SECTION 2. CHANGES

.01 The amount of tax imposed by § 4161(b)(2)(A) on the first sale by the manufacturer, producer, or importer of any shaft of a type used in the manufacture of certain arrows is adjusted for inflation. (Section 3.29).

SECTION 3. 2006 ADJUSTED ITEMS

.01 Tax Rate Tables . For taxable years beginning in 2006, the tax rate tables under § 1 are as follows:

TABLE 1 - Section 1(a). - Married Individuals Filing Joint Returns and Surviving Spouses

If Taxable Income Is : The Tax Is :

Not Over $15,100 10% of the taxable income

Over $15,100 but not over $61,300 $1,510 plus 15% of the excess over $15,100

Over $61,300 but not over $123,700 $8,440 plus 25% of the excess over $61,300

Over $123,700 but not over $188,450 $24,040 plus 28% of the excess over $123,700

Over $188,450 but not over $336,550 $42,170 plus 33% of the excess over $188,450

Over $336,550 $91,043 plus 35% of the excess over $336,550

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TABLE 2 - Section 1(b). - Heads of Households

If Taxable Income Is : The Tax Is :

Not Over $10,750 10% of the taxable income

Over $10,750 but not over $41,050 $1,075 plus 15% of the excess over $10,750

Over $41,050 but not over $106,000 $5,620 plus 25% of the excess over $41,050

Over $106,000 but not over $171,650 $21,857.50 plus 28% of the excess over $106,000

Over $171,650 but not over $336,550 $40,239.50 plus 33% of the excess over $171,650

Over $336,550 $94,656.50 plus 35% of the excess over $336,550

TABLE 3 — Section 1(c). - Unmarried Individuals (other than Surviving Spouse and Heads of Households).

If Taxable Income Is : The Tax Is :

Not Over $7,550 10% of the taxable income

Over $7,550 but not over $30,650 $755 plus 15% of the excess over $7,550

Over $30,650 but not over $74,200 $4,220 plus 25% of the excess over $30,650

Over $74,200 but not over $154,800 $15,107.50 plus 28% of the excess over $74,200

Over $154,800 but not over $336,550 $37,675.50 plus 33% of the excess over $154,800

Over $336,550 $97,653 plus 35% of the excess over $336,550

TABLE 4 - Section 1(d). - Married Individuals Filing Separate Returns

If Taxable Income Is : The Tax Is :

Not Over $7,550 10% of the taxable income

Over $7,550 but not over $30,650 $755 plus 15% of the excess over $7,550

Over $30,650 but not over $61,850 $4,220 plus 25% of the excess over $30,650

Over $61,850 but not over $94,225 $12,020 plus 28% of the excess over $61,850

Over $94,225 but not over $168,275 $21,085 plus 33% of the excess over $94,225

Over $168,275 $45,521.50 plus 35% of the excess over $168,275

TABLE 5 - Section 1(e). - Estates and Trusts

If Taxable Income Is : The Tax Is :

Not Over $2,050 15% of the taxable income

Over $2,050 but not over $4,850 $307.50 plus 25% of the excess over $2,050

Over $4,850 but not over $7,400 $1,007.50 plus 28% of the excess over $4,850

Over $7,400 but not over $10,050 $1,721.50 plus 33% of the excess over $7,400

Over $10,050 $2,596 plus 35% of the excess over $10,050

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

.02 Unearned Income of Minor Chil- dren Taxed as if Parent’s Income (the “Kiddie Tax”) . For taxable years beginning in 2006, 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 $850. (This amount is the same as the $850 standard deduction amount provided in section 3.10(2) of this revenue procedure.) The same $850 amount is used for purposes of § 1(g)(7) (that is, in

November 21, 2005 981 2005–47 I.R.B.

.06 Earned Income Credit . (1) In general . For taxable years beginning in 2006, 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.

amount referenced in § 1(g)(4)(A)(ii)(I) but less than 10 times such amount; thus, a child’s gross income for 2006 must be more than $850 but less than $8,500 to satisfy that requirement.

