[House Report 104-32]
[From the U.S. Government Publishing Office]



104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                     104-32
_______________________________________________________________________


 
  PERMANENT EXTENSION OF DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-
                          EMPLOYED INDIVIDUALS

                                _______


 February 14, 1995.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

_______________________________________________________________________


    Mr. Archer, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 831]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 831) to amend the Internal Revenue Code of 1986 to 
permanently extend the deduction for the health insurance costs 
of self-employed individuals, to repeal the provision 
permitting nonrecognition of gain on sales and exchanges 
effectuating policies of the Federal Communications Commission, 
and for other purposes, having considered the same, report 
favorably thereon with an amendment and recommend that the bill 
as amended do pass.

                                CONTENTS

                                                                   Page
  I. Introduction.....................................................3
        A. Purpose and Summary...................................     3
        B. Background and Need for Legislation...................     3
        C. Legislative History...................................     5
 II. Explanation of the Bill..........................................7
        A. Permanently Extend Deduction for Health Insurance Cost     7
            of Self-Employed Individuals (sec. 1).
        B. Repeal Special Rules Applicable to FCC-Certified Sales     8
            of Broadcast Properties; Prohibit Nonrecognition of 
            Gain on Involuntary Conversions in Certain Related-
            Party Transactions (secs. 2 and 3).
        C. Interest and Dividend Test for Earned Income Tax          18
            Credit (sec. 4).
III. Votes of the Committee..........................................20
 IV. Budget Effects of the Bill......................................26
        A. Committee Estimate of Budgetary Effects...............    26
        B. Statement Regarding New Budget Authority and Tax          26
            Expenditures.
        C. Cost Estimate Prepared by the Congressional Budget        27
            Office.
  V. Other Matters To Be Discussed Under the Rules of the House......29
        A. Committee Oversight Findings and Recommendations......    29
        B. Summary of Findings and Recommendations of the            29
            Committee on Government Reform and Oversight.
        C. Inflationary Impact Statement.........................    29
 VI. Changes in Existing Law Made by the Bill, as Reported...........30
VII. Dissenting Views of the Honorable Charles B. Rangel and the     34
     Honorable Harold E. Ford.

    The amendment is as follows:
    Strike section 4 of the bill and insert the following new 
section:

SEC. 4. PHASEOUT OF EARNED INCOME CREDIT FOR INDIVIDUALS HAVING MORE 
                    THAN $2,500 OF TAXABLE INTEREST AND DIVIDENDS.

    (a) In General.--Section 32 of the Internal Revenue Code of 
1986 is amended by redesignating subsections (i) and (j) as 
subsections (j) and (k), respectively, and by inserting after 
subsection (h) the following new subsection:
    ``(i) Phaseout of Credit for Individuals Having More Than 
$2,500 of Taxable Interest and Dividends.--If the aggregate 
amount of interest and dividends includible in the gross income 
of the taxpayer for the taxable year exceeds $2,500, the amount 
of the credit which would (but for this subsection) be allowed 
under this section for such taxable year shall be reduced (but 
not below zero) by an amount which bears the same ratio to such 
amount of credit as such excess bears to $650.''
    (b) Inflation Adjustment.--Subsection (j) of section 32 of 
such Code (relating to inflation adjustments), as redesignated 
by subsection (a), is amended by striking paragraph (2) and by 
inserting the following new paragraphs:
          ``(2) Interest and dividend income limitation.--In 
        the case of a taxable year beginning in a calendar year 
        after 1996, each dollar amount contained in subsection 
        (i) shall be increased by an amount equal to--
                  ``(A) such dollar amount, multiplied by
                  ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for the 
                calendar year in which the taxable year begins, 
                determined by substituting `calendar year 1995' 
                for `calendar year 1992' in subparagraph (B) 
                thereof.
          ``(3) Rounding.--If any amount as adjusted under 
        paragraph (1) or (2) is not a multiple of $10, such 
        dollar amount shall be rounded to the nearest multiple 
        of $10.''
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.
                            I. INTRODUCTION

                         A. Purpose and Summary

    H.R. 831, as amended: (1) extends permanently the 25-
percent deduction for health insurance costs of self-employed 
individuals (sec. 1 of the bill); (2) repeals the provision 
permitting nonrecognition of gain on sales and exchanges 
effectuating policies of the Federal Communications Commission 
(``FCC'') and prohibits nonrecognition of gain on involuntary 
conversions in certain related-party transactions (secs. 2 and 
3 of the bill); and (3) denies the earned income tax credit 
(``EITC'') to individuals who have more than $3,150 of taxable 
interest and dividend income and phases out the EITC for 
individuals with more than $2,500 of taxable interest and 
dividend income (sec. 4 of the bill).

                 B. Background and Need for Legislation

25-Percent Health Insurance Deduction for the Self-Employed
    Under present law, an employer's contribution to a plan 
providing health coverage for the employee and the employee's 
spouse and dependents is excludable from the employee's income. 
No equivalent exclusion applies in the case of self-employed 
individuals (i.e., sole proprietors and partners in a 
partnership).
    However, prior law provided a deduction for 25 percent of 
the amount paid for health insurance of a self-employed 
individual and the individual's spouse and dependents. The 25-
percent deduction was also available to more than 2-percent 
shareholders of S corporations. The 25-percent deduction was 
originally enacted on a temporary basis in the Tax Reform Act 
of 1986. The provision has been extended several times, but 
expired at the end of 1993.
    To provide greater equity between employees and self-
employed individuals, the bill extends permanently the 25-
percent deduction for health insurance costs of self-employed 
individuals from its prior expiration.
Nonrecognition of Gain in FCC-Certified Sales and Exchanges
    Code section 1071 was originally enacted in 1943 to help 
the FCC implement a new policy that prohibited licensees from 
owning more than one radio station per market. Congress 
believed that the involuntary conversion rules (which generally 
permitted gain on sales and other dispositions of involuntarily 
converted property to be excluded from taxable income if the 
proceeds were reinvested in property similar to the property 
involuntarily converted) should be applied to FCC-ordered 
divestitures, but that the rules needed to be liberalized 
because the purchase of new radio property was difficult due to 
wartime restrictions. Under section 1071, gain from the sale or 
exchange of broadcast facilities may be deferred in cases where 
the sale or exchange is certified by the FCC ``to be necessary 
or appropriate to effectuate a change in a policy of, or the 
adoption of a new policy by, the Commission with respect to the 
ownership and control of radio broadcasting stations. * * *''
    In 1978, the FCC announced a policy of promoting minority 
ownership of broadcast facilities by offering tax certificates 
to persons who voluntarily sell such facilities to minority 
individuals or minority-controlled entities. Since that time, 
the FCC has issued over 300 such tax certificates. Recent press 
reports regarding the FCC's administration of section 1071, 
both in terms of the types of properties eligible for tax 
certificates and the size of the tax benefits granted, raise 
significant questions about the operation of this provision.
    The FCC tax certificate program has been the subject of a 
number of news reports in the past several years. It was also 
the subject of hearings on miscellaneous revenue proposals held 
by the Subcommittee on Select Revenue Measures of the Committee 
on Ways and Means in September, 1993. On January 17, 1995, 
Chairman Archer issued a press release putting taxpayers on 
notice that the Committee would immediately review the 
operation of section 1071 to explore possible legislative 
changes to section 1071, including the possibility of repeal. 
The press release stated that any changes to section 1071 may 
apply to transactions completed, or certificates issued by the 
FCC, on or after the date of the announcement.
    On Friday, January 27, 1995, the Subcommittee on Oversight 
held a hearing to examine the operation and administration of 
section 1071. Specifically, the Subcommittee examined: (1) 
whether the FCC's 1978 policy was consistent with the 
underlying intent of section 1071; (2) whether the FCC's 
administration of section 1071 constituted an impermissible 
exercise of legislative authority; (3) whether the tax 
incentive provided in section 1071 was, in fact, fostering 
minority ownership of broadcast facilities; and (4) whether the 
FCC policy was a necessary or appropriate means of achieving 
this goal.
    Testimony provided at the Oversight Subcommittee's hearing 
on this provision revealed significant problems in the 
operation and administration of Code section 1071 by the FCC. 
For example, the FCC's standards for qualification for the tax 
certificate program are so vague that the provision is subject 
to significant abuse. In addition, the FCC's expansion of the 
types of transactions which qualify for tax certificates was 
clearly inconsistent with the underlying intent of section 
1071--to address the inability of owners who were required by 
the FCC to divest radio properties to buy replacement property 
during World War II. Moreover, the cost to taxpayers of the 
FCC's tax certificate program has never been subject to any 
systematic review.
    In the course of its examination of section 1071, the 
Committee also became aware of problems with the operation of 
Code section 1033. Under interpretations issued by the IRS, 
taxpayers are able to purchase replacement property from a 
related party, thereby avoiding the need to buy ``new'' 
replacement property and, sometimes, effectively resulting in a 
total tax forgiveness for the transaction.
    In response to these and other concerns, the bill repeals 
the provision permitting nonrecognition of gain on sales and 
exchanges effectuating policies of the FCC and prohibits 
nonrecognition of gain on involuntary conversions in certain 
related-party transactions.

Limitations on Earned Income Tax Credit

    Under current law, a taxpayer may have relatively low 
earned income, and therefore may be eligible for the EITC, even 
though he or she has significant interest and dividend income. 
President Clinton's fiscal year 1996 budget contains a 
legislative proposal to deny the EITC to individuals who have 
more than $2,500 of taxable interest and dividend income.
    To address this issue, the bill denies the EITC to 
individuals who have more than $3,150 of taxable interest and 
dividend income and phases out the EITC for individuals with 
more than $2,500 of taxable interest and dividend income.

                         C. Legislative History

Committee Bill

    H.R. 831 was introduced on February 6, 1995, by Messrs. 
Archer, Matsui, and Thomas and Mrs. Johnson of Connecticut. The 
bill as introduced contained four provisions: (1) extend 
permanently the 25-percent deduction for health insurance costs 
for self-employed individuals; (2) repeal the provision 
permitting nonrecognition of gain on sales and exchanges 
effectuating policies of the FCC; (3) provide that the 
nonrecognition of gain on involuntary conversions is not to 
apply if replacement property is acquired from a related 
person; and (4) deny the EITC for individuals having more than 
$2,500 of taxable interest and dividend income.
    The Committee on Ways and Means marked up the bill on 
February 8, 1995, and approved by voice vote one amendment by 
Chairman Archer that denies the EITC to individuals who have 
more than $3,150 of taxable interest and dividend income and 
phases out the EITC for individuals with more than $2,500 of 
taxable interest and dividend income.

Legislative Hearings

    The Subcommittee on Health of the Committee on Ways and 
Means held a public hearing on January 27, 1995, on the 
deduction for health insurance costs of self-employed 
individuals. The Subcommittee on Oversight of the Committee on 
Ways and Means held a public hearing on January 27, 1995, on 
the tax provisions relating to the nonrecognition of gain on 
the sale or exchange of certain broadcast property (FCC tax 
certificate program).\1\
    \1\ The FCC tax certificate program was also the subject of 
hearings on miscellaneous revenue proposals held by the Subcommittee on 
Select Revenue Measures of the Committee on Ways and Means held on 
September 8, 21, and 23, 1993. See, Joint Committee on Taxation, 
``Description of Miscellaneous Revenue Proposals'' (JCS-12-93), 
September 16, 1993, p. 71.
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    Further, the Committee on Ways and Means held public 
hearings on the Administration's fiscal year 1996 revenue and 
budget proposals, beginning on February 7, 1995. One of the 
Administration's revenue proposals is to deny the EITC for 
individuals having more than $2,500 of taxable interest and 
dividend income.

