Order Code RS21101 January 4, 2002 CRS Report for Congress Received through the CRS Web Selected Tax Law Changes Effective January 1, 2002 Marie B. Morris Legislative Attorney American Law Division Summary This is a brief list of tax laws changes which became effective on January 1, 2002. This list does not include inflation adjustments which occur because of administrative adjustments, unless they took effect because of a statutory change with a December 31, 2001 or January 1, 2002 effective date. For a complete listing of those administratively adjusted items, see IRS Revenue Procedure 2001-59, 2001-52 IRB 1, dated December 11, 2001. This list also excludes tax provisions expiring in 2002 and most conforming amendments, e.g., changes to credit ordering rules when a credit is amended, or changes to withholding rules when certain income is made tax-exempt. The first part of this report is a listing of the tax changes which were enacted during 2001 and effective at the beginning of 2002. The changes are listed under the statute which enacted the change by Internal Revenue Code section. Following the changes enacted in 2001 is a listing of previously enacted tax changes which became effective on January 1, 2002. They are listed by Internal Revenue Code section, but no attempt was made to identify the statutory source of the change.1 Provisions in Economic Growth and Tax Relief Reconciliation Act of 2001, P.L. 107-16, which became effective on January 1, 2002: Provision Citation Expansion of the adoption credit and adoption assistance programs IRC § 23 Increase in the per child amount of the child tax credit IRC § 24 1 The source can be determined by consulting the notes following the statutory language of the citation in either the Internal Revenue Code or title 26 of the U.S. Code. Congressional Research Service ˜ The Library of Congress CRS-2 Provision Citation Credit for deferrals and IRA contributions for certain individuals IRC § 25B Marriage penalty relief and simplification earned income tax credit IRC § 32 Credit for pension plan start-up costs for small employers IRC §§ 45E, 196 Credit for employer expenses for employer-provided child care IRC § 45F Conforming amendments to above credit changes IRC §§ 25,26, 38,39, 51A Deduction for higher education expenses allowed in computing adjusted gross income IRC § 62 Rollovers allowed among various types of pension plans, new rules for computing employee contributions to annuities IRC § 72 Exclusion of certain health scholarships IRC § 117(c) Exclusion for employer-provided educational assistance to include graduate education IRC § 127 Employer-provided retirement advice as fringe benefit IRC § 132 Use of qualified savings bonds in qualified tuition programs IRC § 135 Expansion of adoption assistance program and adoption assistance credit IRC § 137 Public educational facility bonds as exempt facility bonds IRC §§ 142(a)(11)-(13); 142(k), 146(g)(3); 147(h); 148(f) Increase in IRA contribution limits; liberalization of rollover rules IRC § 219 Expansion of deduction for student loan interest IRC § 221 Deduction for qualified tuition expenses IRC § 222 Increase in benefit and contribution limits for retirement plans IRC §§ 401(a)(17), 401(c) Rollovers among various types of plans liberalized IRC § 401(a)(31) Modification of distribution rules for 401(k) plans IRC § 401(k) Increase in benefit and contribution limits for SIMPLE 401(k) plans IRC § 401(k) CRS-3 Provision Citation Liberalization of rollover, spousal rollover, and hardship distribution rules IRC § 402 Liberalization of restrictions on distributions, rollovers, purchase of service credits of 403(b) plans IRC § 403(b) Modification of employer deduction limits for qualified plans IRC § 404 Modification of IRA, SIMPLE retirement accounts, contribution limits, rollover rules IRC § 408 Faster vesting of certain employer matching contributions IRC § 411 New rules permitting plan-to-plan transfers IRC § 411 New funding rules IRC § 412 Clarification of tax treatment of 457 plan (generally state and local plans) benefits upon divorce IRC § 414(p) Catch-up contributions for individuals over 50 IRC § 414(v) Increase in benefit and contribution limits for defined benefit plans, multiemployer plans, equitable treatment for defined contribution plans IRC § 415 Modification of top-heavy plan rules IRC § 416 Increase in benefit and contributions limits for plans of state and local governments and tax-exempt organization, minimum distribution and income inclusion requirements, new rollover rules IRC § 457 Modifications to qualified tuition programs IRC § 529 Modification to education IRAs IRC § 530 Exclusion of nonresident alien income from international transportation services from income sourcing rules IRC § 861 Conforming certain new tax credit rules to the DC first-time homebuyer credit IRC § 1400C Reduction in maximum estate tax rate to 50%; repeal of phaseout of graduated rates IRC § 2001(c) Increase in unified credit to $700,000 exemption equivalent IRC § 2010(c) Reduction of credit for state death taxes IRC § 2011 Lifetime gift exemption increased to $1,000,000 IRC § 2505(a) CRS-4 Provision Citation Increase in number of allowable partners or shareholders in closely held business to 45; clarification of definition of nonreadily tradeable stock; qualifying lending and financial businesses permitted to use installment payment IRC § 6166 Reporting requirements for qualified tuition programs IRC § 6693 Elimination of user fees for ruling requests to IRS about new pension plans EGTRRA § 620 ERISA amendments to conform to various tax changes EGTRRA §§ 612663 Provision in the Fallen Hero Survivor Benefit Fairness Act of 2001,P.L. 107-15 effective January 1, 2002: Provision Extends the tax-exemption for survivor annuities to survivors of public safety officers killed in the line of duty prior to January 1, 1997 Citation IRC § 101(h) Provisions in the Railroad Retirement and Survivors' Improvement Act of 2001, P.L. 107-90, which became effective on January 1, 2002: Provision Citation National Railroad Retirement Investment Trust as a tax-exempt IRC § 501(c)(28) organization Repeal of supplemental annuity tax on railroad employers and employee representatives. IRC § 3211, 3221 Tier II tax rate adjustment to 15.6 percent for employers IRC § 3221 Tier II tax rate adjustment to 14.75 percent on employee representatives IRC § 3211 Tier II tax rate adjustment to 4.9 percent on employees IRC § 3201 CRS-5 Provisions enacted prior to 2001 which became effective as of January 1, 2002, not including expiring provisions: Provision Citation Reduction in electric vehicle tax credit IRC § 30 Puerto Rico economic activity credit limited IRC § 30A Increase in qualified transportation fringe benefit to $100 per month IRC § 132(f) Deduction for health insurance for self-employed increases to 70% IRC § 162(l) Deduction for clean fuel vehicle reduced IRC § 179A Increase in deduction for meals away from home for certain transportation workers IRC § 274(n) Coordination of foreign income tax credit with nonrefundable personal credits IRC § 904 Increase in exclusion amount for U.S. citizens living abroad IRC § 911 Reduction in empowerment zone employment credit IRC § 1396 Increase in qualified conservation easement exclusion limitation to $500,000 IRC § 2031 Reduction in tax of luxury passenger vehicles IRC § 4001 Certain approved terminals of registered persons required to offer dyed diesel fuel and kerosene for non-taxable purposes IRC § 4041 Increase in tax on transportation of persons by air IRC § 4261 Tobacco excise tax rates increase IRC § 5701 Change in amount of required payment of estimated taxes for high income taxpayers IRC § 6654