[House Report 114-657]
[From the U.S. Government Publishing Office]
114th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 114-657
======================================================================
HALT TAX INCREASES ON THE MIDDLE CLASS AND SENIORS ACT
_______
July 5, 2016.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Brady of Texas, from the Committee on Ways and Means, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 3590]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 3590) to amend the Internal Revenue Code of 1986 to
repeal the increase in the income threshold used in determining
the deduction for medical care, having considered the same,
report favorably thereon with an amendment and recommend that
the bill as amended do pass.
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Halt Tax Increases on the Middle Class
and Seniors Act''.
SEC. 2. REPEAL OF INCREASE IN INCOME THRESHOLD FOR DETERMINING MEDICAL
CARE DEDUCTION.
(a) In General.--Section 213(a) of the Internal Revenue Code of 1986
is amended by striking ``10 percent'' and inserting ``7.5 percent''.
(b) Conforming Amendments.--
(1) Section 213 of such Code is amended by striking
subsection (f).
(2) Section 56(b)(1)(B) of such Code is amended by striking
``without regard to subsection (f) of such section'' and
inserting ``by substituting `10 percent' for `7.5 percent'''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2015.
CONTENTS
Page
I. SUMMARY AND BACKGROUND...........................................2
A. Purpose and Summary................................. 2
B. Background and Need for Legislation................. 2
C. Legislative History................................. 2
II. EXPLANATION OF THE BILL..........................................3
A. Repeal of Increase in Income Threshold for Medical
Expense Deduction (sec. 2 of the bill and sec. 213
of the Code)....................................... 3
III. VOTES OF THE COMMITTEE...........................................4
IV. BUDGET EFFECTS OF THE BILL.......................................4
A. Committee Estimate of Budgetary Effects Fiscal Years 4
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority...................... 6
C. Cost Estimate Prepared by the Cogressional Budget
Office............................................. 6
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE.......7
A. Committee Oversight Findings and Recommendations.... 7
B. Statement of General Performance Goals and
Objectives......................................... 7
C. Information Relating to Unfunded Mandates........... 7
D. Applicability of House Rule XXI 5(b)................ 8
E. Tax Complexity Analysis............................. 8
F. Congressional Earmarks, Limited Tax Benefits, and
Limited Tariff Benefits............................ 8
G. Duplication of Federal Programs..................... 8
H. Disclosure of Directed Rule Makings................. 9
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED............9
VII. DISSENTING VIEWS................................................41
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
The bill, H.R. 3590, as reported by the Committee on Ways
and Means, repeals the increase in the income threshold used to
determine eligibility for the tax deduction for medical care
expenses.
B. Background and Need for Legislation
Under current law, qualified medical expenses are
deductible by an individual, as an itemized deduction, to the
extent the expenses exceed a floor measured as a percentage of
adjusted gross income (``AGI''). The President's health care
law, the Affordable Care Act (``ACA''), increased the AGI floor
from 7.5 percent of AGI to 10 percent of AGI. Taxpayers aged 65
and older are able to continue to use the 7.5 percentage floor
through tax year 2016. Beginning in tax year 2017, however, all
Americans will be subject to the 10 percent AGI threshold.
The bill would provide relief for Americans with expensive
medical bills by repealing an Obamacare tax hike and
reinstating the previous threshold of 7.5 percent of AGI for
all ages. This change is especially important for seniors
because, according to the AARP, 56 percent of all returns
claiming the deduction had at least one member of the household
age 65 or older.
C. Legislative History
Background
H.R. 3590 was introduced on September 22, 2015 and was
referred to the Committee on Ways and Means.
Committee action
The Committee on Ways and Means marked up H.R. 3590, the
``Halt Tax Increases on the Middle Class and Seniors Act'' on
June 15, 2016, and ordered the bill, as amended, favorably
reported (with a quorum being present).
Committee hearings
The issue of tax pertaining to health care and the ACA has
been discussed at two Ways and Means hearings during the 114th
Congress:
Full Committee Hearing on the Tax Treatment of
Health Care (April 14, 2016);
Subcommittee on Health Member Day Hearing on
Tax-Related Proposals to Improve Health Care (May 17,
2016).
II. EXPLANATION OF THE BILL
A. Repeal of Increase in Income Threshold for Medical Expense Deduction
(sec. 2 of the bill and sec. 213 of the Code)
PRESENT LAW
Individuals may claim an itemized deduction for
unreimbursed medical expenses, but only to the extent that such
expenses exceed 10-percent of AGI.\1\ For taxable years
beginning before January 1, 2017, the 10-percent threshold is
reduced to 7.5 percent in the case of taxpayers who have
attained the age of 65 before the close of the taxable year. In
the case of married taxpayers, the 7.5 percent threshold
applies if either spouse has obtained the age of 65 before the
close of the taxable year. For these taxpayers, during these
years, the threshold is 10 percent for AMT purposes.
---------------------------------------------------------------------------
\1\Sec. 213. The threshold was amended by the Patient Protection
and Affordable Care Act (Pub. L. No. 111-118). For taxable years
beginning before January 1, 2013, the threshold was 7.5 percent for
purposes of the regular tax and 10 percent for alternative minimum tax
(``AMT'') purposes.
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee believes that individuals with high health
care costs should not be subject to a tax increase after 2016.
Furthermore, the Committee believes that the ten-percent AGI
threshold currently applicable to taxpayers under age 65 is too
high and does not allow individuals with normal medical
expenses to benefit from the deduction. Thus, the Committee
believes that it is appropriate to lower permanently the AGI
threshold back to the pre-2013 level of 7.5 percent for all
taxpayers.
EXPLANATION OF PROVISION
The provision permanently lowers the adjusted gross income
threshold from 10 percent to 7.5 percent for all taxpayers,
regardless of age. Under the provision, the threshold continues
to be 10 percent for AMT purposes.
EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2015.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the vote of the Committee on Ways and Means in its
consideration of H.R. 3590, the ``Halt Tax Increases on the
Middle Class and Seniors Act'' on June 15, 2016.
Motion to Report the Bill
The bill, H.R. 3590, as amended, was ordered favorably
reported to the House of Representatives by a roll call vote of
24 yeas to 11 nays (with a quorum being present).
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Brady...................... X ........ ......... Mr. Levin........ ........ X .........
Mr. Johnson.................... X ........ ......... Mr. Rangel....... ........ X .........
Mr. Nunes...................... X ........ ......... Mr. McDermott.... ........ X .........
Mr. Tiberi..................... X ........ ......... Mr. Lewis........ ........ X .........
Mr. Reichert................... ........ ........ ......... Mr. Neal......... ........ X .........
Mr. Boustany................... X ........ ......... Mr. Becerra...... ........ X .........
Mr. Roskam..................... X ........ ......... Mr. Doggett...... ........ X .........
Mr. Price...................... X ........ ......... Mr. Thompson..... ........ X .........
Mr. Buchanan................... X ........ ......... Mr. Larson....... X ........ .........
Mr. Smith (NE)................. X ........ ......... Mr. Blumenauer... ........ ........ .........
Ms. Jenkins.................... X ........ ......... Mr. Kind......... ........ X .........
Mr. Paulsen.................... X ........ ......... Mr. Pascrell..... X ........
Mr. Marchant................... X ........ ......... Mr. Crowley...... ........ ........ .........
Ms. Black...................... X ........ ......... Mr. Davis........ ........ X .........
Mr. Reed....................... X ........ ......... Ms. Sanchez...... ........ X .........
Mr. Young...................... X ........ .........
Mr. Kelly...................... X ........ .........
Mr. Renacci.................... X ........ .........
Mr. Meehan..................... X ........ .........
Ms. Noem....................... X ........ .........
Mr. Holding.................... X ........ .........
Mr. Smith (MO)................. ........ ........ .........
Mr. Dold....................... X ........ .........
Mr. Rice....................... X ........ .........
----------------------------------------------------------------------------------------------------------------
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the effects on the budget of the bill, H.R. 3590, as
reported.
The bill, as reported, is estimated to have the following
effect on Federal budget receipts for fiscal years 2017-2026.
FISCAL YEARS
[millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2017-21 2017-26
--------------------------------------------------------------------------------------------------------------------------------------------------------
-1,570 -2,494 -2,756 -2,972 -3,205 -3,436 -3,687 -3,948 -4,216 -4,413 -12,998 -32,697
--------------------------------------------------------------------------------------------------------------------------------------------------------
NOTE: Details do not add to totals due to rounding.
Pursuant to clause 8 of rule XIII of the Rules of the House
of Representatives, the following statement is made by the
Joint Committee on Taxation with respect to the provisions of
the bill amending the Internal Revenue Code of 1986: The gross
budgetary effect (before incorporating macroeconomic effects)
in any fiscal year is less than 0.25 percent of the current
projected gross domestic product of the United States for that
fiscal year; therefore, the bill is not ``major legislation''
for purposes of requiring that the estimate include the
budgetary effects of changes in economic output, employment,
capital stock and other macroeconomic variables.
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 no new or increased budget authority. The
Committee further states that the revenue-reducing tax
provisions involve increased tax expenditures. See amounts
shown in the 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, June 30, 2016.
Hon. Kevin Brady,
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. 3590, the Halt Tax
Increases on the Middle Class and Seniors Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Peter
Huether.
Sincerely,
Keith Hall.
Enclosure.
H.R. 3590--Halt Tax Increases on the Middle Class and Seniors Act
Under current law, individuals may generally claim an
itemized deduction for unreimbursed medical expenses to the
extent that such expenses exceed a threshold of 10 percent of
adjusted gross income (AGI). For taxpayers 65 years of age or
older, the threshold is generally 7.5 percent in 2016, but it
rises to 10 percent thereafter. Regardless of the age of the
taxpayer, the threshold is 10 percent for the purposes of the
alternative minimum tax (AMT). H.R. 3590 would amend the
Internal Revenue Code to permanently lower the threshold from
10 percent to 7.5 percent of AGI under the regular income tax,
regardless of the age of the taxpayer, effective for tax years
beginning after December 31, 2015. H.R. 3590 maintains the
threshold at its current-law level of 10 percent for AMT
purposes.
The staff of the Joint Committee on Taxation (JCT)
estimates that enacting H.R. 3590 would reduce revenues by
$32.7 billion over the 2016-2026 period.