Notices of Committee Action

    On January 17, 1995, Chairman Archer issued a release 
announcing that the Committee would immediately review the 
operation of section 1071 to explore possible legislative 
changes to section 1071, including the possibility of repeal. 
The announcement stated that any changes to section 1071 may 
apply to transactions completed, or certificates issued by the 
FCC, on or after the date of the announcement. On January 18, 
1995, Chairman Johnson of the Subcommittee on Oversight of the 
Committee on Ways and Means announced a Subcommittee hearing to 
examine the operation and administration of Code section 1071. 
The hearing was scheduled for January 27, 1995.
    On January 23, 1995, Chairman Thomas of the Subcommittee on 
Health of the Committee on Ways and Means issued a release 
announcing a Subcommittee hearing on allowing self-employed 
individuals to deduct a portion of their health insurance 
premiums. The hearing was scheduled for January 27, 1995.
    On January 30, 1995, Chairman Archer issued a release 
announcing full Committee hearings on President Clinton's 
fiscal year 1996 budget proposals under the jurisdiction of the 
Committee. The hearings were scheduled to begin on February 7, 
1995.
                      II. EXPLANATION OF THE BILL

  A. Permanently Extend Deduction for Health Insurance Costs of Self-
 Employed Individuals (sec. 1 of the bill and sec. 162(l) of the Code )

                              Present Law

    Under present law, the tax treatment of health insurance 
expenses depends on whether the taxpayer is an employee and 
whether the taxpayer is covered under a health plan paid for by 
the employee's employer. An employer's contribution to a plan 
providing accident or health coverage for the employee and the 
employee's spouse and dependents is excludable from an 
employee's income. The exclusion is generally available in the 
case of owners of a business who are also employees.
    In the case of self-employed individuals (i.e., sole 
proprietors or partners in a partnership) no equivalent 
exclusion applies. However, prior law provided a deduction for 
25 percent of the amount paid for health insurance for a self-
employed individual and the individual's spouse and dependents. 
The 25-percent deduction was not available for any month if the 
taxpayer was eligible to participate in a subsidized health 
plan maintained by the employer of the taxpayer or the 
taxpayer's spouse. In addition, no deduction was available to 
the extent that the deduction exceeded the taxpayer's earned 
income. The amount of expenses paid for health insurance in 
excess of the deductible amount could be taken into account in 
determining whether the individual was entitled to an itemized 
deduction for medical expenses. The 25-percent deduction 
expired for taxable years beginning after December 31, 1993.
    For purposes of these rules, more than 2-percent 
shareholders of S corporations are treated the same as self-
employed individuals. Thus, they were entitled to the 25-
percent deduction.
    Other individuals who purchase their own health insurance 
(e.g., someone whose employer does not provide health 
insurance) can deduct their insurance premiums only to the 
extent that the premiums, when combined with other unreimbursed 
medical expenses, exceed 7.5 percent of adjusted gross income.

                           Reasons for Change

    The 25-percent deduction for health insurance costs of 
self-employed individuals was added by the Tax Reform Act of 
1986 to reduce the disparity between the tax treatment of 
owners of incorporated and unincorporated businesses (e.g., 
partnerships and sole proprietorships). The provision was 
enacted on a temporary basis, and has been extended several 
times since enactment.
    The Committee believes it is appropriate to continue to 
reduce the disparity between the tax treatment of health 
insurance expenses of owners of incorporated and unincorporated 
businesses. Further, the Committee believes that the pattern of 
allowing the deduction to expire and then extending it creates 
unneeded uncertainty for taxpayers. Thus, the Committee 
believes the 25-percent deduction should be made permanent.

                        Explanation of Provision

    The bill retroactively reinstates for 1994 the deduction 
for 25-percent of health insurance costs of self-employed 
individuals and extends the 25-percent deduction permanently.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 1993.

B. Repeal Special Rules Applicable to FCC-Certified Sales of Broadcast 
Properties; Prohibit Nonrecognition of Gain on Involuntary Conversions 
 in Certain Related-Party Transactions (secs. 2 and 3 of the bill and 
                    secs. 1071 and 1033 of the Code)

                               Background

Legislative Background of Code Section 1071

    Code section 1071 was originally enacted as part of the 
Revenue Act of 1943 to help the FCC implement a new policy that 
prohibited licensees from owning more than one radio station 
per market.\2\ Congress believed that the involuntary 
conversion \3\ rules (which generally permitted gain on sales 
of other dispositions of involuntarily converted property to be 
excluded from taxable income if the proceeds were reinvested in 
property similar to the property involuntarily converted) 
should be applied to these transactions, but needed to be 
liberalized for sales ordered by the FCC because, ``[d]ue to 
wartime restrictions, the purchase of new radio property [would 
have been] * * * difficult.'' \4\
    \2\ Revenue Act of 1943, Pub. L. 78-235, sec. 123.
    \3\ An involuntary conversion is generally defined by the Code to 
occur only when property is compulsorily or involuntarily converted as 
a result of its destruction, in whole or in part, by theft, seizure, or 
requisition or condemnation or threat or imminence thereof. Code sec. 
1033(a).
    \4\ S. Rept. No. 627, 78th Cong., 1st Sess., 23 (1943).
---------------------------------------------------------------------------
    As initially reported by the Senate Committee on Finance in 
1943, the provision would have allowed a rollover where the 
sale or exchange of the property was required by the FCC as a 
condition of the granting of an application.\5\ However, the 
conference report stated that because ``the Commission does not 
order or require any particular sale or exchange, it has been 
deemed more appropriate to provide that the election, subject 
to other conditions imposed, shall be available upon 
certification by the Commission that the sale or exchange is 
necessary or appropriate to effectuate the policies of the 
Commission with respect to ownership or control of radio 
broadcasting stations.'' \6\
    \5\ S. Rept. No. 627, 78th Cong., 1st Sess., 23, 53-54 (1943).
    \6\ H. Rept. No. 1079, 78th Cong., 2d Sess., 49-50 (1943).
---------------------------------------------------------------------------
    In 1954, this provision was adopted as section 1071 of the 
1954 Code without change. In adopting the provision, Congress 
noted that the term ``radio broadcasting'' has an ``established 
meaning in the industry and in the administration of the 
Federal Communications Act which is sufficiently comprehensive 
to include telecasting [i.e., television].'' \7\
    \7\ S. Rept. No. 1622, 83rd Cong. 2d Sess., 429 (1954).
---------------------------------------------------------------------------
    In 1958, Code section 1071 was amended to provide that the 
tax certificates should be granted only when the FCC certified 
that a disposition was necessary or appropriate to effectuate a 
change in the policy of, or the adoption of a new policy by, 
the FCC.\8\ Congress was concerned that taxpayers had ``on 
occasion purchased additional facilities in excess of the 
maximum number of facilities permitted under then existing FCC 
rules, and then obtained a certification from the FCC that the 
disposition of the older facility was necessary or appropriate, 
thereby obtaining tax deferment on the gain from the sale.'' 
\9\ In response to this practice, the FCC announced that in the 
future it would grant tax certificates only where the 
disposition was required because of a change in FCC policy or 
rules with respect to the ownership and control of broadcast 
facilities.\10\ In adopting the 1958 changes, Congress agreed 
that ``the announced policy of the FCC in the Federal Register 
is a desirable way of eliminating these voluntary transactions 
from the application of Code section 1071.'' \11\
    \8\ Technical Amendment Act of 1958, Pub. L. 85-866, sec. 52.
    \9\ S. Rept. No. 1983, 85th Cong., 2d Sess., 73-74 (1957).
    \10\ FCC Policy for Tax Certificates, 21 Fed. Reg. 7831 (Oct. 13, 
1956).
    \11\ H. Rept. No. 775, 85th Cong., 1st Sess., 29-30 (1957).
---------------------------------------------------------------------------
    The term ``radio broadcasting'' was expanded to include 
cable television in 1973.\12\ The use of FCC tax certificates 
was recently expanded in connection with the auction of 
personal communications services (see discussion below).
    \12\ Rev. Rul. 73-73, 1973-1 C.B. 371.
---------------------------------------------------------------------------

