Selected Tax Law Changes Effective January 1, 2002

Selected Tax Law Changes Effective January 1, 2002

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
IRC § 23
programs
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
IRC § 25B
individuals
Marriage penalty relief and simplification earned income tax
IRC § 32
credit
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
IRC § 62
adjusted gross income
Rollovers allowed among various types of pension plans, new
IRC § 72
rules for computing employee contributions to annuities
Exclusion of certain health scholarships
IRC § 117(c)
Exclusion for employer-provided educational assistance to
IRC § 127
include graduate education
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
IRC § 137
assistance credit
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
IRC § 219
rules
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)
IRC § 401(k)
plans

CRS-3
Provision
Citation
Liberalization of rollover, spousal rollover, and hardship
IRC § 402
distribution rules
Liberalization of restrictions on distributions, rollovers,
IRC § 403(b)
purchase of service credits of 403(b) plans
Modification of employer deduction limits for qualified plans
IRC § 404
Modification of IRA, SIMPLE retirement accounts,
IRC § 408
contribution limits, rollover rules
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
IRC § 414(p)
local plans) benefits upon divorce
Catch-up contributions for individuals over 50
IRC § 414(v)
Increase in benefit and contribution limits for defined benefit
IRC § 415
plans, multiemployer plans, equitable treatment for defined
contribution plans
Modification of top-heavy plan rules
IRC § 416
Increase in benefit and contributions limits for plans of state
IRC § 457
and local governments and tax-exempt organization, minimum
distribution and income inclusion requirements, new rollover
rules
Modifications to qualified tuition programs
IRC § 529
Modification to education IRAs
IRC § 530
Exclusion of nonresident alien income from international
IRC § 861
transportation services from income sourcing rules
Conforming certain new tax credit rules to the DC first-time
IRC § 1400C
homebuyer credit
Reduction in maximum estate tax rate to 50%; repeal of
IRC § 2001(c)
phaseout of graduated rates
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
IRC § 6166
closely held business to 45; clarification of definition of non-
readily tradeable stock; qualifying lending and financial
businesses permitted to use installment payment
Reporting requirements for qualified tuition programs
IRC § 6693
Elimination of user fees for ruling requests to IRS about new
EGTRRA § 620
pension plans
ERISA amendments to conform to various tax changes
EGTRRA §§ 612-
663
Provision in the Fallen Hero Survivor Benefit Fairness Act of
2001,P.L. 107-15 effective January 1, 2002:
Provision
Citation
Extends the tax-exemption for survivor annuities to survivors
IRC § 101(h)
of public safety officers killed in the line of duty prior to
January 1, 1997
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
IRC § 3211, 3221
employee representatives.
Tier II tax rate adjustment to 15.6 percent for employers
IRC § 3221
Tier II tax rate adjustment to 14.75 percent on employee
IRC § 3211
representatives
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
IRC § 132(f)
month
Deduction for health insurance for self-employed increases to
IRC § 162(l)
70%
Deduction for clean fuel vehicle reduced
IRC § 179A
Increase in deduction for meals away from home for certain
IRC § 274(n)
transportation workers
Coordination of foreign income tax credit with nonrefundable
IRC § 904
personal credits
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
IRC § 2031
to $500,000
Reduction in tax of luxury passenger vehicles
IRC § 4001
Certain approved terminals of registered persons required to
IRC § 4041
offer dyed diesel fuel and kerosene for non-taxable purposes

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
IRC § 6654
high income taxpayers