defers compensation from a year in which he claims a deduction under section 913 for excess foreign housing costs (the "performance year") to a year in which he does not have an excess housing cost deduction. This recapture rule only applies where the compensation ("afterreceived compensation") is deferred for no more than 3 years after the year in which the services are performed.

3. Disallowance of deductions attributable to excluded foreign earned income (sec. 108(a)(1)(D) of the bill and sec. 911(a) of the Code)

Under prior law, an individual who excluded foreign earned income could not claim any deductions, or take a credit for any foreign income taxes, to the extent properly allocable to, or chargeable against, the excluded income. This provision was carried over under the Foreign Earned Income Act of 1978, but the wording was changed in a way which makes it less clear that deductions, as well as foreign tax credits, allocable to excluded foreign earned income are to be disallowed.

The bill would change the wording to clarify that deductions attributable to excluded amounts will continue to be disallowed.

4. Definition of "qualified home leave expenses" for purposes of the deduction for excess foreign living costs (sec. 108(a)(1) (F) of the bill and sec. 913(g) of the Code)

The 1978 Foreign Earned Income Act allows certain Americans working abroad to deduct reasonable costs of transportation of the individual, his spouse, and dependents from his tax home (generally, his principal place of work) outside the United States to (i) his present (or if none, most recent) principal residence in the United States or (ii), if the preceding rule does not apply to the individual, to the nearest U.S. port of entry (excluding Alaska and Hawaii).

It is not clear how this limitation applies to departures from locations other than the individual's foreign tax home. Also, it is not clear that a taxpayer could ever take a deduction for the cost of round-trip transportation to Alaska or Hawaii.

The bill would make it clear that the taxpayer may deduct the cost of home-leave transportation from a point other than his tax home abroad, but that his deduction will be limited to the lesser of the cost of transportation from (a) his tax home, or (b) the other point abroad from which he departs to (i) his present (or, if none, most recent) U.S. residence, if he actually goes there, or (ii) the nearest U.S. port of entry, if he does not. The nearest port of entry would generally exclude Alaska and Hawaii. However, an individual could elect not to have that exclusion apply, thus permitting deduction of the cost of roundtrip travel to Alaska or Hawaii, if nearer than the nearest port of entry in the other states.

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C. TECHNICAL AMENDMENTS RELATING TO THE ENERGY TAX ACT OF 1978

1. Repayment of tax on gasoline used in commercial fishing vessels (sec. 108(c)(1) of the bill and sec. 6421(d)(2) of the Code) Prior to the Energy Tax Act of 1978, a direct refund of 2 cents a gallon was permitted for the excise tax on gasoline, 2 or 4 cents a gallon for the excise tax on diesel fuels, and the special motor fuels, and 6 cents a gallon for the excise tax on lubricating oil used for certain nonhighway uses. The Energy Tax Act of 1978 removed the direct refund provisions where the products were not used in a trade or business but did not affect provisions allowing the tax-free purchase or indirect credits or refunds for these items where the items are to be used on a commercial fishing vessel. However, the tax-free purchase (or indirect credit or refund) often cannot be obtained because the producer is not selling directly to the operator of a commercial fishing vessel or the final seller does not want to go through the paperwork to obtain the credit or refund.

The bill would allow the 2-cent and 6-cent direct refunds permitted under prior law where the item is used on a commercial fishing vessel. This amendment already has been adopted by the Finance Committee. This amendment affects the 1979 tax forms which were printed prior to the time consideration of H.R. 2797 was scheduled by the Finance Committee. The Finance Committee adopted the amendment on October 2, 1979, in order that this amendment could be reflected in the 1979 tax forms.