The Statutory Pay-As-You-Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting
revenues or direct spending. The net changes in revenues that
are subject to those pay-as-you-go procedures are shown in the
following table.
CBO and JCT estimate that enacting the bill would increase
net direct spending or on-budget deficits by more than $5
billion in at least one of the four 10-year periods beginning
in 2027.
JCT has determined that the bill contains no
intergovernmental or private-sector mandates as defined in the
Unfunded Mandates Reform Act.
The CBO staff contact for this estimate is Peter Huether.
The estimate was approved by Mark Booth, Unit Chief, Revenue
Estimating.
CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 3590, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON JUNE 15, 2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------------------------------------------------------------
2016- 2016-
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2021 2026
--------------------------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN THE DEFICIT
Statutory Pay-As-You-Go Effects............. 0 1,570 2,494 2,756 2,972 3,205 3,436 3,687 3,948 4,216 4,413 12,998 32,697
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Note: Components may not sum to total because of rounding.
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 as a result of the
Committee's review of the provisions of H.R. 3590 that the
Committee concluded that it is appropriate to report the bill,
as amended, favorably to the House of Representatives with the
recommendation that the bill do pass.
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 Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.
C. Information Relating to Unfunded Mandates
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 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.
D. 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 bill, and states that the bill does not
involve any Federal income tax rate increases within the
meaning of the rule.
E. Tax Complexity Analysis
The following statement is made pursuant to clause 3(h)(1)
of rule XIII of the Rules of the House of Representatives.
Section 4022(b) of the Internal Revenue Service Restructuring
and Reform 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 of
1986 and has widespread applicability to individuals or small
businesses.
Pursuant to clause 3(h)(1) of rule XIII of the Rules of the
House of Representatives, the staff of the Joint Committee on
Taxation has determined that a complexity analysis is not
required under section 4022(b) of the IRS Reform Act because
the bill contains no provisions that amend the Internal Revenue
Code of 1986 and that have ``widespread applicability'' to
individuals or small businesses, within the meaning of the
rule.
F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
G. Duplication of Federal Programs
In compliance with Sec. 3(g)(2) of H. Res. 5 (114th
Congress), the Committee states that no provision of the bill
establishes or reauthorizes: (1) a program of the Federal
Government known to be duplicative of another Federal program,
(2) a program included in any report from the Government
Accountability Office to Congress pursuant to section 21 of
Public Law 111-139, or (3) a program related to a program
identified in the most recent Catalog of Federal Domestic
Assistance, published pursuant to the Federal Program
Information Act (Public Law 95-220, as amended by Public Law
98-169).
H. Disclosure of Directed Rule Makings
In compliance with Sec. 3(i) of H. Res. 5 (114th Congress),
the following statement is made concerning directed rule
makings: The Committee estimates that the bill requires no
directed rule makings within the meaning of such section.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
A. Text of Existing Law Amended or Repealed by the Bill, as Reported
In compliance with clause 3(e)(1)(A) of rule XIII of the
Rules of the House of Representatives, the text of each section
proposed to be amended or repealed by the bill, as reported, is
shown below:
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e)(1)(A) of rule XIII of the
Rules of the House of Representatives, the text of each section
proposed to be amended or repealed by the bill, as reported, is
shown below:
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter A--Determination of Tax Liability
* * * * * * *
PART VI--ALTERNATIVE MINIMUM TAX
* * * * * * *
SEC. 56. ADJUSTMENTS IN COMPUTING ALTERNATIVE MINIMUM TAXABLE INCOME.
(a) Adjustments Applicable to All Taxpayers.--In determining
the amount of the alternative minimum taxable income for any
taxable year the following treatment shall apply (in lieu of
the treatment applicable for purposes of computing the regular
tax):
(1) Depreciation.--
(A) In general.--
(i) Property other than certain
personal property.--Except as provided
in clause (ii), the depreciation
deduction allowable under section 167
with respect to any tangible property
placed in service after December 31,
1986, shall be determined under the
alternative system of section 168(g).
In the case of property placed in
service after December 31, 1998, the
preceding sentence shall not apply but
clause (ii) shall continue to apply.
(ii) 150-percent declining balance
method for certain property.--The
method of depreciation used shall be--
(I) the 150 percent declining
balance method,
(II) switching to the
straight line method for the
1st taxable year for which
using the straight line method
with respect to the adjusted
basis as of the beginning of
the year will yield a higher
allowance.
The preceding sentence shall not apply
to any section 1250 property (as
defined in section 1250(c)) (and the
straight line method shall be used for
such section 1250 property)or to any
other property if the depreciation
deduction determined under section 168
with respect to such other property for
purposes of the regular tax is
determined by using the straight line
method.
(B) Exception for certain property.--This
paragraph shall not apply to property described
in paragraph (1), (2), (3), or (4) of section
168(f), or in section 168(e)(3)(C)(iv).
(C) Coordination with transitional rules.--
(i) In general.--This paragraph shall
not apply to property placed in service
after December 31, 1986, to which the
amendments made by section 201 of the
Tax Reform Act of 1986 do not apply by
reason of section 203, 204, or 251(d)
of such Act.
(ii) Treatment of certain property
placed in service before 1987.--This
paragraph shall apply to any property
to which the amendments made by section
201 of the Tax Reform Act of 1986 apply
by reason of an election under section
203(a)(1)(B) of such Act without regard
to the requirement of subparagraph (A)
that the property be placed in service
after December 31, 1986.
(D) Normalization rules.--With respect to
public utility property described in section
168(i)(10), the Secretary shall prescribe the
requirements of a normalization method of
accounting for this section.
(2) Mining exploration and development costs.--
(A) In general.--With respect to each mine or
other natural deposit (other than an oil, gas,
or geothermal well) of the taxpayer, the amount
allowable as a deduction under section 616(a)
or 617(a) (determined without regard to section
291(b)) in computing the regular tax for costs
paid or incurred after December 31, 1986, shall
be capitalized and amortized ratably over the
10-year period beginning with the taxable year
in which the expenditures were made.
(B) Loss allowed.--If a loss is sustained
with respect to any property described in
subparagraph (A), a deduction shall be allowed
for the expenditures described in subparagraph
(A) for the taxable year in which such loss is
sustained in an amount equal to the lesser of--
(i) the amount allowable under
section 165(a) for the expenditures if
they had remained capitalized, or
(ii) the amount of such expenditures
which have not previously been
amortized under subparagraph (A).
(3) Treatment of certain long-term contracts.--In the
case of any long-term contract entered into by the
taxpayer on or after March 1, 1986, the taxable income
from such contract shall be determined under the
percentage of completion method of accounting (as
modified by section 460(b)). For purposes of the
preceding sentence, in the case of a contract described
in section 460(e)(1), the percentage of the contract
completed shall be determined under section 460(b)(1)
by using the simplified procedures for allocation of
costs prescribed under section 460(b)(3). The first
sentence of this paragraph shall not apply to any home
construction contract (as defined in section
460(e)(6)).
(4) Alternative tax net operating loss deduction.--
The alternative tax net operating loss deduction shall
be allowed in lieu of the net operating loss deduction
allowed under section 172.
(5) Pollution control facilities.--In the case of any
certified pollution control facility placed in service
after December 31, 1986, the deduction allowable under
section 169 (without regard to section 291) shall be
determined under the alternative system of section
168(g). In the case of such a facility placed in
service after December 31, 1998, such deduction shall
be determined under section 168 using the straight line
method.
(6) Adjusted basis.--The adjusted basis of any
property to which paragraph (1) or (5) applies (or with
respect to which there are any expenditures to which
paragraph (2) or subsection (b)(2) applies) shall be
determined on the basis of the treatment prescribed in
paragraph (1), (2), or (5), or subsection (b)(2),
whichever applies.
(7) Section 87 not applicable.--Section 87 (relating
to alcohol fuel credit) shall not apply.
(b) Adjustments Applicable to Individuals.--In determining
the amount of the alternative minimum taxable income of any
taxpayer (other than a corporation), the following treatment
shall apply (in lieu of the treatment applicable for purposes
of computing the regular tax):
(1) Limitation on deductions.--
(A) In general.--No deduction shall be
allowed--
(i) for any miscellaneous itemized
deduction (as defined in section
67(b)), or
(ii) for any taxes described in
paragraph (1), (2), or (3) of section
164(a) or clause (ii) of section
164(b)(5)(A).
Clause (ii) shall not apply to any amount
allowable in computing adjusted gross income.
(B) Medical expenses.--In determining the
amount allowable as a deduction under section
213, subsection (a) of section 213 shall be
applied without regard to subsection (f) of
such section.
(C) Interest.--In determining the amount
allowable as a deduction for interest,
subsections (d) and (h) of section 163 shall
apply, except that--
(i) in lieu of the exception under
section 163(h)(2)(D), the term
``personal interest'' shall not include
any qualified housing interest (as
defined in subsection (e)),
(ii) interest on any specified
private activity bond (and any amount
treated as interest on a specified
private activity bond under section
57(a)(5)(B)), and any deduction
referred to in section 57(a)(5)(A),
shall be treated as includible in gross
income (or as deductible) for purposes
of applying section 163(d),
(iii) in lieu of the exception under
section 163(d)(3)(B)(i), the term
``investment interest'' shall not
include any qualified housing interest
(as defined in subsection (e)), and
(iv) the adjustments of this section
and sections 57 and 58 shall apply in
determining net investment income under
section 163(d).
(D) Treatment of certain recoveries.--No
recovery of any tax to which subparagraph
(A)(ii) applied shall be included in gross
income for purposes of determining alternative
minimum taxable income.
(E) Standard deduction and deduction for
personal exemptions not allowed.--The standard
deduction under section 63(c), the deduction
for personal exemptions under section 151, and
the deduction under section 642(b) shall not be
allowed. The preceding sentence shall not apply
to so much of the standard deduction as is
determined under subparagraphs (D) and (E) of
section 63(c)(1).
(F) Section 68 not applicable.--Section 68
shall not apply.
(2) Circulation and research and experimental
expenditures.--
(A) In general.--The amount allowable as a
deduction under section 173 or 174(a) in
computing the regular tax for amounts paid or
incurred after December 31, 1986, shall be
capitalized and--
(i) in the case of circulation
expenditures described in section 173,
shall be amortized ratably over the 3-
year period beginning with the taxable
year in which the expenditures were
made, or
(ii) in the case of research and
experimental expenditures described in
section 174(a), shall be amortized
ratably over the 10-year period
beginning with the taxable year in
which the expenditures were made.
