TABLE OF CONTENTS of Green Book - the General Explanation of the Administrations Fiscal Year 2010 revenue proposals 1 TAX CUTS FOR FAMILIES AND INDIVIDUALS ................................................................................................ 1 Provide $250 Refundable Tax Credit for Federal, State and Local Government Retirees not Eligible for Social Security ............................................................................................................................................ 1 Extend the Earned Income Tax Credit (EITC) for Larger Families .................................................................. 2 Expand the Child and Dependent Care Tax Credit ............................................................................................ 4 Provide for Automatic Enrollment in Individual Retirement Accounts or Annuities (IRAs) and Double the Tax Credit for Small Employer Plan Startup Costs ......................................................................................... 5 Extend American Opportunity Tax Credit (AOTC) ............................................................................................ 8 Provide Exclusion from Income for Certain Student Loan Forgiveness .......................................................... 10 Tax Qualified Dividends and Net Long-Term Capital Gains at a 20-Percent Rate for Upper-Income Taxpayers .................................................................................................................................................. 11 TAX CUTS FOR BUSINESSES .............................................................................................................................. 12 Eliminate Capital Gains Taxation on Investments in Small Business Stock .................................................... 12 Enhance and Make Permanent the Research and Experimentation (R&E) Tax Credit ................................... 14 Provide Additional Tax Credits for Investment in Qualified Property Used in a Qualifying Advanced Energy Manufacturing Project (“48C”) ................................................................................................... 15 Provide Tax Credit for Energy-Efficient Commercial Building Property Expenditures in Place of Existing Tax Deduction ........................................................................................................................................... 17 INCENTIVES TO PROMOTE REGIONAL GROWTH ..................................................................................... 19 Extend and Modify the New Markets Tax Credit (NMTC) ............................................................................... 19 Reform and Extend Build America Bonds ........................................................................................................ 20 Low-Income Housing Tax Credit (LIHTC) Provisions .......................................................................................... 22 Encourage Mixed-Income Occupancy by Allowing LIHTC-Supported Projects to Elect an AverageIncome Criterion ....................................................................................................................................... 22 Provide 30-Percent Basis “Boost” to Properties that Receive Tax-Exempt Bond Financing ......................... 23 Designate Growth Zones .................................................................................................................................. 25 Restructure Assistance to New York City: Provide Tax Incentives for Transportation Infrastructure ............ 30 CONTINUE CERTAIN EXPIRING PROVISIONS THROUGH CALENDAR YEAR 2012 ........................... 32 OTHER REVENUE CHANGES AND LOOPHOLE CLOSERS ......................................................................... 33 Reform Treatment of Financial Institutions and Products ...................................................................................... 33 Impose a Financial Crisis Responsibility Fee .................................................................................................. 33 Require Accrual of Income on Forward Sale of Corporate Stock .................................................................... 35 Require Ordinary Treatment of Income from Day-to-Day Dealer Activities for Certain Dealers of Equity Options and Commodities ......................................................................................................................... 36 Modify the Definition of “Control” for Purposes of Section 249 of the Internal Revenue Code ..................... 37 Reinstate Superfund Taxes ..................................................................................................................................... 38 Reinstate Superfund Excise Taxes .................................................................................................................... 38 Reinstate Superfund Environmental Income Tax ............................................................................................. 39 Reform U.S. International Tax System ................................................................................................................... 40 Defer Deduction of Interest Expense Related to Deferred Income .................................................................. 40 Determine the Foreign Tax Credit on a Pooling Basis .................................................................................... 42 Tax Currently Excess Returns Associated with Transfers of Intangibles Offshore .......................................... 43 Limit Shifting of Income Through Intangible Property Transfers .................................................................... 45 Disallow the Deduction for Non-Taxed Reinsurance Premiums Paid to Affiliates .......................................... 46 Limit Earnings Stripping by Expatriated Entities ............................................................................................ 47 Modify the Tax Rules for Dual Capacity Taxpayers ........................................................................................ 49 Reform Treatment of Insurance Companies and Products...................................................................................... 51 Modify Rules that Apply to Sales of Life Insurance Contracts ......................................................................... 51 Modify Dividends-Received Deduction (DRD) for Life Insurance Company Separate Accounts .................... 