[Senate Report 114-22]
[From the U.S. Government Publishing Office]


                                                        Calendar No. 45
                                                        
114th Congress          }                      {       Report
                                 SENATE
 1st Session            }                      {       114-22
=====================================================================
 
 A BILL TO AMEND THE INTERNAL REVENUE CODE TO EXCLUDE AMOUNTS RECEIVED 
                  UNDER WORK-LEARNING SERVICE PROGRAMS

                                _______
                                

                 April 14, 2015.--Ordered to be printed

                                _______
                                

               Mr. Hatch, from the Committee on Finance, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 912]

    The Committee on Finance, having considered an original 
bill, S. 912, to amend the Internal Revenue Code of 1986 to 
exclude payments received under the Work Colleges Program from 
gross income, including payments made from institutional funds, 
having considered the same, reports favorably thereon without 
amendment and recommends that the bill do pass.

                                CONTENTS

                                                                   Page
 I. LEGISLATIVE BACKGROUND............................................1
II. EXPLANATION OF THE BILL...........................................2
        A. Exclusion for Amounts Received Under the Work Colleges 
            Program (sec. 1 of the bill, and sec. 117 of the 
            Code)................................................     2
        B. Increase Continuous Levy Authority on Payments to 
            Medicare Providers and Suppliers (sec. 2 of the bill 
            and sec. 6331 of the Code)...........................     3
III.BUDGET EFFECTS OF THE BILL........................................5

IV. VOTES OF THE COMMITTEE............................................7
 V. REGULATORY IMPACT AND OTHER MATTERS...............................7
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED.............8

                       I. LEGISLATIVE BACKGROUND

    The Committee on Finance, having considered S. 912, a bill 
to amend the Internal Revenue Code of 1986 to exclude payments 
received under the Work Colleges Program from gross income, 
including payments made from institutional funds, reports 
favorably thereon without amendment and recommends that the 
bill do pass.

Background and need for legislative action

    Background.--Based on a proposal recommended by Senator 
Burr, and based on legislation introduced by Senator Kirk both 
in the 114th Congress (S. 376) and in the 113th Congress (S. 
2525), the Committee on Finance marked up original legislation 
(a bill to amend the Internal Revenue Code of 1986 to provide 
an exclusion for payments received under the Work Colleges 
Program) on February 11, 2015, and, with a majority present, 
ordered the bill favorably reported.
    Need for legislative action.--Under present law, an 
individual who is a candidate for a degree at a qualifying 
educational organization may exclude amounts received as a 
qualified scholarship from gross income and wages. However, 
this exclusion does not apply to any amount received by a 
student that represents payment for teaching, research, or 
other services by the student required as a condition for 
receiving the scholarship or tuition reduction.
    Work Colleges offer students enhanced learning 
opportunities by providing a work-learning-service program 
throughout their college experience. These programs allow 
students to earn a valuable degree plus important life and 
professional skills.
    Prior to the Tax Reform Act of 1986, the Internal Revenue 
Code contained a narrow exemption to the rule providing that no 
amount of a scholarship must constitute payment for work, thus 
allowing scholarships received under work-learning programs to 
be untaxed. Although this exception was repealed in 1986, the 
IRS has, through administrative rulings, continued to recognize 
this narrow exemption.
    The provision codifies the IRS's administrative position 
and reinstitutes the exemption for amounts received under work-
learning-service programs as it existed prior to 1986.
    In addition, it has been reported that many thousands of 
Medicare providers and suppliers have outstanding Federal 
employment and income tax liability, which contribute to the 
tax gap. The permissible percentage of payments to a Medicare 
provider subject to levy should be increased.

                      II. EXPLANATION OF THE BILL


A. Exclusion for Amounts Received Under the Work Colleges Program (sec. 
                1 of the bill, and sec. 117 of the Code)


                              PRESENT LAW

    Under present law, an individual who is a candidate for a 
degree at a qualifying educational organization may exclude 
amounts received as a qualified scholarship from gross income 
and wages. In addition, present law provides an exclusion from 
gross income and wages for qualified tuition reductions for 
certain education provided to employees of certain educational 
organizations. The exclusions for qualified scholarships and 
qualified tuition reductions do not apply to any amount 
received by a student that represents payment for teaching, 
research, or other services by the student required as a 
condition for receiving the scholarship or tuition reduction. 
Payments for such services are includible in gross income and 
wages. An exception to this rule applies in the case of the 
National Health Services Corps Scholarship Program and the F. 
Edward Herbert Armed Forces Health Professions Scholarship and 
Financial Assistance Program.

