business employers, there is a limit of $1,000 per individual so employed each year. The provision is effective for hirings after the date of enactment and for services rendered to the employer before July 1, 1976. Conference substitute.-The conference substitute follows the Senate amendment. TIME FOR MAKING CONTRIBUTIONS TO "H.R. 10" PLANS House bill.-No provision. Senate amendment.-The Senate amendment added a provision under which, as to 1974 and subsequent years, a contribution to a pension, profit-sharing, etc., plan would be treated for deduction purposes as being made for a given year even though it was not in fact made until after the end of that year, but only if the contribution was in fact made by the time for filing the tax return for that year (including extensions of time for filing). This amendment would apply only to contributions for plans of self-employed people (s (socalled "H.R. 10" plans) and only if the employer elects to have this rule apply. Under present law (the 1974 pension act), this rule is to apply as to 1976 and subsequent years for existing plans, both H.R. 10 plans and corporate plans. Conference substitute.-Under the conference substitute, the rule of the Senate amendment is to apply for 1975 and subsequent years (but not for 1974). REPEAL OF EXCISE TAX ON on or after October 1, 1977) on the sale of [66] truck and bus-related parts and accessories. The Senate amendment also provides for floor stock refunds and refunds for certain consumer purchases. Conference substitute.-The conference substitute does not include the Senate amendment. While the Conferenc Committee is quite aware of the depressed condition existing in the truck manufacturing and marketing industry, it felt that the repeal of these excise taxes should more properly be considered in conjunction with the Public Works Committees, at a later date when Congress considers the Federal Highway Act and the Highway Trust Fund of which these taxes are a part. TAX CREDIT FOR QUALIFIED INSULATION AND SOLAR ENERGY EQUIPMENT EXPENDITURE House bill.-No provision. Senate amendment.-The Senate amendment provides a tax credit for qualified insulation expenditures for new and used residences and commercial buildings of 40 percent of the first $500 and 20 percent of any excess expenditures. In addition, a tax credit is allowed for qualified solar energy equipment expenditures for new and used residences and commercial buildings of 40 percent on the first $1,000 of expenditures and 20 percent of any excess up to $2,000. For new residences, the credit is available only to the extent the qualified original insulation materials exceed the minimum HUD standards; this limitation does. not apply to storm windows, storm doors and solar heating and cooling equipment. Under the Senate amendment, unused credits may be carried back to any year for which this provision is in effect and carried over 4 years. The provision is effective during taxable years beginning after December 31, 1974, and ending before January 1, 1980. Conference substitute.-The conference substitute does not contain this provision. The conferees decided to defer consideration of this because incentives for insulation and solar energy equipment expenditures are being considered in the Ways and Means Committee energy bill. TAX EXEMPTION FOR HOMEOWNER'S ASSOCIATIONS, ETC. House bill.-The House bill does not contain this provision. Senate amendment.-The Senate amendment provides that a homeowner's association, etc., may be exempt from taxation if it is organized and operated exclusively for the operation, management, preservation, maintenance and repair of (1) the residential units owned by its members or (2) the common areas or facilities owned by the association or its members. The provision is effective for taxable years beginning after December 31, 1973. Conference substitute.-The conference substitute does not contain this provision. The conferees deferred. consideration of this provision believing it appropriate to consider it in tax reform legislation. [67] PERCENTAge Depletion FOR House bill. The House bill repeals percentage depletion generally for oil or gas produced on or after January 1, 1975. Depletion is continued for natural gas sold under a fixed price contract in effect February 1, 1975, which does not permit price adjustment after that date to reflect repeal of depletion. Depletion is also continued until July 1, 1976, for gas sold in interstate commerce if no price adjustment is permitted after February 1, 1975, to reflect repeal of depletion. For geothermal steam, present law is unaffected, so that if steam is ultimately held by the courts to be a gas entitled to a 22-percent rate of depletion, this treatment will be continued. Senate amendment.