SECTION 2. CHANGES

.01 The amount in § 23(a)(3) used to determine the maximum credit allowed in the case of an adoption of a child with special needs, the amount in § 23(b)(1) used to determine the amount of qualified adoption expenses which may be taken into account in determining the maximum credit allowed for other adoptions, and the income phase-out amounts in § 23(b)(2)(A), are adjusted for inflation. (Section 3.03).

.02 The amounts in § 42(h)(3)(C)(ii) used to calculate the State housing credit ceiling for the low-income housing credit are adjusted for inflation. (Section 3.07).

.03 The amount in § 137(a)(2) used to determine the maximum amount that an employer can exclude from an employee’s gross income in connection with the employee’s adoption of a child with special needs, the amount in § 137(b)(1) used to determine the maximum amount that can be excluded from an employee’s gross income for amounts paid or expenses incurred by the employer for qualified adoption expenses furnished pursuant to an adoption assistance program in connection with other adoptions, and the income phase-out amounts in § 137(b)(2)(A), are adjusted for inflation. (Section 3.13).

.04 The amounts in § 146(d)(1) used to calculate the State ceiling for the volume cap for private activity bonds are adjusted for inflation. (Section 3.14).

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

If Taxable Income Is: The Tax Is:

Not Over $12,000 10% of the taxable income Over $12,000 but not over $47,450 $1,200 plus 15% of excess over $12,000 Over $47,450 but not over $114,650 $6,517.50 plus 27% of excess over $47,450 Over $114,650 but not over $174,700 $24,661.50 plus 30% of excess over $114,650 Over $174,700 but not over $311,950 $42,676.50 plus 35% of excess over $174,700 Over $311,950 $90,714 plus 38.6% of excess over $311,950

TABLE 2 - Section 1(b). - HEADS OF HOUSEHOLDS

If Taxable Income Is: The Tax Is:

Not Over $10,000 10% of the taxable income Over $10,000 but not over $38,050 $1,000 plus 15% of excess over $10,000 Over $38,050 but not over $98,250 $5,207.50 plus 27% of the excess over $38,050 Over $98,250 but not over $159,100 $21,461.50 plus 30% of the excess over $98,250 Over $159,100 but not over $311,950 $39,716.50 plus 35% of the excess over $159,100 Over $311,950 $93,214 plus 38.6% of the excess over $311,950

TABLE 3 - Section 1(c). - UNMARRIED INDIVIDUALS (OTHER THAN SURVIVING SPOUSES AND HEADS OF

HOUSEHOLDS)

If Taxable Income Is: The Tax Is:

Not over $6,000 10% of the taxable income Over $6,000 but not over $28,400 $600 plus 15% of the excess over $6,000 Over $28,400 but not over $68,800 $3,960 plus 27% of the excess over $28,400 Over $68,800 but not over $143,500 $14,868 plus 30% of the excess over $68,800 Over $143,500 but not over $311,950 $37,278 plus 35% of the excess over $143,500 Over $311,950 $96,235.50 plus 38.6% of the excess over $311,950

November 18, 2002 846 2002–46 I.R.B.

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

If Taxable Income Is: The Tax Is:

Not Over $6,000 10% of the taxable income Over $6,000 but not over $23,725 $600 plus 15% of the excess over $6,000 Over $23,725 but not over $57,325 $3,258.75 plus 27% of the excess over $23,725 Over $57,325 but not over $87,350 $12,330.75 plus 30% of the excess over $57,325 Over $87,350 but not over $155,975 $21,338.25 plus 35% of the excess over $87,350 Over $155,975 $45,357 plus 38.6% of the excess over $155,975

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

If Taxable Income Is: The Tax Is:

Not Over $1,900 15% of the taxable income Over $1,900 but not over $4,500 $285 plus 27% of the excess over $1,900 Over $4,500 but not over $6,850 $987 plus 30% of the excess over $4,500 Over $6,850 but not over $9,350 $1,692 plus 35% of the excess over $6,850 Over $9,350 $2,567 plus 38.6% of the excess over $9,350