FCC Administration of Tax Certificate Program

            FCC tax certificate program
                  Multiple ownership policy
    The FCC originally adopted multiple ownership rules in the 
early 1940s.\13\ These rules prohibited broadcast station 
owners from owning more than one station in the same service 
area, and, generally, more than six high frequency (radio) or 
three television stations. Owners wishing to acquire additional 
stations had to divest themselves of stations they already 
owned in order to remain in compliance with the FCC's rules.
    \13\ 5 Fed. Reg. 2382 (June 26, 1940) (multiple ownership rules for 
high frequency broadcast stations); 5 Fed. Reg. 2284 (May 6, 1941) 
(multiple ownership rules for television stations).
---------------------------------------------------------------------------
    In November 1943, the FCC adopted a rule that prohibited 
duopolies (ownership of more than one station in the same 
city).\14\ After these rules were adopted, owners wishing to 
acquire additional stations in excess of the national ownership 
limit had to divest themselves of stations they already owned 
in order to remain in compliance with the FCC's rules. After 
Code section 1071 was adopted in 1943, in some cases, parties 
petitioned the FCC for tax certificates pursuant to Code 
section 1071 when divesting themselves of stations. These 
divestitures were labeled ``voluntary divestitures'' by the 
FCC. When the duopoly rule was adopted, 35 licensees that held 
more than one license in a particular city were required by the 
rule to ``involuntarily'' divest themselves of one of the 
licenses.\15\
    \14\ 8 Fed. Reg. 16065 (Nov. 23, 1943).
    \15\ FCC Announces New Policy Relating to Issuance of Tax 
Certificates, 14 FCC2d 827 (1956).
---------------------------------------------------------------------------
                  Minority ownership policy
    In 1978, the FCC announced a policy of promoting minority 
ownership of broadcast facilities by offering an FCC tax 
certificate to those who voluntarily sell such facilities 
(either in the form of assets or stock) to minority individuals 
or minority-controlled entities.\16\ The FCC's policy was based 
on the view that minority ownership of broadcast stations would 
provide a significant means of fostering the inclusion of 
minority views in programming, thereby serving the needs and 
interests of the minority community as well as enriching and 
educating the non-minority audience. The FCC subsequently 
expanded its policy to include the sale of cable television 
systems to minorities as well.\17\
    \16\ Minority Ownership of Broadcasting Facilities, 68 FCC2d 979 
(1978).
    \17\ Minority Ownership of Cable Television Systems, 52 R.R.2d 1469 
(1982).
---------------------------------------------------------------------------
    ``Minorities,'' within the meaning of the FCC's policy, 
include ``Blacks, Hispanics, American Indians, Alaska Natives, 
Asians, and Pacific Islanders.'' \18\ As a general rule, a 
minority-controlled corporation is one in which more than 50 
percent of the voting stock is held by minorities. A minority-
controlled limited partnership is one in which the general 
partner is a minority or minority-controlled, and minorities 
have at least a 20-percent interest in the partnership.\19\ The 
FCC requires those who acquire broadcast (or cable) properties 
with the help of the FCC tax certificate policy to hold those 
properties for at least one year.\20\ An acquisition can 
qualify even if there is a pre-existing agreement (or option) 
to buy out the minority interests at the end of the one-year 
holding period, providing that the transaction is at arm's-
length.
    \18\ 52 R.R.2d at n. 1.
    \19\ Commission's Policy Regarding the Advancement of Minority 
Ownership in Broadcasting, Policy Statement, and Notice of Proposed 
Rulemaking, 92 FCC2d 853-855 (1982).
    \20\ See Amendment of Section 73.3597 of the Commission's Rules 
(Applications for Voluntary Assignments or Transfers of Control), 57 
R.R.2d 1149 (1985).
---------------------------------------------------------------------------
    In 1982, the FCC further expanded its tax certificate 
policy for minority ownership. At that time, the FCC decided 
that, in addition to those who sell properties to minorities, 
investors who contribute to the stabilization of the capital 
base of a minority enterprise would be entitled to a tax 
certificate upon the subsequent sale of their interest in the 
minority entity.\21\ To qualify for an FCC tax certificate in 
this circumstance, an investor must either (1) provide start-up 
financing that allows a minority to acquire either broadcast or 
cable properties, or (2) purchase shares in a minority-
controlled entity within the first year after the license 
necessary to operate the property is issued to the minority. In 
these situations, the status of the divesting investor and the 
purchaser of the divested interest is irrelevant, because the 
goal is to increase the financing opportunities available to 
minorities.
    \21\ Commission Policy Regarding the Advancement of Minority 
Ownership in Broadcasting, 92 FCC2d 849 (1982).
---------------------------------------------------------------------------
    Since fiscal year 1988, in appropriations legislation, the 
Congress has prohibited the FCC from using any of its 
appropriated funds to repeal, to retroactively apply changes 
in, or to continue a reexamination of its comparative 
licensing, distress sale and tax certificate policies.\22\ This 
limitation has not prevented an expansion of the existing 
program.\23\
    \22\ Pub. L. No. 100-202 (1987).
    \23\ The appropriations restriction ``does not prohibit the agency 
from taking steps to create greater opportunity for minority 
ownership.'' H. Conf. Rep. No. 103-708, 103d Cong. 2d Sess. 40 (1994).
---------------------------------------------------------------------------
                  Personal communications services ownership policy
    In 1993, Congress provided for the orderly transfer of 
frequencies, including frequencies that can be licensed 
pursuant to competitive bidding procedures.\24\ The FCC has 
adopted rules to conduct auctions for the award of more than 
2,000 licenses to provide personal communications services 
(``PCS''). PCS will be provided by means of a new generation of 
communication devices that will include small, lightweight, 
multi-function portable phones, portable facsimile and other 
imaging devices, new types of multi-channel cordless phones, 
and advanced paging devices with two-way data capabilities. The 
PCS auctions (which began last year) will constitute the 
largest auction of public assets in American history and are 
expected to generate billions of dollars for the United States 
Treasury.\25\
    \24\ Omnibus Budget Reconciliation Act of 1993, P.L. 103-66, Title 
VI.
    \25\ Fifth Report and Order, 9 FCC Rcd 5532 (1994).
---------------------------------------------------------------------------
    In their proposed rules, the FCC has designed procedures to 
ensure that small businesses, rural telephone companies and 
businesses owned by women and minorities have ``the opportunity 
to participate in the provision'' of PCS, as Congress directed 
in 1993.\26\ To help minorities and women participate in the 
auction of the PCS licenses, the FCC took several steps 
including a 15-percent bidding credit, a reduced upfront 
payment requirement, a flexible installment payment schedule, 
and an extension of the tax certificate program for businesses 
owned by minorities and women.\27\
    \26\ Omnibus Budget Reconciliation Act of 1993, P.L. 103-66, 
section 6002(a).
    \27\ Installment payments are available to small businesses and 
rural telephone companies.
---------------------------------------------------------------------------
    The tax certificate program for PCS will be extended in 
three ways: (1) initial investors (who provide ``start-up'' 
financing or purchase interests within the first year after 
license issuance) in minority and woman-owned PCS businesses 
will be eligible for FCC tax certificates upon the sale of 
their investments; (2) holders of PCS licenses will be able to 
obtain FCC tax certificates upon the sale of the business to a 
company controlled by minorities and women; and (3) a cellular 
operator that sells its interest in an overlapping cellular 
system to a minority or a woman-owned business to come into 
compliance with the FCC PCS/cellular cross-ownership rule will 
be eligible for a tax certificate.\28\
    \28\ Tax certificates also have been employed as a means of 
encouraging fixed microwave operators to relocate from spectrum 
allocated to emerging technologies. See, Third Report and Order and 
Memorandum Opinion and Order, 8 FCC Rcd 6589 (1993). An AM expanded 
band policy also is available, but has never been used. Review of the 
Technical Assignment Criteria for the AM Broadcast Service, 6 FCC Rcd 
6273 (1991).
---------------------------------------------------------------------------
            FCC interpretation of tax certificate program
    The standards for FCC tax certification have been 
progressively loosened over time. As noted above, in 1956, the 
FCC's construction of the term ``necessary or appropriate'' in 
Code section 1071 led it to require a showing of the 
involuntary nature of the divestiture.\29\ However, in 1970, 
the FCC lessened the required showing to a ``causal 
relationship'' between the divestiture and the specific FCC 
policy, as a condition for the issuance of a certificate.\30\ 
Subsequently, the FCC determined that voluntary divestitures 
that effectuate specific ownership policies are 
``appropriate,'' and eliminated the ``causal relationship'' 
requirements.\31\ Further, in adopting the minority ownership 
policy described above, the FCC stated that ``originally tax 
certification was used to remove the hardship of involuntary 
transfer as a result of divesture imposed by the Commission's 
multiple ownership rules. Now, however, tax certificates are 
routinely approved in voluntary sales. * * *'' \32\
    \29\ FCC Announces New Policy Relating to Tax Certificates, 14 
FCC2d 827 (1956).
    \30\ Issuance of Tax Certificates, 19 RR 1831 (1970).
    \31\ In re Issuance of Tax Certificates, 59 FCC2d 91 (1976).
    \32\ Minority Ownership of Broadcasting Facilities, 68 FCC2d 979 
(1978).
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            Other FCC minority ownership programs
    Apart from the FCC tax certificate program, there are other 
programs administered by the FCC to foster minority ownership. 
The FCC awards comparative merit in licensing proceedings to 
minority applicants in the interest of promoting minority 
entrepreneurship.\33\ In addition, the FCC's distress sale 
policy allows broadcasting licensees whose licenses have been 
designated for revocation hearing, prior to the commencement of 
a hearing, to sell their station to a minority-owned or 
controlled entity, at a price ``substantially'' below its fair 
market value.\34\ A licensee whose license has been designated 
for hearing would ordinarily be prohibited from selling, 
assigning or otherwise disposing of its interest, until the 
issues have been resolved in the licensee's favor.
    \33\ Commission Policy Regarding the Advancement of Minority 
Ownership in Broadcasting, 92 FCC2d 849 (1982).
    \34\ Id.
---------------------------------------------------------------------------
            Effectiveness of FCC minority ownership programs
                  FCC tax certificate program
    The FCC reports that it has issued 390 tax certificates 
since 1978.\35\ Of that total, the FCC has issued 330 tax 
certificates under the minority ownership program \36\ (an 
additional 18 certificates have been issued to parties 
contributing start-up capital to a minority-controlled entity 
to acquire broadcast or cable properties).\37\ Thus, minority 
ownership transfers have represented almost 90 percent of total 
tax certificate transfers over the past 16 years. The majority 
(about 80 percent) of license transfers relating to minority 
ownership tax certificates involve radio properties, as would 
be expected because most outstanding licenses are for 
radio.\38\
    \35\ Statement of William E. Kennard, General Counsel of the FCC, 
before the Subcommittee on Oversight of the Committee on Ways and 
Means, January 27, 1995.
    \36\ Id.
    \37\ Letter from William E. Kennard, General Counsel of the FCC, to 
Kenneth J. Kies, Chief of Staff of the Joint Committee on Taxation, 
dated February 7, 1995.
    \38\ Statement of William E. Kennard, General Counsel of the FCC, 
before the Subcommittee on Oversight of the Committee on Ways and 
Means, January 27, 1995.
---------------------------------------------------------------------------
    The average sales price for the transactions in which tax 
certificates were granted was $3.5 million for radio, and $38 
million for television.\39\ No average sales price information 
is available for cable system sales, although the average sales 
prices is expected to be much larger.\40\ No information is 
available concerning the lost revenue associated with the 
transactions for which the FCC has issued tax certificates in 
minority ownership transfers because the FCC does not take into 
account the amount of lost tax revenue in determining whether 
to issue a tax certificate. Moreover, the FCC does not request 
any such information as part of the application process, nor 
does it request any showing that the amount of the tax benefit, 
which at least initially accrues to the non-minority seller 
generally, is in any way transferred economically to the 
minority-owned or controlled purchaser in the form of a reduced 
purchase price to the minority purchaser.
    \39\ Id.
    \40\ Id.
---------------------------------------------------------------------------
    The 330 license transfers reported over the past 16 years 
do not reflect net additions to the number of licenses held by 
minority persons, because some of the certificate transfers 
under the minority ownership program represent sales from one 
minority person to another minority person. In addition, as 
indicated below, in many cases the minority buyers have 
subsequently sold their interests. Thus, it is not possible to 
determine the extent to which the tax certificate program has 
increased the absolute level of minority ownership of broadcast 
properties.
    The FCC has very little data on the extent to which FCC tax 
certificates foster ``real'' minority ownership of broadcast 
stations. The FCC's records show that four of 40 television 
licenses have been transferred by a minority-controlled entity 
after the license was acquired in a tax certificate 
transaction.\41\ The average holding period for these four 
licenses prior to transfer was 2.25 years. In radio, 130 of 183 
(71 percent) stations acquired in tax certificate transactions 
during the period 1979-1992 for which the FCC has data were 
sold at the close of 1992. The average holding period was 3.5 
years. The FCC was unable to provide data on the number of 
cable licenses acquired in tax certificate transactions and the 
average holding period prior to transfer.
    \41\ Letter from William E. Kennard, General Counsel of the FCC, to 
Kenneth J. Kies, Chief of Staff of the Joint Committee on Taxation, 
dated February 7, 1995.
---------------------------------------------------------------------------
    Recent news reports suggest that FCC tax certificates are 
not fostering ``real'' minority ownership of broadcast 
stations.\42\ In some instances, a minority investor purports 
to control the buyer (often a limited partnership or other 
syndication) but effectively lacks real control due to the 
small economic interest of the minority investor. In other 
instances, minority buyers are reported to have resold the 
broadcast property (or their interest in the property) shortly 
after the original sale.
    \42\ ``Viacom Deal's Big Tax Break Concerns FCC,'' Washington Post, 
January 11, 1995; ``FCC Minority Program Spurs Deals--and Questions,'' 
Washington Post, June 3, 1993; ``How the Rich Get Richer,'' Forbes, May 
15, 1989.
---------------------------------------------------------------------------
                  FCC minority ownership programs
    There is no data that documents the overall effectiveness 
of the FCC minority ownership programs (including the tax 
certificate program) or the effectiveness of any particular FCC 
minority ownership program. Moreover, some recently published 
analysis has questioned both the appropriateness and 
effectiveness of the program.\43\
    \43\ ``Color TV: Diversity-Mongering at the FCC,'' The New 
Republic, Vol. 211; No. 25, p. 9 (December 19, 1994).
---------------------------------------------------------------------------
    Some limited empirical data exists on minority ownership of 
broadcast facilities generally. The National Telecommunications 
and Information Administration reports that minority persons 
hold 2.9 percent of all broadcast licenses.\44\ This is an 
increase from the 1978 level estimated at 0.5 percent, but is 
lower than a peak of 3.0 percent attained in the mid-1980s. 
These ownership numbers, however, do not measure the extent of 
equity investments, but rather attempt to measure ``control'' 
of the broadcast and cable television properties. As discussed 
above, ``control'' has been found by the FCC to exist in the 
context of a purchase of a license by a partnership where the 
minority general partner owns as little as 20 percent of the 
total equity in the purchasing partnership, and that ownership 
interest may be subject to further financial conditions that 
may further weaken the minority's influence.
    \44\ National Telecommunications and Information Administration, 
United States Department of Commerce, Analysis and Compilation of 
Minority-Owned Commercial Broadcast Stations, 1994.
---------------------------------------------------------------------------
    Moreover, the percentages probably overstate the degree of 
minority ownership in broadcasting as the percentage of 
minority ownership in large markets is less than the national 
percentage would suggest. In addition, the percentages are also 
not weighted by the dollar value of outstanding broadcast 
licenses.