(B) Loss allowed.--If a loss is sustained
with respect to any property described in
subparagraph (A), a deduction shall be allowed
for the expenditures described in subparagraph
(A) for the taxable year in which such loss is
sustained in an amount equal to the lesser of--
(i) the amount allowable under
section 165(a) for the expenditures if
they had remained capitalized, or
(ii) the amount of such expenditures
which have not previously been
amortized under subparagraph (A).
(C) Special rule for personal holding
companies.--In the case of circulation
expenditures described in section 173, the
adjustments provided in this paragraph shall
apply also to a personal holding company (as
defined in section 542).
(D) Exception for certain research and
experimental expenditures.--If the taxpayer
materially participates (within the meaning of
section 469(h)) in an activity, this paragraph
shall not apply to any amount allowable as a
deduction under section 174(a) for expenditures
paid or incurred in connection with such
activity.
(3) Treatment of incentive stock options.--Section
421 shall not apply to the transfer of stock acquired
pursuant to the exercise of an incentive stock option
(as defined in section 422). Section 422(c)(2) shall
apply in any case where the disposition and the
inclusion for purposes of this part are within the same
taxable year and such section shall not apply in any
other case. The adjusted basis of any stock so acquired
shall be determined on the basis of the treatment
prescribed by this paragraph.
(c) Adjustments Applicable to Corporations.--In determining
the amount of the alternative minimum taxable income of a
corporation, the following treatment shall apply:
(1) Adjustment for adjusted current earnings.--
Alternative minimum taxable income shall be adjusted as
provided in subsection (g).
(2) Merchant marine capital construction funds.--In
the case of a capital construction fund established
under chapter 535 of title 46, United States Code--
(A) subparagraphs (A), (B), and (C) of
section 7518(c)(1) (and the corresponding
provisions of such chapter 535) shall not apply
to--
(i) any amount deposited in such fund
after December 31, 1986, or
(ii) any earnings (including gains
and losses) after December 31, 1986, on
amounts in such fund, and
(B) no reduction in basis shall be made under
section 7518(f) (or the corresponding
provisions of such chapter 535) with respect to
the withdrawal from the fund of any amount to
which subparagraph (A) applies.
For purposes of this paragraph, any withdrawal of
deposits or earnings from the fund shall be treated as
allocable first to deposits made before (and earnings
received or accrued before) January 1, 1987.
(3) Special deduction for certain organizations not
allowed.--The deduction determined under section 833(b)
shall not be allowed.
(d) Alternative Tax Net Operating Loss Deduction Defined.--
(1) In general.--For purposes of subsection (a)(4),
the term ``alternative tax net operating loss
deduction'' means the net operating loss deduction
allowable for the taxable year under section 172,
except that--
(A) the amount of such deduction shall not
exceed the sum of--
(i) the lesser of--
(I) the amount of such
deduction attributable to net
operating losses (other than
the deduction described in
clause (ii)(I)), or
(II) 90 percent of
alternative minimum taxable
income determined without
regard to such deduction and
the deduction under section
199, plus
(ii) the lesser of--
(I) the amount of such
deduction attributable to an
applicable net operating loss
with respect to which an
election is made under section
172(b)(1)(H), or
(II) alternative minimum
taxable income determined
without regard to such
deduction and the deduction
under section 199 reduced by
the amount determined under
clause (i), and
(B) in determining the amount of such
deduction--
(i) the net operating loss (within
the meaning of section 172(c)) for any
loss year shall be adjusted as provided
in paragraph (2), and
(ii) appropriate adjustments in the
application of section 172(b)(2) shall
be made to take into account the
limitation of subparagraph (A).
(2) Adjustments to net operating loss computation.--
(A) Post-1986 loss years.--In the case of a
loss year beginning after December 31, 1986,
the net operating loss for such year under
section 172(c) shall--
(i) be determined with the
adjustments provided in this section
and section 58, and
(ii) be reduced by the items of tax
preference determined under section 57
for such year.
An item of tax preference shall be taken into
account under clause (ii) only to the extent
such item increased the amount of the net
operating loss for the taxable year under
section 172(c).
(B) Pre-1987 years.--In the case of loss
years beginning before January 1, 1987, the
amount of the net operating loss which may be
carried over to taxable years beginning after
December 31, 1986, for purposes of paragraph
(2), shall be equal to the amount which may be
carried from the loss year to the first taxable
year of the taxpayer beginning after December
31, 1986.
(e) Qualified Housing Interest.--For purposes of this part--
(1) In general.--The term ``qualified housing
interest'' means interest which is qualified residence
interest (as defined in section 163(h)(3)) and is paid
or accrued during the taxable year on indebtedness
which is incurred in acquiring, constructing, or
substantially improving any property which--
(A) is the principal residence (within the
meaning of section 121) of the taxpayer at the
time such interest accrues, or
(B) is a qualified dwelling which is a
qualified residence (within the meaning of
section 163(h)(4)).
Such term also includes interest on any indebtedness
resulting from the refinancing of indebtedness meeting
the requirements of the preceding sentence; but only to
the extent that the amount of the indebtedness
resulting from such refinancing does not exceed the
amount of the refinanced indebtedness immediately
before the refinancing.
(2) Qualified dwelling.--The term ``qualified
dwelling'' means any--
(A) house,
(B) apartment,
(C) condominium, or
(D) mobile home not used on a transient basis
(within the meaning of section
7701(a)(19)(C)(v)),
including all structures or other property appurtenant
thereto.
(3) Special rule for indebtedness incurred before
July 1, 1982.--The term ``qualified housing interest''
includes interest which is qualified residence interest
(as defined in section 163(h)(3)) and is paid or
accrued on indebtedness which--
(A) was incurred by the taxpayer before July
1, 1982, and
(B) is secured by property which, at the time
such indebtedness was incurred, was--
(i) the principal residence (within
the meaning of section 121) of the
taxpayer, or
(ii) a qualified dwelling used by the
taxpayer (or any member of his family
(within the meaning of section
267(c)(4))).
(g) Adjustments Based on Adjusted Current Earnings.--
(1) In general.--The alternative minimum taxable
income of any corporation for any taxable year shall be
increased by 75 percent of the excess (if any) of--
(A) the adjusted current earnings of the
corporation, over
(B) the alternative minimum taxable income
(determined without regard to this subsection
and the alternative tax net operating loss
deduction).
(2) Allowance of negative adjustments.--
(A) In general.--The alternative minimum
taxable income for any corporation of any
taxable year, shall be reduced by 75 percent of
the excess (if any) of--
(i) the amount referred to in
subparagraph (B) of paragraph (1), over
(ii) the amount referred to in
subparagraph (A) of paragraph (1).
(B) Limitation.--The reduction under
subparagraph (A) for any taxable year shall not
exceed the excess (if any) of--
(i) the aggregate increases in
alternative minimum taxable income
under paragraph (1) for prior taxable
years, over
(ii) the aggregate reductions under
subparagraph (A) of this paragraph for
prior taxable years.
(3) Adjusted current earnings.--For purposes of this
subsection, the term ``adjusted current earnings''
means the alternative minimum taxable income for the
taxable year--
(A) determined with the adjustments provided
in paragraph (4), and
(B) determined without regard to this
subsection and the alternative tax net
operating loss deduction.
(4) Adjustments.--In determining adjusted current
earnings, the following adjustments shall apply:
(A) Depreciation.--
(i) Property placed in service after
1989.--The depreciation deduction with
respect to any property placed in
service in a taxable year beginning
after 1989 shall be determined under
the alternative system of section
168(g). The preceding sentence shall
not apply to any property placed in
service after December 31, 1993, and
the depreciation deduction with respect
to such property shall be determined
under the rules of subsection
(a)(1)(A).
(ii) Property to which new ACRS
system applies.--In the case of any
property to which the amendments made
by section 201 of the Tax Reform Act of
1986 apply and which is placed in
service in a taxable year beginning
before 1990, the depreciation deduction
shall be determined--
(I) by taking into account
the adjusted basis of such
property (as determined for
purposes of computing
alternative minimum taxable
income) as of the close of the
last taxable year beginning
before January 1, 1990, and
(II) by using the straight-
line method over the remainder
of the recovery period
applicable to such property
under the alternative system of
section 168(g).
(iii) Property to which original ACRS
system applies.--In the case of any
property to which section 168 (as in
effect on the day before the date of
the enactment of the Tax Reform Act of
1986 and without regard to subsection
(d)(1)(A)(ii) thereof) applies and
which is placed in service in a taxable
year beginning before 1990, the
depreciation deduction shall be
determined--
(I) by taking into account
the adjusted basis of such
property (as determined for
purposes of computing the
regular tax) as of the close of
the last taxable year beginning
before January 1, 1990, and
(II) by using the straight
line method over the remainder
of the recovery period which
would apply to such property
under the alternative system of
section 168(g).
(iv) Property placed in service
before 1981.--In the case of any
property not described in clause (i),
(ii), or (iii), the amount allowable as
depreciation or amortization with
respect to such property shall be
determined in the same manner as for
purposes of computing taxable income.
(v) Special rule for certain
property.--In the case of any property
described in paragraph (1), (2), (3),
or (4) of section 168(f), the amount of
depreciation allowable for purposes of
the regular tax shall be treated as the
amount allowable under the alternative
system of section 168(g).
(B) Inclusion of items included for purposes
of computing earnings and profits.--
(i) In general.--In the case of any
amount which is excluded from gross
income for purposes of computing
alternative minimum taxable income but
is taken into account in determining
the amount of earnings and profits--
(I) such amount shall be
included in income in the same
manner as if such amount were
includible in gross income for
purposes of computing
alternative minimum taxable
income, and
(II) the amount of such
income shall be reduced by any
deduction which would have been
allowable in computing
alternative minimum taxable
income if such amount were
includible in gross income.
The preceding sentence shall not apply
in the case of any amount excluded from
gross income under section 108 (or the
corresponding provisions of prior law)
or under section 139A or 1357. In the
case of any insurance company taxable
under section 831(b), this clause shall
not apply to any amount not described
in section 834(b).
