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donated property and (2) one-half of the unrealized appreciation. However, in no event would a deduction be allowed for any amount which exceeded twice the basis of the property.
The provisions of section 1 of the bill would be effective for donations made after 1982.
b. Postsecondary vocational education instruction tax credit
In general, employers may deduct as an ordinary and necessary business expense a reasonable allowance for salaries or other compensation for personal services actually rendered (sec. 162). Thus, a manufacturer generally may deduct reasonable compensation paid to an employee who, while regularly employed by the manufacturer in a nonteaching capacity, teaches vocational education courses part-time at a teaching institution, with or without compensation. In addition, a manufacturer generally may deduct reasonable compensation paid to a vocational education teacher regularly employed by a teaching institution who works temporarily for the manufacturer to upgrade his or her skills.
Under present law, a targeted jobs tax credit is also available, on an elective basis, to employers who hire individuals from one or more of nine target groups (sec. 51). One such group consists of youths between the ages of 16 and 20 from economically disadvantaged families who receive instruction in and otherwise actively participate in certain cooperative vocational education programs. The targeted jobs credit is not available with respect to individuals who teach vocational education courses.
Explanation of Provision
Section 2 of the bill would provide a new tax credit with respect to (1) postsecondary vocational education courses taught by qualified teaching employees of the taxpayer and (2) qualified vocational education instructors temporarily employed by the taxpayer.
The amount of the credit generally would be $100 for each postsecondary vocational education course taught by a qualified teaching employee during the taxable year (not to exceed five courses per employee per taxable year), plus $100 for each qualified vocational education instructor temporarily employed during the taxable year.
A postsecondary vocational education course would be defined as any course of instruction which
(1) Is offered by an institution of higher education as part of either (a) a two-year organized education program in engineering, mathematics, or the physical or biological sciences, designed to prepare a student to work as a technician or at the semiprofessional level in engineering, scientific, or other technological fields requir
ing the understanding and application of basic engineering, scientific, or mathematical principles of knowledge, or (b) an organized education program directly related to the preparation of individuals for paid or unpaid employment or for a career which does not require a baccalaureate or advanced degree;
(2) Consists of a period of instruction which is at least equivalent to a course of instruction that provides three hours of instruction per week during an academic semester; and
(3) Has been completed before the close of the taxable year.
A qualified teaching employee would be defined as any individual employed full time by the taxpayer for the entire taxable year who taught at least one postsecondary vocational education course part-time at an institution of higher education (within the meaning of sec. 1201(a) of the Higher Education Act of 1965 13), does not receive any compensation from the institution of higher education, and was not a qualified vocational education instructor at any time during the taxable year.
A vocational education instructor would be defined as any individual who
(1) Was employed full time by the taxpayer for at least three months but not more than 12 months during the two-year period ending at the close of the taxable year;
(2) Prior to this employment, taught postsecondary vocational education courses full-time at an institution of higher education; (3) Is teaching such courses full-time at an institution of higher education at the close of the taxable year; and
(4) Is not employed by the taxpayer at the close of the taxable year.
Any credit allowed under the bill with respect to an employee would be in addition to any allowable deduction for reasonable compensation paid to the employee by the taxpayer.
Limitations and special rules
The amount of the vocational education instruction credit allowable in any taxable year generally would be limited to the taxpayer's income tax liability for the year reduced by (1) certain items of tax described in the last sentence of Code section 53(a), and (2) the sum of various other statutory credits allowable in the taxable year. 14
In addition, in the case of a taxpayer who owns an interest in an unincorporated trade or business, is a partner in a partnership, is a beneficiary of an estate or trust, or is a shareholder in an electing small business corporation, the amount of the vocational education credit attributable to such trade, business or entity which would be applied against tax could not exceed the amount of the taxpayer's
13 See note 12, supra.
14 The statutory credits which would be applied against tax before the vocational education instruction credit are: all allowable credits having a lower letter or number designation in the Code than the vocational education instruction credit (sec. 44H under the bill), except the wage withholding credit (sec. 31), the credit for certain uses of gasoline and special fuels (sec. 39), and
total tax attributable to the taxpayer's share of income from the trade, business, or entity.
Special rules governing the computation and allocation of the credit are included in the bill for controlled groups of corporations and trades or businesses under common control. The bill would also authorize the Treasury to adopt regulations governing passthrough of the credit, in the case of S corporations (under rules similar to those of Code secs. 52(d) and 52(e)), and allocation of the credit, in the case of partnerships.
The provisions of section 2 of the bill would be effective for taxable years beginning after 1982.
4. S. 1464-Senators Armstrong and Hart
Exemption from Divestiture Requirements of Excess Business Holdings Provision for the El Pomar Foundation
The Tax Reform Act of 1969 imposed an excise tax on the excess business holdings of a private foundation (Code sec. 4943). Generally, under the excess business holdings provision, the combined ownership of a business by a private foundation and all disqualified persons cannot exceed 20 percent of the voting stock of the business (35 percent if other persons have effective control of the business).
The 1969 Act provided that if a private foundation and disqualified persons together had holdings on May 26, 1969 in excess of the permitted amounts under the general rules, then those holdings could be retained for an initial transitional period. Following that period, the combined holdings must be reduced to 50 percent. Ultimately, the combined holdings must be reduced to 35 percent if the disqualified persons hold, in the aggregate, no more than two percent of the business after the initial transition period. If the disqualified persons hold more than two percent, then the combined holdings may continue to be as much as 50 percent, but the foundation itself may hold no more than 25 percent of the voting stock.
Explanation of the Bill
The bill would provide that the divestiture requirements of the excess business holding provisions (sec. 4943) would not apply to a private foundation which meets the following conditions: (1) the foundation owned (directly or through a holding company), on May 26, 1969, 100 percent of the voting stock in an incorporated business enterprise substantially all of the operating assets of which are used in operating a hotel business enterprise; (2) the stock in the business enterprise was acquired by gift, devise, or bequest before December 31, 1966; (3) neither the donor nor any of the members of the donor's family was a foundation manager on or after December 31, 1956; (4) on May 26, 1969, and at all times thereafter, the hotel business enterprise is substantially the same character as the enterprise which was conducted by the corporation on the date of the last gift, devise, or bequest by any donor of any stock in the business enterprise; (5) on May 26, 1969, and at all times thereafter, substantially all of the operating assets are used in operating the hotel business enterprise; and (6) the foundation does not acquire on or after May 26, 1969, any interest in a business enterprise that would constitute excess business holdings.
It is understood that the intended beneficiary of the bill is the El Pomar Foundation of Colorado Springs, Colorado. However, any
private foundation that meets the requirements of the bill would qualify for exemption from the divestiture rules.
The provisions of the bill would be effective on the date of enactment.
Prior Congressional Action
In 1982, the Senate passed a similar provision as part of H.R. 4961, the Tax Equity and Fiscal Responsibility Act of 1982. That provision was deleted in conference. Also, a similar provision was added by the Committee on Finance to H.R. 4577, as reported by the Committee on November 15, 1982. No further action was taken on that bill in the 97th Congress.