unite State, submit the following joint statement to the Hous and the Senate in explanation of the effec
The Senate amendment struck out al of the Hous bil afr the

enactin claus and inrt a subsitute text.

The Hous reces from its diseement to the amendment of

chages made neces for ageements reached by the conferee.

bil, the Senate amendment, and the substitute agee to in conference are note below, except for clerica correcions, conforming

the Senate with an amendment which is a substitute for the Hous bil and the Senate amendment. The difference between the Hous

and mior drafing and clarng chages.

L 4076 J

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LEGISLATIVE HISTORY
P.L. 99514
(page II-796l

tranctions from 120 percent to 200 percent of the generally applicable interest rate. The proviion is effecive for interest accrug

afr Dember 31, 1986.

Conference Agreement

corrion to the presnt-law proviion that increas the rate of interes for ta-motivate tranctions.
The Tax Court ha rently held (DeMartiTU v. Comm'r., T. C.

The conference ageement doe not include the proviion of the Senate amendment increasing the rate of interest on ta-motivate tranctions. The conference ageement inad makes a tehnca

Memo 198&-263 (June 30, 1986); Forseth v. Comm'r., T. C. Memo
1985-279 (June 11, 1985)) that sha tranctions that would be sub-

ject to this speial interest rate were they not sham are not subjec to thi speia interest rate beaus they are sham. The con-

feree view it as anomalous that a genuine tranction Oackig the
proper profit motive) would be subjec to a hiher interet rate,

whie a sha tranction, which is signifcatly more abusive,
would esape the higher interest rate simply beus it is a sha.

Accordingly, the conference ageement, consistent with the legilative intent in orially enacting setion 662l(d) in 1984, explicitly

adds sham or fraudulent tranctions to the list of tranctions

subject to this higher interest rate. The intent of the conferee is to

revers the holdig of thes Tax Court cas on this isue.

Dember 31, 1984, which is the date this hiher interet rate tok
effec. This clarcation doe not apply, however, to any underpay-

This clarcation of presnt law applies to interest accrug afr

through exhausting all appeals rights or the lapsing of the time
enactment of this Act.

ment with repe to which there was a final court decision (either

period within which an appeal must be pursued) before the date of

C 4884 J

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OMNIBUS BUDGET RECONCILIATION ACT OF 1989
PL. 101-239, see pae 103 Stat. 2106

DATES OF CONSIDERATION AND PASSAGE
House: October 5, November 21, 1989 Senate: October 13, November 21, 1989

House Report (Budget Committee) No. 101-247, Sept. 20, 1989 (To accompany H.R. 3299)
House Conference Report No. 101-386, Nov. 21, 1989
(To accompany H.& 32991
Congo Record Vol. 135 (989)

No Senate Report was submitted witli tliis legislation. Tlie
House Report (tliis page) is set out below and tlie House Confer-

ence Report (page 3018) and the President's Signing Statement
(page 3555) follow.

HOUSE REPORT NO. 101-247
¡page IIJ

CONTENTS
Statement of the Committ on the Budget. Reporting of the BilL........................ .. ...................... ............_....._... Title~~~l*~~~~~~~.~:......................_m....................................._....."
Report to Accompay Remmendations from the Committe on Agricul-

p..
1
1

3 3

cao Co Estim.te............................. ..........................
Title U--mmitt. on Baki, Finance. and Urban Afairs:

tUre ...._....................................... ...................._........ .....................
23

Title IIl-Cmmitte on Education and Labor:

CBO Cot Estimate................... ...............

Letter of Trasmitt...................................... .... ._......... .......... ......_. .... ..... ...... ....... Report to Accompany Reommendations from the Committe on Banking, Finance, and Urban Affairs ..........................................__.............................

39
39

tion and Labor............ CBO Co Estimate .....

Report to Accmpay Remmendations from the Committe on Educa-

Lettr of TramittaL.... ..................................... ..............

43 45 45 132

Title rv-Cmmitte on Energ and Commerce:

Report to Accompay Reommendatioru from the Committe on Energy
CBO Cot Estim.te................................. ............... ............
Title V --mmitte on Government Operations:

Letter of TranmittaL............ ............... ......................
and Commerce....... ...................

327
327 334

Report to Accompay Reommendations from the Committe on Govern-

Letter of Tranmitta.... ......................... ..........................................

Title VI-Cmmitte on Interior and Insular Affairs:
Letter of Trasmitt.... ............... .................................. ... ............ .........

CBO Cot Estimate......... ...................

ment Oprationa ..... ................ ..................

