[House Report 107-138]
[From the U.S. Government Publishing Office]



107th Congress                                            Rept. 107-138
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 2

======================================================================



 
                    COMMUNITY SOLUTIONS ACT OF 2001

                                _______
                                

 July 16, 2001.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

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

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                         [To accompany H.R. 7]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 7) to provide incentives for charitable 
contributions by individuals and businesses, to improve the 
effectiveness and efficiency of government program delivery to 
individuals and families in need, and to enhance the ability of 
low-income Americans to gain financial security by building 
assets, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.

                                CONTENTS

                                                                   Page
  I. Summary and Background..........................................12
          A. Purpose and Summary.................................    12
          B. Background and Need for Legislation.................    12
          C. Legislative History.................................    13
 II. Explanation of the Bill.........................................13
          A. Charitable Deduction for Nonitemizers (sec. 101)....    13
          B. Tax-Free Distributions from Individual Retirement 
              Arrangements for Charitable Purposes (sec. 102)....    15
          C. Increase Percentage Limitation for Corporate 
              Charitable Contributions (sec. 103)................    20
          D. Enhanced Deduction for Charitable Contributions of 
              Food Inventory (sec. 105)..........................    21
          E. Reform Excise Tax Based on Investment Income of 
              Private Foundations (sec. 106).....................    22
          F. Modify Tax on Unrelated Business Taxable Income of 
              Charitable Remainder Trusts (sec. 107).............    24
          G. Extend ``Constructed by'' Requirement for 
              Contributions of Scientific Property Used for 
              Research and for Computer Technology and Equipment 
              (sec. 108).........................................    26
          H. Basis Adjustment to Stock of S Corporation 
              Contributing Appreciated Property (sec. 109).......    27
          I. Individual Development Accounts (sec. 301-307)......    28
III. Votes of the Committee..........................................30
 IV. Budget Effects of the Bill......................................32
          A. Committee Estimates of Budgetary Effects............    32
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................    33
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    33
  V. Other Matters To Be Discussed Under the Rules of the House......38
          A. Committee Oversight Findings and Recommendations....    38
          B. Statement of General Performance Goals and 
              Objectives.........................................    38
          C. Constitutional Authority Statement..................    38
          D. Information Relating to Unfunded Mandates...........    38
          E. Applicability of House Rule XXI 5(b)................    38
          F. Tax Complexity Analysis.............................    39
          G. Committee Correspondence............................    41
 VI. Changes in Existing Law Made by the Bill as Reported............43
VII. Dissenting Views................................................63

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Community Solutions 
Act of 2001''.
  (b) Table of Contents.--The table of contents is as follows:

Sec. 1. Short title; table of contents.

             TITLE I--CHARITABLE GIVING INCENTIVES PACKAGE

Sec. 101. Deduction for portion of charitable contributions to be 
allowed to individuals who do not itemize deductions.
Sec. 102. Tax-free distributions from individual retirement accounts 
for charitable purposes.
Sec. 103. Increase in cap on corporate charitable contributions.
Sec. 104. Charitable donations liability reform for in-kind corporate 
contributions.
Sec. 105. Charitable deduction for contributions of food inventory.
Sec. 106. Reform of excise tax on net investment income of private 
foundations.
Sec. 107. Excise tax on unrelated business taxable income of charitable 
remainder trusts.
Sec. 108. Expansion of charitable contribution allowed for scientific 
property used for research and for computer technology and equipment 
used for educational purposes.
Sec. 109. Adjustment to basis of S corporation stock for certain 
charitable contributions.

                TITLE II--EXPANSION OF CHARITABLE CHOICE

Sec. 201. Provision of assistance under government programs by 
religious and community organizations.

               TITLE III--INDIVIDUAL DEVELOPMENT ACCOUNTS

Sec. 301. Additional qualified entities eligible to conduct projects 
under the Assets for Independence Act.
Sec. 302. Increase in limitation on net worth.
Sec. 303. Change in limitation on deposits for an individual.
Sec. 304. Elimination of limitation on deposits for a household.
Sec. 305. Extension of program.
Sec. 306. Conforming amendments.
Sec. 307. Applicability.

             TITLE I--CHARITABLE GIVING INCENTIVES PACKAGE

SEC. 101. DEDUCTION FOR PORTION OF CHARITABLE CONTRIBUTIONS TO BE 
                    ALLOWED TO INDIVIDUALS WHO DO NOT ITEMIZE 
                    DEDUCTIONS.

  (a) In General.--Section 170 of the Internal Revenue Code of 1986 
(relating to charitable, etc., contributions and gifts) is amended by 
redesignating subsection (m) as subsection (n) and by inserting after 
subsection (l) the following new subsection:
  ``(m) Deduction for Individuals Not Itemizing Deductions.--
          ``(1) In general.--In the case of an individual who does not 
        itemize his deductions for the taxable year, there shall be 
        taken into account as a direct charitable deduction under 
        section 63 an amount equal to the lesser of--
                  ``(A) the amount allowable under subsection (a) for 
                the taxable year for cash contributions, or
                  ``(B) the applicable amount.
          ``(2) Applicable amount.--For purposes of paragraph (1), the 
        applicable amount shall be determined as follows:

                ``For taxable years
                                                         The applicable
                  beginning in:
                                                           amount is:  
                  2002 and 2003............................        $25 
                  2004, 2005, 2006.........................        $50 
                  2007, 2008, 2009.........................        $75 
                  2010 and thereafter......................       $100.

        In the case of a joint return, the applicable amount is twice 
        the applicable amount determined under the preceding table.''.
  (b) Direct Charitable Deduction.--
          (1) In general.--Subsection (b) of section 63 of such Code is 
        amended by striking ``and'' at the end of paragraph (1), by 
        striking the period at the end of paragraph (2) and inserting 
        ``, and'', and by adding at the end thereof the following new 
        paragraph:
          ``(3) the direct charitable deduction.''.
          (2) Definition.--Section 63 of such Code is amended by 
        redesignating subsection (g) as subsection (h) and by inserting 
        after subsection (f) the following new subsection:
  ``(g) Direct Charitable Deduction.--For purposes of this section, the 
term `direct charitable deduction' means that portion of the amount 
allowable under section 170(a) which is taken as a direct charitable 
deduction for the taxable year under section 170(m).''.
          (3) Conforming amendment.--Subsection (d) of section 63 of 
        such Code is amended by striking ``and'' at the end of 
        paragraph (1), by striking the period at the end of paragraph 
        (2) and inserting ``, and'', and by adding at the end thereof 
        the following new paragraph:
          ``(3) the direct charitable deduction.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2001.

SEC. 102. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT ACCOUNTS 
                    FOR CHARITABLE PURPOSES.

  (a) In General.--Subsection (d) of section 408 of the Internal 
Revenue Code of 1986 (relating to individual retirement accounts) is 
amended by adding at the end the following new paragraph:
          ``(8) Distributions for charitable purposes.--
                  ``(A) In general.--No amount shall be includible in 
                gross income by reason of a qualified charitable 
                distribution.
                  ``(B) Qualified charitable distribution.--For 
                purposes of this paragraph, the term `qualified 
                charitable distribution' means any distribution from an 
                individual retirement account--
                          ``(i) which is made on or after the date that 
                        the individual for whose benefit the account is 
                        maintained has attained age 70\1/2\, and
                          ``(ii) which is made directly by the 
                        trustee--
                                  ``(I) to an organization described in 
                                section 170(c), or
                                  ``(II) to a split-interest entity.
                A distribution shall be treated as a qualified 
                charitable distribution only to the extent that the 
                distribution would be includible in gross income 
                without regard to subparagraph (A) and, in the case of 
                a distribution to a split-interest entity, only if no 
                person holds an income interest in the amounts in the 
                split-interest entity attributable to such distribution 
                other than one or more of the following: the individual 
                for whose benefit such account is maintained, the 
                spouse of such individual, or any organization 
                described in section 170(c).
                  ``(C) Contributions must be otherwise deductible.--
                For purposes of this paragraph--
                          ``(i) Direct contributions.--A distribution 
                        to an organization described in section 170(c) 
                        shall be treated as a qualified charitable 
                        distribution only if a deduction for the entire 
                        distribution would be allowable under section 
                        170 (determined without regard to subsection 
                        (b) thereof and this paragraph).
                          ``(ii) Split-interest gifts.--A distribution 
                        to a split-interest entity shall be treated as 
                        a qualified charitable distribution only if a 
                        deduction for the entire value of the interest 
                        in the distribution for the use of an 
                        organization described in section 170(c) would 
                        be allowable under section 170 (determined 
                        without regard to subsection (b) thereof and 
                        this paragraph).
                  ``(D) Application of section 72.--Notwithstanding 
                section 72, in determining the extent to which a 
                distribution is a qualified charitable distribution, 
                the entire amount of the distribution shall be treated 
                as includible in gross income without regard to 
                subparagraph (A) to the extent that such amount does 
                not exceed the aggregate amount which would be so 
                includible if all amounts were distributed from all 
                individual retirement accounts otherwise taken into 
                account in determining the inclusion on such 
                distribution under section 72. Proper adjustments shall 
                be made in applying section 72 to other distributions 
                in such taxable year and subsequent taxable years.
                  ``(E) Special rules for split-interest entities.--
                          ``(i) Charitable remainder trusts.--
                        Distributions made from an individual 
                        retirement account to a trust described in 
                        subparagraph (G)(ii)(I) shall be treated as 
                        income described in section 664(b)(1) except to 
                        the extent that the beneficiary of the 
                        individual retirement account notifies the 
                        trustee of the trust of the amount which is not 
                        allocable to income under subparagraph (D).
                          ``(ii) Pooled income funds.--No amount shall 
                        be includible in the gross income of a pooled 
                        income fund (as defined in subparagraph 
                        (G)(ii)(II)) by reason of a qualified 
                        charitable distribution to such fund.
                          ``(iii) Charitable gift annuities.--Qualified 
                        charitable distributions made for a charitable 
                        gift annuity shall not be treated as an 
                        investment in the contract.
                  ``(F) Denial of deduction.--Qualified charitable 
                distributions shall not be taken into account in 
                determining the deduction under section 170.
                  ``(G) Split-interest entity defined.--For purposes of 
                this paragraph, the term `split-interest entity' 
                means--
                          ``(i) a charitable remainder annuity trust or 
                        a charitable remainder unitrust (as such terms 
                        are defined in section 664(d)),
                          ``(ii) a pooled income fund (as defined in 
                        section 642(c)(5)), and
                          ``(iii) a charitable gift annuity (as defined 
                        in section 501(m)(5)).''.
  (b) Modifications Relating to Information Returns by Certain 
Trusts.--
          (1) Returns.--Section 6034 of such Code (relating to returns 
        by trusts described in section 4947(a)(2) or claiming 
        charitable deductions under section 642(c)) is amended to read 
        as follows:

``SEC. 6034. RETURNS BY TRUSTS DESCRIBED IN SECTION 4947(A)(2) OR 
                    CLAIMING CHARITABLE DEDUCTIONS UNDER SECTION 
                    642(C).

  ``(a) Trusts Described in Section 4947(a)(2).--Every trust described 
in section 4947(a)(2) shall furnish such information with respect to 
the taxable year as the Secretary may by forms or regulations require.
  ``(b) Trusts Claiming a Charitable Deduction Under Section 642(c).--
          ``(1) In general.--Every trust not required to file a return 
        under subsection (a) but claiming a charitable, etc., deduction 
        under section 642(c) for the taxable year shall furnish such 
        information with respect to such taxable year as the Secretary 
        may by forms or regulations prescribe, including:
                  ``(A) the amount of the charitable, etc., deduction 
                taken under section 642(c) within such year,
                  ``(B) the amount paid out within such year which 
                represents amounts for which charitable, etc., 
                deductions under section 642(c) have been taken in 
                prior years,
                  ``(C) the amount for which charitable, etc., 
                deductions have been taken in prior years but which has 
                not been paid out at the beginning of such year,
                  ``(D) the amount paid out of principal in the current 
                and prior years for charitable, etc., purposes,
                  ``(E) the total income of the trust within such year 
                and the expenses attributable thereto, and
                  ``(F) a balance sheet showing the assets, 
                liabilities, and net worth of the trust as of the 
                beginning of such year.
          ``(2) Exceptions.--Paragraph (1) shall not apply in the case 
        of a taxable year if all the net income for such year, 
        determined under the applicable principles of the law of 
        trusts, is required to be distributed currently to the 
        beneficiaries. Paragraph (1) shall not apply in the case of a 
        trust described in section 4947(a)(1).''.
          (2) Increase in penalty relating to filing of information 
        return by split-interest trusts.--Paragraph (2) of section 
        6652(c) of such Code (relating to returns by exempt 
        organizations and by certain trusts) is amended by adding at 
        the end the following new subparagraph:
                  ``(C) Split-interest trusts.--In the case of a trust 
                which is required to file a return under section 
                6034(a), subparagraphs (A) and (B) of this paragraph 
                shall not apply and paragraph (1) shall apply in the 
                same manner as if such return were required under 
                section 6033, except that--
                          ``(i) the 5 percent limitation in the second 
                        sentence of paragraph (1)(A) shall not apply,
                          ``(ii) in the case of any trust with gross 
                        income in excess of $250,000, the first 
                        sentence of paragraph (1)(A) shall be applied 
                        by substituting `$100' for `$20', and the 
                        second sentence thereof shall be applied by 
                        substituting `$50,000' for `$10,000', and
                          ``(iii) the third sentence of paragraph 
                        (1)(A) shall be disregarded.
                If the person required to file such return knowingly 
                fails to file the return, such person shall be 
                personally liable for the penalty imposed pursuant to 
                this subparagraph.''.
          (3) Confidentiality of noncharitable beneficiaries.--
        Subsection (b) of section 6104 of such Code (relating to 
        inspection of annual information returns) is amended by adding 
        at the end the following new sentence: ``In the case of a trust 
        which is required to file a return under section 6034(a), this 
        subsection shall not apply to information regarding 
        beneficiaries which are not organizations described in section 
        170(c).''.
  (c) Effective Dates.--
          (1) Subsection (a).--The amendment made by subsection (a) 
        shall apply to taxable years beginning after December 31, 2001.
          (2) Subsection (b).--The amendments made by subsection (b) 
        shall apply to returns for taxable years beginning after 
        December 31, 2001.

SEC. 103. INCREASE IN CAP ON CORPORATE CHARITABLE CONTRIBUTIONS.

  (a) In General.--Paragraph (2) of section 170(b) of the Internal 
Revenue Code of 1986 (relating to corporations) is amended by striking 
``10 percent'' and inserting ``the applicable percentage''.
  (b) Applicable Percentage.--Subsection (b) of section 170 of such 
Code is amended by adding at the end the following new paragraph:
          ``(3) Applicable percentage defined.--For purposes of 
        paragraph (2), the applicable percentage shall be determined in 
        accordance with the following table:

                ``For taxable years beginning
                                                         The applicable
                  in calendar year--
                                                        percentage is--
                  2002 through 2007........................         11 
                  2008.....................................         12 
                  2009.....................................         13 
                  2010 and thereafter......................      15.''.
  (c) Conforming Amendments.--
          (1) Sections 512(b)(10) and 805(b)(2)(A) of such Code are 
        each amended by striking ``10 percent'' each place it occurs 
        and inserting ``the applicable percentage (determined under 
        section 170(b)(3))''.
          (2) Sections 545(b)(2) and 556(b)(2) of such Code are each 
        amended by striking ``10-percent limitation'' and inserting 
        ``applicable percentage limitation''.
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2001.

SEC. 104. CHARITABLE DONATIONS LIABILITY REFORM FOR IN-KIND CORPORATE 
                    CONTRIBUTIONS.

  (a) Definitions.--For purposes of this section:
          (1) Aircraft.--The term ``aircraft'' has the meaning provided 
        that term in section 40102(6) of title 49, United States Code.
          (2) Business entity.--The term ``business entity'' means a 
        firm, corporation, association, partnership, consortium, joint 
        venture, or other form of enterprise.
          (3) Equipment.--The term ``equipment'' includes mechanical 
        equipment, electronic equipment, and office equipment.
          (4) Facility.--The term ``facility'' means any real property, 
        including any building, improvement, or appurtenance.
          (5) Gross negligence.--The term ``gross negligence'' means 
        voluntary and conscious conduct by a person with knowledge (at 
        the time of the conduct) that the conduct is likely to be 
        harmful to the health or well-being of another person.
          (6) Intentional misconduct.--The term ``intentional 
        misconduct'' means conduct by a person with knowledge (at the 
        time of the conduct) that the conduct is harmful to the health 
        or well-being of another person.
          (7) Motor vehicle.--The term ``motor vehicle'' has the 
        meaning provided that term in section 30102(6) of title 49, 
        United States Code.
          (8) Nonprofit organization.--The term ``nonprofit 
        organization'' means--
                  (A) any organization described in section 501(c)(3) 
                of the Internal Revenue Code of 1986 and exempt from 
                tax under section 501(a) of such Code; or
                  (B) any not-for-profit organization organized and 
                conducted for public benefit and operated primarily for 
                charitable, civic, educational, religious, welfare, or 
                health purposes.
          (9) State.--The term ``State'' means each of the several 
        States, the District of Columbia, the Commonwealth of Puerto 
        Rico, the Virgin Islands, Guam, American Samoa, the Northern 
        Mariana Islands, any other territory or possession of the 
        United States, or any political subdivision of any such State, 
        territory, or possession.
  (b) Liability.--
          (1) Liability of business entities that donate equipment to 
        nonprofit organizations.--
                  (A) In general.--Subject to subsection (c), a 
                business entity shall not be subject to civil liability 
                relating to any injury or death that results from the 
                use of equipment donated by a business entity to a 
                nonprofit organization.
                  (B) Application.--This paragraph shall apply with 
                respect to civil liability under Federal and State law.
          (2) Liability of business entities providing use of 
        facilities to nonprofit organizations.--
                  (A) In general.--Subject to subsection (c), a 
                business entity shall not be subject to civil liability 
                relating to any injury or death occurring at a facility 
                of the business entity in connection with a use of such 
                facility by a nonprofit organization, if--
                          (i) the use occurs outside of the scope of 
                        business of the business entity;
                          (ii) such injury or death occurs during a 
                        period that such facility is used by the 
                        nonprofit organization; and
                          (iii) the business entity authorized the use 
                        of such facility by the nonprofit organization.
                  (B) Application.--This paragraph shall apply--
                          (i) with respect to civil liability under 
                        Federal and State law; and
                          (ii) regardless of whether a nonprofit 
                        organization pays for the use of a facility.
          (3) Liability of business entities providing use of a motor 
        vehicle or aircraft.--
                  (A) In general.--Subject to subsection (c), a 
                business entity shall not be subject to civil liability 
                relating to any injury or death occurring as a result 
                of the operation of aircraft or a motor vehicle of a 
                business entity loaned to a nonprofit organization for 
                use outside of the scope of business of the business 
                entity, if--
                          (i) such injury or death occurs during a 
                        period that such motor vehicle or aircraft is 
                        used by a nonprofit organization; and
                          (ii) the business entity authorized the use 
                        by the nonprofit organization of motor vehicle 
                        or aircraft that resulted in the injury or 
                        death.
                  (B) Application.--This paragraph shall apply--
                          (i) with respect to civil liability under 
                        Federal and State law; and
                          (ii) regardless of whether a nonprofit 
                        organization pays for the use of the aircraft 
                        or motor vehicle.
          (4) Liability of business entities providing tours of 
        facilities.--
                  (A) In general.--Subject to subsection (c), a 
                business entity shall not be subject to civil liability 
                relating to any injury to, or death of an individual 
                occurring at a facility of the business entity, if--
                          (i) such injury or death occurs during a tour 
                        of the facility in an area of the facility that 
                        is not otherwise accessible to the general 
                        public; and
                          (ii) the business entity authorized the tour.
                  (B) Application.--This paragraph shall apply--
                          (i) with respect to civil liability under 
                        Federal and State law; and
                          (ii) regardless of whether an individual pays 
                        for the tour.
  (c) Exceptions.--Subsection (b) shall not apply to an injury or death 
that results from an act or omission of a business entity that 
constitutes gross negligence or intentional misconduct, including any 
misconduct that--
          (1) constitutes a crime of violence (as that term is defined 
        in section 16 of title 18, United States Code) or act of 
        international terrorism (as that term is defined in section 
        2331 of title 18, United States Code) for which the defendant 
        has been convicted in any court;
          (2) constitutes a hate crime (as that term is used in the 
        Hate Crime Statistics Act (28 U.S.C. 534 note));
          (3) involves a sexual offense, as defined by applicable State 
        law, for which the defendant has been convicted in any court; 
        or
          (4) involves misconduct for which the defendant has been 
        found to have violated a Federal or State civil rights law.
  (d) Superseding Provision.--
          (1) In general.--Subject to paragraph (2) and subsection (e), 
        this title preempts the laws of any State to the extent that 
        such laws are inconsistent with this title, except that this 
        title shall not preempt any State law that provides additional 
        protection for a business entity for an injury or death 
        described in a paragraph of subsection (b) with respect to 
        which the conditions specified in such paragraph apply.
          (2) Limitation.--Nothing in this title shall be construed to 
        supersede any Federal or State health or safety law.
  (e) Election of State Regarding Nonapplicability.--A provision of 
this title shall not apply to any civil action in a State court against 
a business entity in which all parties are citizens of the State if 
such State enacts a statute--
          (1) citing the authority of this section;
          (2) declaring the election of such State that such provision 
        shall not apply to such civil action in the State; and
          (3) containing no other provisions.
  (f) Effective Date.--This section shall apply to injuries (and deaths 
resulting therefrom) occurring on or after the date of the enactment of 
this Act.