2. Technical corrections with respect to fuels tax exemption for gasohol (sec. 108(c)(2) of the bill and secs. 4081(c) and 6416 (b)(2) of the Code)

Under the Energy Tax Act of 1978, gasohol (i.e., fuel which is a blend of gasoline, or other motor fuel, and alcohol) that is at least 10 percent alcohol (other than alcohol derived from petroleum, natural gas, or coal) is exempted from the Federal excise taxes on motor fuels on or after January 1, 1979, and before October 1, 1984. The Act provides that gasoline may be sold free of tax if it is to be used in the production of gasohol. Since motor fuels other than gasoline are taxed on the retail sale or use, a similar tax-free provision is not necessary in such cases. The Act also provides that, if the gasohol for which an exemption from the tax is obtained is later separated into gasoline and alcohol, the person doing such separation is to be treated as the producer of the gasoline (and thus would ordinarily be liable for the 4-cents-a-gallon tax). No provision is made for refund of the tax on gasoline if tax-paid gasoline is mixed with alcohol to produce gasohol.

The bill makes two technical changes. First, the bill amends the provision of present law which allows a refund for tax-paid fuel used for

certain exempt purposes by treating as an overpayment of tax any fuel excise tax paid on gasoline used or sold for use in the production of gasohol. This provision ensures that gasohol can be produced free of any ultimate tax burden (through a credit or refund approach) even though excise taxes had been paid on the gasoline by the producer or importer. Second, the bill amends the provision (Code sec. 4081 (c)) which treats a person who separates an exempted gasoline-alcohol mixture into gasoline and alcohol as the producer of such gasoline (and therefore subject to the 4-cents-a-gallon tax) by providing that this treatment applies not only if the gasoline was originally acquired free of tax but also if a credit or refund of excise taxes had been obtained. 3. Tires used in the manufacture of buses (sec. 108(c)(3) of the bill and secs. 4071(e), 6416(b)(3)(C), and 6416(b)(4)(B) of the Code)

Prior to the Energy Tax Act of 1978, a 10-percent manufacturers excise tax was imposed on the sale of buses having a gross vehicle weight of more than 10,000 pounds, with certain exceptions (Code sec. 4061(a)). Another provision (Code sec. 4071) imposes excise taxes on tires, inner tubes, and tread rubber. These taxes generally apply to tires and inner tubes used on buses (as well as other tires, inner tubes, and tread rubber).

The Energy Tax Act repealed the excise tax on buses. In the case of excise taxes on highway tires, inner tubes, and tread rubber, the Energy Tax Act also provided an exemption for sales by a manufacturer, producer, or importer of such items "sold for use" by the purchaser on or in connection with an intercity, local, or school bus. Tires and inner tubes also may be purchased tax free by a vehicle manufacturer to be placed on a chassis which is to be sold (among other things) to a State or local government or a private nonprofit school. If purchased taxpaid and then so used, a credit or refund of tax is available to the vehicle manufacturer. However, if a manufacturer purchases tires or inner tubes to be placed on a bus which is for domestic use by other than a State or local government or by a nonprofit school, the excise taxes on tires and inner tubes are imposed, and there is no provision for credit or refund of such taxes.

The bill provides that if tires or inner tubes are sold on a tax-paid basis to a manufacturer of bus chasis or bodies, the tire tax is to be credited or refunded to the bus manufacturer upon the sale of the bus chassis or body.

4. Refund of tax on lubricating oil used in producing rerefined oil (sec. 108(c) (4) of the bill and sec. 6416(b) (2) of the Code) Under present law, a 6-cent-per-gallon manufacturers excise tax is imposed on lubricating oil (other than cutting oils) sold in the U.S. by a manufacturer or producer, or used by a manufacturer or producer. The sale of recycled oil is not subject to the tax. However, the excise tax is imposed on the new lubricating oil mixed with the used oil.

The Energy Tax Act of 1978 exempted the sale of new lubricating oil from the excise tax where the oil is sold for use in a blend with previously used or waste lubricating oil which has been cleaned, renovated, or rerefined. Such a blend is designated as "rerefined oil."