845

845 845
857
857 850

COO Cot Estimate......... .............. ............. _......_.......
( 1906 J

~J\~u~¡;o~r!..~~~.~~~~~.~~~~..r~~~..~.~.~..~~~.~~~..~.~..~_~~.~.~~_~.r

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BUDGET RECONCILIATION ACT
P,L. 101-239
(page 13871

and (4) how tapayers can best inform the IRS of a name or address change, prior to waiting until the next ta return fiing date.

received initíally by the SSA, which IRS uses to revi its records,

A report on the study, together with any recommendations, is to be
submitted to the ta-writing committes of the Congress by June 1,

1990. In the interim, the IRS should establish a procedure and con-

tion return filers who obta a exception from the tapayer) can
obta a listing of the names thRt the IR recogniz as vald when matching information returns with a particular tapayer identifcation number. Stuy of service bureaus
The bil requires the General Accounting Offce, in consultation

tact point within the IR where tapayers themselves (or informa-

with the Treasury Department, to conduct a study of whether service bureaus engaged in the business of transmitting information returns or other documents to the IRS on behRlf of other persons should be subject to regitration or other regulation. A report on

the study, together with any recommendations, is to be submitte to the ta-writing committes of the Congres not later than July
1,1990.

be effectively communicating with their customers as to diffculties

The committe is concerned that some servce bureaus may not

the IRS has encountered with the data the servce bureau has transmitte on behalf of payors. This failure of communication may increas the diculty that both the actual payor and the IRS

have in resolvig problems with the tranmitte data. In addition,
it may be diffcult for payors to asess the relative competence of individual servce bureaus, in that the IR cannot legRlly state

whether or not it has encountered problems with a particular service bureau. The GAO study should consider problems such as thes.

Effective Dates
The information reporting proviions of the bil generally apply

to information returns and payee statements the due date for
31, 1989.

which (determined without regard to extensions) is after December
2. Accuracy penalties (sec. 11721 of the bil and new secs. 6662-

6665 of the Code and sees. 662l(c), 6653, 6659, 6659A, 6661, and 6661 of the Code)
Present Law
Negligence penalty

If any part of an underpayment of tax required to be shown on a
return is due to negligence or disregard of rules or regulations, a

penalty may be imposed equal to 5 percent of the total amount of the underpayment. An underpayment of tax that is attributable to a failure to include on an income tax return an amount shown on an information return is treated as subject to the negligence penalty absent clear and convincing evidence to the contrary.
(28~) 7J

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LEGISLATIV~; HISTORY
HOUSE REPORT NO. 101-247
Ipage 13881

Frud penalty
If any par of an underpayment of ta required to be shown on a

return is due to fraud, a penalty may be impo equal to 75 percent of the portion of the underpayment that is attributable to
fraud.
Substantil undrstatement penalty

year excee that report by the tapayer by the grater cr 10
percent of the correc ta or $5,000 ($10,000 in the cas of most cor-

If tbe correct income ta liaility of a tapayer for a taable

porations), then a substi understatement exits and a penalty may be impo equal to 25 percent of the uncl;rayment of ta
attributable to the understatement. In determining whether a substatial understatement exi, the amount of the understatement

is reduced by any portion attributable to an item if (1) the treat-

were adequately dilos on the return or on a statement attched to the return. Speial rues apply to ta shelters.
Valuatin penaltis

ment of the item on the return is or was support by substatial authority, or (2) fact relevant to the ta treatment of the item

If an individual, persnal servce corpration, or closly held corporation underpays income ta for any taable yea by $1,000 or

be impo with respet to the amount of the underpayment that is attributable to the valuation overstatement. A valuation overstate
ment exits if the valuation or adjuste basis of any property
claied on a return is 150 percent or more of the correct value or

more as a result of a valuation overstatement, then a penalty may

adjuste basis. The amount of the penalty that may be impo inble to the vnluation overstatement as the percentae by which the

creases from 10 to 20 to 30 percent of the underpayment attributa-

valuation claied exce the correct valuation increass. Similar
penalties may be impo with respe to (1) an underpayment of

income ta that is attributable to an ovetatement of pension li-

abilties and (2) an underpayment of estate or gi ta that is at-

tributable to a vauation understatement.
Retlß8 for Change

that relate to accuracy of a ta return, as well as the potential for
overlapping among many of thes penalties, caus confuion

The committe believes tht the number of dierent penalties

penalties by the IRS. Consuently, the committe has revi
ity, and administrability of thes penalties. Explanation of PrisiunB
Overview

among tapayers and leads to diculties in administering these
its changes wil signcantly improve the fairnes, comprehensibil-

thes penalties and conslidate them. Th committe believes that

The bill consolidate into one part of the Internal Revenue Coe all of the generally applicable penalties relating to the accuracy of
tax returns. The penaties that are consolidate are the negligence

(2858J

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BUDGET RECONCILIATION ACT
P.L 10 1 ~239

lpage 1389)

penalties. Thes conslidate penalties ar alo coordate with
the fraud penalty. The bil repeal the presnt-law versions of thes
penalties. The bil reorganiz the accuracy penalties into a new structure that operate to eliinate any stacking of the penalties.

penalty, the suhBtatial understatement penalty, and the valuation

cember 31, 1989.

