[House Report 104-92]
[From the U.S. Government Publishing Office]



104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                     104-92
_______________________________________________________________________


 
                   SELF-EMPLOYED HEALTH INSURANCE ACT

                                _______


                 March 29, 1995.--Ordered to be printed

_______________________________________________________________________


 Mr. Archer, from the committee of conference, submitted the following

                           CONFERENCE REPORT

                        [To accompany H.R. 831]
      The committee of conference on the disagreeing votes of 
the two Houses on the amendment of the Senate to 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 met, after full and free conference, 
have agreed to recommend and do recommend to their respective 
Houses as follows:
      That the House recede from its disagreement to the 
amendment of the Senate and agree to the same with an amendment 
as follows:
      In lieu of the matter proposed to be inserted by the 
Senate amendment, insert the following:
SECTION 1. PERMANENT EXTENSION AND INCREASE OF DEDUCTION FOR HEALTH 
                    INSURANCE COSTS OF SELF-EMPLOYED INDIVIDUALS.

    (a) Permanent Extension.--Subsection (l) of section 162 of 
the Internal Revenue Code of 1986 (relating to special rules 
for health insurance costs of self-employed individuals) is 
amended by striking paragraph (6).
    (b) Increase in Deduction.--Paragraph (1) of section 162(l) 
of the Internal Revenue Code of 1986 is amended by striking 
``25 percent'' and inserting ``30 percent''.
    (c) Effective Dates.--
            (1) Extension.--The amendment made by subsection 
        (a) shall apply to taxable years beginning after 
        December 31, 1993.
            (2) Increase.--The amendment made by subsection (b) 
        shall apply to taxable years beginning after December 
        31, 1994.
SEC. 2. REPEAL OF NONRECOGNITION ON FCC CERTIFIED SALES AND EXCHANGES.

    (a) In General.--Subchapter O of chapter 1 of the Internal 
Revenue Code of 1986 is amended by striking part V (relating to 
changes to effectuate FCC policy).
    (b) Conforming Amendments.--Sections 1245(b)(5) and 
1250(d)(5) of the Internal Revenue Code of 1986 are each 
amended--
            (1) by striking ``section 1071 (relating to gain 
        from sale or exchange to effectuate polices of FCC) 
        or'', and
            (2) by striking ``1071 and'' in the heading 
        thereof.
    (c) Clerical Amendment.--The table of parts for such 
subchapter O is amended by striking the item relating to part 
V.
    (d) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to--
                    (A) sales and exchanges on or after January 
                17, 1995, and
                    (B) sales and exchanges before such date if 
                the FCC tax certificate with respect to such 
                sale or exchange is issued on or after such 
                date.
            (2) Binding contracts.--
                    (A) In general.--The amendments made by 
                this section shall not apply to any sale or 
                exchange pursuant to a written contract which 
                was binding on January 16, 1995, and at all 
                times thereafter before the sale or exchange, 
                if the FCC tax certificate with respect to such 
                sale or exchange was applied for, or issued, on 
                or before such date.
                    (B) Sales contingent on issuance of 
                certificate.--
                            (i) In general.--A contract shall 
                        be treated as not binding for purposes 
                        of subparagraph (A) if the sale or 
                        exchange pursuant to such contract, or 
                        the material terms of such contract, 
                        were contingent, at any time on January 
                        16, 1995, on the issuance of an FCC tax 
                        certificate. The preceding sentence 
                        shall not apply if the FCC tax 
                        certificate for such sale or exchange 
                        is issued on or before January 16, 
                        1995.
                            (ii) Material terms.--For purposes 
                        of clause (i), the material terms of a 
                        contract shall not be treated as 
                        contingent on the issuance of an FCC 
                        tax certificate solely because such 
                        terms provide that the sales price 
                        would, if such certificate were not 
                        issued, be increased by an amount not 
                        greater than 10 percent of the sales 
                        price otherwise provided in the 
                        contract.
            (3) FCC tax certificate.--For purposes of this 
        subsection, the term ``FCC tax certificate'' means any 
        certificate of the Federal Communications Commission 
        for the effectuation of section 1071 of the Internal 
        Revenue Code of 1986 (as in effect on the day before 
        the date of the enactment of this Act).

SEC. 3. SPECIAL RULES RELATING TO INVOLUNTARY CONVERSIONS.

