II. Explanation of the Bill
A. Treatment of Adoption Tax Credit Carryovers (Sec. 6017 of the Bill, Sec.
1807(a) of the
Small Business Job Protection Act of 1996, and Sec. 23 of the
Under present law taxpayers are allowed a maximum nonrefundable credit against income
tax liability of $5,000 per child for qualified adoption expenses paid or incurred by the taxpayer. In
the case of a special needs adoption, the maximum credit amount is $6,000 ($5,000 in the case of a
foreign special needs adoption). To the extent the otherwise allowable credit exceeds the tax
liability limitation of section 26 (reduced by other personal credits) the excess is carried forward as
an adoption credit into the next taxable year, up to a maximum of five taxable years.
The credit is phased out ratably for taxpayers with modified adjusted gross income (AGI)
above $75,000, and is fully phased out at $115,000 of modified AGI. For these purposes
modified AGI is computed by increasing the taxpayer's AGI by the amount otherwise excluded
from gross income under Code sections 911, 931, or 933 (relating to the exclusion of income of
U.S. citizens or residents living abroad; residents of Guam, American Samoa, and the Northern
Mariana Islands, and residents of Puerto Rico, respectively).
Explanation of Provision
The bill clarifies that the AGI phaseout only applies in the year that the credit is generated
and is not reapplied to further reduce any carryforward amounts.
The provision is effective as if included in the Small Business Job Protection Act of 1996.
B. Disclosure Requirements for Apostolic Organizations (Sec. 6018 of the Bill,
Sec. 1313 of the Taxpayer Bill of Rights 2, and Sec. 6104 of the Code)
Section 501(d) provides tax-exempt status to certain religious or apostolic associations or
corporations, if such associations or corporations have a common treasury or community treasury,
even if such associations or corporations engage in business for the common benefit of the
members, but only if the members thereof include (at the time of filing their returns) in their gross
income their entire pro rata shares, whether distributed or not, of the taxable income of the
association or corporation for such year. Any amount so included in the gross income of a
member is treated as a dividend received. The effect of section 501(d) is to exempt the religious
and apostolic associations or corporations which conduct communal activities (such as farming)
from the Federal corporate-level income tax and the undistributed-profits tax, provided that
members claim their shares of the corporation's income on their own individual returns.
Section 6033 generally requires tax-exempt organizations to file annual information returns,
and such information returns are available for public inspection under sections 6104(b) and
6104(e), except that public disclosure is not required of the identity of contributors to an
organization. Section 501(d) entities must include with their annual information return (Form
1065) a Schedule K-1 that identifies the members of the association or corporation and their ratable
portions of net income and expenses.
Explanation of Provision
The provision amends sections 6104(b) and 6104(e) to provide that public disclosure is not
required of a Schedule K-1 filed by a religious or apostolic organization described in section
The provision is effective on the date of enactment.
C. Allow Deduction for Unused Employer Social Security Credit (Sec. 6019 of
the bill, Sec. 13443 of the Omnibus Budget Reconciliation Act of 1993, and Sec.
196 of the Code)
The general business credit ("GBC") consists of various individual tax credits (including
the employer social security credit of Code section 45B) allowed with respect to certain qualified
expenditures and activities. in general, the various individual tax credits contain provisions that
prohibit "double benefits," either by denying deductions in the case of expenditure-related credits
or by requiring income inclusions in the case of activity-related credits. Unused credits may be
carried back one year and carried forward 20 years. Section 196 allows a deduction to the extent
that certain portions of the GBC expire unused after the end of the carry forward period. Section
196 does not allow a deduction to the extent that the portion of the GBC that expires unused after
the end of the carry forward period relates to the employer social security credit.
Explanation of Provision
The provision allows a deduction to the extent that the portion of the GBC relating to the
employer social security credit expires unused after the end of the carry forward period.
The provision is effective as if included in the Omnibus Budget Reconciliation Act of 1993.
D. Earned Income Credit Qualification Rules (Sec. 6020 of the Bill, Sec.
11111(a) of the Omnibus Budget Reconciliation Act of 1990, as amended by Sec.
742 of the Uruguay Round Agreements Act and Sec. 451(a) of the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996, and Sec. 32 of
In order to claim the earned income credit ("EIC"), an individual must be an eligible
individual. To be an eligible individual, an individual must include a taxpayer identification
number ("TIN") for the taxpayer and the taxpayer's spouse and must either have a qualifying child
or meet other requirements. in order to claim the EIC without a qualifying child, an individual
must not be a dependent and must be over age 24 and under age 65.
A qualifying child must meet a relationship test, an age test, an identification test, and a
residence test. Under the relationship and age tests, an individual is eligible for the EIC with
respect to another person only if that other person: (1) is a son, daughter, or adopted child (or a
descendent of a son, daughter, or adopted child); a stepson or stepdaughter; or a foster child of the
taxpayer (a foster child is defined as a person whom the individual cares for as the individual's
child; it is not necessary to have a placement through a foster care agency); and (2) is under the age
of 19 at the close of the taxable year (or is under the age of 24 at the end of the taxable year and
was a full-time student during the taxable year), or is permanently and totally disabled. Also, if the
qualifying child is married at the close of the year, the individual may claim the EIC for that child
only if the individual may also claim that child as a dependent.
To satisfy the identification test, an individual must include on their tax return the name,
age, and "TIN" of each qualifying child.
The residence test requires that a qualifying child must have the same principal place of
abode as the taxpayer for more than one-half of the taxable year (for the entire taxable year in the
case of a foster child), and that this principal place of abode must be located in the United States.
For purposes of determining whether a qualifying child meets the residence test, the principal place
of abode shall be treated as in the United States for any period during which a member of the
Armed Forces is stationed outside the United States while serving on extended active duty.
Explanation of Provision
The bill clarifies that the identification requirement is a requirement for claiming the EIC,
rather than an element of the definitions of "eligible individual" and "qualifying child."
The provision is effective as if included in the originally enacted related legislation.
III. Budget Effects of the Bill
A. Committee Estimates
In compliance with paragraph 11(a) of Rule XXVI of the Standing Rules of the Senate, the
following table is presented concerning the estimated budget effects of the Bill as reported.
[Insert revenue table]
B. Budget Authority and Tax Expenditures
In compliance with section 308(a)(1) of the Budget Act, the Committee states that three
provisions (expansion of authority to award costs and certain fees at prevailing rate, civil damages
with respect to unauthorized collection actions, elimination of interest rate differential on
overlapping periods of interest on income tax overpayments and underpayments, and increase
refund interest rate to individuals) involve outlay effects (budget authority) totaling $989 million
for fiscal years 1998-2007.
In compliance with section 308(a)(2) of the Budget Act, the Committee states that the bill
does not involve changes in tax expenditures.
C. Consultation with Congressional Budget Office
The statement from the Congressional Budget Office has not been received at the time of
filing of this report.