SEC. 105. CHARITABLE DEDUCTION FOR CONTRIBUTIONS OF FOOD INVENTORY.

  (a) In General.--Paragraph (3) of section 170(e) of the Internal 
Revenue Code of 1986 (relating to special rule for certain 
contributions of inventory and other property) is amended by 
redesignating subparagraph (C) as subparagraph (D) and by inserting 
after subparagraph (B) the following new subparagraph:
                  ``(C) Special rule for contributions of food 
                inventory.--
                          ``(i) General rule.--In the case of a 
                        charitable contribution of food, this paragraph 
                        shall be applied--
                                  ``(I) without regard to whether the 
                                contribution is made by a C 
                                corporation, and
                                  ``(II) only for food that is 
                                apparently wholesome food.
                          ``(ii) Determination of fair market value.--
                        In the case of a qualified contribution of 
                        apparently wholesome food to which this 
                        paragraph applies and which, solely by reason 
                        of internal standards of the taxpayer or lack 
                        of market, cannot or will not be sold, the fair 
                        market value of such food shall be determined 
                        by taking into account the price at which the 
                        same or similar food items are sold by the 
                        taxpayer at the time of the contribution (or, 
                        if not so sold at such time, in the recent 
                        past).
                          ``(iii) Apparently wholesome food.--For 
                        purposes of this subparagraph, the term 
                        `apparently wholesome food' shall have the 
                        meaning given to such term by section 22(b)(2) 
                        of the Bill Emerson Good Samaritan Food 
                        Donation Act (42 U.S.C. 1791(b)(2)), as in 
                        effect on the date of the enactment of this 
                        subparagraph.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to taxable years beginning after December 31, 2001.

SEC. 106. REFORM OF EXCISE TAX ON NET INVESTMENT INCOME OF PRIVATE 
                    FOUNDATIONS.

  (a) In General.--Subsection (a) of section 4940 of the Internal 
Revenue Code of 1986 (relating to excise tax based on investment 
income) is amended by striking ``2 percent'' and inserting ``1 
percent''.
  (b) Repeal of Reduction In Tax Where Private Foundation Meets Certain 
Distribution Requirements.--Section 4940 of such Code is amended by 
striking subsection (e).
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2001.

SEC. 107. EXCISE TAX ON UNRELATED BUSINESS TAXABLE INCOME OF CHARITABLE 
                    REMAINDER TRUSTS.

  (a) In General.--Subsection (c) of section 664 of the Internal 
Revenue Code of 1986 (relating to exemption from income taxes) is 
amended to read as follows:
  ``(c) Taxation of Trusts.--
          ``(1) Income tax.--A charitable remainder annuity trust and a 
        charitable remainder unitrust shall, for any taxable year, not 
        be subject to any tax imposed by this subtitle.
          ``(2) Excise tax.--
                  ``(A) In general.--In the case of a charitable 
                remainder annuity trust or a charitable remainder 
                unitrust that has unrelated business taxable income 
                (within the meaning of section 512, determined as if 
                part III of subchapter F applied to such trust) for a 
                taxable year, there is hereby imposed on such trust or 
                unitrust an excise tax equal to the amount of such 
                unrelated business taxable income.
                  ``(B) Certain rules to apply.--The tax imposed by 
                subparagraph (A) shall be treated as imposed by chapter 
                42 for purposes of this title other than subchapter E 
                of chapter 42.
                  ``(C) Character of distributions and coordination 
                with distribution requirements.--The amounts taken into 
                account in determining unrelated business taxable 
                income (as defined in subparagraph (A)) shall not be 
                taken into account for purposes of--
                          ``(i) subsection (b),
                          ``(ii) determining the value of trust assets 
                        under subsection (d)(2), and
                          ``(iii) determining income under subsection 
                        (d)(3).
                  ``(D) Tax court proceedings.--For purposes of this 
                paragraph, the references in section 6212(c)(1) to 
                section 4940 shall be deemed to include references to 
                this paragraph.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to taxable years beginning after December 31, 2001.

SEC. 108. EXPANSION OF CHARITABLE CONTRIBUTION ALLOWED FOR SCIENTIFIC 
                    PROPERTY USED FOR RESEARCH AND FOR COMPUTER 
                    TECHNOLOGY AND EQUIPMENT USED FOR EDUCATIONAL 
                    PURPOSES.

  (a) Scientific Property Used for Research.--Clause (ii) of section 
170(e)(4)(B) of the Internal Revenue Code of 1986 (defining qualified 
research contributions) is amended by inserting ``or assembled'' after 
``constructed''.
  (b) Computer Technology and Equipment for Educational Purposes.--
Clause (ii) of section 170(e)(6)(B) of such Code is amended by 
inserting ``or assembled'' after ``constructed'' and ``or assembling'' 
after ``construction''.
  (c) Conforming Amendment.--Subparagraph (D) of section 170(e)(6) of 
such Code is amended by inserting ``or assembled'' after 
``constructed'' and ``or assembling'' after ``construction''.
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2001.

SEC. 109. ADJUSTMENT TO BASIS OF S CORPORATION STOCK FOR CERTAIN 
                    CHARITABLE CONTRIBUTIONS.

  (a) In General.--Paragraph (1) of section 1367(a) of such Code 
(relating to adjustments to basis of stock of shareholders, etc.) is 
amended by striking ``and'' at the end of subparagraph (B), by striking 
the period at the end of subparagraph (C) and inserting ``, and'', and 
by adding at the end the following new subparagraph:
                  ``(D) the excess of the amount of the shareholder's 
                deduction for any charitable contribution made by the S 
                corporation over the shareholder's proportionate share 
                of the adjusted basis of the property contributed.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2001.

                TITLE II--EXPANSION OF CHARITABLE CHOICE

SEC. 201. PROVISION OF ASSISTANCE UNDER GOVERNMENT PROGRAMS BY 
                    RELIGIOUS AND COMMUNITY ORGANIZATIONS.

  Title XXIV of the Revised Statutes is amended by inserting after 
section 1990 (42 U.S.C. 1994) the following:

``SEC. 1994A. CHARITABLE CHOICE.

  ``(a) Short Title.--This section may be cited as the `Charitable 
Choice Act of 2001'.
  ``(b) Purposes.--The purposes of this section are--
          ``(1) to provide assistance to individuals and families in 
        need in the most effective and efficient manner;
          ``(2) to prohibit discrimination against religious 
        organizations on the basis of religion in the administration 
        and distribution of government assistance under the government 
        programs described in subsection (c)(4);
          ``(3) to allow religious organizations to assist in the 
        administration and distribution of such assistance without 
        impairing the religious character of such organizations; and
          ``(4) to protect the religious freedom of individuals and 
        families in need who are eligible for government assistance, 
        including expanding the possibility of choosing to receive 
        services from a religious organization providing such 
        assistance.
  ``(c) Religious Organizations Included as NonGovernmental 
Providers.--
          ``(1) In general.--
                  ``(A) Inclusion.--For any program described in 
                paragraph (4) that is carried out by the Federal 
                Government, or by a State or local government with 
                Federal funds, the government shall consider, on the 
                same basis as other nongovernmental organizations, 
                religious organizations to provide the assistance under 
                the program, if the program is implemented in a manner 
                that is consistent with the Establishment Clause and 
                the Free Exercise Clause of the first amendment to the 
                Constitution.
                  ``(B) Discrimination prohibited.--Neither the Federal 
                Government nor a State or local government receiving 
                funds under a program described in paragraph (4) shall 
                discriminate against an organization that provides 
                assistance under, or applies to provide assistance 
                under, such program, on the basis that the organization 
                has a religious character.
          ``(2) Funds not aid to religion.--Federal, State, or local 
        government funds or other assistance that is received by a 
        religious organization for the provision of services under this 
        section constitutes aid to individuals and families in need, 
        the ultimate beneficiaries of such services, and not aid to the 
        religious organization.
          ``(3) Funds not endorsement of religion.--The receipt by a 
        religious organization of Federal, State, or local government 
        funds or other assistance under this section is not and should 
        not be perceived as an endorsement by the government of 
        religion or the organization's religious beliefs or practices.
          ``(4) Programs.--For purposes of this section, a program is 
        described in this paragraph--
                  ``(A) if it involves activities carried out using 
                Federal funds--
                          ``(i) related to the prevention and treatment 
                        of juvenile delinquency and the improvement of 
                        the juvenile justice system, including programs 
                        funded under the Juvenile Justice and 
                        Delinquency Prevention Act of 1974 (42 U.S.C. 
                        5601 et seq.);
                          ``(ii) related to the prevention of crime, 
                        including programs funded under title I of the 
                        Omnibus Crime Control and Safe Streets Act of 
                        1968 (42 U.S.C. 3701 et seq.);
                          ``(iii) under the Federal housing laws;
                          ``(iv) under title I of the Workforce 
                        Investment Act of 1998 (29 U.S.C. 2801 et seq.)
                          ``(v) under the Older Americans Act of 1965 
                        (42 U.S.C. 3001 et seq.);
                          ``(vi) under the Child Care Development Block 
                        Grant Act of 1990 (42 U.S.C. 9858 et seq.);
                          ``(vii) under the Community Development Block 
                        Grant Program established under title I of the 
                        Housing and Community Development Act of 1974 
                        (42 U.S.C. 5301 et seq.);
                          ``(viii) related to the intervention in and 
                        prevention of domestic violence;
                          ``(ix) related to hunger relief activities; 
                        or
                          ``(x) under the Job Access and Reverse 
                        Commute grant program established under section 
                        3037 of the Federal Transit Act of 1998 (49 
                        U.S.C. 5309 note); or
                  ``(B)(i) if it involves activities to assist students 
                in obtaining the recognized equivalents of secondary 
                school diplomas and activities relating to non-school-
                hours programs; and
                  ``(ii) except as provided in subparagraph (A) and 
                clause (i), does not include activities carried out 
                under Federal programs providing education to children 
                eligible to attend elementary schools or secondary 
                schools, as defined in section 14101 of the Elementary 
                and Secondary Education Act of 1965 (20 U.S.C. 8801).
  ``(d) Organizational Character and Autonomy.--
          ``(1) In general.--A religious organization that provides 
        assistance under a program described in subsection (c)(4) shall 
        retain its autonomy from Federal, State, and local governments, 
        including such organization's control over the definition, 
        development, practice, and expression of its religious beliefs.
          ``(2) Additional safeguards.--Neither the Federal Government 
        nor a State or local government shall require a religious 
        organization in order to be eligible to provide assistance 
        under a program described in subsection (c)(4)--
                  ``(A) to alter its form of internal governance; or
                  ``(B) to remove religious art, icons, scripture, or 
                other symbols because they are religious.
  ``(e) Employment Practices.--
          ``(1) In general.--In order to aid in the preservation of its 
        religious character, a religious organization that provides 
        assistance under a program described in subsection (c)(4) may, 
        notwithstanding any other provision of law, require that its 
        employees adhere to the religious practices of the 
        organization.
          ``(2) Title vii exemption.--The exemption of a religious 
        organization provided under section 702 or 703(e)(2) of the 
        Civil Rights Act of 1964 (42 U.S.C. 2000e-1, 2000e-2(e)(2)) 
        regarding employment practices shall not be affected by the 
        religious organization's provision of assistance under, or 
        receipt of funds from, a program described in subsection 
        (c)(4).
          ``(3) Effect on other laws.--Nothing in this section alters 
        the duty of a religious organization to comply with the 
        nondiscrimination provisions in title VI of the Civil Rights 
        Act of 1964 (42 U.S.C. 2000d et seq.) (prohibiting 
        discrimination on the basis of race, color, and national 
        origin), title IX of the Education Amendments of 1972 (20 
        U.S.C. 1681-1686) (prohibiting discrimination in educational 
        institutions on the basis of sex and visual impairment), 
        section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794) 
        (prohibiting discrimination against otherwise qualified 
        disabled individuals), and the Age Discrimination Act of 1975 
        (42 U.S.C. 6101-6107) (prohibiting discrimination on the basis 
        of age).
  ``(f) Rights of Beneficiaries of Assistance.--
          ``(1) In general.--If an individual described in paragraph 
        (3) has an objection to the religious character of the 
        organization from which the individual receives, or would 
        receive, assistance funded under any program described in 
        subsection (c)(4), the appropriate Federal, State, or local 
        governmental entity shall provide to such individual (if 
        otherwise eligible for such assistance) within a reasonable 
        period of time after the date of such objection, assistance 
        that--
                  ``(A) is an alternative, including a nonreligious 
                alternative, that is accessible to the individual; and
                  ``(B) has a value that is not less than the value of 
                the assistance that the individual would have received 
                from such organization.
          ``(2) Notice.--The appropriate Federal, State, or local 
        governmental entity shall guarantee that notice is provided to 
        the individuals described in paragraph (3) of the rights of 
        such individuals under this section.
          ``(3) Individual described.--An individual described in this 
        paragraph is an individual who receives or applies for 
        assistance under a program described in subsection (c)(4).
  ``(g) Nondiscrimination Against Beneficiaries.--
          ``(1) Grants and contracts.--A religious organization 
        providing assistance through a grant or contract under a 
        program described in subsection (c)(4) shall not discriminate, 
        in carrying out the program, against an individual described in 
        subsection (f)(3) on the basis of religion, a religious belief, 
        or a refusal to hold a religious belief.
          ``(2) Indirect forms of disbursement.--A religious 
        organization providing assistance through a voucher, 
        certificate, or other form of indirect disbursement under a 
        program described in subsection (c)(4) shall not discriminate, 
        in carrying out the program, against an individual described in 
        subsection (f)(3) on the basis of religion, a religious belief, 
        or a refusal to hold a religious belief.
  ``(h) Accountability.--
          ``(1) In general.--Except as provided in paragraph (2), a 
        religious organization providing assistance under any program 
        described in subsection (c)(4) shall be subject to the same 
        regulations as other nongovernmental organizations to account 
        in accord with generally accepted accounting principles for the 
        use of such funds provided under such program.
          ``(2) Limited audit.--Such organization shall segregate 
        government funds provided under such program into a separate 
        account or accounts. Only the government funds shall be subject 
        to audit by the government.
  ``(i) Limitations on Use of Funds for Certain Purposes.--No funds 
provided through a grant or contract to a religious organization to 
provide assistance under any program described in subsection (c)(4) 
shall be expended for sectarian worship, instruction, or 
proselytization. A certificate shall be signed by such organizations 
and filed with the government agency that disbursed the funds that 
gives assurance the organization will comply with this subsection.
  ``(j) Effect on State and Local Funds.--If a State or local 
government contributes State or local funds to carry out a program 
described in subsection (c)(4), the State or local government may 
segregate the State or local funds from the Federal funds provided to 
carry out the program or may commingle the State or local funds with 
the Federal funds. If the State or local government commingles the 
State or local funds, the provisions of this section shall apply to the 
commingled funds in the same manner, and to the same extent, as the 
provisions apply to the Federal funds.
  ``(k) Treatment of Intermediate Contractors.--If a nongovernmental 
organization (referred to in this subsection as an `intermediate 
contractor'), acting under a contract or other agreement with the 
Federal Government or a State or local government, is given the 
authority under the contract or agreement to select nongovernmental 
organizations to provide assistance under the programs described in 
subsection (c)(4), the intermediate contractor shall have the same 
duties under this section as the government when selecting or otherwise 
dealing with subcontractors, but the intermediate contractor, if it is 
a religious organization, shall retain all other rights of a religious 
organization under this section.
  ``(l) Compliance.--A party alleging that the rights of the party 
under this section have been violated by a State or local government 
may bring a civil action pursuant to section 1979 against the official 
or government agency that has allegedly committed such violation. A 
party alleging that the rights of the party under this section have 
been violated by the Federal Government may bring a civil action for 
appropriate relief in Federal district court against the official or 
government agency that has allegedly committed such violation.''.

               TITLE III--INDIVIDUAL DEVELOPMENT ACCOUNTS

SEC. 301. ADDITIONAL QUALIFIED ENTITIES ELIGIBLE TO CONDUCT PROJECTS 
                    UNDER THE ASSETS FOR INDEPENDENCE ACT.

  Section 404(7)(A)(iii)(I)(aa) of the Assets for Independence Act (42 
U.S.C. 604 note) is amended to read as follows:
                                          ``(aa) a federally insured 
                                        credit union; or''.

SEC. 302. INCREASE IN LIMITATION ON NET WORTH.

  Section 408(a)(2)(A) of the Assets for Independence Act (42 U.S.C. 
604 note) is amended by striking ``$10,000'' and inserting ``$20,000''.

SEC. 303. CHANGE IN LIMITATION ON DEPOSITS FOR AN INDIVIDUAL.

  Section 410(b) of the Assets for Independence Act (42 U.S.C. 604 
note) is amended to read as follows:
  ``(b) Limitation on Deposits for an Individual.--Not more than $500 
from a grant made under section 406(b) shall be provided per year to 
any one individual during the project.''.

SEC. 304. ELIMINATION OF LIMITATION ON DEPOSITS FOR A HOUSEHOLD.

  Section 410 of the Assets for Independence Act (42 U.S.C. 604 note) 
is amended by striking subsection (c) and redesignating subsections (d) 
and (e) as subsections (c) and (d), respectively.

SEC. 305. EXTENSION OF PROGRAM.

  Section 416 of the Assets for Independence Act (42 U.S.C. 604 note) 
is amended by striking ``2001, 2002, and 2003'' and inserting ``and 
2001, and $50,000,000 for each of fiscal years 2002 through 2008''.

SEC. 306. CONFORMING AMENDMENTS.

  (a) Amendments to Text.--The text of each of the following provisions 
of the Assets for Independence Act (42 U.S.C. 604 note) is amended by 
striking ``demonstration'' each place it appears:
          (1) Section 403.
          (2) Section 404(2).
          (3) Section 405(a).
          (4) Section 405(b).
          (5) Section 405(c).
          (6) Section 405(d).
          (7) Section 405(e).
          (8) Section 405(g).
          (9) Section 406(a).
          (10) Section 406(b).
          (11) Section 407(b)(1)(A).
          (12) Section 407(c)(1)(A).
          (13) Section 407(c)(1)(B).
          (14) Section 407(c)(1)(C).
          (15) Section 407(c)(1)(D).
          (16) Section 407(d).
          (17) Section 408(a).
          (18) Section 408(b).
          (19) Section 409.
          (20) Section 410(e).
          (21) Section 411.
          (22) Section 412(a).
          (23) Section 412(b)(2).
          (24) Section 412(c).
          (25) Section 413(a).
          (26) Section 413(b).
          (27) Section 414(a).
          (28) Section 414(b).
          (29) Section 414(c).
          (30) Section 414(d)(1).
          (31) Section 414(d)(2).
  (b) Amendments to Subsection Headings.--The heading of each of the 
following provisions of the Assets for Independence Act (42 U.S.C. 604 
note) is amended by striking ``Demonstration'':
          (1) Section 405(a).
          (2) Section 406(a).
          (3) Section 413(a).
  (c) Amendments to Section Headings.--The headings of sections 406 and 
411 of the Assets for Independence Act (42 U.S.C. 604 note) are amended 
by striking ``DEMONSTRATION''.

SEC. 307. APPLICABILITY.

  (a) In General.--The amendments made by this title shall apply to 
funds provided before, on or after the date of the enactment of this 
Act.
  (b) Prior Amendments.--The amendments made by title VI of the 
Departments of Labor, Health and Human Services, and Education, and 
Related Agencies Appropriations Act, 2001 (as enacted into law by 
Public Law 106-554) shall apply to funds provided before, on or after 
the date of the enactment of such Act.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The tax and individual development account provisions of 
the bill, H.R. 7, as amended (the ``Community Solutions Act of 
2001''), facilitate charitable giving and charitable activity.
    The bill provides net tax reductions of over $4.4 billion 
over fiscal years 2002-2006. This will bolster the nonprofit 
sector of the economy.
    The bill provides a charitable contribution deduction for 
individuals taking the standard deduction, facilitates 
transfers to charity from individual retirement arrangements, 
increases the percentage limitation on corporate charitable 
contributions, and reforms the excise tax based on the 
investment income of private foundations leaving such 
foundations with more funds to spend on charitable activities. 
The bill also encourages charitable contributions of food 
inventory, scientific property used for research, and computer 
technology and equipment used for educational purposes. In 
addition, the bill makes charitable contributions by S 
corporations more attractive and provides a more appropriate 
remedy on charitable remainder trusts that have unrelated 
business income. Finally, the bill strengthens the creation and 
maintenance of individual development accounts.