The bil is effecive for return the due date for which is afr De
The accuracy-relate penalty, which is impo at a rate of 20

Accumcu-re/ated penalty

utable to (1) negligence, (2) any substantial understatement of
income ta, (3) any subatial valuation overstatement, (4) any

percent, applies to the portion of any underpayment that is attrib-

tial estate or gi ta valuation understatement.
(J Neglignce

suhBtatial overstatement of pension liabilities, or (5) any suba-

that is attributable to neglience rather than, as under prent
from prent law. Under presnt law, if any portion of an underpayment is attributable to negligence, the negligence penalty applies to the entire underpyment (bth the portion attributable to negligence and the porton not attributable to negligence). Thus, under present law, a tapayer who has an underpyment, only a small portion of which was attributable to negligence, is subject to the sae penalty as a tapayer with the sae underpyment, all of which is attributable to negligence, even though the behavior of
law, to the entire underpayment of ta. Th is a sigcant change

ligence penalty is to apply only to the portion of the underpayment

If an underpaymnt of ta is attributable to neglignce, the neg-

send tapayer. The bil rectifies thi ineuity by applying the
utable to negligence.

the first tapayer is arguably les culpable than the behavior of the

negligence penalty only to the portion of the underpyment attbNegigence includes any careles, rekles, or intentiona clre gar of rules or reations, as weD as any faiure to make a rea-

sonable attempt to comply with the provisions of the Coe. In addition, the bil re the prent-law presumption under which an

undrpayment is treate as attributable to negligence if the underpayment is due to a faiure to include on an income ta return an

even in the abnce of a statutory presumption, evilÌnce of suç a
faiure is stil strong evidence of negligence.

amunt shown on an information reurn. As a prical mattr,

underpayment that is attributable to a subsntial understatement
of income ta is the sae as the suhBtatial understatement penal-

(2) SuIMu.n.tul undnitaú!ment of ui_ ta The accuracy-relate penalty that appl to the poion of an

ty provided under present law with three principal modifications.
rently contaed in Treasury relations) to include propoed regu-

First, the rate is lowered to 20 percent. Seond, th committe expands the lis of authoritie upon which tapayers may rely (cur-

lations, private letter rulings, tehnîcal advice memoranda, actions

on decisions, genera counsl memoranda, infortion or pres releas, notices, and any other similar documents pubHshed by the

L 2859J

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LEGISLATIVE IlSTORY
HOUSE REPORT ~O. 101-247
Iv"ge 1390)

IR in the Internal Revenue Bulletin.'. In addition, the list of au-

thorities ia to include Gtneral Explanations of ta legilation prepared by the Joint Committe on Taxation (the "Blue Bok").
Thrd, the bil requires the IRS to publih not less frequently than

anualy a list of poitions for which the IRS believes there is no
substatial authority and which afec a signifcant number of tasubstatÏB understatement penalty. Thus, if a tapayer taes a p0

payers. The purpo of thi lit is to assist tapayers in determining whether a poition should be dilosed in order to avoid the
sition that is enumerate on thi list, the tapayer could choose to diclos that poition to avoid impoition of the substatial under-

statement component of the accuracy-relate penalty. However, in-

clusion of a poition on thi list ia not conclusiv',(il to whether or

not substatial authority exits with respet to that position. If, however, there is litigation as to whether there is substantial authority, and the court concludes that the IRS is correct in the belief
that there is not substatial authority for the position, then thi

usfu to tapayers, in that it wil asist tapayers in determing whether substatial authority exists with respet to a paricular
isue on the lit. Although the list is not exclusive, the committe

penalty would apply. The committe believes that thi lit wi be

which wil make it more usful to tapayers and their adviors.

