SECTION 6050M OF TAX CODE AND TECHNICAL CORRECTIONS PACKAGE (H.R. 4333 AND S. 2238)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90M00005R001400010038-0
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 9
• Document Creation Date: December 27, 2016
• Document Release Date: August 1, 2013
• Sequence Number: 38
• Publication Date: August 11, 1988
• Content Type: MEMO

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MEMORANDUM FOR:
FROM:
SUBJECT:
L&PLD/OGC
, OSD/OGC
11 August 1988
OCA 2689-88
Legislation Division
Office of Congressional Affairs
Section 6050M of Tax Code and Technical
Corrections Package (H.R. 4333 and S. 2238)
1. On 26 July 1988, the Senate Finance Committee approved
the technical corrections package concerning the Tax Reform Act
of 1986. The full House approved its version on 4 August 1988,
but the Senate will not vote on the bill until after the August
recess. Attached is a copy of the provision as passed by the
House as well as the language found in both the House and
Senate reports.
2. Should1 ou have any questions, please telephone me on 7
Attachments
OCA,
(11 August 1988)
Distribution:
Original - Addressees
1 - D/OCA
_1 - DDL/OCA
- OCA Records:7
1 - OCA/Leg/Subject File: Procurement/Small Business
1 - RMH Signer
1 - OCA Read
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STAT
STAT
STAT
STAT
STAT
STAT
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MISCELLANEOUS REVENUE ACT OF 1988
REPORT
OF THE
COMMITT'EE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
[Including cost estimate ,of the Congressional Budget Office]
JULY 26, 1988.?C,ommitted to the Committee of the Whole House on the
State of the Union and ordered to be printed .
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON: 1988
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360
5. Information reporting by brokers (sec. 115(e) of the bill,
1521 of the Reform Act, and sec. 6045 of the Code)
Present Law
Persons doing business as a broker must report on specified types
of transctions they effect for customers. Generally, reporting is re.
quired on sales of securities, commodities, regulated futures eon.
tracts, precious metals, and real estate.
Explanation of Provision
The bill provides that a person shall not be treated as a broker
with respect to activities consisting of managing a farm on behalf
of another person. This exempts farm managers from the require-
ment of filing a Form 1099-B with respect to their farm manage.
ment activities. This information must be filed by these farm man-
agers on a Schedule F, where it is provided in a more useful
format. Consequently, filing this information on a Form 1099-B is
duplicative. This provision is effective as if included in the Tax
Equity and Fiscal Responsibility Act of 1982 (which generally im-
posed these information reporting requirements).
The bill provides that the person required to provide information
returns on real estate transactions (who is generally defined as the
person responsible for closing the real estate transaction) is to be
called a "real estate reporting person" instead of a "real estate
broker."
The bill also makes it unlawful for any real estate reporting
person to charge separately any customer for complying with the
information reporting requirements with respect to real estate
transactions. This provision is effective on the date of enactment of
the bill.
6. Information reporting on persons receiving contracts from cer-
tain Federal agencies (sec. 115(f) of the bill, sec. 1522 of the
Reform Act, and sec. 6050M of the Code)
Present Law
Present law requires that the head of each Federal executive
agency file an information return with the IRS indicating the
name, address, and taxpayer identification number of each person
with which the agency enters into a contract. The agency must also
report any additional information required under Treasury regula-
tions. There is no exception from this information reporting in
present law for contracts involving national security, confidential
law enforcement, or foreign counterintelligence activities.
Explanation of Provision
The bill excepts specified types of contracts from the general in-
formation reporting requirements applicable to Federal executive
agencies, and subjects those types of contracts to a different form of
information reporting.
There are two types of contracts between a Federal executive
agency and another person that are subject to these special rules.
