In general Explanation of Provisions The Act modifies the prior-law exclusion for certain foster care reimbursements so that the exclusion applies to amounts paid for qualified foster care, rather than amounts paid as reimbursements of qualified foster care expenses. As a result, recordkeeping to establish the extent to which payments reimburse particular foster care expenses is no longer necessary. Adult foster care The Act deletes the prior-law limitation that the exclusion applies with respect to foster care only of children under age 19. However, in the case of any foster home in which there is a foster care recipient who has attained age 19, foster care payments (and difficulty of care payments) are not excludable to the extent made for more than five such foster care recipients. This extension of the exclusion to adult foster care applies only to taxpayers who provide foster care within their own homes to adults who have been placed in their care by an agency of the State or political subdivision thereof specifically designated as responsible for such function. The exclusion does not apply to payments to operators of boarding homes who provide room and board to adults other than adults who have been placed in their care through the actions of a governmental agency responsible for adult foster care. Effective Date The provision is effective for taxable years beginning on or after January 1, 1986. Revenue Effect The provision is estimated to reduce fiscal year budget receipts by $5 million in 1987, $8 million in 1988, $9 million in 1989, $11 million in 1990, and $12 million in 1991. 2. Reinstatement of rules for spouses of Vietnam MIAs (sec. 1708 of the Act and secs. 2(a)(3)(B), 692(b), 6013(f)(1), and 7508(b) of the Code)13 Prior Law In 1976, the Congress provided that four tax relief provisions applied to members of the U.S. Armed Forces listed as missing in action (MIA) in the Vietnam conflict. The first provision, relating to the definition of a surviving spouse, stated that the date of death of a person in MIA status is the date of determination of death made by the Armed Forces under 37 U.S.C. secs. 555 and 556. The second provision exempted 13 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. 1402; H.Rep. 99-426, p. 864; H.R. 3838, as reported by the Senate Committee on Finance on May 29, 1986, sec. 1701; S.Rep. 99-313, pp. 882883; and H.Rep. 99-841, Vol. II (September 18, 1986), p. 839 (Conference Report). from Federal income tax the income of a member of the Armed Forces determined to have died while in MIA status, for the year in which the determination of death was made under 37 U.S.C. secs. 555 and 556 and any prior year which ends on or after the first day the member served in a combat zone. The third provision provided that the spouse of an individual in MIA status could elect to file a joint return. The fourth provision applied to the spouse of a member in MIA status the rule postponing the performing of certain acts by reason of service in a combat zone, including the filing of returns and the payment of taxes. These relief provisions originally applied through 1978 in the case of Vietnam MIAS. However, for status determinations under 37 U.S.C. secs. 555 and 556 that were not completed, the provisions subsequently were extended through December 31, 1982. Reasons for Change The Congress concluded that these relief provisions should be retroactively reinstated with respect to Vietnam MIAS because of the continued need for such provisions. Explanation of Provision Under the Act, the four tax relief provisions applicable with respect to Vietnam MIAS (and their spouses) that expired after 1982 are retroactively reinstated and made permanent. Effective Date The provision is effective for taxable years beginning after December 31, 1982. Revenue Effect This provision is estimated to reduce fiscal year budget receipts by less than $5 million annually. 3. Tax exemption for certain reindeer-related income (sec. 1709 of the Act)14 Prior Law Under the Reindeer Industry Act of 1937 (the 1937 Act), 15 the United States Government purchased all reindeer herds and improvements held by non-Alaskan natives. Since then, this property has been held in trust by the government for Alaskan natives who manage the reindeer herds. The U.S. Court of Appeals for the Ninth Circuit ruled in 1984 that reindeer-related income derived by Alaskan natives from herds is not exempt from Federal taxation. 14 For legislative background of the provision, see: Senate floor amendment, 132 Cong. Rec. S 8053-54 (June 20, 1986); and H.Rep. 99-841, Vol. II (September 18, 1986), p. 839 (Conference Report). 15 Act of September 1, 1937 (50 Stat. 900, ch. 897). Reasons for Change The Congress concluded that reindeer-related income derived by Alaskan natives from herds should be exempt from Federal income taxation. Explanation of Provision The Act provides that during the period of the trust, income derived directly from the sale of reindeer or reindeer products as provided in the 1937 Act is exempt from Federal income taxation. Effective Date This provision applies as if originally included in the related provision of the 1937 Act. Revenue Effect The provision is estimated to reduce fiscal year budget receipts by less than $5 million annually. 4. Due dates for certain HHS quality control study and regulations relating to AFDC and Medicaid (sec. 1710 of the Act and sec. 12301 of P.L. 99-272)16 Prior Law Under section 12301 of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), the Department of Health and Human Services (HHS) and the National Academy of Sciences (NAS) are required to undertake a study of quality control measures in connection with the administration of the Aid to Families with Dependent Children and Medicaid programs. Under COBRA, HHS and NAS were required to report the results of their study to the Congress within one year of the date of enactment of that statute (April 7, 1986). In addition, HHS was required to publish certain regulations relating to such quality control measures within 18 months of the date of enactment of COBRA. Reasons for Change The Congress concluded that the due dates for a quality control study by HHS and NAS relating to AFDC and Medicaid and for certain HHS regulations should be extended. Explanation of Provision The Act requires HHS and NAS to report the results of the quality control study required under COBRA within one year after contracting to undertake the study. The date by which HHS is required to publish the specified regulations is six months after the deadline for reporting the results of the quality control study to the Congress. 