Tax Equity Act

Tax Equity Act - Title I: Capital Gains and Losses - Repeals the alternative tax presently allowed to corporations, individuals and life insurance companies on long-term capital gains.

Provides, in lieu of the present 50 percent deduction for net long-term capital gain, an exclusion of so much of the gain as does not exceed one-half of one percent of adjusted basis of the property times the number of months the property was held over 12 months.

Limits capital losses to capital gains and gains from the exchange of business property in the case of corporations, and, in the case of other taxpayers, to capital gains and gains from the exchange of business property plus the taxable income of the taxpayer or $3,000, whichever is smaller.

Allows the executor of a decedent's estate to include in gross income any unrealized capital gains on descendent's property to the extent that the decedent had a net capital loss for the taxable year.

Provides that income from the sale or exchange of patent rights shall be treated as royalties (ordinary income) rather than as gain from the sale or exchange of a capital asset.

Title II: Income Derived from Extraction of Minerals - Repeals the percentage depletion allowance for taxable years beginning after 1977.

Allows the deduction of expenditures (including intangible drilling costs) incurred in the exploration and development of mineral property, but only to the extent of taxable income derived from such properties.

Provides an exclusion from gross income of amounts derived from foreign mineral properties, provided that such income is not derived from: (1) a nonoperating mineral interest; (2) distributions received with respect to the stock of a corporation; and (3) amounts includible in gross income as undistributed profits of controlled foreign corporations.

Limits the losses allowable from the disposition of mineral property to the extent of the gains from the sale or exchange of such properties during the taxable year.

Title III: Reform Measures Affecting Primarily Individuals - Provides that the maximum rate of income tax for individuals shall be 50 percent of taxable income.

Allows a credit of 24 percent of the amount of deductions which would be allowable, but for this credit, for the following: (1) personal exemptions; (2) interest on non-business obligations; (3) non-business State and local taxes; (4) non-business losses of property; (5) charitable contributions; (6) medical care; and (7) taxes and interest paid by a cooperative housing association.

Authorizes the President to increase or decrease the 24 percent credit rate authorized by this Act subject to the disapproval by either House of Congress.

States that the income received by a child from a trust created by his parent, and dividends, interest, and royalties from property given the child by his parent shall be included in the gross income of the parent if the parent claims the above credit for the exemption allowable for such child as a dependent.

Provides that shareholder-employees of closely held corporations must include in gross income that part of contributions paid by an employer-corporation (and deductible by it) to trusts, annuities, or bond purchase plans for the benefit of the shareholder-employee in excess of (1) the lesser of 15 percent of his compensation; or (2) $7500, and the amount of any forfeitures allocated to the employee's account under a stock bonus or profit-sharing plan.

Repeals the $100 exclusion from gross income for dividends and trust income.

Restricts the business and income-producing expense deduction for business or trade-related conventions held outside of the United States to the cases where it is more reasonable for the meeting to be held outside of the United States than within it.

Disallows business expense deductions for the use of a dwelling unit which is used by the taxpayer during the taxable year as a residence. Limits such deductions for vacation homes.

Limits the allowable deductions attributable to farming by individuals whose nonfarm adjusted gross income exceeds $20,000 to gross income derived from farming for the taxable year, plus, in the case of an individual, the higher of $10,000 or the amount of certain allowable deductions.

Provides for the computation of earnings and profits on a consolidated basis with respect to distributions by the common parent corporation of a controlled group of corporations.

Provides for the recognition of gains incurred upon transfers to corporations controlled by the transferor where the gain qualifies as a dividend.

Specifies that stock options granted to an employee by an employer corporation shall be treated as an option without a readily ascertainable value unless the option is traded on a stock exchange.

Taxes trust income payable to the children of a grantor with a reversionary interest to the grantor if the child is under 21 years of age or a student.

Applies the limitation on partnership losses to real estate partnerships.

Repeals the exemption for earned income from foreign sources.

Provides that a partnership shall be treated as a corporation for purposes of income taxation upon filing of a registration statement for the offering of units of interest in a partnership with the Securities Exchange Commission.

Title IV: Reform Measures Affecting Primarily Corporations - Repeals the investment credit for business property placed in service after 1977.