intends that the IRS make the list as comprehensive as practica,

The COmmitte intends that there should be no inerence that substatia authority exits with respet to poitions that are not included on thi list. Disclosure of a poition for purpos of thi penalty does not necessy prevent impoition of the negligence pen-

alty. Thus, for example, if a tapayer dicloses a frivolous position,

the imposition of the neglience penalty could be appropriate. (3) Substantial valuation overstatement The penalty that is to apply to the portion of an underpayment
that is attributable to a substatial valuation overstatement is gen-

erally the sae as the valuation overstatement penalty provided under presnt law with five pricipal modcations. Firt, the bil extnds the penalty to all tapayers. The committee believes that
thi modifcation increases the fainess of this component of the ac-

scribe behavior, regardless of who engages in it. Second, a sub-

curacy-relate penalty, in that the penalty is impoed upon prostatial valuation overstatement exists if the value or adjusted basis of any property claied on a return is 200 percent or more of

the correct value or adjuste basis. Third, the penalty is to apply only if the amount of the underpayment attributable to a valuation overstatement exceeds $5,000 ($10,000 in the case of most corpora-

ty does not apply to individuals. Fourth, the amount of the penalty
a The committ's intent is to broaden the li of authorities upon which tapayeni may rely
The committe would, however, permit the Tre8Bucy to isue regationB providing that speifc

tions). This increases five-fold the threshold below which the penal-

iteIl on the committe's lis of additional authorities (except for propo regulations not yet superced or "Blue Boks") that were Ì5ued prior to the date of enactment of thi bil may not

be. considere to ~ substatial authority. For example, Treury regulations could provide that

pnvate letter rulIngs isued prior to the date they bean to be publicly diBminate are not substantia authority. Any such limitation should, however, be 88 narrw 88 practicable, in order to further the committe's general intent that the list of authorities on which tapayers
may rely shOuld be broadened.

(2860)

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BUDGET RECONCILIATION ACT
P.L. iol-239
(page 1391J

for a substial valuation overstatement is 20 percent of the

amount of the underpayment if the value or adjuste basis claied
is 200 percent or more but les than 400 percent of the correc
value or adjuste basis. Fifth, as explaied below, the bil provides

that the mte of thi penalty is doubled if the value or adjuste basis claied is 400 percent or more of the corrt value or adjust-

ed basis. The bil reta the speia rues in prent law that apply

from the penalty's scope a number of instaces of goo-faith valu-

to chartable deduction property. The committe believes that raÎ ing both the threshold and the minimum percentae wi eliminate

ation dispute that may be subject to penalty under presnt law.

As under present law, valuation misstatements that do not fall
withi the scope of thi or the followig elements of the accuracy-

ble to negligence or fraud or give rise to a substatial understate
ment of income ta.
(4) Substantil oveT8tatement of pension liabilties

relate penalty may stil be subject to penalty if they are attributa-

statements of pension liabilties. This penalty is derived from the present-law penalty in setion 6659A. The committe has, however, moded the presnt-law penalty by providig that the tapayer is

The accuracy-relate penalty al applies to substatial over-

subjec to thi component of the accuracy-relate penalty only if

the actuaral determation of pension liabilties (taen into ac.
count for purp of computing the deduction under paragaph (1)

or (2) of setion 404(a)) is 200 percent or more of the amount determined to be correc (under presnt law, the penalty applies to

be correct). As under presnt law, thi penalty applies only if the
$1,000.

clais 150 percent or more in exces of the amount determined to

underpayment attributable to the valuation overstatement excee

(5) Substantil estate or gift ta valuation understatement The accuracy-relate penalty alo applies to substatial estate or
gift ta valuation understatements. Th penalty is derived from

the present-law penalty in section 6660. The committee has, however, moded the prent-law penalty by providig that the tapayer is subjec to this penalty only if the value of any property claimed
on an estate or gi ta return is 50 percent or less of the amount

determined to be correc. (Under present law, the penalty applies to claims that are 66 2/3 percent or les of the amount determined to be correct. In addition, the committe has moded the presentlaw penalty by increasing five-fold the threshold below which the

penalty does not 'appiy, from $1,000 to $5,000. The committ be lieves that raising both the threshold and the minimum percentage will eliminate from the penalty's scope a number of intaces of
goo-faith valuation dispute that may be subject to penalty under

present law.

(6) Gross valuation misstatements
The bil provides that the rate of the general accuracy penalty is

to be doubled (to 40 percent) in the cas of gros valuation mistate ments. There are three typ of gros valuation mistatements. The first i.. the same as the substantial valuation overstatement compo

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LEGISLATIVE HISTORY
HOUSE REPORT NO. 101-247
¡page 13921

nent of the accuracy-relate penalty, except that the doublin is to apply only to valuation overstements claied on a return that
are 400 percent or more of the amount determed to be the correct amount. The seond is the sae as the substatia overstate

ment of pension liabilties component of the accuracy-relate penalty, except that the doublig is to apply only to overstatements of

pension liabilties tht are 400 percent or more of the amount de-

termined to be the correc amount. The thid is the sae as the substatial estate or gi ta valuation understatement component

of the accuracy-relate penalty, except that the doublig is to apply
only to valuations claied on the estate or gi ta return that are

25 percent or les of the amount determined to be the correct

amount.

','

Frud penalty
plies to the portion of any underpayment that is attributable to
The commtte has retaed the speial rue in presen