                              Present Law

Tax treatment of a Seller of Broadcast Property

                  General tax rules
    Under generally applicable Code provisions, the seller of a 
business, including a broadcast business, recognizes gain to 
the extent the sale price (and any other consideration 
received) exceeds the seller's basis in the property. The 
recognized gain is then subject to the current income tax 
unless the gain is deferred or not recognized under a special 
tax provision.
                  Special rules under Code section 1033
    Under Code section 1033, gain realized by a taxpayer from 
certain involuntary conversions of property is deferred to the 
extent the taxpayer purchases property similar or related in 
service or use to the converted property. The replacement 
property may be acquired directly or by acquiring control of a 
corporation (generally, 80 percent of the stock of the 
corporation) that owns replacement property.
    Only involuntary conversions that result from destruction, 
theft, seizure, or condemnation (or threat or imminence 
thereof) are eligible for deferral under Code section 1033. In 
addition, the term ``condemnation'' refers to the process by 
which private property is taken for public use without the 
consent of the property owner but upon the award and payment of 
just compensation, according to a ruling by the Internal 
Revenue Service (IRS).\45\ Thus, for example, an order by a 
Federal court to a corporation to divest itself of ownership of 
certain stock because of anti-trust rules, is not a 
condemnation (or a threat or imminence thereof), and the 
divestiture is not eligible for deferral under this 
provision.\46\
    \45\ Rev. Rul. 58-11, 1958-1 C.B. 273.
    \46\ Id.
---------------------------------------------------------------------------
    In addition, under rulings issued by the IRS to taxpayers, 
property (stock or assets) purchased from a related person may, 
in some cases, qualify as property similar or related in 
service or use to the converted property.\47\ Thus, in certain 
circumstances, related taxpayers may obtain significant (and 
possibly indefinite) tax deferral without any additional cash 
outlay to acquire new properties.
    \47\ See, e.g., PLR 8132072, PLR 8020069. Private letter rulings do 
not have precedential authority and may not be relied upon by any 
taxpayer other than the taxpayer receiving the ruling but are some 
indication of IRS administrative practice.
---------------------------------------------------------------------------
            Special rules under Code section 1071
    Under Code section 1071, if the FCC certifies that a sale 
or exchange of property is necessary or appropriate to 
effectuate a change in a policy of, or the adoption of a new 
policy by, the FCC with respect to the ownership and control of 
``radio broadcasting stations,'' a taxpayer may elect to treat 
the sale or exchange as an involuntary conversion. The FCC is 
not required to determine the tax consequences of certifying a 
sale or to consult with the IRS about the certification 
process.\48\ No other provision of the Internal Revenue Code 
grants a Federal agency or any other party the type of complete 
discretion conveyed to the FCC by section 1071. Moreover, no 
other tax provision is either drafted or administered in a 
manner which conveys tax benefits solely on the basis of racial 
classification.\49\
    \48\ The FCC allows sellers applying for FCC certificates in cable 
transactions to delete both the sales price and the number of 
subscribers from the transaction documents submitted with the request 
for the certificates.
    \49\ The only possible exception to this rule are various 
provisions applicable to American Indian tribes, although these 
provisions are clearly distinguishable due to the fact that they 
generally emanate from the separate nation status of American Indians 
reflected, at least in part, in the rights conveyed on American Indians 
by treaties with the U.S. government.
---------------------------------------------------------------------------
    Under Code section 1071, the replacement requirement in the 
case of FCC-certified sales may be satisfied by purchasing 
stock of a corporation that owns broadcasting property, whether 
or not the stock represents control of the corporation. In 
addition, even if the taxpayer does not reinvest all the sales 
proceeds in similar or related replacement property, the 
taxpayer nonetheless may elect to defer recognition of gain if 
the basis of depreciable property that is owned by the taxpayer 
immediately after the sale or that is acquired during the same 
taxable year is reduced by the amount of deferred gain.

Tax Treatment of a Buyer of Broadcast Property

    Under generally applicable Code provisions, the purchaser 
of a broadcast business, or any other business, acquires a 
basis equal to the purchase price paid. In an asset 
acquisition, a buyer must allocate the purchase price among the 
purchased assets to determine the buyer's basis in these 
assets. In a stock acquisition, the buyer takes a basis in the 
stock equal to the purchase price paid, and the business 
retains its basis in the assets. This treatment applies whether 
or not the seller of the broadcast property has received an FCC 
certificate exempting the sale transaction from the normal tax 
treatment.

                           Reasons for Change

    Testimony provided at the Oversight Subcommittee's January 
27, 1995, hearing, and documents reviewed pursuant to the 
Subcommittee's examination, revealed serious tax policy 
problems with this provision of the Internal Revenue Code. 
Moreover, the Subcommittee's review revealed serious problems 
in the operation and administration of Code Section 1071 by the 
FCC. As an initial matter, the FCC's progressive loosening of 
the standards for issuing tax certificates went far beyond what 
Congress originally contemplated for administration of the 
provision. Congress originally intended Code section 1071 to 
alleviate the burden of taxpayers who had been forced to sell 
their radio stations under difficult wartime circumstances. The 
FCC has interpreted the provision to permit the FCC to grant 
unlimited tax benefits for routine and voluntary sales of a 
wide range of communication properties.
    In addition, the FCC's standards for issuing tax 
certificates have been so vague that the program appears to 
have been subject to significant abuse. For example, the FCC's 
definition of ``control'' for purposes of its minority 
ownership policies provides little guarantee that a minority 
will effectively manage a broadcast property after the sale of 
property has been certified. Moreover, the FCC does not require 
continuing minority ownership as condition of receiving an FCC 
certificate and, in many cases, the minority ownership or 
control has been merely transitory. For example, with respect 
to radio station transactions receiving tax certificates during 
the period 1979-1992 and for which the FCC was able to supply 
data, approximately 71 percent of such stations were no longer 
held by the original minority purchaser at the close of 1992.
    Further, the FCC's interpretation and administration of the 
tax certificate program has not been supervised by the IRS, or 
any other government body that could evaluate the tax cost of 
the program. Also, the FCC's tax certificate program has not 
been subject to any systematic review of its total cost to the 
taxpayers. In granting tax certificates, the FCC does not take 
into account the size of the potential tax benefit involved. 
Indeed, neither the FCC nor the IRS request information 
concerning the magnitude of the tax benefit granted in 
determining whether to issue tax certificates. The FCC also 
does not request any showing or representation that the amount 
of the tax benefits, which at least initially accrue to the 
non-minority seller generally, is in any way reflected in the 
form of a lower purchase price to the minority-owned or 
controlled purchaser. As a result, it is possible that, in many 
cases, the entire tax benefit accrues to the non-minority 
seller.
    From a tax policy perspective, the Oversight Subcommittee's 
review revealed serious deficiencies in section 1071. No other 
provision of the Internal Revenue Code conveys the level of 
discretion to a Federal government agency (or any other party 
for that matter) in any way comparable to the discretion 
conveyed on the FCC by section 1071. Thus, section 1071 grants 
the authority to the FCC to administer what is, in effect, an 
open-ended entitlement program with no constraints imposed to 
limit the extent to which the FCC may utilize the provision. 
Moreover, no other provision, either by its statutory terms or 
through its administration, conveys tax benefits solely on the 
basis of racial status.
    Finally, the benefits of the FCC certificate program have 
not been quantified in any meaningful manner. As noted above, 
tax certificates have been issued for sales of broadcast 
property to ``minority controlled'' entities that do not appear 
to have fostered significant minority ownership of broadcast 
stations. Because the FCC generally requires only one year of 
minority ownership or control to qualify for a tax certificate, 
section 1071 has frequently resulted in only transitory 
minority ownership of broadcast properties, i.e., in many cases 
the granting of the tax certificate has not resulted in 
achieving the objective of minority ownership or control.
    As a result of these considerations, the Committee 
concluded that the tax cost of the FCC tax certificate program 
far outweighs any demonstrated benefit of the program. The 
Committee also concluded that the section is completely 
inconsistent with sound tax policy. The Committee therefore is 
repealing the provision.
    In the course of its deliberations, the Committee also 
became aware of problems with the operation of Code section 
1033. Under interpretations issued by the IRS, taxpayers are 
able to purchase replacement property from a related party, 
thereby avoiding the need to buy ``new'' replacement property 
and, sometimes, effectively resulting in a total tax 
forgiveness for the transaction. The Committee intends that, in 
the future, taxpayers be required to buy replacement property 
only from unrelated persons in order to receive the special tax 
treatment under section 1033.

                       Explanation of Provisions

Repeal of Code Section 1071 (sec. 2 of the bill)

    The bill repeals Code section 1071. Thus, a sale or 
exchange of broadcast properties would be subject to the same 
tax rules applicable to all other taxpayers engaged in the sale 
or exchange of a business.

Modification of Code Section 1033 (sec. 3 of the bill)

    In addition, under the bill, a taxpayer may not defer gain 
under Code section 1033 when the replacement property or stock 
is purchased from a related person. For purposes of the bill, a 
person is treated as related to another person if the 
relationship between the persons would result in a disallowance 
of losses under the rules of Code section 267 or 707(b).