    (a) Replacement Property Acquired by Corporations From 
Related Persons.--
            (1) In general.--Section 1033 of the Internal 
        Revenue Code of 1986 (relating to involuntary 
        conversions) is amended by redesignating subsection (i) 
        as subsection (j) and by inserting after subsection (h) 
        the following new subsection:
    ``(i) Nonrecognition Not To Apply if Corporation Acquires 
Replacement Property From Related Person.--
            ``(1) In general.--In the case of--
                    ``(A) a C corporation, or
                    ``(B) a partnership in which 1 or more C 
                corporations own, directly or indirectly 
                (determined in accordance with section 
                707(b)(3)), more than 50 percent of the capital 
                interest, or profits interest, in such 
                partnership at the time of the involuntary 
                conversion,

        subsection (a) shall not apply if the replacement 
        property or stock is acquired from a related person. 
        The preceding sentence shall not apply to the extent 
        that the related person acquired the replacement 
        property or stock from an unrelated person during the 
        period described in subsection (a)(2)(B).
            ``(2) Related person.--For purposes of this 
        subsection, a person is related to another person if 
        the person bears a relationship to the other person 
        described in section 267(b) or 707(b)(1).''
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply to involuntary conversions 
        occurring on or after February 6, 1995.
    (b) Application of Section 1033 to Certain Sales Required 
for Microwave Relocation.--
            (1) In general.--Section 1033 of the Internal 
        Revenue Code of 1986 (relating to involuntary 
        conversions), as amended by subsection (a), is amended 
        by redesignating subsection (j) as subsection (k) and 
        by inserting after subsection (i) the following new 
        subsection:
    ``(j) Sales or Exchanges To Implement Microwave Relocation 
Policy.--
            ``(1) In general.--For purposes of this subtitle, 
        if a taxpayer elects the application of this subsection 
        to a qualified sale or exchange, such sale or exchange 
        shall be treated as an involuntary conversion to which 
        this section applies.
            ``(2) Qualified sale or exchange.--For purposes of 
        paragraph (1), the term `qualified sale or exchange' 
        means a sale or exchange before January 1, 2000, which 
        is certified by the Federal Communications Commission 
        as having been made by a taxpayer in connection with 
        the relocation of the taxpayer from the 1850-1990MHz 
        spectrum by reason of the Federal Communications 
        Commission's reallocation of that spectrum for use for 
        personal communications services. The Commission shall 
        transmit copies of certifications under this paragraph 
        to the Secretary.''
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply to sales or exchanges after 
        March 14, 1995.

SEC. 4. DENIAL OF EARNED INCOME CREDIT FOR INDIVIDUALS HAVING EXCESSIVE 
                    INVESTMENT INCOME.

    (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) Denial of Credit for Individuals Having Excessive 
Investment Income.--
            ``(1) In general.--No credit shall be allowed under 
        subsection (a) for the taxable year if the aggregate 
        amount of disqualified income of the taxpayer for the 
        taxable year exceeds $2,350.
            ``(2) Disqualified income.--For purposes of 
        paragraph (1), the term `disqualified income' means--
                    ``(A) interest or dividends to the extent 
                includible in gross income for the taxable 
                year,
                    ``(B) interest received or accrued during 
                the taxable year which is exempt from tax 
                imposed by this chapter, and
                    ``(C) the excess (if any) of--
                            ``(i) gross income from rents or 
                        royalties not derived in the ordinary 
                        course of a trade or business, over
                            ``(ii) the sum of--
                                    ``(I) the deductions (other 
                                than interest) which are 
                                clearly and directly allocable 
                                to such gross income, plus
                                    ``(II) interest deductions 
                                properly allocable to such 
                                gross income.''
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

SEC. 5. EXTENSION OF SPECIAL RULE FOR CERTAIN GROUP HEALTH PLANS.

    Section 13442(b) of the Omnibus Budget Reconciliation Act 
of 1993 (Public Law 103-66) is amended by striking ``May 12, 
1995'' and inserting ``December 31, 1995''.

SEC. 6. STUDY OF EXPATRIATION TAX.