(ii) Inclusion of buildup in life
insurance contracts.--In the case of
any life insurance contract--
(I) the income on such
contract (as determined under
section 7702(g)) for any
taxable year shall be treated
as includible in gross income
for such year, and
(II) there shall be allowed
as a deduction that portion of
any premium which is
attributable to insurance
coverage.
(iii) Tax exempt interest on certain
housing bonds.--Clause (i) shall not
apply in the case of any interest on a
bond to which section 57(a)(5)(C)(iii)
applies.
(iv) Tax exempt interest on bonds
issued in 2009 and 2010.--
(I) In general.--Clause (i)
shall not apply in the case of
any interest on a bond issued
after December 31, 2008, and
before January 1, 2011.
(II) Treatment of refunding
bonds.--For purposes of
subclause (I), a refunding bond
(whether a current or advance
refunding) shall be treated as
issued on the date of the
issuance of the refunded bond
(or in the case of a series of
refundings, the original bond).
(III) Exception for certain
refunding bonds.--Subclause
(II) shall not apply to any
refunding bond which is issued
to refund any bond which was
issued after December 31, 2003,
and before January 1, 2009.
(C) Disallowance of items not deductible in
computing earnings and profits.--
(i) In general.--A deduction shall
not be allowed for any item if such
item would not be deductible for any
taxable year for purposes of computing
earnings and profits.
(ii) Special rule for certain
dividends.--
(I) In general.--Clause (i)
shall not apply to any
deduction allowable under
section 243 or 245 for any
dividend which is a 100-percent
dividend or which is received
from a 20-percent owned
corporation (as defined in
section 243(c)(2)), but only to
the extent such dividend is
attributable to income of the
paying corporation which is
subject to tax under this
chapter (determined after the
application of sections 30A,
936 (including subsections
(a)(4), (i) and (j) thereof)
and 921 (as in effect before
its repeal by the FSC Repeal
and Extraterritorial Income
Exclusion Act of 2000)).
(II) 100-percent dividend.--
For purposes of subclause (I),
the term ``100 percent
dividend'' means any dividend
if the percentage used for
purposes of determining the
amount allowable as a deduction
under section 243 or 245 with
respect to such dividend is 100
percent.
(iii) Treatment of taxes on dividends
from 936 corporations.--
(I) In general.--For purposes
of determining the alternative
minimum foreign tax credit, 75
percent of any withholding or
income tax paid to a possession
of the United States with
respect to dividends received
from a corporation eligible for
the credit provided by section
936 shall be treated as a tax
paid to a foreign country by
the corporation receiving the
dividend.
(II) Limitation.--If the
aggregate amount of the
dividends referred to in
subclause (I) for any taxable
year exceeds the excess
referred to in paragraph (1),
the amount treated as tax paid
to a foreign country under
subclause (I) shall not exceed
the amount which would be so
treated without regard to this
subclause multiplied by a
fraction the numerator of which
is the excess referred to in
paragraph (1) and the
denominator of which is the
aggregate amount of such
dividends.
(III) Treatment of taxes
imposed on 936 corporation.--
For purposes of this clause,
taxes paid by any corporation
eligible for the credit
provided by section 936 to a
possession of the United States
shall be treated as a
withholding tax paid with
respect to any dividend paid by
such corporation to the extent
such taxes would be treated as
paid by the corporation
receiving the dividend under
rules similar to the rules of
section 902 (and the amount of
any such dividend shall be
increased by the amount so
treated).
(IV) Separate application of
foreign tax credit
limitations.--In determining
the alternative minimum foreign
tax credit, section 904(d)
shall be applied as if
dividends from a corporation
eligible for the credit
provided by section 936 were a
separate category of income
referred to in a subparagraph
of section 904(d)(1).
(V) Coordination with
limitation on 936 credit.--Any
reference in this clause to a
dividend received from a
corporation eligible for the
credit provided by section 936
shall be treated as a reference
to the portion of any such
dividend for which the
dividends received deduction is
disallowed under clause (i)
after the application of clause
(ii)(I).
(VI) Application to section
30A corporations.--References
in this clause to section 936
shall be treated as including
references to section 30A.
(iv) Special rule for certain
dividends received by certain
cooperatives.--In the case of an
organization to which part I of
subchapter T (relating to tax treatment
of cooperatives) applies which is
engaged in the marketing of
agricultural or horticultural products,
clause (i) shall not apply to any
amount allowable as a deduction under
section 245(c).
(v) Deduction for domestic
production.--Clause (i) shall not apply
to any amount allowable as a deduction
under section 199.
(vi) Special rule for certain
distributions from controlled foreign
corporations.--Clause (i) shall not
apply to any deduction allowable under
section 965.
(D) Certain other earnings and profits
adjustments.--
(i) Intangible drilling costs.--The
adjustments provided in section
312(n)(2)(A) shall apply in the case of
amounts paid or incurred in taxable
years beginning after December 31,
1989. In the case of a taxpayer other
than an integrated oil company (as
defined in section 291(b)(4)), in the
case of any oil or gas well, this
clause shall not apply in the case of
amounts paid or incurred in taxable
years beginning after December 31,
1992.
(ii) Certain amortization provisions
not to apply.--Sections 173 and 248
shall not apply to expenditures paid or
incurred in taxable years beginning
after December 31, 1989.
(iii) LIFO inventory adjustments.--
The adjustments provided in section
312(n)(4) shall apply, but only with
respect to taxable years beginning
after December 31, 1989.
(iv) Installment sales.--In the case
of any installment sale in a taxable
year beginning after December 31, 1989,
adjusted current earnings shall be
computed as if the corporation did not
use the installment method. The
preceding sentence shall not apply to
the applicable percentage (as
determined under section 453A) of the
gain from any installment sale with
respect to which section 453A(a)(1)
applies.
(E) Disallowance of loss on exchange of debt
pools.--No loss shall be recognized on the
exchange of any pool of debt obligations for
another pool of debt obligations having
substantially the same effective interest rates
and maturities.
(F) Depletion.--
(i) In general.--The allowance for
depletion with respect to any property
placed in service in a taxable year
beginning after December 31, 1989,
shall be cost depletion determined
under section 611.
(ii) Exception for independent oil
and gas producers and royalty owners.--
Clause (i) (and subparagraph (C)(i))
shall not apply to any deduction for
depletion computed in accordance with
section 613A(c).
(G) Treatment of certain ownership changes.--
If--
(i) there is an ownership change
(within the meaning of section 382) in
a taxable year beginning after 1989
with respect to any corporation, and
(ii) there is a net unrealized built-
in loss (within the meaning of section
382(h)) with respect to such
corporation,
then the adjusted basis of each asset of such
corporation (immediately after the ownership
change) shall be its proportionate share
(determined on the basis of respective fair
market values) of the fair market value of the
assets of such corporation (determined under
section 382(h)) immediately before the
ownership change.
(H) Adjusted basis.--The adjusted basis of
any property with respect to which an
adjustment under this paragraph applies shall
be determined by applying the treatment
prescribed in this paragraph.
(I) Treatment of charitable contributions.--
Notwithstanding subparagraphs (B) and (C), no
adjustment related to the earnings and profits
effects of any charitable contribution shall be
made in computing adjusted current earnings.
(5) Other definitions.--For purposes of paragraph
(4)--
(A) Earnings and profits.--The term
``earnings and profits'' means earnings and
profits computed for purposes of subchapter C.
(B) Treatment of alternative minimum taxable
income.--The treatment of any item for purposes
of computing alternative minimum taxable income
shall be determined without regard to this
subsection.
(6) Exception for certain corporations.--This
subsection shall not apply to any S corporation,
regulated investment company, real estate investment
trust, or REMIC.
* * * * * * *
Subchapter B--Computation of Taxable Income
* * * * * * *
PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
* * * * * * *
SEC. 213. MEDICAL, DENTAL, ETC., EXPENSES.
(a) Allowance of Deduction.--There shall be allowed as a
deduction the expenses paid during the taxable year, not
compensated for by insurance or otherwise, for medical care of
the taxpayer, his spouse, or a dependent (as defined in section
152, determined without regard to subsections (b)(1), (b)(2),
and (d)(1)(B) thereof), to the extent that such expenses exceed
10 percent of adjusted gross income.
(b) Limitation With Respect to Medicine and Drugs.--An amount
paid during the taxable year for medicine or a drug shall be
taken into account under subsection (a) only if such medicine
or drug is a prescribed drug or is insulin.
(c) Special Rule for Decedents.--
(1) Treatment of expenses paid after death.--For
purposes of subsection (a), expenses for the medical
care of the taxpayer which are paid out of his estate
during the 1-year period beginning with the day after
the date of his death shall be treated as paid by the
taxpayer at the time incurred.
(2) Limitation.--Paragraph (1) shall not apply if the
amount paid is allowable under section 2053 as a
deduction in computing the taxable estate of the
decedent, but this paragraph shall not apply if (within
the time and in the manner and form prescribed by the
Secretary) there is filed--
(A) a statement that such amount has not been
allowed as a deduction under section 2053, and
(B) a waiver of the right to have such amount
allowed at any time as a deduction under
section 2053.
(d) Definitions.--For purposes of this section--
(1) The term ``medical care'' means amounts paid--
(A) for the diagnosis, cure, mitigation,
treatment, or prevention of disease, or for the
purpose of affecting any structure or function
of the body,
(B) for transportation primarily for and
essential to medical care referred to in
subparagraph (A),
(C) for qualified long-term care services (as
defined in section 7702B(c)), or
(D) for insurance (including amounts paid as
premiums under part B of title XVIII of the
Social Security Act, relating to supplementary
medical insurance for the aged) covering
medical care referred to in subparagraphs (A)
and (B) or for any qualified long- term care
insurance contract (as defined in section
7702B(b)).
In the case of a qualified long-term care insurance
contract (as defined in section 7702B(b)), only
eligible long-term care premiums (as defined in
paragraph (10)) shall be taken into account under
subparagraph (D).
(2) Amounts paid for certain lodging away from home
treated as paid for medical care
Amounts paid for lodging (not lavish or extravagant
under the circumstances) while away from home primarily
for and essential to medical care referred to in
paragraph (1)(A) shall be treated as amounts paid for
medical care if--
(A) the medical care referred to in paragraph
(1)(A) is provided by a physician in a licensed
hospital (or in a medical care facility which
is related to, or the equivalent of, a licensed
hospital), and
(B) there is no significant element of
personal pleasure, recreation, or vacation in
the travel away from home.