                 B. Background and Need for Legislation

    The provisions approved by the Committee will stimulate 
charitable giving and therefore provide more funds to 
charitable organizations, many of which will perform activities 
that otherwise would have to be performed by the Federal 
government. The estimated revenue effects of the provisions 
comply with the most recent Congressional Budget Office 
revisions of budget surplus projections.

                         C. Legislative History


                            Committee Action

    The Committee on Ways and Means marked up the provisions of 
the bill on July 11, 2001, and reported the provisions, as 
amended, on July 11, 2001, by a roll call vote of 23 yeas and 
16 nays, with a quorum present.

                           Committee Hearing

    A joint hearing was held on June 14, 2001, before the 
Subcommittees on Select Revenue Measures and Human Resources of 
the Committee on Ways and Means on the provisions of H.R. 7.

                      II. EXPLANATION OF THE BILL


                A. Charitable Deduction for Nonitemizers


        (Sec. 101 of the Bill and Secs. 63 and 170 of the Code)


                              Present Law

    In computing taxable income, a taxpayer who itemizes 
deductions generally is allowed to deduct the amount of cash 
and the fair market value of property contributed to a charity 
described in section 501(c)(3) or a Federal, State, or local 
governmental entity. The deduction also is allowed for purposes 
of calculating alternative minimum taxable income.
    The amount of the deduction allowable for a taxable year 
with respect to a charitable contribution of property may be 
reduced depending on the type of property contributed, the type 
of charitable organization to which the property is 
contributed, and the income of the taxpayer.\1\
---------------------------------------------------------------------------
    \1\ Secs. 170(b) and (e).
---------------------------------------------------------------------------
    A taxpayer who takes the standard deduction (i.e., who does 
not itemize deductions) may not take a separate deduction for 
charitable contributions.\2\
---------------------------------------------------------------------------
    \2\ Sec. 170(a). The Economic Recovery Tax Act of 1981 adopted a 
temporary provision that permitted individual taxpayers who did not 
itemize income tax deductions to claim a deduction from gross income 
for a specified percentage of their charitable contributions. The 
maximum deduction was $25 for 1982 and 1983, $75 for 1984, 50 percent 
of the amount of the contribution for 1985, and 100 percent of the 
amount of the contribution for 1986. The nonitemizer deduction 
terminated after 1986.
---------------------------------------------------------------------------
    A payment to a charity (regardless of whether it is termed 
a ``contribution'') in exchange for which the donor receives an 
economic benefit is not deductible, except to the extent that 
the donor can demonstrate that the payment exceeds the fair 
market value of the benefit received from the charity. To 
facilitate distinguishing charitable contributions from 
purchases of goods or services from charities, present law 
provides that no charitable contribution deduction is allowed 
for a separate contribution of $250 or more unless the donor 
obtains a contemporaneous written acknowledgement of the 
contribution from the charity indicating whether the charity 
provided any good or service (and an estimate of the value of 
any such good or service) to the taxpayer in consideration for 
the contribution.\3\ In addition, present law requires that any 
charity that receives a contribution exceeding $75 made partly 
as a gift and partly as consideration for goods or services 
furnished by the charity (a ``quid pro quo'' contribution) is 
required to inform the contributor in writing of an estimate of 
the value of the goods or services furnished by the charity and 
that only the portion exceeding the value of the goods or 
services is deductible as a charitable contribution.\4\
---------------------------------------------------------------------------
    \3\ Sec. 170(f)(8).
    \4\ Sec. 6115.
---------------------------------------------------------------------------
    Under present law, total deductible contributions of an 
individual taxpayer to public charities, private operating 
foundations, and certain types of private nonoperating 
foundations may not exceed 50 percent of the taxpayer's 
contribution base, which is the taxpayer's adjusted gross 
income for a taxable year (disregarding any net operating loss 
carryback). To the extent a taxpayer has not exceeded the 50-
percent limitation, (1) contributions of capital gain property 
to public charities generally may be deducted up to 30 percent 
of the taxpayer's contribution base, (2) contributions of cash 
to private foundations and certain other charitable 
organizations generally may be deducted up to 30 percent of the 
taxpayer's contribution base, and (3) contributions of capital 
gain property to private foundations and certain other 
charitable organizations generally may be deducted up to 20 
percent of the taxpayer's contribution base.
    Contributions by individuals in excess of the 50-percent, 
30-percent, and 20-percent limit may be carried over and 
deducted over the next five taxable years, subject to the 
relevant percentage limitations on the deduction in each of 
those years.
    In addition to the percentage limitations imposed 
specifically on charitable contributions, present law imposes a 
reduction on most itemized deductions, including charitable 
contribution deductions, for taxpayers with adjusted gross 
income in excess of a threshold amount, which is indexed 
annually for inflation. The threshold amount for 2001 is 
$132,950 ($66,475 for married individuals filing separate 
returns). For those deductions that are subject to the limit, 
the total amount of itemized deductions is reduced by 3 percent 
of adjusted gross income over the threshold amount, but not by 
more than 80 percent of itemized deductions subject to the 
limit. Beginning in 2006, the Economic Growth and Tax Relief 
Reconciliation Act of 2001 phases-out the overall limitation on 
itemized deductions for all taxpayers. The overall limitation 
on itemized deductions is reduced by one-third in taxable years 
beginning in 2006 and 2007, and by two-thirds in taxable years 
beginning in 2008 and 2009. The overall limitation on itemized 
deductions is eliminated for taxable years beginning after 
December 31, 2009; however this elimination of the limitation 
sunsets on December 31, 2010.

                           Reasons for Change

    The Committee believes that allowing a charitable deduction 
to nonitemizers will stimulate charitable giving, thereby 
providing more funds for worthwhile nonprofit organizations, 
many of which provide services that otherwise might have to be 
provided by the Federal government.

                        Explanation of Provision

    In the case of an individual taxpayer who does not itemize 
deductions, the provision allows a deduction from adjusted 
gross income for charitable contributions paid in cash. This 
deduction is allowed in addition to the standard deduction and 
is calculated as the lesser of (1)the amount allowable to 
itemizers as a charitable deduction for cash contributions and (2) an 
applicable amount. The new deduction generally is subject to the tax 
rules normally governing charitable deductions, such as the 
substantiation requirements and carryforward rules. For taxpayers 
taking a deduction of the applicable amount, the portion of 
contributions in excess of the applicable amount may not be carried 
forward. The deduction is allowed in computing alternative minimum 
taxable income.
    The applicable amount is $25 ($50 in the case of a joint 
return) in 2002 and 2003, $50 ($100 in the case of a joint 
return) in 2004 through 2006, $75 ($150 in the case of a joint 
return) in 2007 through 2009, and $100 ($200 in the case of a 
joint return) in 2010 and thereafter.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2001.

 B. Tax-Free Distributions From Individual Retirement Arrangements for 
                          Charitable Purposes


       (Sec. 102 of the Bill and Secs. 408 and 6034 of the Code)


                              Present Law

In general

    If an amount withdrawn from a traditional individual 
retirement arrangement (``IRA'') or a Roth IRA is donated to a 
charitable organization, the rules relating to the tax 
treatment of withdrawals from IRAs apply and the charitable 
contribution is subject to the normally applicable limitations 
on deductibility of such contributions.

Charitable contributions

    In computing taxable income, a taxpayer who itemizes 
deductions generally is allowed to deduct the amount of cash 
and the fair market value of property contributed to an 
organization described in section 170(c), including charities 
and Federal, State, and local governmental entities. The 
deduction also is allowed for purposes of calculating 
alternative minimum taxable income.
    The amount of the deduction allowable for a taxable year 
with respect to a charitable contribution of property may be 
reduced depending on the type of property contributed, the type 
of charitable organization to which the property is 
contributed, and the income of the taxpayer.\5\
---------------------------------------------------------------------------
    \5\ Secs. 170(b) and (e).
---------------------------------------------------------------------------
    A payment to a charity (regardless of whether it is termed 
a ``contribution'') in exchange for which the donor receives an 
economic benefit is not deductible, except to the extent that 
the donor can demonstrate that the payment exceeds the fair 
market value of the benefit received from the charity. To 
facilitate distinguishing charitable contributions from 
purchases of goods or services from charities, present law 
provides that no charitable contribution deduction is allowed 
for a separate contribution of $250 or more unless the donor 
obtains a contemporaneous written acknowledgement of the 
contribution from the charity indicating whether the charity 
provided any good or service (and an estimate of the value of 
any such good or service) to the taxpayer in consideration for 
the contribution.\6\ In addition, present law requires that any 
charity that receives a contribution exceeding $75 made partly 
as a gift and partly as consideration for goods or services 
furnished by the charity (a ``quid pro quo'' contribution) is 
required to inform the contributor in writing of an estimate of 
the value of the goods or services furnished by the charity and 
that only the portion exceeding the value of the goods or 
services is deductible as a charitable contribution.\7\
---------------------------------------------------------------------------
    \6\ Sec. 170(f)(8).
    \7\ Sec. 6115.
---------------------------------------------------------------------------
    Under present law, total deductible contributions of an 
individual taxpayer to public charities, private operating 
foundations, and certain types of private nonoperating 
foundations may not exceed 50 percent of the taxpayer's 
contribution base, which is the taxpayer's adjusted gross 
income for a taxable year (disregarding any net operating loss 
carryback). To the extent a taxpayer has not exceeded the 50-
percent limitation, (1) contributions of capital gain property 
to public charities generally may be deducted up to 30 percent 
of the taxpayer's contribution base, (2) contributions of cash 
to private foundations and certain other charitable 
organizations generally may be deducted up to 30 percent of the 
taxpayer's contribution base, and (3) contributions of capital 
gain property to private foundations and certain other 
charitable organizations generally may be deducted up to 20 
percent of the taxpayer's contribution base.
    Contributions by individuals in excess of the 50-percent, 
30-percent, and 20-percent limit may be carried over and 
deducted over the next five taxable years, subject to the 
relevant percentage limitations on the deduction in each of 
those years.
    In addition to the percentage limitations imposed 
specifically on charitable contributions, present law imposes a 
reduction on most itemized deductions, including charitable 
contribution deductions, for taxpayers with adjusted gross 
income in excess of a threshold amount, which is indexed 
annually for inflation. The threshold amount for 2001 is 
$132,950 ($66,475 for married individuals filing separate 
returns). For those deductions that are subject to the limit, 
the total amount of itemized deductions is reduced by 3 percent 
of adjusted gross income over the threshold amount, but not by 
more than 80 percent of itemized deductions subject to the 
limit. Beginning in 2006, the Economic Growth and Tax Relief 
Reconciliation Act of 2001 phases-out the overall limitation on 
itemized deductions for all taxpayers. The overall limitation 
on itemized deductions is reduced by one-third in taxable years 
beginning in 2006 and 2007, and by two-thirds in taxable years 
beginning in 2008 and 2009. The overall limitation on itemized 
deductions is eliminated for taxable years beginning after 
December 31, 2009; however this elimination of the limitation 
sunsets on December 31, 2010.
    In general, a charitable deduction is not allowed for 
income, estate, or gift tax purposes if the donor transfers an 
interest in property to a charity (e.g., a remainder) while 
also either retaining an interest in that property (e.g., an 
income interest) or transferring an interest in that property 
to a noncharity for less than full and adequate 
consideration.\8\ Exceptions to this general rule are provided 
for, among other interests, remainder interests in charitable 
remainder annuity trusts, charitable remainder unitrusts, and 
pooled income funds, and present interests in the form of a 
guaranteed annuity or a fixed percentage of the annual value of 
the property.\9\ For such interests, a charitable deduction is 
allowed to the extent of the present value of the interest 
designated for a charitable organization.
---------------------------------------------------------------------------
    \8\ Secs. 170(f), 2055(e)(2), and 2522(c)(2).
    \9\ Sec. 170(f)(2).
---------------------------------------------------------------------------

IRA rules

    Within limits, individuals may make deductible and 
nondeductible contributions to a traditional IRA. Amounts in a 
traditional IRA are includible in income when withdrawn (except 
to the extent the withdrawal represents a return of 
nondeductible contributions). Individuals also may make 
nondeductible contributions to a Roth IRA. Qualified 
withdrawals from a Roth IRA are excludable from gross income. 
Withdrawals from a Roth IRA that are not qualified withdrawals 
are includible in gross income to the extent attributable to 
earnings. Includible amounts withdrawn from a traditional IRA 
or a Roth IRA before attainment of age 59\1/2\ are subject to 
an additional 10-percent early withdrawal tax, unless an 
exception applies.
    If an individual has made nondeductible contributions to a 
traditional IRA, a portion of each distribution from an IRA is 
nontaxable, until the total amount of nondeductible 
contributions has been received. In general, the amount of a 
distribution that is nontaxable is determined by multiplying 
the amount of the distribution by the ratio of the remaining 
nondeductible contributions to the account balance. In making 
the calculation, all traditional IRAs of an individual are 
treated as a single IRA, all distributions during any taxable 
year are treated as a single distribution, and the value of the 
contract, income on the contract, and investment in the 
contract are computed as of the close of the calendar year.
    In the case of a distribution from a Roth IRA that is not a 
qualified distribution, in determining the portion of the 
distribution attributable to earnings, contributions and 
distributions are deemed to be distributed in the following 
order: (1) regular Roth IRA contributions; (2) taxable 
conversion contributions; \10\ (3) nontaxable conversion 
contributions; and (4) earnings. In determining the amount of 
taxable distributions from a Roth IRA, all Roth IRA 
distributions in the same taxable year are treated as a single 
distribution, all regular Roth IRA contributions for a year are 
treated as a single contribution, and all conversion 
contributions during the year are treated as a single 
contribution.
---------------------------------------------------------------------------
    \10\ Conversion contributions refer to conversions of amounts in a 
traditional IRA to a Roth IRA.
---------------------------------------------------------------------------

Split-interest trust filing requirements

    Split-interest trusts described in section 4947(a)(2), 
including charitable remainder annuity trusts, charitable 
remainder unitrusts, and pooled income funds are required to 
file an annual information return under section 6034 (Form 
1041A). Trusts that are not split-interest trusts but that 
claim a charitable deduction for amounts permanently set aside 
for a charitable purpose \11\ also are required to file Form 
1041A. The returns are required to be made publicly available 
by section 6104(b). A trust that is required to distribute all 
trust net income currently to trust beneficiaries in a taxable 
year is exempt from this return requirement for such taxable 
year. A trust's failure to file a return required by section 
6034 results in a penalty on the trust of $10 a day for as long 
as the failure continues, up to a maximum of $5,000 per return.
---------------------------------------------------------------------------
    \11\ Sec. 642(c).
---------------------------------------------------------------------------
    In addition, split-interest trusts are required under 
section 6011 to file annually Form 5227.\12\ Form 5227 requires 
disclosure of information regarding the trusts' noncharitable 
beneficiaries. The penalty for failure to file a return under 
section 6011 is calculated based on the amount of tax owed. A 
split-interest trust generally is not subject to tax and 
therefore, in general, a penalty may not be imposed for the 
failure to file Form 5227. Form 5227 is not required to be made 
publicly available.
---------------------------------------------------------------------------
    \12\ Treas. Reg. sec. 53.6011-1(d).
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee believes it appropriate to facilitate the 
making of charitable contributions from IRAs.

                        Explanation of Provision

    The provision provides an exclusion from gross income for 
otherwise taxable IRA withdrawals from a traditional or a Roth 
IRA for qualified charitable distributions. The present-law 
rules continue to apply to distributions from an IRA that are 
not qualified charitable distributions. A qualified charitable 
distribution is defined as any distribution from an IRA that is 
(1) otherwise includible in gross income, (2) made on or after 
the date the IRA owner attains age 70\1/2\, and (3) is made 
directly by the IRA trustee (a) to a charitable organization to 
which deductible contributions can be made or (b) to a split-
interest entity in which no person holds an income interest in 
the amounts in the split-interest entity attributable to the 
charitable distribution other than the IRA owner, his or her 
spouse, or a charitable organization. A split-interest entity 
means a charitable remainder annuity trust or charitable 
remainder unitrust, a pooled income fund, or a charitable gift 
annuity. Qualified charitable distributions count toward the 
minimum distribution requirements applicable to IRAs.
    The exclusion applies to distributions made directly to a 
charitable organization to which deductible contributions can 
be made only if a charitable contribution deduction for the 
entire distribution otherwise is allowable, determined without 
regard to the percentage limitations. Thus, for example, if the 
deductible amount is reduced because of a benefit received in 
exchange, or if a deduction is not allowable because the donor 
did not obtain sufficient substantiation, the exclusion is not 
available with respect to any part of the distribution. The 
exclusion applies in the case of a distribution directly to a 
split-interest entity only if a charitable contribution 
deduction for the entire present value of the charitable 
interest (for example, a remainder interest) is allowable, 
determined without regard to the percentage limitations.
    In determining the extent to which a distribution from an 
IRA is a qualified charitable distribution, the distribution is 
treated as consisting of income first, up to the aggregate 
amount that would be includible in gross income but for the 
proposal if all amounts were distributed from all IRAs 
otherwise taken into account in determining the amount 
includible in income under section 72.
    A qualified charitable distribution to a pooled income fund 
is not includible in the fund's gross income.
    In determining the amount includible in gross income by 
reason of a payment from a charitable remainder annuity trust 
or charitable remainder unitrust to which a qualified 
charitable distribution from an IRA was made, the taxpayer is 
required to treat as ordinary income (as described in sec. 
664(b)(1)) the total amount distributed directly from the IRA 
to the trust, except to the extent the taxpayer notifies the 
trust that a portion of the direct distribution was allocable 
to investment in the contract. This could occur, for example, 
if the entire interest in all an individual's traditional IRAs 
is distributed directly to a charitable remainder trust, and 
the IRA included nondeductible contributions. Similarly, in 
determining the amount includible in gross income by reason of 
a payment from a charitable gift annuity purchased with a 
qualified charitable distribution from an IRA, the portion of 
the distribution from the IRA used to purchase the annuity is 
not investment in the annuity contract.
    Any amount excluded from gross income by reason of the 
proposal is not taken into account in determining the deduction 
for charitable contributions under section 170.
    The provision increases the penalty on split-interest 
trusts described in section 4947(a)(2) for failure to file a 
return and for failure to include any of the information 
required to be shown on such return and to show the correct 
information. The penalty is $20 for each day the failure 
continues up to $10,000 for any one return. In the case of a 
split-interest trust with gross income in excess of $250,000, 
the penalty is $100 for each day the failure continues up to a 
maximum of $50,000. If a person (meaning any officer, director, 
trustee, employee, or other individual who is under a duty to 
file the return or include required information) \13\ knowingly 
failed to file the return or include required information, then 
the person personally is liable for the penalty. Information 
regarding beneficiaries that are not charitable organizations 
as described in section 170(c) are exempt from the requirement 
to make information publicly available. In addition, the 
provision repeals the present law exception to the filing 
requirement for split-interest trusts that are required in a 
taxable year to distribute all net income currently to 
beneficiaries. Such exception remains available to nonsplit-
interest trusts that are otherwise subject to the filing 
requirement. The Committee anticipates that the Secretary of 
the Treasury shall exercise authority under section 6034 to 
require that Form 5227 be filed pursuant to section 6034.
---------------------------------------------------------------------------
    \13\ Sec. 6652(c)(4)(C).
---------------------------------------------------------------------------

                             Effective Date

    The provision generally is effective for taxable years 
beginning after December 31, 2001. The provision relating to 
information returns of split-interest trusts is effective for 
returns for taxable years beginning after December 31, 2001.

