F. Definition of Disqualified Person for Private Foundation Rule Purposes (Sec. 1606 of the Act and sec. 4946(c)(5) of the Code) 7 Prior Law Under prior and present law, any direct or indirect agreement by a private foundation to make any payment to a government official generally constitutes a taxable act of self-dealing (Code sec. 4941). The term government official included, under prior law, an individual holding elective or appointive public office in the government of a State, U.S. possession, political subdivision or area of the foregoing, or the District of Columbia, only if such official received gross compensation at an annual rate of $15,000 or more (sec. 4946(c)(5)). Reasons for Change The Congress concluded that it was appropriate to increase the compensation floor in determining which State or local officials are treated as government officials for purposes of certain private foundation rules. Explanation of Provision Under the Act, an individual holding elective or appointive public office in the government of a State, U.S. possession, political subdivision or area of the foregoing, or the District of Columbia constitutes a government official for purposes of the section 4941 self-dealing rules only if such official receives gross compensation at an annual rate of $20,000 or more. Effective Date The provision applies with respect to compensation received after December 31, 1985. Revenue Effect The provision is estimated to have a negligible effect on fiscal year budget receipts. 7 For legislative background of the provision, see: H.Rep. 99-841, Vol. I (September 18, 1986), sec. 1606 (Conference Report). TITLE XVII-MISCELLANEOUS PROVISIONS A. Targeted Jobs Tax Credit (Sec. 1701 of the Act and sec. 51 of the Code) 1 Background Prior Law The targeted jobs tax credit (Code sec. 51) was enacted in the Revenue Act of 1978 to replace an expiring credit for increased employment. As originally enacted, the targeted jobs credit was scheduled to terminate after 1981. The availability of the credit was successively extended by the Economic Recovery Tax Act of 1981 (ERTA) for one year, the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) for two years, and the Deficit Reduction Act of 1984 (the 1984 Act) for one year. Under prior law, the credit did not apply with respect to individuals who began work for the employer after December 31, 1985. For individuals who began work before 1986, the credit was available for wages paid during the first 24 months of employment. ERTA, TEFRA, and the 1984 Act also modified the targeted group definitions and made several technical and administrative changes in the credit provisions. In addition, TEFRA authorized appropriations for the expenses of administering the system for certifying targeted group membership and of providing publicity to employers regarding the targeted jobs credit. The 1984 Act extended the authorization for appropriations for administrative and publicity expenses through fiscal year 1985. Targeted jobs credit rules The targeted jobs tax credit is available on an elective basis for hiring individuals from one or more of nine targeted groups. The targeted groups are (1) vocational rehabilitation referrals; (2) economically disadvantaged youths (ages 18-24); (3) economically disadvantaged Vietnam-era veterans; (4) SSI recipients; (5) general assistance recipients; (6) economically disadvantaged cooperative education students (ages 16-19); (7) economically disadvantaged former convicts; (8) AFDC recipients and WIN registrants; and (9) economically disadvantaged summer youth employees (ages 16-17). Under prior law, the credit generally equalled 50 percent of the first $6,000 of qualified first-year wages plus 25 percent of the first $6,000 of qualified second-year wages paid to a member of a targeted group. Thus, the maximum credit was $3,000 per individual in For legislative background of the provision, see: H.R. 3838, as reported by the House Committee on Ways and Means on December 7, 1985, sec. 282; H.Rep. 99-426, pp. 228-29; H.R. 3838, as reported by the Senate Committee on Finance on May 29, 1986, sec. 1708; S.Rep. 99-313, pp. 880-82; and H.Rep. 99-841, Vol. II (September 18, 1986), pp. 828-29 (Conference Report). the first year of employment and $1,500 per individual in the second year of employment. In the case of economically disadvantaged summer youth employees, the credit equals 85 percent of up to $3,000 of wages, for a maximum credit of $2,550. The employer's deduction for wages is reduced by the amount of the credit. Reasons for Change While evidence regarding the relative efficiency of the targeted jobs tax credit as an incentive for hiring disadvantaged individuals remained incomplete, the Congress concluded that experience with the credit since its enactment in 1978 had been sufficiently promising to warrant a further extension of the credit. This extension is intended to provide the Congress and the Treasury Department an opportunity to gather more information on the operation of the credit, so that its effectiveness as a hiring incentive can be more fully assessed. Although the Congress has limited the credit in certain respects, the resulting reduction in tax benefits to some employers will be wholly or partially offset in many cases by the tax savings arising from the Act's general reduction in tax rates. Extension of credit Explanation of Provisions The Act extends the targeted jobs credit