-Under the Senate amendment, the deduction for percentage depletion is generally eliminated with respect to oil and gas produced on or after January 1, 1975, with certain exceptions. These include the exceptions provided under the House bill. In addition, the Senate amendment retains percentage depletion at 22 percent on a permanent basis for the small independent producer to the extent that his average daily production of oil does not exceed 2,000 barrels a day, or his average daily production of natural gas does not exceed 12,000,000 cubic feet. Where the independent producer has both oil and natural gas production, the exemption must be allocated between the two types of production. In determining how much of a taxpayer's total production for the year will be entitled to the 22-percent rate, his total production for the year is averaged over the entire taxable year to arrive at an average daily figure, regardless of when the production might actually have occurred. Where the producer has a partial interest in mineral property, his production from that property, for purposes of the exemption, will be proportional to his interest. For example, an individual owning a 10-percent interest in property with 2,000 barrels of average daily production will be treated as having used 200 barrels of his exemption in connection with that property. If the taxpayer's average daily production exceeds 2,000 barrels (or 12,000,000 cubic feet of gas) the Senate amendment requires that the small production exemption be allocated among all of the properties in which the taxpayer has an interest. The allocation is made by totaling the production from all properties and allocating to each property the same proportion of the small production exemption as that property's total production bears to the taxpayer's total production from all properties. Under the amendment, the 2,000 barrel (12,000,000 cubic feet) feet) exemption is to be allocated (a) among the corporations which are members of the same controlled group of corporations (as defined in sec. 1563 (a), but with a 50 percent common control test); among corporation trusts and estates if 50 percent of the beneficial interest is owned by the same or related persons; and (c) among the taxpayer and his spouse and minor children. The small producer exemption is not to be available under the Senate amendment, with respect to any oil or gas property trans-[68]ferred after December 31, 1974, if the principal value of the property has been demonstrated before the transfer, except in the case of a transfer by reason of death, or a transfer pursuant to a section 351 transaction. Also, the small producer exemption is only to be available in the case of the independent oil or gas producer. The exemption is not available to any producer owning or controlling a retail outlet for the sale of oil or natural gas or petroleum products, or for a producer who refines more than 50,000 barrels of oil on any one day of the taxable year. The deduction resulting from the small producer exemption may not exceed 50 percent of the taxpayer's net income from all sources (computed without regard to depletion allowed under the small producer exemption, net operating loss carrybacks and capital loss carrybacks). Percentage depletion which may not be used as a result of this limitation may be carried forward on an unlimited basis and used in a succeeding year (subject to the 50 percent limitation applicable to that year). In addition, the deduction resulting from the small producer exemption is to be available, under the Senate amendment, only to the extent of the taxpayer's qualified plowback investment for the year (as well as any qualified plowback investment which was unused in the preceding year). The plowback requirement does not apply, under the amendment, to percentage depletion attributable to a royalty interest. Conference substitute.-The conference substitute follows the Senate amendment in providing a small producer exemption from the repeal of percentage depletion for oil and gas. Initially the exemption ("depletable oil quantity") is 2,000 barrels of average daily production (or 12,000,000 cubic feet of natural gas). However, the exemption is to be phased down gradually, but not eliminated, so as to minimize the impact of the reduction on small independent producers. Under the substitute, the exemption is to be reduced 200 barrels a year for 5 years from 1976 through 1980, when the permanent exemption of 1,000 barrels per day will be reached. The depletion rate for oil and gas covered under the small producer exemption will also be phased down gradually from 22 percent. In 1981, the rate will be 20 percent; in 1982, 18 percent; in 1983, 16 percent; and in 1984 the rate will be reduced to a permanent level of 15 percent. However, under the substitute, a taxpayer will be permitted to take percentage depletion, at a 22 percent rate, on all production resulting from secondary or tertiary recovery methods until 1984 (but not in excess of 1,000 barrels per day). The deduction resulting from the small producer exemption may not exceed 65 percent of the taxpayer's net income from all sources (computed without regard to depletion allowed under the small producer exemption, net operating loss carrybacks and capital loss carrybacks). Also, under the substitute, there is to be no plowback requirement in connection with percentage depletion under the small producer exemption. [69] LIMITATION ON FOREIGN TAX CREDIT FOR TAXES PAID IN CON- House bill.-No provision. Senate amendment.-The Senate amendment repeals the foreign tax credit on all foreign oil-related income and allows any taxes on that income as a deduction. The amendment also provides that foreign oil-related income is to be taxed at a 24-percent rate. Conference substitute.