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0
kers (sec. 115(e) of the bill,
sec. 6045 of the Code)
zt Law
ker must report on specified types
omers. Generally, reporting is re_
nmodities, regulated futures Con.
state.
of Provision
shall not be treated as a broker
ig of managing a farm on behalf
farm managers from the require-
h respect to their farm manage-
must be filed by these farm man-
it is provided in a more useful
Information on a Form 1099-B is
ective as if included in the Tax
Act of 1982 (which generally fro-
requirements).
required to provide information
(who is generally defined as the
real estate transaction) is to be
erson" instead of a "real estate
al for any real estate reporting
customer for complying with the
nts with respect to real estate
ctive on the date of enactment of
ri
ns receiving contracts from cer-
[5(f) of the bill, sec. 1522 of the
f the Code)
(Law
head of each Federal executive
-n with the IRS indicating the
Lification number of each person
a contract. The agency must also
required under Treasury regula-
n this information reporting in
national security, confidential
rin tell igence activities.
d. Provision
Df contracts from the general in-
applicable to Federal executive
if contracts to a different form of
ts between a Federal executive
re subject to these special rules.
361
The first is a contract where either the fact of the existence of the
contract or the subject matter of the contract has been classified.
This is accomplished by designating and clearly marking or clearly
representing, pursuant to the provisions of Federal law or an Exec-
utive order," that the Contract or the subject matter of the con-
tract requires a specific degree of protection against unauthorized
disclosure for reasons of national security. The second type of con-
tract subject to the special rules is a contract involving a confiden-
tial law enforcement or foreign counterintelligence activity. In
order to be eligible for these special rules, the head of the Federal
executive agency (or his designee) must determine in writing that
filing the information return generally required of Federal execu-
tive agencies would interfere with the effective conduct of a confi-
dential law enforcement or foreign counterintelligence activity.
This determination must be made pursuant to regulations issued
by the Federal executive agency making the determination. This
second type of contract involves primarily undercover operations
(including sites for undercover operations) and informants.
These two types of contracts are subject to special information
reporting requirements, and are exempted from the general infor-
mation reporting requirements of section 6050M. The special infor-
mation reporting requirements are that the IRS must first request
that the Federal executive agency acknowledge whether that
agency has entered into a contract with a particular person, who
must be identified in the IRS request. The Federal executive
agency must in response acknowledge whether it has entered into
a contract with the specified person. If it has, it must provide to
the IRS with respect to that person the information required to be
reported under section 6050M. In addition, the agency must pro-
vide whatever additional information the agency and the Treasury
agree is appropriate. The term "person" has the meaning given in
section 7701(a)(1).
It is contemplated that the information provided by Federal exec-
utive agencies to the IRS under these special rules might need to
be provided only to certain IRS employees, such as those with secu-
rity clearances. If this is necessary, it is also contemplated that the
Federal executive agencies will cooperate with the IRS in expedi-
tiously obtaining clearance for the IRS employees.
This provision is effective as if included in the 1986 Act (i.e., on
January 1, 1987).
7. Information reporting on royalties (sec. 115(g) of the bill, sec.
1523 of the Reform Act, and sec. 6676 of the Code)
Present Lau
Persons who make payments of royalties aggregating $10 or
more to any person in a calendar year must provide an information
report on the royalty payments to the IRS (as well as provide a
copy to the payee) (Code sec. 6050N).
9 Executive Order. 12356 is the currently effective Executive order prescribing a uniform
system for classifying, declassifying, and safeguarding national security information (47 Federal
Register 14874; April 6, 1982).
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firrmillac
4.1.0.0414 Mai& ? Am. AMMO
-r -.
Seetioe 2513let." ee?-?,-
Paragraph glf Ike
111611 Code Is insunidad IN Striking OUT
"(Other than a nontatable fiftsn
KV The amendments made by this pam-
laraPh abet, aPPla to transfers niter March
Si. lett
(19) Cause (V of section Iff1(itlf21(13) cif
Vie 1986 Code is amended to read as follows:
'YU Vie value of the property *evolved in
such transfer induced be the mut of--
"(I) any Federal estate tax or state death
tax actually recovered from the trust attrib-
utable to such pruperty. and
any onaniabie deductios allowed
under section 2055 or 2522 seith respect to
such property, and".
(20) Parsigroph 121 of section WM) of the
1986 Code is emended by strikieg out "a
spouse of the tranzfcror" and inserting in
lieu thereof "a spouse (or former spouse) of
the transferor".
Oil Aurrannarrs Raul= iv SErncur 1433
or me REFORM ACT.?
II Subsection tel of section 1433 of the
Reform Act is amended by striking out "this
part" and inserting in heir thereof 'Vas sub-
1
12) Paragraph (2) of section I433(b) of the
Reform Act is amended?