for three additional years, with modifications. Under the Act, the modified credit is available for wages paid to targeted-group individuals who begin work for an employer after December 31, 1985 and before January 1, 1989. Modification of credit The Act limits the extended credit in three respects. First, the 25-percent credit for qualified wages paid in the second year of a targeted-group individual's employment is repealed. Second, the 50percent credit for qualified first-year wages generally is reduced to a 40-percent credit. Thus, the Act generally reduces the maximum credit per employee from $4,500 (50 percent of $6,000 plus 25 percent of $6,000) to $2,400 (40 percent of $6,000). However, the Act does not reduce the credit allowed for wages of economically disadvantaged summer youth employees (85 percent of up to $3,000 of qualified first-year wages). Third, under the Act, no wages paid to a targeted-group member are taken into account for credit purposes unless the individual either (1) is employed by the employer for at least 90 days (14 days in the case of economically disadvantaged summer youth employees), or (2) has completed at least 120 hours of work performed for the employer (20 hours in the case of economically disadvantaged summer youth employees). The Act does not otherwise modify the statutory requirements for obtaining the credit during the three-year extension period applicable to individuals beginning work on or after January 1, 1986. For example, throughout that period, an employed individual cannot qualify as a member of a targeted group unless the employ er received or requested in writing on or before the day on which the individual began work a certification of targeted-group membership from the appropriate State employment security agency.2 Authorization for appropriations The Act extends the authorization for appropriations for administrative and publicity expenses to fiscal years 1986 through 1988. To the extent feasible, the Internal Revenue Service and the Department of Labor should inform employers (e.g., through press releases or announcements) of the extension of the credit. Effective Date The provisions apply with respect to targeted-group individuals who begin work for the employer after December 31, 1985 and before January 1, 1989. Under the Act, the credit does not apply with respect to individuals who begin work for the employer after December 31, 1988. Revenue Effect The provisions are estimated to reduce fiscal year budget receipts by $152 million in 1987, $231 million in 1988, $228 million in 1989, $129 million in 1990, and $60 million in 1991. 2 If the employed individual received a written preliminary determination of targeted-group membership by the date on which the individual began work, the employer has until the fifth day of such individual's employment to receive or request certification. B. Collection of Diesel Fuel and Gasoline Excise Taxes 1. Diesel fuel tax (sec. 1702 of the Act and sec. 4041(n) of the Code)3 Prior Law An excise tax of 15.1 cents per gallon is imposed on the sale of diesel fuel for use in a diesel-powered highway vehicle (Code sec. 4041(a)(1)). Revenues equivalent to this tax are deposited in the Highway Trust Fund (15 cents per gallon) and the Leaking Underground Storage Tank Trust Fund (0.1 cents per gallon). Under prior law, the tax was imposed and collected at the retail level. Reasons for Change Since there are many more outlets for diesel fuel retail sales than diesel fuel wholesalers, the Congress concluded that allowing the tax to be collected by the wholesaler (or producer for direct sales) upon the sale to the retailer will reduce the tax administrative burden on the numerous retail diesel fuel outlets and also reduce the tax collection and enforcement costs to the Treasury Department. Explanation of Provision The Act provides that, under regulations prescribed by the Treasury Department, the excise tax on diesel fuel for highway vehicles may be imposed on the sale to the retailer by the wholesaler (jobber) or by the producer where the sale is direct to the retailer.* This applies only in the case of a sale of diesel fuel to a "qualified retailer," defined as any retailer who (1) elects to have this provision apply with respect to all sales of diesel fuel to such retailer and (2) agrees to provide a written notice to the person selling diesel fuel to such retailer that such an election has been made concerning application of the diesel fuel tax. A retailer who is required to notify the seller of diesel fuel but fails to do so is liable for payment of the tax for any period during which the failure continues. In addition, unless such failure is shown to be due to reasonable cause and not to willful neglect, the retailer must pay a penalty with respect to each sale of diesel fuel to the retailer equal to five percent of the excise tax amount involved. For legislative background of the provision, see: H.R. 3838, as reported by the House Committee on Ways and Means on December 7, 1985, sec. 1351; H.Rep. 99-426, p. 861; and H.Rep. 99841, Vol. II (September 18, 1986), pp. 830-831 (Conference Report). An additional tax of 0.1 cents per gallon was imposed on diesel fuel by P.L. 99-499. The Congress intended that this additional tax is to be collected by wholesalers in the same manner as the general diesel tax of 15.0 cents per gallon. A technical amendment may be necessary to reflect this intent. |