The amount taken into account under the preceding
sentence shall not exceed $50 for each night for each
individual.
(3) Prescribed drug
The term ``prescribed drug'' means a drug or
biological which requires a prescription of a physician
for its use by an individual.
(4) Physician
The term ``physician'' has the meaning given to such
term by section 1861(r) of the Social Security Act (42
U.S.C. 1395x(r)).
(5) Special rule in the case of child of divorced
parents, etc.
Any child to whom section 152(e) applies shall be
treated as a dependent of both parents for purposes of
this section.
(6) In the case of an insurance contract under which
amounts are payable for other than medical care
referred to in subparagraphs (A), (B), and (C) of
paragraph (1)--
(A) no amount shall be treated as paid for
insurance to which paragraph (1)(D) applies
unless the charge for such insurance is either
separately stated in the contract, or furnished
to the policyholder by the insurance company in
a separate statement,
(B) the amount taken into account as the
amount paid for such insurance shall not exceed
such charge, and
(C) no amount shall be treated as paid for
such insurance if the amount specified in the
contract (or furnished to the policyholder by
the insurance company in a separate statement)
as the charge for such insurance is
unreasonably large in relation to the total
charges under the contract.
(7) Subject to the limitations of paragraph (6),
premiums paid during the taxable year by a taxpayer
before he attains the age of 65 for insurance covering
medical care (within the meaning of subparagraphs (A),
(B), and (C) of paragraph (1)) for the taxpayer, his
spouse, or a dependent after the taxpayer attains the
age of 65 shall be treated as expenses paid during the
taxable year for insurance which constitutes medical
care if premiums for such insurance are payable (on a
level payment basis) under the contract for a period of
10 years or more or until the year in which the
taxpayer attains the age of 65 (but in no case for a
period of less than 5 years).
(8) The determination of whether an individual is
married at any time during the taxable year shall be
made in accordance with the provisions of section
6013(d) (relating to determination of status as husband
and wife).
(9) Cosmetic surgery.--
(A) In general.--The term ``medical care''
does not include cosmetic surgery or other
similar procedures, unless the surgery or
procedure is necessary to ameliorate a
deformity arising from, or directly related to,
a congenital abnormality, a personal injury
resulting from an accident or trauma, or
disfiguring disease.
(B) Cosmetic surgery defined.--For purposes
of this paragraph, the term ``cosmetic
surgery'' means any procedure which is directed
at improving the patient's appearance and does
not meaningfully promote the proper function of
the body or prevent or treat illness or
disease.
(10) Eligible long-term care premiums.--
(A) In general.--For purposes of this
section, the term ``eligible long-term care
Premiums'' means the amount paid during a
taxable year for any qualified long-term care
insurance contract (as defined in section
7702B(b)) covering an individual, to the extent
such amount does not exceed the limitation
determined under the following table:
------------------------------------------------------------------------
In the case of an individual with
an attained age before the close of The limitation is:
the taxable year of:
------------------------------------------------------------------------
40 or less $200
More than 40 but not more than 50 375
More than 50 but not more than 60 750
More than 60 but not more than 70 2,000
More than 70 2,500
------------------------------------------------------------------------
(B) Indexing.--
(i) In general.--In the case of any
taxable year beginning in a calendar
year after 1997, each dollar amount
contained in subparagraph (A) shall be
increased by the medical care cost
adjustment of such amount for such
calendar year. If any increase
determined under the preceding sentence
is not a multiple of $10, such increase
shall be rounded to the nearest
multiple of $10.
(ii) Medical care cost adjustment.--
For purposes of clause (i), the medical
care cost adjustment for any calendar
year is the percentage (if any) by
which--
(I) the medical care
component of the Consumer Price
Index (as defined in section
1(f)(5)) for August of the
preceding calendar year,
exceeds
(II) such component for
August of 1996.
The Secretary shall, in consultation
with the Secretary of Health and Human
Services, prescribe an adjustment which
the Secretary determines is more
appropriate for purposes of this
paragraph than the adjustment described
in the preceding sentence, and the
adjustment so prescribed shall apply in
lieu of the adjustment described in the
preceding sentence.
(11) Certain payments to relatives treated as not
paid for medical care --An amount paid for a qualified
long-term care service (as defined in section 7702B(c))
provided to an individual shall be treated as not paid
for medical care if such service is provided--
(A) by the spouse of the individual or by a
relative (directly or through a partnership,
corporation, or other entity) unless the
service is provided by a licensed professional
with respect to such service, or
(B) by a corporation or partnership which is
related (within the meaning of section 267(b)
or 707(b)) to the individual.
For purposes of this paragraph, the term ``relative''
means an individual bearing a relationship to the
individual which is described in any of subparagraphs
(A) through (G) of section 152(d)(2). This paragraph
shall not apply for purposes of section 105(b) with
respect to reimbursements through insurance.
(e) Exclusion of Amounts Allowed for Care of Certain
Dependents.--Any expense allowed as a credit under section 21
shall not be treated as an expense paid for medical care.
(f) Special Rule for 2013, 2014, 2015, and 2016.--In the case
of any taxable year beginning after December 31, 2012, and
ending before January 1, 2017, subsection (a) shall be applied
with respect to a taxpayer by substituting ``7.5 percent'' for
``10 percent'' if such taxpayer or such taxpayer's spouse has
attained age 65 before the close of such taxable year.
* * * * * * *
B. Changes in Existing Law Proposed by the Bill, as Reported
In compliance with clause 3(e)(1)(B) of rule XIII of the
Rules of the House of Representatives, changes in existing law
proposed by the bill, as reported, are shown as follows
(existing law proposed to be omitted is enclosed in black
brackets, new matter is printed in italics, existing law in
which no change is proposed is shown in roman):
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e)(1)(B) of rule XIII of the
Rules of the House of Representatives, changes in existing law
proposed by the bill, as reported, are shown as follows
(existing law proposed to be omitted is enclosed in black
brackets, new matter is printed in italics, and existing law in
which no change is proposed is shown in roman):
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter A--Determination of Tax Liability
* * * * * * *
PART VI--ALTERNATIVE MINIMUM TAX
* * * * * * *
SEC. 56. ADJUSTMENTS IN COMPUTING ALTERNATIVE MINIMUM TAXABLE INCOME.
(a) Adjustments Applicable to All Taxpayers.--In determining
the amount of the alternative minimum taxable income for any
taxable year the following treatment shall apply (in lieu of
the treatment applicable for purposes of computing the regular
tax):
(1) Depreciation.--
(A) In general.--
(i) Property other than certain
personal property.--Except as provided
in clause (ii), the depreciation
deduction allowable under section 167
with respect to any tangible property
placed in service after December 31,
1986, shall be determined under the
alternative system of section 168(g).
In the case of property placed in
service after December 31, 1998, the
preceding sentence shall not apply but
clause (ii) shall continue to apply.
(ii) 150-percent declining balance
method for certain property.--The
method of depreciation used shall be--
(I) the 150 percent declining
balance method,
(II) switching to the
straight line method for the
1st taxable year for which
using the straight line method
with respect to the adjusted
basis as of the beginning of
the year will yield a higher
allowance.
The preceding sentence shall not apply
to any section 1250 property (as
defined in section 1250(c)) (and the
straight line method shall be used for
such section 1250 property)or to any
other property if the depreciation
deduction determined under section 168
with respect to such other property for
purposes of the regular tax is
determined by using the straight line
method.
(B) Exception for certain property.--This
paragraph shall not apply to property described
in paragraph (1), (2), (3), or (4) of section
168(f), or in section 168(e)(3)(C)(iv).
(C) Coordination with transitional rules.--
(i) In general.--This paragraph shall
not apply to property placed in service
after December 31, 1986, to which the
amendments made by section 201 of the
Tax Reform Act of 1986 do not apply by
reason of section 203, 204, or 251(d)
of such Act.
(ii) Treatment of certain property
placed in service before 1987.--This
paragraph shall apply to any property
to which the amendments made by section
201 of the Tax Reform Act of 1986 apply
by reason of an election under section
203(a)(1)(B) of such Act without regard
to the requirement of subparagraph (A)
that the property be placed in service
after December 31, 1986.
(D) Normalization rules.--With respect to
public utility property described in section
168(i)(10), the Secretary shall prescribe the
requirements of a normalization method of
accounting for this section.
(2) Mining exploration and development costs.--
(A) In general.--With respect to each mine or
other natural deposit (other than an oil, gas,
or geothermal well) of the taxpayer, the amount
allowable as a deduction under section 616(a)
or 617(a) (determined without regard to section
291(b)) in computing the regular tax for costs
paid or incurred after December 31, 1986, shall
be capitalized and amortized ratably over the
10-year period beginning with the taxable year
in which the expenditures were made.
(B) Loss allowed.--If a loss is sustained
with respect to any property described in
subparagraph (A), a deduction shall be allowed
for the expenditures described in subparagraph
(A) for the taxable year in which such loss is
sustained in an amount equal to the lesser of--
(i) the amount allowable under
section 165(a) for the expenditures if
they had remained capitalized, or
(ii) the amount of such expenditures
which have not previously been
amortized under subparagraph (A).
(3) Treatment of certain long-term contracts.--In the
case of any long-term contract entered into by the
taxpayer on or after March 1, 1986, the taxable income
from such contract shall be determined under the
percentage of completion method of accounting (as
modified by section 460(b)). For purposes of the
preceding sentence, in the case of a contract described
in section 460(e)(1), the percentage of the contract
completed shall be determined under section 460(b)(1)
by using the simplified procedures for allocation of
costs prescribed under section 460(b)(3). The first
sentence of this paragraph shall not apply to any home
construction contract (as defined in section
460(e)(6)).
(4) Alternative tax net operating loss deduction.--
The alternative tax net operating loss deduction shall
be allowed in lieu of the net operating loss deduction
allowed under section 172.
(5) Pollution control facilities.--In the case of any
certified pollution control facility placed in service
after December 31, 1986, the deduction allowable under
section 169 (without regard to section 291) shall be
determined under the alternative system of section
168(g). In the case of such a facility placed in
service after December 31, 1998, such deduction shall
be determined under section 168 using the straight line
method.
