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The tax bill is dead; long live the tax bill.

With President Bush's much ballyhooed veto, the debate on Capitol Hill over a tax bill is dead - for now.

Congressional leaders are saying that there will not be another tax bill this year; after all, it is an election year. Nevertheless, Congress will be faced with two "must pass" tax matters this year: the "extenders" (11 expiring tax provisions, including Code Section 162(1)), and the FUTA trust fund, which will run out of money before the end of the summer. So there are two potential vehicles for at least a modest tax bill later this year. Moreover, as you will soon learn, the pressure for changes in other areas of the Internal Revenue Code is considerable.

The bill just vetoed was not modest; it was a 400-plus page megalith that affected virtually every subtitle of the Code. It is worth reviewing what was in the bill - and what was not - since the provisions it contains will likely serve as a blueprint for the next go-around.

Here is NSPA's "quick and dirty" summary of the items that would have been of interest to NSPA members and their individual and small business clients: * a "middle income" tax credit for

social security taxes paid; * simplification and expansion of

the earned income credit; * temporary increase in Section 179

limits; * temporary investment tax "allowance"

(similar to ITC); * deductibility of student loan interest; * extension (not permanent) of

Code Section 162(l); * a graduated capital gains differential

with prospective holding

periods; * 50% cap gain exclusion on

"qualified small business stock;" * changes to "one-time exclusion

of gain" on sale of principal residence:

indexing of $125,000

amount; waiver of age 55 requirement

if individual or spouse

disabled at time of sale; and extending

exclusion to include up

to 160 acres of contiguous farmland; * restoration of IRA deductibility

to pre-TRA 86 levels; * creation of "special IRAs" (similar

to "family savings plan"); * penalty-free IRA withdrawals for

first-time home buyers, education

expenses, medical expenses

and the long-term unemployed; * modification of passive loss rules

for real estate "persons;" * easing of rules for pension fund

investments in real estate; * increased MACRS recovery period

for residential rental property

to 31 years; * eliminated the ACE depreciation

adjustment for AMT purposes; * extended (not permanent) other

expiring tax provisions, including

low income housing credit,

jobs credit, employer provided

educational assistance; * repealed luxury excise tax on

boats, jewelry, etc. (basically,

everything but cars); * new 36% bracket (single-$115,000,

joint filers-$140,000); * 10% surtax on millionaires; * new safe harbor (115%) for ES

filers with AGI over $75,000; * require brokers to report basis to

customers; * increase in limitation for moving

deduction to 75 miles; * $1 million limit on deduction

for executive pay; * simplification provisions, including

passive loss de minimis rule,

streamlined reporting for household

employees, minor Kiddie

Tax improvements, payment of

tax by credit card and payroll tax

deposit reform (not the deposit

changes NSPA wanted, but an

improvement over the status

quo); * pension simplification provisions; * foreign tax provisions; * netting at partnership level certain

items of income, expense,

gain, loss and deduction for large

partnerships (would result in

much simpler K-1s for investors

in large limited partnerships); * changes for TEFRA audits; * uniform amortization of intangibles,

including good will; * not-particularly-helpful changes

to Section 444 elections; * denial of deduction for club dues; * a few technical estate and gift tax

changes; * repeal of the $5,000 life insurance

death benefit exclusion; * Taxpayer Bill of Rights II, including

creation of a Taxpayer

Advocate position within the

IRS, easing of installment agreements

and offers-in compromise,

mandating 30-day letters, creating

a private cause of action

against those who file fraudulent

1099s and requiring phone numbers

on 1099s.

Some notable provisions that did not make the final bill: * repeal of the social security earnings

limit; * eliminated discrepancies in withholding

rules for combat pay; * the credit for first-time home

buyers; * reduction in payroll tax rates; * restrictions on state taxation of

non-residents' pensions; * elimination of tax-favored status

of annuity contracts not tied to a

"life contingency."

So, what will happen next? For a little while, probably nothing. Everyone needs time to collect their breath (and lick their wounds). Ultimately, we will see either: 1) another attempt at an omnibus bill this year; or - more likely - 2) a small bill to handle FUTA and the extenders and an enormous bill after the election (i.e., in 1993).

Remember, you've just read quite a (partial) laundry list. Except for the rate hikes, there is broad consensus supporting many of these changes. To be honest, it was Pat Buchanan's presidential campaign that vetoed this bill. It's more a question of "when" than "if."
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Title Annotation:Capitol Corridors; George Bush's veto of tax bill
Author:Berkery, Peter M., Jr.
Publication:The National Public Accountant
Date:May 1, 1992
Previous Article:NSPA's experimental program on quality assurance review.
Next Article:Joint focus: Arkansas accounting societies meet with State Board of Accountancy.

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