PART VIII. DESCRIPTION OF TAX PROVISIONS EXPIRING IN 1991 AND 1992 [Joint Committee on Taxation, JCS-2-91, February 8, 1991] INTRODUCTION I. SUMMARY. II. DESCRIPTION OF EXPIRING TAX PROVISIONS A. 1991 Expiring Tax Provisions. 1. Exclusion for employer-provided educational 2. Exclusion for employer-provided group legal Page 1 2 3 3 3 4 3. Deduction for health insurance costs of self- 5 4. Qualified mortgage bonds and mortgage 68 5. Qualified small-issue manufacturing bonds expenses. 7. Tax credit for qualified research expendi tures 8. Tax credit for low-income rental housing. 10. Business energy tax credits for solar and 11. Tax credit for orphan drug clinical testing 12. Minimum tax exception for gifts of appreci- B. 1992 Expiring Tax Provisions 8 1. Access to tax information by the Depart- 23 2. Placed-in-service date for nonconventional 23 3. Excise tax on certain vaccines for the Vac- APPENDIX. ESTIMATED REVENUE EFFECTS OF EXTENDING EX- INTRODUCTION This pamphlet,1 prepared by the staff of the Joint Committee on Taxation, provides a brief description of tax provisions scheduled to expire in 1991 and 1992 (102d Congress), including a reference to the legislative background of each provision and any related Administration budget proposal.2 The first part of the pamphlet is a summary listing of tax provisions scheduled to expire in 1991 and 1992. The second part is a description of: (A) the 1991 expiring tax provisions; and (B) the 1992 expiring tax provisions. The Appendix presents the estimated revenue effects for fiscal years 1991-1996 of permanently extending the 1991 and 1992 expiring tax provisions. 1 This pamphlet may be cited as follows: Joint Committee on Taxation, Description of Tax Provisions Expiring in 1991 and 1992 (JCS-2-91), February 28, 1991. 2 Several of the expiring tax provisions are also described in Joint Committee on Taxation, Summary of Revenue Provisions in the President's Fiscal Year 1992 Budget Proposal (JCS-1-91), February 25, 1991. I. SUMMARY The following is a summary listing of tax provisions scheduled to expire in 1991 and 1992 (102nd Congress). 1991 expiring tax provisions The following tax provisions are generally scheduled to expire after December 31, 1991, except for item (6): 3 (1) Exclusion for employer-provided educational assistance benefits (Code sec. 127); (2) Exclusion for group legal services benefits and the tax exemption for an organization providing group legal services as part of a qualified group legal services plan (secs. 120 and 501(c)(20)); (3) Deduction for health insurance costs of self-employed individuals (sec. 162(1)); (4) Tax exemption for qualified mortgage bonds and election to issue mortgage credit certificates (secs. 143 and 25); (5) Tax exemption for qualified small-issue manufacturing bonds (sec. 144(a)); (6) Rules for allocation and apportionment of research expenses (secs. 861(b)), 862(b), 863(b), and 864(f)); + (7) Tax credit for qualified research expenditures (sec. 41); (8) Tax credit for low-income rental housing (sec. 42); (9) Targeted jobs tax credit (sec. 51); (10) Business energy tax credits for solar and geothermal property (sec. 48(a)); (11) Tax credit for orphan drug clinical testing expenses (sec. 28); and (12) Minimum tax exception for gifts of appreciated tangible property (sec. 57). 1992 expiring tax provisions The following tax provisions are scheduled to expire in 1992: (1) Access to tax information by the Department of Veterans Affairs (sec. 6103); 5 (2) Placed-in-service date for the nonconventional fuels production credit (sec. 29); 6 and (3) Excise tax on certain vaccines for the Vaccine Injury Compensation Trust Fund (secs. 4131 and 9510).7 These tax provisions, except for (12), were last extended in the Revenue Reconciliation Act of 1990 ("1990 Act") (Title XI of the Omnibus Budget Reconciliation Act of 1990, P.L. 101-508). Item (12) was enacted in the 1990 Act as a one-year exception. 1992. Scheduled to expire on August 1, 1991. This provision was enacted in the 1990 Act, and is scheduled to expire after September 30, This provision was last extended in the 1990 Act, and is scheduled to expire after December 31, 1992. These provisions were enacted in the Omnibus Budget Reconciliation Act of 1987 (P.L. 100203), and are scheduled to expire after December 31, 1992, under certain circumstances. (2) II. DESCRIPTION OF EXPIRING TAX PROVISIONS A. 1991 Expiring Tax Provisions 1. Exclusion for employer-provided educational assistance Present Law Under present law, an employee generally must include in income and wages, for income and employment tax purposes, the value of educational assistance provided by an employer to the employee, unless the cost of such assistance qualifies as a deductible job-related expense of the employee. Amounts expended for education qualify as deductible job-related expenses if the education (1) maintains or improves skills required for the employee's current job, or (2) meets the express requirements of the individual's employer that are imposed as a condition of continued employment (Treas. Reg. sec. 1.162-5(a)). In the case of an employee, such expenses (if not reimbursed by the employer) are deductible only to the extent that, when aggregated with other miscellaneous itemized deductions, they exceed 2 percent of the taxpayer's adjusted gross income. No deduction is allowed for expenses incurred to qualify for a new trade or business (e.g., for law school tuition paid by a paralegal or accountant). Under present law, an employee's gross income and wages for income and employment tax purposes do not include amounts paid or incurred by the employer for educational assistance provided to the employee if such amounts are paid or incurred pursuant to an educational assistance program that meets certain requirements (sec. 127). One such requirement is that the educational assistance provided may not discriminate in favor of highly compensated employees in certain respects. This exclusion, which expires for taxable years beginning after December 31, 1991, is limited to $5,250 of educational assistance with respect to an individual during a calendar year. To the extent that employer-provided educational assistance is not excludable from income because it exceeds the maximum dollar limitation it may be excludable from income as a working condition fringe benefit (sec. 132(d)), provided the requirements of that section are otherwise satisfied (e.g., the education is job related as defined under sec. 162). Beginning in 1985, the Congress required that employers file information returns with respect to educational assistance programs (sec. 6039D). This requirement was intended to collect data with respect to the use of such programs so that the Congress could evaluate the effectiveness of the exclusion. 4 Legislative Background The section 127 exclusion was first established on a temporary basis by the Revenue Act of 1978 (through 1983). It subsequently was extended, again on a temporary basis, by Public Law 98-611 (through 1985), by the Tax Reform Act of 1986 (through 1987), by the Technical and Miscellaneous Revenue Act of 1988 (through 1988), by the Omnibus Budget Reconciliation Act of 1989 (through September 30, 1990), and by the Omnibus Reconciliation Act of 1990 (through 1991). Public Law 98-611 adopted a $5,000 annual limit on the exclusion; this limit was subsequently raised to $5,250 in the Tax Reform Act of 1986. The Technical and Miscellaneous Revenue Act of 1988 made the exclusion inapplicable to graduatelevel courses. The restriction on graduate-level courses was repealed by the Omnibus Reconciliation Act of 1990, effective for taxable years beginning after December 31, 1990. 2. Exclusion for employer-provided group legal services; tax exemption for qualified group legal services organizations (secs. 120 and 501(c)(20) of the Code) Present Law Under present law, certain amounts contributed by an employer to a qualified group legal services plan for an employee (or the employee's spouse or dependents) are excluded from the employee's gross income for income and employment tax purposes (sec. 120). The exclusion also applies to any services received by an employee (or the employee's spouse or dependents) or any amounts paid to an employee under such a plan as reimbursement for the cost of legal services for the employee (or the employee's spouse or dependents). The exclusion is limited to an annual premium value of $70. In order to be a plan under which employees are entitled to tax-free benefits, a group legal services plan is required to fulfill certain requirements. One such requirement is that group legal services benefits may not discriminate in favor of highly compensated employees in certain respects. The exclusion for group legal services benefits expires for taxable years beginning after December 31, 1991. In addition, present law provides tax-exempt status for an organization the exclusive function of which is to provide legal services or indemnification against the cost of legal services as part of a qualified group legal services plan (sec. 501(c)(20)). The tax exemption for such an organization expires for taxable years beginning after December 31, 1991. Beginning in 1985, the Congress required that employers file information returns with respect to qualified group legal services plans (sec. 6039D). This requirement was intended to collect data with respect to the use of such plans so that the Congress could evaluate the effectiveness of the exclusion. Legislative Background The section 120 exclusion and the section 501(c)(20) exemption were enacted initially on a temporary basis by the Tax Reform Act of 1976 (through 1981). They subsequently were extended, again on |