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The 1998 Tax Provisions:
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1. Extension of Expiring Provisions 5. Tax Technical Corrections
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5. Tax Technical CorrectionsThe new legislation includes provisions meant to fix technical glitches in the original drafting of three previous tax bills:
Except as otherwise noted, the provisions described generally are effective as if included in the originally enacted related legislation. The more important technical corrections are described in detail below. Technical Corrections to the Internal Revenue Service Restructuring and Reform Act of 1998 Burden of Proof For purposes of shifting the burden of proof to the Treasury secretary in certain court proceedings, the provision removes the net worth limitation from certain revocable trusts for the same period of time that the trust would have been treated as part of the estate had the trust made the election under section 645 to be treated as part of the estate. Relief for Innocent Spouses The new provision clarifies that a person no longer married to, separated from, or living apart for at least 12 months from the person with whom he or she originally filed a joint return may obtain a credit or refund of federal income tax only in situations where the taxpayer qualifies for innocent spouse relief or where the secretary exercises his authority to provide equitable relief. Interest Netting The technical correction restores language originally included in the Senate amendment that clarifies the applicability of the zero net interest rate on equivalent amounts of overpayments and underpayments of any tax imposed by the tax code. For periods on or before July 22, 1998, the interest netting provisions are subject to any applicable statute of limitations not having expired with regard to either a tax underpayment or overpayment. Capital Gains Holding Period Under the new provision, in the case of a capital gain dividend made by a RIC or REIT after 1997, no amount will be taken into account in computing the net gain or loss in the 28-percent rate gain category by reason of property being held more than one year, but not more than 18 months, other than amounts taken into account by the RIC or REIT from other pass-thru entities. A similar rule applies to amounts properly taken into account by a RIC or REIT by reason of holding, directly or indirectly, an interest in another RIC or REIT to which the rule in the preceding sentence applies. Technical Corrections to the 1997 Act Treatment of Interest on Qualified Education Loans The new provision clarifies that otherwise deductible qualified education loan interest is not treated as nondeductible personal interest, and that modified AGI for purposes of the provision is determined after application of rules relating to income from certain U.S. saving bonds and to adoption assistance programs. The provision also provides that a qualified education loan does not include any indebtedness owed to any person by reason of a loan under any qualified employer plan or under any contract purchased under a qualified employer plan. Capital Gain Distributions of Charitable Remainder Trusts The provision provides that, in the case of a capital gain distribution by a charitable remainder trust after 1997, with respect to amounts properly taken into account by the trust during 1997, amounts will not be included in the 28-percent rate gain category solely by reason of being properly taken into account by the trust before May 7, 1997, or by reason of the property being held not more than 18 months.
Gift Revaluations after Expiration of Statute of Limitations The legislation clarifies the rules relating to revaluations of prior transfers for computation of the estate or gift tax to provide that the value of a prior transfer cannot be re-determined after the period of limitations, if the transfer was disclosed in a statement attached to the gift tax return, as well as on a gift tax return, in a manner to adequately apprise the Treasury secretary of the nature of the transfer, even if there was no gift tax imposed on that transfer. Treatment of Certain Corporate Distributions The measure clarifies the "control immediately after" requirement of section 351(c) and section 368(a)(2)(H) in the case of certain divisive transactions in which a corporation contributes assets to a controlled corporation and then distributes the stock of the controlled corporation in a transaction that meets the requirements of section 355. Treatment of Net Operating Losses Arising from Certain Eligible Losses The new provision coordinates the use of "eligible losses" with the general rule for NOLs in the same manner as a loss arising from a specified liability loss. Thus, an eligible loss for any year is treated as a separate net operating loss and is taken into account after the remaining portion of the net operating loss for the taxable year. Technical Corrections to the 1984 Act Casualty Loss Deduction The technical correction provides that all deductions for nonbusiness casualty and theft losses are taken into account in computing the net operating loss. These deductions are not treated as miscellaneous itemized deductions subject to the 2-percent adjusted gross income floor, or as itemized deductions subject to the overall limitation on itemized deductions, and are allowed to nonresident aliens.
The proposal amends the Social Security Act to allow provisions of the tax code to be implemented that give U.S. taxpayers who receive Social Security benefits the option of requesting that the Social Security Administration withhold federal income taxes from the benefit payments.
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