16 For legislative background of the provision, see: Senate floor amendment, 132 Cong. Rec. S 7952 (June 19, 1986); and H.Rep. 99-841, Vol. II (September 18, 1986), p. 840 (Conference Report). Effective Date The provision is effective on enactment. Revenue Effect The provision is estimated to have a negligible effect on fiscal year budget receipts. 5. Adoption assistance program of the Social Security Act (sec. 1711 of the Act and sec. 473 of the Social Security Act)17 Prior Law Section 135 of the Act repeals the prior-law itemized deduction for up to $1,500 of adoption expenses paid or incurred for the legal adoption of a child with special needs (Code sec. 222). Deductible expenses included reasonable and necessary adoption fees, court costs, and attorney fees. The criteria in the Adoption Assistance Program authorized under Title IV-E of the Social Security Act and used by the States in defining a child with special needs were used in determining whether a taxpayer could claim an adoption expense deduction_related to the adoption of a particular child. However, the prior-law deduction, unlike assistance provided under the Title IV-E program, was not limited to adoption of AFDC, AFDC foster care, or SSI disabled or blind children. Reasons for Change In view of the Congressional decision to repeal the adoption expense deduction (see explanation in Part I.D.3., above, of sec. 135 of the Act), the Congress agreed to provide Federal matching funds to States to pay for certain adoption expenses related to the legal adoption of a special needs child. The Congress believed that benefits of the Adoption Assistance Program could be more efficiently directed to those who need financial assistance in such adoption cases, whereas the prior-law deduction for adoption expenses gave relatively more benefit to higher income taxpayers and no benefit to nonitemizers. Explanation of Provision The Adoption Assistance Program under Title IV-E of the Social Security Act is amended to provide 50-percent Federal matching funds to States to pay for nonrecurring adoption expenses related to the adoption of a special needs child. The expenses for which a State could claim Federal matching funds are those expenses defined as qualified adoption expenses in Code section 222, as in effect prior to its repeal by the Act. Under the Act, the Congress intended that assistance will be provided under the Title IV-E Adoption Assistance Program to adoptive parents who adopt children with special needs and who would 17 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. 1407; H. Rep. 99-426, pp. 875-876; and H. Rep. 99-841, Vol. II (September 18, 1986), pp. 22-23 (Conference Report). have been eligible to claim an adoption expense deduction under prior tax law. This includes adoptive parents of all special needs children placed according to State and local law and is not limited to those adoptive parents of special needs children who are eligible under the present Title IV-E program, i.e., those who adopt a AFDC, AFDC foster care, or SSI disabled or blind child. While the Act extends assistance for nonrecurring adoption expenses to adoptive parents of all special needs children, the program of monthly adoption assistance payments will remain limited to those who adopt AFDC, AFDC foster care, or SSI children. To ensure continued assistance to those adoptive parents who adopt children with special needs, and who would have been eligible to claim an adoption expense deduction under prior law, the Congress intended that close working relationships between the public and private adoption agencies should be established. Under the Act, the State Title IV-E Adoption Assistance agency is to make arrangements with the licensed private adoption agencies in the State whereby adoptive parents can, by way of the private agency, be reimbursed for some or all of the costs which, under prior law, the parents could claim as a qualified adoption expense deduction. In addition to reimbursement of the adoptive parents through the private adoption agencies, States are encouraged to have purchase of service agreements in place so that all or a part of the adoption fees normally charged to the adoptive parents could be paid for on behalf of the adoptive parents directly by the State Title IV-E agency. Those arrangements or agreements would be for the purpose of ensuring that expenses incurred by or on behalf of the adoptive parents be treated the same as if the adoptive activities were provided by the public adoption agency. The prior-law itemized deduction for certain adoption expenses was subject to a cap of $1,500. The Title IV-E statute also allows a State to establish limits under adoption assistance agreements on the amount of recurring monthly adoption assistance payments to be provided to adoptive parents. This general authority for a State to set limits on the amount of assistance to be provided to adoptive parents will also apply under the Act to nonrecurring adoption expenses. However, the amount of the assistance will not be limited, as is the case for monthly adoption assistance, to the amount that would have been paid for foster care. In other words, as under present adoption assistance agreements, a State may set limits on the amount of the expenses to be financed by the State and the amount may vary among adoptive parents depending on the circumstances of the parents and the child. Effective Date The provision amending the adoption assistance program in Title IV-E of the Social Security Act is effective for expenditures made after December 31, 1986. Revenue Effect This provision is estimated to increase budget outlays by amounts comparable to the amounts of increased budget receipts resulting from repeal of the prior-law itemized deduction for cer |