Senate Panel to Mark up Education Tax Bill May 19

Monday, May 17, 1999

OnLine

The Senate Finance Committee May 19 will mark up a $4.5 billion education tax bill that includes many previously proposed tax increases, but a few new ones as well.

One item in the mark that Congress has not considered previously is the proposal to repeal the installment method for accrual-basis taxpayers. This item was included in President Clinton’s fiscal year 2000 budget request.

The proposal to stop the split-dollar charitable life insurance transaction also is on the list of new items in Senate Finance Committee Chairman Bill Roth's, R-Del., proposal. House Ways and Means Committee Chairman Bill Archer, R-Texas, also wants to curtail this transaction.

Other new items include a proposal to impose a limitation on pre-funding of certain employee benefits, and to allow employers to transfer excess defined benefit plan assets to a special account for the health benefits of retirees.

Roth also proposes to add a new vaccine to the list of taxable vaccines.

The proposal to limit the use of Section 357(c) to get a step-up in basis also would be used in the education measure. The October 19, 1998, effective date would be retained from earlier versions. The Section 357(c) language also is included in a trade bill that currently is snagged in the Senate over a non-tax issue.

Roth also proposes to raise revenue by curtailing the foreign tax credit carryback from two years to one year, and by extending the carryforward from five years to seven years.

Also on the list are tax increases --

• to limit the non-experience accrual accounting method to amounts received for the performance of qualified professional services,
• to require information reporting on cancellation of indebtedness by non-bank financial institutions, and
• to impose Internal Revenue Service user fees.

One of the tax-writing committees previously has accepted these items.

The list of proposed tax hikes does not include the proposals to tax downstream mergers, to tax tracking stock, or to alter the ownership rules for captive real estate investment trusts, as previously rumored.

These tax increases are needed to offset the revenue loss from a variety of proposals directed at education, including the expansion of education individual retirement accounts.

Roth believes he has the votes to pass the education bill on May 19, but the measure’s fate beyond that is less certain. President Clinton objects to the education IRA proposal because it would undermine public schools. Organized labor also objects because it believes the proposal would cause the transformation of union jobs in public schools into non-union jobs in private schools.

Even if the education measure is not enacted, the markup is significant because new revenue increases will be on the table. It is important to remember that once a tax increase had been accepted by Congress, it is likely that the proposal will be proposed again and again until it is enacted.

Other items in the bill include proposals--

• to allow tax-free distributions from qualified state tuition plans;
• to extend and expand the Section 127 exclusion for undergraduate and now graduate courses until December 31, 2003;
• to eliminate the tax on certain student loans; to increase the arbitrage rebate exception for government bonds used in public school construction; and
• to liberalize private activity bond financing rules for public school construction.
  
  
  

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