.02 Unearned Income of Minor Chil- dren Taxed as if Parent’s Income (the “Kid- die Tax”) . For taxable years beginning in 2003, the amount in § 1(g)(4)(A)(ii)(I), which is used to reduce the net unearned income reported on the child’s return that is subject to the “kiddie tax,” is $750. (This amount is the same as the $750 standard deduction amount provided in section 3.09(2) of this revenue procedure.) The same $750 amount is used for purposes of § 1(g)(7) (that is, in determining whether a parent may elect to include a child’s gross income in the parent’s gross income and for calculating the “kiddie tax”). For example, one of the requirements for the parental election is that a child’s gross income is more than the amount referenced in § 1(g)(4)(A)(ii)(I) but less than 10 times such amount; thus, a child’s gross income for 2003 must be more than $750 but less than $7,500 to satisfy that requirement.

.03 Adoption Credit . For taxable years beginning in 2003, under § 23(a)(3) the maximum credit allowed in the case of an adoption of a child with special needs is

$10,160. For taxable years beginning in 2003, under § 23(b)(1) the maximum credit allowed with regard to other adoptions is the amount of qualified adoption expenses up to $10,160. The available adoption credit begins to phase out under § 23(b)(2)(A) for taxpayers with modified adjusted gross income in excess of $152,390 and is completely phased out for taxpayers with modified adjusted gross income of $192,390.

.04 Child Tax Credit . For taxable years beginning in 2003, the value used in § 24(d)(1)(B)(i) in determining the amount of credit under § 24 that may be refundable is $10,500.

.05 Hope and Lifetime Learning Credits .

(1) For taxable years beginning in 2003, 100 percent of qualified tuition and related expenses not in excess of $1,000 and 50 percent of such expenses in excess of $1,000 are taken into account in determining the amount of the Hope Scholarship Credit under § 25A(b)(1).

(2) For taxable years beginning in 2003, a taxpayer’s modified adjusted gross income in excess of $41,000 ($83,000 in the case of a joint return) is taken into account in determining the reduction under § 25A(d)(2)(A)(ii) in the amount of the Hope Scholarship and Lifetime Learning Credits otherwise allowable under § 25A(a).

.06 Earned Income Credit. (1) In general . For taxable years beginning in 2003, the following amounts are used to determine the earned income credit under § 32(b). The “earned income amount” is the amount of earned income at or above which the maximum amount of the earned income credit is allowed. The “threshold phaseout amount” is the amount of adjusted gross income (or, if greater, earned income) above which the maximum amount of the credit begins to phase out. The “completed phaseout amount” is the amount of adjusted gross income (or if greater, earned income) at or above which no credit is allowed.

Item Number of Qualifying Children One Two or More None Earned Income Amount $ 7,490 $10,510 $ 4,990 Maximum Amount of Credit $ 2,547 $ 4,204 $ 382 Threshold Phaseout Amount $13,730 $13,730 $ 6,240

2002–46 I.R.B. 847 November 18, 2002

Item Number of Qualifying Children One Two or More None Completed Phaseout Amount $29,666 $33,692 $11,230 Threshold Phaseout Amount $14,730 $14,730 $ 7,240

(Married Filing Jointly)

$14,730 $14,730 $ 7,240

Completed Phaseout Amount

$30,666 $34,692 $12,230

(Married Filing Jointly)

alternative minimum tax under § 55 may not exceed the sum of (A) such child’s earned income for the taxable year, plus (B) $5,600.

.09 Standard Deduction. (1) In general . For taxable years beginning in 2003, the standard deduction amounts under § 63(c)(2) are as follows:

The instructions for the Form 1040 series provide tables showing the amount of the earned income credit for each type of taxpayer.

(2) Excessive investment income . For taxable years beginning in 2003, the earned income tax credit is denied under § 32(i) if the aggregate amount of certain investment income exceeds $2,600.