                            Effective Dates

Repeal of Code Section 1071

    The repeal of section 1071 is effective for (1) sales or 
exchanges on or after January 17, 1995 (the date of Chairman 
Archer's press release), and (2) sales or exchanges before that 
date if the FCC tax certificate with respect to the sale or 
exchange is issued on or after that date. The provision does 
not apply to taxpayers who have entered into a binding written 
contract (or have completed a sale or exchange pursuant to a 
binding written contract) before January 17, 1995, and who have 
applied for an FCC tax certificate by that date. A contract is 
treated as not binding for this purpose if the sale or exchange 
pursuant to the contract (or the material terms of the 
contract) were contingent on January 16, 1995, on issuance of 
an FCC tax certificate. A sale or exchange would not be 
contingent on January 16, 1995, on issuance of an FCC tax 
certificate if the tax certificate had been issued by the FCC 
by that date.

Modification of Code Section 1033

    The prohibition against nonrecognition of gain in certain 
related-party transactions applies to replacement property or 
stock acquired on or after February 6, 1995 (the date of 
introduction of H.R. 831).

 C. Interest and Dividend Test for Earned Income Tax Credit (sec. 4 of 
                   the bill and sec. 32 of the Code)

                              Present Law

    Eligible low-income workers are able to claim a refundable 
earned income tax credit (EITC). The amount of the credit an 
eligible taxpayer may claim depends upon whether the taxpayer 
has one, more than one, or no qualifying children and is 
determined by multiplying the credit rate by the taxpayer's 
earned income up to an earned income threshold. The maximum 
amount of the credit is the product of the credit rate and the 
earned income threshold. For taxpayers with earned income (or 
adjusted gross income, if greater) in excess of the phaseout 
threshold, the credit amount is reduced by the phaseout rate 
multiplied by the amount of earned income (or adjusted gross 
income, if greater) in excess of the phaseout threshold. The 
credit is not allowed if earned income (or adjusted gross 
income, if greater) exceeds the phaseout limit. There is no 
additional limitation on the amount of interest and dividend 
income that the taxpayer may receive.
    The parameters for the EITC depend upon the number of 
qualifying children the taxpayer claims. For 1995 the 
parameters are as follows:

------------------------------------------------------------------------
                            Two or more                                 
                            qualifying    One qualifying   No qualifying
                            children--        child--       children--  
------------------------------------------------------------------------
Credit rate (in percent)           36.00           34.00            7.65
Phaseout rate (in                                                       
 percent)...............           20.22           15.98            7.65
Earned income threshold.          $8,640          $6,160          $4,100
Maximum credit..........          $3,110          $2,094            $314
Phaseout threshold......         $11,290         $11,290          $5,130
Phaseout limit..........         $26,673         $24,396          $9,230
------------------------------------------------------------------------

    The earned income threshold and the phaseout threshold are 
indexed for inflation; because the phaseout limit depends on 
those amounts, the phaseout rate, and the credit rate, the 
phaseout limit will also increase if there is inflation. Earned 
income consists of wages, salaries, other employee 
compensation, and net self-employment income.
    The credit rates and phaseout rates for the EITC change 
over time under present law. For 1996 and after, the credit 
rate will be 40 percent and the phaseout rate will be 21.06 
percent for taxpayers with two or more qualifying children. The 
credit rate and the phaseout rate for taxpayers with one 
qualifying child or no qualifying children will be the same as 
those listed in the table above.
    In order to claim the EITC, a taxpayer must either have a 
qualifying child or must meet other requirements. A qualifying 
child must meet a relationship test, an age test, and a 
residence test. In order to claim the EITC without a qualifying 
child, a taxpayer must not be a dependent and must be over age 
24 and under age 65.

                           Reasons for Change

    Under present law, a taxpayer may have relatively low 
earned income, and therefore may be eligible for the EITC, 
despite also having significant interest and dividend income. 
The Committee believes that the EITC should be targeted to 
families with the greatest need. Therefore, the Committee 
believes that it is inappropriate to allow the EITC to 
taxpayers with significant interest and dividend income.

                        Explanation of Provision

    Under the bill, a taxpayer is not eligible for the EITC if 
the aggregate amount of interest and dividends includible in 
his or her income for the taxable year exceeds $3,150. The 
otherwise allowable EITC amount is phased out ratably for 
taxpayers with aggregate taxable interest and dividend income 
between $2,500 and $3,150. For taxable years beginning after 
1996, the $2,500 threshold and the $650 size of the phaseout 
will be indexed for inflation, with rounding to the nearest 
multiple of $10.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 1995.
                      III. VOTES OF THE COMMITTEE

    In compliance with clause 2(l)(2)(B) of rule XI of the 
Rules of the House of Representatives, the following statements 
are made concerning the votes of the Committee in its 
consideration of the bill, H.R. 831.
Motion to Report the Bill
    The bill, H.R. 831, as amended, was ordered favorably 
reported by voice vote on February 8, 1995, with a quorum 
present.
Votes on Amendments
    The Committee defeated an amendment (9 yeas and 27 nays) 
offered by Mr. Jacobs to strike the bill's proposed repeal of 
Code section 1071 (FCC tax certificate program) and replace the 
provision with a reinstatement of the prior law withholding tax 
on interest from sources within the United States paid to 
foreign persons, effective for interest paid on or after 
January 17, 1995. The roll call vote was as follows:
        YEAS                          NAYS
Mr. Rangel                          Mr. Archer
Mr. Stark                           Mr. Crane
Mr. Jacobs                          Mr. Thomas
Mr. Ford                            Mr. Shaw
Mrs. Kennelly                       Mrs. Johnson
Mr. Coyne                           Mr. Bunning
Mr. McDermott                       Mr. Houghton
Mr. Lewis                           Mr. Herger
Mr. Neal                            Mr. McCrery
                                    Mr. Hancock
                                    Mr. Camp
                                    Mr. Ramstad
                                    Mr. Zimmer
                                    Mr. Nussle
                                    Mr. Johnson
                                    Ms. Dunn
                                    Mr. Collins
                                    Mr. Portman
                                    Mr. English
                                    Mr. Ensign
                                    Mr. Christensen
                                    Mr. Gibbons
                                    Mr. Matsui
                                    Mr. Levin
                                    Mr. Cardin
                                    Mr. Kleczka
                                    Mr. Payne

    The Committee defeated an amendment (10 yeas and 25 nays) 
offered by Mr. Ford of Tennessee to strike the bill's proposed 
repeal of Code section 1071 (FCC tax certificate program) and 
replace it with a provision to disallow expense treatment for 
intangible drilling and development costs, effective for costs 
incurred on or after January 17, 1995. The roll call vote was 
as follows:
        YEAS                          NAYS
Mr. Gibbons                         Mr. Archer
Mr. Rangel                          Mr. Crane
Mr. Stark                           Mr. Thomas
Mr. Jacobs                          Mr. Shaw
Mr. Ford                            Mrs. Johnson
Mrs. Kennelly                       Mr. Bunning
Mr. Coyne                           Mr. Houghton
Mr. McDermott                       Mr. McCrery
Mr. Lewis                           Mr. Hancock
Mr. Neal                            Mr. Camp
                                    Mr. Ramstad
                                    Mr. Zimmer
                                    Mr. Nussle
                                    Mr. Johnson
                                    Ms. Dunn
                                    Mr. Collins
                                    Mr. Portman
                                    Mr. English
                                    Mr. Ensign
                                    Mr. Christensen
                                    Mr. Matsui
                                    Mr. Levin
                                    Mr. Cardin
                                    Mr. Kleczka
                                    Mr. Payne

    The Committee defeated an amendment (15 yeas and 21 nays) 
offered by Mr. McDermott to replace the repeal of Code section 
1071 with an en bloc amendment relating to the FCC tax 
certificate program and a provision from the President's fiscal 
year 1996 budget proposal to tax the unrealized appreciation of 
assets held by citizens of the United States who renounce their 
U.S. citizenship. The roll call vote was as follows:
        YEAS                          NAYS
Mr. Gibbons                         Mr. Archer
Mr. Rangel                          Mr. Crane
Mr. Stark                           Mr. Thomas
Mr. Jacobs                          Mr. Shaw
Mr. Ford                            Mrs. Johnson
Mr. Matsui                          Mr. Bunning
Mrs. Kennelly                       Mr. Houghton
Mr. Coyne                           Mr. Herger
Mr. Levin                           Mr. McCrery
Mr. Cardin                          Mr. Hancock
Mr. McDermott                       Mr. Camp
Mr. Kleczka                         Mr. Ramstad
Mr. Lewis                           Mr. Zimmer
Mr. Payne                           Mr. Nussle
Mr. Neal                            Mr. Johnson
                                    Ms. Dunn
                                    Mr. Collins
                                    Mr. Portman
                                    Mr. English
                                    Mr. Ensign
                                    Mr. Christensen

    The Committee defeated an amendment (10 yeas and 26 nays) 
offered by Mr. Rangel to strike section 2 of the bill (relating 
to the FCC tax certificate program). The roll call vote was as 
follows:
        YEAS                          NAYS
Mr. Gibbons                         Mr. Archer
Mr. Rangel                          Mr. Crane
Mr. Stark                           Mr. Thomas
Mr. Jacobs                          Mr. Shaw
Mr. Ford                            Mrs. Johnson
Mrs. Kennelly                       Mr. Bunning
Mr. Coyne                           Mr. Houghton
Mr. McDermott                       Mr. Herger
Mr. Lewis                           Mr. McCrery
Mr. Neal                            Mr. Hancock
                                    Mr. Camp
                                    Mr. Ramstad
                                    Mr. Zimmer
                                    Mr. Nussle
                                    Mr. Johnson
                                    Ms. Dunn
                                    Mr. Collins
                                    Mr. Portman
                                    Mr. English
                                    Mr. Ensign
                                    Mr. Christensen
                                    Mr. Matsui
                                    Mr. Levin
                                    Mr. Cardin
                                    Mr. Kleczka
                                    Mr. Payne

    The Committee defeated an amendment (15 yeas and 20 nays) 
offered by Messrs. Cardin and Neal to increase the deduction 
for health insurance costs of the self-employed to 80 percent 
for 1995 and 1996, and to sunset the deduction after 1996. The 
roll call vote was as follows:
        YEAS                          NAYS
Mr. Gibbons                         Mr. Archer
Mr. Rangel                          Mr. Crane
Mr. Stark                           Mr. Thomas
Mr. Jacobs                          Mr. Shaw
Mr. Ford                            Mrs. Johnson
Mr. Matsui                          Mr. Bunning
Mrs. Kennelly                       Mr. Houghton
Mr. Coyne                           Mr. Herger
Mr. Levin                           Mr. McCrery
Mr. Cardin                          Mr. Hancock
Mr. McDermott                       Mr. Camp
Mr. Kleczka                         Mr. Ramstad
Mr. Lewis                           Mr. Zimmer
Mr. Payne                           Mr. Nussle
Mr. Neal                            Mr. Johnson
                                    Ms. Dunn
                                    Mr. Collins
                                    Mr. Portman
                                    Mr. English
                                    Mr. Christensen