    (a) In General.--The staff of the Joint Committee on 
Taxation shall conduct a study of the issues presented by any 
proposals to affect the taxation of expatriation, including an 
evaluation of--
            (1) the effectiveness and enforceability of current 
        law with respect to the tax treatment of expatriation,
            (2) the current level of expatriation for tax 
        avoidance purposes,
            (3) any restrictions imposed by any constitutional 
        requirement that the Federal income tax apply only to 
        realized gains,
            (4) the application of international human rights 
        principles to taxation of expatriation,
            (5) the possible effects of any such proposals on 
        the free flow of capital into the United States,
            (6) the impact of any such proposals on existing 
        tax treaties and future treaty negotiations,
            (7) the operation of any such proposals in the case 
        of interests in trusts,
            (8) the problems of potential double taxation in 
        any such proposals,
            (9) the impact of any such proposals on the trade 
        policy objectives of the United States,
            (10) the administrability of such proposals, and
            (11) possible problems associated with existing 
        law, including estate and gift tax provisions.
    (b) Report.--The Chief of Staff of the Joint Committee on 
Taxation shall, not later than June 1, 1995, report the results 
of the study conducted under subsection (a) to the Chairmen of 
the Committee on Ways and Means of the House of Representatives 
and the Committee on Finance of the Senate.

    And the Senate agree to the same.

                                   Bill Archer,
                                   Philip Crane,
                                   Wm. Thomas,
                                   Charles B. Rangel,
                                 Managers on the Part of the House.
                                   Bob Packwood,
                                   Bob Dole,
                                   Bill Roth,
                                   John H. Chafee,
                                   Chuck Grassley,
                                   Daniel Patrick Moynihan,
                                   Max Baucus,
                                   Carol Moseley-Braun,
                                Managers on the Part of the Senate.
       JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE

      The managers on the part of the House and the Senate at 
the conference on the disagreeing votes of the two Houses on 
the amendment of the Senate to 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, 
submit the following joint statement to the House and the 
Senate in explanation of the effect of the action agreed upon 
by the managers and recommended in the accompanying conference 
report:
      The Senate amendment struck all of the House bill after 
the enacting clause and inserted a substitute text.
      The House recedes from its disagreement to the amendment 
of the Senate with an amendment that is a substitute for the 
House bill and the Senate amendment. The differences between 
the House bill, the Senate amendment, and the substitute agreed 
to in conference are noted below, except for clerical 
corrections, conforming changes made necessary by agreements 
reached by the conferees, and minor drafting and clerical 
changes.

  A. Permanently Extend Deduction for Health Insurance Costs of Self-
                          Employed Individuals

 (Sec. 1 of the House bill, sec. 1 of the Senate amendment, sec. 1 of 
         the conference agreement 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 available with respect to the cost 
of self-insurance as well as commercial insurance. In the case 
of self insurance, the deduction was not available unless the 
self-insured plan was in fact insurance (e.g., there was 
appropriate risk shifting) and not merely a reimbursement 
arrangement. 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.

                               House Bill

      The House bill would retroactively reinstate the 
deduction for 25 percent of health insurance costs of self-
employed individuals for 1994 and would extend the deduction 
permanently.
      Effective date.--The provision would be effective for 
taxable years beginning after December 31, 1993.
                            Senate Amendment

      The Senate amendment is the same as the House bill, 
except that the deduction would be increased to 30 percent for 
years beginning after December 31, 1994.
      Effective date.--The provision generally would be 
effective for taxable years beginning after December 31, 1993. 
The increase in the deduction to 30 percent of health insurance 
costs would be effective for taxable years beginning after 
December 31, 1994.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

    B. Repeal of Special Rules Applicable to FCC-Certified Sales of 
                           Broadcast Property

 (Sec. 2 of the House bill, sec. 2 of the Senate amendment, sec. 2 of 
          the conference agreement, and sec. 1071 of the Code)