      C. Increase Percentage Limitation for Corporate Charitable 
                             Contributions


            (Sec. 103 of the Bill and Sec. 170 of the Code)


                              Present Law

    Under present law, a corporation is allowed to deduct 
charitable contributions up to 10 percent of the corporation's 
modified taxable income for the year. For this purpose, taxable 
income is determined without regard to (1) the charitable 
contributions deduction, (2) any net operating loss carryback, 
(3) deductions for dividends received, (4) deductions for 
dividends paid on certain preferred stock of public utilities, 
and (5) any capital loss carryback for the taxable year.\14\ 
Any charitable contribution by a corporation that is not 
currently deductible because of the percentage limitation may 
be carried forward for up to five taxable years.
---------------------------------------------------------------------------
    \14\ Sec. 170(b)(2).
---------------------------------------------------------------------------
    A transfer of property by a business to a charity might 
qualify as either a charitable contribution or a deductible 
business expense, but not both. No deduction is allowed as a 
business expense under section 162 for any contribution that 
would be deductible as a charitable gift were it not for the 
percentage limitations on the charitable contributions 
deduction.\15\ Likewise, a business transfer made with a 
reasonable expectation of financial return commensurate with 
the amount of the transfer is not deductible as a charitable 
contribution, but may be deductible under section 162.
---------------------------------------------------------------------------
    \15\ Sec. 162(b).
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee believes that increasing the annual 
limitation on the allowable corporate charitable contribution 
deduction will encourage more charitable giving by 
corporations.

                        Explanation of Provision

    The provision increases the percentage limitation on 
corporate charitable deductions from 10 percent to 15 percent. 
The provision is phased-in over nine years, beginning in 
taxable years beginning after December 31, 2001. The percentage 
limitation on corporate charitable deductions is 11 percent in 
2002 through 2007, 12 percent in 2008, 13 percent in 2009, and 
15 percent in 2010 and thereafter.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2001.

  D. Enhanced Deduction for Charitable Contributions of Food Inventory


            (Sec. 105 of the Bill and Sec. 170 of the Code)


                              Present Law

    Under present law, a taxpayer's deduction for charitable 
contributions of inventory generally is limited to the 
taxpayer's basis (typically, cost) in the inventory. However, 
for certain contributions of inventory, C corporations may 
claim an enhanced deduction equal to the lesser of (1) basis 
plus one-half of the item's appreciated value (i.e., basis plus 
one half of fair market value in excess of basis) or (2) two 
times basis.\16\
---------------------------------------------------------------------------
    \16\ Sec. 170(e)(3).
---------------------------------------------------------------------------
    To be eligible for the enhanced deduction, the contributed 
property generally must be inventory of the taxpayer, 
contributed to a charitable organization described in section 
501(c) (except for private nonoperating foundations), and the 
donee must (1) use the property consistent with the donee's 
exempt purpose solely for the care of the ill, the needy, or 
infants, (2) not transfer the property in exchange for money, 
other property, or services, and (3) provide the taxpayer a 
written statement that the donee's use of the property will be 
consistent with such requirements. In the case of contributed 
property subject to the Federal Food, Drug, and Cosmetic Act, 
the property must satisfy the applicable requirements of such 
Act on the date of transfer and for 180 days prior to the 
transfer.
    To use the enhanced deduction, the taxpayer must establish 
that the fair market value of the donated item exceeds basis. 
The valuation of food inventory has been the subject of ongoing 
disputes between taxpayers and the IRS. In one case, the Tax 
Court held that the value of surplus bread inventory donated to 
charity was the full retail price of the bread rather than half 
the retail price, as the IRS asserted.\17\
---------------------------------------------------------------------------
    \17\ Lucky Stores Inc. v. Commissioner, 105 T.C. 420 (1995).
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee believes that more should be done to 
encourage contributions of food inventory to charitable 
organizations that provide food for the hungry. Extending the 
availability of an enhanced deduction for contributions of food 
inventory to any taxpayer engaged in a trade or business and 
clarifying the determination of the value of the donated food 
will increase donations of food inventory and thereby help 
nourish more of our nation's underprivileged.

                        Explanation of Provision

    Under the provision, any taxpayer engaged in a trade or 
business is eligible under section 170(e) to claim an enhanced 
deduction for donations of food inventory. The enhanced 
deduction is available only for food that qualifies as 
``apparently wholesome food,'' as defined by the Bill Emerson 
Good Samaritan Food Donation Act. ``Apparently wholesome food'' 
is food intended for human consumption that meets all quality 
and labeling standards imposed by Federal, State, and local 
laws and regulations even though the food may not be readily 
marketable due to appearance, age, freshness, grade, size, 
surplus, or other conditions.
    In addition, the provision provides that the fair market 
value of donated apparently wholesome food that cannot or will 
not be sold solely due to internal standards of the taxpayer or 
lack of market, is determined by taking into account the price 
at which the same or similar food items are sold by the 
taxpayer at the time of the contribution or, if not so sold at 
such time, in the recent past.
    Consistent with present law, taxpayers who donate food 
inventory and receive consideration in exchange, whether such 
consideration is for food processing costs, including the costs 
of processing raw food to meet the nutritional specifications 
of the donee, or otherwise, shall apply the bargain sale rules 
\18\ to determine the amount of gain from the sale and the 
value of the enhanced deduction.
---------------------------------------------------------------------------
    \18\ Sec. 1011(b); Treas. Reg. sec. 170A-4(c)(2).
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2001.

 E. Reform Excise Tax Based on Investment Income of Private Foundations


            (Sec. 106 of the Bill and Sec. 4940 of the Code)


                              Present Law

In general

    In general, a private foundation is an organization 
organized and operated exclusively for charitable purposes.\19\ 
Under section 4940(a) of the Code, private foundations that are 
recognized as exempt from Federal income tax under section 
501(a) of the Code are subject to a two-percent excise tax on 
their net investment income. Private foundations that are not 
exempt from tax, such as certain charitable trusts,\20\ also 
are subject to an excise tax under section 4940(b).
---------------------------------------------------------------------------
    \19\ Secs. 509(a) and 501(c)(3).
    \20\ Sec. 4947.
---------------------------------------------------------------------------
    Net investment income is determined under the principles of 
Subtitle A of the Code, except to the extent those principles 
are inconsistent with section 4940. Net investment income is 
defined as the amount by which the sum of gross investment 
income and capital gain net income exceeds the deductions 
relating to the production of gross investment income.\21\ Net 
investment income also is determined by applying section 103 
(generally providing an exclusion for interest on certain State 
and local bonds) and section 265 (generally disallowing the 
deduction for interest and certain other expenses with respect 
to tax-exempt income).\22\ Special definitions of gross 
investment income and capital gain net income are provided for 
purposes of the excise tax.\23\
---------------------------------------------------------------------------
    \21\ Sec. 4940(c)(1).
    \22\ Sec. 4940(c)(5).
    \23\ Secs. 4940(c)(2) and 4940(c)(4).
---------------------------------------------------------------------------
    The two-percent rate of tax is reduced to one-percent if 
certain requirements are met in a taxable year.\24\ The 
requirements are that the foundation's qualifying distributions 
(generally, amounts paid to accomplish exempt purposes) \25\ 
must be at least a certain amount and the foundation cannot 
have been subject to tax for failure to distribute a certain 
amount of income \26\ for any of the five years preceding the 
taxable year (the ``base period''). The required amount of 
qualifying distributions is the sum of two elements: (1) the 
amount of the foundation's assets for the taxable year 
multiplied by the average over the base period of the 
percentage of assets distributed as qualifying distributions in 
a year divided by the assets of the foundation for the year 
(the ``average percentage payout for the base period'') plus 
(2) one percent of the net investment income of the foundation 
for the taxable year.\27\
---------------------------------------------------------------------------
    \24\ Sec. 4940(e).
    \25\ Sec. 4942(g).
    \26\ Sec. 4942.
    \27\ Sec. 4940(e).
---------------------------------------------------------------------------
    The tax on taxable private foundations under section 
4940(b) is equal to the excess of the sum of the excise tax 
that would have been imposed under section 4940(a) if the 
foundation were tax exempt and the amount of the unrelated 
business income tax that would have been imposed if the 
foundation were tax exempt, over the income tax imposed on the 
foundation under subtitle A of the Code.
    Private foundations (taxable and tax exempt) are required 
to pay estimated taxes of the section 4940 tax in quarterly 
installments in the same manner as corporate estimated tax 
payments.\28\ ``Exempt operating foundations'' are exempt from 
the section 4940 tax.\29\
---------------------------------------------------------------------------
    \28\ Treas. Reg. sec. 1.6302-1.
    \29\ Sec. 4940(d)(1). To be an exempt operating foundation, an 
organization must (1) be an operating foundation (as defined in section 
4942(j)(3)), (2) be publicly supported for at least 10 taxable years, 
(3) have a governing body no more than 25 percent of whom are 
disqualified persons and that is broadly representative of the general 
public, and (4) have no officers who are disqualified persons. Sec. 
4940(d)(2). Exempt operating foundations generally include 
organizations such as museums or libraries that devote their assets to 
operating charitable programs but have difficulty meeting the ``public 
support'' tests necessary not to be classified as a private foundation. 
For an organization to qualify as an exempt operating foundation it 
must obtain a ruling letter from the IRS. IRS Announcement 85-88.
---------------------------------------------------------------------------
    The amount of tax paid under section 4940 reduces a 
foundation's ``distributable amount'' under section 4942.\30\ 
Accordingly, the minimum amount of qualified distributions a 
foundation has to make to avoid tax under section 4942 is 
reduced by the amount of section 4940 excise taxes paid.
---------------------------------------------------------------------------
    \30\ Sec. 4942(d)(2).
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee believes that reforming the excise tax based 
on the investment income of private foundations will result in 
increased charitable activity and simplify the tax laws. The 
reduction in the rate of tax will increase the required minimum 
charitable distributions for many private foundations, leading 
private foundations to increase the amount of their charitable 
activity. In addition, elimination of the two-tiered nature of 
the tax will simplify the Code and make compliance easier for 
private foundations.

                        Explanation of Provision

    The provision replaces the two rates of tax under present 
law with a single rate of tax based on net investment income 
and sets such rate of tax at one percent. Thus, a tax-exempt 
private foundation is subject to tax on one percent of net 
investment income and does not have to calculate its average 
percentage payout for the base period to determine eligibility 
for a different rate of tax. A taxable private foundation is 
subject to tax on the excess of the sum of one percent of net 
investment income and the amount of the unrelated business 
income tax (both calculated as if the foundation were tax-
exempt) over the income tax imposed on the foundation under 
subtitle A of the Code.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2001.

   F. Modify Tax on Unrelated Business Taxable Income of Charitable 
                            Remainder Trusts


            (Sec. 107 of the Bill and Sec. 664 of the Code)


                              Present Law

    Sections 170(f), 2055(e)(2), and 2522(c)(2) disallow a 
charitable deduction for income, estate or gift tax purposes, 
respectively, if the donor transfers an interest in property to 
a charity (e.g., a remainder interest) while also either 
retaining an interest in that property (e.g., an income 
interest) or transferring an interest in that property to a 
noncharity for less than full and adequate consideration. One 
of several exceptions to this general rule is provided for 
remainder interests in charitable remainder annuity trusts and 
charitable remainder unitrusts.
    A charitable remainder annuity trust is a trust that is 
required to pay, at least annually, a fixed dollar amount of at 
least five percent of the initial value of the trust to a 
noncharity for the life of an individual or for a period of 
less than 20 years, with the remainder passing to charity. A 
charitable remainder unitrust is a trust that generally is 
required to pay, at least annually, a fixed percentage of at 
least five percent of the fair market value of the trust's 
assets determined at least annually to a non-charity for the 
life of an individual or for a period less than 20 years, with 
the remainder passing to charity.\31\
---------------------------------------------------------------------------
    \31\ Sec. 664(d).
---------------------------------------------------------------------------
    A trust does not qualify as charitable remainder annuity 
trust if the annuity for a year is greater than 50 percent of 
the initial fair market value of the trust's assets. A trust 
does not qualify as a charitable remainder unitrust if the 
percentage of assets that are required to be distributed at 
least annually is greater than 50 percent. A trust does not 
qualify as a charitable remainder annuity trust or a charitable 
remainder unitrust unless the value of the remainder interest 
in the trust is at least 10 percent of the value of the assets 
contributed to the trust.
    Distributions from a charitable remainder annuity trust or 
charitable remainder unitrust are treated in the following 
order as: (1) ordinary income to the extent of the trust's 
current and previously undistributed ordinary income for the 
trust's year in which the distribution occurred, (2) capital 
gains to the extent of the trust's current capital gain and 
previously undistributed capital gain for the trust's year in 
which the distribution occurred, (3) other income (e.g., tax-
exempt income) to the extent of the trust's current and 
previously undistributed other income for the trust's year in 
which the distribution occurred, and (4) corpus.\32\
---------------------------------------------------------------------------
    \32\ Sec. 664(b).
---------------------------------------------------------------------------
    Distributions are includible in the income of the 
beneficiary for the year that the annuity or unitrust amount is 
required to be distributed even though the annuity or unitrust 
amount is not distributed until after the close of the trust's 
taxable year.\33\
---------------------------------------------------------------------------
    \33\ Treas. Reg. sec. 1.664-1(d)(4).
---------------------------------------------------------------------------
    Under section 664(c), charitable remainder annuity trusts 
and charitable remainder unitrusts are exempt from Federal 
income tax unless the trust has any unrelated business taxable 
income. Under section 514, unrelated business taxable income 
includes certain debt financed income.

                           Reasons for Change

    The Committee believes that in years that a charitable 
remainder trust has unrelated business income, an excise tax of 
100 percent on such income is a more appropriate remedy than 
loss of tax exemption for the year.

                        Explanation of Provision

    In lieu of removing the income tax exemption of a 
charitable remainder trust for any year in which the trust has 
any unrelated business taxable income, the provision imposes a 
100 percent excise tax on the unrelated business taxable income 
of the trust. Because the effect of the excise tax is the same 
as if the unrelated business taxable income were not incurred 
by the charitable remainder annuity trust or charitable 
remainder unitrust, the provision excludes such income from the 
determination of (1) the value of a charitable remainder 
unitrust's assets,\34\ (2) the amount of charitable remainder 
unitrust income for purposes of determining the unitrust's 
required distributions, and (3) the effect on the income 
character of any distributions to beneficiaries by a charitable 
remainder annuity trust or charitable remainder unitrust.
---------------------------------------------------------------------------
    \34\ See Treas. Reg. sec. 1.664-3(a)(iv), which requires that all 
assets and liabilities of the trust are taken into account in 
determining their net fair market value.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2001, regardless of when the trust was 
created.

     G. Extend ``Constructed by'' Requirement for Contributions of 
 Scientific Property Used for Research and for Computer Technology and 
                               Equipment


            (Sec. 108 of the Bill and Sec. 170 of the Code)


                              Present Law

    In the case of a charitable contribution of inventory or 
other ordinary-income or short-term capital gain property, the 
amount of the deduction is limited to the taxpayer's basis in 
the property. In the case of a charitable contribution of 
tangible personal property, the deduction is limited to the 
taxpayer's basis in such property if the use by the recipient 
charitable organization is unrelated to the organization's tax-
exempt purpose. In cases involving contributions to a private 
foundation (other than certain private operating foundations), 
the amount of the deduction is limited to the taxpayer's basis 
in the property.\35\
---------------------------------------------------------------------------
    \35\ Sec. 170(e)(1).
---------------------------------------------------------------------------
    Under present law, a taxpayer's deduction for charitable 
contributions of scientific property used for research and for 
contributions of computer technology and equipment generally is 
limited to the taxpayer's basis (typically, cost) in the 
property. However, certain corporations may claim a deduction 
in excess of basis for a ``qualified research contribution'' or 
a ``qualified computer contribution.'' \36\ This enhanced 
deduction is equal to the lesser of (1) basis plus one-half of 
the item's appreciated value (i.e., basis plus one half of fair 
market value minus basis) or (2) two times basis.
---------------------------------------------------------------------------
    \36\ Secs. 170(e)(4) and 170(e)(6).
---------------------------------------------------------------------------
    A qualified research contribution means a charitable 
contribution of inventory that is tangible personal property. 
The contribution must be to a qualified educational or 
scientific organization and be made not later than two years 
after construction of the property is substantially completed. 
The original use of the property must be by the donee, and be 
used substantially for research or experimentation, or for 
research training in the U.S. in the physical or biological 
sciences. The property must be scientific equipment or 
apparatus, constructed by the taxpayer, and may not be 
transferred by the donee in exchange for money, other property, 
or services. The donee must provide the taxpayer with a written 
statement representing that it will use the property in 
accordance with the conditions for the deduction. For purposes 
of the enhanced deduction, property is considered constructed 
by the taxpayer only if the cost of the parts used in the 
construction of the property (other than parts manufactured by 
the taxpayer or a related person) do not exceed 50 percent of 
the taxpayer's basis in the property.
    A qualified computer contribution means a charitable 
contribution of any computer technology or equipment, which 
meets standards of functionality and suitability as established 
by the Secretary of the Treasury. The contribution must be to 
certain educational organizations or public libraries and made 
not later than three years after the taxpayer acquired the 
property or, if the taxpayer constructed the property, not 
later than the date construction of the property is 
substantially completed.\37\ The original use of the property 
must be by the donor or the donee,\38\ and in the case of the 
donee, must be used substantially for educational purposes 
related to the function or purpose of the donee. The property 
must fit productively into the donee's education plan. The 
donee may not transfer the property in exchange for money, 
other property, or services, except for shipping, installation, 
and transfer costs. To determine whether property is 
constructed by the taxpayer, the rules applicable to qualified 
research contributions apply. Contributions may be made to 
private foundations under certain conditions.\39\
---------------------------------------------------------------------------
    \37\ If the taxpayer constructed the property and reacquired such 
property, the contribution must be within three years of the date the 
original construction was substantially completed. Sec. 
170(e)(6)(D)(i).
    \38\ This requirement does not apply if the property was reacquired 
by the manufacturer and contributed. Sec. 170(e)(6)(D)(ii).
    \39\ Sec. 170(e)(6)(C).
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee believes that extension of the enhanced 
deduction to include property assembled by the taxpayer will 
lead to increased charitable contributions of scientific 
property used for research and of computer technology and 
equipment.

                        Explanation of Provision

    Under the provision, property assembled by the taxpayer, in 
addition to property constructed by the taxpayer, is eligible 
for either enhanced deduction. The Committee does not intend 
that old or used components assembled by the taxpayer into 
scientific property or computer technology or equipment are 
eligible for the enhanced deduction.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2001.

H. Basis Adjustment to Stock of S Corporation Contributing Appreciated 
                                Property


            (Sec. 109 of the Bill and Sec. 1367 of the Code)


                              present law

    Under present law, if an S corporation contributes money or 
other property to a charity, each shareholder takes into 
account the shareholder's pro rata share of the contribution in 
determining its own income tax liability.\40\ A shareholder of 
an S corporation reduces the basis in the stock of the S 
corporation by the amount of the charitable contribution that 
flows through to the shareholder.\41\
---------------------------------------------------------------------------
    \40\ Sec. 1366(a)(1)(A).
    \41\ Sec. 1367(a)(2)(B).
---------------------------------------------------------------------------

                           reasons for change

    The Committee wishes to preserve the benefit of providing a 
charitable contribution deduction for contributions of property 
by an S corporation with a fair market value in excess of its 
adjusted basis. Thus, the bill provides for a basis adjustment 
to the stock of the S corporation to prevent the later 
recognition of gain attributable to the contributed property on 
the disposition of the S corporation stock.

                        explanation of provision

    The provision allows a shareholder in an S corporation to 
increase the basis of the S corporation stock by an amount 
equal to the excess of the charitable contribution deduction 
that flows through to the shareholder \42\ over the 
shareholder's pro rata share of the adjusted basis of the 
property contributed.\43\
---------------------------------------------------------------------------
    \42\ The amount of the deduction flowing through to a shareholder 
is to be determined after the application of any provision of section 
170 limiting the amount of the deduction to less than the fair market 
value of the property, but without regard to any percentage limitation 
that may be applicable to a shareholder under section 170(b).
    \43\ See Rev. Rul. 96-11, 1996-1 C.B. 140, for a similar rule 
applicable to contributions made by a partnership.
---------------------------------------------------------------------------

                             effective date

    The provision applies to taxable years beginning after 
December 31, 2001.