.07 Low-Income Housing Credit . For calendar years beginning in 2003, the amounts

used under § 42(h)(3)(C)(ii) to calculate the State housing credit ceiling for the lowincome housing credit is the greater of $1.75 multiplied by the State population or $2,030,000.

.08 Alternative Minimum Tax Exemp- tion for a Child Subject to the “Kiddie Tax.” For taxable years beginning in 2003, in the case of a child to whom the § 1(g) “kiddie tax” applies, the exemption amount under §§ 55 and 59(j) for purposes of the

Filing Status Standard Deduction

MARRIED INDIVIDUALS FILING JOINT RETURNS AND

SURVIVING SPOUSES (§ 1(a)) $7,950 HEADS OF HOUSEHOLDS (§ 1(b)) $7,000 UNMARRIED INDIVIDUALS (OTHER THAN

SURVIVING SPOUSES AND HEADS OF HOUSEHOLDS) (§ 1(c)) $4,750 MARRIED INDIVIDUALS FILING SEPARATE RETURNS

(§ 1(d)) $3,975

(2) Dependent . For taxable years beginning in 2003, the standard deduction amount under § 63(c)(5) for an individual who may be claimed as a dependent by another taxpayer may not exceed the greater of $750 or the sum of $250 and the individual’s earned income.

(3) Aged and blind . For taxable years beginning in 2003, the additional standard deduction amounts under § 63(f) for the aged and for the blind are $950 for each. These amounts are increased to $1,150 if the individual is also unmarried and not a surviving spouse.

.10 Overall Limitation on Itemized De- ductions . For taxable years beginning in 2003, the “applicable amount” of adjusted gross income under § 68(b), above which the amount of otherwise allowable itemized deductions is reduced under § 68, is $139,500 (or $69,750 for a separate return filed by a married individual).

.11 Qualified Transportation Fringe . For taxable years beginning in 2003, the monthly limitation under § 132(f)(2)(A), re

garding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass, is $100. The monthly limitation under § 132(f)(2)(B) regarding the fringe benefit exclusion amount for qualified parking is $190.

.12 Income from United States Savings Bonds for Taxpayers Who Pay Qualified Higher Education Expenses . For taxable years beginning in 2003, the exclusion under § 135, regarding income from United States savings bonds for taxpayers who pay qualified higher education expenses, begins to phase out for modified adjusted gross income above $87,750 for joint returns and $58,500 for other returns. This exclusion completely phases out for modified adjusted gross income of $117,750 or more for joint returns and $73,500 or more for other returns.

.13 Adoption Assistance Programs . For taxable years beginning in 2003, under § 137(a)(2) the maximum amount that an employer can exclude from an employ

ee’s gross income in connection with the adoption by the employee of a child with special needs is $10,160. For taxable years beginning in 2003, under § 137(b)(1) the maximum amount that can be excluded from an employee’s gross income for the amounts paid or expenses incurred by the employer for qualified adoption expenses furnished pursuant to an adoption assistance program in connection with other adoptions by the employee is $10,160. The amount excludable from an employee’s gross income begins to phase out under § 137(b)(2)(A) for taxpayers with modified adjusted gross income in excess of $152,390 and is completely phased out for taxpayers with modified adjusted gross income of $192,390.

.14 Private Activity Bonds Volume Cap . For calendar years beginning in 2003, the amounts used under § 146(d)(1) to calculate the State ceiling for the volume cap for private activity bonds is the greater of $75 multiplied by the State population or $228,580,000.

November 18, 2002 848 2002–46 I.R.B.

pletely phased out after, the following adjusted gross income amounts:

AGI Above Which Exemption Fully Phased Out

.15 Personal Exemption . (1) Exemption amount . For taxable years beginning in 2003, the personal exemption amount under § 151(d) is $3,050.

