SECTION 4. COMPUTATION OF

INFLATION ADJUSTMENTS

the aged and for the blind) are adjusted for inflation under the method described in § 1(f)(3), except that the preceding calendar year’s CPI is compared with the CPI for the calendar year 1987. Under § 1(f)(6), an adjusted amount is ‘‘rounded down’’ to the nearest multiple of $50 ($25 in the case of the basic standard deduction for married individuals filing separately).

(2) Under § 63(c)(2), the base amounts of the basic standard deduction are $5,000 for married individuals filing joint returns and surviving spouses; $4,400 for heads of households; $3,000 for unmarried individuals (other than surviving spouses and heads of households); and $2,500 for married individuals filing separate returns. Under § 63(c)(5)(A), the base amount of the limited standard deduction for an individual who may be claimed as a dependent by another taxpayer is $500. Under § 63(f), the base amounts of the additional standard deduction for the aged and for the blind are $600 for each, except that these amounts are increased to $750 if the individual is unmarried and not a surviving spouse.

.06 Overall Limitation on Itemized Deductions.

(1) Section 68(b)(2) provides that the ‘‘applicable amount’’ for the overall limitation on itemized deductions is adjusted for inflation under the method described in § 1(f)(3), except that the preceding calendar year’s CPI is compared with the CPI for the calendar year 1990. Under § 1(f)(6), the adjusted ‘‘applicable amount’’ is ‘‘rounded down’’ to the nearest multiple of $50 ($25 in the case of married individuals filing separately).

(2) Under § 68(b)(1), the base amount of the ‘‘applicable amount’’ is $100,000 ($50,000 in the case of a separate return by a married individual within the meaning of § 7703).

.07 Qualified Transportation Fringe. Section 132(f)(6) provides that the limitation on the amount of the exclusion from gross income for a qualified transportation fringe is adjusted for inflation under the method described in § 1(f)(3). See section 4.01 above. Under § 132(f)(6)(B), an increased amount that is not a multiple of $5 is ‘‘rounded down’’ to the next lowest multiple of $5.

.08 Income from United States Sav- ings Bonds for Taxpayers Who Pay Qualified Higher Education Expenses. Section 135(b)(2)(B) provides that the dollar amount at which the phaseout of

.03 Earned Income Tax Credit.

.01 Tax Rate Tables.

(1) Section 1(f)(1) provides that not later than December 15 of each calendar year, the Secretary shall prescribe inflation-adjusted tax rate tables that apply in lieu of the tax rate tables in § 1 with respect to tax years beginning in the succeeding calendar year.

(2) Under § 1(f)(3), the inflation adjustment for a calendar year is the percentage (if any) by which the Consumer Price Index (CPI) for the preceding calendar year exceeds the CPI for the calendar year 1992. However, § 1(f)(7)(B) provides that in prescribing the inflation adjustments for the 36 percent and 39.6 percent tax rate brackets, the preceding calendar year’s CPI is compared with the CPI for the calendar year 1993. For purposes of computing the inflation adjustment, § 1(f)(4) defines the CPI as the average of the 12 monthly CPIs for the 12-month period ending on August 31 of such calendar year. Under § 1(f)(5), the CPI is that for all-urban consumers published by the Department of Labor.

(3) Section 1(f)(2)(A) provides that the inflation adjustment is reflected in the tax rate tables by increasing the minimum and maximum dollar amounts for each rate bracket. Under § 1(f)(6), an adjusted bracket amount is ‘‘rounded down’’ to the nearest multiple of $50 ($25 in the case of married individuals filing separately).

.02 Kiddie Tax.

(1) Reporting on Child’s Return. Section 1(g)(4) uses the limitation on the standard deduction for certain dependents under § 63(c)(5)(A) in computing the ‘‘kiddie tax.’’ That limitation is adjusted for inflation under

§ 63(c)(4). The inflation adjustment computation under § 63(c)(4) is described below in section 4.05.

(2) Election To Report on Parent’s Return. Section 1(g)(7) uses an amount described in § 1(g)(4) in computing the ‘‘kiddie tax.’’ Section 1(g)(4) uses the limitation on the standard deduction for certain dependents under § 63(c)(5)(A), and is adjusted, as described above in section 4.02(1).

.03 Earned Income Tax Credit.

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

(a) Section 32(j) provides that the ‘‘earned income amounts’’ and ‘‘phaseout amounts,’’ which limit the earned income tax credit, are adjusted for inflation under the method described in § 1(f)(3), except that the preceding calendar year’s CPI is compared with the CPI for the calendar year 1995. Under § 32(j)(2)(A), the adjusted amount is rounded to the nearest multiple of $10.