(6) Adjusted basis.--The adjusted basis of any
property to which paragraph (1) or (5) applies (or with
respect to which there are any expenditures to which
paragraph (2) or subsection (b)(2) applies) shall be
determined on the basis of the treatment prescribed in
paragraph (1), (2), or (5), or subsection (b)(2),
whichever applies.
(7) Section 87 not applicable.--Section 87 (relating
to alcohol fuel credit) shall not apply.
(b) Adjustments Applicable to Individuals.--In determining
the amount of the alternative minimum taxable income of any
taxpayer (other than a corporation), the following treatment
shall apply (in lieu of the treatment applicable for purposes
of computing the regular tax):
(1) Limitation on deductions.--
(A) In general.--No deduction shall be
allowed--
(i) for any miscellaneous itemized
deduction (as defined in section
67(b)), or
(ii) for any taxes described in
paragraph (1), (2), or (3) of section
164(a) or clause (ii) of section
164(b)(5)(A).
Clause (ii) shall not apply to any amount
allowable in computing adjusted gross income.
(B) Medical expenses.--In determining the
amount allowable as a deduction under section
213, subsection (a) of section 213 shall be
applied [without regard to subsection (f) of
such section] by substituting ``10 percent''
for ``7.5 percent''.
(C) Interest.--In determining the amount
allowable as a deduction for interest,
subsections (d) and (h) of section 163 shall
apply, except that--
(i) in lieu of the exception under
section 163(h)(2)(D), the term
``personal interest'' shall not include
any qualified housing interest (as
defined in subsection (e)),
(ii) interest on any specified
private activity bond (and any amount
treated as interest on a specified
private activity bond under section
57(a)(5)(B)), and any deduction
referred to in section 57(a)(5)(A),
shall be treated as includible in gross
income (or as deductible) for purposes
of applying section 163(d),
(iii) in lieu of the exception under
section 163(d)(3)(B)(i), the term
``investment interest'' shall not
include any qualified housing interest
(as defined in subsection (e)), and
(iv) the adjustments of this section
and sections 57 and 58 shall apply in
determining net investment income under
section 163(d).
(D) Treatment of certain recoveries.--No
recovery of any tax to which subparagraph
(A)(ii) applied shall be included in gross
income for purposes of determining alternative
minimum taxable income.
(E) Standard deduction and deduction for
personal exemptions not allowed.--The standard
deduction under section 63(c), the deduction
for personal exemptions under section 151, and
the deduction under section 642(b) shall not be
allowed. The preceding sentence shall not apply
to so much of the standard deduction as is
determined under subparagraphs (D) and (E) of
section 63(c)(1).
(F) Section 68 not applicable.--Section 68
shall not apply.
(2) Circulation and research and experimental
expenditures.--
(A) In general.--The amount allowable as a
deduction under section 173 or 174(a) in
computing the regular tax for amounts paid or
incurred after December 31, 1986, shall be
capitalized and--
(i) in the case of circulation
expenditures described in section 173,
shall be amortized ratably over the 3-
year period beginning with the taxable
year in which the expenditures were
made, or
(ii) in the case of research and
experimental expenditures described in
section 174(a), shall be amortized
ratably over the 10-year period
beginning with the taxable year in
which the expenditures were made.
(B) Loss allowed.--If a loss is sustained
with respect to any property described in
subparagraph (A), a deduction shall be allowed
for the expenditures described in subparagraph
(A) for the taxable year in which such loss is
sustained in an amount equal to the lesser of--
(i) the amount allowable under
section 165(a) for the expenditures if
they had remained capitalized, or
(ii) the amount of such expenditures
which have not previously been
amortized under subparagraph (A).
(C) Special rule for personal holding
companies.--In the case of circulation
expenditures described in section 173, the
adjustments provided in this paragraph shall
apply also to a personal holding company (as
defined in section 542).
(D) Exception for certain research and
experimental expenditures.--If the taxpayer
materially participates (within the meaning of
section 469(h)) in an activity, this paragraph
shall not apply to any amount allowable as a
deduction under section 174(a) for expenditures
paid or incurred in connection with such
activity.
(3) Treatment of incentive stock options.--Section
421 shall not apply to the transfer of stock acquired
pursuant to the exercise of an incentive stock option
(as defined in section 422). Section 422(c)(2) shall
apply in any case where the disposition and the
inclusion for purposes of this part are within the same
taxable year and such section shall not apply in any
other case. The adjusted basis of any stock so acquired
shall be determined on the basis of the treatment
prescribed by this paragraph.
(c) Adjustments Applicable to Corporations.--In determining
the amount of the alternative minimum taxable income of a
corporation, the following treatment shall apply:
(1) Adjustment for adjusted current earnings.--
Alternative minimum taxable income shall be adjusted as
provided in subsection (g).
(2) Merchant marine capital construction funds.--In
the case of a capital construction fund established
under chapter 535 of title 46, United States Code--
(A) subparagraphs (A), (B), and (C) of
section 7518(c)(1) (and the corresponding
provisions of such chapter 535) shall not apply
to--
(i) any amount deposited in such fund
after December 31, 1986, or
(ii) any earnings (including gains
and losses) after December 31, 1986, on
amounts in such fund, and
(B) no reduction in basis shall be made under
section 7518(f) (or the corresponding
provisions of such chapter 535) with respect to
the withdrawal from the fund of any amount to
which subparagraph (A) applies.
For purposes of this paragraph, any withdrawal of
deposits or earnings from the fund shall be treated as
allocable first to deposits made before (and earnings
received or accrued before) January 1, 1987.
(3) Special deduction for certain organizations not
allowed.--The deduction determined under section 833(b)
shall not be allowed.
(d) Alternative Tax Net Operating Loss Deduction Defined.--
(1) In general.--For purposes of subsection (a)(4),
the term ``alternative tax net operating loss
deduction'' means the net operating loss deduction
allowable for the taxable year under section 172,
except that--
(A) the amount of such deduction shall not
exceed the sum of--
(i) the lesser of--
(I) the amount of such
deduction attributable to net
operating losses (other than
the deduction described in
clause (ii)(I)), or
(II) 90 percent of
alternative minimum taxable
income determined without
regard to such deduction and
the deduction under section
199, plus
(ii) the lesser of--
(I) the amount of such
deduction attributable to an
applicable net operating loss
with respect to which an
election is made under section
172(b)(1)(H), or
(II) alternative minimum
taxable income determined
without regard to such
deduction and the deduction
under section 199 reduced by
the amount determined under
clause (i), and
(B) in determining the amount of such
deduction--
(i) the net operating loss (within
the meaning of section 172(c)) for any
loss year shall be adjusted as provided
in paragraph (2), and
(ii) appropriate adjustments in the
application of section 172(b)(2) shall
be made to take into account the
limitation of subparagraph (A).
(2) Adjustments to net operating loss computation.--
(A) Post-1986 loss years.--In the case of a
loss year beginning after December 31, 1986,
the net operating loss for such year under
section 172(c) shall--
(i) be determined with the
adjustments provided in this section
and section 58, and
(ii) be reduced by the items of tax
preference determined under section 57
for such year.
An item of tax preference shall be taken into
account under clause (ii) only to the extent
such item increased the amount of the net
operating loss for the taxable year under
section 172(c).
(B) Pre-1987 years.--In the case of loss
years beginning before January 1, 1987, the
amount of the net operating loss which may be
carried over to taxable years beginning after
December 31, 1986, for purposes of paragraph
(2), shall be equal to the amount which may be
carried from the loss year to the first taxable
year of the taxpayer beginning after December
31, 1986.
(e) Qualified Housing Interest.--For purposes of this part--
(1) In general.--The term ``qualified housing
interest'' means interest which is qualified residence
interest (as defined in section 163(h)(3)) and is paid
or accrued during the taxable year on indebtedness
which is incurred in acquiring, constructing, or
substantially improving any property which--
(A) is the principal residence (within the
meaning of section 121) of the taxpayer at the
time such interest accrues, or
(B) is a qualified dwelling which is a
qualified residence (within the meaning of
section 163(h)(4)).
Such term also includes interest on any indebtedness
resulting from the refinancing of indebtedness meeting
the requirements of the preceding sentence; but only to
the extent that the amount of the indebtedness
resulting from such refinancing does not exceed the
amount of the refinanced indebtedness immediately
before the refinancing.
(2) Qualified dwelling.--The term ``qualified
dwelling'' means any--
(A) house,
(B) apartment,
(C) condominium, or
(D) mobile home not used on a transient basis
(within the meaning of section
7701(a)(19)(C)(v)),
including all structures or other property appurtenant
thereto.
(3) Special rule for indebtedness incurred before
July 1, 1982.--The term ``qualified housing interest''
includes interest which is qualified residence interest
(as defined in section 163(h)(3)) and is paid or
accrued on indebtedness which--
(A) was incurred by the taxpayer before July
1, 1982, and
(B) is secured by property which, at the time
such indebtedness was incurred, was--
(i) the principal residence (within
the meaning of section 121) of the
taxpayer, or
(ii) a qualified dwelling used by the
taxpayer (or any member of his family
(within the meaning of section
267(c)(4))).
(g) Adjustments Based on Adjusted Current Earnings.--
(1) In general.--The alternative minimum taxable
income of any corporation for any taxable year shall be
increased by 75 percent of the excess (if any) of--
(A) the adjusted current earnings of the
corporation, over
(B) the alternative minimum taxable income
(determined without regard to this subsection
and the alternative tax net operating loss
deduction).
(2) Allowance of negative adjustments.--
(A) In general.--The alternative minimum
taxable income for any corporation of any
taxable year, shall be reduced by 75 percent of
the excess (if any) of--
(i) the amount referred to in
subparagraph (B) of paragraph (1), over
(ii) the amount referred to in
subparagraph (A) of paragraph (1).
(B) Limitation.--The reduction under
subparagraph (A) for any taxable year shall not
exceed the excess (if any) of--
(i) the aggregate increases in
alternative minimum taxable income
under paragraph (1) for prior taxable
years, over
(ii) the aggregate reductions under
subparagraph (A) of this paragraph for
prior taxable years.
(3) Adjusted current earnings.--For purposes of this
subsection, the term ``adjusted current earnings''
means the alternative minimum taxable income for the
taxable year--
(A) determined with the adjustments provided
in paragraph (4), and
(B) determined without regard to this
subsection and the alternative tax net
operating loss deduction.
