STATEMENT OF HON. JERRY BROWN, FORMER GOVERNOR, State of CalifORNIA As governor of California, I observed the excellent example set for all of us by the religious communities such as the Trappists. By their commitment to their religious life they affirm the practicality of the monastery in the twentieth century based on the religious doctrines that date at least to the Middle Ages. Not only do they set a fine religious example but they set an impressive example in their commitment to support themselves through activities at the community. Almost fifty years ago Congress decided it was fair to allow a religious community to be tax exempt if its members report their pro rata rate share of the income. Somehow when the investment credit was adopted, Congress overlooked providing for the passthrough of this credit for the members of electing communities. It seems like the appropriate response is to pass H.R. 4507 so that the passthrough will be available. Therefore, I urge action on this bill at the earliest possible time. The failure to allow the investment credit to the members of communities like the Trappists and Hutterites is an unjustified discrimination. STATEMENT OF HON. THOMAS S. FOLEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON Mr. Chairman, I would like to thank you and the Subcommittee on Select Revenue for this opportunity to testify on behalf of H.R. 4507, legislation which I introduced on November 18, 1983, H.R. 4507 would amend the Internal Revenue Code of 1954 to allow the investment credit with respect to taxable businesses conducted by certain religious communities exempt from tax under section 501(d) of such Code. As you know, this legislation is cosponsored by the distinguished Chairman of this Subcommittee; by Representatives Barbara Kennelly, and Richard T. Schulze, also members of this Subcommittee; by Representative Charles B. Rangel, the distinguished Chairman of the Ways and Means Subcommittee on Oversight; and by Representative Edward P. Boland. H.R. 4507 addresses a statutory inequity in the Internal Revenue Code relating to members of certain religious communities organized under section 501(d). Section 501(d) of the Code allows religious communities to engage in the operation of a community business which is exempt from taxation on the condition that members of such communities report as personal income a pro rata share of the organization's income. The pro rata share is then taxed at the member level as a dividend received from the community. In short, the religious community does not pay tax but its members do. Thus, a section 501(d) organization is more nearly comparable to organizations which pass through the tax burden on income (I.E., trusts, partnerships, and subchapter S corporations) than to other section 501 organizations. Because the Code stipulates that religious communities organized under section 501(d) do not pay tax on income from exempt activities, the Internal Revenue Service has taken the position that members of such communities cannot receive the investment tax credit for business machinery purchased by the community. This interpretation, although consistent with existing provisions in the Internal Revenue Code, discriminates against members of section 501(d) organizations as compared with partners in a partnership or shareholders in a subchapter S corporation. Members of such organizations pay more tax because they are denied the investment credit available to partnerships and subchapter S corporations. In Kleinsasser v. United States (1982), the Ninth Circuit Court recognized the obvious problem but, because the Internal Revenue Code does not directly address the issue, denied the investment credit to section 501(d) organization members. The Court's opinion, however, stated that the failure to provide for the investment tax credit appeared to be a legislative oversight and urged religious communities operating under section 501(d) to petition the Congress for relief. H.R. 4507 clarifies the Internal Revenue Code by extending the investment credit to section 501(d) organizations meeting the demonstrated stability requirements defined in the bill's eligibility provision. Paralleling the manner in which a religious community's business income is taxed under section 501(d), the legislation apportions pro rata among members the qualified investment and credit for each taxable year. The pro rata appointment of the investment credit ensures that the fractional amount of credit will be the same on each community member's tax return, thereby simplifying the filing and processing of those returns. In addition, the bill does not allow credit for investment in eligible depreciable property to members who claim another type of investment credit and prohibits the reallocation of any disallowed property credit to other community members. At present there are only approximately 75 section 501(d) organizations nationwide. Any revenue loss resulting from extension of the investment credit to eligible religious communities, therefore, would be extremely minute. Mr. Chairman, I look forward to working with you and other Members of the Ways and Means Committee, as well as the Members of the full House of Representatives, to enact this important clarification of the Internal Revenue Code. I 98TH CONGRESS 2D SESSION H. R. 4779 To amend the Internal Revenue Code of 1954 to provide that the windfall profit tax shall not apply to an amount of crude oil equal to the amount of residual fuel oil used in enhanced recovery processes. IN THE HOUSE OF REPRESENTATIVES FEBRUARY 7, 1984 Mr. THOMAS of California (for himself, Mr. LAGOMARSINO, Mr. PASHAYAN, and Mr. MCCANDLESS) introduced the following bill; which was referred to the Committee on Ways and Means A BILL To amend the Internal Revenue Code of 1954 to provide that the windfall profit tax shall not apply to an amount of crude oil equal to the amount of residual fuel oil used in enhanced recovery processes. 1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 3 That (a) subsection (b) of section 4991 of the Internal Reve4 nue Code of 1954 (defining exempt oil) is amended by strik5 ing out "and" at the end of paragraph (5), by striking out the 6 period at the end of paragraph (6) and inserting in lieu there7 of ", and", and by adding at the end thereof the following 8 new paragraph: 1 2 2 "(7) any exempt production oil." (b) Section 4994 of such Code (relating to definitions 3 and special rules relating to exemptions) is amended by 4 adding at the end thereof the following new subsection: 5 "(h) EXEMPT PRODUCTION OIL.-For purposes of sec 6 tion 4991(b) "(1) IN GENERAL.-The term 'exempt production oil' means, with respect to any person, the number of barrels of domestic crude oil "(A) of which such person is the producer, "(B) which is removed from a property during the calendar quarter, "(C) which would (but for section 4991(b)(7)) be taxable crude oil, "(D) which is attributable to such person's operating mineral interest (as defined in section 614(d)) in the property, and "(E) which is exchanged solely for an equal number of barrels of residual fuel oil used by such person with respect to such property during such quarter or next succeeding quarter in enhanced recovery processes. "(2) DETERMINATION OF Fuel oil used.— "(A) IN GENERAL.- -For purposes of paragraph (1), a person shall be treated as using resid HR 4779 IH |