IA) by striking out 'this part" in the mate-
rice preceding subparagraph (AI and insert-
ing in lieu Memo f "this subtitle;
(13) by inserting before the comma at the
Mt sabliansgraph (A) Vie ;aloe:ring: "(or
out of income attributable to corpus so
added); and
(C) by inserting "or revocable trust" rafter
wili"in subparagraph IBS
131(4) Subsection lb) of section 1433 of the
Reform Act is amended by striking out para-
graph 1.11 and inserting in lieu thereof the
following new paragraphs.-
'Y3) Terararerer or CERTAIN TRANSFERS ro
'VA) IN GENERAL.?For purposes of chapter
13 of Vie Internal Revenue Code of 1986, the
term 'direct skip' shall not include any
transfer before January 1, 1990, from a
transferor to a grandchild cif the transferor
to Vie extent the aggregate transfers from
such transferor to such grandchild do not
exceed $2,000,000.
"(11) l'RERTMEWr or =ARMFULS IN TRUST.?
Foe purposes of subparagraph a transfer
in trust for the benefit of a grandchild shrill
be treated as a transfer to such grandchild if
(and only if)?
'Vi) -during the We of Vie grandchild, DO
portion-of the corpus or income of Vie trust
_mar be distributed to for for the benefit of)
any person other than such grandchild,
"(ii) the assets of the trust will be includ-
ible in the grass estate of the grandchild if
the grandchild dies before Vie trust is termi-
nated, and
'Vit/ all of the income of the trust for Peri-
ods after the grarulehild has attained age 21
will be distributed to tor for the benefit of)
such grandchild not less frequently than an-
nually.
'(C) COORDINA770N 367771 SECTION 2153)111 OP
Ter sass coos.?in the ease of any transfer
which would be a generation-skipping trans-
fer but for subparagraph (d) the rules of sec-
tion 2653(a) of the Internal Revenue Code of
1086 shall apply as if such transfer were a
generation-skipping transfer.
"ID) COORDINATION WITH TAXABLE TERMINA-
TIONS AND TAXABLE DISTRIBUTIONS.?For pur-
poses of chapter 12 of the Internal Revenue
Code re 1986; the terms Vat-able _termina-
te:me and 'taxable distribution' shall not in-
elude any transfer which would be a direct
skip but for subparagraph IA).
Ma" lbaaellint keen ?respetitraiserm-
WAN SHOO and oitliberear tio the hider.
nal iieslonstiawk of Sg ~aim eye-
diesi 21111.0110 auch.Cade Oat apply
daterinining whether int ilmidual lee
grnisilleldit SPIN tretrialb'ror.* '1
QOM Stif of asoftan 14?34111,41.1 of
Vie Atom Act am aniesidad sahParli-
graph (All shall apply only to transfers after
June 111, 1987.
141 Subsection (d) at section 1413 Of the
Reform Act is amended?
(A) .by striking out "Ann be treated as a
direct skip" and usual:Inv In *es thereof
'Shan be treated as a -rilisect skip to such
grandchikl"
(B) by striking out 'Would be a direct
skip" in subparagraph (B) and inserting in
Lieu thereof "would be a direct aktp to a
grandchild': and
(C) by adding at the end thereqf the foUrne-
ing new Sentence' "Useless the grandchild
otherwise directs by will, the estate of such
grandchild shall be entitled to reorrver from
the person recent:re the property ern the
death of the grandchild any increase in Fed-
eral estate lax on the estate of the grand-
child by reason of the preceding sentence"
SEC Iii. AltrAIIIISSTS IMAM iv 7177A Zr oF
THE ALEPORM
la) Arrerasmr.er BELATED so lEscrsow 1501
or riff Reroiem Ace?Subparagraph (R) of
section 4724(41(2) of Vie 1986 Code is
amended by striking out "6031(b)" and in-
serting in lieu thereof 16031(b) or (cr.
(b) AMENDMEIVTS RELATED TO SECTION 1503
or rue BeronmAct.?
(1) Subparagraph (A) of section 6013(b)(51
of the 1986 Code is amended to seed as 1W-
'VA) COORDINATION IIII177 ascrraw srss?For
purposes of section 5653, where the sum of
The amouhts shown as tax on the se-Partite
returns of each spouse is less than the
amount shown as tax on the joint return
made under this subsection?