                           REASONS FOR CHANGE

    The Committee believes that scholarship payments made to 
students who participate in a Work College program should 
receive the same beneficial tax treatment as other scholarships 
under section 121, notwithstanding that students receiving 
these scholarships are required to work.

                        EXPLANATION OF PROVISION

    The provision exempts from gross income any payments from a 
comprehensive student work-learning-service program (as defined 
in section 448(e) of the Higher Education Act of 1965) operated 
by a work college (as defined in such section). Specifically, a 
work college must require resident students to participate in a 
work-learning-service program that is an integral and stated 
part of the institution's educational philosophy and program.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2014.

B. Increase Continuous Levy Authority on Payments to Medicare Providers 
      and Suppliers (sec. 2 of the bill and sec. 6331 of the Code)


                              PRESENT LAW

In general

    Levy is the administrative authority of the IRS to seize a 
taxpayer's property, or rights to property, to pay the 
taxpayer's tax liability.\1\ Generally, the IRS is entitled to 
seize a taxpayer's property by levy if a Federal tax lien has 
attached to such property,\2\ the property is not exempt from 
levy,\3\ and the IRS has provided both notice of intention to 
levy\4\ and notice of the right to an administrative hearing 
(the notice is referred to as a ``collections due process 
notice'' or ``CDP notice'' and the hearing is referred to as 
the ``CDP hearing'')\5\ at least 30 days before the levy is 
made. A levy on salary or wages generally is continuously in 
effect until released.\6\ A Federal tax lien arises 
automatically when: (1) a tax assessment has been made; (2) the 
taxpayer has been given notice of the assessment stating the 
amount and demanding payment; and (3) the taxpayer has failed 
to pay the amount assessed within 10 days after the notice and 
demand.\7\
---------------------------------------------------------------------------
    \1\Sec. 6331(a). Levy specifically refers to the legal process by 
which the IRS orders a third party to turn over property in its 
possession that belongs to the delinquent taxpayer named in a notice of 
levy.
    \2\Ibid.
    \3\Sec. 6334.
    \4\Sec. 6331(d).
    \5\Sec. 6330. The notice and the hearing are referred to 
collectively as the CDP requirements.
    \6\Secs. 6331(e) and 6343.
    \7\Sec. 6321.
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    The notice of intent to levy is not required if the 
Secretary finds that collection would be jeopardized by delay. 
The standard for determining whether jeopardy exists is similar 
to the standard applicable when determining whether assessment 
of tax without following the normal deficiency procedures is 
permitted.\8\
---------------------------------------------------------------------------
    \8\Secs. 6331(d)(3) and 6861.
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    The CDP notice (and pre-levy CDP hearing) is not required 
if: (1) the Secretary finds that collection would be 
jeopardized by delay; (2) the Secretary has served a levy on a 
State to collect a Federal tax liability from a State tax 
refund; (3) the taxpayer subject to the levy requested a CDP 
hearing with respect to unpaid employment taxes arising in the 
two-year period before the beginning of the taxable period with 
respect to which the employment tax levy is served; or (4) the 
Secretary has served a Federal contractor levy. In each of 
these four cases, however, the taxpayer is provided an 
opportunity for a hearing within a reasonable period of time 
after the levy.\9\
---------------------------------------------------------------------------
    \9\Sec. 6330(f).
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Federal payment levy program

