[Congressional Record Volume 146, Number 155 (Friday, December 15, 2000)]
[House]
[Pages H12097-H12100]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
INSTALLMENT TAX CORRECTION ACT OF 2000
Mr. ARCHER. Mr. Speaker, I move to suspend the rules and pass the
bill
(H.R. 3594) to repeal the modification of the installment method.
The Clerk read as follows:
H.R. 3594
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Installment Tax Correction
Act of 2000''.
SEC. 2. REPEAL OF MODIFICATION OF INSTALLMENT METHOD.
(a) In General.--Subsection (a) of section 536 of the
Ticket to Work and Work Incentives Improvement Act of 1999
(relating to modification of installment method and repeal of
installment method for accrual method taxpayers) is repealed
effective with respect to sales and other dispositions
occurring on or after the date of the enactment of such Act.
(b) Applicability.--The Internal Revenue Code of 1986 shall
be applied and administered as if that subsection (and the
amendments made by that subsection) had not been enacted.
The SPEAKER pro tempore (Mr. Pease). Pursuant to the rule, the
gentleman from Texas (Mr. Archer) and the gentleman from Wisconsin (Mr.
Kleczka) each will control 20 minutes.
The Chair recognizes the gentleman from Texas (Mr. Archer).
General Leave
Mr. ARCHER. Mr. Speaker, I ask unanimous consent that all Members may
have 5 legislative days within which to revise and extend their remarks
and to include extraneous material on H.R. 3594.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Texas?
There was no objection.
Mr. ARCHER. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, while the nature of this bill is complex, the purpose is
quite simple; and that purpose is to protect as many as 260,000 small
businesses from a harmful tax provision. More important, it should
serve as a lesson to all politicians who talk about closing loopholes.
This was presented originally in President Clinton's fiscal year 2000
budget and included in the 1990 Tax Extenders package at the insistence
of the White House and it outlawed the use of the installment sales
method byN O T I C E
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[[Page H12098]]
taxpayers using the accrual method of accounting.
The accrual method of accounting generally requires that taxpayers
recognize income in the year in which the right to receive the income
occurs regardless of whether the taxpayer actually receives the cash in
that year.
The installment method of accounting allows a taxpayer to defer
recognition of income until the taxpayer actually receives the payment,
and that is appropriate.
During the negotiations in the 1999 tax package, we were told this
provision was a ``loophole closer,'' that it was noncontroversial, and
that no one would be heard. Months after the bill became law, however,
we learned from the small business community that this harmless
loophole closure would, in fact, hurt and hurt significantly. So now
there is strong bipartisan support to undo this mistake and to go back
to the way things were before this tax change was made. But this should
serve as a lesson to all of us, not just today but in future
Congresses. ``Closing loopholes'' always is a good sound bite for
politicians. Whereas the real-life result is usually a bigger tax bite
on American workers or businesses.
Today we will right the wrong and provide a little more peace of mind
to thousands of small business owners across the country.
I urge my colleagues to support this important and time sensitive
legislation.
Mr. Speaker, I reserve the balance of my time.
Mr. KLECZKA. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I rise today in support of the Installment Tax
Correction bill.
As the author of the first bill introduced in the House of
Representatives to reinstate the installment method of accounting for
accrual basis taxpayers, I commend the gentleman from Texas (Mr.
Archer) for his efforts on this issue.
Mr. Speaker, this legislation is needed to correct a flaw in the
Ticket to Work and Work Incentives Improvement Act, which was passed by
Congress last year.
Although the Ticket to Work bill contained many important provisions,
it repealed the installment method of accounting for most accrual basis
taxpayers. The bill before us is necessary to fix this repeal.
The installment sales method is frequently used in the sale and
purchase of a small business where bank financing is unavailable. Under
the Ticket to Work Act, small business owners selling a business using
the installment sales are required to pay all capital gains taxes on
the sale of a business all at once even if the proceeds are to be
received in installments over the years.
As a result, some small businesses now face lump sum income tax
payments that are more than the immediate proceeds of the actual sale.
In other words, taxpayers have had to pay taxes on money they will not
receive for many years in the future or, in some cases, money that they
will never receive due to the buyer defaulting on future payments.
The intention behind repealing the installment method of accounting
was to crack down on large corporations deferring taxes for extended
periods of time. Instead of simply addressing a tax avoidance scheme,
the Ticket to Work bill also eliminated a perfectly legitimate method
of financing sales transactions for small business owners. Clearly,
Congress did not consider the full ramifications of this change in the
law.
It is estimated that more than 250,000 small businesses may have
already been adversely affected by this repeal. Many small business
sales that were not finalized when the Ticket to Work bill was enacted
on December 17, 1999, have fallen apart and countless others have never
occurred before because of the repeal contained in the Ticket to Work
bill.