'Vi) such sum shall be treated as the
amount shown on the joint return,
"(ii) any negligence tor disregard of rules
or regulations) on either separate return
shall be treated as negligence tor such disre-
gard) on the joint return, and
"Iiii) any fraud on either separate return
shall be treated as fraud on the joint
return." -
121(A) Paragraph 11) of -section 6653(a) of
the 1986 Code is amended to read as follows:
"ID Z GENERM...?If any part of any under-
payment las defined in subsection fe.)1 of tar
required to be shown on a return is due to
negligence (or disregard of rules or regula-
tions), there shall be added to the lar an
amount equal to 5 percent of the -underpay-
neat
(B) Paragraph (1) Of section 6653(b) of the
1986 Code is amended to read as follows:
"(I) IN GE7VEP-4L.?If any part of any under-
payment las defined in subsection (0) of tax
required to be shown on a return is due to
fraud, there shall be added to the tax an
amount equal to 75 percent of the portion of
the underpayment which is attributable to
fraud."
IC) Paragraph f21 of section 6601(e) of the
1986 Code is amended by striking out '6659"
each place it appears and inserting in lieu
thereof "6653, 6659".
(3) Subsection Kg) of section 6653 of the
1986 Code is amended by adding at the end
thereof the following new sentence: "If any
penalty is imposed under subsection (a) by
reason of the preceding sentence, only Vie
portion of the underpayment which is at-
tributable to the failure described in Vie pre-
ceding sentence shall be taken Into account
in determining the amount of the penalty
under subsection (a)."
-1101/4)
idled
elevate/aril,'
Illeartelleter Reno= ro
?WS femme ACT.-17re Tanta? made /no-
tion 11102(e) of the Omaha Blettpat Ream-
ciliation Act at 1975 shell tate eke) at if
The The RIVITTIR Act Of 1116 Sad been en-
acted on the day before the date of the enact-
ment of the Omnibus Budget RecOnaliation
Act af 1925.
Id) Amertostssers RELATED to Samos/ .1521
OF Tar Rows ACT.?Section 6621 Of the
1986 Code is amended?
) by striking out 'short-term Peden:LI
rate' each place it appears in subsectioiss
(a) and tb)(11 and inserting in lieu thereof
"Federal short-tenn rate", and
(2) by striking out 'Wsroar-Tsam Frosess
Lire in the heading of subsection (6) and
inserting in lieu thereof "Ferienst Smarm-
TERM RATE".
tel lereramsrers RELATED TO Sscrroir 1521
OF THE REFORM Ace?
rte) paragraph (1) of section 4045(e) of
the 1986 Code is amended by adding at the
end theme the following new sentence:
"A person shall not be treated as a broker
with respect to activities consisting of man-
aging a farm on behalf of another pervon.-
(13) The amendment 'wade by subpara-
graph (A) shall take effect as if included in
Vie amendments wade by section 311(a)11)
of the Tax Equity and PiSCCLI Responsibility
Act of 1992-
(2)(A1 Subsection le) of section 6145 of the
1986 Code is emended by adding al the end
thereof the following new paralrraPh:
'V31 PROHIBITION or SEPARATE cesnere TOR
TILING BETURN.?It shall be unlawful for any
real estate "'mortise person to separately
charge any customer/or complying with any
requirement Of paragraph (Li."
(B) The amerutment made by subpara-
graph (A) shall take effect on the date of the
enactment of this Act.
(Y) Subsection lel of section 19945 of the
1986 Code is amended-
1A1 by striking out "real estate broker"
each place it appears in the text and insert-
ing in bee thereof "real estate reporting
person", and
1B) by striking out 'Weis esrsas BROKER"
in the heading of paragraph (21 and insert-
ing in lieu thereof "REAL ESTATE REPORTING
PERSON".
.tf) terionrier Seurat, To SsersOrr4U22,giC
firriterannACe.--Section S050M of the 1986
Code is amended by adding at the end there-
of the following new subsection:
EXCEPTION FOR CERTAIN CLASSIFIED OR
CONFIDENTIAL Coerascrs.?
"fl IN GENERAL.?Except as provided in
paragraph (2), this section shall not apply
in the case of a contract described in para-
graph (3).