                   I. Individual Development Accounts


                      (Secs. 301-307 of the Bill)


                              present law

    The Assets for Independence Act \44\ authorizes $25 million 
annually for a five-year demonstration Individual Development 
Account (``IDA'') program to evaluate the effects of savings 
incentives on persons of limited means. Means tested programs 
must disregard all funds in an IDA, including accruing 
interest, in determining an individual's eligibility. The 
demonstration program provides direct Federal funds to 
nonprofit organizations, States and localities, tribal 
governments, community-development financial institutions, and 
certain credit unions to match the amount of earnings deposited 
by eligible individuals. Grantees must provide nonFederal 
matching funds (one dollar per Federal grant dollar), and the 
maximum Federal grant is $1 million for each project year. 
Eligible persons are those (1) who are eligible under the 
Temporary Assistance for Needy Families program, or (2) whose 
household net worth is below $10,000 (``net worth test''), and 
who meet the greater of (a) the income limits of the earned 
income credit (taking into account the size of the household) 
\45\ or (b) 200 percent of the poverty guideline (``income 
test'').
---------------------------------------------------------------------------
    \44\ Title IV of Pub. L. No. 105-285 (1998).
    \45\ Sec. 32(b)(2).
---------------------------------------------------------------------------
    Each participant is eligible to receive up to $2,000 in 
Federal funds plus accrued interest while they participate over 
the course of the project. Households may receive no more than 
$4,000 in Federal grant funds over the course of the project. 
The projects must create trust or custodial accounts that 
permit withdrawals of account balances only for three 
designated purposes: (1) first home purchase, (2) business 
capitalization, and (3) postsecondary education. Emergency 
withdrawals (from the account holder's own deposits only) are 
allowed for three conditions--medical expenses, prevention of 
eviction or mortgage foreclosure, and living expenses after job 
losses.
    Each grantee is required to prepare an annual report on the 
progress of its project. These reports must be submitted to the 
Secretary of Health and Human Services, and if a tribe, State 
or local government committed funds to the project, to the 
Treasurer (or equivalent official) of the State in which the 
project is conducted. The Secretary of Health and Human 
Services is required to provide the results of these reports to 
Congress every 12 months until all of the demonstration 
projects are completed, and to submit a final report, setting 
forth the results and findings of all reports and evaluations, 
not later than 12 months after the conclusion of all 
demonstration projects. The Assets for Independence Act directs 
the Secretary of Health and Human Services to enter into a 
contract with an independent research organization to evaluate 
the projects, individually, and as a group. The Secretary of 
Health and Human Services may spend up to $500,000 each fiscal 
year for evaluation expenses.
    The demonstration program expires at the end of fiscal year 
2003.

                           reasons for change

    The Committee seeks to expand the availability and use of 
IDAs, which promote work and asset-building among low-income 
families, rather than dependence on cash welfare and other 
benefits. These goals are consistent with the Committee's 
extensive activities in recent years to reform welfare by 
promoting work and independence from government benefits, as 
well as the Committee's recent activities to promote savings 
and investment through tax policy changes.

                        explanation of provision

    The provision eliminates references to ``demonstration'' 
projects. The provision expands the category of qualified 
entities that could apply for IDA projects to include any 
federally-insured credit union.
    The provision repeals the current household cap on receipt 
of Federal funds. The individual lifetime cap on receipt of 
Federal funds is replaced with an annual cap of $500.
    The provision increases the net worth test for eligible 
individuals from $10,000 to $20,000.
    The provision extends the program for an additional five 
years, through fiscal year 2008. Under the provision, the 
annual program authorization would be doubled from $25 million 
to $50 million, beginning in fiscal year 2002.
    The program modifications made under the provision and the 
``Assets for Independence Act Amendments of 2000'' \46\ apply 
to existing grants, as well as grants made on or after the date 
of enactment.
---------------------------------------------------------------------------
    \46\ Title IV of H.R. 5656 as enacted by Pub. L. No. 106-554 
(2000). The ``Assets for Independence Act Amendments of 2000'' (1) made 
matching contributions unavailable for emergency withdrawals, (2) added 
low income credit unions and community financial development 
institutions as qualified entities; (3) modified home purchase costs; 
(4) increased set-aside for economic literacy training and 
administrative costs; (5) added the 200 percent of poverty alternative 
to the income test; (6) revised the annual and interim progress report 
deadlines; (7) increased appropriations for evaluation expenses; and 
(8) provided that means tested programs must disregard all funds in an 
IDA, including accruing interest, in determining an individual's 
eligibility. Id. at secs. 602-610.
---------------------------------------------------------------------------

                             effective date

    The provision is effective on the date of enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 7.

                       motion to report the bill

    The bill, H.R. 7, as amended, was ordered favorably 
reported by a rollcall vote of 23 yeas to 16 nays (with a 
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Crane......................        X   ........  .........  Mr. Stark........  ........        X   .........
Mr. Shaw.......................        X   ........  .........  Mr. Matsui.......  ........        X   .........
Mrs. Johnson...................        X   ........  .........  Mr. Coyne........  ........  ........  .........
Mr. Houghton...................  ........  ........  .........  Mr. Levin........  ........        X   .........
Mr. Herger.....................        X   ........  .........  Mr. Cardin.......  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. Camp.......................        X   ........  .........  Mr. Kleczka......  ........        X   .........
Mr. Ramstad....................        X   ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Nussle.....................        X   ........  .........  Mr. Neal.........  ........        X   .........
Mr. Johnson....................        X   ........  .........  Mr. McNulty......  ........        X   .........
Ms. Dunn.......................        X   ........  .........  Mr. Jefferson....  ........        X   .........
Mr. Collins....................        X   ........  .........  Mr. Tanner.......  ........        X   .........
Mr. Portman....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. English....................        X   ........  .........  Mrs. Thurman.....  ........        X   .........
Mr. Watkins....................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. Hayworth...................        X   ........  .........  Mr. Pomeroy......  ........        X   .........
Mr. Weller.....................        X   ........  .........
Mr. Hulshof....................        X   ........  .........
Mr. McInnis....................        X   ........  .........
Mr. Lewis (KY).................        X   ........  .........
Mr. Foley......................        X   ........  .........
Mr. Brady......................        X   ........  .........
Mr. Ryan.......................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                          VOTES ON AMENDMENTS

    A rollcall vote was conducted on the following amendments 
to the amendment in the nature of a substitute.
    An amendment by Mrs. Thurman, which would make the 
provisions in the bill contingent upon sufficient non-Social 
Security, non-Medicare surpluses, was defeated by a rollcall 
vote of 17 yeas to 23 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........  ........  ........  .........
Mr. Houghton...................        X   ........  .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. McDermott, which would add a new 
section relating to credits to holders of residential solar 
energy bonds, was defeated by a rollcall vote of 15 yeas to 24 
nays, and 1 voting present. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........  ........  ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......  ........  ........         X
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Rangel, which would increase the top 
individual income tax rate by 0.2 percentage points for taxable 
years 2002 through 2005, and by 0.5 percentage points for 
taxable years 2006 through 2010, was defeated by a rollcall 
vote of 16 yeas to 23 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........  ........  ........  .........
Mr. Houghton...................  ........  ........  .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of the rule XIII of the 
Rules of the House of Representatives, the following statement 
is made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 7 as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2002-2006:

  ESTIMATED BUDGET EFFECTS OF H.R. 7, THE ``COMMUNITY SOLUTIONS ACT OF 2001,'' AS REPORTED BY THE COMMITTEE ON
                                                 WAYS AND MEANS
                                [Fiscal years 2002-2006, in millions of dollars]
----------------------------------------------------------------------------------------------------------------
          Provision                  Effective          2002     2003     2004      2005       2006     2002-06
----------------------------------------------------------------------------------------------------------------
 Charitable Giving Incentive
          Provisions

1. Deduction for cash                 tyba 12/31/01       -40     -269     -316       -561       -573     -1,759
 charitable contributions of
 individuals who do not
 itemize deductions in
 addition to their standard
 deduction; maximum deduction
 of $25 single/$50 joint for
 2002 and 2003, $50 single/
 $100 joint for 2004 through
 2006, $75 single/$150 joint
 for 2007 through 2009, and
 $100 single/$200 joint for
 2010 and thereafter.........
2. Tax-free distributions             tyba 12/31/01      -143     -233     -245       -259       -253     -1,133
 from individual retirement
 accounts for charitable
 purposes for individuals age
 70\1/2\ and above...........
3. Raise the cap on corporate     cmi tyba 12/31/01       -28      -50      -52        -55        -41       -226
 charitable contributions
 from 10% to: 11% in 2002
 through 2007, 12% in 2008,
 13% in 2009, and 15% in 2010
 and thereafter..............
4. Extend present-law section         tyba 12/31/01       -27      -46      -55        -61        -66       -255
 170(e)(3) deduction for food
 inventory to all businesses.
5. Modify the section 4940(a)         tyba 12/31/01      -118     -186     -195       -205       -215       -920
 2% excise tax to eliminate
 the 2-tier regime and impose
 1% excise tax on net
 investment income...........
6. Modify the unrelated               tyba 12/31/01   .......       -5       -5         -5         -6        -21
 business income tax for
 charitable remainder trusts.
7. Modify the self-                         cma DOE        -1       -1       -1         -1         -1         -4
 constructed property rule
 for certain charitable
 contributions...............
8. Modify the basis of S              tyba 12/31/01       -11      -26      -31        -35        -38       -141
 corporation stock for
 certain charitable
 contributions...............
                              ----------------------------------------------------------------------------------
      Net Total..............  .....................     -368     -816     -900     -1,182     -1,193    -4,459
----------------------------------------------------------------------------------------------------------------
Legend for ``Effective'' column: cma = contributions made after; cmi = contributions made in; DOE = date of
  payment; tyba = taxable years beginning after.

Note.--Details may not add to totals due of rounding.

Source: Joint Committee on Taxation.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves new or increased budget authority (as detailed in 
the statement by the Congressional Budget Office (``CBO''); see 
Part IV.C., below). The Committee further states that the 
revenue reducing income tax provisions involve increased tax 
expenditures. (See amounts in table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 16, 2001.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 7, the Community 
Solutions Act of 2001.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Sheila 
Dacey (for federal spending), Erin Whitaker (for revenues), and 
Shelley Finlayson (for the state and local impact).
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 7--Community Solutions Act of 2001

    Summary: H.R. 7 would establish certain guidelines for 
religious organizations or their affiliates to receive federal 
funds for the provision of social services and would make 
several changes to tax law concerning deductions for charitable 
contributions. The Joint Committee on Taxation (JCT) estimates 
that the revenue loss associated with this legislation would be 
$4.5 billion over the 2002-2006 period and more than $13 
billion over the 2002-2011 period. Because H.R. 7 would affect 
revenues, pay-as-you-go procedures would apply. The bill also 
would extend and expand the Assets for Independence Program 
that provides federal funds to encourage saving by low-income 
individuals. Assuming the appropriation of the specified 
amounts, CBO estimates that expansion would cost $119 million 
over the 2002-2006 period.
    The Joint Committee on Taxation has reviewed the tax 
provisions (parts of title I) of H.R. 7 and determined that 
they contain no intergovernmental mandates as defined in the 
Unfunded Mandates Reform Act (UMRA). CBO reviewed the remaining 
provisions of the bill and found that section 104 contains an 
intergovernmental mandate as defined in UMRA because it would 
preempt certain state liability laws. CBO estimates that 
complying with this mandate would result in no direct costs to 
state governments and thus, would not exceed the threshold 
established in that act ($56 million in 2001, adjusted annually 
for inflation). Title III of the bill also would establish new 
requirements and prohibitions on state and local governments as 
conditions of receiving federal assistance under numerous 
federal programs.
    Estimated budgetary impact of H.R. 7 is shown in the 
following table. The cost of this legislation falls within 
budget function 500 (education, training, employment, and 
social services).

----------------------------------------------------------------------------------------------------------------
                                                                By fiscal year, in millions of dollars--
                                                       ---------------------------------------------------------
                                                          2001     2002     2003     2004      2005       2006
----------------------------------------------------------------------------------------------------------------
           SPENDING SUBJECT TO APPROPRIATION

Spending for Individual Development Accounts Under
 Current Law:
    Authorization Level \1\...........................       25       25       25        0          0          0
    Outlays...........................................        9       17       23       24         13          4
Total Proposed Changes:
    Authorization Level...............................        0       25       25       50         50         50
    Outlays...........................................        0        1       12       23         37         46
Spending for Individual Development Accounts Under the
 Bill:
    Authorization Level \1\...........................       25       50       50       50         50         50
    Outlays...........................................        9       19       35       46         50         50

                CHANGES IN REVENUES \2\

Deduct some charitable contributions of individuals           0      -40     -269     -316       -561       -573
 who do not itemize deductions........................
Allow tax-free distributions from individual                  0     -143     -233     -245       -259       -253
 retirement accounts for charitable purposes..........
Raise the cap on corporate charitable contributions...        0      -28      -50      -52        -55        -41
Expand and increase the charitable deduction for              0      -27      -46      -55        -61        -66
 contributions of food................................
Modify excise tax to eliminate the 2-tier regime and          0     -118     -186     -195       -205       -215
 impose 1% excise tax on net investment income........
Modify the unrelated business income tax for                  0        0       -5       -5         -5         -6
 charitable remainder trusts..........................
Modify the self-constructed property rule for certain         0        1       -1       -1         -1         -1
 charitable contributions.............................
Modify the basis of S corporation stock for certain           0      -11      -26      -31        -35        -38
 charitable contributions.............................
                                                       ---------------------------------------------------------
      Total Changes in Revenues.......................        0     -368     -816     -900     -1,182     -1,193
----------------------------------------------------------------------------------------------------------------
\1\ The 2001 level is the amount appropriated for that year.
\2\ All estimates of the revenue effects of H.R. 7 were provided to JCT.

    Basis of estimate: For this estimate, CBO assumes that H.R. 
7 will be enacted by the end of fiscal year 2001 and that the 
authorized amounts will be appropriated for each year.
            Spending subject to appropriations
    Title II--Expansion of Charitable Choice. H.R. 7 would 
establish certain guidelines for religious organizations or 
their affiliates to receive federal funds for the provision of 
social services. It also would require that any governmental 
organization that contracts with a religious organization to 
provide social services guarantee that eligible individuals who 
object to a specific service provider on religious grounds be 
directed to a different provider of comparable services. 
Although in many areas the number of provisions would be 
sufficient to ensure that alternative providers would be 
available, very small communities might find it difficult to 
comply with these requirements. Although the requirement to 
find an alternate provider could increase federal costs in some 
cases by requiring the federal government to pay a portion of 
the costs of such alternate providers, CBO has been unable to 
obtain data to estimate any such costs. However, CBO does not 
anticipate that any resulting costs to the federal government 
would be substantial.
    Title III--Individual Development Accounts. Title III would 
reauthorize the Individual Development Accounts (IDA) program, 
currently authorized at $25 million through 2003 under the 
Assets for Independence Act (Public Law 106-554). The IDA 
program provides matching funds to qualified low income 
individuals who save in order to encourage more savings. All 
deposits made by individuals and matching organizations in IDAs 
do not count toward the asset limits for federal means-tested 
benefits.
    The bill would authorize $50 million for 2002 and extend 
the authorization through 2008. The program is funded at $25 
million in 2001. Based on historical spending patterns, CBO 
estimates implementing this title would cost $119 million over 
the 2002-2006 period.
    The bill also would increase the net worth test for an 
eligible household from a maximum of $10,000 to $20,000, and 
replace the $4,000 lifetime grant deposit limit for a household 
with an individual annual grant limit of $500.
    It is possible that expanding the IDA program could allow 
certain people with assets to participate in means-tested 
programs who would otherwise be ineligible, but CBO estimates 
that would have an insignificant effect (less than $500,000 a 
year) on federal spending. While there are limited data on IDA 
participants, the available information indicates most 
participants would not deposit enough into their accounts to 
disqualify themselves from any federal means-tested program.
            Revenues
    H.R. 7 would allow taxpayers who do not itemize their 
deductions to deduct a limited amount of charitable 
contributions paid in cash. The deduction would phase in over 
time, and would be allowed in computing alternative minimum 
taxable income. In 2002 and 2003, a single taxpayer could 
deduct up to $25 and married taxpayers filing jointly could 
deduct up to $50, with the allowable deduction increasing to 
$100 for a single taxpayer or $200 for married taxpayers in 
2010 and thereafter. The bill would allow taxpayers to exclude 
from their gross income otherwise-taxable withdrawals from 
individual retirement accounts (IRAs) if those withdrawals were 
made for certain charitable distributions, were made after the 
IRA owner attained the age 70\1/2\, and were made directly by 
the IRA trustee to certain entities. The bill also would 
increase the penalty on certain trusts for failure to file a 
return.
    H.R. 7 would increase the percentage limitation on modified 
taxable income for corporate charitable deductions from 10 
percent to 15 percent, and phase in that increase over time. 
The bill would allow all taxpayers to claim enhanced deductions 
for donations of food that meets certain quality standards. The 
bill also would replace two rates of tax based on net 
investment income for private foundations not exempt from tax 
with a single rate of tax of one percent. It also would apply a 
100-percent excise tax to any unrelated business taxable income 
of a trust that is required to pay a certain percentage of the 
value of the trust to a noncharity (charitable remainder 
trust), make donated scientific property or computer technology 
and equipment that is assembled by a taxpayer eligible for 
either of two enhanced charitable deductions in excess of the 
cost of the property, and allow shareholders of certain 
corporations to update the basis they hold in stock to a 
present value amount in order to take into account the 
shareholders' portion of charitable contributions made by those 
corporations.
    The Joint Committee on Taxation estimates that the revenue 
loss associated with this legislation would be $4.5 billion 
over the 2002-2006 period and more than $13 billion over the 
2002-2011 period.
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. The net 
changes in governmental receipts that are subject to pay-as-
you-go procedures are shown in the following table. Forthe 
purposes of enforcing pay-as-you go procedures, only the effects in the 
current year, the budget year, and the succeeding four years are 
counted.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              By fiscal year, in millions of dollars--
                                          --------------------------------------------------------------------------------------------------------------
                                            2001    2002     2003     2004      2005       2006       2007       2008       2009       2010       2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays.......................                                                  Not applicable
Changes in receipts \1\..................      0     -368     -816     -900     -1,182     -1,193     -1,281     -1,583     -1,705     -1,901     -2,367
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimate was provided by JCT.

    Estimated impact on state, local, and tribal governments: 
The Joint Committee on Taxation (JCT) has reviewed the tax 
provisions of H.R. 7 and CBO has reviewed the remaining 
provisions of the bill for intergovernmental mandates.

                                Mandates

    JCT determined that the tax provisions of H.R. 7 (part of 
title I) contain no intergovernmental mandates as defined in 
UMRA. CBO has reviewed the remaining provisions of the bill and 
has determined that section 104 contains an intergovernmental 
mandate as defined in UMRA because it would preempt 
inconsistent or more stringent state liability laws that hold 
businesses civilly liable for injuries or death that result 
from the use of equipment, facilities, or vehicles donated or 
lent to nonprofit organizations or for tours of business 
facilities. This preemption would be an intergovernmental 
mandate as defined in UMRA, but because the preemption is 
narrow and state governments could enact legislation to opt 
out, CBO estimates complying with this mandate would result in 
no direct costs. Thus, the threshold established in that act 
($56 million in 2001, adjusted annually for inflation) would 
not be exceeded.

                             Other impacts

    Title II would establish new requirements and prohibitions 
on how state and local governments receive and use federal 
funds under numerous federal programs. Such programs include 
anything related to hunger relief activities, federal housing 
under the Community Development Block Grant Program, prevention 
of domestic violence under the Child Abuse Prevention and 
Treatment Act, and services for the elderly under the Older 
Americans Act. Specifically, title II would require state and 
local governments to consider religious organizations on the 
same basis as other organizations to provide assistance under 
programs carried out using federal funds.
    The bill also would require that the appropriate government 
entity notify applicants and recipients about provider options 
and provide, in a timely manner, an equivalent alternative from 
a nonreligious provider if a recipient objects to receiving 
services from a religious provider. In addition, state and 
local governments that discriminate on the basis of religion in 
selecting service providers could be sued for injunctive 
relief. All of those requirements are conditions of federal 
assistance, and therefore, are not mandates under UMRA. 
However, those requirements could increase state and local 
costs to administer numerous federal programs. In particular, 
some small communities could find it difficult or costly to 
comply with the alternate provider requirements. CBO does not 
have sufficient information to estimate for aggregate costs 
nationwide.
    Estimated impact on the private sector: This bill contains 
no new private-sector mandates as defined in UMRA.
    Previous CBO estimate: On July 11, 2001, CBO transmitted a 
cost estimate for H.R. 7, the Community Solutions Act of 2001, 
as ordered reported by the House Committee on the Judiciary on 
June 28, 2001. That bill included somewhat different provisions 
related to tax changes and individual development accounts.
    The House Judiciary Committee's version of H.R. 7 would 
allow taxpayers to deduct charitable contributions up to the 
amount of the standard deduction. The bill included slightly 
different provisions relating to tax-free distributions from 
individual retirement accounts and charitable deductions for 
contributions on food. In addition, it included a tax credit 
for financial institutions running individual development 
account programs, rather than a grant program to encourage such 
accounts. The Joint Committee on Taxation estimates that the 
revenue loss associated with those changes would be almost $50 
billion over the 2002-2006 period and more than $120 billion 
over the 2002-2011 period.
    While this version of H.R. 7 differs from the version 
ordered reported by the House Judiciary Committee, CBO's 
estimate of the costs to state and local governments is the 
same for both versions.
    Estimate prepared by: Federal Spending: Sheila Dacey, Donna 
Wong, and Geoff Gerhardt; Federal Revenues: Erin Whitaker; 
Impact on State, Local, and Tribal Governments: Shelly 
Finlayson; and Impact on the Private Sector: Paige Piper/Bach.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis. G. Thomas Woodward, Assistant 
Director for Tax Analysis Division.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was a result of the Committee's 
oversight review concerning the tax burden on individual 
taxpayers and the tax rules relating to charitable giving and 
the impact of these rules on charitable organizations that the 
Committee concluded that it is appropriate and timely to enact 
the revenue provisions included in the bill as reported.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the performance goals and 
objectives of that part of this legislation that authorizes 
funding (i.e., individual development accounts) are to 
encourage savings of certain lower-income individuals.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the rule XIII of the 
Rules of the House of Representatives (relating to 
Constitutional Authority), the Committee states that the 
Committee's action in reporting this bill is derived from 
Article I of the Constitution, Section 8 (``The Congress shall 
have Power To lay and collect Taxes, Duties, Imposts and 
Excises * * *''), and from the 16th Amendment to the 
Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                E. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the provisions of the bill, and states that 
the provisions of the bill do not involve any Federal income 
tax rate increases within the meaning of the rule.

