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Ways and Means Planning June 11 Markup

Monday, June 2, 1997

Deloitte & Touche OnLine

The House Ways and Means Committee now is expected to begin marking up tax legislation during the week of June 9, probably beginning on June 11.

Congressional staffs worked over the weekend on the bill that House Ways and Means Committee Chairman Bill Archer, R-Texas, will offer as the panel’s starting point. A draft of the bill is not expected to be made public before June 9.

"Over the next two weeks, this committee will work to provide tax relief so that American workers and families will be able to keep more of the money they make to save, invest, send their children to college, or spend it as they see fit," Archer said in a press release June 2.

It remains to be seen how much revenue the committee will attempt to raise to pay for tax cuts that go beyond the $85 billion in cuts assumed by the budget resolution and the approximately $30 billion to be raised by relatively non-controversial proposals such as the extension of the aviation ticket tax.

Archer is looking at additional revenue raisers, such as phasing-out the ethanol tax credit, and improving compliance for the earned income and low-income housing credits.

Timing matters

The exact date of Ways and Means Committee action is important because it affects the date that President Clinton’s capital market provisions would go into effect, if the committee decides to use the provisions as revenue raisers.

The following provisions were proposed to go into effect on the date the committee approves the bill: denying interest deduction on certain debt instruments, deferring deduction for accrued but unpaid interest on convertible debt, treating certain preferred stock as "boot," requiring gain recognition on certain distributions of controlled corporation stock, reforming the treatment of certain corporate stock transfers, and further restricting like-kind exchanges involving foreign personal property.

International Simplification Bill To Be Introduced: An international tax simplification bill is expected to be introduced this week by Reps. Amo Houghton, R-N.Y., and Rep. Sander Levin, D-Mich., who are members of the House Ways and Means Committee.

A discussion draft of the bill was circulated two weeks ago. The bill proposes to clarify the treatment of controlled foreign corporations, passive foreign investment companies, and other simplification proposals.

The real question at this point is whether any of the international simplification provisions will be included in the bill the committee marks up or will the whole issue be put off until the fall and be considered along with other long-term projects.

Rep. Phil Crane, R-Ill., and Levin also are working on a letter urging the committee not to support changes to the 50-50 export source rule, which the President’s budget said should be replaced with an activity-based rule.

Other committee members also have brought up issues that concern them. Rep. Wes Watkins, R-Okla., is working on a letter asking Archer to reconsider his bill (H.R. 1365) curtailing Morris Trust transactions under Section 355.

Rep. Wally Herger, R-Calif., objected to the like-kind exchange provisions contained in the President’s simplification proposal and asked that other committee members join him in opposing the provision. Herger and others are trying to protect real estate interests in their states.

IRS Delays Electronic Filing Penalty: The Internal Revenue Service announced June 2 that it will not impose penalties until Dec. 31, 1997, on businesses that make timely federal tax deposits using paper coupons while converting to the new electronic payment system.

Prior to the announcement, the IRS said it would impose the penalty starting July 1 when the firms are required to convert to the new system.

Congress has been looking into restricting the IRS’s ability to impose the penalty on businesses that fail to convert.

"We understand that many taxpayers who have not enrolled in [the electronic federal tax payment system] may need more time to learn about making electronic payments," Acting IRS Commissioner Mike Dolan said.