    The Committee defeated an amendment (9 yeas and 27 nays) 
offered by Mr. Ford to strike the bill's repeal of Code section 
1071 and replace it with a repeal of percentage depletion for 
oil and gas wells, effective for periods on or after January 
17, 1995. The roll call vote was as follows:
        YEAS                          NAYS
Mr. Gibbons                         Mr. Archer
Mr. Rangel                          Mr. Crane
Mr. Stark                           Mr. Thomas
Mr. Jacobs                          Mr. Shaw
Mr. Ford                            Mrs. Johnson
Mrs. Kennelly                       Mr. Bunning
Mr. Coyne                           Mr. Houghton
Mr. McDermott                       Mr. Herger
Mr. Lewis                           Mr. McCrery
                                    Mr. Hancock
                                    Mr. Camp
                                    Mr. Ramstad
                                    Mr. Zimmer
                                    Mr. Nussle
                                    Mr. Johnson
                                    Ms. Dunn
                                    Mr. Collins
                                    Mr. Portman
                                    Mr. English
                                    Mr. Ensign
                                    Mr. Christensen
                                    Mr. Matsui
                                    Mr. Levin
                                    Mr. Cardin
                                    Mr. Kleczka
                                    Mr. Payne
                                    Mr. Neal

    The Committee defeated an amendment (14 yeas and 20 nays) 
offered by Mr. McDermott to provide that employees not eligible 
to participate in an employer-subsidized health plan would be 
eligible to deduct 25 percent of their health insurance 
premiums. The roll call vote was as follows:
        YEAS                          NAYS
Mr. Gibbons                         Mr. Archer
Mr. Stark                           Mr. Crane
Mr. Jacobs                          Mr. Thomas
Mr. Ford                            Mr. Shaw
Mr. Matsui                          Mrs. Johnson
Mrs. Kennelly                       Mr. Bunning
Mr. Coyne                           Mr. Houghton
Mr. Levin                           Mr. McCrery
Mr. Cardin                          Mr. Hancock
Mr. McDermott                       Mr. Camp
Mr. Kleczka                         Mr. Ramstad
Mr. Lewis                           Mr. Zimmer
Mr. Payne                           Mr. Nussle
Mr. Neal                            Mr. Johnson
                                    Ms. Dunn
                                    Mr. Collins
                                    Mr. Portman
                                    Mr. English
                                    Mr. Ensign
                                    Mr. Christensen

    The Committee defeated an amendment (14 yeas and 21 nays) 
offered by Mr. Ford to impose a 6-month moratorium on issuance 
of FCC tax certificates. A report would be required by the 
Department of the Treasury to the Committee on Ways and Means 
by July 8, 1995, with recommendations for reform of Code 
section 1071. The roll call vote was as follows:
        YEAS                          NAYS
Mr. Gibbons                         Mr. Archer
Mr. Stark                           Mr. Crane
Mr. Jacobs                          Mr. Thomas
Mr. Ford                            Mr. Shaw
Mr. Matsui                          Mrs. Johnson
Mrs. Kennelly                       Mr. Bunning
Mr. Coyne                           Mr. Houghton
Mr. Levin                           Mr. Herger
Mr. Cardin                          Mr. McCrery
Mr. McDermott                       Mr. Hancock
Mr. Kleczka                         Mr. Camp
Mr. Lewis                           Mr. Ramstad
Mr. Payne                           Mr. Zimmer
Mr. Neal                            Mr. Nussle
                                    Mr. Johnson
                                    Mr. Dunn
                                    Ms. Collins
                                    Mr. Portman
                                    Mr. English
                                    Mr. Ensign
                                    Mr. Christensen

    The Committee defeated an amendment (13 yeas and 22 nays) 
offered by Mr. Stark to remove the current time limitations on 
COBRA health insurance continuation benefits. The roll call 
vote was as follows:
        YEAS                          NAYS
Mr. Gibbons                         Mr. Archer
Mr. Rangel                          Mr. Crane
Mr. Stark                           Mr. Thomas
Mr. Ford                            Mr. Shaw
Mr. Matsui                          Mrs. Johnson
Mrs. Kennelly                       Mr. Bunning
Mr. Coyne                           Mr. Houghton
Mr. Levin                           Mr. Herger
Mr. Cardin                          Mr. McCrery
Mr. McDermott                       Mr. Hancock
Mr. Kleczka                         Mr. Camp
Mr. Lewis                           Mr. Ramstad
Mr. Neal                            Mr. Zimmer
                                    Mr. Nussle
                                    Mr. Johnson
                                    Ms. Dunn
                                    Mr. Collins
                                    Mr. Portman
                                    Mr. English
                                    Mr. Ensign
                                    Mr. Christensen
                                    Mr. Payne

    The Committee defeated an amendment (15 yeas and 21 nays) 
offered by Mr. Rangel to strike section 3 of the bill (relating 
to nonrecognition of gain on involuntary conversions not to 
apply if replacement property is acquired from a related 
person). The roll call vote was as follows:
        YEAS                          NAYS
Mr. Gibbons                         Mr. Archer
Mr. Rangel                          Mr. Crane
Mr. Stark                           Mr. Thomas
Mr. Jacobs                          Mr. Shaw
Mr. Ford                            Mrs. Johnson
Mr. Matsui                          Mr. Bunning
Mrs. Kennelly                       Mr. Houghton
Mr. Coyne                           Mr. Herger
Mr. Levin                           Mr. McCrery
Mr. Cardin                          Mr. Hancock
Mr. McDermott                       Mr. Camp
Mr. Kleczka                         Mr. Ramstad
Mr. Lewis                           Mr. Zimmer
Mr. Payne                           Mr. Nussle
Mr. Neal                            Mr. Johnson
                                    Ms. Dunn
                                    Mr. Collins
                                    Mr. Portman
                                    Mr. English
                                    Mr. Ensign
                                    Mr. Christensen
                     IV. BUDGET EFFECTS OF THE BILL

               A. Committee Estimate of Budgetary Effects

    In compliance with clause 7(a) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of this bill, H.R. 831, as 
reported.
    The bill, as amended, is estimated to have the following 
effects on budget receipts (and outlays) for fiscal years 1995-
2000:

               Estimated Budget Effects of H.R. 831 as Reported by the Committee on Ways and Means              
                                [Fiscal years 1995-2000--in millions of dollars]                                
----------------------------------------------------------------------------------------------------------------
           Provision             Effective    1995      1996      1997      1998      1999      2000     1995-00
----------------------------------------------------------------------------------------------------------------
1. Extend 25% self-employed                                                                                     
 health deduction permanently..     1/1/94      -487      -398      -435      -484      -536      -584    -2,925
2. Repeal section 1071 (FCC tax                                                                                 
 certificate program)..........    1/17/95       334       411       135       135       170       201     1,386
3. Modify section 1033 (non-                                                                                    
 recognition of gain on                                                                                         
 involuntary conversions not to                                                                                 
 apply to related persons) \1\.     2/6/95        11        27        36        49        67        99       289
4. Deny earned income tax                                                                                       
 credit to individuals with                                                                                     
 interest and dividend income                                                                                   
 greater than $2,500 (phaseout                                                                                  
 between $2,500 and $3,150 )\2\     1/1/96  ........        14       285       308       318       335     1,260
                                --------------------------------------------------------------------------------
      Total....................  .........      -142        54        21         8        19        51       10 
----------------------------------------------------------------------------------------------------------------
\1\ This estimate includes adjustment to account for interaction with the repeal of section 1071.               
\2\ Included in this estimate are decreases in EITC outlays of $12 million for FY 1996, $231 million for FY     
  1997, $246 million for FY 1998, $256 million for FY 1999, and $269 million for FY 2000.                       
                                                                                                                
Note.--Details may not add to totals due to rounding.                                                           
                                                                                                                
Source: Joint Committee on Taxation.                                                                            

    B. Statement Regarding New Budget Authority and Tax Expenditures

    In compliance with subdivision (B) of clause 2(l)(3) of 
rule XI of the Rules of the House of Representatives, the 
Committee states that the outlay portion of the interest and 
dividend limitation on the EITC involves decreased budget 
authority (amounts shown above in IV.A).
    The Committee further states that the extension of the 
deduction for health insurance costs of self-employed 
individuals involves increased tax expenditures (amounts shown 
above in IV.A), and that the revenue-increasing provisions 
(repeal of FCC tax certificate program under Code section 1071, 
involuntary conversion provision for related persons under Code 
section 1033, and the receipts portion of the interest and 
dividend limitation on the EITC) involve reductions in tax 
expenditures (amounts shown above in IV.A).

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with subdivision (C) of clause 2(l)(3) of 
rule XI of the Rules of the House of Representatives, requiring 
a cost estimate prepared by the Congressional Budget Office, 
the following report prepared by CBO is provided. The Committee 
agrees with the estimate prepared by CBO.

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, February 14, 1995.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office and the 
Joint Committee on Taxation (JCT) have reviewed H.R. 831, as 
ordered reported by the House Committee on Ways and Means on 
February 8, 1995. The JCT estimates that this bill would 
increase the deficit by $142 million in fiscal year 1995 and 
decrease the deficit by $10 million over fiscal years 1995 
through 2000.
    H.R. 831 would make permanent the 25 percent deduction for 
health insurance costs of self-employed individuals that 
expired after December 31, 1993. The deduction would be 
effective for taxable years beginning after December 31, 1993.
    To offset the revenue loss from extending the deduction, 
the bill would repeal the provision of the Internal Revenue 
Code that permits nonrecognition of gain on sales and exchanges 
effectuating policies of the Federal Communications Commission 
and would prohibit nonrecognition of gain on involuntary 
conversions in certain related-party transactions. Also, the 
bill would deny the earned income tax credit to individuals 
having more than $2,500 of interest and dividend income. The 
budget effects of the bill are shown below.

                       Budget Effects of H.R. 831                       
                [By fiscal year, in millions of dollars]                
------------------------------------------------------------------------
                      1995     1996     1997     1998     1999     2000 
------------------------------------------------------------------------
Estimated revenues                                                      
 \1\..............     -142       42     -210     -238     -237     -218
Estimated outlays.        0      -12     -231     -246     -256     -269
Net increase (+)                                                        
 or decrease (-)                                                        
 in deficit.......      142      -54      -21       -8      -19      -51
------------------------------------------------------------------------
\1\ Positive changes refer to an increase in revenues.                  

    Section 252 of the Balanced Budget and Emergency Deficit 
Control Act of 1985 sets up pay-as-you-go procedures for 
legislation affecting receipts or direct spending through 1998. 
Because H.R. 831 would affect receipts, pay-as-you-go 
procedures would apply to the bill. These effects are 
summarized in the table below.

                      Pay-as-You-Go Considerations                      
                [By fiscal years, in millions of dollars]               
------------------------------------------------------------------------
                          1995         1996         1997         1998   
------------------------------------------------------------------------
Changes in Receipts.         -142           42         -210         -238
Changes in Outlays..            0          -12         -231         -246
------------------------------------------------------------------------

    If you wish further details, please feel free to contact me 
or your staff may wish to contact Melissa Sampson at 226-2720.
            Sincerely,
                                              James L. Blum
                              (For Robert D. Reischauer, Director).
     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

          A. Committee Oversight Findings and Recommendations

    With respect to subdivision (A) of clause 2(l)(3) of rule 
XI of the Rules of the House of Representatives (relating to 
oversight findings), the Committee advises that it was as a 
result of the Committee's oversight activities concerning the 
deduction for health insurance costs of self-employed 
individuals, the trends in the administration and operation of 
the FCC's tax certificate program (under Code section 1071), 
the nonrecognition of gain on involuntary conversions (under 
Code section 1033) where replacement property is acquired from 
a related person, and the availability of the EITC for 
individuals with significant amounts of unearned income from 
taxable interest and dividends that the Committee concluded 
that it is appropriate to enact the provisions contained in the 
bill as amended. (See also Parts I.B and I.C of this report for 
a discussion of the background of the bill and the legislative 
history and hearings held on the provisions included in the 
bill).