52 1 The Administration’s policy proposals reflect changes from a tax baseline that modifies the Budget Enforcement Act baseline by permanently extending alternative minimum tax relief, freezing the estate tax at 2009 levels, and making permanent a number of the tax cuts enacted in 2001 and 2003. These baseline changes are described in the modified PAYGO baseline section. TABLE OF CONTENTS 1 TAX CUTS FOR FAMILIES AND INDIVIDUALS ................................................................................................ 1 Provide $250 Refundable Tax Credit for Federal, State and Local Government Retirees not Eligible for Social Security ............................................................................................................................................ 1 Extend the Earned Income Tax Credit (EITC) for Larger Families .................................................................. 2 Expand the Child and Dependent Care Tax Credit ............................................................................................ 4 Provide for Automatic Enrollment in Individual Retirement Accounts or Annuities (IRAs) and Double the Tax Credit for Small Employer Plan Startup Costs ......................................................................................... 5 Extend American Opportunity Tax Credit (AOTC) ............................................................................................ 8 Provide Exclusion from Income for Certain Student Loan Forgiveness .......................................................... 10 Tax Qualified Dividends and Net Long-Term Capital Gains at a 20-Percent Rate for Upper-Income Taxpayers .................................................................................................................................................. 11 TAX CUTS FOR BUSINESSES .............................................................................................................................. 12 Eliminate Capital Gains Taxation on Investments in Small Business Stock .................................................... 12 Enhance and Make Permanent the Research and Experimentation (R&E) Tax Credit ................................... 14 Provide Additional Tax Credits for Investment in Qualified Property Used in a Qualifying Advanced Energy Manufacturing Project (“48C”) ................................................................................................... 15 Provide Tax Credit for Energy-Efficient Commercial Building Property Expenditures in Place of Existing Tax Deduction ........................................................................................................................................... 17 INCENTIVES TO PROMOTE REGIONAL GROWTH ..................................................................................... 19 Extend and Modify the New Markets Tax Credit (NMTC) ............................................................................... 19 Reform and Extend Build America Bonds ........................................................................................................ 20 Low-Income Housing Tax Credit (LIHTC) Provisions .......................................................................................... 22 Encourage Mixed-Income Occupancy by Allowing LIHTC-Supported Projects to Elect an AverageIncome Criterion ....................................................................................................................................... 22 Provide 30-Percent Basis “Boost” to Properties that Receive Tax-Exempt Bond Financing ......................... 23 Designate Growth Zones .................................................................................................................................. 25 Restructure Assistance to New York City: Provide Tax Incentives for Transportation Infrastructure ............ 30 CONTINUE CERTAIN EXPIRING PROVISIONS THROUGH CALENDAR YEAR 2012 ........................... 32 OTHER REVENUE CHANGES AND LOOPHOLE CLOSERS ......................................................................... 33 Reform Treatment of Financial Institutions and Products ...................................................................................... 33 Impose a Financial Crisis Responsibility Fee .................................................................................................. 33 Require Accrual of Income on Forward Sale of Corporate Stock .................................................................... 35 Require Ordinary Treatment of Income from Day-to-Day Dealer Activities for Certain Dealers of Equity Options and Commodities ......................................................................................................................... 36 Modify the Definition of “Control” for Purposes of Section 249 of the Internal Revenue Code ..................... 37 Reinstate Superfund Taxes ..................................................................................................................................... 38 Reinstate Superfund Excise Taxes .................................................................................................................... 38 Reinstate Superfund Environmental Income Tax ............................................................................................. 39 Reform U.S. International Tax System ................................................................................................................... 40 Defer Deduction of Interest Expense Related to Deferred Income .................................................................. 40 Determine the Foreign Tax Credit on a Pooling Basis .................................................................................... 42 Tax Currently Excess Returns Associated with Transfers of Intangibles Offshore .......................................... 43 Limit Shifting of Income Through Intangible Property Transfers .................................................................... 45 Disallow the Deduction for Non-Taxed Reinsurance Premiums Paid to Affiliates .......................................... 46 Limit Earnings Stripping by Expatriated Entities ............................................................................................ 47 Modify the Tax Rules for Dual Capacity Taxpayers ........................................................................................ 49 Reform Treatment of Insurance Companies and Products...................................................................................... 