SECTION 2. CHANGES MADE — Internal Revenue Bulletin 1996-53

FROM PRECEDING YEAR

.01 Amounts used to determine eligibility for the elective method under § 1(g)(7) to report the ‘‘kiddie tax’’ on the parent’s tax return, and to make computations under this method, are adjusted for inflation for tax years beginning in 1997. See section 3.02 of this revenue procedure.

.02 The amount of investment income that causes an individual to be denied the earned income tax credit under § 32(i) is adjusted for inflation for tax years beginning in 1997. See section 3.03(2) of this revenue procedure.

.03 A limited exemption from the alternative minimum tax under § 59(j)

for a child subject to the ‘‘kiddie tax’’ is adjusted for inflation for tax years beginning in 1997. See section 3.04 of this revenue procedure.

.04 The maximum amount of annual dues that can be paid to certain agricultural or horticultural organizations under § 512(d)(1) without any portion being treated as unrelated trade or business income by reason of any benefits or privileges available to members is adjusted for inflation for tax years beginning in 1997. See section 3.10 of this revenue procedure.

.05 The amounts used under § 877 to determine whether a principal purpose of expatriation is to avoid tax are adjusted for inflation for calendar year 1997. See section 3.12 of this revenue procedure.

.06 The amount of gifts in a taxable year from foreign person(s), which triggers a reporting requirement for a

TABLE 1—Section 1(a).—MARRIED INDIVIDUALS FILING JOINT RETURNS AND SURVIVING SPOUSES

If Taxable Income Is: The Tax Is:

Not Over $41,200 15% of the taxable income

Over $41,200 but not over $99,600 $6,180 plus 28% of the excess over $41,200

Over $99,600 but not over $151,750 $22,532 plus 31% of the excess over $99,600

Over $151,750 but not over $271,050 $38,698.50 plus 36% of the excess over $151,750

Over $271,050 $81,646.50 plus 39.6% of the excess over $271,050

TABLE 2—Section 1(b).—HEADS OF HOUSEHOLDS If Taxable Income Is: The Tax Is:

Not Over $33,050 15% of the taxable income

Over $33,050 but not over $85,350 $4,957.50 plus 28% of the excess over $33,050

Over $85,350 but not over $138,200 $19,601.50 plus 31% of the excess over $85,350

Over $138,200 but not over $271,050 $35,985 plus 36% of the excess over $138,200

Over $271,050 $83,811 plus 39.6% of the excess over $271,050

TABLE 3—Section 1(c).—UNMARRIED INDIVIDUALS (OTHER THAN SURVIVING SPOUSES

AND HEADS OF HOUSEHOLDS) If Taxable Income Is: The Tax Is:

Not Over $24,650 15% of the taxable income

Over $24,650 but not over $59,750 $3,697.50 plus 28% of the excess over $24,650

TABLE 3—Section 1(c).—UNMARRIED INDIVIDUALS (OTHER THAN SURVIVING SPOUSES

AND HEADS OF HOUSEHOLDS)—Continued If Taxable Income Is: The Tax Is:

Over $59,750 but not over $124,650 $13,525.50 plus 31% of the excess over $59,750

Over $124,650 but not over $271,050 $33,644.50 plus 36% of the excess over $124,650

Over $271,050 $86,348.50 plus 39.6% of the excess over $271,050

TABLE 4—Section 1(d).—MARRIED INDIVIDUALS FILING SEPARATE RETURNS

If Taxable Income Is: The Tax Is:

Not Over $20,600 15% of the taxable income

Over $20,600 but not over $49,800 $3,090 plus 28% of the excess over $20,600

Over $49,800 but not over $75,875 $11,266 plus 31% of the excess over $49,800

Over $75,875 but not over $135,525 $19,349.25 plus 36% of the excess over $75,875

Over $135,525 $40,823.25 plus 39.6% of the excess over $135,525

TABLE 5—Section 1(e).—ESTATES AND TRUSTS

If Taxable Income Is: The Tax Is:

Not Over $1,650 15% of the taxable income

Over $1,650 but not over $3,900 $247.50 plus 28% of the excess over $1,650

Over $3,900 but not over $5,950 $877.50 plus 31% of the excess over $3,900

Over $5,950 but not over $8,100 $1,513 plus 36% of the excess over $5,950

Over $8,100 $2,287 plus 39.6% of the excess over $8,100

.02 Unearned Income of Minor Chil- dren Taxed as if Parent’s Income (the ‘‘Kiddie Tax’’).

(1) Reporting on Child’s Return.

(a) Section 1(g) provides that the tax on the net unearned income of a child under the age of 14 is computed at the marginal rate of the child’s parent. Under § 1(g)(4)(A)(ii), net unearned income generally equals unearned income less the sum of (I) the amount in effect for the tax year under § 63(c)(5)(A), plus (II) the greater of the amount described in (I) or certain itemized deductions.

(b) The amount in effect for tax years beginning in 1997 under § 63(c)(5)(A) is $650. See section 3.05(2) below. Accordingly, for tax years beginning in 1997, net unearned income will generally equal unearned income less the greater of $1,300 or $650 plus certain itemized deductions.

(2) Election to Report on Parent’s Return.

child’s gross income from interest and dividends must be more than $650 and less than $6,500 pursuant to § 1(g)(7)(A). Under § 1(g)(7)(B), the ‘‘kiddie tax’’ is imposed on the parent by (I) including a child’s gross income in excess of $1,300 in the parent’s gross income, and (II) adding to the tax on that income the lesser of either $97.50 (or $98 if the taxpayer elects to round on the return) or 15 percent of the excess of the child’s gross income over $650.

.03 Earned Income Tax Credit.

(1) Amount of credit; phaseout in- come levels.

(a) Section 32(a)(1) provides an earned income tax credit amount for certain taxpayers with one child, two or more children, or no children. For tax years beginning in 1997, the ‘‘maximum amount of the credit’’ is calculated by multiplying the ‘‘earned income amount’’ by the ‘‘credit percentage’’ as follows:

(1) Reporting on Child’s Return.

(a) Section 1(g)(7)(A) provides

that if a child’s gross income from interest and dividends is more than the amount described in § 1(g)(4)(A)(ii)(I) and less than ten times that amount, and certain other conditions are met, a parent may elect to include a child’s gross income in the parent’s gross income for the taxable year. Under § 1(g)(7)(B), the ‘‘kiddie tax’’ is determined by (I) including the portion of a child’s gross income in the parent’s gross income to the extent that the child’s gross income exceeds twice the amount described in § 1(g)(4)(A)(ii)(I), and (II) adding to the tax on that income the lesser of 15 percent of either the amount described in § 1(g)(4)(A)(ii)(I) or the excess of the child’s gross income over such amount.

(b) The amount in effect for tax years beginning in 1997 under § 1(g)(4)(A)(ii)(I), which is also the amount under § 63(c)(5)(A) (see section 3.02(1)(b) above), is $650. Accordingly, for tax years beginning in 1997, to qualify to make the parent’s election, the

Type of Taxpayer Credit Percentage Earned Income Amount

Maximum Amount

of the Credit

1 child 34 $6,500 $2,210 2 or more children 40 $9,140 $3,656 No children 7.65 $4,340 $ 332 (b) Section 32(a)(2) provides for the phaseout of the earned income tax credit. The amount of the reduction in the maximum amount of the credit caused by the phaseout is calculated by multiplying the ‘‘phaseout percentage’’ by the amount by which the taxpayer’s adjusted gross income (or, if greater, earned income) exceeds the ‘‘threshold phaseout amount.’’ For tax years beginning in 1997, the ‘‘phaseout percentages,’’ the ‘‘threshold phaseout amounts,’’ and the ‘‘completed phaseout amounts’’ are as follows:

Completed Phaseout

Amount

Type of Taxpayer Phaseout Percentage

Threshold Phaseout

Amount

1 child 15.98 $11,930 $25,760 2 or more children 21.06 $11,930 $29,290 No children 7.65 $ 5,430 $ 9,770

(c) The Internal Revenue Service will prescribe tables showing the amount of the earned income tax credit for each type of taxpayer.

