Professions Scholarship Program (or any other similar program, as determined by the Secretary of the Treasury) were specifically excluded from gross income by congressional action. This exclusion was available whether the member was receiving training while on active duty or in an off-duty or inactive status, and without regard to whether a period of active duty was required of the mainber as a condition of receiving those payments. Reasons for change The Internal Revenue Service has ruled (Rev. Rul. 76-99) that. without further legislation, all amounts received under the Armed Forces Health Professions Scholarship Program will be treated as compensation and therefore includible in gross income for calendar years 1976 and thereafter. In view of the Congressional and executive concern regarding the need for these health professions scholarships for the uniformed services, the committee concluded that those scholarships should continue to be excluded from gross income pending a thorough staff review of the appropriate tax treatment of the grants in view of the overall national policy toward the military (and other uniformed service) health professions program. Explanation of provision The committee amendment extends the prior law exclusion from gross income (under P.L. 93-483) for amounts received under the Armed Forces Health Professions Scholarship Program (or substantially similar programs) for one more year (1976). This will give the committee additional time to determine the appropriate tax treatment of those scholarship programs. The House bill contains no similar provision; however, the House Committee Report on H.R. 10612 states that the Committee on Ways and Means, with the assistance of the Internal Revenue Service, will study the tax treatment of scholarships and fellowships. Effective date This provision is effective for amounts received during calendar year 1976. Revenue effect It is estimated that this provision will decrease budget receipts by $2 million in the transition quarter and $3 million in fiscal year 1977. 5. Tax Counseling for the Elderly (sec. 2305 of the bill and sec. 67803(a) of the Code) Présent law 1 Present law provides a number of tax benefits for elderly or retired individuals; however, it contains no provision dealing with tax counseling for the elderly. Reasons for change Preparation of a tax return is frequently a difficult task for the elderly. Upon reaching retirement age, taxpayers are often confronted Authorized by the Uniformed Services Health Professions Revitalization Act of 1972 (10 1.8.C., secs. 2120-2127). a Public Law 93-483 (II.R. 12035; 93rd Congress, 1st séss.), October 24, 1974. with new provisions and complex forms to contend with. They often must complete a retirement income credit schedule, determine the taxable portion of their annuities, or compute the taxable gain when they sell their residences. For an untrained elderly individual, who has perhaps had no experience with the preparation of tax returns other than the short form 1040A, this change in circumstances may result in overpayment of tax. Explanation of provision The amendment authorizes the Secretary of the Treasury, through the Internal Revenue Service, to enter into training and technical assistance agreements with private or public nonprofit agencies and organizations to prepare volunteers to provide tax counseling assistance for elderly individuals in the preparation of their Federal income tax returns. It permits the Service to provide reimbursement to volunteers for transportation, meals, and other expenses incurred by them in training or providing counseling assistance. The amounts received by the volunteer as reimbursement for these expenses are to be exempt from income and social security taxes, except to the extent that a charitable contribution or other deduction is claimed for these expenses. The Secretary is authorized to provide the volunteers with preferential access to Internal Revenue Service taxpayer service representatives and make available technical information and material needed for their use. The amendment also authorizes the Secretary to hire retired former Internal Revenue Service employees who could, under this committee amendment, work up to 720 hours a year without losing their pensions. These temporary employees would primarily be used to provide tax assistance services, but the Service is also given authority to use these individuals to administer and enforce the tax laws. Additionally, the amendment provides that, from time to time, the IRS is to direct the attention of elderly individuals concerning tax measures of particular interest to the elderly, such as the retirement income credit. An "elderly individual" is defined as a person who has reached the age of 60 as of the close of a taxable year. Appropriations to carry out these provisions are authorized by the amendment in the amounts of $2 million for fiscal 1978 and $3 million for fiscal 1979. The House bill contains no comparable provision. Effective date This provision is to be effective on the date of enactment. Revenue effect It is estimated that this provision will have little effect on Federal revenues, but will involve expenditures of up to $2 million for fiscal year 1978 and up to $3 million for fiscal year 1979. 