51 Modify Rules that Apply to Sales of Life Insurance Contracts ......................................................................... 51 Modify Dividends-Received Deduction (DRD) for Life Insurance Company Separate Accounts .................... 52ii Expand Pro Rata Interest Expense Disallowance for Corporate-Owed Life Insurance ................................. 54 Miscellaneous Changes........................................................................................................................................... 56 Increase the Oil Spill Liability Trust Fund Financing Rate by One Cent ........................................................ 56 Make Unemployment Insurance Surtax Permanent ......................................................................................... 57 Provide Short-Term Tax Relief to Employers and Expand Federal Unemployment Tax Act (FUTA) Base .... 58 Repeal Last-In, First-Out (LIFO) Method of Accounting for Inventories ........................................................ 59 Repeal Gain Limitation for Dividends Received in Reorganization Exchanges .............................................. 60 Tax Carried (Profits) Interests in Investment Partnerships as Ordinary Income ............................................ 61 Deny Deduction for Punitive Damages ............................................................................................................ 63 Repeal Lower-Of-Cost-Or-Market (LCM) Inventory Accounting Method ....................................................... 64 ELIMINATE FOSSIL-FUEL PREFERENCES ..................................................................................................... 65 Eliminate Oil and Gas Preferences ......................................................................................................................... 65 Repeal Enhanced Oil Recovery (EOR) Credit ................................................................................................. 65 Repeal Credit for Oil and Gas Produced from Marginal Wells ....................................................................... 66 Repeal Expensing of Intangible Drilling Costs (IDCs) .................................................................................... 67 Repeal Deduction for Tertiary Injectants ......................................................................................................... 69 Repeal Exception to Passive Loss Limitation for Working Interests in Oil and Natural Gas Properties ........ 70 Repeal Percentage Depletion for Oil and Natural Gas Wells .......................................................................... 71 Repeal Domestic Manufacturing Deduction for Oil and Natural Gas Companies .......................................... 73 Increase Geological and Geophysical Amortization Period for Independent Producers to Seven Years ........ 74 Eliminate Coal Preferences ..................................................................................................................................... 75 Repeal Expensing of Exploration and Development Costs .............................................................................. 75 Repeal Percentage Depletion for Hard Mineral Fossil Fuels.......................................................................... 77 Repeal Capital Gains Treatment for Royalties ................................................................................................ 79 Repeal Domestic Manufacturing Deduction for Coal and Other Hard Mineral Fossil Fuels ......................... 80 SIMPLIFY THE TAX CODE .................................................................................................................................. 81 Allow Vehicle Seller to Claim Qualified Plug-In Electric-Drive Motor Vehicle Credit .................................. 81 Eliminate Minimum Required Distribution (MRD) Rules for Individual Retirement Accounts or Annuity (IRA)/PLAN Balances of $50,000 of Less ................................................................................................. 83 Allow all Inherited Plan and Individual Retirement Account or Annuity (IRA) Balances to be Rolled Over Within 60 Days ........................................................... 85 Clarify Exception to Recapture of Unrecognized Gain on Sale of Stock to an Employee Stock Ownership Plan (ESOP) .............................................................................................................................................. 87 Repeal Non-Qualified Preferred Stock (NQPS) Designation ........................................................................... 88 Revise and Simplify the "Fractions Rule" ........................................................................................................ 89 Repeal Preferential Dividend Rule for Publicly Traded Real Estate Investment Trusts (REITS) .................... 91 Reform Excise Tax Based on Investment Income of Private Foundations ....................................................... 92 Simplify Tax-Exempt Bonds .................................................................................................................................. 93 Simplify Arbitrage Investment Restrictions ...................................................................................................... 93 Simplify Single-Family Housing Mortgage Bond Targeting Requirements ..................................................... 95 Streamline Private Business Limits on Governmental Bonds .......................................................................... 96 REDUCE THE TAX GAP AND MAKE REFORMS. ........................................................................................... 97 Expand Information Reporting ............................................................................................................................... 97 Repeal and Modify Information Reporting on Payments to Corporations and Payments for Property ........... 97 Require Information Reporting for Private Separate Accounts of Life Insurance Companies ........................ 98 Require a Certified Taxpayer Identification Number (TIN) from Contractors and Allow Certain Withholding ............................................................................................................................................... 99 Improve Compliance by Businesses ..................................................................................................................... 