6. Depreciation limitations for electric vehicles (Sec. 6009(e) of the Bill, Sec. 971 of the 1997 Act, and Sec. 280F of the Code)

Present Law

Annual depreciation deductions with respect to passenger automobiles are limited to specified dollar amounts, indexed for inflation. Any cost not recovered during the 6-year recovery period of such vehicles may be recovered during the years succeeding the recovery period, subject to similar limitations. The recovery-period limitations are trebled for vehicles that are propelled primarily by electricity.

Explanation of Provision

The depreciation limitations applicable to post-recovery periods under section 280F are trebled for vehicles that are propelled primarily by electricity.

Effective Date

The provision is effective for property placed in service after August 5, 1997 and before January 1, 2005.

7. Modification of operation of elective carryback of existing net operating losses of the National Railroad Passenger Corporation ("Amtrak") (Sec. 6009(g) of the Bill and Sec. 977 of the 1997 Act)

Present Law

The 1997 Act provides elective procedures that allow Amtrak to consider the tax attributes of its predecessors (i.e., those railroads that were relieved of their responsibility to provide intercity rail passenger service as a result of the Rail Passenger Service Act of 1970) in the use of Amtrak's net operating losses. The benefit allowable under these procedures is limited to the least of: (1) 35 percent of Amtrak's existing qualified carryovers, (2) the net tax liability for the carryback period, or (3) $2,323,000,000. One half of the amount so calculated will be treated as a payment of the tax imposed by chapter 1 of the Internal Revenue Code of 1986 for Amtrak's taxable year ending December 31, 1997, and a similar amount for Amtrak's taxable year ending December 31, 1998.

The availability of the elective procedures is conditioned on Amtrak (1) agreeing to make payments of one percent of the amount it receives to each of the non-Amtrak States to offset certain transportation related expenditures and (2) using the balance for certain qualified expenses. Non Amtrak States are those States that are not receiving Amtrak service at any time during the period beginning on the date of enactment and ending on the date of payment.

Explanation of Provision

The provision provides that the term "non-Amtrak State" means any State that is not receiving intercity passenger rail service from Amtrak as of the date of enactment of the 1997 Act (August 5, 1997). Thus, a State will not lose its status as a non-Amtrak State with respect to any payment by reason of acquiring Amtrak service with any payment from Amtrak under the 1997 Act provision.

Effective Date

The provision is effective as if included in section 977 of the 1997 Act.

I. Amendments to Title X of the 1997 Act Relating to Revenue-Raising Provisions

1. Exception from constructive sales rules for certain debt positions (Sec. 6010(a)(1) of the Bill, Sec. 1001(a) of the 1997 Act, and Sec. 1259(b)(2) of the Code)

Present Law

A taxpayer is required to recognize gain (but not loss) upon entering into a constructive sale of an "appreciated financial position," which generally includes an appreciated position with respect to any stock, debt instrument or partnership interest. An exception is provided for positions with respect to debt instruments that have an unconditionally payable principal amount, that are not convertible into the stock of the issuer or a related person, and the interest on which is either fixed, payable at certain variable rates or based on certain interest payments on a pool of mortgages.

Explanation of Provision

The provision clarifies that, to qualify for the exception for positions with respect to debt instruments, the position would either have to meet the requirements as to unconditional principal amount, non-convertibility and interest terms or, alternatively, be a hedge of a position meeting these requirements. A hedge for purposes of the provision includes any position that reduces the taxpayer's risk of interest rate or price changes or currency fluctuations with respect to another position.

Effective Date

The provision is generally effective for constructive sales entered into after June 8, 1997.

2. Definition of forward contract under constructive sales rules (Sec. 6010(a)(2) of the Bill, Sec. 1001(a) of the 1997 Act, and Sec. 1259(d)(1) of the Code)

Present Law

A constructive sale of an appreciated financial position generally results when the taxpayer enters into a forward contact to deliver the same or substantially identical property. A forward contract for this purpose is defined as a contract that provides for delivery of a substantially fixed amount of property at a substantially fixed price.

Explanation of Provision

The provision clarifies that the definition of a forward contract includes a contract that provides for cash settlement with respect to a substantially fixed amount of property at a substantially fixed price.

Effective Date

The provision is generally effective for constructive sales entered into after June 8, 1997.