    B. Summary of Findings and Recommendations of the Committee on 
                    Government Reform and Oversight

    With respect to subdivision (D) of clause 2(l)(3) of rule 
XI of the Rules of the House of Representatives, the Committee 
advises that no oversight findings or recommendations have been 
submitted to this Committee by the Committee on Government 
Reform and Oversight with respect to the provisions contained 
in this bill.

                    C. Inflationary Impact Statement

    In compliance with clause 2(l)(4) of rule XI of the Rules 
of the House of Representatives, the Committee states that the 
provisions of the bill are not expected to have an overall 
inflationary impact on prices and costs in the operation of the 
national economy. As indicated above (in Part IV of this 
report), the bill is projected to be deficit neutral over 
fiscal years 1995-2000.
       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In compliance with clause 3 of rule XIII of the rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                     INTERNAL REVENUE CODE OF 1986

                        Subtitle A--Income Taxes

                  CHAPTER 1--NORMAL TAXES AND SURTAXES

              Subchapter A--Determination of Tax Liability

          * * * * * * *

                      PART IV--CREDITS AGAINST TAX

          * * * * * * *

                     Subpart C--Refundable Credits

          * * * * * * *

SEC. 32. EARNED INCOME.

    (a) * * *
          * * * * * * *
    (i) Phaseout of Credit for Individuals Having More Than 
$2,500 of Taxable Interest and Dividends.--If the aggregate 
amount of interest and dividends includible in the gross income 
of the taxpayer for the taxable year exceeds $2,500, the amount 
of the credit which would (but for this subsection) be allowed 
under this section for such taxable year shall be reduced (but 
not below zero) by an amount which bears the same ratio to such 
amount of credit as such excess bears to $650.
    [(i)] (j) Inflation Adjustments.--
          (1) In general.--In the case of any taxable year 
        beginning after 1994, each dollar amount contained in 
        subsection (b)(2)(A) shall be increased by an amount 
        equal to--
                  (A) such dollar amount, multiplied by
                  (B) the cost-of-living adjustment determined 
                under section 1(f)(3), for the calendar year in 
                which the taxable year begins, by substituting 
                ``calendar year 1993'' for ``calendar year 
                1992''.
          [(2) Rounding.--If any dollar amount after being 
        increased under paragraph (1) is not a multiple of $10, 
        such dollar amount shall be rounded to the nearest 
        multiple of $10 (or, if such dollar amount is a 
        multiple of $5, such dollar amount shall be increased 
        to the next higher multiple of $10).]
          (2) Interest and dividend income limitation.--In the 
        case of a taxable year beginning in a calendar year 
        after 1996, each dollar amount contained in subsection 
        (i) shall be increased by an amount equal to--
                  (A) such dollar amount, multiplied by
                  (B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in 
                which the taxable year begins, determined by 
                substituting ``calendar year 1995'' for 
                ``calendar year 1992'' in subparagraph (B) 
                thereof.
          (3) Rounding.--If any amount as adjusted under 
        paragraph (1) or (2) is not a multiple of $10, such 
        dollar amount shall be rounded to the nearest multiple 
        of $10.
    [(j)] (k) Coordination With Certain Means-Tested 
Programs.--For purposes of--
          (1) the United States Housing Act of 1937,
          (2) title V of the Housing Act of 1949,
          (3) section 101 of the Housing and Urban Development 
        Act of 1965,
          (4) section 221(d)(3), 235, and 236 of the National 
        Housing Act, and
          (5) the Food Stamp Act of 1977,
any refund made to an individual (or the spouse of an 
individual) by reason of this section, and any payment made to 
such individual (or such spouse) by an employer under section 
3507, shall not be treated as income (and shall not be taken 
into account in determining resources for the month of its 
receipt and the following month).
          * * * * * * *

              Subchapter B--Computation of Taxable Income

          * * * * * * *

     PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

          * * * * * * *

SEC. 162. TRADE OR BUSINESS EXPENSES.

    (a) * * *
          * * * * * * *
    (l) Special Rules for Health Insurance Costs of Self-
Employed Individuals.--
          (1) * * *
          * * * * * * *
          [(6) Termination.--This subsection shall not apply to 
        any taxable year beginning after December 31, 1993.]
          * * * * * * *

         Subchapter O--Gain or Loss on Disposition of Property

        Part I.  Determination of amount and recognition of gain or 
                  loss.
     * * * * * * *
        [Part V.  Changes to effectuate F.C.C. policy.]
     * * * * * * *

                 PART III--COMMON NONTAXABLE EXCHANGES

          * * * * * * *

SEC. 1033. INVOLUNTARY CONVERSIONS.

    (a) * * *
          * * * * * * *
    (i) Nonrecognition Not To Apply if Replacement Property 
Acquired From Related Person.--Subsection (a) shall not apply 
if the replacement property or stock acquired is acquired from 
a related person. For purposes of the preceding sentence, a 
person is related to another person if the relationship between 
such persons would result in a disallowance of losses under 
section 267 or 707(b).
    [(i)] (j) Cross References.--
          (1) For determination of the period for which the taxpayer has 
        held property involuntarily converted, see section 1223.
          (2) For treatment of gains from involuntary conversions as 
        capital gains in certain cases, see section 1231(a).
          (3) For one-time exclusion from gross income of gain from 
        involuntary conversion of principal residence by individual who 
        has attained age 55, see section 121.
     * * * * * * *

              [PART V--CHANGES TO EFFECTUATE F.C.C. POLICY

[Sec. 1071. Gain from sale or exchange to effectuate policies of F. C. 
          C.

[SEC. 1071. GAIN FROM SALE OR EXCHANGE TO EFFECTUATE POLICIES OF F.C.C.

    [(a) Nonrecognition of Gain or Loss.--If the sale or 
exchange of property (including stock in a corporation) is 
certified by the Federal Communications Commission to be 
necessary or appropriate to effectuate a change in a policy of, 
or the adoption of a new policy by, the Commission with respect 
to the ownership and control of radio broadcasting stations, 
such sale or exchange shall, if the taxpayer so elects, be 
treated as an involuntary conversion of such property within 
the meaning of section 1033. For purposes of such section as 
made applicable by the provisions of this section, stock of a 
corporation operating a radio broadcasting station, whether or 
not representing control of such corporation, shall be treated 
as property similar or related in service or use to the 
property so converted. The part of the gain, if any, on such 
sale or exchange to which section 1033 is not applied shall 
nevertheless not be recognized, if the taxpayer so elects, to 
the extent that it is applied to reduce the basis for 
determining gain or loss on sale or exchange of property, of a 
character subject to the allowance for depreciation under 
section 167, remaining in the hands of the taxpayer immediately 
after the sale or exchange, or acquired in the same taxable 
year. The manner and amount of such reduction shall be 
determined under regulations prescribed by the Secretary. Any 
election made by the taxpayer under this section shall be made 
by a statement to that effect in his return for the taxable 
year in which the sale or exchange takes place, and such 
election shall be binding for the taxable year and all 
subsequent taxable years.
    [(b) Basis.--
          [For basis of property acquired on a sale or exchange treated 
        as an involuntary conversion under subsection (a), see section 
        1033(b).]
     * * * * * * *
   VII. DISSENTING VIEWS OF THE HONORABLE CHARLES B. RANGEL AND THE 
                        HONORABLE HAROLD E. FORD