100 Require Greater Electronic Filing of Returns ................................................................................................ 100 Authorize the Department of the Treasury to Require Additional Information to be Included in Electronically Filed Form 5500 Annual Reports .................................................................................... 102 Implement Standards Clarifying when Employee Leasing Companies Can Be Held Liable for Their Clients’ Federal Employment Taxes ....................................................................................................... 103 Increase Certainty with Respect to Worker Classification ............................................................................. 105iii Repeal Special Estimated Tax Payment Provision for Certain Insurance Companies .................................. 108 Eliminate Special Rules Modifying the Amount of Estimated Tax Payments by Corporations ...................... 110 Strengthen Tax Administration ............................................................................................................................. 111 Revise Offer-In-Compromise Application Rules ............................................................................................ 111 Expand Internal Revenue Service (IRS) Access to Information in the National Directory of New Hires for Tax Administration Purposes .................................................................................................................. 112 Make Repeated Willful Failure to File a Tax Return a Felony ...................................................................... 113 Facilitate Tax Compliance with Local Jurisdictions ...................................................................................... 114 Extend Statute of Limitations where State Adjustment Affects Federal Tax Liability .................................... 115 Improve Investigative Disclosure Statute ....................................................................................................... 117 Require Taxpayers who Prepare Their Returns Electronically but File Their Returns on Paper to Print Their Returns with a 2-D Bar Code ........................................................................................................ 118 Require Prisons Located in the U.S. to Provide Information to the Internal Revenue Service (IRS) ............. 119 Allow the Internal Revenue Service (IRS) to Absorb Credit and Debit Card Processing Fees for Certain Tax Payments .......................................................................................................................................... 120 Expand Penalties ................................................................................................................................................... 121 Impose a Penalty on Failure to Comply with Electronic Filing Requirements .................... 121 Impose a Penalty on Failure to Comply with Electronic Filing Requirements .............................................. 121 Increase Penalty Imposed on Paid Preparers who Fail to Comply with Earned Income Tax Credit (EITC) Due Diligence Requirements ................................................................................................................... 122 Modify Estate and Gift Tax Valuation Discounts and Make Other Reforms ....................................................... 123 Make Permanent the Portability of Unused Exemption Between Spouses ..................................................... 123 Require Consistency in Value for Transfer and Income Tax Purposes .......................................................... 125 Modify Rules on Valuation Discounts ............................................................................................................ 127 Require a Minimum Term for Grantor Retained Annuity Trusts (GRATs) .................................................... 128 Limit Duration of Generation-Skipping Transfer (GST) Tax Exemption ....................................................... 129 UPPER-INCOME TAX PROVISION ................................................................................................................... 131 Reduce the Value of Certain Tax Expenditures ............................................................................................. 131 USER FEES ............................................................................................................................................................. 133 Reform Inland Waterways Funding ............................................................................................................... 133 OTHER INITIATIVES ........................................................................................................................................... 134 Allow Offset of Federal Income Tax Refunds to Collect Delinquent State Income Taxes for Out-of-State Residents ...................................................................................................................................................... 134 Authorize the Limited Sharing of Business Tax Return Information to Improve the Accuracy of Important Measures of our Economy ....................................................................................................................... 135 Eliminate Certain Reviews Conducted by the U.S. Treasury Inspector General for Tax Administration (TIGTA) ................................................................................................................................................... 137 Modify Indexing to Prevent Deflationary Adjustments .................................................................................. 138 PROGRAM INTEGRITY INITIATIVES ............................................................................................................ 139 Increase Levy Authority for Payments to Federal Contractors with Delinquent Tax Debt ........................... 139 Increase Levy Authority for Payments to Medicare Providers with Delinquent Tax Debt ............................ 140 MODIFIED PAY-AS-YOU-GO (PAYGO) BASELINE ...................................................................................... 141 TABLES OF REVENUE ESTIMATES ................................................................................................................ 145 www.irstaxattorney.com 888-712-7690