3. Treatment of mark-to-market gains of electing traders (Sec. 6010(a)(3) of the bill, Sec. 1001(b) of the 1997 Act, and Sec. 475(f)(1)(D) of the Code)

Present Law

Securities and commodities traders may elect application of the mark-to-market accounting rules. Gain or loss recognized by an electing taxpayer under these rules is treated as ordinary gain or loss.

Under the Self-Employment Contributions Act ("SECA"), a tax is imposed on an individual's net earnings from self-employment ("NESE"). Gain or loss from the sale or exchange of a capital asset is excluded from NESE.

A publicly-traded partnership generally is treated as a corporation for Federal tax purposes. An exception to this rule applies if 90 percent or more of the partnership's gross income consists of passive-type income, which includes gain from the sale or disposition of a capital asset.

Explanation of Provision

The provision clarifies that gain or loss of a securities or commodities trader that is treated as ordinary solely by reason of election of mark-to-market treatment is not treated as other than gain or loss from a capital asset for purposes of determining NESE for SECA tax purposes, determining whether the passive-type income exception to the publicly-traded partnership rules is met or for purposes of any other Code provision specified by the Treasury Department in regulations.

Effective Date

The provision applies to taxable years of electing securities and commodities traders ending after the date of enactment of the 1997 Act.

4. Special effective date for constructive sale rules (Sec. 6010(a)(4) of the Bill, Sec. 1001(d) of the 1997 Act, and Sec. 1259 of the Code)

Present Law

The constructive sales rules contain a special effective date provision for decedents dying after June 8, 1997, if (1) a constructive sale of an appreciated financial position occurred before such date, (2) the transaction remains open for not less than two years, (3) the transaction remains open at any time during the three years prior to the decedent's death, and (4) the transaction is not closed within the 30-day period beginning on the date of enactment of the 1997 Act. If the requirements of the special effective date provision are met, both the appreciated financial position and the transaction resulting in the constructive sale are generally treated as property constituting rights to receive income in respect of a decedent under section 691. However, gain with respect to a position in a constructive sale transaction that accrues after the transaction is closed is not included in income in respect of a decedent.

Explanation of Provision

The provision clarifies the special effective date rule to provide that the rule does not apply if the constructive sale transaction is closed at any time prior to the end of the 30th day after the date of enactment of the 1997 Act.

Effective Date

The provision is effective for decedents dying after June 8, 1997.

5. Gain recognition for certain extraordinary dividends (Sec. 6010(b) of the Bill, Sec. 1011 of the 1997 Act, and Sec. 1059 of the Code)

Present Law

A corporate shareholder generally can deduct at least 70 percent of a dividend received from another corporation. This dividends received deduction is 80 percent if the corporate shareholder owns at least 20 percent of the distributing corporation and generally 100 percent if the shareholder owns at least 80 percent of the distributing corporation.

Section 1059 of the Code requires a corporate shareholder that receives an "extraordinary dividend" to reduce the basis of the stock with respect to which the dividend was received by the nontaxed portion of the dividend. Whether a dividend is "extraordinary" is determined, among other things, by reference to the size of the dividend in relation to the adjusted basis of the shareholder's stock. in addition, dividends resulting from non pro rata redemptions, partial liquidations, and certain other redemptions are extraordinary dividends. Pursuant to a provision of the 1997 Act, gain is recognized to the extent the reduction in basis of stock exceeds the basis in the stock with respect to which an extraordinary dividend is received. Prior to the 1997 Act, the recognition of such gain generally was deferred until the stock to which the adjustment related was sold or disposed of.

The consolidated return regulations provide basis adjustment rules with respect to dividends paid within a consolidated group of corporations. These rules provide that a dividend paid from one member of a group to its parent reduces the parent's basis in the stock of the payor and if such reduction exceeds the parent's basis, an "excess loss account" is created or increased. Excess loss accounts generally are not restored to income until the occurrence of certain specified events (e.g., when the corporation to which the excess loss account relates leaves the consolidated group). Legislative history indicates that, except as provided in regulations, the extraordinary dividend provisions do not apply to result in a double reduction in basis in the case of distributions between members of an affiliated group filing consolidated returns or in the double inclusion of earnings and profits.

Explanation of Provision

The provision provides the Treasury Department regulatory authority to coordinate the basis adjustment rules of section 1059 and the consolidated return regulations. It is expected that these rules generally would provide that, except as provided in regulations to be issued, section 1059 will not cause current gain recognition to the extent that the consolidated return regulations require the creation or increase of an excess loss account with respect to a distribution.

Effective Date

The provision generally is effective for distributions after May 3, 1995.