(4) Adjustments.--In determining adjusted current
earnings, the following adjustments shall apply:
(A) Depreciation.--
(i) Property placed in service after
1989.--The depreciation deduction with
respect to any property placed in
service in a taxable year beginning
after 1989 shall be determined under
the alternative system of section
168(g). The preceding sentence shall
not apply to any property placed in
service after December 31, 1993, and
the depreciation deduction with respect
to such property shall be determined
under the rules of subsection
(a)(1)(A).
(ii) Property to which new ACRS
system applies.--In the case of any
property to which the amendments made
by section 201 of the Tax Reform Act of
1986 apply and which is placed in
service in a taxable year beginning
before 1990, the depreciation deduction
shall be determined--
(I) by taking into account
the adjusted basis of such
property (as determined for
purposes of computing
alternative minimum taxable
income) as of the close of the
last taxable year beginning
before January 1, 1990, and
(II) by using the straight-
line method over the remainder
of the recovery period
applicable to such property
under the alternative system of
section 168(g).
(iii) Property to which original ACRS
system applies.--In the case of any
property to which section 168 (as in
effect on the day before the date of
the enactment of the Tax Reform Act of
1986 and without regard to subsection
(d)(1)(A)(ii) thereof) applies and
which is placed in service in a taxable
year beginning before 1990, the
depreciation deduction shall be
determined--
(I) by taking into account
the adjusted basis of such
property (as determined for
purposes of computing the
regular tax) as of the close of
the last taxable year beginning
before January 1, 1990, and
(II) by using the straight
line method over the remainder
of the recovery period which
would apply to such property
under the alternative system of
section 168(g).
(iv) Property placed in service
before 1981.--In the case of any
property not described in clause (i),
(ii), or (iii), the amount allowable as
depreciation or amortization with
respect to such property shall be
determined in the same manner as for
purposes of computing taxable income.
(v) Special rule for certain
property.--In the case of any property
described in paragraph (1), (2), (3),
or (4) of section 168(f), the amount of
depreciation allowable for purposes of
the regular tax shall be treated as the
amount allowable under the alternative
system of section 168(g).
(B) Inclusion of items included for purposes
of computing earnings and profits.--
(i) In general.--In the case of any
amount which is excluded from gross
income for purposes of computing
alternative minimum taxable income but
is taken into account in determining
the amount of earnings and profits--
(I) such amount shall be
included in income in the same
manner as if such amount were
includible in gross income for
purposes of computing
alternative minimum taxable
income, and
(II) the amount of such
income shall be reduced by any
deduction which would have been
allowable in computing
alternative minimum taxable
income if such amount were
includible in gross income.
The preceding sentence shall not apply
in the case of any amount excluded from
gross income under section 108 (or the
corresponding provisions of prior law)
or under section 139A or 1357. In the
case of any insurance company taxable
under section 831(b), this clause shall
not apply to any amount not described
in section 834(b).
(ii) Inclusion of buildup in life
insurance contracts.--In the case of
any life insurance contract--
(I) the income on such
contract (as determined under
section 7702(g)) for any
taxable year shall be treated
as includible in gross income
for such year, and
(II) there shall be allowed
as a deduction that portion of
any premium which is
attributable to insurance
coverage.
(iii) Tax exempt interest on certain
housing bonds.--Clause (i) shall not
apply in the case of any interest on a
bond to which section 57(a)(5)(C)(iii)
applies.
(iv) Tax exempt interest on bonds
issued in 2009 and 2010.--
(I) In general.--Clause (i)
shall not apply in the case of
any interest on a bond issued
after December 31, 2008, and
before January 1, 2011.
(II) Treatment of refunding
bonds.--For purposes of
subclause (I), a refunding bond
(whether a current or advance
refunding) shall be treated as
issued on the date of the
issuance of the refunded bond
(or in the case of a series of
refundings, the original bond).
(III) Exception for certain
refunding bonds.--Subclause
(II) shall not apply to any
refunding bond which is issued
to refund any bond which was
issued after December 31, 2003,
and before January 1, 2009.
(C) Disallowance of items not deductible in
computing earnings and profits.--
(i) In general.--A deduction shall
not be allowed for any item if such
item would not be deductible for any
taxable year for purposes of computing
earnings and profits.
(ii) Special rule for certain
dividends.--
(I) In general.--Clause (i)
shall not apply to any
deduction allowable under
section 243 or 245 for any
dividend which is a 100-percent
dividend or which is received
from a 20-percent owned
corporation (as defined in
section 243(c)(2)), but only to
the extent such dividend is
attributable to income of the
paying corporation which is
subject to tax under this
chapter (determined after the
application of sections 30A,
936 (including subsections
(a)(4), (i) and (j) thereof)
and 921 (as in effect before
its repeal by the FSC Repeal
and Extraterritorial Income
Exclusion Act of 2000)).
(II) 100-percent dividend.--
For purposes of subclause (I),
the term ``100 percent
dividend'' means any dividend
if the percentage used for
purposes of determining the
amount allowable as a deduction
under section 243 or 245 with
respect to such dividend is 100
percent.
(iii) Treatment of taxes on dividends
from 936 corporations.--
(I) In general.--For purposes
of determining the alternative
minimum foreign tax credit, 75
percent of any withholding or
income tax paid to a possession
of the United States with
respect to dividends received
from a corporation eligible for
the credit provided by section
936 shall be treated as a tax
paid to a foreign country by
the corporation receiving the
dividend.
(II) Limitation.--If the
aggregate amount of the
dividends referred to in
subclause (I) for any taxable
year exceeds the excess
referred to in paragraph (1),
the amount treated as tax paid
to a foreign country under
subclause (I) shall not exceed
the amount which would be so
treated without regard to this
subclause multiplied by a
fraction the numerator of which
is the excess referred to in
paragraph (1) and the
denominator of which is the
aggregate amount of such
dividends.
(III) Treatment of taxes
imposed on 936 corporation.--
For purposes of this clause,
taxes paid by any corporation
eligible for the credit
provided by section 936 to a
possession of the United States
shall be treated as a
withholding tax paid with
respect to any dividend paid by
such corporation to the extent
such taxes would be treated as
paid by the corporation
receiving the dividend under
rules similar to the rules of
section 902 (and the amount of
any such dividend shall be
increased by the amount so
treated).
(IV) Separate application of
foreign tax credit
limitations.--In determining
the alternative minimum foreign
tax credit, section 904(d)
shall be applied as if
dividends from a corporation
eligible for the credit
provided by section 936 were a
separate category of income
referred to in a subparagraph
of section 904(d)(1).
(V) Coordination with
limitation on 936 credit.--Any
reference in this clause to a
dividend received from a
corporation eligible for the
credit provided by section 936
shall be treated as a reference
to the portion of any such
dividend for which the
dividends received deduction is
disallowed under clause (i)
after the application of clause
(ii)(I).
(VI) Application to section
30A corporations.--References
in this clause to section 936
shall be treated as including
references to section 30A.
(iv) Special rule for certain
dividends received by certain
cooperatives.--In the case of an
organization to which part I of
subchapter T (relating to tax treatment
of cooperatives) applies which is
engaged in the marketing of
agricultural or horticultural products,
clause (i) shall not apply to any
amount allowable as a deduction under
section 245(c).
(v) Deduction for domestic
production.--Clause (i) shall not apply
to any amount allowable as a deduction
under section 199.
(vi) Special rule for certain
distributions from controlled foreign
corporations.--Clause (i) shall not
apply to any deduction allowable under
section 965.
(D) Certain other earnings and profits
adjustments.--
(i) Intangible drilling costs.--The
adjustments provided in section
312(n)(2)(A) shall apply in the case of
amounts paid or incurred in taxable
years beginning after December 31,
1989. In the case of a taxpayer other
than an integrated oil company (as
defined in section 291(b)(4)), in the
case of any oil or gas well, this
clause shall not apply in the case of
amounts paid or incurred in taxable
years beginning after December 31,
1992.
(ii) Certain amortization provisions
not to apply.--Sections 173 and 248
shall not apply to expenditures paid or
incurred in taxable years beginning
after December 31, 1989.
(iii) LIFO inventory adjustments.--
The adjustments provided in section
312(n)(4) shall apply, but only with
respect to taxable years beginning
after December 31, 1989.
(iv) Installment sales.--In the case
of any installment sale in a taxable
year beginning after December 31, 1989,
adjusted current earnings shall be
computed as if the corporation did not
use the installment method. The
preceding sentence shall not apply to
the applicable percentage (as
determined under section 453A) of the
gain from any installment sale with
respect to which section 453A(a)(1)
applies.
(E) Disallowance of loss on exchange of debt
pools.--No loss shall be recognized on the
exchange of any pool of debt obligations for
another pool of debt obligations having
substantially the same effective interest rates
and maturities.
(F) Depletion.--
(i) In general.--The allowance for
depletion with respect to any property
placed in service in a taxable year
beginning after December 31, 1989,
shall be cost depletion determined
under section 611.
(ii) Exception for independent oil
and gas producers and royalty owners.--
Clause (i) (and subparagraph (C)(i))
shall not apply to any deduction for
depletion computed in accordance with
section 613A(c).
(G) Treatment of certain ownership changes.--
If--
(i) there is an ownership change
(within the meaning of section 382) in
a taxable year beginning after 1989
with respect to any corporation, and
(ii) there is a net unrealized built-
in loss (within the meaning of section
382(h)) with respect to such
corporation,
then the adjusted basis of each asset of such
corporation (immediately after the ownership
change) shall be its proportionate share
(determined on the basis of respective fair
market values) of the fair market value of the
assets of such corporation (determined under
section 382(h)) immediately before the
ownership change.
(H) Adjusted basis.--The adjusted basis of
any property with respect to which an
adjustment under this paragraph applies shall
be determined by applying the treatment
prescribed in this paragraph.
(I) Treatment of charitable contributions.--
Notwithstanding subparagraphs (B) and (C), no
adjustment related to the earnings and profits
effects of any charitable contribution shall be
made in computing adjusted current earnings.
(5) Other definitions.--For purposes of paragraph
(4)--
(A) Earnings and profits.--The term
``earnings and profits'' means earnings and
profits computed for purposes of subchapter C.