Furthermore, those business owners who are looking to purchase
additional assets in order to expand their operations will now find it
more difficult to find a potential seller. As a result, the value of
some small businesses may have been reduced by as much as 20 percent.
Mr. Speaker, I believe the broad partisan interest that this bill has
attracted underscores the importance of passing this legislation to
reinstall and to reinstate the installment method of sales.
Mr. Speaker, I guess we can deal in a blame game this morning, but I
should point out to the Members that in both Republican tax bills, the
massive tax bills that were introduced in the House, both of those
bills contained this repeal also. So while some may take to the floor
to blame the administration, know full well that the blame should be
equally spread on all of us. However, the important thing is that the
Congress will correct this inequity today.
I urge my colleagues to vote yes on H.R. 3594.
Mr. Speaker, I reserve the balance of my time.
Mr. ARCHER. Mr. Speaker, I yield such time as he may consume to the
gentleman from California (Mr. Herger) a highly respected member of the
Committee on Ways and Means who has spent such terrific effort in
bringing this issue to fruition on the floor today.
Mr. HERGER. Mr. Speaker, I say to the chairman, as this is the last
bill that will be considered by the House under his chairmanship, I
want to thank him for helping to bring this important legislation to
the floor and for all he has done to improve the Tax Code and make it
fairer for all Americans. Our Nation owes him a great debt of
gratitude.
Mr. Speaker, earlier this year I was pleased to join with my
colleagues from both sides of the aisle to introduce the legislation
before us today, the Installment Tax Correction Act. This bill corrects
a change in tax law which has had serious, unanticipated consequences
for small business owners.
Last year, Congress passed and the President signed a change in law
to disallow the installment method by accrual basis taxpayers. An
unexpected result of this new law has been to erect a serious barrier
to small business ownership. Many small business sales across the
country have been canceled, while others have simply been put on hold
while waiting for Congress to act. Additionally, the value of some
businesses has been reduced by as much as 10 or 20 percent. And perhaps
most urgently, business owners who have sold their business under the
new tax law now face a large unexpected tax burden.
The time has come to correct this situation. This legislation, which
is retroactive to the time of the tax change last December, will ensure
that small business owners who find themselves facing a large tax
burden as a result of an installment sale will receive tax relief
before having to file their tax returns next year.
This much needed measure will make certain that elderly small
business owners waiting to finance their retirement through the sale of
their business would not have to wait any longer.
Mr. Speaker, most small business owners have chosen to use the
installment sales method when selling their business because bank
financing is often unavailable. Under an installment sale, the buyer
makes a down payment up front and pays for the rest of the business
over a period of years. Such sales grant greater flexibility to both
the buyer and seller and have enabled thousands of Americans who would
otherwise be unable to buy a business the opportunity to make their
dream of small business ownership a reality.
This chart clearly demonstrates the impact the new tax treatment is
having on small business sales. Imagine a small business being sold for
$100,000 with the buyer paying $10,000 each year over 10 years. Under
the old rule, the seller would pay tax on the gain from the sale as he
received the payments. In other words, he would be taxed on $10,000
each year. However, under the new rule, the seller is taxed on the
entire $100,000 up front even though he has only received the initial
$10,000 payment.
We believe it is simply unfair to ask small business owners to pay
tax on money they have not yet received. Our legislation will fix this
problem by once again allowing business owners to pay the tax as they
receive the payments. And because our legislation is retroactive to the
time of the tax change last December, small business owners who have
completed installment sale this year would no longer face an unexpected
tax burden.
[[Page H12099]]
Mr. Speaker, this is a serious problem. The National Federation of
Independent Business estimates that as much as 200,000 small business
sales each year could be adversely affected if we do not act. I believe
we owe it to small businessmen and businesswomen to have a Tax Code
which treats them fairly, and I look forward to our approval today of
this very worthy legislation, thus ensuring that small business remains
a path to prosperity for millions of Americans.
{time} 1015
Mr. KLECZKA. Mr. Speaker, I yield 3 minutes to the gentleman from
Maryland (Mr. Cardin), a member of the Committee on Ways and Means.
Mr. CARDIN. Mr. Speaker, let me thank the gentleman from Wisconsin
(Mr. Kleczka) for his leadership on this issue, for yielding me this
time and in helping us make sure that we get this change indeed enacted
before the Congress adjourns for this session.
Mr. Speaker, this is an example of unintended consequence of
legislation that was previously passed by this body and was enacted
into law. Sometimes we look to try to get revenue raisers attached to
bills in order to pay for them and we do not really realize the
consequences of that action. This is an example of that. The changes
that we made to the Installment Sales Act of 1999 will have and has had
adverse consequence on small businesses in our country.