                       F. Tax Complexity Analysis

    The following tax complexity analysis is provided pursuant 
to section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998, which requires the staff of the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service (``IRS'') and the Treasury Department) to 
provide a complexity analysis of tax legislation reported by 
the House Committee on Ways and Means, the Senate Committee on 
Finance, or a Conference Report containing tax provisions. The 
complexity analysis is required to report on the complexity and 
administrative issues raised by provisions that directly or 
indirectly amend the Internal Revenue Code and that have 
widespread applicability to individuals or small businesses. 
For each such provision identified by the staff of the Joint 
Committee on Taxation, a summary description of the provision 
is provided along with an estimate of the number and type of 
affected taxpayers, and a discussion regarding the relevant 
complexity and administrative issues.
    Following the analysis of the staff of the Joint Committee 
on Taxation are the comments of the IRS and the Treasury 
Department regarding each of the provisions included in the 
complexity analysis, including a discussion of the likely 
effect on IRS forms and any expected impact on the IRS.

Charitable deduction for nonitemizers (sec. 101 of the bill)

            Summary description of provision
    The provision permits an individual taxpayer who does not 
itemize deductions to take a deduction for charitable 
contributions paid in cash. The deduction is allowed in 
addition to the standard deduction and is calculated as the 
lesser of (1) the amount allowable to itemizers as a charitable 
deduction for cash contributions and (2) an applicable amount. 
The applicable amount is $25 ($50 in the case of a joint 
return) in 2002 and 2003, $50 ($100 in the case of a joint 
return) in 2004 through 2006, $75 ($150 in the case of a joint 
return) in 2007 through 2009, and $100 ($200 in the case of a 
joint return) in 2010 and thereafter.
            Number of affected taxpayers
    It is estimated that the provision will affect 
approximately 43 million individual tax returns.
            Discussion
    Individuals who do not itemize their deductions will need 
to keep additional records (e.g., canceled checks, a receipt 
from the donee organization, or other reliable written records) 
in order to substantiate that a contribution was made to a 
qualified charitable organization. The information necessary to 
implement the provision should be readily available to 
taxpayers (in the form of new tax return forms and 
instructions). The nonitemizer charitable contribution 
deduction is expected to require an additional line on the 
individual income tax return forms. The provision might result 
in an increase in disputes with the IRS for taxpayers who are 
unable to substantiate a claimed deduction. Additional 
regulatory guidance will not be necessary to implement this 
provision. Any increase in tax preparation costs is expected be 
negligible.

                        Department of the Treasury,
                                  Internal Revenue Service,
                                     Washington, DC, July 13, 2001.
Ms. Lindy L. Paull,
Chief of Staff, Joint Committee on Taxation,
Washignton, DC
    Dear Ms. Paull: Enclosed are the combined comments of the 
Internal Revenue Service and the Treasury Department on the 
provisions from the House Committee on Ways and Means markup of 
the ``Community Solutions Act of 2001'' that you identified for 
complexity analysis in your letter of July 10, 2001. Our 
comments are based on the description of those provisions in 
JCX-58-01, Joint Committee on Taxation, description of an 
Amendment in the Nature of a Substitute to H.R. 7, July 10, 
2001, and the statutory language for the substitute published 
in the Daily Tax Report on July 12, 2001.
    Due to the short turnaround time, our comments are 
provisional and subject to change upon a more complete and in-
depth analysis of the provisions.
            Sincerely,
                                               Charles O. Rossotti.
    Enclosure.

         Complexity Analysis of Community Solutions Act of 2001


                 charitable deduction for non-itemizers


    Provision: Individuals who do not itemize deductions would 
be allowed a deduction from adjusted gross income for 
charitable contributions paid in cash. This deduction would be 
in addition to the standard deduction and would be calculated 
as the lesser of (i) the amount allowable to itemizers as a 
charitable deduction for cash contributions and (ii) an 
applicable amount. The applicable amount would be $25 ($50 in 
the case of a joint return) in 2002 and 2003, $50 ($100 in the 
case of a joint return) in 2004 through 2006, $75 ($150 in the 
case of a joint return) in 2007 through 2009, and $100 ($200 in 
the case of a joint return) in 2010 and thereafter. The 
deduction would be allowed in computing alternative minimum 
taxable income. The provision would be effective for taxable 
years beginning after December 31, 2001.
IRS and Treasury Comments
     Two lines would have to be added to Forms 1040, 
1040A, 1040EZ, 1040NR, and 1040NR-EZ and to the TeleFile tax 
Record beginning in 2002--one for entering the new deduction, 
the second for subtracting the new deduction to derive the 
subtotal. All taxpayers, including those who itemize and those 
who have no charitable deductions for the year, would need to 
make an entry on the subtotal line. No new forms would be 
required.
     The deduction would have to be reflected on Forms 
1040-ES and 6251 for 2002. The Form 1040-ES instructions for 
2004, 2007, and 2010 would have to be modified to reflect the 
phase-in of the deduction amount.
     Information necessary for taxpayers to determine 
their eligibility for the deduction would have to be reflected 
in the instructions for Forms 1040, 1040A, 1040EZ, 1040NR, and 
1040NR-EZ and for TeleFile beginning in 2002. The Instructions 
for 2004, 2007, and 2010 forms would have to be revised to 
reflect the phase-in of the deduction.
     Programming changes would be required to reflect 
the new deduction and the phase-in of the amount of the 
deduction. Currently, IRS tax computation programs are updated 
annually to incorporate mandated inflation adjustments. 
Programming changes necessitated by this provision would be 
included during that process.
     The TeleFile script would have to be expanded to 
accommodate the deduction, thereby increasing the time needed 
to file by TeleFile.
     Ensuring compliance with the direct charitable 
deduction would be difficult. The only means of verifying 
amounts deducted would be through examination, which is not 
practical because of the small amounts involved.

                      G. Committee Correspondence

          Committee on Education and the Workforce,
                                  House of Representatives,
                                     Washington, DC, July 12, 2001.
Hon.  William M. Thomas,
Chairman, Committee on Ways and Means, Longworth House Office Building, 
        Washington, DC.
    Dear Chairman Thomas: Thank you for working with me 
regarding H.R. 7, the Community Solutions Act of 2001, which 
was referred to the Committee on Ways and Means and in addition 
the Committee on the Judiciary. As you know, the Committee on 
Education and the Workforce holds a jurisdictional interest in 
this legislation and I appreciate your acknowledgement of that 
jurisdictional interest. While the bill would be sequentially 
referred to the Education and the Workforce Committee, I 
understand the desire to have this legislation considered 
expeditiously by the House; hence, I do not intend to hold a 
hearing or markup on this legislation.
    In agreeing to waive consideration by our Committee, I 
would expect you to agree that this procedural route should not 
be construed to prejudice the Committee on Education and the 
Workforce's jurisdictional interest and prerogatives on this or 
any similar legislation and will not be considered as precedent 
for consideration of matters of jurisdictional interest to my 
Committee in the future. I would also expect your support in my 
request to the Speaker for the appointment of conferees from my 
Committee with respect to matters within the jurisdiction of my 
Committee should a conference with the Senate be convened on 
this or similar legislation.
    Again, thank you for your letter. I would appreciate your 
including our exchange of letters in your Committee's report to 
accompany H.R. 7. Again, I thank you for working with me in 
developing this legislation and I look forward to working with 
you on these issues in the future.
            Sincerely,
                                              John Boehner,
                                                          Chairman.
                                ------                                

                          House of Representatives,
                               Committee on Ways and Means,
                                     Washington, DC, July 12, 2001.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
Rayburn House Office Building, Washington, DC.
    Dear Chairman Oxley: Thank you for your letter regarding 
H.R. 7, the ``Community Solutions Act of 2001.''
    As you have noted, the Committee on Ways and Means has 
ordered favorably reported H.R. 7, the ``Community Solutions 
Act of 2001.'' I appreciate your agreement to expedite the 
passage of this legislation despite affecting programs within 
the jurisdiction of the Committee on Financial Services. I 
acknowledge your decision to forego further action on the bill 
was based on our mutual understanding that it will not 
prejudice the Committee on Financial Services with respect to 
the appointment of conferees or its jurisdictional prerogatives 
on this or similar legislation.
    Finally, I will include in the Congressional Record a copy 
of our exchange of letters on this matter. Thank you for your 
assistance and cooperation. We look forward to working with you 
in the future.
            Sincerely,
                                               Bill Thomas,
                                                          Chairman.
                                ------                                  


                          House of Representatives,
                           Committee on Financial Services,
                                     Washington, DC, July 11, 2001.
Hon. William M. Thomas,
Chairman, Committee on Ways and Means,
Longworth House Office Building, Washington, DC.
    Dear Chairman, Thomas: I understand that the Committee on 
Ways of Means recently ordered reported H.R. 7, the Community 
Solutions Act of 2001. As you know, the legislation contains 
provisions relating to community development block grants 
(CDBGs) and other programs under the Nation's housing laws 
which fall within the jurisdiction of the Committee on 
Financial Services pursuant to clause 1(g) of rule X of the 
Rules of the House of Representatives.
    Because of your willingness to consult with the Committee 
on Financial Services regarding this matter and the need to 
move this legislation expeditiously, I will waive consideration 
of the bill by the Financial Services Committee. By agreeing to 
waive its consideration of the bill, the Financial Services 
Committee does not waive its jurisdiction over H.R. 7. In 
addition, the Committee on Financial Services reserves its 
authority to seek conferees on any provisions of the bill that 
are within the Financial Services Committee's jurisdiction 
during any House-Senate conference that may be convened on this 
legislation. I ask your commitment to support any request by 
the Committee on Financial Services for conferees on H.R. 7 or 
related legislation.
    I request that you include this letter and your response as 
part of your committee's report on the bill and the 
Congressional Record during consideration of the legislation on 
the House floor.
    Thank you for your attention to these matters.
            Sincerely,
                                          Michael G. Oxley,
                                                          Chairman.
                                ------                                

                          House of Representatives,
                               Committee on Ways and Means,
                                     Washington, DC, July 16, 2001.
Hon. John A. Boehner,
Chairman, Committee on Education and the Workforce,
Rayburn House Office Building, Washington, DC.
    Dear Chairman Boehner: Thank you for your letter regarding 
H.R. 7, the ``Community Solutions Act of 2001.''
    As you have noted, the Committee on Ways and Means has 
ordered favorably reported H.R. 7, the ``Community Solutions 
Act of 2001.'' I appreciate your agreement to expedite the 
passage of this legislation despite affecting programs within 
the jurisdiction of Committee on Education and the Workforce. I 
acknowledge your decision to forego further action on the bill 
was based on the understanding that it will not prejudice the 
Committee on Education and the Workforce with respect to the 
appointment of conferees or its jurisdictional prerogatives on 
this or similar legislation.
    Finally, I will include in the Congressional Record a copy 
of our exchange of letters on this matter. Thank you for your 
assistance and cooperation. We look forward to working with you 
in the future.
            Best regards,
                                               Bill Thomas,
                                                          Chairman.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  The bill was referred to this committee, and in addition to 
the Committee on the Judiciary, for a period to be subsequently 
determined by the Speaker, in each case for consideration of 
such provisions as fall within the jurisdiction of the 
committee concerned.
  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
that portion of the bill within the jurisdiction of the 
Committee on the Judiciary, as reported, are shown in part 1 of 
this report and changes in existing law made by that portion of 
the bill within the jurisdiction of the Committee on Ways and 
Means, 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 B--Computation of Taxable Income

           *       *       *       *       *       *       *


  PART I--DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE 
                             INCOME, ETC.

           *       *       *       *       *       *       *



SEC. 63. TAXABLE INCOME DEFINED.

  (a) * * *
  (b) Individuals Who Do Not Itemize Their Deductions.--In the 
case of an individual who does not elect to itemize his 
deductions for the taxable year, for purposes of this subtitle, 
the term ``taxable income'' means adjusted gross income, 
minus--
          (1) the standard deduction, [and]
          (2) the deduction for personal exemptions provided in 
        section 151[.], and
          (3) the direct charitable deduction.

           *       *       *       *       *       *       *

  (d) Itemized Deductions.--For purposes of this subtitle, the 
term ``itemized deductions'' means the deductions allowable 
under this chapter other than--
          (1) the deductions allowable in arriving at adjusted 
        gross income, [and]
          (2) the deduction for personal exemptions provided by 
        section 151[.], and
          (3) the direct charitable deduction.

           *       *       *       *       *       *       *

  (g) Direct Charitable Deduction.--For purposes of this 
section, the term ``direct charitable deduction'' means that 
portion of the amount allowable under section 170(a) which is 
taken as a direct charitable deduction for the taxable year 
under section 170(m).
  [(g)] (h) Marital Status.--For purposes of this section, 
marital status shall be determined under section 7703.

           *       *       *       *       *       *       *


     PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

           *       *       *       *       *       *       *


SEC. 170. CHARITABLE, ETC., CONTRIBUTIONS AND GIFTS.

  (a) * * *
  (b) Percentage Limitations.--
          (1) * * *
          (2) Corporations.--In the case of a corporation, the 
        total deductions under subsection (a) for any taxable 
        year shall not exceed [10 percent] the applicable 
        percentage of the taxpayer's taxable income computed 
        without regard to--
                  (A) * * *

           *       *       *       *       *       *       *

          (3) Applicable percentage defined.--For purposes of 
        paragraph (2), the applicable percentage shall be 
        determined in accordance with the following table:

        For taxable years beginning                       The applicable
          in calendar year--                             percentage is--
            2002 through 2007.................................       11 
            2008..............................................       12 
            2009..............................................       13 
15.       2010 and thereafter...............................

           *       *       *       *       *       *       *

  (e) Certain Contributions of Ordinary Income and Capital Gain 
Property.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Special rule for certain contributions of 
        inventory and other property.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Special rule for contributions of food 
                inventory.--
                          (i) General rule.--In the case of a 
                        charitable contribution of food, this 
                        paragraph shall be applied--
                                  (I) without regard to whether 
                                the contribution is made by a C 
                                corporation, and
                                  (II) only for food that is 
                                apparently wholesome food.
                          (ii) Determination of fair market 
                        value.--In the case of a qualified 
                        contribution of apparently wholesome 
                        food to which this paragraph applies 
                        and which, solely by reason of internal 
                        standards of the taxpayer or lack of 
                        market, cannot or will not be sold, the 
                        fair market value of such food shall be 
                        determined by taking into account the 
                        price at which the same or similar food 
                        items are sold by the taxpayer at the 
                        time of the contribution (or, if not so 
                        sold at such time, in the recent past).
                          (iii) Apparently wholesome food.--For 
                        purposes of this subparagraph, the term 
                        ``apparently wholesome food'' shall 
                        have the meaning given to such term by 
                        section 22(b)(2) of the Bill Emerson 
                        Good Samaritan Food Donation Act (42 
                        U.S.C. 1791(b)(2)), as in effect on the 
                        date of the enactment of this 
                        subparagraph.
                  [(C)] (D) This paragraph shall not apply to 
                so much of the amount of the gain described in 
                paragraph (1)(A) which would be long-term 
                capital gain but for the application of 
                sections 617, 1245, 1250, or 1252.
          (4) Special rule for contributions of scientific 
        property used for research.--
                  (A) * * *
                  (B) Qualified research contributions.--For 
                purposes of this paragraph, the term 
                ``qualified research contribution'' means a 
                charitable contribution by a corporation of 
                tangible personal property described in 
                paragraph (1) of section 1221(a), but only if--
                          (i) * * *
                          (ii) the property is constructed or 
                        assembled by the taxpayer,

           *       *       *       *       *       *       *

          (6) Special rule for contributions of computer 
        technology and equipment for educational purposes.--
                  (A) * * *
                  (B) Qualified computer contribution.--For 
                purposes of this paragraph, the term 
                ``qualified computer contribution'' means a 
                charitable contribution by a corporation of any 
                computer technology or equipment, but only if--
                          (i) * * *
                          (ii) the contribution is made not 
                        later than 3 years after the date the 
                        taxpayer acquired the property (or in 
                        the case of property constructed or 
                        assembled by the taxpayer, the date the 
                        construction or assembling of the 
                        property is substantially completed),

           *       *       *       *       *       *       *

                  (D) Donations of property reacquired by 
                manufacturer.--In the case of property which is 
                reacquired by the person who constructed or 
                assembled the property--
                          (i) subparagraph (B)(ii) shall be 
                        applied to a contribution of such 
                        property by such person by taking into 
                        account the date that the original 
                        construction or assembling of the 
                        property was substantially completed, 
                        and
                          (ii) subparagraph (B)(iii) shall not 
                        apply to such contribution.

           *       *       *       *       *       *       *

  (m) Deduction for Individuals Not Itemizing Deductions.--
          (1) In general.--In the case of an individual who 
        does not itemize his deductions for the taxable year, 
        there shall be taken into account as a direct 
        charitable deduction under section 63 an amount equal 
        to the lesser of--
                  (A) the amount allowable under subsection (a) 
                for the taxable year for cash contributions, or
                  (B) the applicable amount.
          (2) Applicable amount.--For purposes of paragraph 
        (1), the applicable amount shall be determined as 
        follows:

        For taxable years                                 The applicable
          beginning in:                                     amount is:  
            2002 and 2003.....................................      $25 
            2004, 2005, 2006..................................      $50 
            2007, 2008, 2009..................................      $75 
            2010 and thereafter...............................     $100.

        In the case of a joint return, the applicable amount is 
        twice the applicable amount determined under the 
        preceding table.
  [(m)] (n) Other Cross References.--
          (1) * * *

           *       *       *       *       *       *       *


                Subchapter D--Deferred Compensation, Etc.

           *       *       *       *       *       *       *


        PART I--PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.