    We dissent from reporting H.R. 831 because of both 
procedural and substantive reasons. We are concerned that the 
bill was rushed to consideration without appropriate hearings 
on all of the provisions in the bill, without a report from the 
Subcommittee on Oversight on a provision reviewed by the 
Subcommittee, and without sufficient time to review the bill 
itself. We are also very concerned about the repeal of section 
1071 of the Internal Revenue Code, that the repeal is 
retroactive, whether the repeal will result in the revenue 
anticipated, the impact such repeal will have on the ability of 
minorities to participate in the broadcast business as owners 
and operators and the statement such repeal makes about the 
nation's commitment to social justice.
    We are particularly concerned that this bill represents the 
driving of a wedge within our society between people based on 
racial and ethnic grounds. It disturbs us that this bill may 
represent a trend to legislatively undo statutory and other 
means for providing opportunity for minorities previously 
denied by either overt or benign discrimination. We fear that 
this bill could represent this Congress's first step in 
dismantling the efforts to assure that minorities can truly 
have equal opportunity in the American society. With this 
report the Committee has moved to again close the door on 
minorities keeping them out of the mainstream of America. It is 
insensitive to the aspirations of the African-American, 
Hispanic, Native American and Asian communities.
    While the Chair was within the rules of the Committee and 
the House to have brought this bill to the Committee in the 
manner it was, the action left the Committee with very little 
time or assistance in reviewing its provisions. The members of 
the Committee were given only one day's notice of markup of 
this bill. The markup notice and agenda issued the previous 
week distinctly excluded any of the provisions of this bill.
    Committee rules require a 2-day layover of bills reported 
from a subcommittee to give the members of the Committee a 
chance to review the legislation before voting on the measure. 
If that standard is appropriate where a subcommittee acts, it 
is even more necessary when there has been no subcommittee mark 
up or the subcommittee report on the matter has not been 
issued. Instead, the Chair gave the Committee a mere 24 hours 
to prepare for the mark up of the legislation.
    While we can understand the need to move quickly on the 
provision for the extension of the deduction of health 
insurance costs of the self-employed because tax filing dates 
are soon upon us, we cannot understand the rush to repeal 
section 1071 of the Internal Revenue Code other than to 
retroactively impact a completely legal transaction that the 
majority for whatever reasons does not favor.
    We are very concerned that the Committee and the House is 
moving forward on provisions in this bill without the benefit 
of full committee hearings. The Committee has not heard 
witnesses on the matter of the deduction of their health 
insurance by the self employed. In fact, the Chair of the 
Subcommittee on Health vigorously and successfully opposed any 
changes to the health insurance provisions of the bill on the 
grounds that there have not been hearings. Nor, has the 
Committee had hearings on the matters of involuntary 
conversions and the changes in the provisions of the Earned 
Income Tax Credit. We have moved forward without the benefit of 
the public's view on the impact of both of these changes in tax 
law.
    What most concerns us with the reporting of this 
legislation is the movement of the Committee to begin to undo 
the progress this nation has made to provide opportunity for 
minorities to fully participate in the economy and social 
fabric of our nation. We fear that this is part of a national 
movement expressed in part by the Majority Leader of the other 
body and by actions in the states such as the petition movement 
in California, to undo the efforts of affirmative action to 
fulfill the promise of America for all of its citizens.
    We want to believe it is not a considered effort to deny 
the rights of minorities. Indeed, members of the majority 
indicated all they want to do is to remove preferences from the 
tax code and to make the code color blind. However, in the face 
of a tax code that is replete with tax preferences, and as an 
American who has seen and lived racial prejudice in a society 
that in many ways remains so, we cannot interpret the intention 
of the majority as anything but a response to the fears of 
Americans about race and equal opportunity.
    Many in the majority have strong views about tax 
preferences and about how they are administered. They believe 
the tax code should be cleansed of preferences. In this 
context, we can appreciate the opposition to this tax 
preference. We are concerned about the Majority starting its 
reform with this preference. Why is the majority not offering 
the Committee a more complete list of preferences to be 
repealed?
    Admittedly section 1071 creates a preference. But, it is 
not much different than any other preference which is designed 
to achieve a public policy goal. Its goal is to effectuate 
Federal Communications Commission (FCC) policies about 
diversity ownership of broadcast licenses. The original impetus 
was the FCC policy to prevent monopoly ownership of broadcast 
facilities in a community. The FCC instituted a policy to force 
sales to break up monopolies. Section 1071 provided relief for 
owners forced to sell. Since 1978 this policy has been 
broadened to provide tax benefits for voluntary sales. The 
basis of such relief is similar to the proposal to compensate 
property owners inhibited by environmental regulations.
    By the late 1960s the FCC came to the conclusion that 
diversity in ownership among the many racial and ethnic groups 
was an important goal if the scarce airwaves were to serve all 
Americans. However, despite all of the Commission's efforts to 
achieve diversity there was not much success. Though African 
Americans and Hispanics together represent about 20% of the 
population, by 1978 when the FCC adopted the minority 
preference rule minorities held less than 1% of the broadcast 
licenses.
    The need for diversity was and still is clear. This member, 
an African American, grew up in segregated America where the 
only impressions from the media of African Americans and 
Hispanics were negative role models of savage African natives 
saved from their ignorance by a white man in a loin cloth or 
shuffling Black slaves or Amos 'n Andy or Mexicans sneering or 
in perpetual siesta. Up through the 1960s and into the 1970s it 
was difficult for minorities to view TV or listen to the radio 
and find positive role models. The need to present positive 
role models for our young continues to plague minority 
communities. The need to express our views among ourselves and 
to the larger community remains difficult. The need to develop 
economic independence remains great, yet for years entire 
minority communities had no electronic media outlet for their 
views or for their entrepreneurs to advertise products and 
services to their own communities.
    Thus, in 1978 the FCC adopted the current policy to provide 
tax certificates to those who sold broadcast properties to 
minorities.\1\
    \1\ ``Statement of Policy on Minority Ownership of Broadcasting 
Facilities,'' 68 FCC 2d 979 (1978).
    The Supreme Court upheld the preference in Metro Broadcasting v. 
FCC, 497 U.S. 547 (1990). The Court looked at the Congressional action 
and came to the conclusion that Congress was very clear about support 
for the program.
---------------------------------------------------------------------------
    Some argue that there might be better ways to encourage 
minority ownership. But, the history indicates otherwise. This 
is the best way. The FCC had tried other means, but they were 
not successful.
    The FCC expanded the rule during in 1982 to include the 
sale of cable systems.\2\
    \2\ ``Statement of Policy on Minority Ownership of CATV Systems,'' 
52 R.R. 2d 1452 (1982), See also, ``Commission Policy Regarding the 
Advancement of Minority Ownership in Broadcasting,'' 92 FCC 2d 849 
(1982).
---------------------------------------------------------------------------
    Despite the application of section 1071 since 1978 the 
proportion of licenses in minority hands has only climbed to 
about 3%. There have been about 330 licenses transfers (260-
radio; 40 TV; and 30 cable) where the preference was a factor. 
During the same period there have been over 15,000 license 
transactions. Over half of the licenses transferred pursuant to 
the preference are still in minority control.
    It is clear the preference was enacted by Congress to 
provide the FCC with a tool to manage the airwaves that belong 
to all Americans. An important responsibility of the FCC is to 
assure that all Americans have reasonable access to the 
airwaves. The preference of section 1071 allows the FCC to 
fulfill this responsibility.
    It is not unlike a preference designed by Congress to 
assure energy independence. Congress has for many years 
sustained oil depletion allowances, deductions for intangible 
drilling costs and exceptions to the alternative minimum tax 
for oil drilling to assure that the nation will have an 
adequate supply of oil. It matters not that in economic terms 
all that these preferences do is encourage drilling at lower 
breakeven points. Should the price of oil be higher than the 
cost of drilling the savings from the preference does not go to 
the consumer, but the oil drilling entrepreneur.
    Is it important for the nation to be energy independent at 
the expense of lost tax revenues that flow to well-off energy 
companies and individual investors? Congress has consistently 
answered yes. Is it important at the expense of lost tax 
revenues to insure among the scarce airwaves that there be 
representation of as many of America's diverse communities. We 
believe the answer is also yes.
    There is concern about agency other than the Internal 
Revenue Service deciding who gets a tax preference. There are 
several provisions in the code that cede authority to define 
preferences to an agency other than the IRS. For example, the 
code clearly allows a taxpayer to take a credit for the 
rehabilitation of a property listed on the national register of 
historic sights. However, it is the Department of the Interior 
that sets the regulations and decides whether a property is on 
the historic register and, therefore, eligible for an historic 
rehabilitation credit.
    Why is there a need for a tax preference to encourage 
minority ownership of broadcast properties. Congress has been 
quite clear that it wants to provide tax relief in order that 
where the FCC found it:

          * * * necessary or appropriate to effectuate a change 
        in policy of, or the adoption of a new policy of the 
        Commission with respect to ownership and control of 
        radio broadcasting stations (radio being used 
        generically to apply to TV and cable as well). IRC 
        Sec. 1071.

    There was considerable testimony given at the hearings of 
the Subcommittee on Oversight indicating that without the 
preference it was difficult, if not impossible for minorities 
to secure broadcast properties.
    Percy Sutton testified he worked for seven years looking 
for financing and the opportunity to buy his first station, 
WLIB. This station satisfied a market previously unrecognized 
in New York--African-American talk radio.
    Raul Alercon testified that his family fled from Cuba after 
losing their radio stations to Castro. They were determined to 
start again in America. They used the preference and began a 
chain of Spanish language radio stations that includes the 
fifth most popular FM station in the New York market. Prior to 
the Alercon family's investment no one in the radio business 
thought of the potential profit in serving the large Hispanic 
market in New York. There was no Spanish language FM station in 
New York even though there was money to be made until the 
preference made it possible for the Alercon Family to start 
their station.
    There is evidence that minorities often do not get a break 
on the price of broadcast properties because of the preference. 
That is not the issue. The problem was never price. The 
majority of transactions involve entrepreneurs who have 
struggled to enter the broadcast business. They have always 
been willing to pay market prices. The average radio 
transaction has about $3.5 million, television transaction 
about $38 million. The issue has always been access to a closed 
society of broadcast entrepreneurs. The Subcommittee heard 
several witnesses indicate until this preference was 
established those who sold and brokered radio and TV stations 
would not open their doors to minorities. Now with the 
preference minorities are noticed in the market place.
    The Subcommittee heard evidence that there were abuses with 
the use of the preference. There are many including minority 
broadcasters who believe the FCC should be allowed to make 
changes to improve the program.\3\ They believe that reforms 
that will insure the goal of diversity are truly achieved are 
in order.
    \3\ Congress has barred the FCC from changing its rules 
implementing the preference. Pub. L. No. 100-202. 101 Stat. 1329.
---------------------------------------------------------------------------
    Though the average holding period has been five years, and 
over 100 licenses transferred to minorities over the sixteen 
years the preference has been in effect are still in the same 
hands. There have been transactions where the minority sold out 
within a year. A longer holding period may be in order.
    Most transactions involve true minority ownership and 
control. However, there have been transactions where the 
minority's interest in the profits and equity of the property 
was not truly in conformity with the FCC rules. Rules to better 
define ownership and control are in order.
    Some of the properties held by minorities have not resulted 
in diversity of format or opportunities for minorities to work 
in broadcasting. Consideration should be given to requiring 
intentions to provide diversity and opportunity.
    We are concerned about the retroactive features of the bill 
reported by the Committee. They go significantly beyond any 
retroactive features of recent legislation in that they are 
clearly designed to ``rifle shot'' at one particular 
transaction. It is not in the nature of this House to pass 
legislation that is retroactively directed at one taxpayer 
involved a particular transaction. This House has in recent 
years become reluctant to pass any legislation that is a 
``rifle shot'' directed in favor of any taxpayer. It should be 
as reluctant to pass such legislation designed to deny a tax 
preference.
    The bill was introduced on February 6, 1995, yet the 
amendments made by section 2 apply to sales and transactions on 
or after January 17, 1995. The Chair of the Committee and the 
sponsor of the bill justifies this effective date by citing the 
press release from the Committee of January 17, 1995, 
announcing a review of section 1071 and the hearing of the 
Subcommittee on Oversight on January 27, 1995, quoting the 
Chair, ``Any changes to section 1071 may apply to transactions 
completed, or certificates issued by the FCC, on or after 
today, January 17, 1995.''
    There is no question what the intention of the Chair is in 
including the January 17, 1995 effective date in this 
legislation. It clearly is to stop section 1071 from applying 
to the largest transaction even benefiting by section 1071. The 
Chair was aware as of January 17, as many who read the business 
press, that the Viacom Company had recently announced an 
intention to enter into an agreement to sell its cable 
television systems for approximately $2.3 billion to a 
partnership of Mitgo Corp., a company wholly owned by Frank 
Washington, an African American, and affiliates of InterMedia 
Partners. The agreement was signed on January 20, 1995, and is 
contingent upon the FCC granting the certificates necessary for 
claiming the benefits of section 1071.
    While there may be other transactions pending as of this 
date, there was no evidence of these transactions presented to 
the Committee.
    There is no question that this retroactive effective date 
is directed as one earnest African American businessman. This 
man has built a successful cable business. He intends to 
increase its size to achieve economies of scale to effectively 
complete in what other committees of this House have found to 
be an extraordinarily dynamic and competitive business. But, 
despite his entrepreneurial efforts well within the law, the 
majority of the Committee has decided that he has become too 
successful.
    We are concerned that the message of this legislation to 
minorities in this nation is that when you become too 
successful it will not matter whether you played by the rules--
you will be allowed to go so far.
    We are concerned that the way this legislation is directed 
at the Viacom deal it is unlikely that the revenue estimates of 
the Joint Committee on Taxation can be sustained.
    A significant part of the revenue anticipated from the 
repeal of section 1071 is assumed to be the revenue lost from 
the Viacom transaction. A revenue estimate assumes a baseline 
of activities that will be altered by the legislation in 
question. How can the baseline include the Viacom transaction 
when it has become moot. If the legislation is enacted as 
reported, then there is no contract between Viacom and the 
Mitgo Corp.-InterMedia Partners partnership. The agreement was 
contingent upon securing the FCC certificate for section 1071 
treatment. It is rank speculation to assume in the baseline 
what Viacom will do if the agreement is voided. There is also 
no evidence of what tax impact will be on Viacom or any other 
taxpayer who might purchase the cable properties. The facts are 
clear that most transfers of cable properties are done through 
some tax deferred arrangement. In fact, it was reported in the 
Wall Street Journal on the morning of the day this bill was 
reported that Time Warner was purchasing cable properties from 
Cablevision in a transaction that it intended to be a tax free 
or deferred reorganization.\4\
    \4\ Wall Street Journal, February 8, 1995 at A3.

                                   C.B. Rangel.
                                   Harold E. Ford.