    To help the IRS collect taxes more effectively, the 
Taxpayer Relief Act of 1997\10\ authorized the establishment of 
the Federal Payment Levy Program (``FPLP''), which allows the 
IRS to continuously levy up to 15 percent of certain 
``specified payments'' by the Federal government if the payees 
are delinquent on their tax obligations. With respect to 
payments to vendors of goods, services, or property sold or 
leased to the Federal government, the continuous levy may be up 
to 100 percent of each payment.\11\ For payments to Medicare 
providers and suppliers, the levy is up to 15 percent for 
payments made within 180 days after December 19, 2014. For 
payments made after that date, the levy is up to 30 
percent.\12\
---------------------------------------------------------------------------
    \10\Pub. L. No. 105-34.
    \11\Sec. 6331(h)(3).
    \12\Pub. L. No. 113-295, Division B.
---------------------------------------------------------------------------
    Under FPLP, the IRS matches its accounts receivable records 
with Federal payment records maintained by Treasury's Bureau of 
Fiscal Service (``BFS''), such as certain Social Security 
benefit and Federal wage records. When these records match, the 
delinquent taxpayer is provided both the notice of intention to 
levy and the CDP notice. If the taxpayer does not respond after 
30 days, the IRS can instruct BFS to levy the taxpayer's 
Federal payments. Subsequent payments are continuously levied 
until such time that the tax debt is paid or the IRS releases 
the levy.

                           REASONS FOR CHANGE

    It has been reported that many thousands of Medicare 
providers and suppliers have outstanding Federal employment and 
income tax liability, which contribute to the tax gap. 
Consequently, the Committee believes that it is appropriate to 
increase the permissible percentage of payments to a Medicare 
provider subject to levy.

                        EXPLANATION OF PROVISION

    The provision provides that the present limitation of 30 
percent of certain specified payments be increased by an amount 
sufficient to offset the estimated revenue loss of the 
provision described in Part A, above.

                             EFFECTIVE DATE

    The provision is effective for payments made after 180 days 
after the date of enactment.

                    III. BUDGET EFFECTS OF THE BILL


                         A. Committee Estimates

    In compliance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate and section 308(a)(1) of the 
Congressional Budget and Impoundment Control Act of 1974, as 
amended (the ``Budget Act''), the following statement is made 
concerning the estimated budget effects of the revenue 
provisions of ``Exclusion for Payments Received under the Work 
Colleges Program'' as reported.
    The provisions are estimated to reduce Federal fiscal year 
budget receipts by $2,000,000 for the period 2015-2025.


                B. Budget Authority and Tax Expenditures


Budget authority

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that no provisions of the bill as reported 
involve new or increased budget authority.

Tax expenditures

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that certain provisions affect the levels of 
tax expenditures (see revenue table in part A., above).

            C. Consultation With Congressional Budget Office

    In accordance with section 402 of the Budget Act, the 
Committee advises that the Congressional Budget Office has not 
submitted a statement on the bill. The letter from the 
Congressional Budget Office will be provided separately.

                       IV. VOTES OF THE COMMITTEE

    In compliance with paragraph 7(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee states that, with a 
majority present, legislation relating to the exclusion for 
payments received under the Work Colleges Program was ordered 
favorably reported by voice vote on February 11, 2015.

                 V. REGULATORY IMPACT AND OTHER MATTERS


                          A. Regulatory Impact

    Pursuant to paragraph 11(b) of rule XXVI of the Standing 
Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact that might be 
incurred in carrying out the provisions of the bill.

Impact on individuals and businesses, personal privacy and paperwork

    The bill provides for an exclusion from gross income for 
certain scholarship amounts paid to students under the Work 
Colleges Program. It also increases the IRS's continuous levy 
authority on payments to Medicare providers and suppliers. The 
provisions of the bill are not expected to impose additional 
administrative requirements or regulatory burdens on 
individuals or businesses.
    The provisions of the bill do not impact personal privacy.

                     B. Unfunded Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the tax provisions of the 
reported bill do not contain Federal private sector mandates or 
Federal intergovernmental mandates on State, local, or tribal 
governments within the meaning of Public Law 104-4, the 
Unfunded Mandates Reform Act of 1995.

                       C. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (``IRS Reform Act'') requires the 
staff of the Joint Committee on Taxation (in consultation with 
the Internal Revenue Service and the Treasury Department) to 
provide a tax complexity analysis. The complexity analysis is 
required for all legislation reported by the Senate Committee 
on Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
and has widespread applicability to individuals or small 
businesses. The staff of the Joint Committee on Taxation has 
determined that there are no provisions that are of widespread 
applicability to individuals or small businesses.

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

    In the opinion of the Committee, it is necessary in order 
to expedite the business of the Senate, to dispense with the 
requirements of paragraph 12 of rule XXVI of the Standing Rules 
of the Senate (relating to the showing of changes in existing 
law made by the bill as reported by the Committee).

                                  [all]