Repeals the Asset Depreciation Range System. States that, in the case of a corporation, the depreciation allowance shall not exceed the depreciation recorded on the corporation's books. Provides that the deduction for repair expenses shall be limited to the amount recorded on the corporation's books.

Provides that if a deduction is allowable to a corporation during the taxable year for interest on purchases of stock of an unaffiliated corporation, the dividends received from such corporation shall be eligible for the dividends received deduction only to a limited extent.

Repeals the provision allowing nonrecognition of gain on the sale of inventory in certain liquidations.

Disqualifies as reorganization certain transactions which result in the shareholders of a merging corporation owning less than 20 percent of the total combined voting power of all classes of stock of the surviving corporation.

Repeals the special treatment of bad debt reserves of financial institutions.

Taxes the undistributed profits of foreign corporations to such corporations' American shareholders based on each shareholder's pro rata share of such undistributed profits.

Repeals the tax exemption presently permitted to Domestic International Sales Corporations.

Provides that where property acquired through involuntary conversion is stock of a corporation owning property similar or related in service or use to the converted property, the basis of such property owned by the corporation shall also be reduced by the amount of gain which is not recognized on account of the purchase of such stock.

Repeals an exception to the penalty provisions for underpayment of estimated income tax insofar as they pertain to corporations whose tax for any of the preceding three tax years exceeded $300,000.

Title V: Reforms Affecting Individuals and Corporations - Provides that amounts which otherwise would be allowable as a deduction and are attributable to the development of any fruit or nut grove or any vineyard shall be charged to capital account, with exceptions for specific types of development and for replanting of groves and vineyards damaged by weather, disease, or casualty.

Repeals the tax exemptions for ships under foreign flags.

Provides that the Commissioner of Internal Revenue shall have the authority to conduct any civil litigation in any court concerning tax liability, taxpayer suits, or the collection of internal revenue taxes in the name of the United States.

Provides that the 15 percent minimum tax will apply to all tax preferences which exceeds $10,000. Subjects interest on governmental obligations and foreign tax credits to the minimum tax on preferences.

Provides that the difference between the cost to a shareholder of the use of corporate property and the fair market value of such use shall be includible in the gross income of the shareholder.

Limits the allowable depreciation deduction for rental real estate to an amount which will not reduce the adjusted basis to an amount below any mortgage indebtedness on such property.

Reduces the deduction for charitable gifts of appreciated property to the amount of the property's basis at the time of the gift.

Title VI: Reforms Affecting Private Foundations and Estate and Gift Taxes - Provides that a trust or other organization which is controlled by non-tax exempt organizations may still be considered a private foundation if its trustees or directors may distribute 50 percent or more of its income to qualified persons. Extends the disqualification of controlled foundations to include those which are only supervised or controlled in connection with unqualified organizations. Provides that organizations qualifying for tax exempt status because of their substantial support from Federal, State or local governments or from the general public may not receive more than one-half of one percent of their total support from any one individual or group related individuals.

Excludes transfers with a reversionary interest in the decedent from the value of the decedent's gross estate.

Requires the inclusion in the gross estate of the full value of an annuity provided by an employer.

Includes in the value of a decedent's gross estate, life insurance proceeds on policies owned by the decedent's surviving spouse and on any policies not owned by the decedent to the extent that they are attributable to premiums paid by the decedent or his spouse.

Limits the aggregate amount of charitable deductions allowed under the estate tax to 50 percent of the amount by which the value of the gross estate exceeds the aggregate amount of deductions for expenses, indebtedness, taxes, and casualty losses incurred during the settlement of the estate, or $1,000,000, whichever is greater.

Allows a deduction from the gift tax of charitable gifts where the donor retained some interest in the transferred property which was later extinguished.

Title VII: State and Local Obligations - Repeals the income tax for interest on State and local obligations issued after 1977.

Directs the United States to pay 35 percent of the interest yield on State and local obligations.

Title VIII: Withholding of Income Tax on Dividends and Interest - Directs every person who pays interest or dividends to deduct and withhold on such interest or dividends a tax equal to ten percent of the amount thereof. Directs every person required to deduct and withhold any tax to make quarterly returns of such tax to the appropriate Government officer.