(2) Excessive investment income. (a) Under § 32(i), the earned income tax credit is denied if the aggregate amount of certain investment income for the taxable year exceeds $2,200 (the ‘‘disqualified income limitation’’).

(b) For tax years beginning in 1997, the ‘‘disqualified income limitation’’ is $2,250.

.04 Alternative Minimum Tax Exemp- tion for ‘‘Kiddie Tax’’ Reported on Par- ent’s Return.

(1) Section 59(j) provides that for a child to whom § 1(g) applies, the exemption amount for purposes of the alternative minimum tax under § 55 shall not exceed the sum of (A) such child’s earned income for the taxable year, plus (B) twice the amount in effect for the taxable year under § 63(c)(5)(A) (or, if greater, the child’s share of the unused parental minimum tax exemption).

(2) The amount in effect for tax years beginning in 1997 under § 63(c)(5)(A) is $650. See section 3.05(2) below. Accordingly, for tax years beginning in 1997, twice the amount in effect for the taxable year under § 63(c)(5)(A) is $1,300.

.05 Standard Deduction.

(1) The following adjusted standard deduction amounts are prescribed in lieu of the amounts set forth in § 63(c)(2) with respect to tax years beginning in 1997.

(2) Under § 63(c)(5)(A) for tax years beginning in 1997, the standard deduction for an individual who may be claimed as a dependent by another taxpayer for a tax year beginning in the calendar year in which the individual’s tax year begins, cannot exceed the greater of (A) $650 or (B) the amount of the individual’s earned income.

(3) Under § 63(f) for tax years beginning in 1997, the additional standard deduction amounts for the aged and for the blind are $800 for each. These amounts are each increased to $1,000 if the individual is also unmarried and not a surviving spouse.

.06 Overall Limitation on Itemized Deductions.

(1) Section 68 provides that the amount of itemized deductions otherwise allowable for the tax year shall be reduced by the lesser of (1) 3 percent of the excess of adjusted gross income over the ‘‘applicable amount,’’ or (2) 80 percent of the amount of certain item

ized deductions otherwise allowable for the tax year.

(2) The ‘‘applicable amount’’ for tax years beginning in 1997 is $121,200 ($60,600 in the case of a separate return filed by a married individual within the meaning of § 7703).

.07 Qualified Transportation Fringe.

(1) Section 132(f) provides an exclusion from gross income for certain employer-provided transportation referred to as a ‘‘qualified transportation fringe.’’ A ‘‘qualified transportation fringe’’ means any of the following: transportation in a commuter highway vehicle between the employee’s residence and place of employment, any transit pass, and qualified parking. Section 132(f)(2)(A) limits the exclusion for the aggregate of the transportation in a commuter highway vehicle and the transit pass to $60 per month (the ‘‘$60 vehicle/transit’’ limitation). Section 132(f)(2)(B) limits the exclusion for qualified parking to $155 per month (the ‘‘$155 parking’’ limitation).

(2) For tax years beginning in 1997, the ‘‘$60 vehicle/transit’’ limitation is $65 and the ‘‘$155 parking’’ limitation is $170.

.08 Income from United States Sav- ings Bonds for Taxpayers Who Pay Qualified Higher Education Expenses.