           *       *       *       *       *       *       *


                        Subpart A--General Rule

           *       *       *       *       *       *       *


SEC. 408. INDIVIDUAL RETIREMENT ACCOUNTS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Tax Treatment of Distributions.--
          (1) * * *

           *       *       *       *       *       *       *

          (8) Distributions for charitable purposes.--
                  (A) In general.--No amount shall be 
                includible in gross income by reason of a 
                qualified charitable distribution.
                  (B) Qualified charitable distribution.--For 
                purposes of this paragraph, the term 
                ``qualified charitable distribution'' means any 
                distribution from an individual retirement 
                account--
                          (i) which is made on or after the 
                        date that the individual for whose 
                        benefit the account is maintained has 
                        attained age 70\1/2\, and
                          (ii) which is made directly by the 
                        trustee--
                                  (I) to an organization 
                                described in section 170(c), or
                                  (II) to a split-interest 
                                entity.
                A distribution shall be treated as a qualified 
                charitable distribution only to the extent that 
                the distribution would be includible in gross 
                income without regard to subparagraph (A) and, 
                in the case of a distribution to a split-
                interest entity, only if no person holds an 
                income interest in the amounts in the split-
                interest entity attributable to such 
                distribution other than one or more of the 
                following: the individual for whose benefit 
                such account is maintained, the spouse of such 
                individual, or any organization described in 
                section 170(c).
                  (C) Contributions must be otherwise 
                deductible.--For purposes of this paragraph--
                          (i) Direct contributions.--A 
                        distribution to an organization 
                        described in section 170(c) shall be 
                        treated as a qualified charitable 
                        distribution only if a deduction for 
                        the entire distribution would be 
                        allowable under section 170 (determined 
                        without regard to subsection (b) 
                        thereof and this paragraph).
                          (ii) Split-interest gifts.--A 
                        distribution to a split-interest entity 
                        shall be treated as a qualified 
                        charitable distribution only if a 
                        deduction for the entire value of the 
                        interest in the distribution for the 
                        use of an organization described in 
                        section 170(c) would be allowable under 
                        section 170 (determined without regard 
                        to subsection (b) thereof and this 
                        paragraph).
                  (D) Application of section 72.--
                Notwithstanding section 72, in determining the 
                extent to which a distribution is a qualified 
                charitable distribution, the entire amount of 
                the distribution shall be treated as includible 
                in gross income without regard to subparagraph 
                (A) to the extent that such amount does not 
                exceed the aggregate amount which would be so 
                includible if all amounts were distributed from 
                all individual retirement accounts otherwise 
                taken into account in determining the inclusion 
                on such distribution under section 72. Proper 
                adjustments shall be made in applying section 
                72 to other distributions in such taxable year 
                and subsequent taxable years.
                  (E) Special rules for split-interest 
                entities.--
                          (i) Charitable remainder trusts.--
                        Distributions made from an individual 
                        retirement account to a trust described 
                        in subparagraph (G)(ii)(I) shall be 
                        treated as income described in section 
                        664(b)(1) except to the extent that the 
                        beneficiary of the individual 
                        retirement account notifies the trustee 
                        of the trust of the amount which is not 
                        allocable to income under subparagraph 
                        (D).
                          (ii) Pooled income funds.--No amount 
                        shall be includible in the gross income 
                        of a pooled income fund (as defined in 
                        subparagraph (G)(ii)(II)) by reason of 
                        a qualified charitable distribution to 
                        such fund.
                          (iii) Charitable gift annuities.--
                        Qualified charitable distributions made 
                        for a charitable gift annuity shall not 
                        be treated as an investment in the 
                        contract.
                  (F) Denial of deduction.--Qualified 
                charitable distributions shall not be taken 
                into account in determining the deduction under 
                section 170.
                  (G) Split-interest entity defined.--For 
                purposes of this paragraph, the term ``split-
                interest entity'' means--
                          (i) a charitable remainder annuity 
                        trust or a charitable remainder 
                        unitrust (as such terms are defined in 
                        section 664(d)),
                          (ii) a pooled income fund (as defined 
                        in section 642(c)(5)), and
                          (iii) a charitable gift annuity (as 
                        defined in section 501(m)(5)).

           *       *       *       *       *       *       *


                  Subchapter F--Exempt Organizations

           *       *       *       *       *       *       *


 PART III--TAXATION OF BUSINESS INCOME OF CERTAIN EXEMPT ORGANIZATIONS

           *       *       *       *       *       *       *


SEC. 512. UNRELATED BUSINESS TAXABLE INCOME.

  (a) * * *
  (b) Modifications.--The modifications referred to in 
subsection (a) are the following:
          (1) * * *

           *       *       *       *       *       *       *

          (10) In the case of any organization described in 
        section 511(a), the deduction allowed by section 170 
        (relating to charitable etc. contributions and gifts) 
        shall be allowed (whether or not directly connected 
        with the carrying on of the trade or business), but 
        shall not exceed [10 percent] the applicable percentage 
        (determined under section 170(b)(3)) of the unrelated 
        business taxable income computed without the benefit of 
        this paragraph.

           *       *       *       *       *       *       *


  Subchapter G--Corporations Used to Avoid Income Tax on Shareholders

           *       *       *       *       *       *       *


                  PART II--PERSONAL HOLDING COMPANIES

           *       *       *       *       *       *       *



SEC. 545. UNDISTRIBUTED PERSONAL HOLDING COMPANY INCOME.

  (a) * * *
  (b) Adjustments to Taxable Income.--For the purposes of 
subsection (a), the taxable income shall be adjusted as 
follows:
          (1) * * *
          (2) Charitable contributions.--The deduction for 
        charitable contributions provided under section 170 
        shall be allowed, but in computing such deduction the 
        limitations in section 170(b)(1)(A), (B), and (D) shall 
        apply, and section 170(b)(2) and (d)(1) shall not 
        apply. For purposes of this paragraph, the term 
        ``contribution base'' when used in section 170(b)(1) 
        means the taxable income computed with the adjustments 
        (other than the [10-percent limitation] applicable 
        percentage limitation) provided in section 170(b)(2) 
        and (d)(1) and without deduction of the amount 
        disallowed under paragraph (6) of this subsection.

           *       *       *       *       *       *       *


               PART III--FOREIGN PERSONAL HOLDING COMPANIES

           *       *       *       *       *       *       *



SEC. 556. UNDISTRIBUTED FOREIGN PERSONAL HOLDING COMPANY INCOME.

  (a) * * *
  (b) Adjustments to Taxable Income.--For the purposes of 
subsection (a), the taxable income shall be adjusted as 
follows:
          (1) * * *
          (2) Charitable contributions.--The deduction for 
        charitable contributions provided under section 170 
        shall be allowed, but in computing such deduction the 
        limitations in section 170(b)(1)(A), (B), and (D) shall 
        apply, and section 170(b)(2) and (d)(1) shall not 
        apply. For purposes of this paragraph, the term 
        ``contribution base'' when used in section 170(b)(1) 
        means the taxable income computed with the adjustments 
        (other than the [10-percent limitation] applicable 
        percentage limitation) provided in section 170(b)(2) 
        and (d)(1) and without the deduction of the amounts 
        disallowed under paragraphs (5) and (6) of this 
        subsection or the inclusion in gross income of the 
        amounts includible therein as dividends by reason of 
        the application of the provisions of section 555(b) 
        (relating to the inclusion in gross income of a foreign 
        personal holding company of its distributive share of 
        the undistributed foreign personal holding company 
        income of another company in which it is a 
        shareholder).

           *       *       *       *       *       *       *


      Subchapter J--Estates, Trusts, Beneficiaries, and Decedents

           *       *       *       *       *       *       *


                PART I--ESTATES, TRUSTS, AND BENEFICIARIES

           *       *       *       *       *       *       *



  Subpart C--Estates and Trusts Which May Accumulate Income or Which 
                           Distribute Corpus

           *       *       *       *       *       *       *



SEC. 664. CHARITABLE REMAINDER TRUSTS.

  (a) * * *

           *       *       *       *       *       *       *

  [(c) Exemption From Income Taxes.--A charitable remainder 
annuity trust and a charitable remainder unitrust shall, for 
any taxable year, not be subject to any tax imposed by this 
subtitle, unless such trust, for such year, has unrelated 
business taxable income (within the meaning of section 512, 
determined as if part III of subchapter F applied to such 
trust).]
  (c) Taxation of Trusts.--
          (1) Income tax.--A charitable remainder annuity trust 
        and a charitable remainder unitrust shall, for any 
        taxable year, not be subject to any tax imposed by this 
        subtitle.
          (2) Excise tax.--
                  (A) In general.--In the case of a charitable 
                remainder annuity trust or a charitable 
                remainder unitrust that has unrelated business 
                taxable income (within the meaning of section 
                512, determined as if part III of subchapter F 
                applied to such trust) for a taxable year, 
                there is hereby imposed on such trust or 
                unitrust an excise tax equal to the amount of 
                such unrelated business taxable income.
                  (B) Certain rules to apply.--The tax imposed 
                by subparagraph (A) shall be treated as imposed 
                by chapter 42 for purposes of this title other 
                than subchapter E of chapter 42.
                  (C) Character of distributions and 
                coordination with distribution requirements.--
                The amounts taken into account in determining 
                unrelated business taxable income (as defined 
                in subparagraph (A)) shall not be taken into 
                account for purposes of--
                          (i) subsection (b),
                          (ii) determining the value of trust 
                        assets under subsection (d)(2), and
                          (iii) determining income under 
                        subsection (d)(3).
                  (D) Tax court proceedings.--For purposes of 
                this paragraph, the references in section 
                6212(c)(1) to section 4940 shall be deemed to 
                include references to this paragraph.

           *       *       *       *       *       *       *


                   Subchapter L--Insurance Companies

           *       *       *       *       *       *       *


                    PART I--LIFE INSURANCE COMPANIES

           *       *       *       *       *       *       *


                  Subpart C--Life Insurance Deductions

           *       *       *       *       *       *       *


SEC. 805. GENERAL DEDUCTIONS.

  (a) * * *
  (b) Modifications.--The modifications referred to in 
subsection (a)(8) are as follows:
          (1) * * *
          (2) Charitable, etc., contributions and gifts.--In 
        applying section 170--
                  (A) the limit on the total deductions under 
                such section provided by section 170(b)(2) 
                shall be [10 percent] the applicable percentage 
                (determined under section 170(b)(3)) of the 
                life insurance company taxable income computed 
                without regard to--
                          (i) * * *

           *       *       *       *       *       *       *


  Subchapter S--Tax Treatment of S Corporations and Their Shareholders

           *       *       *       *       *       *       *


                 PART II--TAX TREATMENT OF SHAREHOLDERS

           *       *       *       *       *       *       *


SEC. 1367. ADJUSTMENTS TO BASIS OF STOCK OF SHAREHOLDERS, ETC.

  (a) General Rule.--
          (1) Increases in basis.--The basis of each 
        shareholder's stock in an S corporation shall be 
        increased for any period by the sum of the following 
        items determined with respect to that shareholder for 
        such period:
                  (A) the items of income described in 
                subparagraph (A) of section 1366(a)(1),
                  (B) any nonseparately computed income 
                determined under subparagraph (B) of section 
                1366(a)(1), [and]
                  (C) the excess of the deductions for 
                depletion over the basis of the property 
                subject to depletion[.], and
                  (D) the excess of the amount of the 
                shareholder's deduction for any charitable 
                contribution made by the S corporation over the 
                shareholder's proportionate share of the 
                adjusted basis of the property contributed.

           *       *       *       *       *       *       *


               Subtitle D--Miscellaneous Excise Taxes

           *       *       *       *       *       *       *


     CHAPTER 42--PRIVATE FOUNDATIONS AND CERTAIN OTHER TAX-EXEMPT 
                             ORGANIZATIONS

           *       *       *       *       *       *       *


                 Subchapter A--Private Foundations

           *       *       *       *       *       *       *


SEC. 4940. EXCISE TAX BASED ON INVESTMENT INCOME.

  (a) Tax-Exempt Foundations.--There is hereby imposed on each 
private foundation which is exempt from taxation under section 
501(a) for the taxable year, with respect to the carrying on of 
its activities, a tax equal to [2] 1 percent of the net 
investment income of such foundation for the taxable year.

           *       *       *       *       *       *       *

  [(e) Reduction in Tax Where Private Foundation Meets Certain 
Distribution Requirements.--
          [(1) In general.--In the case of any private 
        foundation which meets the requirements of paragraph 
        (2) for any taxable year, subsection (a) shall be 
        applied with respect to such taxable year by 
        substituting ``1 percent'' for ``2 percent''.
          [(2) Requirements.--A private foundation meets the 
        requirements of this paragraph for any taxable year 
        if--
                  [(A) the amount of the qualifying 
                distributions made by the private foundation 
                during such taxable year equals or exceeds the 
                sum of--
                          [(i) an amount equal to the assets of 
                        such foundation for such taxable year 
                        multiplied by the average percentage 
                        payout for the base period, plus
                          [(ii) 1 percent of the net investment 
                        income of such foundation for such 
                        taxable year, and
                  [(B) such private foundation was not liable 
                for tax under section 4942 with respect to any 
                year in the base period.
          [(3) Average percentage payout for base period.--For 
        purposes of this subsection--
                  [(A) In general.--The average percentage 
                payout for the base period is the average of 
                the percentage payouts for taxable years in the 
                base period.
                  [(B) Percentage payout.--The term 
                ``percentage payout'' means, with respect to 
                any taxable year, the percentage determined by 
                dividing--
                          [(i) the amount of the qualifying 
                        distributions made by the private 
                        foundation during the taxable year, by
                          [(ii) the assets of the private 
                        foundation for the taxable year.
                  [(C) Special rule where tax reduced under 
                this subsection.--For purposes of this 
                paragraph, if the amount of the tax imposed by 
                this section for any taxable year in the base 
                period is reduced by reason of this subsection, 
                the amount of the qualifying distributions made 
                by the private foundation during such year 
                shall be reduced by the amount of such 
                reduction in tax.
          [(4) Base period.--For purposes of this subsection--
                  [(A) In general.--The term ``base period'' 
                means, with respect to any taxable year, the 5 
                taxable years preceding such taxable year.
                  [(B) New private foundations, etc.--If an 
                organization has not been a private foundation 
                throughout the base period referred to in 
                subparagraph (A), the base period shall consist 
                of the taxable years during which such 
                foundation has been in existence.
          [(5) Other definitions.--For purposes of this 
        subsection--
                  [(A) Qualifying distribution.--The term 
                ``qualifying distribution'' has the meaning 
                given such term by section 4942(g).
                  [(B) Assets.--The assets of a private 
                foundation for any taxable year shall be 
                treated as equal to the excess determined under 
                section 4942(e)(1).
          [(6) Treatment of successor organizations, etc.--In 
        the case of--
                  [(A) a private foundation which is a 
                successor to another private foundation, this 
                subsection shall be applied with respect to 
                such successor by taking into account the 
                experience of such other foundation, and
                  [(B) a merger, reorganization, or division of 
                a private foundation, this subsection shall be 
                applied under regulations prescribed by the 
                Secretary.]

           *       *       *       *       *       *       *


                Subtitle F--Procedures and Administration

           *       *       *       *       *       *       *


                   CHAPTER 61--INFORMATION AND RETURNS

           *       *       *       *       *       *       *


                    Subchapter A--Returns and Records

           *       *       *       *       *       *       *


                    PART III--INFORMATION RETURNS

           *       *       *       *       *       *       *



Subpart A--Information Concerning Persons Subject to Special Provisions

           *       *       *       *       *       *       *



[SEC. 6034. RETURNS BY TRUSTS DESCRIBED IN SECTION 4947(A)(2) OR 
                    CLAIMING CHARITABLE DEDUCTIONS UNDER SECTION 
                    642(C).

  [(a) General Rule.--Every trust described in section 
4947(a)(2) or claiming a charitable, etc., deduction under 
section 642(c) for the taxable year shall furnish such 
information with respect to such taxable year as the Secretary 
may by forms or regulations prescribe, including--
          [(1) the amount of the charitable, etc., deduction 
        taken under section 642(c) within such year,
          [(2) the amount paid out within such year which 
        represents amounts for which charitable, etc., 
        deductions under section 642(c) have been taken in 
        prior years,
          [(3) the amount for which charitable, etc., 
        deductions have been taken in prior years but which has 
        not been paid out at the beginning of such year,
          [(4) the amount paid out of principal in the current 
        and prior years for charitable, etc., purposes,
          [(5) the total income of the trust within such year 
        and the expenses attributable thereto, and
          [(6) a balance sheet showing the assets, liabilities, 
        and net worth of the trust as of the beginning of such 
        year.
  [(b) Exceptions.--This section shall not apply in the case of 
a taxable year if all the net income for such year, determined 
under the applicable principles of the law of trusts, is 
required to be distributed currently to the beneficiaries. This 
section shall not apply in the case of a trust described in 
section 4947(a)(1).
  [(c) Cross Reference.--

          [For provisions relating to penalties for failure to file a 
        return required by this section, see section 6652(c).]

SEC. 6034. RETURNS BY TRUSTS DESCRIBED IN SECTION 4947(A)(2) OR 
                    CLAIMING CHARITABLE DEDUCTIONS UNDER SECTION 
                    642(C).

  (a) Trusts Described in Section 4947(a)(2).--Every trust 
described in section 4947(a)(2) shall furnish such information 
with respect to the taxable year as the Secretary may by forms 
or regulations require.
  (b) Trusts Claiming a Charitable Deduction Under Section 
642(c).--
          (1) In general.--Every trust not required to file a 
        return under subsection (a) but claiming a charitable, 
        etc., deduction under section 642(c) for the taxable 
        year shall furnish such information with respect to 
        such taxable year as the Secretary may by forms or 
        regulations prescribe, including:
                  (A) the amount of the charitable, etc., 
                deduction taken under section 642(c) within 
                such year,
                  (B) the amount paid out within such year 
                which represents amounts for which charitable, 
                etc., deductions under section 642(c) have been 
                taken in prior years,
                  (C) the amount for which charitable, etc., 
                deductions have been taken in prior years but 
                which has not been paid out at the beginning of 
                such year,
                  (D) the amount paid out of principal in the 
                current and prior years for charitable, etc., 
                purposes,
                  (E) the total income of the trust within such 
                year and the expenses attributable thereto, and
                  (F) a balance sheet showing the assets, 
                liabilities, and net worth of the trust as of 
                the beginning of such year.
          (2) Exceptions.--Paragraph (1) shall not apply in the 
        case of a taxable year if all the net income for such 
        year, determined under the applicable principles of the 
        law of trusts, is required to be distributed currently 
        to the beneficiaries. Paragraph (1) shall not apply in 
        the case of a trust described in section 4947(a)(1).

           *       *       *       *       *       *       *


                  Subchapter B--Miscellaneous Provisions

           *       *       *       *       *       *       *


SEC. 6104. PUBLICITY OF INFORMATION REQUIRED FROM CERTAIN EXEMPT 
                    ORGANIZATIONS AND CERTAIN TRUSTS.

  (a) * * *
  (b) Inspection of Annual Information Returns.--The 
information required to be furnished by sections 6012(a)(6), 
6033, 6034, and 6058, together with the names and addresses of 
such organizations and trusts, shall be made available to the 
public at such times and in such places as the Secretary may 
prescribe. Nothing in this subsection shall authorize the 
Secretary to disclose the name or address of any contributor to 
any organization or trust (other than a private foundation, as 
defined in section 509(a) or a political organization exempt 
from taxation under section 527) which is required to furnish 
such information. In the case of an organization described in 
section 501(d), this subsection shall not apply to copies 
referred to in section 6031(b) with respect to such 
organization. In the case of a trust which is required to file 
a return under section 6034(a), this subsection shall not apply 
to information regarding beneficiaries which are not 
organizations described in section 170(c).

           *       *       *       *       *       *       *


 CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE 
                               PENALTIES

           *       *       *       *       *       *       *


       Subchapter A--Additions to the Tax and Additional Amounts

           *       *       *       *       *       *       *


                        PART I--GENERAL PROVISIONS

           *       *       *       *       *       *       *


SEC. 6652. FAILURE TO FILE CERTAIN INFORMATION RETURNS, REGISTRATION 
                    STATEMENTS, ETC.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Returns by Exempt Organizations and by Certain Trusts.--
          (1) * * *
          (2) Returns under section 6034 or 6043(b).--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Split-interest trusts.--In the case of a 
                trust which is required to file a return under 
                section 6034(a), subparagraphs (A) and (B) of 
                this paragraph shall not apply and paragraph 
                (1) shall apply in the same manner as if such 
                return were required under section 6033, except 
                that--
                          (i) the 5 percent limitation in the 
                        second sentence of paragraph (1)(A) 
                        shall not apply,
                          (ii) in the case of any trust with 
                        gross income in excess of $250,000, the 
                        first sentence of paragraph (1)(A) 
                        shall be applied by substituting 
                        ``$100'' for ``$20'', and the second 
                        sentence thereof shall be applied by 
                        substituting ``$50,000'' for 
                        ``$10,000'', and
                          (iii) the third sentence of paragraph 
                        (1)(A) shall be disregarded.
                If the person required to file such return 
                knowingly fails to file the return, such person 
                shall be personally liable for the penalty 
                imposed pursuant to this subparagraph.

           *       *       *       *       *       *       *

                              ----------                              


                       ASSETS FOR INDEPENDENCE ACT

           *       *       *       *       *       *       *


SEC. 403. PURPOSES.

  The purposes of this title are to provide for the 
establishment of [demonstration] projects designed to 
determine--
          (1) the social, civic, psychological, and economic 
        effects of providing to individuals and families with 
        limited means an incentive to accumulate assets by 
        saving a portion of their earned income;
          (2) the extent to which an asset-based policy that 
        promotes saving for postsecondary education, 
        homeownership, and microenterprise development may be 
        used to enable individuals and families with limited 
        means to increase their economic self-sufficiency; and
          (3) the extent to which an asset-based policy 
        stabilizes and improves families and the community in 
        which the families live.

SEC. 404. DEFINITIONS.

  In this title:
          (1) * * *

           *       *       *       *       *       *       *

          (2) Eligible individual.--The term ``eligible 
        individual'' means an individual who is selected to 
        participate in a [demonstration] project by a qualified 
        entity under section 409.

           *       *       *       *       *       *       *

          (7) Qualified entity.--
                  (A) In general.--The term ``qualified 
                entity'' means--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) an entity that--
                                  (I) is--
                                          [(aa) a credit union 
                                        designated as a low-
                                        income credit union by 
                                        the National Credit 
                                        Union Administration 
                                        (NCUA); or]
                                          (aa) a federally 
                                        insured credit union; 
                                        or

           *       *       *       *       *       *       *


SEC. 405. APPLICATIONS.