6. Credit for Certain Expenses Incurred in Providing Education (sec. 2306 of the bill and sec. 44D of the Code) Present law Under present law, there is no tax credit or deduction for personal educational expenses. However, a deduction may be taken for certain. educational expenses which qualify as trade or business expenses under section 162. In addition, individuals may generally exclude from gross income amounts received as scholarships or fellowships (sec. 117). Reasons for change The cost of a college education has increased dramatically in recent years. The committee is concerned about the growing number of qualified students who are prevented from obtaining a higher education because of the increasing costs. The escalating costs are making it increasingly difficult for many parents to provide their dependents with a higher education. The impact of rising college education costs has been particularly hard on middle-income families. Low-income families are eligible for the various Government programs providing direct grants, work-study programs, and guaranteed or low-interest loans, while high-income families are generally able to afford college expenses. The committee believes that tax assistance is necessary to help assure a greater access to a higher education. Explanation of provision The amendment provides a nonrefundable tax credit for certain education expenses paid by an individual, for himself, his spouse, or his dependents. The amount of the credit for each student is not to exceed $100 for expenses paid in 1977 and increases by $50 each year until it reaches a limit of $250 for expenses paid in 1980 and subsequent years. Subject to this limitation, the credit is allowed for 100 percent of the eligible educational expenses. There is no comparable provision in the House bill. The education expenses which are eligible for the credit are the tuition and fees required for the er rollment or attendance of a student at an eligible educational institution and the fees, books, supplies, and equipment required for courses of instruction at an eligible educational institution. The credit is not available for any amount paid directly or indirectly for meals, lodging, or other personal, living, or family expenses. To be eligible for the credit, the education expenses must be paid with respect to an individual who is, for at least 4 months during the calendar year, a full-time student above the secondary level at an institution of higher education (as described in the Higher Education Act of 1965) or at a vocational school (as defined in the Vocational Education Act of 1963). The tax credit is available only for amounts attributable to instruction for which course credit is allowed toward a baccalaureate degree by an institution of higher education or toward a certificate of required course work or training at a vocational school. The credit is not available for expenses attributable to graduate work or for recreational or noncredit courses. However, the credit is available for individual graduate-level classes taken for credit toward a baccalaureate degree. In the case of an integrated graduate/ undergraduate program (for example, a program leading to the degrees of B.S. and D.D.S.), it is intended that the Internal Revenue Service will develop rules allocating expenses between undergraduate and graduate programs. The amount of educational expenses eligible for the credit for an individual is to be reduced by the amount received by that individual as a tax-exempt scholarship or fellowship grant or under the GI Bill. However, unless the scholarship or benefit reduces the amount below the maximum amount against which the credit is taken, the amount of the credit is not reduced. In addition, rules are provided for the proration of the credit where more than one taxpayer pays the educational expenses of an individual. Further, no credit is allowed for the educational expenses of the taxpayer's spouse unless the taxpayer and his spouse file a joint return. No deduction is to be allowed under section 162 (relating to trade or business expenses) for any educational expense which is taken into account in determining the credit under this provision. Effective date This provision applies to educational expenses paid after June 30, 1977, for courses of instruction commencing after June 30, 1977. Revenue effect It is estimated that this provision will decrease budget receipts by $467 million in fiscal year 1978, $711 million in fiscal year 1979, and $1,103 million in fiscal year 1981. 7. Commission on Value Added Taxation (sec. 2307 of the bill) Present law There is no present law provision relating to a specific study of the value-added tax or other alternative tax sources. The Code (sec. 8022) does provide that the Joint Committee on Internal Revenue Taxation is to "investigate the operation and effects of the Federal system of internal revenue taxes." Reasons for change It appears desirable to the committee to provide for a specific study of value added taxation in order to determine its possible impact on the Federal revenue system, as well as its effect on savings, consumption, capital formation, and trade policy and as an alternative revenue source for social security financing. There is an increasing concern regarding the future financing of the social security system in view of the present reliance on payroll taxes because of the burden on lower-income workers and on smaller employers as well. Suggestions have been made for general revenue financing for part of the outlays under the present social security benefit system. In addition, concern has been voiced by some regarding the impact of tax policy on savings and capital formation. Further, since the Western European (Common Market) countries have moved to an increased reliance on the value-added tax in recent years, there appears to be a possible competitive trade problem in view of the GATT allowance of rebates of value added taxes on exports from these countries to the United States (and other countries) at the same time the VAT is imposed on goods imported from the United States (and other countries). Explanation of provision The committee amendment establishes a National Commission on Value Added Taxation. The Commission is to study the effects of the |