"(2) REPORTING REQUIREMENT. ?Each Feder-
al executive agency which has entered into a
contract described in paragraph 131 shall,
upon a request of-the Secretary which iden-
t(fies a particular person, acknowledge
whether such person has entered into such a
contract with such agency and, if so, pro-
vide to the Secretary?
"(41 the information required under this
section with respect to such Person. and
'YB) such other information with respect
to such person which the Secretary and the
head of such Federal executive agency agree
is appropriate.
NJ) DESCRIPTION OF CONTRACT?For pur-
poses of this subsection, a contract between
a Federal executive agency and another
person is described in this paragraph if?
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as requiring a specific degree Of pretection
against unauthorised disclosure/or reasons
of national security, or
"(B) the head of such Pedestal executive
agency for his designee) pursuant to regula-
tions issued by each agency detenninei? in
writing, that filing Re required return
under this section would interfere with the
effective conduct Of a confidential law en-
forcement or foreign Counterintelligence GC-
Unity."
(g) Ametromerers lieu= TO SECTION 1513
or riff REFORM Aon?Section 6676 of the
1986 Code is amended?
(1) by striking out "6049, or 4050N" in
subsection (all') and inserting in lieu there-
of "or 6049';
(2) by striking out "6049, or 6050N" in
subsection (b)(11(A) and inserting in lieu
thereof "or 6049'; and
(3) by striking out ",DIVIDENDS, AND Ror-
41.774S" in the heading for subsection (b) and
inserting in lieu thereof "AND Drenieno".
(hI AMENDMENTS RELATED 70 SECTION 1542
OF 7711: REFORM Acr.--Subsection (h) of sec-
tion 6154 of the 1986 Code (as in effect
before Us repeal by the Revenue Act of 1987)
is amended?
(1) by striking out "subject to the tax im-
posed by section 4940" in paragraph (1),
(2) by amending paragraph (2) to read at
follows:
"(1) an tax imposed by section 511, and
any tax imposed by section 1 or 4940 on a
private foundation, shall be treated as a tax
imposed by section 11, and", and
(3) by adding at the end thereof the follow-
ing new sentence:
"In the case of an organization described in
paragraph (1), subsection (c) of section 6655
shall be applied by substituting '5th month'
for 'third month' and subsection (ell(3)(A) of
section 6655 shall be applied by substituting
'2 months' for '2 months' in clause al, be
substituting '4 months' for months, in
clause ail, by substituting '7 months' for '8
months' in clause (iii), and by substituting
'10 months' for '11 months ' in clause (iv)."
(ii AMENDMENT RELATED 70 SECTION 1551 OF
THE REFORM ACT.?Clause (iii) of section
7430(c)(2)(A) of the 1986 Code is amended to
read as follows:
"(iii) meets Vie requirements of the ist
sentence of section 24112(d)(1)113) of title 28,
iUnited States Code las in effect on October
12, 1986) and meets the requirements of sec-
tion 2412(d)(2)(B) of such title 28 (as so in
effect)."
(j1 PROVISION RELATED TO SECTION 1556 OF
7711: REronsr ACT.?To the extent the salary
recommendations submitted by the Presi-
dent on January 5, 1987, are inconsistent
with the provisions of section 7443A(d)(1) of
the 1986 Code, such recommendations shall
not be effective for any period.
(ILI AMENDMENT RELATED 7'0 SECTION 15570,
THE REFORM A cr. ?
(1 ) Subsection (d) of section 7447 of the
1986 Code is amended by adding at the end
thereof the following new sentence: "In com-
puting the rate of the retired pay under
paragraph (1) of -this subsection for any in-
dividual who is entitled thereto, any period
during which such individual performs serv-
ices under subsection (c) on a substantially
full-time basis shall be treated as a period
du ring which he has served as a judge."
(21 The amendment made by paragraph
(l) shall apply for purposes of determining
the amount of retired pay for months begin-
ning after the date of the enactment of this
Act regardless of when the services under
aide litere "Cr-
,41.01
go ilitalsron8611
of ASCU** 16811 Of the
liat. is -- -
(A) iniinaerting "err the summoned.partyt
respanif to 0 iitIMIOOW described in subset-
lionalp flet 'the summons described in
ted? and
(11)by'striking out "the summons is issued
other" and inserting in lieu thereat "the
summons is issued".