.03 Adoption Credit . For taxable years beginning in 2006, under § 23(a)(3) the maximum credit allowed for an adoption of a child with special needs is $10,960. For taxable years beginning in 2006, under § 23(b)(1) the maximum credit allowed with regard to other adoptions is the amount of qualified adoption expenses up to $10,960. The available adoption credit begins to phase out under § 23(b)(2)(A) for taxpayers with modified adjusted gross income in excess of $164,410 and is completely phased out for taxpayers with modified adjusted gross income of $204,410. (See section 3.14 of this revenue procedure for the adjusted items relating to adoption assistance programs.)

.04 Child Tax Credit . For taxable years beginning in 2006, the value used in § 24(d)(1)(B)(i) in determining the amount of credit under § 24 that may be refundable is $11,300.

.05 Hope and Lifetime Learning Cred- its .

(1) For taxable years beginning in 2006, 100 percent of qualified tuition and related expenses not in excess of $1,100 and 50 percent of such expenses in excess of $1,100 are taken into account in determining the amount of the Hope Scholarship Credit under § 25A(b)(1).

(2) For taxable years beginning in 2006, a taxpayer’s modified adjusted gross income in excess of $45,000 ($90,000 for 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).

Number of Qualifying Children

Item One Two or More None

Earned Income Amount $ 8,080 $11,340 $ 5,380

Maximum Amount of Credit $ 2,747 $ 4,536 $ 412

Threshold Phaseout Amount (Single, Surviving Spouse, or Head of Household)

Completed Phaseout Amount (Single, Surviving Spouse, or Head of Household)

Threshold Phaseout Amount (Married Filing Jointly)

Completed Phaseout Amount (Married Filing Jointly)

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 2006, the earned income tax credit is denied under § 32(i) if the aggregate amount of certain investment income exceeds $2,800.

.07 Low-Income Housing Credit. For calendar year 2006, the amounts used under § 42(h)(3)(C)(ii) to calculate the State housing credit ceiling for the low-income housing credit is the greater of (i) $1.90

multiplied by the State population, or (ii) $2,190,000.

.08 Alternative Minimum Tax Exemp- tion for a Child Subject to the “Kiddie Tax.” For taxable years beginning in 2006, for a child to whom the § 1(g) “kiddie tax” applies, the exemption amount under §§ 55 and 59(j) for purposes of the alternative minimum tax under § 55 may not exceed the sum of (i) such child’s earned income for the taxable year, plus (ii) $6,050.

.09 Transportation Mainline Pipeline Construction Industry Optional Expense Substantiation Rules for Payments to Em- ployees under Accountable Plans . For

$14,810 $14,810 $ 6,740

$32,001 $36,348 $12,120

$16,810 $16,810 $ 8,740

$34,001 $38,348 $14,120

calendar year 2006, an eligible employer may pay certain welders and heavy equipment mechanics an amount of up to $14 per hour for rig-related expenses that is deemed substantiated under an accountable plan when paid in accordance with Rev. Proc. 2002–41, 2002–1 C.B. 1098. If the employer provides fuel or otherwise reimburses fuel expenses, up to $8 per hour is deemed substantiated when paid under Rev. Proc. 2002–41.

.10 Standard Deduction . (1) In general . For taxable years beginning in 2006, the standard deduction amounts under § 63(c)(2) are as follows:

2005–47 I.R.B. 982 November 21, 2005

Filing Status Standard Deduction

Married Individuals Filing Joint Returns and Surviving Spouses (§ 1(a)) $10,300

Heads of Households (§ 1(b)) $ 7,550

Unmarried Individuals (other than Surviving Spouses and Heads of Households) (§ 1(c))

$ 5,150

Married Individuals Filing Separate Returns (§ 1(d)) $ 5,150

activity bonds is the greater of (i) $80 multiplied by the State population, or (ii) $246,610,000.

