By modest but not slim margins, the House failed to override President Clinton’s veto of two bills, one providing $252 billion in marriage tax relief over 10 years, the other phasing out the estate tax over 10 years at a cost of $100 billion.

The House also voted overwhelmingly in favor of two recent bills; the first would increase the IRA contribution limit from $2,000 to $5,000, the §401(k) contribution limit from $10,500 to $15,000, and would also allow individuals age 50 and older to make additional “catch up” contributions to IRAs and §401(k)s. The second bill, having the support of Mr. Clinton and House Republicans, approved nearly $6 billion in tax incentives to encourage private investment in 40 “renewal zones” in inner cities.

In other tax matters:

¶  Beginning Jan. 1, 2000, capital assets purchased after that date and held for at least 5 years will be taxed at only 18%. Postponing large investments until January could make sense. IRC § 1(h)(2) will also permit a “deemed-sale-and-repurchase” election to qualify previously held capital assets for the lower rate. Since the election avoids transaction costs, it may be sensible for unappreciated assets. However, since the election also results in immediate tax on any appreciation and begins a new holding period, its benefit is reduced. No guidance has been issued.

¶  Final regulations have been issued relating to the sale or exchange of a partnership, trust or S corporation interest. Effective for transactions on or after Sept. 20, 2000, the regulations implement 1997 changes in the capital gains rate.

¶ Amendments to Reg. §25.270203 provide that a trust using a note or other debt instrument to satisfy the annual payment obligation of a GRAT to the grantor does not meet the requirements of §2702(b). Trusts created after 9/20/99 should therefore contain a provision expressly prohibiting the use of notes. Notes obtained from unrelated parties, in contrast, are not prohibited.

¶   Rev. Proc. 2000-34 warns that in order to commence the limitations period for a prior gift that was not adequately disclosed, an amended return must be filed which apprises the IRS of the nature of the gift and the basis for the value reported, as required by Reg. §301.6501(c)-1(f)(2).

¶   Rev. Proc. 2000-37 provides a safe harbor under which the qualification of property as either “replacement property” or “relinquished property” in §1031 “reverse exchanges” will not be challenged. The ABA Tax Committee had lobbied in support of such rules. (See discussion, Tax News, 10/99)

¶  Nine members of the IRS oversight board created by TRA 1997 were recently sworn in. Members include Treasury Secretary Summers and IRS Commissioner Rossotti.

¶ Commissioner Rossotti has requested an $8.8 billion budget for fiscal 2001 which would permit the IRS to hire new compliance employees. Tax audits, he notes, have decreased by fifty percent since the mid-1990’s because of a shift in resources aimed at improving customer service and implementing congressionally mandated reforms. The Senate recently rejected an IRS funding bill that the White House considered inadequate.

¶  The IRS Appeals Division has been redesigned into four operating units, which offer new services designed to accelerate appeals cases. Mediation and arbitration processes have also been implemented.

¶    The Tax Appeals Tribunal held that an automobile lessee is not entitled to a prorated tax refund on early termination arising from a vehicle’s total loss, noting that the legislature was not unaware of the failure of the statute to provide for such a refund. In re Miehle (citation unavailable).