                       Present Law and Background

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. The taxpayer's 
basis in the replacement property generally is the same as the 
taxpayer's basis in the converted property, decreased by the 
amount of any money or loss recognized on the conversion, and 
increased by the amount of any gain recognized on the 
conversion.
      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 from 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).\1\ 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.\2\ Under another IRS ruling, the ``threat or 
imminence of condemnation'' test is satisfied if, prior to the 
execution of a binding contract to sell the property, ``the 
property owner is informed, either orally or in writing by a 
representative of a governmental body or public official 
authorized to acquire property for public use, that such body 
or official has decided to acquire his property, and from the 
information conveyed to him has reasonable grounds to believe 
that his property will be condemned if a voluntary sale is not 
arranged.'' \3\ However, under this ruling, the threatened 
taking also must constitute a condemnation, as defined above.
    \1\ Rev. Rul. 58-11, 1958-1 C.B. 273.
    \2\ Id.
    \3\ Rev. Rul. 74-8, 1974-1 C.B. 200.
            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.
      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 generally 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.
FCC tax certificate program
            Multiple ownership policy
      The FCC originally adopted multiple ownership rules in 
the early 1940s.\4\ 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.
    \4\ 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).\5\ 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 ``involuntarily'' to divest themselves of one of the 
licenses.\6\
    \5\ 8 Fed. Reg. 16065 (Nov. 23, 1943).
    \6\ 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.\7\ 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.\8\
    \7\ Minority Ownership of Broadcasting Facilities, 68 FCC2d 979 
(1978).
    \8\ 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.'' \9\ 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.\10\ The 
FCC requires those who acquire broadcast properties with the 
help of the FCC tax certificate policy to hold those properties 
for at least one year.\11\ 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.
    \9\ 52 R.R.2d at n. 1.
    \10\ Commission's Policy Regarding the Advancement of Minority 
Ownership in Broadcasting, Policy Statement, and Notice of Proposed 
Rulemaking, 92 FCC2d 853-855 (1982).
    \11\ 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). Anti-trafficking rules require cable properties to 
be held for at least three years (unless the property is sold pursuant 
to a tax certificate).
---------------------------------------------------------------------------
      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.\12\ 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. An 
investor can qualify for a tax certificate even if the sale of 
the interest occurs after participation by a minority in the 
entity has ceased. 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.
    \12\ Commission Policy Regarding the Advancement of Minority 
Ownership in Broadcasting, 92 FCC2d 849 (1982).
---------------------------------------------------------------------------
            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.\13\ 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.\14\
    \13\ Omnibus Budget Reconciliation Act of 1993, P.L. 103-66, Title 
VI.
    \14\ Fifth Report and Order, 9 FCC Rcd 5532 (1994).
      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.\15\ To 
help minorities and women participate in the auction of the PCS 
licenses, the FCC took several steps including up to a 25-
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.\16\
    \15\ Omnibus Budget Reconciliation Act of 1993, P.L. 103-66, 
section 6002(a).
    \16\ Installment payments are available to small businesses and 
rural telephone companies.
---------------------------------------------------------------------------
      The FCC will employ the tax certificate program 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. In addition, as discussed below, the FCC 
will issue tax certificates for PCS to encourage fixed 
microwave operators voluntarily to relocate to clear a portion 
of the spectrum for PCS technologies.
            Microwave relocation policy
      PCS can operate only on frequencies below 3GHz. However, 
because that frequency range is currently occupied by various 
private fixed microwave communications systems (such as 
railroads, oil pipelines, and electric utilities), there are no 
large blocks of unallocated spectrum available to PCS. To 
accommodate PCS, the FCC has reallocated the spectrum; the 
1850-1990MHz spectrum will be used for PCS, and the microwave 
systems will be required to move to higher frequencies. Current 
occupants of the 1850-1990MHz spectrum allocated to PCS must 
relocate to higher frequencies not later than three years after 
the close of the bidding process.\17\ In accordance with FCC 
rules, these current occupants have the right to be compensated 
for the cost of replacing their old equipment, which can 
operate only on the 1850-1990MHz spectrum, with equipment that 
will operate at the new, higher frequency. At a minimum, the 
winners of the new PCS licenses must pay for and install new 
facilities to enable the incumbent microwave operators to 
relocate. The amount of these payments and characteristics of 
the new equipment will be the subject of negotiation between 
the incumbent microwave operators and the PCS licensees; thus, 
the nature of the compensation (i.e., solely replacement 
equipment, or a combination of replacement equipment plus a 
cash payment) is unknown at present. If no agreement is reached 
within the 3-year voluntary negotiation period, the microwave 
operators will be required by the FCC to vacate the spectrum; 
however, the timing of such relocation is uncertain because the 
relocation would take place only after completion of a formal 
negotiation process in which the FCC would be a participant.
    \17\ The PCS auctions for the 1850-1990MHz spectrum commenced in 
December, 1994.
      The FCC will employ the tax certificate program for PCS 
to encourage fixed microwave operators voluntarily to relocate 
from the 1850-1990 MHz band to clear the band for PCS 
technologies.\18\ Tax certificates will be available to 
incumbent microwave operators that relocate voluntarily within 
three years following the close of the bidding process. Thus, 
the certificates are intended to encourage such occupants to 
relocate more quickly than they otherwise would and to clarify 
the tax treatment of such transactions.\19\
    \18\ See, Third Report and Order and Memorandum Opinion and Order, 
8 FCC Rcd 6589 (1993).
    \19\ The transaction between the PCS licensee and the incumbent 
microwave operator might qualify for tax-free treatment as a like-kind 
exchange under Code section 1031 or as an involuntary conversion under 
Code section 1033. However, the availability of deferral under these 
Code provisions may be uncertain in certain circumstances. For example, 
it may be unclear whether the transaction would qualify as an 
involuntary conversion under currently applicable IRS standards.
---------------------------------------------------------------------------
Congressional appropriations rider
      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.\20\ This 
limitation has not prevented an expansion of the existing 
program.\21\ The current rider will expire at the end of the 
1995 fiscal year, September 30, 1995.
    \20\ Pub. L. No. 100-202 (1987).
    \21\ The appropriations restriction ``does not prohibit the agency 
from taking steps to create greater opportunity for minority 
ownership.'' H. Rept. No. 103-708 (Conf. Rept.), 103d Cong. 2d Sess. 40 
(1994).
---------------------------------------------------------------------------

