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Major Enacted Tax Legislation, 1990-1999
Internal Revenue Service Restructuring Act of 1998
- Mission statement revision. Directed IRS to revise its mission statement to provide greater emphasis on serving the public; replaced three-tier geographic organization with a structure that features operating units geared around different types of taxpayers and their specialized needs; created an independent appeals function within the IRS.
- IRS Oversight Board. Created board to oversee the administration, management, and conduct of the IRS, ensuring that the organization and operations of the IRS allow it to properly carry out its mission.
- Appointment and duties of IRS Commissioner and other appointed personnel. Gave Oversight Board authority to recommend candidates, who should have a strong management background, to the President, for appointment to a statutory five-year term (instead of a non-specific term), with the advice and consent of the Senate. President can still select and remove candidates.
- Taxpayer advocate role revision. Taxpayer Advocate now to be appointed by Secretary of the Treasury; limited the Advocate’s former and future involvement with the IRS, and provided clearer definitions and limits on the scope of taxpayer assistance orders that the Advocate can issue.
Surface Transportation Revenue Act of 1998
- Motor fuels tax extension. Extended current taxes on varieties of motor fuels through 2003: 18.3 cents per gallon in gasoline, 24.3 cents per gallon on diesel and kerosene, 13.6 cents per gallon of propane, and 11.9 cents per gallon of liquefied natural gas, among others.
Taxpayer Relief Act of 1997
- Child tax credit. Introduced a child credit of $500 per child per year.
- Education tax credit. Introduced the HOPE and Lifetime Learning non-refundable education credits. The Hope credit is the maximum of taxable income or $1,500, per student for at most the first two years of school. The Lifetime Learning credit is the maximum of 20 percent of taxable income or $1,000, per taxpayer return (rather than per student), with no limit on the number of years claimed.
- Estate and gift tax reductions. Boosted the present law unified credit beginning in 1998 from $600,000 per person to $1 million by 2006. Also indexed other estate and gift tax parameters, such as the $10,000 annual gift exclusion, to inflation after 1998.
- Capital gains rates reduction. Reduced capital gains tax rates from 28 percent and 15 percent to 20 percent and 10 percent respectively.
- IRA modification. Extended AGI phaseouts for deductible IRAs, allowed tax-free withdrawals for first-time home purchases, created new Roth IRAs and education IRAs.
- Alternative minimum tax reductions. Repealed the AMT for small businesses (those averaging less than $7.5 million in gross receipts in the prior three years), modified the depreciation adjustment used in the AMT calculation, and repealed the AMT installment method adjustment for farmers.
- Excise taxes. Phased-in 30 cents per pack increase in the cigarette tax. Extended air transportation excise taxes.
Revenue Provisions of the Health Insurance and Portability Act of 1996
- Medical savings accounts. Offered these IRA-like vehicles for the tax-advantaged accumulation of assets against possible medical expenses for employees covered under an employer-sponsored high deductible plan (e.g., at least a $1,500 deductible) of a small employer and self-employed individuals, regardless of the size of the entity for which they perform work. Individual contributions to an MSA are deductible (within limits) in determining AGI (i.e., above the line); additionally, employer contributions are excludible from gross income.
- Health expense deduction increased for self-employed.
- Treatment of long-term care services and accelerated death benefits.
- Income tax exemption for state-sponsored health organizations covering high risk individuals.
- IRA withdrawals for health care expenses. Made such withdrawals penalty free.
- Group health plan requirements. Applied and enforced plan provisions to ensure genuine portability.
Revenue Provisions of the Small Business Job Protection Act of 1996
- Small business expensing increase. Increased the $17,500 of qualified depreciable property allowable for expensing or immediate write-off to $25,000.
- Social Security tax credit. Credit applicable to Social Security taxes paid with respect to employee cash tips.
- Pension simplification provisions. Included here are provisions allowing contributions to a spousal IRA for a non-working spouse (thus doubling potential maximum contributions from $2,000 to $4,000 for eligible participants), simplifying distributions from small business pension plans, tightening of nondiscrimination provisions, eliminating special aggregation rules applying to self-employed individual plans, and reform of miscellaneous pension rules governing state and local, special job-status or professional individuals.
Taxpayer Bill of Rights 2 of 1996
- Taxpayer Advocate. Established position of Taxpayer Advocate within the IRS, replacing Taxpayer Ombudsman. The Advocate is appointed by the Commissioner. The Advocate has four responsibilities: (1) assist taxpayers in resolving problems with the IRS, (2) identify problem areas where taxpayers have difficulty dealing with the IRS, (3) propose administrative changes within IRS that might mitigate these problem areas, and (4) identify potential legislative changes that might mitigate these problem areas.
