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The bills described in this pamphlet have been scheduled for a public hearing on August 1, 1983, by the Senate Finance Subcommittee on Taxation and Debt Management.

The five bills scheduled for the hearing, in the order listed in the press release announcing the hearing, are S. 1600 (relating to indexing the basis of certain assets), S. 1579 (relating to charitable deduction for use of passenger automobile), S. 108 (relating to tax incentives for vocational education programs), S. 1464 (relating to exemption from divestiture requirements of excess business holdings provision for the El Pomar Foundation), and S. 1549 (relating to exemption from unrelated business income tax for income from certain oil and gas property).

The first part of the pamphlet is a summary of the bills. This is followed in the second part by a more detailed description of the bills, including present law, explanation of provisions, and effective dates.



1. S. 1600-Senator Armstrong

Indexing the Basis of Certain Assets

Under present law, the adjusted basis for determining gain or loss from the disposition of capital assets is established in fixed dollar amounts. Thus, changes in the value of the dollar resulting from inflation are not taken into account for this purpose.

The bill would provide for an inflation adjustment (i.e., indexing) to the basis of certain assets for purposes of determining gain or loss on a taxable disposition. The adjustment would be applicable to certain corporate stock and real property interests. The adjustment would apply only to inflation occurring after 1983. The inflation adjustment would not apply for purposes of determining depreciation and other cost-related deductions.

2. S. 1579-Senator Armstrong

Charitable Expense Deduction for Use of Passenger Automobile Under present law, individual taxpayers may deduct charitable contributions up to certain limits (Code sec. 170). In determining the amount of their charitable contribution deduction, taxpayers may deduct their actual fuel expenses for a vehicle used to provide services to a charitable organization, or may use a standard rate of nine cents a mile.

Under the bill, taxpayers would be allowed to use the standard mileage rate authorized for computing the business expense deduction for business use of a passenger automobile. At present, that rate generally is 20 cents a mile for the first 15,000 miles of business use, and 11 cents a mile for each additional mile. The bill would apply to taxable years beginning after 1982.

3. S. 108-Senators Grassley, Jepsen, Durenberger, and Thurmond

Tax Incentives for Vocational Education Programs

a. Increased charitable deduction for contributions of equipment to postsecondary vocational education programs

Present law

In general, the amount of charitable deduction otherwise allowed for donated property must be reduced by the amount of any ordinary gain which the taxpayer would have realized had the property been sold at its fair market value on the date of the donation (sec. 170(e)). For example, a manufacturer that makes a charitable donation of inventory generally may deduct only its basis in the property.

However, under a special rule, corporations are allowed an augmented charitable deduction for donations of newly manufactured scientific equipment to a college or university for research use in the physical or biological sciences (sec. 170(e)(4)). The augmented deduction is generally for the sum of (1) the corporation's basis in the donated property and (2) one-half of the property's unrealized appreciation. In no event may the amount of the deduction under the special rule exceed twice the basis of the property.

Explanation of provision

Section 1 of the bill would provide an augmented charitable deduction for corporate or other taxpayers making certain donations of tangible personal property to institutions of higher education which use the property to train students enrolled in a postsecondary vocational education program.

For qualifying donations, the augmented charitable deduction allowed generally would equal the sum of the taxpayer's basis in the donated property and one-half of the property's unrealized appreciation. In no event would a deduction be allowed for any amount which exceeded twice the property's basis.

This provision of the bill would be effective for donations made after 1982.

b. Postsecondary vocational education instruction tax credit

Present law

Employers generally may deduct as an ordinary and necessary business expense a reasonable allowance for compensation paid employees (sec. 162). Thus, a manufacturer, for example, generally may deduct reasonable compensation paid to vocational education teachers who work temporarily for the manufacturer to upgrade their skills, although regularly employed by teaching institutions. Present law also provides a targeted jobs credit to employers who hire individuals belonging to any of several defined groups (sec. 51). The targeted jobs credit is available with respect to certain vocational education students employed under cooperative education programs; it does not apply to vocational education teachers.

Explanation of provision

Section 2 of the bill would provide a nonrefundable credit with respect to (1) postsecondary vocational education courses taught by qualified teaching employees of the taxpayer and (2) vocational education instructors temporarily employed by the taxpayer.

The amount of the new credit 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 year), plus $100 for each qualified vocational education instructor temporarily employed during the taxable year.

The bill specifies that the credit would be in addition to allowable deductions for compensation paid to employees.

This provision 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 bill would exempt the El Pomar Foundation of Colorado Springs, Colorado, from the divestiture requirements with respect to excess business holdings which apply to private foundations (sec. 4943).

5. S. 1549-Senators Armstrong, Long, Durenberger, Wallop, Grassley, Symms, Bentsen, Baucus, Boren, and Pryor Exemption from Unrelated Business Income Tax for Income from Certain Oil and Gas Property

Under present law, most organizations which generally are exempt from Federal income taxation under Code section 501(a), including any trust that is part of a tax-qualified pension, profit-sharing, or stock bonus plan described in section 401(a), are subject to tax on any unrelated business taxable income (secs. 511-514). In addition, a tax is imposed on the unrelated trade or business income of an individual retirement account or annuity (an IRA).

Under the bill, certain exempt organizations would be permitted to invest in limited partnerships owning working interests in domestic oil and gas properties without incurring tax for unrelated business income. The organizations that would be eligible under this provision include exempt trusts forming a part of tax-qualified pension, etc., plans, IRAs, and certain tax-exempt educational organizations. The bill would apply for partnership taxable years beginning after 1982.


1. S. 1600-Senator Armstrong

Indexing the Basis of Certain Assets

Present Law

A taxpayer generally recognizes gain from an increase in value of a capital asset, or takes into account an allowable loss from a decline in value of the asset, only on the sale, exchange, or other disposition of the asset. If the taxpayer continues to hold the asset, no appreciation in value of the asset is includible in income, and no loss is allowable for any decline in value.

Gain on disposition of a capital asset which has been held for more than one year is taxable at reduced rates. Capital assets generally include property held by the taxpayer other than property held for sale to customers and property used in the taxpayer's trade or business. In addition, gain from the disposition of property used in a trade or business, in excess of depreciation recapture, may be treated as gain from the sale of a capital asset.

For a noncorporate taxpayer, only 40 percent of net capital gains (i.e., the excess of net long-term capital gain over net short-term capital loss) is included in taxable income. These gains are therefore taxable at a maximum 20-percent rate. For corporations, an alternative tax rate of 28 percent applies to net capital gain if the tax computed using that rate is lower than the corporation's regular tax.

The reduced tax rates for capital gains are taken into account as preference items for purposes of the corporate and noncorporate minimum taxes.


Effect of inflation-U.S. tax law

The Federal tax law generally does not take inflation into account in determining taxable income. For example, under U.S. tax law, the adjusted basis for determining gain or loss from a taxable disposition of property is established in fixed dollar amounts. Thus, the law does not take into account for this purpose changes in the value of the dollar resulting from inflation.

For example, a taxpayer who purchases a share of stock for $100, and sells the stock for $150 ten years later, recognizes $50 of income in the year of sale. This is the result notwithstanding that, to the extent inflation has occurred during these years, it would require more than $100 at the time of disposition to return to the taxpayer the $100 in value invested in the asset. The $50 of income


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