(1) Section 135 provides an exclusion of income from the redemption of United States savings bonds for taxpayers who pay qualified higher education expenses. Section 135(b)(2) provides for the phaseout of the exclusion. The amount of the reduction in the exclusion caused by the phaseout is calculated by multiplying the amount otherwise excludable by a fraction. The numerator of the fraction is the excess of the taxpayer’s modified adjusted gross income

Filing Status

MARRIED INDIVIDUALS FILING JOINT RETURNS AND SURVIVING SPOUSES (§ 1(a))

HEADS OF HOUSEHOLDS (§ 1(b))

UNMARRIED INDIVIDUALS (OTHER THAN SURVIVING SPOUSES AND HEADS OF HOUSEHOLDS) (§ 1(c))

MARRIED INDIVIDUALS FILING SEPARATE RETURNS (§ 1(d))

Standard Deduction

$6,900

$6,050

$4,150

$3,450

over the threshold amount ($60,000 for joint returns or $40,000 for others) and the denominator is $30,000 for joint returns or $15,000 for others.

(2) For tax years beginning in 1997, the amounts of modified adjusted gross income above which the phaseout of the exclusion begins (‘‘threshold phaseout amounts’’), and the amounts at which the benefit is completely phased out (‘‘completed phaseout amounts’’), are as follows:

Completed Phaseout Amount

Filing Status

Threshold Phaseout Amount

Code § 1(a) $76,250 $106,250 Others $50,850 $ 65,850 .09 Personal Exemption.

(1) Section 151(b) generally allows a taxpayer an exemption for himself or herself. Section 151(c) generally allows a taxpayer additional exemptions for dependents as defined in § 152. The personal exemption for tax years beginning in 1997 is $2,650.

(2) Section 151(d)(3) provides for the phaseout of the tax benefit of the personal exemptions allowed by § 151. The reduction in the amount of personal exemptions caused by the phaseout is calculated by reducing the total amount of the personal exemptions by 2 percent for each $2,500 increment (or portion thereof) of adjusted gross income in excess of a threshold phaseout amount. For tax years beginning in 1997, the ‘‘threshold phaseout amounts’’ and the ‘‘completed phaseout amounts’’ are as follows:

Completed

Phaseout

After

Filing Status

Threshold

Phaseout

Amount

Code § 1(a) $181,800 $304,300 Code § 1(b) $151,500 $274,000 Code § 1(c) $121,200 $243,700 Code § 1(d) $ 90,900 $152,150

.10 Treatment of Dues Paid to Agri- cultural or Horticultural Organizations.

(1) Section 512(d)(1) provides that no portion of annual dues required by an agricultural or horticultural organization described in § 501(c)(5) is treated as derived from an unrelated trade or business by reason of any benefits or privileges to which members are entitled if the amount of required annual dues from each member does not exceed $100 (the ‘‘$100 amount’’).

(2) For tax years beginning in 1997, the ‘‘$100 amount’’ is $106.

.11 Insubstantial Benefit Limitations for Contributions Associated with Chari- table Fund-Raising Campaigns.

(1) Section 513(h)(1)(A) provides that, in the case of certain exempt organizations, the term ‘‘unrelated business income’’ does not include activities relating to the distribution of ‘‘low cost articles’’ (as defined in § 513(h)(2)) if the distribution of such articles is incidental to the solicitation of charitable contributions.

(2) Section 3 of Rev. Proc. 90–12, 1990–1 C.B. 471, as amplified by Rev. Proc. 92–49, 1992–1 C.B. 987, and as modified by Rev. Proc. 92–102, 1992–2 C.B. 579, provides guidelines for determining the deductible amount of contributions under § 170 when contributors receive something in return for their contributions. The guidelines provide that insubstantial benefits received by a contributor (in the context of a charitable fund-raising campaign) are disregarded, which makes the contribution fully deductible under § 170. The guidelines further provide the following three alternative limitations on what are insubstantial benefits:

(a) The fair market value of all the benefits received is not more than 2-percent of the contribution, or $50 (the ‘‘$50 benefit’’ limitation), whichever is less;

(b) The contribution is $25 (the ‘‘$25 payment’’ limitation) or more, and the only benefits received by the donor in return during the calendar year have a cost, in the aggregate, of not more than a ‘‘low cost article’’ under § 513(h)(2); or

(c) In connection with a request for a charitable contribution, the charity mails or otherwise distributes free, unordered items to patrons, and the cost of such items (in the aggregate) distributed to any single patron in a calendar year is not more than a ‘‘low cost article’’ under § 513(h)(2).