- Installment agreement modification. Where the IRS enters into a paid installment agreement with taxpayers to facilitate the collection of taxes, it must notify said taxpayers within 30 days if such agreement is modified or terminated for any reason other than the collection of the tax is determined to be in jeopardy. Additionally, the IRS must establish procedures for independent administrative review of installment agreements that are modified or terminated.
- Interest and penalties abatement. IRS is directed to abate interest penalties against the taxpayer caused by any unreasonable error or delay on the part of IRS management.
- Other provisions. Re-examination of joint and several liability for spouses filing joint returns; flexibility in moderating collection activities according to level of compliance, and a number of other provisions that boost taxpayers’ standing relative to the IRS in legal disputes.
Omnibus Budget Reconciliation Act of 1993
- Individual income tax rate increases. Imposed new higher tax rates of 36 percent and 39.6 percent. Increased tax rates and exemption amounts under the AMT. Permanently extended the itemized deduction limitation and the personal exemption phase-out legislated in OBRA 1990.
- Corporate tax rate increases. Increased corporate tax rate to 35 percent on income above $10 million.
- Hospital Insurance wage base cap repeal. Repealed the cap on the HI tax base - set at $135,000 in 1993- so that the HI tax applies to all income.
- Social Security benefit taxation expansion. Expanded the taxable portion of Social Security benefits from 50 percent to 85 percent, when modified AGI goes above $44,000 for joint returns and $34,000 for single returns.
- Motor fuels tax increase. Increased fuel taxes by 4.3 cents per gallon (plus extended the current motor fuels tax of 2.5 cents per gallon).
- Reduced business meals and entertainment deduction.
- EITC expansion. Extended EITC to single workers with no children earning $9,000 or less.
Tax Extension Act of 1991
- Tax provision extensions. Provided a six-month extension for a number of tax provisions and credits facing expiration. Categories included research tax credits; exclusions for employer-provided educational assistance; targeted jobs credits; alternative energy credits; itemized deduction for health insurance costs; drug clinical testing credits; issuance authority for mortgage revenue bonds, certificates, and manufacturing/farm facility construction; credit for charitable contributions of appreciated tangible property.
Omnibus Budget Reconciliation Act of 1990
- Excise tax increases. Imposed a 30 percent excise tax on the amount of price over $30,000 for autos, $100,000 for boats, $250,000 for airplanes, and $10,000 for furs. Increased motor fuels taxes by 5 cents per gallon. Increased taxes on tobacco and alcoholic beverages: by 8 cents per pack of cigarettes, by $1.00 per proof gallon of liquor; by 16 cents per six-pack of beer; and by 18 cents per bottle of table wine. Extended Airport and Airway trust fund taxes and increased them by 25 percent. Permanently extended 3 percent excise tax on telephone service.
- Individual income tax rate increases. Increased top statutory tax rate from 28 percent to 31 percent, and increased the individual alternative minimum tax rate from 21 percent to 24 percent. Capped the capital gains rate at 28 percent. Limited value of high income itemized deductions: reduced by 3 percent times the extent to which AGI exceeds $100,000. Modified the bubble: temporarily created the personal exemption phase out applicable to the range of taxable income between $150,000 and $275,000.
- Payroll tax rate increases. Raised the cap on taxable wages for Hospital Insurance (Medicare) from $53,400 to $125,000. Extended social security taxes to state and local employees without other pension coverage. Imposed a supplemental 0.2 percent unemployment insurance surtax.
- Earned income tax credit (EITC) expansion and other low-income credits. Adjusted EITC benefit levels and phase-in and phase-out rates for family size. Created a low-income credit for the premium costs of health insurance that includes coverage for children.
- Income tax base erosion. Extended expiring provisions: tax credits for research and exploration, low-income housing, business energy, targeted jobs, and orphan drugs; tax exemptions for mortgage revenues and issue bonds; exclusions for employer-provided legal and educational assistance; and 25 percent health insurance deduction for the self-employed. Extended and created new energy producer tax benefits: extended non-conventional fuels credit and tax incentives for ethanol production; created a new credit for enhanced oil recovery costs; amended percentage depletion; reduced alternative minimum tax preference treatment of energy items. Created a small-business oriented credit for accommodations for disabled persons. Modified estate freeze rules. Eliminated appreciation of certain donated property as a minimum tax preference item.
- Miscellaneous revenue-raisers. Permitted transfers from over-funded pension plans for retiree health; added chemicals subject to ozone-depleting chemicals tax; re-imposed Leaking Underground Storage Tank Trust Fund tax; reduced loss deductions by property and casualty insurance companies; improved IRS ability to obtain information from foreign corporations; increased harbor maintenance tax; reduced business income tax loopholes.