Let me try to explain why. The reason why we put the installment
sales provisions in the Tax Code was very logical. If you sell a
business and you get part of the proceeds and you get the proceeds over
a number of years, it is almost impossible for the person who sells the
business to be able to pay all the taxes up front. If you do that, you
do not have enough cash to pay all the taxes up front. That is the
reason why we developed the installment sales provisions within our tax
code. What we did in 1999 for many of the installment sales is require
the business owner who sold the business to pay 100 percent of the
taxes up front. That did not make any sense. I do not think we really
intended that to be the consequence because we were dealing with the
differences between accrual accounting and cash accounting, not
realizing the fact that we have mandated that most small businesses
must use accrual accounting procedures.
Therefore, on one section of the code, we require them to use an
accounting method that would require them to pay 100 percent of the
taxes up front. This legislation corrects it. I applaud my colleagues
on both sides of the aisle for bringing it forward. It makes sense. It
will help small businesses in our country. It is the right tax policy.
Mr. Speaker, I am disappointed that we are not going to have a more
comprehensive tax bill this year, because I think there are many
provisions that Republicans and Democrats have worked out and we had
hoped to have had a broader bill. But I applaud the gentleman from
Texas (Mr. Archer) for at least making it possible to correct this
mistake this year to get it enacted. It is the right thing to do. I
fully support it. I hope that we will pass it with broad support on
both sides of the aisle.
Mr. ARCHER. Mr. Speaker, I yield myself such time as I may consume to
thank my friend from Maryland for all of his contributions in the years
that I have been chairman of the Committee on Ways and Means and also
to thank the gentleman from Wisconsin (Mr. Kleczka) for his independent
thinking and the contributions that he has made to the committee.
I would say to my friend from Maryland that I am also saddened that
we did not get the pension reform bill passed. We had over 400 votes
here on the floor of the House in support of it. He, along with the
gentleman from Ohio (Mr. Portman), did tremendous work in putting that
package together. It would benefit all working Americans with greater
retirement security opportunities.
But it will come another day. It will come, I am sure, in the next
Congress; and all of the work that our committee has put into it and
the gentleman from Maryland along with the gentleman from Ohio (Mr.
Portman) has put into it will not be lost.
I think we finish this year on a very positive note. This bill is a
bill that can be supported by all of us. The tax provisions that will
go in the ultimate package that we will vote on later today are
provisions that I believe all of us should be able to support. I am
pleased that we finish this Congress on this high level of harmony. I
hope that it can extend into the next Congress.
Mr. Speaker, I urge full support of this bill.
Mr. Speaker, I reserve the balance of my time.
Mr. KLECZKA. Mr. Speaker, I yield 3 minutes to the gentleman from
Tennessee (Mr. Tanner).
Mr. TANNER. Mr. Speaker, I am afraid we are getting into the area of
everything having been said about this bill but not everybody having
said it. Nonetheless I think it is important to reflect and realize
that this action that was taken last year by the House was done at the
end of the session, with a lot of unfinished work poured into one huge
package, and I am afraid we are going to do that again today. It was
thought to end abusive practices within the code as it relates to
businesses with accrual accounting and installment sales and to
actually pay for the ticket to work which was a smaller part of a
broader welfare reform bill, that this was a desirable change in the
code. After it was discovered by almost everyone connected with it, it
was quickly realized that this covered far more than those abusive
practices that were being closed to pay for the ticket to work, and so
the gentleman from California (Mr. Herger) and others, myself and
others, put a bill in, H.R. 3594, some time ago. I am glad we are
getting this done.
This is truly, I think by anyone's definition, the law of unintended
consequences at work. It demands that one who has an accrual basis of
accounting in one's business when one sells it to report all of the
income at the time of the sale when one has, as Members know under
accrual accounting, a right to the income.
This makes no sense, as the gentleman from Maryland (Mr. Cardin)
said; and so we changed it back to the way it was and the way that is
sensible, sane, and reasonable. And so what we will do is by this
change assure every small business owner, every small business
prospective buyer that on the installment sales contract method of
transaction, one may count on not having a tax liability until the
money is actually realized.
I want to thank the gentleman from Texas (Mr. Archer) for working
with us on this this year and also the gentleman from New York (Mr.
Rangel) and the gentleman from Wisconsin (Mr. Kleczka), who is the
ranking member of the subcommittee. I think this is a good thing we do
to straighten out an obvious error that was made last year in the haste
of closing up shop for the year. I hope we do not have to do this again
next year.
Mr. KLECZKA. Mr. Speaker, I yield myself such time as I may consume.
What I would like to indicate at this point is that this is the last
tax bill that will be managed by the able chairman of the Committee on
Ways and Means, the gentleman from Texas (Mr. Archer). I know this is
not the tax bill he really wanted to bring to the floor to manage for
his last bill but nevertheless that was not to be this session.
But I would want to tell the gentleman and the Members who are
listening that the gentleman will be missed. He was a real gentleman on
the committee. I really appreciated the opportunity to work with him.