(b) Under § 32(b)(2), the base amounts of the ‘‘earned income amounts’’ and ‘‘phaseout amounts’’ are $6,330 and $11,610 for a taxpayer with one child, $8,890 and $11,610 for a taxpayer with two or more children, and $4,220 and $5,280 for a taxpayer with no children.

(2) Excessive Investment Income. (a) Section 32(j) provides that the ‘‘disqualified income limitation’’ is adjusted for inflation under the method described in § 1(f)(3), except that the preceding calendar year’s CPI is compared with the CPI for the calendar year 1995. Under § 32(j)(2)(B), the ‘‘disqualified income limitation’’ is ‘‘rounded down’’ to the next lowest multiple of $50.

(b) Under § 32(i), the base amount of the ‘‘disqualified income limitation’’ is $2,200.

.04 Alternative Minimum Tax Exemp- tion for ‘‘Kiddie Tax’’ Reported on Par- ent’s Return. Section 59(j) uses the limitation on the standard deduction for certain dependents under § 63(c)(5)(A) in computing the alternative minimum tax on income subject to the ‘‘kiddie tax.’’ The limitation on the standard deduction is adjusted for inflation under § 63(c)(4). The inflation adjustment computation under § 63(c)(4) is described below in section 4.05.

.05 Standard Deduction.

(1) Under § 63(c)(4), the standard deduction amounts (including the limitation for certain dependents and the additional standard deduction amounts for

.05 Standard Deduction.

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the exclusion (of income from the redemption of United States savings bonds for taxpayers who pay qualified higher education expenses) begins is adjusted for inflation under the method described in § 1(f)(3). The preceding calendar year’s CPI is compared with the CPI for the calendar year 1989. The adjusted dollar amount is rounded to the nearest multiple of $50 (if the adjusted figure is a multiple of $25, it is increased to the next highest multiple of $50) under § 135(b)(2)(C).

.09 Personal Exemption.

(1) Exemption amount.

(a) Section 151(d)(4)(A) provides that the personal exemption amount is adjusted for inflation under the method described in § 1(f)(3), except that the preceding calendar year’s CPI is compared with the CPI for the calendar year 1988. The adjusted exemption is ‘‘rounded down’’ to the nearest multiple of $50 under § 1(f)(6).

(b) Under § 151(d)(1), the base amount of the personal exemption is $2,000.

(2) Phaseout amounts.

(a) Section 151(d)(4)(B) provides that the ‘‘threshold amounts’’ at which the phaseout of the tax benefit of the personal exemptions begins are adjusted for inflation under the method described in § 1(f)(3), except that the preceding calendar year’s CPI is compared with the CPI for the calendar year 1990. Under § 1(f)(6), an adjusted ‘‘threshold amount’’ is ‘‘rounded down’’ to the nearest multiple of $50 ($25 in the case of married individuals filing separately).

(b) Under § 151(d)(3)(C), the base amounts of the ‘‘threshold amounts’’ are $150,000 for Code § 1(a) taxpayers; $125,000 for Code § 1(b) taxpayers; $100,000 for Code § 1(c) taxpayers; and $75,000 for Code § 1(d) taxpayers.

.10 Treatment of Dues Paid to Agri- cultural or Horticultural Organizations. Section 512(d)(2) provides that the ‘‘$100 amount’’ is adjusted for inflation under the method described in § 1(f)(3), except that the preceding calendar year’s CPI is compared with the CPI for the calendar year 1994.

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

(1) Section 513(h).

(a) Section 513(h)(1)(C) provides that the maximum cost of a ‘‘low cost article’’ is adjusted for inflation under the method described in § 1(f)(3),

except that the preceding calendar year’s CPI is compared with the CPI for the calendar year 1987.

(b) Under § 513(h)(2)(A), the base amount of the ‘‘low cost article’’ is $5.

(2) Rev. Proc. 90–12. Rev. Proc. 90–12 provides for the adjustment of the ‘‘low cost article’’ and the ‘‘$25 payment’’ limitations in that revenue procedure as provided under § 513(h)(2)(C). The ‘‘$50 benefit’’ limitation in that revenue procedure is adjusted in the same manner.

.12 Expatriation to Avoid Tax. Section 877(a)(2) provides that the ‘‘$100,000 amount’’ and the ‘‘$500,000 amount’’ are adjusted for inflation under the method described in § 1(f)(3), except that the preceding calendar year’s CPI is compared with the CPI for the calendar year 1994. Under § 877(a)(2), the adjusted ‘‘$100,000 amount’’ and ‘‘$500,000 amount’’ are rounded to the nearest multiple of $1,000.