                               House Bill

      The House bill would repeal 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.
      Effective date.--The repeal of section 1071 would be 
effective for (1) sales or exchanges on or after January 17, 
1995, and (2) sale 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 would 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 would be 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.

                            Senate Amendment

      The Senate amendment is the same as the House bill.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment with a clarification that the material terms 
of an otherwise binding contract in effect on January 16, 1995, 
would not be treated as contingent on the issuance of an FCC 
tax certificate solely because the contract provides that the 
sales price is increased by an amount not greater than 10 
percent of the sales price in the event an FCC tax certificate 
is not issued.
                  C. Modification of Code Section 1033

 (Sec. 3 of the House bill, sec. 3 of the Senate amendment, sec. 3 of 
          the conference agreement, and sec. 1033 of the Code)

                              Present Law

      As described above (item B), 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 within a specified period.
      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.\22\ Thus, in certain circumstances, 
related taxpayers may obtain significant (and possible 
indefinite or permanent) tax deferral without any additional 
cash outlay to acquire new properties. In cases in which a 
taxpayer purchases stock as replacement property, section 1033 
permits the taxpayer to reduce basis of stock, but does not 
require any reduction in the basis of the underlying assets. 
Thus, the reduction in basis of stock does not result in 
reduced depreciation deductions.
    \22\ 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.
---------------------------------------------------------------------------

                               House Bill

      Under the House bill, a taxpayer would not be entitled to 
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 would be 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). The provision would be intended to apply 
to all cases involving relationships to the taxpayer described 
in Code section 267(b) or 707(b)(1), including members of 
controlled groups under Code section 267(f).
      Effective date.--The provision would apply to replacement 
property or stock acquired on or after February 6, 1995.

                            Senate Amendment

Related-party transactions
      Under the Senate amendment, subchapter C corporations 
would not be entitled to defer gain under Code section 1033 if 
the replacement property or stock is purchased from a related 
person. A person would be treated as related to another person 
if the person bears a relationship to the other person 
described in Code section 267(b) or 707(b)(1). An exception to 
the general rule would provide that a taxpayer could purchase 
replacement property or stock from a related person and defer 
gain under Code section 1033 to the extent the related person 
acquired the replacement property or stock from an unrelated 
person within the period prescribed under Code section 1033. 
Thus, property acquired from outside the group within the 
period prescribed by section 1033 and retransferred to the 
taxpayer member of the group within the prescribed time period, 
would qualify in the hands of the taxpayer to the extent that 
the property's basis or other net tax consequences to the group 
do not change as a result of the transfer.
Microwave relocation transactions
      The Senate amendment would provide that sales or 
exchanges that are certified by the FCC as having been made by 
a taxpayer in connection with the relocation of the taxpayer 
from the 1850-1990MHz spectrum by reason of the FCC's 
reallocation of that spectrum for use for PCS would be treated 
as involuntary conversions to which Code section 1033 applies.
Effective date
      The provision prohibiting the purchase of qualified 
replacement property from a related party would apply to 
involuntary conversions occurring on or after February 6, 1995.
      The provision treating certain microwave relocation 
transactions as involuntary conversions would apply to sales or 
exchanges occurring before January 1, 2000.