Filing Status

(2) Phase out . For taxable years beginning in 2003, the personal exemption amount begins to phase out at, and is com

AGI — Beginning of Phaseout

Code § 1(a) $209,250 $331,750 Code § 1(b) $174,400 $296,900 Code § 1(c) $139,500 $262,000 Code § 1(d) $104,625 $165,875

.16 Eligible Long-Term Care Premiums. For taxable years beginning in 2003, the limitations under § 213(d)(10), regarding eligible long-term care premiums includible in the term “medical care,” are as follows:

Attained age before the close of the taxable year Limitation on premiums

40 or less $ 250 More than 40 but not more than 50 $ 470 More than 50 but not more than 60 $ 940 More than 60 but not more than 70 $2,510 More than 70 $3,130

.17 Medical Savings Accounts. (1) Self-only coverage. For taxable years beginning in 2003, the term “high deductible health plan” as defined in § 220 (c)(2)(A) means, in the case of self-only coverage, a health plan that has an annual deductible that is not less than $1,700 and not more than $2,500, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits does not exceed $3,350.

(2) Family coverage. For taxable years beginning in 2003, the term “high deductible health plan” means, in the case of family coverage, a health plan that has an annual deductible that is not less than $3,350 and not more than $5,050, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits does not exceed $6,150.

.18 Interest on Education Loans. For taxable years beginning in 2003, the $2,500 maximum deduction for interest paid on qualified education loans under § 221 is reduced under § 221(b)(2)(B) when modified adjusted gross income exceeds $50,000 ($100,000 for joint returns), and is completely eliminated when modified adjusted gross income is $65,000 ($130,000 for joint returns).

.19 Treatment of Dues Paid to Agricul- tural or Horticultural Organizations. For taxable years beginning in 2003, the limitation under § 512(d)(1), regarding the exemption of annual dues required to be paid by a member to an agricultural or horticultural organization, is $122.

.20 Insubstantial Benefit Limitations for Contributions Associated with Charitable Fund-Raising Campaigns.

(1) Low cost article. For taxable years beginning in 2003, the unrelated business income of certain exempt organizations under § 513(h)(2) does not include a “low cost article” of $8 or less.

(2) Other insubstantial benefits. For taxable years beginning in 2003, the $5, $25, and $50 guidelines in section 3 of Rev. Proc. 90–12, 1990–1 C.B. 471 (as amplified and modified), for disregarding the value of insubstantial benefits received by a donor in return for a fully deductible charitable contribution under § 170, are $8, $40, and $80, respectively.

.21 Funeral Trusts. For a contract entered into during calendar year 2003 for a “qualified funeral trust,” as defined in § 685, the trust may not accept aggregate contributions by or for the benefit of an individual in excess of $7,800.

.22 Expatriation to Avoid Tax. For calendar year 2003, the amounts used under § 877(a)(2), regarding whether an individual’s loss of United States citizenship had the avoidance of United States taxes as one of its principal purposes, are more than $122,000 for “average annual net income tax” and $608,000 or more for “net worth.”

.23 Valuation of Qualified Real Prop- erty in Decedent’s Gross Estate. For an estate of a decedent dying in calendar year 2003, if the executor elects to use the special use valuation method under § 2032A for qualified real property, the aggregate decrease in the value of qualified real property resulting from electing to use § 2032A that is taken into account for purposes of the estate tax may not exceed $840,000.

.24 Annual Exclusion for Gifts. (1) For calendar year 2003, the first $11,000 of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts under § 2503 made during that year.

(2) For calendar year 2003, the first $112,000 of gifts to a spouse who is not a citizen of the United States (other than gifts of future interests in property) are not included in the total amount of taxable gifts under §§ 2503 and 2523(i)(2) made during that year.

2002–46 I.R.B. 849 November 18, 2002

Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Ms. Myers at (202) 622–4920 (not a toll-free call).

26 CFR 301.7508–1: Time for performing certain acts

postponed by reason of service in a combat zone or

a Presidentially declared disaster.

(Also Part I, § 7508A; § 301.7508A–1.)

Rev. Proc. 2002–71