(2) Subsection (II of section 76(M of Vie
1986 Code is amended?
(A) by striking out "the third-party record-
keeper" in paragraph (4) and Inserting in
Lie's thereof "the summoned party", and
at) by inserting "aexi SUMMONED Paltry"
after - 11=m:warren" in Vie subsection
heading.
(3) The amendments made by this subsec-
tion ehilt1 take effect on the date of the en-
actment of this Act.
/MI AMENDMENT RELATED lt) SECITON 1562
or 7711: Remus Acr.?Subsection (d) of sec-
tion 6212 of the 1986 Code is amended by
adding at the end thereof the following new
sentence "Nothing in this subsection shall
affect any suspension of the running of any
period of limitations during any Period
during which the rescinded notice was out-
standing."
(n) AMENDMENT RELATED TO SECTION 1563
or isre REFORM Acr?Subparagraph (13) of
section 5404(e)(1) of the 1986 Code is amend-
ed?
(1) by inserting "error or" before "delay",
and
12) by inserting "erroneous or" before "dil-
atory"-
(o) AMENDMENT RELATED IV SECTION 1565 OF
77IE REFORM Acr.?Effective with respect to
levies made after December 31, 1988, para-
graph (10) of section 6334(a) of the 1986
Code is amended?
(1) in subparagraph (A)?
(A) by striking out "IV" and -inserting in
lieu thereof "III, IV, V,", and
(B) by adding "or" at the end thereof,
(2) in subparagraph (CI by striking out
"21," and inserting in lieu thereof "13, 71,
23," and
(3) by striking out subparagraph (.8) and
redesignating subparagraph (C) as subpara-
graph 031.
fp) AMENDMENT RELATED TO SECTION 1581
OF 7711: REFORM A07'.?Subsection (c) of sec-
tion 1581 of the Reform Act is amended by
adding at Vie end thereof the following new
sentence:
'"The preceding sentence shall not apply jf
its application would result in an increase
in the number of withholding allowances for
the employee."
(Q) 'GENERAL REQUIREMENT OF RETURN,
STATEMENT, OR LIST.?
(1 ) Subsection (a) of section 6011 of the
1986 Code is amended by striking out 'for
the collection thereof" and inserting in lieu
thereof "with respect to the collection there-
Qr. -
(2) The amendment made by paragraph
(1) shall take effect on the date of the enact-
ment of this Act.
(r) CERTAIN REFUNDABLE CREDITS TO BE AS-
SESSED UNDER DEFICIENCY PROCEDURES.?
(1) Subsection (a) of section 6203 of Vie
1986 Code is amended by striking out para-
graph (4).
(2) Paragraph (4) of section 6211(b) is
amended to read as follows:
"(4) For purposes of subsection (a)
"IA) any excess of the sum of the credits al-
lowable under sections 32 and 34 over the
tax imposed by subtitle A (determined with-
out regard to such credits), and
?
ttr. tlie Os* Of **Si iyilltits
he Mei* by the taxpayer on hi, tatter* Mier
raintrani shown as the tax be She
or at ouch
taxPar?
tattoo ideteronined orithout
sward ,toouch credits),
Slau he taken into account as negative
eniounts of tat."
al Subsection (h) of section 6213 of the
1981 Code it amended by striking out para-
graph (1) and by redesignating paragraph
(4) as paragraph (3).
(4) The amendments made by this rubser-
tion shall apply to notices of deficiencies
mailed after the date of the enactment of
this Act.
SSC us. AMENDMENTS RELATED TO TTTLE or
ME REFORM ALT.
(4) AMENDMENTS RELATED TO SECTION 1603
or THE REFORM Acr.?
(1)(A) Subparagraph (A) of section
501(c)(25I of the 1986 Code is amended by
adding at the end thereof the following new
sentence:
"For purposes of clause WO, the term 'real
property' shall not include any interest as a
tenant in common tor similar interest) and
shall not include any indirect interesL "
(B) The amendment made by subpara-
graph (A) shall apply with respect to proper-
ty acquired by the organization after June
10, 1987, except that such amendment shall
not apply to any property acquired alter
June 10, 1987, pursuant to a binding written
contract in effect on June 10, 1987, and at
all times thereafter before such acquisition.