.13 Luxury Automobile Excise Tax. Section 4001(e)(1) provides that the ‘‘$30,000 amount’’ threshold for the excise tax on a luxury automobile in §§ 4001(a) and 4003(a) is adjusted for inflation under the method described in § 1(f)(3), except that the preceding calendar year’s CPI is compared with the CPI for the calendar year 1990. Under § 4001(e)(2), the adjusted ‘‘$30,000 amount’’ is ‘‘rounded down’’ to the nearest multiple of $2,000.

.14 Reporting Exception for Certain Exempt Organizations with Nondeduct- ible Lobbying Expenditures. Section 5.05 of Rev. Proc. 95–35 provides that the ‘‘$50 exception’’ amount is adjusted for inflation under the method described in § 1(f)(3), except that the preceding calendar year’s CPI is compared with the CPI for the calendar year 1994. The adjusted ‘‘$50 exception’’ amount is rounded up to the next highest dollar.

.15 Notice of Large Gifts Received from Foreign Persons. Section 6039F(d) provides that the ‘‘$10,000 amount’’ is adjusted for inflation under the method described in § 1(f)(3), except that the preceding calendar year’s CPI is compared with the CPI for the calendar year 1995. .16 Attorney Fee Awards. Section 7430(c)(1)(B) provides that the ‘‘$110 amount’’ is adjusted for inflation under the method described in § 1(f)(3), except that the preceding calendar year’s CPI is compared with the CPI for the calendar year 1995. The adjusted ‘‘$110

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amount’’ is rounded to the nearest multiple of $10 under § 7430(c)(1)(B).

SECTION 5. 1997 INFLATION ADJUSTMENT FACTORS

.01 1995 Base Year Adjustments. The CPI for 1996 is 155.2416666667 and the CPI for 1995 is 151.0750000000. This results in an inflation adjustment factor of 1.0275801202. This factor applies to the earned income tax credit, the reporting of large gifts from foreign persons for tax years beginning in 1997, and the awarding of attorney fees for calendar year 1997.

.02 1994 Base Year Adjustments. The CPI for 1996 is 155.2416666667 and the CPI for 1994 is 146.9000000000. This results in an inflation adjustment factor of 1.0567846608. This factor applies to the treatment of dues paid to agricultural or horticultural organizations, the amounts used to determine whether a principal purpose of expatriation is to avoid tax, and the reporting exception for certain exempt organizations with nondeductible lobbying expenditures for tax years beginning in 1997.

.03 1993 Base Year Adjustments. The CPI for 1996 is 155.2416666667 and the CPI for 1993 is 143.1750000000. This results in an inflation adjustment factor of 1.0842791456. This factor applies to the 36 percent and 39.6 percent brackets of the tax rate tables for tax years beginning in 1997.

.04 1992 Base Year Adjustments. The CPI for 1996 is 155.2416666667 and the CPI for 1992 is 138.9250000000. This results in an inflation adjustment factor of 1.1174494631. This factor applies to the 15 percent, 28 percent, and 31 percent brackets of the tax rate tables, and to the qualified transportation fringe limitations for tax years beginning in 1997. .05 1990 base year adjustments. The CPI for 1996 is 155.2416666667 and the CPI for 1990 is 128.0583333333. This results in an inflation adjustment factor of 1.2122730526. This factor applies to the phaseout of personal exemptions, to the limitation on itemized deductions, and to the luxury automobile excise tax threshold for tax years beginning in 1997. .06 1989 base year adjustments. The CPI for 1996 is 155.2416666667 and the CPI for 1989 is 122.1500000000. This results in an inflation adjustment factor of 1.2709100832. This factor applies to

(2) Phaseout amounts.

(1) Section 513(h).

the qualified higher education expense exclusion for tax years beginning in 1997. .07 1988 Base Year Adjustments. The CPI for 1996 is 155.2416666667 and the CPI for 1988 is 116.6166666667. This results in an inflation adjustment factor of 1.3312133772. This factor applies to the personal exemption for tax years beginning in 1997.

.08 1987 Base Year Adjustments. The CPI for 1996 is 155.2416666667 and the CPI for 1987 is 111.9833333333. This results in an inflation adjustment factor of 1.3862926031. This factor applies to the ‘‘kiddie tax’’ (including the election to report on the parent’s return) and the limitation on the alternative minimum tax exemption for ‘‘kiddie tax’’ reported on a parent’s return, the standard deduction amounts, and the insubstantial benefit limitations for charitable contributions for tax years beginning in 1997.