(3) For tax years beginning in 1997, the ‘‘$50 benefit’’ limitation is $69, the ‘‘$25 payment’’ limitation is $34.50, and the ‘‘low cost article’’ limitation is $6.90.

.12 Expatriation to Avoid Tax.

(1) Under § 877(a)(1), an individual who loses United States citizenship may be subject to taxation under § 877(b) if a principal purpose of such loss is the avoidance of tax. Under § 877(a)(2), an individual is treated as having the avoidance of tax as a principal purpose of such loss if (A) the average annual net income tax (as de

fined in § 38(c)(1)) of such individual for a period of 5 taxable years ending before the date of the loss of United States citizenship is greater than $100,000 (the ‘‘$100,000 amount’’) or (B) the net worth of the individual as of such date is $500,000 or more (the ‘‘$500,000 amount’’).

(2) For calendar year 1997, the ‘‘$100,000 amount’’ is $106,000 and the ‘‘$500,000 amount’’ is $528,000.

.13 Luxury Automobile Excise Tax.

(1) Section 4001(a) imposes an excise tax on the first retail sale of any passenger vehicle to the extent the price exceeds $30,000 (the ‘‘$30,000 amount’’). Section 4003(a) imposes an excise tax on the installation of parts or accessories on a passenger vehicle within six months of the date after the vehicle was first placed in service, to the extent the price of all parts and accessories, including installation, and the price of the vehicle exceed the ‘‘$30,000 amount.’’

(2) For calendar year 1997, the ‘‘$30,000 amount’’ is $36,000.

.14 Reporting Exception for Certain Exempt Organizations with Nondeduct- ible Lobbying Expenditures.

(1) Section 6033(e)(1)(A) provides that certain exempt organizations that pay or incur nondeductible lobbying expenditures must include the total of those expenditures on their annual returns and must notify their members with a reasonable estimate of the portion of dues allocated to those expenditures. Section 6033(e)(3) provides that § 6033(e)(1)(A) shall not apply to an organization that establishes to the satisfaction of the Secretary that substantially all of its dues are nondeductible without regard to the lobbying expenditure restrictions. Section 4.02 of Rev. Proc. 95–35, 1995–2 C.B. 391, provides that § 501(c)(4) social welfare organizations and § 501(c)(5) agricultural and horticultural organizations are treated as satisfying § 6033(e)(3) if either (1) more than 90 percent of all annual dues are received from persons, families, or entities who each pay $50 or less (the ‘‘$50 exception’’ amount), or (2) more than 90 percent of all annual dues are received from certain exempt entities.

(2) For tax years beginning in 1997, the ‘‘$50 exception’’ amount is $53.

.15 Notice of Large Gifts Received from Foreign Persons.

(1) Section 6039F requires that a United States person report information on gifts from foreign persons if the

aggregate of such gifts from all such persons exceeds $10,000 (the ‘‘$10,000 amount’’) in a taxable year.

(2) For tax years beginning in 1997, the ‘‘$10,000 amount’’ is $10,276. .16 Attorney Fee Awards.

(1) Under § 7430, attorney fees may be awarded in a judgment or settlement of an administrative or judicial proceeding concerning the determination, collection, or refund of tax, interest, or penalty under the Code. The attorney fees are subject to an hourly limit of $110 (the ‘‘$110 amount’’) pursuant to § 7430(c)(1).

(2) For calendar year 1997, the ‘‘$110 amount’’ is $110.