                          Conference Agreement

      The conference agreement follows the Senate amendment 
with a modification to provide that the amendments made to 
section 1033 will apply not only to C corporations, but also to 
certain partnerships. Specifically, the provision will apply to 
a partnership if more than 50 percent of the capital interest, 
or profits interest, of the partnership are owned, directly or 
indirectly (as determined under section 707(b)(3)), by C 
corporations at the time of the involuntary conversion. If the 
provision applies to a partnership under the above rule, the 
provision would apply to all partners of the partnership, 
including partners that are not C corporations. If a 
partnership is not described by the above rule, none of the 
partners of the partnership will be subject to the provision by 
reason of their interest in the partnership.
      In addition, the conference agreement clarifies that the 
determination of whether or not a partnership is related to 
another party will be made at the partnership level.

          D. Unearned Income Test for Earned Income Tax Credit

 (Sec. 4 of the House bill, sec. 4 of the Senate amendment, sec. 4 of 
           the conference agreement, 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 unearned 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       One           No     
                                 qualifying    qualifying    qualifying 
                                 children--      child--     children-- 
------------------------------------------------------------------------
Credit rate...................        36.00%        34.00%         7.65%
Phaseout rate.................        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.

                               House Bill

      Under the House bill, a taxpayer would not be eligible 
for the EITC if the aggregate amount of interest and dividends 
includible in the taxpayer's income for the taxable year 
exceeds $3,150. The otherwise allowable EITC amount would be 
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 would be indexed for inflation 
with rounding to the nearest multiple of $10.
      Effective date.--The provision would be effective for 
taxable years beginning after December 31, 1995.

                            Senate Amendment

      Under the Senate amendment, a taxpayer would not be 
eligible for the EITC if the aggregate amount of ``disqualified 
income'' of the taxpayer for the taxable year exceeds $2,450. 
Disqualified income would be the sum of:
            (1) interest (whether or not subject to tax) 
        received or accrued in the taxable year,
            (2) dividends to the extent includible in gross 
        income for the taxable year, and
            (3) net income (if greater than zero) from rents 
        and royalties not derived in the ordinary course of 
        business.
      Effective date.--Same as the House bill.

                          Conference Agreement

      The conference agreement provides that a taxpayer is not 
eligible for the EITC if the aggregate amount of ``disqualified 
income'' of the taxpayer for the taxable year exceeds $2,350. 
Disqualified income is the sum of:
            (1) interest and dividends includible in gross 
        income for the taxable year,
            (2) tax-exempt interest received or accrued in the 
        taxable year, and
            (3) net income (if greater than zero) from rents 
        and royalties not derived in the ordinary course of 
        business.
Tax-exempt interest is defined as amounts required to be 
reported on the taxpayer's return under Code section 6012(d).
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1995.

          E. Extension of Rule for Certain Group Health Plans

    (Sec. 5 of the conference agreement and sec. 162(n) of the Code)

                              Present Law

      In general, present law disallows employer deductions for 
any amounts paid or incurred in connection with a group health 
plan if the plan fails to reimburse hospitals for inpatient 
services provided in the State of New York at the same rate 
that licensed commercial insurers are required to reimburse 
hospitals for inpatient services of individuals not covered by 
a group health plan. This provision applies with respect to 
inpatient hospital services provided to participants after 
February 2, 1993, and on or before May 12, 1995.

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement extends the present-law 
deduction disallowance for expenses in connection with certain 
group health plans through December 31, 1995.
      Effective date.--The provision is effective on the date 
of enactment.
    F. Imposition of Tax on U.S. Citizens Who Relinquish Citizenship

 (Sec. 5 of the Senate amendment, sec. 6 of the conference agreement, 
      proposed new sec. 877A, and secs. 877 and 7701 of the Code)