(B) Treatment of alternative minimum taxable
income.--The treatment of any item for purposes
of computing alternative minimum taxable income
shall be determined without regard to this
subsection.
(6) Exception for certain corporations.--This
subsection shall not apply to any S corporation,
regulated investment company, real estate investment
trust, or REMIC.
* * * * * * *
Subchapter B--Computation of Taxable Income
* * * * * * *
PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
* * * * * * *
SEC. 213. MEDICAL, DENTAL, ETC., EXPENSES.
(a) Allowance of Deduction.--There shall be allowed as a
deduction the expenses paid during the taxable year, not
compensated for by insurance or otherwise, for medical care of
the taxpayer, his spouse, or a dependent (as defined in section
152, determined without regard to subsections (b)(1), (b)(2),
and (d)(1)(B) thereof), to the extent that such expenses exceed
[10 percent] 7.5 percent of adjusted gross income.
(b) Limitation With Respect to Medicine and Drugs.--An amount
paid during the taxable year for medicine or a drug shall be
taken into account under subsection (a) only if such medicine
or drug is a prescribed drug or is insulin.
(c) Special Rule for Decedents.--
(1) Treatment of expenses paid after death.--For
purposes of subsection (a), expenses for the medical
care of the taxpayer which are paid out of his estate
during the 1-year period beginning with the day after
the date of his death shall be treated as paid by the
taxpayer at the time incurred.
(2) Limitation.--Paragraph (1) shall not apply if the
amount paid is allowable under section 2053 as a
deduction in computing the taxable estate of the
decedent, but this paragraph shall not apply if (within
the time and in the manner and form prescribed by the
Secretary) there is filed--
(A) a statement that such amount has not been
allowed as a deduction under section 2053, and
(B) a waiver of the right to have such amount
allowed at any time as a deduction under
section 2053.
(d) Definitions.--For purposes of this section--
(1) The term ``medical care'' means amounts paid--
(A) for the diagnosis, cure, mitigation,
treatment, or prevention of disease, or for the
purpose of affecting any structure or function
of the body,
(B) for transportation primarily for and
essential to medical care referred to in
subparagraph (A),
(C) for qualified long-term care services (as
defined in section 7702B(c)), or
(D) for insurance (including amounts paid as
premiums under part B of title XVIII of the
Social Security Act, relating to supplementary
medical insurance for the aged) covering
medical care referred to in subparagraphs (A)
and (B) or for any qualified long- term care
insurance contract (as defined in section
7702B(b)).
In the case of a qualified long-term care insurance
contract (as defined in section 7702B(b)), only
eligible long-term care premiums (as defined in
paragraph (10)) shall be taken into account under
subparagraph (D).
(2) Amounts paid for certain lodging away from home
treated as paid for medical care
Amounts paid for lodging (not lavish or extravagant
under the circumstances) while away from home primarily
for and essential to medical care referred to in
paragraph (1)(A) shall be treated as amounts paid for
medical care if--
(A) the medical care referred to in paragraph
(1)(A) is provided by a physician in a licensed
hospital (or in a medical care facility which
is related to, or the equivalent of, a licensed
hospital), and
(B) there is no significant element of
personal pleasure, recreation, or vacation in
the travel away from home.
The amount taken into account under the preceding
sentence shall not exceed $50 for each night for each
individual.
(3) Prescribed drug
The term ``prescribed drug'' means a drug or
biological which requires a prescription of a physician
for its use by an individual.
(4) Physician
The term ``physician'' has the meaning given to such
term by section 1861(r) of the Social Security Act (42
U.S.C. 1395x(r)).
(5) Special rule in the case of child of divorced
parents, etc.
Any child to whom section 152(e) applies shall be
treated as a dependent of both parents for purposes of
this section.
(6) In the case of an insurance contract under which
amounts are payable for other than medical care
referred to in subparagraphs (A), (B), and (C) of
paragraph (1)--
(A) no amount shall be treated as paid for
insurance to which paragraph (1)(D) applies
unless the charge for such insurance is either
separately stated in the contract, or furnished
to the policyholder by the insurance company in
a separate statement,
(B) the amount taken into account as the
amount paid for such insurance shall not exceed
such charge, and
(C) no amount shall be treated as paid for
such insurance if the amount specified in the
contract (or furnished to the policyholder by
the insurance company in a separate statement)
as the charge for such insurance is
unreasonably large in relation to the total
charges under the contract.
(7) Subject to the limitations of paragraph (6),
premiums paid during the taxable year by a taxpayer
before he attains the age of 65 for insurance covering
medical care (within the meaning of subparagraphs (A),
(B), and (C) of paragraph (1)) for the taxpayer, his
spouse, or a dependent after the taxpayer attains the
age of 65 shall be treated as expenses paid during the
taxable year for insurance which constitutes medical
care if premiums for such insurance are payable (on a
level payment basis) under the contract for a period of
10 years or more or until the year in which the
taxpayer attains the age of 65 (but in no case for a
period of less than 5 years).
(8) The determination of whether an individual is
married at any time during the taxable year shall be
made in accordance with the provisions of section
6013(d) (relating to determination of status as husband
and wife).
(9) Cosmetic surgery.--
(A) In general.--The term ``medical care''
does not include cosmetic surgery or other
similar procedures, unless the surgery or
procedure is necessary to ameliorate a
deformity arising from, or directly related to,
a congenital abnormality, a personal injury
resulting from an accident or trauma, or
disfiguring disease.
(B) Cosmetic surgery defined.--For purposes
of this paragraph, the term ``cosmetic
surgery'' means any procedure which is directed
at improving the patient's appearance and does
not meaningfully promote the proper function of
the body or prevent or treat illness or
disease.
(10) Eligible long-term care premiums.--
(A) In general.--For purposes of this
section, the term ``eligible long-term care
Premiums'' means the amount paid during a
taxable year for any qualified long-term care
insurance contract (as defined in section
7702B(b)) covering an individual, to the extent
such amount does not exceed the limitation
determined under the following table:
------------------------------------------------------------------------
In the case of an individual with
an attained age before the close of The limitation is:
the taxable year of:
------------------------------------------------------------------------
40 or less $200
More than 40 but not more than 50 375
More than 50 but not more than 60 750
More than 60 but not more than 70 2,000
More than 70 2,500
------------------------------------------------------------------------
(B) Indexing.--
(i) In general.--In the case of any
taxable year beginning in a calendar
year after 1997, each dollar amount
contained in subparagraph (A) shall be
increased by the medical care cost
adjustment of such amount for such
calendar year. If any increase
determined under the preceding sentence
is not a multiple of $10, such increase
shall be rounded to the nearest
multiple of $10.
(ii) Medical care cost adjustment.--
For purposes of clause (i), the medical
care cost adjustment for any calendar
year is the percentage (if any) by
which--
(I) the medical care
component of the Consumer Price
Index (as defined in section
1(f)(5)) for August of the
preceding calendar year,
exceeds
(II) such component for
August of 1996.
The Secretary shall, in consultation
with the Secretary of Health and Human
Services, prescribe an adjustment which
the Secretary determines is more
appropriate for purposes of this
paragraph than the adjustment described
in the preceding sentence, and the
adjustment so prescribed shall apply in
lieu of the adjustment described in the
preceding sentence.
(11) Certain payments to relatives treated as not
paid for medical care --An amount paid for a qualified
long-term care service (as defined in section 7702B(c))
provided to an individual shall be treated as not paid
for medical care if such service is provided--
(A) by the spouse of the individual or by a
relative (directly or through a partnership,
corporation, or other entity) unless the
service is provided by a licensed professional
with respect to such service, or
(B) by a corporation or partnership which is
related (within the meaning of section 267(b)
or 707(b)) to the individual.
For purposes of this paragraph, the term ``relative''
means an individual bearing a relationship to the
individual which is described in any of subparagraphs
(A) through (G) of section 152(d)(2). This paragraph
shall not apply for purposes of section 105(b) with
respect to reimbursements through insurance.
(e) Exclusion of Amounts Allowed for Care of Certain
Dependents.--Any expense allowed as a credit under section 21
shall not be treated as an expense paid for medical care.
[(f) Special Rule for 2013, 2014, 2015, and 2016.--In the
case of any taxable year beginning after December 31, 2012, and
ending before January 1, 2017, subsection (a) shall be applied
with respect to a taxpayer by substituting ``7.5 percent'' for
``10 percent'' if such taxpayer or such taxpayer's spouse has
attained age 65 before the close of such taxable year.]
* * * * * * *
VII. DISSENTING VIEWS
H.R. 3590: HALT TAX INCREASES ON THE MIDDLE CLASS AND SENIORS ACT
We strongly object to H.R. 3590, which would repeal one of
the revenue provisions in the Affordable Care Act (ACA). The
ACA increased the income threshold for claiming an itemized
deduction for medical expenses from 7.5% of adjusted gross
income to 10% of adjusted gross income beginning in 2013. For
four years (2013 to 2016), seniors age 65 plus were generally
provided the lower floor (7.5%) for claiming the deduction.
We object because the cost of the bill is $33 billion and
its cost is not offset. Adding $33 billion to our record-high
federal deficits is irresponsible. It is a continuation of a
reckless policy of passing hundreds of billions of dollars of
tax cuts, often benefiting higher income Americans and
corporations, without paying for them.
In contrast, the ACA was fully paid-for. Revenue provisions
in the ACA helped pay for over $1 trillion dollars in benefits
for American families, including insurance market reforms and
premium tax credits to help with paying for coverage in the
reformed markets, expansion of Medicaid coverage, and closing
the prescription drug donut hole for seniors on Medicare. In
the past six years since the ACA's passage, the Majority has
been wholly unable to offer an alternative to the ACA that
would reduce the ranks of the uninsured and provide affordable
coverage to American families.
We are also concerned because the tax benefits of H.R. 3590
accrue disproportionately to upper income households. According
to data supplied by the Joint Committee on Taxation,
approximately 55% of the aggregate tax benefit in 2016 and 66%
of the benefit in later years will accrue to taxpayers with
adjusted gross income of $100,000 and above. Taxpayers with
that level of income are in the top 15% of earners according to
statistical information published by the Internal Revenue
Service.
For these reasons we strongly object to H.R. 3590.
Sander M. Levin.
[all]