  (a) Announcement of [Demonstration] Projects.--Not later than 
3 months after the date of enactment of this title, the 
Secretary shall publicly announce the availability of funding 
under this title for [demonstration] projects and shall ensure 
that applications to conduct the [demonstration] projects are 
widely available to qualified entities.
  (b) Submission.--Not later than 6 months after the date of 
enactment of this title, a qualified entity may submit to the 
Secretary an application to conduct a [demonstration] project 
under this title.
  (c) Criteria.--In considering whether to approve an 
application to conduct a [demonstration] project under this 
title, the Secretary shall assess the following:
  (1) * * *

           *       *       *       *       *       *       *

  (d) Preferences.--In considering an application to conduct a 
[demonstration] project under this title, the Secretary shall 
give preference to an application that--
  (1) * * *

           *       *       *       *       *       *       *

  (e) Approval.--Not later than 9 months after the date of 
enactment of this title, the Secretary shall, on a competitive 
basis, approve such applications to conduct [demonstration] 
projects under this title as the Secretary considers to be 
appropriate, taking into account the assessments required by 
subsections (c) and (d). The Secretary shall ensure, to the 
maximum extent practicable, that the applications that are 
approved involve a range of communities (both rural and urban) 
and diverse populations.

           *       *       *       *       *       *       *

  (g) Grandfathering of Existing Statewide Programs.--Any 
statewide individual asset-building program that is carried out 
in a manner consistent with the purposes of this title, that is 
established under State law as of the date of enactment of this 
Act, and that as of such date is operating with an annual State 
appropriation of not less than $1,000,000 in non-Federal funds, 
shall be deemed to meet the eligibility requirements of this 
subtitle, and the entity carrying out the program shall be 
deemed to be a qualified entity. The Secretary shall consider 
funding the statewide program as a [demonstration] project 
described in this subtitle. In considering the statewide 
program for funding, the Secretary shall review an application 
submitted by the entity carrying out such statewide program 
under this section, notwithstanding the preference requirements 
listed in subsection (d). Any program requirements under 
sections 407 through 411 that are inconsistent with State 
statutory requirements in effect on the date of enactment of 
this Act, governing such statewide program, shall not apply to 
the program.

SEC. 406. [DEMONSTRATION] AUTHORITY; ANNUAL GRANTS.

  (a) [Demonstration] Authority.--If the Secretary approves an 
application to conduct a [demonstration] project under this 
title, the Secretary shall, not later than 10 months after the 
date of enactment of this title, authorize the applicant to 
conduct the project for 5 project years in accordance with the 
approved application and the requirements of this title.
  (b) Grant Authority.--For each project year of a 
[demonstration] project conducted under this title, the 
Secretary may make a grant to the qualified entity authorized 
to conduct the project. In making such a grant, the Secretary 
shall make the grant on the first day of the project year in an 
amount not to exceed the lesser of--
  (1) * * *

           *       *       *       *       *       *       *


SEC. 407. RESERVE FUND.

  (a) * * *
  (b) Amounts in Reserve Fund.--
          (1) In general.--As soon after receipt as is 
        practicable, a qualified entity shall deposit in the 
        Reserve Fund established under subsection (a)--
                  (A) all funds provided to the qualified 
                entity from any public or private source in 
                connection with the [demonstration] project; 
                and

           *       *       *       *       *       *       *

  (c) Use of Amounts in the Reserve Fund.--
          (1) In general.--A qualified entity shall use the 
        amounts in the Reserve Fund established under 
        subsection (a) to--
                  (A) assist participants in the 
                [demonstration] project in obtaining the skills 
                (including economic literacy, budgeting, 
                credit, and counseling skills) and information 
                necessary to achieve economic self-sufficiency 
                through activities requiring qualified 
                expenses;
                  (B) provide deposits in accordance with 
                section 410 for individuals selected by the 
                qualified entity to participate in the 
                [demonstration] project;
                  (C) administer the [demonstration] project; 
                and
                  (D) provide the research organization 
                evaluating the [demonstration] project under 
                section 414 with such information with respect 
                to the [demonstration] project as may be 
                required for the evaluation.

           *       *       *       *       *       *       *

  (d) Unused Federal Grant Funds Transferred to the Secretary 
When Project Terminates.--Notwithstanding subsection (c), upon 
the termination of any [demonstration] project authorized under 
this section, the qualified entity conducting the project shall 
transfer to the Secretary an amount equal to--
          (1) * * *

           *       *       *       *       *       *       *


SEC. 408. ELIGIBILITY FOR PARTICIPATION.

  (a) In General.--Any individual who is a member of a 
household that is eligible for assistance under the State 
temporary assistance for needy families program established 
under part A of title IV of the Social Security Act (42 U.S.C. 
601 et seq.), or that meets each of the following requirements 
shall be eligible to participate in a [demonstration] project 
conducted under this title:
          (1) * * *
          (2) Net worth test.--
                  (A) In general.--The net worth of the 
                household, as of the end of the calendar year 
                preceding the determination of eligibility, 
                does not exceed [$10,000] $20,000.

           *       *       *       *       *       *       *

  (b) Individuals Unable To Complete the Project.--The 
Secretary shall establish such regulations as are necessary to 
ensure compliance with this title if an individual 
participating in the [demonstration] project moves from the 
community in which the project is conducted or is otherwise 
unable to continue participating in that project, including 
regulations prohibiting future eligibility to participate in 
any other [demonstration] project conducted under this title.

SEC. 409. SELECTION OF INDIVIDUALS TO PARTICIPATE.

  From among the individuals eligible to participate in a 
[demonstration] project conducted under this title, each 
qualified entity shall select the individuals--
          (1) that the qualified entity determines to be best 
        suited to participate; and
          (2) to whom the qualified entity will provide 
        deposits in accordance with section 410.

SEC. 410. DEPOSITS BY QUALIFIED ENTITIES.

  (a) * * *

           *       *       *       *       *       *       *

  [(b) Limitation on Deposits for an Individual.--Not more than 
$2,000 from a grant made under section 406(b) shall be provided 
to any one individual over the course of the demonstration 
project.
  [(c) Limitation on Deposits for a Household.--Not more than 
$4,000 from a grant made under section 406(b) shall be provided 
to any one household over the course of the demonstration 
project.]
  (b) Limitation on Deposits for an Individual.--Not more than 
$500 from a grant made under section 406(b) shall be provided 
per year to any one individual during the project.
  [(d)] (c) Withdrawal of Funds.--The Secretary shall establish 
such guidelines as may be necessary to ensure that funds held 
in an individual development account are not withdrawn, except 
for one or more qualified expenses, or for an emergency 
withdrawal. Such guidelines shall include a requirement that a 
responsible official of the qualified entity conducting a 
project approve a withdrawal from such an account in writing. 
The guidelines shall provide that no individual may withdraw 
funds from an individual development account earlier than 6 
months after the date on which the individual first deposits 
funds in the account.
  [(e)] (d) Reimbursement.--An individual shall reimburse an 
individual development account for any funds withdrawn from the 
account for an emergency withdrawal, not later than 12 months 
after the date of the withdrawal. If the individual fails to 
make the reimbursement, the qualified entity administering the 
account shall transfer the funds deposited into the account or 
a parallel account under this section to the Reserve Fund of 
the qualified entity, and use the funds to benefit other 
individuals participating in the [demonstration] project 
involved.

SEC. 411. LOCAL CONTROL OVER [DEMONSTRATION] PROJECTS.

  A qualified entity under this title, other than a State or 
local government agency or a tribal government, shall, subject 
to the provisions of section 413, have sole authority over the 
administration of the project. The Secretary may prescribe only 
such regulations or guidelines with respect to [demonstration] 
projects conducted under this title as are necessary to ensure 
compliance with the approved applications and the requirements 
of this title.

SEC. 412. ANNUAL PROGRESS REPORTS.

  (a) In General.--Each qualified entity under this title shall 
prepare an annual report on the progress of the [demonstration] 
project. Each report shall include both program and participant 
information and shall specify for the period covered by the 
report the following information:
          (1) * * *

           *       *       *       *       *       *       *

          (6) The savings account characteristics (such as 
        threshold amounts and match rates) required to 
        stimulate participation in the [demonstration] project, 
        and how such characteristics vary among different 
        populations or communities.
          (7) What service configurations of the qualified 
        entity (such as configurations relating to peer 
        support, structured planning exercises, mentoring, and 
        case management) increased the rate and consistency of 
        participation in the [demonstration] project and how 
        such configurations varied among different populations 
        or communities.
          (8) Such other information as the Secretary may 
        require to evaluate the [demonstration] project.
  (b) Submission of Reports.--The qualified entity shall submit 
each report required to be prepared under subsection (a) to--
          (1) the Secretary; and
          (2) the Treasurer (or equivalent official) of the 
        State in which the project is conducted, if the State 
        or a local government or a tribal government committed 
        funds to the [demonstration] project.
  (c) Timing.--The first report required by subsection (a) 
shall be submitted not later than 60 days after the end of the 
project year in which the Secretary authorized the qualified 
entity to conduct the [demonstration] project, and subsequent 
reports shall be submitted every 12 months thereafter, until 
the conclusion of the project.

SEC. 413. SANCTIONS.

  (a) Authority To Terminate [Demonstration] Project.--If the 
Secretary determines that a qualified entity under this title 
is not operating a [demonstration] project in accordance with 
the entity's approved application under section 405 or the 
requirements of this title (and has not implemented any 
corrective recommendations directed by the Secretary), the 
Secretary shall terminate such entity's authority to conduct 
the [demonstration] project.
  (b) Actions Required Upon Termination.--If the Secretary 
terminates the authority to conduct a [demonstration] project, 
the Secretary--
          (1) shall suspend the [demonstration] project;
          (2) shall take control of the Reserve Fund 
        established pursuant to section 407;
          (3) shall make every effort to identify another 
        qualified entity (or entities) willing and able to 
        conduct the project in accordance with the approved 
        application (or, if modification is necessary to 
        incorporate the recommendations, the application as 
        modified) and the requirements of this title;
          (4) shall, if the Secretary identifies an entity (or 
        entities) described in paragraph (3)--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) consider, for purposes of this title--
                          (i) such other entity (or entities) 
                        to be the qualified entity (or 
                        entities) originally authorized to 
                        conduct the [demonstration] project; 
                        and

           *       *       *       *       *       *       *


SEC. 414. EVALUATIONS.

  (a) In General.--Not later than 10 months after the date of 
enactment of this title, the Secretary shall enter into a 
contract with an independent research organization to evaluate 
the [demonstration] projects conducted under this title, 
individually and as a group, including evaluating all qualified 
entities participating in and sources providing funds for the 
[demonstration] projects conducted under this title.
  (b) Factors To Evaluate.--In evaluating any [demonstration] 
project conducted under this title, the research organization 
shall address the following factors:
          (1) The effects of incentives and organizational or 
        institutional support on savings behavior in the 
        [demonstration] project.
          (2) The savings rates of individuals in the 
        [demonstration] project based on demographic 
        characteristics including gender, age, family size, 
        race or ethnic background, and income.

           *       *       *       *       *       *       *

          (6) The lessons to be learned from the 
        [demonstration] projects conducted under this title and 
        if a permanent program of individual development 
        accounts should be established.

           *       *       *       *       *       *       *

  (c) Methodological Requirements.--In evaluating any 
[demonstration] project conducted under this title, the 
research organization shall--

           *       *       *       *       *       *       *

  (d) Reports by the Secretary.--
          (1) Interim reports.--Not later than 90 days after 
        the end of the project year in which the Secretary 
        first authorizes a qualified entity to conduct a 
        [demonstration] project under this title, and every 12 
        months thereafter until all [demonstration] projects 
        conducted under this title are completed, the Secretary 
        shall submit to Congress an interim report setting 
        forth the results of the reports submitted pursuant to 
        section 412(b).
          (2) Final reports.--Not later than 12 months after 
        the conclusion of all [demonstration] projects 
        conducted under this title, the Secretary shall submit 
        to Congress a final report setting forth the results 
        and findings of all reports and evaluations conducted 
        pursuant to this title.

           *       *       *       *       *       *       *


SEC. 416. AUTHORIZATION OF APPROPRIATIONS.

  There is authorized to be appropriated to carry out this 
title, $25,000,000 for each of fiscal years 1999, 2000, [2001, 
2002, and 2003] and 2001, and $50,000,000 for each of fiscal 
years 2002 through 2008, to remain available until expended.

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

    We support appropriate and meaningful tax incentives for 
charitable giving. We regret that earlier this year the 
Congressional Republican Leadership and the Bush Administration 
decided to enact a large tax reduction that reserved no 
resources for bipartisan tax priorities such as charitable 
giving incentives, energy tax provisions, extensions of 
expiring provisions, minimum tax relief and other priorities of 
the American people. The priorities of the Congressional 
Republican Leadership and the Bush Administration were 
different. They insisted on enacting tax legislation that puts 
the Medicare and Social Security surpluses at risk and that 
disproportionately benefits the wealthiest in our society.
    As a result of the Bush tax cut, Congressional supporters 
of provisions such as charitable giving tax incentives face a 
difficult choice. They can choose to offset the cost of those 
incentives with other provisions, or they can place the 
Medicare and Social Security surpluses at risk to fund those 
benefits.
    Congressman Rangel offered an amendment during the markup 
that would have offset the cost of the charitable giving tax 
incentives contained in the Committee's bill. The amendment 
would have reduced slightly the recently enacted reduction in 
the top marginal income tax rate, a rate that applies only to 
the wealthiest seven-tenths of one percent of individuals. Even 
with that amendment, those individuals still would receive a 
4.1 percentage point reduction in their marginal rate, a larger 
marginal rate reduction than provided to most other 
individuals. Committee Republican rejected the amendment 
because, like earlier this year, they have different 
priorities.
    Without Congressman Rangel's amendment, we believe that 
there is a substantial certainty that the tax reductions 
contained in the Committee bill will be funded, in part by 
raiding the Medicare and possibly the Social Security Trust 
Funds. As a result, we can not support the Committee bill.
    Reflecting the Republican skittishness over the issue of 
raiding the Medicare Trust Fund, during the markup Chairman 
Thomas released a letter written by Congressman Nussle, the 
Chairman of the Budget Committee. The letter attempts to give 
comfort to the Republican members of the Committee. It states 
``on the basis of estimates released in May on the state of the 
economy, I am pleased to advise you that this bill, in its 
present form, will not effect the Medicare Hospital Trust Fund 
in fiscal year 2002.'' It goes on to state that there will be a 
surplus of $12.3 billion in fiscal 2002 outside the Medicare 
and Social Security Trust Funds.
    We would suggest that Congressman Nussle's letter should 
give no comfort to his Republican colleagues for the following 
reasons.
    1. Congressman Nussle only was willing to claim that the 
Medicare Trust Fund would not be raided in fiscal year 2002. 
The fact that he failed to make that assertion for any other 
fiscal year speaks for itself.
    2. Congressman Nussle's assertion that there will be a 
$12.3 billion surplus in fiscal year 2002 after protecting the 
Medicare Trust Fund is dubious for reasons discussed below. 
However, there would be absolutely no basis for that assertion 
if the Bush tax cut had not raided the Medicare Trust Fund in 
the current fiscal year (FY 2001) in an attempt to avoid a raid 
in fiscal year 2002.
    The Bush tax cut contained a gimmick that shifted $32 
billion in corporate estimated tax receipts from fiscal year 
2001 to 2002. Without that shift in receipts, even under 
Congressman Nussle's analysis, there would have been a $20 
billion raid on Medicare next year.
    As a result of that gimmick, there will be at least a $20 
billion raid on Medicare in the current fiscal year according 
to recent testimony of Mitchell Daniels, Director of the Office 
of Management and Budget. Indeed, according to his testimony, a 
raid on the Social Security Trust Fund in fiscal year 2001 will 
be avoided by only a very small amount.
    Raiding Medicare in 2001 in a desperate attempt to avoid a 
raid in 2002 may give comfort to the Republicans, but it gives 
on comfort to us.
    3. The assertion that there will be a $12 billion surplus 
next fiscal year outside of the Medicare system ignores the 
recent Administration request for $18.4 billion in additional 
defense spending for that year. Secretary Rumsfeld testified 
before the Senate Armed Services Committee that the extra $18.4 
billion forfiscal 2002 would not be a one time request. He said 
that another $18 billion would be ``needed'' for fiscal year 2003 on 
top of continuing the $18.4 billion increase in fiscal 2002 just to 
stay even. None of those amounts would advance the defense 
modernization effort the Administration has promised.
    4. The economic projections have deteriorated dramatically 
since the CBO May analysis relief on by Congressman Nussle in 
his letter. Lawrence B. Lindsey, the Director of the White 
House National Economic Council, and OMB Director Daniels both 
recently have indicated that there will be shortfall in tax 
receipts. They are not alone in suggesting the potential for 
unpleasant budget surprises from the current economic slowdown. 
William Dudley, Goldman-Sachs Research Director, has been 
quoted as stating that revenues would be as much as $75 billion 
below expectations, forcing a raid on the Medicare Trust Fund 
to balance this year's budget and putting next year's budget in 
the red if the downturn persists.
    The economy has not weakened significantly since the May 
CBO projection, but the budget projections have. One has the 
impression that the tax bill was enacted with reckless haste in 
order to take advantage of the temporarily favorable budget 
projections.
    Congresswoman Karen Thurman offered an amendment in 
Committee that would have made the Committee bill contingent on 
the availability of surpluses outside the Medicare and social 
Security systems. If the Republican members of the Committee 
believed Congressman Nussle's letter, they could have supported 
Mrs. Thurman's amendment without endangering the tax incentives 
for charitable giving. They voted no, an action that speaks 
louder than Congressman Nussle's letter.
    We would have opposed the Committee bill because of the 
potential for raiding the Medicare Trust Fund even it had 
provided significant and meaningful tax incentives for 
charitable giving. However, the Committee bill does not 
accomplish its intended goal increasing charitable giving. 
Therefore, it is very easy for us to oppose it.
    The Committee contains two provisions designed to encourage 
charitable giving by individuals, an above-the-line charitable 
deduction for nonitemizers and a provision permitting 
individual retirement account assets to be used for charitable 
purposes. The second provision will provide incentives only to 
a very narrow class of individuals, namely individuals who are 
over age 70 and have accumulations in individual retirement 
accounts not needed for retirement income.
    The bill pretends to provide incentives for charitable 
giving by individuals who do not itemize their deductions. It 
does so by providing a deduction for charitable contributions 
in addition to the standard deduction. However, the size of the 
new deduction is so small (initially $25 for single 
individuals, $50 for married couples) that the provision will 
create no significant incentive for additional charitable 
contributions. During the markup the staff of the Joint 
Committee on Taxation made it clear that the new deduction 
would complicate the individual tax return and that there was 
little prospect that the Internal Revenue Service could 
effectively audit the new provision. One has the strong 
impression that the Committee bill is equivalent to a small 
increase in the standard deduction and it will result in 
little, if any, additional charitable contributions.
    During markup, Democrats asked how this new tax cut--
following last month's $1.35 trillion tax cut--would fit into a 
budget that would protect Social Security and Medicare, 
accommodate the policies in the Budget Resolution, and 
accommodate the President's new June defense spending request. 
Chairman Thomas explained that the ways and Means Committee 
should press ahead with a new tax cut because the Congressional 
budget process was a race. If other Committees weren't as 
quickly reporting legislation to use up budget surpluses, that 
was their problem.
    Democrats do not agree with Chairman Thomas, nor we expect, 
do his Republican colleagues on the Appropriations and other 
Committees who do not agree that their priorities should be 
crowded out by Mr. Thomas's rush to report more tax cuts.
    The purpose of the Congressional Budget is to have a 
sensible plan, not a race among Committees to use up budget 
surpluses. Formally, the Congressional Budget makes allocations 
among Committees and sets targets for revenues that are 
separate from spending limits. However, Chairman Thomas may be 
correct about how the Republican majority actually will 
administer the congressional Budget process. If so, his remarks 
validate earlier criticism from Democrats that Republican 
Congressional budgets have been publicity documents that are 
not enforced. In recent years, this Committee has been used to 
pump out one tax-cut bill after another no matter how large the 
cumulative total, and the Majority has voted overwhelmingly 
appropriations bills that busted their own budgets.

                                   Charles B. Rangel.
                                   Pete Stark.
                                   Karen L. Thurman.
                                   William J. Coyne.
                                   Richard E. Neal.
                                   Jim McDermott.
                                   Xavier Becerra.
                                   Wm. J. Jefferson.
                                   John Lewis.
                                   Jerry Kleczka.
                                   Ben Cardin.
                                   John Tanner.
                                   Robert T. Matsui.
                                   Lloyd Doggett.
                                   Michael R. McNulty.
                                   Sander M. Levin.
                                   Earl Pomeroy.

                                  
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