                              Present Law

      U.S. citizens and residents generally are subject to U.S. 
income taxation on their worldwide income. The United States 
imposes tax on gains recognized by foreign persons that are 
attributable to dispositions of interests in U.S. real 
property. Distributions, including lump-sum distributions, that 
foreign persons receive from qualified U.S. retirement plans 
generally are subject to U.S. tax at a 30-percent rate.
      A U.S. citizen who relinquishes U.S. citizenship with a 
principal purpose to avoid Federal tax may be subjected to an 
alternative taxing method for 10 years after expatriation (sec. 
877). Under this alternative method, the expatriate generally 
is taxed on his U.S. source income (net of certain deductions), 
as well as on certain business profits, at rates applicable to 
U.S. citizens and residents.
      The United States imposes its estate tax on the worldwide 
estates of persons who were citizens or domiciliaries of the 
United States at the time of death, and on certain property 
belonging to nondomiciliaries of the United States which is 
located in the United States at the time of their death. The 
U.S. gift tax is imposed on all gifts made by U.S. citizens and 
domiciliaries, and on gifts of property made by 
nondomiciliaries where the property is located in the United 
States at the time of the gift. Special rules apply to the 
estate and gift tax treatment of individuals who relinquished 
their U.S. citizenship within 10 years of death or gift, if the 
individual's loss of U.S. citizenship has as one of its 
principal purposes a tax avoidance motive.

                               House Bill

      No provision.

                            Senate Amendment

      Under the Senate amendment, a U.S. citizen who 
relinquishes citizenship generally would be treated as having 
sold all of his property at fair market value immediately prior 
to the expatriation. Gain or loss from the deemed sale would be 
recognized at that time, generally without regard to other 
provisions of the Code. Net gain on the deemed sale would be 
recognized under the bill only to the extent it exceeds 
$600,000 ($1.2 million in the case of married individuals 
filing a joint return, both of whom expatriate).
      Property treated as sold by an expatriating citizen under 
the provision would include all items that would be included in 
the individual's gross estate under the Federal estate tax if 
such individual were to die on the day of the deemed sale, plus 
certain trust interests that are not otherwise includible in 
the gross estate and other interests that may be specified by 
the Treasury Department in order to carry out the purposes of 
the provision.
      Certain types of property generally would not be taken 
into account for purposes of determining the expatriation tax: 
U.S. real property interests, interests in qualified retirement 
plans (other than interests attributable to excess 
contributions or contributions that violate any condition for 
tax-favored treatment), and, under regulations, interests in 
foreign pension plans and similar retirement plans or programs 
(up to a maximum amount of $500,000).
      Under the amendment, an expatriate who is a beneficiary 
of a trust would be deemed to own a separate trust consisting 
of the assets allocable to his share of the trust, in 
accordance with his interest in the trust. The separate trust 
would be treated as selling its assets for fair market value 
immediately before the beneficiary relinquishes his 
citizenship, and distributing all resulting income and corpus 
to the beneficiary.
      Under the amendment, a U.S. citizen who renounces his 
U.S. nationality before a diplomatic or consular officer of the 
United States would be treated as having relinquished his 
citizenship on that date, provided that the renunciation is 
later confirmed by the issuance of a certificate of loss of 
nationality (``CLN'') by the U.S. Department of State. A U.S. 
citizen who furnishes to the Department of State a signed 
statement of voluntary relinquishment of U.S. nationality 
confirming the performance of an expatriating act would be 
treated as having relinquished his citizenship on the date such 
statement is so furnished, provided that the voluntary 
relinquishment is later confirmed by the issuance of a CLN. Any 
other U.S. citizen to whom the Department of State issues a CLN 
would be treated as having relinquished his citizenship on the 
date the CLN is issued to the individual. A naturalized citizen 
is treated as having relinquished his citizenship on the date a 
court of the United States cancels his certificate of 
naturalization.
      Under the amendment, an individual who is subject to the 
tax on expatriation would be required to pay a tentative tax 
equal to the amount of tax that would have been due based on a 
hypothetical short tax year that ended on the date the 
individual relinquished his citizenship. The tentative tax 
would be due on the 90th day after the date of relinquishment.
      The amendment would provide that the time for the payment 
of the tax on expatriation may be extended for a period not to 
exceed 10 years at the request of the taxpayer, as provided by 
section 6161.
      The amendment would authorize the Treasury Department to 
issue regulations to permit a taxpayer to allocate the taxable 
gain (net of any applicable exclusion) to the basis of assets 
taxed under this provision, thereby preventing double taxation 
if the assets remain subject to U.S. tax jurisdiction.
      Effective date.--The amendment would be effective for 
U.S. citizens who relinquish their U.S. citizenship (as 
determined under the provision) on or after February 6, 1995. 
The tentative tax would not be required to be paid until 90 
days after the date of enactment.
      Present law would continue to apply to U.S. citizens who 
relinquished their citizenship prior to February 6, 1995.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.
      The conference agreement, however, directs that the staff 
of the Joint Committee on Taxation undertake a study of the 
issues presented by any proposals to affect the tax treatment 
of expatriation, including an evaluation of (1) the 
effectiveness and enforceability of current law with respect to 
the tax treatment of expatriation, (2) the current level of 
expatriation for tax avoidance purposes, (3) any restrictions 
imposed by any constitutional requirement that Federal income 
tax apply only to realized gains, (4) the application of 
international human rights principles to the taxation of 
expatriation, (5) the possible effects of any such proposals on 
the free flow of capital into the United States, (6) the impact 
of any such proposals on existing tax treaties and future 
treaty negotiations, (7) the operation of any such proposals in 
the case of interests in trusts, (8) the problems of potential 
double taxation in any such proposals, (9) the impact of any 
such proposals on the trade policy objectives of the United 
States, (10) the administrability of such proposals, and (11) 
possible problems associated with existing law, including 
estate and gift tax provisions. The results of such study are 
to be reported to the Chairman of the House Committee on Ways 
and Means and to the Chairman of the Senate Committee on 
Finance by June 1, 1995.