12) Subparagraph (D) of section 501(c)(25)
Of the 1986 Code is amended by striking out
so much of such subparagraph as precedes
clause al and inserting in lieu thereof the
following:
"(D) A corporation or trust shall in no
event be treated as described in subpara-
graph (A) unless such corporation or trust
permits its shareholders or beneficiaries?"
(3)(A) Paragraph (25) of section 501(c) of
the 1986 Code is amended by adding at the
end thereof Vie following new subparagraph:
"(E)(iI For purposes of this title?
"(I) a corporation which is a qualified
subsidiary shall not be treated as a separate
corporation, and
"(III all assets, liabilities, and items of
income, deduction, and credit of a qualified
subsidiary shall be treated as assets, liabil-
ities, and such items (as the case may be) of
the corporation or trust described in sub-
paragraph (A).
"(ii) For purposes of this subparagraph,
the term 'qualified subsidiary' means any
corporation if, at all times during the period
such corporation was in existence, 100 per-
cent of the stock of such corporation is held
by the corporation or trust described in sub-
paragraph (A).
"(iii) For purposes of this subtitle, if any
corporation which was a qualified subsidi-
ary ceases to meet the requirements of clause
nil, such corporation shall be treated as a
new corporation acquiring all of its assets
(and assuming all of its liabilities) immedi-
ately before such cessation from the corpora-
tion or trust described in subparagraph (A)
in exchange for its stock."
(B) Subparagraph (C) of section 501(c)(25)
of the 1986 Code is amended by inserting
"or" at the end of clause (iii), by striking
out ", or" at the end of clause (iv) and in-
serting in lieu thereof a period, and by strik-
ing out clause (v).
(4) Paragraph (25) of section 501(c) of the
1986 Code is amended by adding at the end
thereof the following new subparagraph:
_ "(F) For purposes of subparagraph (A), the
term 'real property' includes any personal
property which is leased under, or in con-
nection with, a lease of real property, but
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100TH Congress I
2d Session J
SENATE
Calendar No. 861
REPORT
100-445
TECHNICAL CORRECTIONS ACT OF 1988
REPORT
OF THE
COMMITTEE ON FINANCE
UNITED STATES SENATE
TO ACCOMPANY
S. 2238
[Including cost estimate of the Congressional Budget Office]
AUGUST 3 (legislative day, AUGUST 1), 1988.?Ordered to be printed
U.S. GOVERNMENT PRINTING OFFICE
87-618 WASHINGTON : 1988
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880
lty relates. The bill also improves
ies with the provision per nitting a
'ter filing a separate return (Ca4.
apply to returns the due date for--
rd to extensions) is after
;.ligence penalty for failure to include
,vri on an information return by
iding that the penalty is restricted to
ent of tax attributable to the failure
1 understatement of tax liability
,ec. 1504 of the Reform Act)
Present Law
itially understates income tax for
malty (Code sec. 6661). The Tax Ref
this penalty is to be 20 percent of
nt of tax attributable to the understa
r returns the due date of which (deter. -
tensions) is after December 31, 1986.
t Reform Act of. 1986, Congress consid-
leconciliation Act of 1986 (P.L. 99-5091
penalty to 25 percent of the underpay.
assessed after the date of enactment of
ss considered the Tax Reform Act of
te Omnibus Budget Reconciliation Act,
illation Act was enacted one day before
Tax Reform Act of 1986.95
rztion of Provision
increase in the substantial understate-
lade by the Omnibus Budget Reconcili-
ffect as if the Tax Reform Act of 1986
tre the date of enactment of the Omni-
t of 1986.
sec. 115(d) of the bill, sec. 1511 of the
1 of the Code)
resent Law
tayers pay to the Treasury on under-
ritage point higher than the interest
:o taxpayers on overpayments of tax.
'ion of Provision
-oss-references to the provisions uti-
E=nciliation Act of 1986.
et of 1986 was enacted on October 21, 1986; the Tax
22, 1986.
381
aforination reporting by brokers (sec. 115(e) of the bill, sec.
1521 of the Reform Act, and sec. 6045 of the Code)
Present Law
persons doing business as a broker must report on specified types
transactions they effect for customers. Generally, reporting is re-
iired on sales of securities, commodities, regulated futures con-
olds, precious metals, and real estate.