The exemption applies if the blend contains 25 percent or more of waste oil. All of the new oil in a mixture is exempt from the tax if the blend contains 55 percent or less of new oil. If it contains more than 55 percent new oil, the exemption applies only to so much of the new oil as does not exceed 55 percent of the blend. However, no provision was made for refunds of the excise tax where tax-paid new oil is mixed with waste oil.

The bill provides for credit or refund of tax paid with respect to new oil in rerefined oil to the extent that the blend of new and waste oil would be exempt from the manufacturers excise tax. As a result, refunds will be available for the tax paid on up to 55 percent of a blend of new and waste lubricating oil which contains at least 25 percent of waste oil. However, refunds would not be available until the blend is used or sold.

5. Credit or refund of tax on truck bodies or chassis used in the manufacture of buses (sec. 108(c) (5) of the bill and sec. 6416 (b)(3) of the Code)

Prior to the Energy Tax Act of 1978, a 10-percent manufacturers excise tax was imposed on the sale of buses or trucks having a gross vehicle weight of more than 10,000 pounds with certain exceptions (Code sec. 4061(a)). The Energy Tax Act repealed the excise tax on buses (but not the excise tax on trucks). However, no provision was made for a credit or refund of tax in situations where a person produces a bus from a truck body or chassis (on which tax has been paid) to a bus.

The bill would permit the producer of the bus to obtain a credit or refund of the tax on the truck chassis or body.

III. REVENUE EFFECT

It is estimated that the provisions contained in the bill ("Technical Corrections Act of 1979", H.R. 2797) will not have any overall revenue impact. It should be noted that certain individual provisions may appear to result in a minor revenue increase or decrease. However, the revenue effects which were included in the various acts took into account the basic Congressional policy contained in the revisions made by this bill.

Senator BYRD. The subcommittee will come to order.

I might say that this is the first time in 3 years that the chairman of this subcommittee has not opened the hearing precisely on time. The hearing would have begun precisely on the hour today except I have been meeting with Vice President Mondale and with Secretary of State Vance on the problems in Iran.

The hearings today will deal with the Technical Corrections Act of 1979.

The purpose of the act is to improve and perfect tax legislation enacted by the Congress made in 1978 but which were, for various reasons, improperly implemented in the Revenue Act of 1978, the 1978 Energy Tax Act, and the Foreign Earned Income Act of 1978. The technical corrections process is, I believe, a good idea. Without it, obvious errors would remain in the tax code for many years creating confusion, complexity, and uncertainty. An important part of the technical corrections process is it gives public witnesses adequate opportunity to review and comment upon proposed technical changes.

The bill as passed by the House corrects many such errors, and it is my understanding that the Department of the Treasury will today submit to the committee additional changes which have been developed through a cooperative process of review and discussion by the Department of the Treasury and the staffs of the Joint Committee and the Committee on Finance.

Now, in connection with the House bill, this committee is prepared to act on the House proposals. If the Treasury or if the staffs of the two committees present large numbers of amendments to the House passed bill, then the committee is not prepared to act on those at this time. To those who are interested in having the technical corrections bill approved, the committee is in a position to act expeditiously on the bill referred to the committee, provided the committee is not given large numbers of amendments to consider by the Department of the Treasury or others.

As I mentioned earlier, an important part of the technical corrections process is to give public witnesses adequate opportunity to review and comment upon proposed technical changes. I propose as chairman of this subcommittee, to give adequate opportunity to the public to comment on any additional changes that might be submitted to the committee today which are not a part of the House bill.

I also understand that public witnesses will be making additional technical proposals to the committee today. I want to stress to these witnesses that the hearings are designed to review technical, and I underscore technical, additions to the bill. I would request that witnesses confine their comments to proposals which they feel will implement prior policy decisions which have already been determined by the Congress. I want to emphasize to the public witnesses which the committee has indicated a willingness to hear today, that we have included the witnesses on the assumption that what the witnesses propose are in fact technical corrections.

A committee pamphlet describing the House technical corrections bill shall be included as part of the printed record of full hearings along with a description of each of the staff and Treasury proposals.