                                            ESTIMATED REVENUE EFFECTS OF H.R. 831 AS AGREED TO BY HOUSE AND SENATE CONFEREES--FISCAL YEARS 1995-2005                                            
                                                                                      [Millions of Dollars]                                                                                     
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                    Provision                              Effective             1995         1996         1997         1998         1999         2000       1995-00      2001-05      1995-05  
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1. Extend self-employed health deduction: 25% for  tyba Dec. 31, 1993......         -514         -482         -527         -587         -649         -708       -3,467       -4,520       -7,987
 1994 and 30% thereafter.                                                                                                                                                                       
2. Repeal section 1071 (FCC tax certificate        Jan. 17, 1995...........          303          379          135          135          170          201        1,323        1,465        2,786
 program with transition).                                                                                                                                                                      
3. Modify section 1033 for corporations with       Feb. 6, 1995............            5            9           23           33           47           67          184          505          689
 transition rule for microwave relocation                                                                                                                                                       
 previously entitled to section 1071 (non-                                                                                                                                                      
 recognition of gain on involuntary conversions                                                                                                                                                 
 not to apply to acquisitions from related                                                                                                                                                      
 persons).                                                                                                                                                                                      
4. Deny earned income tax credit to individuals    Jan. 1, 1996............  ...........           22          436          487          521          556        2,023        3,515        5,538
 with interest, dividends, tax-exempt interest                                                                                                                                                  
 income, and net rental and royalty income over                                                                                                                                                 
 $2,350 (the threshold is not indexed for                                                                                                                                                       
 inflation) \1\.                                                                                                                                                                                
5. Extension of rule for certain group health      DoE.....................          -42          -11  ...........  ...........  ...........  ...........          -53  ...........          -53
 plans.                                                                                                                                                                                         
                                                                            --------------------------------------------------------------------------------------------------------------------
      Net totals.................................  ........................         -248          -83           67           68           89          116           10          965         975 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Included in this estimate are decreases in EITC outlays of $18 million for FY 1996, $353 million for FY 1997, $397 million for FY 1998, $426 million for FY 1999, $449 million for FY 2000, 
  $495 million for FY 2001, $529 million for FY 2002, $566 million for FY 2003, $605 million for FY 2004, and $647 million for FY 2005.                                                         
                                                                                                                                                                                                
Note.--Details may not add to totals due to rounding. Legend for ``Effective'' column: tyba=taxable years beginning after. DoE=date of enactment.                                               
                                                                                                                                                                                                
Source: Joint Committee on Taxation.                                                                                                                                                            

                                   Bill Archer,
                                   Philip Crane,
                                   Wm. Thomas,
                                   Charles B. Rangel,
                                 Managers on the Part of the House.
                                   Bob Packwood,
                                   Bob Dole,
                                   Bill Roth,
                                   John H. Chafee,
                                   Chuck Grassley,
                                   Daniel Patrick Moynihan,
                                   Max Baucus,
                                   Carol Moseley-Braun,
                                Managers on the Part of the Senate.