8. III. General Explanation of the Act-Continued I. Tax Treatment of Foreign Income-Continued 6. 5. Amendments to the Foreign Tax Credit (Secs. 1031-1037). - Page 233 255 256 267 9. Transitional Rule for Bond, Etc., Losses of Foreign Banks 271 10. 11. 12. Tax Treatment of Corporations Conducting Trade or 13. Denial of Certain Tax Benefits for Cooperation With or 272 278 280 282 14. Denial of Certain Tax Benefits Attributable to Bribe- 288 J. K. Domestic International Sales Corporations (Sec. 1101). 290 301 1. Public Inspection of Written Determinations by Internal 301 2. Disclosure of Tax Returns and Tax Return Information Assessments in Case of Mathematical or Clerical Errors 371 7. Withholding Tax Provisions__ 375 a. Withholding of State and District Income Taxes 375 e. b. Withholding State and City Income Taxes From C. d. Withholding Tax on Certain Gambling Winnings Withholding of Federal Taxes on Certain Indi- 8. State-Conducted Lotteries (Sec. 1208) 383 9. Minimum Exemption from Levy for Wages, Salary, and Interest on Mathematical Errors on Returns Prepared by 388 L. Tax-Exempt Organizations. 390 1. 2. Modification of Transitional Rule for Sales of Property 390 391 3. Reduction in Minimum Distribution Amount for Private 394 4. Extension of Time To Conform Charitable Remainder 396 5. Income From Fairs, Expositions, and Trade Shows (Sec. 398 6. Declaratory Judgments as to Tax-Exempt Status as 400 7. Lobbying Activities of Public Charities (Sec. 1307) - 407 L. 8. 9. III. General Explanation of the Act-Continued Tax Liens, etc., Not to Constitute "Acquisition Indebted- Extension of private foundation transition rule for sale Page 416 418 10. Private foundations imputed interest (Sec. 1310). 420 421 12. Clinical Services Provided to Tax-Exempt Hospitals (Sec. 422 13. Exemption of Certain Amateur Athletic Organizations M. Capital Gains and Losses _ 423 425 1. Deduction of Capital Losses Against Ordinary Income 425 2. Increase in Holding Period for Long-Term Capital Gains 426 3. Capital Loss Carryover for Regulated Investment Com- 427 4. Gain on Sale of Residence by Elderly (Sec. 1404). N. Pension and Insurance Taxation.. 428 430 1. Individual Retirement Account (IRA) for Spouse (Sec. 430 2. Limitation on Contributions to Certain H.R. 10 Plans 431 3. Retirement Deductions for Members of Armed Forces 432 4. Tax-Exempt Annuity Contracts in Closed-End Mutual 433 5. Pension Fund Investments in Segregated Asset Accounts 6. Study of Salary Reduction Pension Plans (Sec. 1506). 434 435 8. Guaranteed Renewable Life Insurance Contracts (Sec. 438 9. Study of Expanded Participation in Individual Retirement 439 10. Taxable Status of Pension Benefit Guaranty Corporation 440 11. Level Premium Plans Covering Owner-Employees (Sec. 440 0. 1. 2. 333 1604)__ P. 12. Lump-Sum Distributions From Pension Plans (Sec. 1512). Deficiency Dividend Procedure (Sec. 1601)__. 3. Property Held for Sale (Sec. 1603). 4. Failure to Meet Income Source Tests (Sec. 1602) – 5. Other Changes in Limitation and Requirements (Sec. Railroad and Airline Provisions. 1. Treatment of Certain Railroad Ties (Sec. 1701(a)). 460 2. Limitation on Use of Investment Tax Credit for Railroad 461 3. Amortization of Railroad Grading and Tunnel Bores 463 4. Limitation on Use of Investment Tax Credit for Airline United States International Trade Commission (Sec. 1801)_ 468 469 R. "Deadwood" Provisions. 470 1. Unified Rate Schedule for Estate and Gift Taxes; Unified 3. Valuation for Purposes of the Federal Estate Tax of Certain Page 525 525 532 536 Extension of Time for Payment of Estate Tax (Sec. 2004). 5. Carryover Basis (Sec. 2005). 6. 543 551 564 583 584 588 598 3. Tax Treatment of Certain Housing Associations (Sec. 2101). 598 604 605 4. 5. 7. Tax Treatment of Certain Debts Owed by Political Parties 607 608 610 613 9. 8. Excise Tax on Parts for Light-Duty Trucks (Sec. 2108). 10. Franchise Transfers (Sec. 2110). 614 615 616 11. Employer's Duties to Keep Records and to Report Tips 617 12. Treatment of Certain Pollution Control Facilities (Sec. 619 13. Clarification of Status of Certain Fishermen's Organiza- 621 14. Innocent Spouse (Sec. 2114). 622 15. Rules Relating to Limitations on Percentage Depletion in 624 16. Federal Collection of State Individual Income Taxes (Sec. 628 17. Cancellation of Certain Student Loans (Sec. 2117) 630 20. 18. Simultaneous Liquidation of Parent and Subsidiary 19. Prepublication Expenses (Sec. 2119).. Contributions to Capital of Regulated Public Utilities in 631 633 635 21. Prohibition of Discriminatory State Taxes on Production 638 22. Deduction for Cost of Removing Architectural and 639 23. 24. Reports on High-Income Taxpayers (Sec. 2123). 640 643 645 26. Net Operating Loss Carryovers for Cuban Expropriation Treatment of Gain from Sales or Exchanges Between 651 31. 30. Application of Section 117 to Certain Education Programs 654 655 32. 33. 34. 35. Contributions of Certain Government Publications (Sec. Page 667 667 668 Study of Tax Incentives by Joint Committee (Sec. 2133) Certain Charitable Contributions of Inventory (Sec. 2135)_ 672 673 Companies (Sec. 2137)__ 678 38. Common Trust Fund Treatment of Certain Custodial 679 39. Support Test for Dependent Children of Separated or 680 40. Deferral of Gain on Involuntary Conversion of Real 681 41. Livestock Sold on Account of Drought (Sec. 2141) 681 i. SUMMARY AND REASONS FOR THE ACT The Tax Reform Act of 1976 will serve six major purposes. First, it will improve the equity of the tax system at all income levels without impairing economic efficiency and growth. Second, the Act effects important simplifications of the tax system by modifying certain deductions and credits affecting individuals, by increasing the standard deduction to encourage taxpayers to switch from itemizing their deductions to using the standard deduction, and by redrafting complex provisions of the tax law and deleting obsolete and little used provisions. Third, the Act extends the fiscal stimulus provided by the Tax Reduction Act of 1975 and extended by the Revenue Adjustment Act of 1975, and makes permanent part of these tax cuts for individuals. Fourth, the Act encourages capital formation by extending the increased investment credit for four years, by modifying the application of the credit, by extending and revising the incentive for investing in employee stock ownership plans, and by liberalizing the net operating loss carryover. Fifth, it improves the administration of the tax laws by making it more efficient and strengthening taxpayers' rights. Sixth, the Act makes a major revision in the estate and gift taxes. It reduces the estate and gift tax for small- and medium-sized estates and at the same time eliminates tax avoidance possibilities. In addition, the Act makes certain changes in the operation of the U.S. International Trade Commission as well as the withholding of preferential trade treatment for countries who aid or abet international terrorists. (1) |