-The con ference substitute modifies the Senate amendment and applies a strict limitation on the use of foreign tax credits from foreign oil extraction income and foreign oil-related income. The substitute limits the amounts of payments in the form of foreign taxes on foreign oil extraction income which will be treated as creditable taxes to 52.8 percent of taxable income from foreign oil extraction in taxable years ending in 1975, 50.4 percent of such taxable income in 1976, and 50 percent of such taxable income in subsequent taxable years. Any taxes paid in excess of that amount are to be disregarded and not allowed as a deduction. Any excess credits within the respective percentage limitations are to be allowed to offset U.S. tax only against foreign oil-related income. Also, any payments to a foreign country in connection with the purchase and sale of oil or gas extracted in that country are not to be considered as a tax if the taxpayer has no economic interest in the oil or gas to which section 611(a) of the code applies and either such purchase or such sale is made at a price other than the fair market price of such oil or gas at the time of such puchase or sale. The market price is to be determined without regard to any tax liabilities to the country of extraction to which the oil or gas is subject upon purchase. This provision, of course, is not to apply to fees or other types of income from the provision of services. which relate to the extraction of oil or gas for another person. Any payments not allowed as taxes under this provision are to be allowed as deductions. In addition, the conferees agreed that beginning in 1976 the per country limitation on creditable foreign taxes is not to apply to foreign oil-related income. Instead, the amount of creditable taxes with respect to such income is to be calculated under the overall limitation. The conferees believe that this change should be considered significant in judging requests to revoke consolidated return elections. The conferees also agreed that beginning in 1975 any losses with re spect to foreign oil-related income should be recaptured against future oil-related income by limiting the foreign tax credits available with respect to such future income. The conference substitute is to apply to taxable years ending after date of enactment. TAXATON OF EARNINGS AND PROFITS OF CONTROLLED FOREIGN CORPORATIONS AND THEIR SHAREHOLDERS House bill.-No provision. Senate amendment.-The Senate amendment provides that U.S. persons holding a one-percent or greater interest in foreign corpora-[70]tions are to be taxed currently on their proportionate share of the income from those corporations in cases where more than 50 percent of the stock of the corporations is controlled by U.S. persons. Conference substitute.-The conference substitute provides for a number of specific measures which substantially expand the extent to which foreign subsidiaries of U.S. corporations are subject to current U.S. taxation on tax haven types of income under the so-called subpart F rules of the Code. The conferees expressed their belief that the foreign tax provisions of present law relating to the deferral of foreign income should be further reviewed at the earliest possible date. The conferees indicated that this review should include an examination of the adequacy of existing provisions dealing with the disclosure and reporting of income (and related deductions) of foreign subsidiaries of U.S. corporations. The conference substitute repeals the minimum distribution exception to the subpart F rules which, under present law, permits a deferral of U.S. taxation on tax haven types of income in cases where the foreign corporation (or various combinations of foreign-related corporations) distributes certain minimum dividends to their U.S. shareholders. The effect of repealing this exception is to tax cur rently all income of foreign subsidiaries of U.S. corporations which is deemed to be tax haven income under the existing so-called subpart F rules of the Code. An exception to this provision was made for agricultural commodities not produced in commercially marketable quantities in the United States. Under the exception, these commodities grown (or raised) abroad are to be excluded from foreign base company sales income. The conference agreement also repeals the exception from the subpart F rules which presently permits a deferral of taxation in cases in which the tax haven income is reinvested in less-developed countries. In addition, the conference agreement repeals the rules of present law which permits a deferral of U.S. tax for shipping income received by a foreign subsidiary of a U.S. corporation. However, deferral of tax is to be continued to the extent that the profits of these corporations are reinvested in shipping operations. Finally, the conferees agreed to modify the present rule in the subpart F provisions which permits corporations having less than 30 percent of their gross income in the form of tax haven income to avoid the current taxation provisions of subpart F. The conference substitute provides that such tax haven income will be taxed currently under the subpart F rules in any case where it equals or exceeds 10 percent of gross income. These provisions are to apply to taxable years beginning after December 31, 1975. ELIMINATION OF DOMESTIC INTERNATIONAL SALES CORPORATION TREATMENT FOR CERTAIN NATURAL RESOURCES AND ENERGY PRODUCTS House bill. No provision. Senate amendment.