II. DESCRIPTION OF THE BILLS 1. H.R. 700-Messrs. Stark and Hance Special Deduction Rule for Travel and Transportation Expenses of Construction Workers Present Law Present law allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business (Code sec. 162). Traveling expenses which meet these general requirements are deductible if incurred by the taxpayer while he or she is away from home in the pursuit of a trade or business. For these purposes, traveling expenses include transportation fares as well as amounts expended for meals and lodging, other than amounts which are lavish or extravagant under the circumstances (sec. 162(a)(2); Treas. Reg. sec. 1.162-2(a)). No deduction is allowed for personal, living, or family expenses, including the cost of commuting to and from work (sec. 262; Treas. Reg. sec. 1.262-1(b)(5)). Traveling expenses are considered to be incurred while away from home in several different situations. One such situation is when the traveling expenses are incurred in connection with temporary employment and the taxpayer has a regular or principal place of business (or, in its absence, a regular place of abode) away from which the temporary employment takes place. The term temporary from this purpose generally is defined by the Internal Revenue Service and the majority of courts to mean employment which can reasonably be expected to last only for a short period of time. By contrast, traveling expenses incurred in connection with employment which is considered to be of indefinite or indeterminate duration generally are not deductible. On numerous occasions, the courts have considered the issue of whether a particular taxpayer's employment is temporary or indefinite in nature. Explanation of the Bill The bill would provide that a job at a site located more than 30 miles from the principal place of residence of a construction worker shall be deemed to be temporary for the first two years the worker is employed at that job. Accordingly, even if the employment could be considered to be of indefinite duration, the worker would be allowed to deduct travel and transportation expenses (including meals and lodging) for the first two years at a job site which is located more than 30 miles from his or her home. The bill also would provide that after a construction worker's first two years at such a site, the determination of whether the job was temporary (so that travel and transportation expenses would still be deductible) is to be made on the basis of all the facts and circumstances, subject to three special rules set forth in the bill. (9) First, the fact the job had already lasted two years could not be considered in determining whether or not it was temporary. Second, the mere fact that a construction worker's employment at a job site was of indefinite duration could not result in treating the job as other than temporary. Third, no length of time could be deemed, either automatically or presumptively, to make the job other than temporary. The special traveling expense rules in the bill would apply to any individual employed in the building or construction industry (other than clerical or management employees), whether as a skilled, semi-skilled, or unskilled laborer. Effective Date The provisions of the bill would be effective on enactment. Revenue Effect The provisions of the bill are estimated to decrease fiscal year budget receipts by $64 million in 1985, $432 million in 1986, $477 million in 1987, $524 million in 1988, and $571 million in 1989. 2. H.R. 907-Mr. Vander Jagt Expansion of Exclusion for Employer-Provided Meals to Cover Certain Off-Premises Meals Present Law Present law excludes from gross income the value of meals furnished to an employee (or to the employee's spouse or dependents) by or on behalf of the employer for the convenience of the employer but only if the meals are furnished on the employer's business premises (sec. 119). If it is reasonable to believe that the employee will be able to exclude the value of a meal from income under section 119, then the value of the meal is not subject to social security or unemployment taxes (secs. 3121(a)(19), 3306(b)(14)). Under the Tax Reform Act of 1984, the value of meals provided to an employee at a subsidized eating facility operated by the employer is excluded from income and wages as de minimis fringes if (1) the facility is located on or near the employer's business premises, (2) revenue from the facility equals or exceeds direct operating costs, and (3) in the case of certain highly compensated employee's nondiscrimination requirements are met (sec. 132(e)(2), effective January 1, 1985). Explanation of the Bill The bill would expand the section 119 exclusion to cover furnishing of meals off the employer's business premises if (1) the employer is unable to justify economically the operation of on-premise eating facilities, giving due consideration to capital and operating costs, (2) on-premise eating facilities are not provided at the actual place of employment of affected employees, (3) the meals are provided in kind, not in cash, and (4) the meals are furnished within a time frame consistent with the employer's established meal schedule. Effective Date The provisions of the bill would be effective on enactment. Revenue Effect The provisions of the bill are estimated to decrease fiscal year budget receipts by $111 million in 1985, $194 million in 1986, $249 million in 1987, $287 million in 1988, and $320 million in 1989. 