Selected Tax Law Changes Effective January 1, 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
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,


Provision Citation
Expansion of the adoption credit and adoption assistanceIRC § 23
Increase in the per child amount of the child tax creditIRC § 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

Provision Citation
Credit for deferrals and IRA contributions for certainIRC § 25B
Marriage penalty relief and simplification earned income taxIRC § 32
Credit for pension plan start-up costs for small employersIRC §§ 45E, 196
Credit for employer expenses for employer-provided child careIRC § 45F
Conforming amendments to above credit changesIRC §§ 25,26,
38,39, 51A
Deduction for higher education expenses allowed in computingIRC § 62
adjusted gross income
Rollovers allowed among various types of pension plans, newIRC § 72
rules for computing employee contributions to annuities
Exclusion of certain health scholarshipsIRC § 117(c)
Exclusion for employer-provided educational assistance toIRC § 127
include graduate education
Employer-provided retirement advice as fringe benefitIRC § 132
Use of qualified savings bonds in qualified tuition programs IRC § 135
Expansion of adoption assistance program and adoptionIRC § 137
assistance credit
Public educational facility bonds as exempt facility bondsIRC §§


142(k), 146(g)(3);

147(h); 148(f)

Increase in IRA contribution limits; liberalization of rolloverIRC § 219
Expansion of deduction for student loan interestIRC § 221
Deduction for qualified tuition expensesIRC § 222
Increase in benefit and contribution limits for retirement plansIRC §§

401(a)(17), 401(c)

Rollovers among various types of plans liberalizedIRC § 401(a)(31)
Modification of distribution rules for 401(k) plansIRC § 401(k)
Increase in benefit and contribution limits for SIMPLE 401(k)IRC § 401(k)


Provision Citation
Liberalization of rollover, spousal rollover, and hardshipIRC § 402
distribution rules
Liberalization of restrictions on distributions, rollovers,IRC § 403(b)
purchase of service credits of 403(b) plans
Modification of employer deduction limits for qualified plansIRC § 404
Modification of IRA, SIMPLE retirement accounts,IRC § 408
contribution limits, rollover rules
Faster vesting of certain employer matching contributionsIRC § 411
New rules permitting plan-to-plan transfersIRC § 411
New funding rulesIRC § 412
Clarification of tax treatment of 457 plan (generally state andIRC § 414(p)
local plans) benefits upon divorce
Catch-up contributions for individuals over 50IRC § 414(v)
Increase in benefit and contribution limits for defined benefitIRC § 415
plans, multiemployer plans, equitable treatment for defined
contribution plans
Modification of top-heavy plan rulesIRC § 416
Increase in benefit and contributions limits for plans of stateIRC § 457
and local governments and tax-exempt organization, minimum
distribution and income inclusion requirements, new rollover
Modifications to qualified tuition programsIRC § 529
Modification to education IRAsIRC § 530
Exclusion of nonresident alien income from internationalIRC § 861
transportation services from income sourcing rules
Conforming certain new tax credit rules to the DC first-timeIRC § 1400C
homebuyer credit
Reduction in maximum estate tax rate to 50%; repeal ofIRC § 2001(c)
phaseout of graduated rates
Increase in unified credit to $700,000 exemption equivalentIRC § 2010(c)
Reduction of credit for state death taxesIRC § 2011
Lifetime gift exemption increased to $1,000,000IRC § 2505(a)

Provision Citation
Increase in number of allowable partners or shareholders inIRC § 6166
closely held business to 45; clarification of definition of non-
readily tradeable stock; qualifying lending and financial
businesses permitted to use installment payment
Reporting requirements for qualified tuition programsIRC § 6693
Elimination of user fees for ruling requests to IRS about newEGTRRA § 620
pension plans
ERISA amendments to conform to various tax changes EGTRRA §§ 612-
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 IRC § 101(h)
of public safety officers killed in the line of duty prior to
January 1, 1997
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-exemptIRC § 501(c)(28)
Repeal of supplemental annuity tax on railroad employers andIRC § 3211, 3221
employee representatives.
Tier II tax rate adjustment to 15.6 percent for employersIRC § 3221
Tier II tax rate adjustment to 14.75 percent on employeeIRC § 3211
Tier II tax rate adjustment to 4.9 percent on employeesIRC § 3201

Provisions enacted prior to 2001 which became effective as of
January 1, 2002, not including expiring provisions:
Provision Citation
Reduction in electric vehicle tax creditIRC § 30
Puerto Rico economic activity credit limitedIRC § 30A
Increase in qualified transportation fringe benefit to $100 perIRC § 132(f)
Deduction for health insurance for self-employed increases toIRC § 162(l)


Deduction for clean fuel vehicle reducedIRC § 179A
Increase in deduction for meals away from home for certainIRC § 274(n)
transportation workers
Coordination of foreign income tax credit with nonrefundableIRC § 904
personal credits
Increase in exclusion amount for U.S. citizens living abroadIRC § 911
Reduction in empowerment zone employment creditIRC § 1396
Increase in qualified conservation easement exclusion limitationIRC § 2031
to $500,000
Reduction in tax of luxury passenger vehiclesIRC § 4001
Certain approved terminals of registered persons required toIRC § 4041
offer dyed diesel fuel and kerosene for non-taxable purposes
Increase in tax on transportation of persons by airIRC § 4261
Tobacco excise tax rates increaseIRC § 5701
Change in amount of required payment of estimated taxes forIRC § 6654
high income taxpayers