-The Senate amendment denies the benefits provided for domestic international sales corporations (DISC's) for the export of natural resources and energy products (ie., products [71] for which an allowance for cost depletion is pro vided) and for products subject to export control under section 4(b) of the Export Administration Act of 1969. The provision applies to sales made after March 18, 1975. Conference substitute.-The conference substitute follows the Senate amendment. INVESTMENT TAX CREDIT ON House bill.-No provision. Senate amendment.-The Senate amendment denies the investment tax credit for foreign situs drilling rigs used outside of the northern half of the Western Hemisphere. The provision applies to property placed in service after March 18, 1975, unless such property is covered by a binding contract which was in effect on April 1, 1974. Conference substitute.-The conference substitute follows the Senate amendment. EXTENSION OF UNEMPLOYMENT COMPENSATION ACT OF 1974 House bill.-No provision. Senate amendment.-The Senate amendment extends the benefits of the Emergency Unemployment Compensation Act of 1974 for an additional 13 weeks to those who have exhausted 52 weeks of benefits. This is available only for the period ending June 30, 1975. The provision states that the Secretary of Labor shall, at the earliest practicable date after the enactment, propose to each State with which he has in effect an agreement under section 102 of the 1974 Act a modification of such agreement designed to cause payments of emergency compensation as provided in the Senate amendment. Conference substitute.-The conference substitute follows the Senate amendment. SPECIAL PAYMENTS TO PEOPLE RECEIVING BENEFITS UNDER SOCIAL SECURITY, RAILROAD RETIREMENT OR SUPPLEMENTAL SECURITY INCOME PROGRAMS House bill.-No provision. Senate amendment.-The Senate amendment added a provision to the bill, under which a one-time special payment of $100 is to be made by the Secretary of the Treasury to each individual who, for March, 1975, was entitled to monthly insurance benefits under title II of the Social Security Act, to monthly pension or annuity benefits under the Railroad Retirement Acts, or to supplemental security income benefits. An individual could receive only one such $100 special payment, even though he was entitled, for March, 1975, to benefits under 2 or more of the above-mentioned programs. The Secretary of Health, Education, and Welfare and the Railroad Retirement Board are to provide the Treasury with such data and information as may be necessary to determine who is entitled to these special pay ments. Receipt of the special payment by an individual is not to affect his eligibility for, or the amount of, the aid or assistance which he or his [72] family would otherwise be entitled to receive under a welfare-type program. Federal financial participation in any State (or local) welfare-type program is to cease if that program violates the "disregard" requirement described in the preceding sentence. Conference substitute.-The conference substitute generally follows the Senate amendment, except that the amount of the special payment is to be $50 per qualified recipient. In addition, the conference substitute restricts it to residents of the United States who have applied for benefits under one of the three programs prior to April 1, 1975, and who actually receive a benefit for the month of March 1975 which is paid by August 31, 1975. The conference agreement includes the requirement that these payments be disregarded in determining eligibility under other programs and clarifies their non-taxable nature for income tax purposes. The conferees emphasize that these payments are not social security bene fits in any sense but are intended to provide to the aged, blind, and disabled a payment comparable in nature to the tax rebates which the bill provides to those who are working. These payments, therefore, should be clearly identifiable as Treasury Department payments and not be included in or confused with social security benefit checks. DYEING OF CERTAIN HEATING OIL Senate certain House bill.-No provision. Senate amendment.-The amendment requires that heating fuel oil be colored with an oil soluble dye, so that such nontaxed fuel oil may be distinguishable from taxable diesel fuel oil for highway use. The Administrator of the Federal Energy Administration is to determine the appropriate soluble dye and the point of the petroleum distribution system to add the dye; and he may enter the premises (during business hours) to inspect for violations. Violators are to be subject to a fine of not more than $25,000, or imprisonment of not more than 5 years, or both. The provision is to be effective on the date of enactment. Conference substitute.-The conference substitute does not contain this provision. The conferees deferred consideration of this because the subject would be reviewed during the Ways and Means Committee consideration of the energy bill. AL ULLMAN, JAMES A. BURKE, Managers on the Part of the House. RUSSELL B. LONG, Managers on the Part of the Senate. Revenue Procedure 75-10 651 719 720 to the Commissioner of Internal Treasury Department Order No. 107 Treasury Department Order No. 150-55 Treasury Department Order No. 221-3 758 |