What was especially heartening was his knowledge of the Tax Code and
the fairness with which he treated all members of the committee, both
Democrat and Republican. He is moving on to a much deserved retirement.
However, with the new administration taking over, there are some of
us who would like to put together a letter to recommend to President-
elect Bush that he look very seriously upon him as the new Secretary of
the Treasury. So if he gives me a wink and a nod, I am sure we can put
something together on that score.
However, if that is not to be, I personally wish him the very, very
best. He is going to be missed sorely in the House.
Mr. BOEHNER. Mr. Speaker, will the gentleman yield?
Mr. KLECZKA. I yield to the gentleman from Ohio.
Mr. BOEHNER. I thank the gentleman from Wisconsin for yielding and
[[Page H12100]]
thank all the members of the Committee on Ways and Means, especially
the chairman, for moving this piece of legislation. This was, in fact,
an oversight that was affecting thousands of businesses if not more
across the country. I know a number of people in my district, small-
business people, have asked to have this corrected. I am glad that we
are, in fact, doing it.
Let me add to the chorus of remarks to my good friend the gentleman
from Texas (Mr. Archer). The gentleman from Texas and I have worked
very closely together during the years that I served in the Republican
leadership and as the gentleman from Texas was the chairman of the
Committee on Ways and Means. I do not think one could find a more
dedicated public servant, someone who believed in reforming the Tax
Code and worked hard on behalf of not only his constituents but
taxpayers all across the country. After 30 years in the Congress, he
deserves a little rest. He has been a pleasure to work with and I think
a model Member of this body. I wish him well in his retirement.
Mr. BEREUTER. Mr. Speaker, this Member wishes today to express his
support for H.R. 3594, the Installment Tax Correction Act of 2000, of
which this Member is a cosponsor. This bill, which is being considered
under suspension of the rules, will have a positive effect on small
businesses nationwide.
At the outset, this Member would like to thank both the distinguished
gentleman from California [Mr. Herger] for introducing this legislation
and the distinguished Chairman of the House Ways and Means Committee
from Texas [Mr. Archer] for his efforts in bringing this measure to the
House Floor.
This legislation, H.R. 3594, eliminates the provision of the tax code
which repealed the use of the installment method of accounting for
accrual method taxpayers. This bill is necessary because of a provision
in the Ticket to Work and Work Incentives Improvement Act (P.L. 106-
170), which was signed into law in 1999. Unfortunately, this Act
included a prohibition on the use of the installment method by accrual
method taxpayers. As a result of this provision, these type of
taxpayers are currently required to pay tax on all capital gains in the
first year of an installment sale, regardless of when cash payment is
received.
This provision is particularly onerous for small businesses. For
example, installment sales methods are common for situations where the
seller continues to stay involved in the transferred small business or
when a family business transfers from one generation to the next.
Furthermore, this Member has been told that neither the Administration
nor the Ways and Means Committee anticipated nor understood the effect
the inclusion of this prohibition in the Ticket to Work and Work
Incentives Improvement Act would have on small businesses. Fortunately,
H.R. 3594 remedies this by situation by repealing the prohibition on
using the installment method of accounting for accrual method
taxpayers.
Therefore, for these reasons, this Member urges his colleagues to
support H.R. 3594, the Installment Tax Correction Act of 2000. Thank
you.
Mr. UDALL of Colorado. Mr. Speaker, as a cosponsor of H.R. 3594, I
rise in strong support of the bill. I am very glad that it is being
considered today rather than being left to languish until the new
Congress convenes next month.
The bill would repeal a change in the tax law that was part of the
``Ticket to Work'' bill enacted last year.
It evidently was included as a way to help offset the costs of that
bill by increasing tax receipts. However, I do not think that it was
necessary or appropriate.
The 1999 change prohibited use of the ``installment method'' for
calculating taxes on certain asset sales where the seller is paid over
time rather than all at once. The effect of this is to make it much
harder for small-business owners to sell their businesses or to
seriously reduce the amount they can receive if they do sell. I have
heard from many people in Colorado who have been and remain concerned
about this aspect of the changes made in 1999.
H.R. 3594 would repeal that, restoring the ability of sellers to
spread their receipts--and taxes--over several years. I think that is a
good idea, which is why I joined as a cosponsor.
I urge the House to approve the bill.
Mr. KLECZKA. Mr. Speaker, I yield back the balance of my time.
Mr. ARCHER. Mr. Speaker, I have no further requests for time, and I
yield back the balance of my time.
The SPEAKER pro tempore (Mr. Pease). The question is on the motion
offered by the gentleman from Texas (Mr. Archer) that the House suspend
the rules and pass the bill, H.R. 3594.
The question was taken; and (two-thirds having voted in favor
thereof) the rules were suspended and the bill was passed.
A motion to reconsider was laid on the table.
____________________