.16 Safe Harbor Rules for Broker Commissions on Guaranteed Invest- ment Contracts or Investments Purchased for a Yield Restricted Defeasance Es- crow . For calendar year 2006, under § 1.148–5(e)(2)(iii)(B)( 1 ), a broker’s commission or similar fee with respect to the acquisition of a guaranteed investment contract or investments purchased for a yield restricted defeasance escrow is reasonable to the extent that (i) the amount of the fee that the issuer treats as a qualified administrative cost does not exceed the lesser of (A) $32,000, or (B) 0.2 percent of the computational base (as defined in § 1.148–5(e)(2)(iii)(B)( 2 )) or, if more, $3,000; and (ii) the issuer does not treat more than $90,000 in brokers’ commissions or similar fees as qualified administrative costs with respect to all guaranteed investment contracts and investments for yield restricted defeasance escrows purchased with gross proceeds of the issue.

.17 Personal Exemption . (1) Exemption amount . For taxable years beginning in 2006, the personal exemption amount under § 151(d) is $3,300.

(2) Phase out . For taxable years beginning in 2006, the personal exemption amount begins to phase out at, and is completely phased out after, the following adjusted gross income amounts:

(2) Dependent . For taxable years beginning in 2006, 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 (i) $850, or (ii) the sum of $300 and the individual’s earned income.

(3) Aged and blind . For taxable years beginning in 2006, the additional standard deduction amounts under § 63(f) for the aged and for the blind are $1,000 for each. These amounts are increased to $1,250 if the individual is also unmarried and not a surviving spouse.

.11 Overall Limitation on Itemized De- ductions . For taxable years beginning in 2006, the “applicable amount” of adjusted gross income under § 68(b), above which the amount of otherwise allowable itemized deductions is reduced under § 68, is $150,500 (or $75,250 for a separate return filed by a married individual).

.12 Qualified Transportation Fringe . For taxable years beginning in 2006, the monthly limitation under § 132(f)(2)(A) (regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass) is $105. The monthly limitation under § 132(f)(2)(B) (regarding the fringe benefit exclusion amount for qualified parking) is $205.

.13 Income from United States Savings Bonds for Taxpayers Who Pay Qualified Higher Education Expenses . For taxable years beginning in 2006, 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 $94,700 for joint returns and $63,100 for other returns. This exclusion completely phases out for modified adjusted gross income of $124,700 or more for joint returns and $78,100 or more for other returns.

.14 Adoption Assistance Programs . For taxable years beginning in 2006, under § 137(a)(2) the maximum amount that can be excluded from an employee’s gross income in connection with the adoption by the employee of a child with special needs is $10,960. For taxable years beginning in 2006, 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 $10,960. 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 $164,410 and is completely phased out for taxpayers with modified adjusted gross income of $204,410. (See section 3.03 of this revenue procedure for the adjusted items relating to the adoption credit.)

.15 Private Activity Bonds Volume Cap . For calendar year 2006, the amounts used under § 146(d)(1) to calculate the State ceiling for the volume cap for private

Filing Status AGI – Beginning of Phaseout

AGI – Exemption Fully Phased Out

Married Individuals Filing Joint Returns and Surviving Spouses (§ 1(a)) $225,750 $348,250

Heads of Households (§ 1(b)) $188,150 $310,650

Unmarried Individuals (other than Surviving Spouses and Heads of Households) (§ 1(c))

$150,500 $273,000

Married Individuals Filing Separate Returns (§ 1(d)) $112,875 $174,125

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the limitations under § 213(d)(10) (regarding eligible long-term care premiums includible in the term “medical care”) are as follows:

.18 Election to Expense Certain Depre- ciable Assets . For taxable years beginning in 2006, under § 179(b)(1) the aggregate cost of any § 179 property a taxpayer may elect to treat as an expense shall not exceed $108,000. Under § 179(b)(2) the $108,000

limitation shall be reduced (but not below zero) by the amount by which the cost of § 179 property placed in service during the 2006 taxable year exceeds $430,000. .19 Eligible Long-Term Care Premi- ums . For taxable years beginning in 2006,

Attained Age Before the Close of the Taxable Year Limitation on Premiums

40 or less $ 280

More than 40 but not more than 50 $ 530

More than 50 but not more than 60 $1,060

More than 60 but not more than 70 $2,830

More than 70 $3,530

§ 685, the trust may not accept aggregate contributions by or for the benefit of an individual in excess of $8,500.