Explanation of Provision
The bill provides that a person shall not be treated as a broker
with respect to activities consisting of managing a farm on behalf
of another person. This exempts farm managers from the require-
pent of filing a Form 1099-B with respect to their farm manage-
/Dent activities. This information must be filed by these farm man-
agers on a Schedule F, where it is provided in a more useful
format. Consequently, filing this information on a Form 1099-B is
duplicative. This provision is effective as if included in the Tax
Equity and Fiscal Responsibility Act of 1982 (which generally im-
posed these information reporting requirements).
The bill provides that the person required to provide information
returns on real estate transactions (who is generally defined as the
person responsible for closing the real estate transaction) is to be
called a "real estate reporting person" instead of a "real estate
The bill also makes it unlawful for any real estate reporting
broker."
person to charge separately any customer for complying with the
information reporting requirements with respect to real estate
transactions. This provision is effective on the date of enactment of
the bill.
6. Information reporting on persons receiving contracts from cer-
tain Federal agencies (sec. 115(f) of the bill, sec. 1522 of the
Reform Act, and sec. 6050M of the Code) -
Present Law
Present law requires that the head of each Federal executive
agency file an information return with the IRS indicating the
name, address, and taxpayer identification number of each person
with which the agency enters into a contract. The agency must also
report any additional information required under Treasury regula-
tions. There is no exception from this information reporting in
present law for contracts involving national security, confidential
law enforcement, or foreign counterintelligence activities.
Explanation of Provision
The bill excepts specified types of contracts from the general in-
formation reporting requirements applicable to Federal executive
agencies, and subjects those types of contracts to a different form of
information reporting.
There are two types of contracts between a Federal executive
agency and another person that are subject to these special rules.
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882
The first is a contract where either the fact of the existence of the
contract or the subject matter of the contract has been classified_
This is accomplished by designating and clearly marking or clearly
representing, pursuant to the provisions of Federal law or an Exec.
utive order,96 that the contract or the subject matter of the con-
tract requires a specific degree of protection against unauthorized
disclosure for reasons of national security. The second type of con-
tract subject to the special rules is a contract involving a confiden-
tial law enforcement or foreign counterintelligence activity. In
order to be eligible for these special rules, the head of the Federal
executive agency (or his designee) must determine in writing that
filing the information return generally required of Federal execu-
tive agencies would interfere with the effective conduct of a confi-
dential law enforcement or foreign counterintelligence activity.
This determination must be made pursuant to regulations issued
by the Federal executive agency making the determination. This
second type of contract involves primarily undercover operations
(including sites for undercover operations) and informants.
These two types of contracts are subject to special information
reporting requirements, and are exempted from the general infor-
mation reporting requirements of section 6050M. The special infor-
mation reporting requirements are that the IRS must first request
that the Federal executive agency acknowledge whether that
agency has entered into a contract with a particular person, who
must be identified in the IRS request. The Federal executive
agency must in response acknowledge whether it has entered into
a contract with the specified person. If it has, it must provide to
the IRS with respect to that person the information required to be
reported under section 6050M. In addition, the agency must pro-
vide whatever additional information the agency and the Treasury
agree is appropriate. The term "person" has the meaning given in
section 7701(aX1).
It is contemplated that the information provided by Federal exec-
utive agencies to the IRS under these special rules might need to
be provided only to certain IRS employees, such as those with secu-
rity clearances. If this is necessary, it is also contemplated that the
Federal executive agencies will cooperate with the IRS in expedi-
tiously obtaining clearance for the IRS employees.
This provision is effective as if included in the 1986 Act (i.e., on
January 1, 1987).
7. Information reporting on royalties (sec. 115(g) of the bill, sec.
1523 of the Reform Act, and sec. 6676 of the Code)
Present Law
Persons who make payments of royalties aggregating $10 or
more to any person in a calendar year must provide an information
report on the royalty payments to the IRS (as well as provide a
copy to the payee) (Code sec. 6050N).
9 6 Executive Order 12356 is the currently effective Executive order prescribing a uniform
system for classifying, declassifying, and safeguarding national security information (47 Federal
Register 14874; April 6, 1982).
f
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