3. H.R. 1343-Mr. Lowry Bad Debt Reserves for Stock Mutual Savings Banks Present Law Under present law (sec. 593), mutual savings banks, savings and loan associations, and certain other financial institutions ("thrift institutions") can deduct from taxable income a reasonable addition to their reserves for losses on qualifying real property loans (such as home mortgages). The amount so added to a reserve for such losses cannot exceed the largest of three amounts determined under three separate methods-the percentage of taxable income method (sec. 593(b)(2)), the percentage method applicable to banks (sec. 593(b)(3)), and the experience method (sec. 593(b)(4)). The amount determined under the percentage of taxable income method generally cannot exceed 40 percent of the taxpayer's taxable income for the year. However, because the deduction under section 593(b) is designed in part to encourage financial institutions to provide real property loans, the percentage of taxable income determined under paragraph (2) is reduced to the extent that an insufficient percentage of the taxpayer's holdings consist of real property loans and certain other assets (such as cash) described in section 7701(a)(19)(C) (“qualified property"). In the case of mutual savings banks that do not have capital stock represented by shares, at least 72 percent of total assets must be qualified property in order for the addition to the bad debt reserve, as determined under section 593(b)(2)(B), to equal 40 percent of taxable income for the year. If less than 72 percent of their assets are qualified property, then the 40-percent cap on the addition to the bad debt reserve is reduced by 11⁄2 percentage points for each one percentage point by which an insufficient proportion of total assets so qualify. A more stringent rule regarding the holding of real property loans applies to all other thrift institutions (including mutual savings banks that have capital stock represented by shares). For these institutions, the full 40-percent cap applies only if at least 82 percent of total assets are qualified property. For each one percentage point by which an insufficient proportion of assets so qualify, the 40-percent cap is reduced by 3/4 of one percentage point. Explanation of the Bill Under the bill, mutual savings banks that have capital stock represented by shares would be treated like other mutual savings banks, rather than like all other thrift institutions, for purposes of the permissible addition to bad debt reserves under the percentage of taxable income method. Thus, only 72 percent of the total assets of a stock mutual savings bank, rather than 82 percent as under present law, would have to be qualified property in order for the 40-percent cap, rather than a reduced cap, to apply. Effective Date The bill would apply to taxable years ending after the date of enactment. Revenue Effect The provisions of the bill are estimated to decrease fiscal year budget receipts by less than $50 million annually. 4. H.R. 1773-Messrs. Duncan and Guarini Exemption from Unrelated Business Income Tax for Sales of Membership Lists by Certain Organizations General rule Present Law Under present law, certain organizations are generally exempt from Federal income tax because of their charitable, educational, religious, or other nonprofit purposes and functions. However, in light of examples of tax-exempt organizations which had been acquiring and operating, on a tax-free basis, businesses unrelated to their exempt purposes or functions, the Congress enacted the unrelated business income provisions in 1950. These provisions (Code secs. 511-514) impose a tax on the unrelated business income of exempt organizations, primarily in order to remove any unfair advantage which tax-exempt organizations otherwise would have over taxable competitors (S. Rep. No. 2375, 81st Cong., 2d Sess. 28-29 (1950)). The tax applies to gross income derived by an exempt organization from any unrelated trade or business regularly carried on by it, less allowable deductions directly connected with the carrying on of such trade or business, both subject to certain modifications. Under one such modification (sec. 512(b)(2)), dividends, interest, annuities, royalties, and, generally, rents from real property are exempted from the tax. Also, there are special rules with regard to rents from personal property leased with real property. Definition of unrelated business Under present law, an unrelated trade or business is defined as any trade or business of a tax-exempt organization the conduct of which is not substantially related (aside from the need of such organization for income or funds or the use it makes of the profits derived) to the exercise or performance by such organization of its charitable, educational, religious, or other nonprofit purpose and function constituting the basis for its exemption (sec. 513(a)). The U.S. Court of Claims held in 1981 that income received by the Disabled American Veterans from other exempt organizations and commercial businesses for the use of its mailing lists constitutes unrelated business taxable income, and does not constitute "royalties" expressly exempted from the tax under section 512(b)(2) (Disabled American Veterans v. U.S., 650 F.2d 1128 (1981)). The court found that in renting its donor lists, the DAV operated in a competitive, commercial manner with respect to taxable firms in the direct mail industry; that these rental activities were regularly carried on; and that the rental activities were not substantially related to accomplishment of exempt purposes (apart from the organization's need for or use of funds derived from renting the mailing lists). Explanation of the Bill In the case of any organization exempt from tax under section 501 which is eligible to receive tax-deductible charitable contributions under section 170, the bill would exclude from the term unrelated trade or business any trade or business of such organization that consists of exchanging, renting, or selling names and addresses of donors to, or members of, such organization. The categories of organizations to which the bill would apply would include (1) taxexempt charitable, educational, religious, etc. organizations formed in the United States; (2) certain organizations of war veterans and their auxiliary units; and (3) certain domestic fraternal organizations (which are eligible to receive tax-deductible contributions for gifts is used exclusively for charitable, educational, religious, etc., purposes); and (4) certain nonprofit cemetery companies. Effective Date The provisions of the bill would apply to taxable years ending after the date of enactment. Revenue Effect The provisions of the bill are estimated to reduce budget receipts by $10 million annually. Prior Congressional Action H.R. 4170 (the Deficit Reduction Act of 1984), as passed by the Senate, included a provision (adopted as a floor amendment by Senator Pryor) providing an exemption from the unrelated business income tax for amounts received by certain Federally chartered corporations (named in 36 U.S. Code sec. 1101) for renting or exchanging lists of their donors or members with organizations con |