.26 Expatriation to Avoid Tax . For calendar year 2006, an individual with “average annual net income tax” of more than $131,000 for the 5 taxable years ending before the date of the loss of United States citizenship under § 877(a)(2)(A) is subject to tax under § 877(b).

.27 Valuation of Qualified Real Prop- erty in Decedent’s Gross Estate . For an estate of a decedent dying in calendar year 2006, 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 $900,000.

.28 Annual Exclusion for Gifts . (1) For calendar year 2006, the first $12,000 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 2006, the first $120,000 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.

.29 Tax on Arrow Shafts . For calendar year 2006, the tax imposed under § 4161(b)(2)(A) on the first sale by the manufacturer, producer, or importer of any shaft of a type used in the manufacture of certain arrows is $0.40 per shaft.

.30 Passenger Air Transportation Ex- cise Tax . For calendar year 2006, the tax

.20 Medical Savings Accounts . (1) Self-only coverage . For taxable years beginning in 2006, the term “high deductible health plan” as defined in § 220(c)(2)(A) means, for self-only coverage, a health plan that has an annual deductible that is not less than $1,800 and not more than $2,700, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits does not exceed $3,650.

(2) Family coverage . For taxable years beginning in 2006, the term “high deductible health plan” means, for family coverage, a health plan that has an annual deductible that is not less than $3,650 and not more than $5,450, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits does not exceed $6,650.

.21 Interest on Education Loans . For taxable years beginning in 2006, 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 ($105,000 for joint returns), and is completely eliminated when modified adjusted gross income is $65,000 ($135,000 for joint returns).

.22 Health Savings Accounts . (1) Monthly contribution limitation . For calendar year 2006, the monthly limitation on deductions under § 223(b)(2)(A) for an individual with self-only coverage under a high deductible plan as of the first day of such month is ¹ /12 of the lesser of (i) the annual deductible, or (ii) $2,700. For calendar year 2006, the monthly limitation on deductions under § 223(b)(2)(B) for an individual with family coverage under a

high deductible plan as of the first day of such month is ¹ /12 of the lesser of (i) the annual deductible, or (ii) $5,450.

(2) High deductible health plan . For calendar year 2006, a high deductible health plan is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,050 for self-only coverage or $2,100 for family coverage, and the annual out-of pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $5,250 for self-only coverage or $10,500 for family coverage.

.23 Treatment of Dues Paid to Agricul- tural or Horticultural Organizations . For taxable years beginning in 2006, 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 $131.

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

(1) Low cost article . For taxable years beginning in 2006, the unrelated business income of certain exempt organizations under § 513(h)(2) does not include a “low cost article” of $8.60 or less.

(2) Other insubstantial benefits . For taxable years beginning in 2006, 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 $8.60, $43, and $86, respectively.

.25 Funeral Trusts . For a contract entered into during calendar year 2006 for a “qualified funeral trust,” as defined in

2005–47 I.R.B. 984 November 21, 2005

mation regarding this revenue procedure, contact Ms. Myers at (202) 622–4920 (not a toll-free call).

26 CFR 1.1441–7: Extension of offer to resolve issues arising from certain tax, withholding, and reporting obligations of U.S. withholding agents with respect to payments to foreign persons.

Amendment to Sunset Date of Section 1441 Voluntary Compliance Program Under Rev. Proc. 2004–59

Rev. Proc. 2005–71