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

programs

IRC § 23

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

individuals

IRC § 25B

Marriage penalty relief and simplification earned income tax

credit

IRC § 32

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

adjusted gross income

IRC § 62

Rollovers allowed among various types of pension plans, new

rules for computing employee contributions to annuities

IRC § 72

Exclusion of certain health scholarships

IRC § 117(c)

Exclusion for employer-provided educational assistance to

include graduate education

IRC § 127

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

assistance credit

IRC § 137

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

rules

IRC § 219

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)

plans

IRC § 401(k)

CRS-3

Provision

Citation

Liberalization of rollover, spousal rollover, and hardship

distribution rules

IRC § 402

Liberalization of restrictions on distributions, rollovers,

purchase of service credits of 403(b) plans

IRC § 403(b)

Modification of employer deduction limits for qualified plans

IRC § 404

Modification of IRA, SIMPLE retirement accounts,

contribution limits, rollover rules

IRC § 408

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

local plans) benefits upon divorce

IRC § 414(p)

Catch-up contributions for individuals over 50

IRC § 414(v)

Increase in benefit and contribution limits for defined benefit

plans, multiemployer plans, equitable treatment for defined

contribution plans

IRC § 415

Modification of top-heavy plan rules

IRC § 416

Increase in benefit and contributions limits for plans of state

and local governments and tax-exempt organization, minimum

distribution and income inclusion requirements, new rollover

rules

IRC § 457

Modifications to qualified tuition programs

IRC § 529

Modification to education IRAs

IRC § 530

Exclusion of nonresident alien income from international

transportation services from income sourcing rules

IRC § 861

Conforming certain new tax credit rules to the DC first-time

homebuyer credit

IRC § 1400C

Reduction in maximum estate tax rate to 50%; repeal of

phaseout of graduated rates

IRC § 2001(c)

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

closely held business to 45; clarification of definition of nonreadily tradeable stock; qualifying lending and financial

businesses permitted to use installment payment

IRC § 6166

Reporting requirements for qualified tuition programs

IRC § 6693

Elimination of user fees for ruling requests to IRS about new

pension plans

EGTRRA § 620

ERISA amendments to conform to various tax changes

EGTRRA §§ 612663

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

of public safety officers killed in the line of duty prior to

January 1, 1997

IRC § 101(h)

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

employee representatives.

IRC § 3211, 3221

Tier II tax rate adjustment to 15.6 percent for employers

IRC § 3221

Tier II tax rate adjustment to 14.75 percent on employee

representatives

IRC § 3211

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

month

IRC § 132(f)

Deduction for health insurance for self-employed increases to

70%

IRC § 162(l)

Deduction for clean fuel vehicle reduced

IRC § 179A

Increase in deduction for meals away from home for certain

transportation workers

IRC § 274(n)

Coordination of foreign income tax credit with nonrefundable

personal credits

IRC § 904

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

to $500,000

IRC § 2031

Reduction in tax of luxury passenger vehicles

IRC § 4001

Certain approved terminals of registered persons required to

offer dyed diesel fuel and kerosene for non-taxable purposes

IRC § 4041

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

high income taxpayers

IRC § 6654