IRS Releases Inflation Adjusted Tables For 2002.

Rev. Proc. 2001-59

Table of Contents

 SECTION 1. PURPOSE

This revenue procedure sets forth inflation adjusted items for 2002.

SECTION 2. CHANGES

.01 Section 201 of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) amended § 24 to increase the amount of credit under § 24 that may be refundable. The value in § 24(d)(1)(B)(i) used in determining the new potentially refundable amount is adjusted for inflation.

.02 The amounts in § 25A(b)(1) which are used in determining the Hope Scholarship Credit and the amounts in § 25A(d)(2)(A)(ii) which are used in determining the reduction in the amount of the Hope Scholarship and Lifetime Learning Credits otherwise allowable under § 25A(a) are adjusted for inflation.

SECTION 3. 2002 ADJUSTED ITEMS

.01 Tax Rate Tables. For tax years beginning in 2002, the tax rate tables under § 1 are as follows:

 TABLE 1 -- Section 1(a). --

.03 Child Tax Credit. Section 201 of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) amended § 24 to increase the amount of credit under § 24 that may be refundable. The value in § 24(d)(1)(B)(i) used in determining the new potentially refundable amount is adjusted for inflation. For tax years beginning in 2002, that value is $10,350.

.04 Hope and Lifetime Learning Credits.

(1) For taxable years beginning in 2002, 100 percent of qualified tuition and related expenses not in excess of $1,000 and 50 percent of such expenses in excess of $1,000 are taken into account in determining the amount of the Hope Scholarship Credit under § 25A(b)(1).

(2) For tax years beginning in 2002, a taxpayer's modified gross income in excess of $41,000 ($82,000 in the case of a joint return) is taken into account in determining the reduction under § 25A(d)(2)(A)(ii) in the amount of the Hope Scholarship and Lifetime Learning Credits otherwise allowable under § 25A(a).

.05 Earned Income Tax Credit.

(1) In general. For tax years beginning in 2002, the following amounts are used to determine the earned income tax credit under § 32(b). The "earned income amount" is the amount of earned income at or above which the maximum amount of the earned income tax credit is allowed. The "threshold phaseout amount" is the amount of adjusted gross income (or, if greater, earned income) above which the maximum amount of the credit begins to phase out. The "completed phaseout amount" is the amount of adjusted gross income (or if greater, earned income) at or above which no credit is allowed.

 Item                                  Number of Qualifying Children

(2) Excessive investment income. For tax years beginning in 2002, the earned income tax credit is denied under §32(i) if the aggregate amount of certain investment income exceeds $2,550.

.06 Alternative Minimum Tax Exemption for a Child Subject to the "Kiddie Tax." For tax years beginning in 2002, in the case of a child to whom the § 1(g) "kiddie tax" applies, the exemption amount under § 55 and § 59(j) for purposes of the alternative minimum tax under § 55 may not exceed the sum of (A) such child's earned income for the taxable year, plus (B) $5,500.

.07 Standard Deduction.

(1) In general. For tax years beginning in 2002, the standard deduction amounts under § 63(c)(2) are as follows:

                Filing Status                     Standard Deduction

(3) Aged and blind. For tax years beginning in 2002, the additional standard deduction amounts under § 63(f) for the aged and for the blind are $900 for each. These amounts are increased to $1,150 if the individual is also unmarried and not a surviving spouse.

.08 Overall Limitation on Itemized Deductions. For tax years beginning in 2002, the "applicable amount" of adjusted gross income under § 68(b), above which the amount of otherwise allowable itemized deductions is reduced under § 68, is $137,300 (or $68,650 for a separate return filed by a married individual).

.09 Qualified Transportation Fringe. For tax years beginning in 2002, the monthly limitation under § 132(f)(2)(A), regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass, is $100. The monthly limitation under § 132(f)(2)(B) regarding the fringe benefit exclusion amount for qualified parking is $185.

.10 Income from United States Savings Bonds for Taxpayers Who Pay Qualified Higher Education Expenses. For tax years beginning in 2002, the exclusion under § 135, regarding income from United States savings bonds for taxpayers who pay qualified higher education expenses, begins to phase out for modified adjusted gross income above $86,400 for joint returns and $57,600 for other returns. This exclusion completely phases out for modified adjusted gross income of $116,400 or more for joint returns and $72,600 or more for other returns.

.11 Personal Exemption.

(1) Exemption amount. For tax years beginning in 2002, the personal exemption amount under § 151(d) is $3,000.

(2) Phase out. For tax years beginning in 2002, the personal exemption amount begins to phase out at, and is completely phased out after, the following adjusted gross income amounts:

 Filing  Status               AGI -- Beginning     AGI Above Which

 Attained age before the close of the

(1) Self-only coverage. For tax years beginning in 2002, the term "high deductible health plan" as defined in § 220(c)(2)(A) means, in the case of self-only coverage, a health plan which has an annual deductible that is not less than $1,650 and not more than $2,500, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits does not exceed $3,300.

(2) Family coverage. For tax years beginning in 2002, the term "high deductible health plan" means, in the case of family coverage, a health plan which has an annual deductible that is not less than $3,300 and not more than $4,950, and under which the annual out-of- pocket expenses required to be paid (other than for premiums) for covered benefits does not exceed $6,050.

.14 Treatment of Dues Paid to Agricultural or Horticultural Organizations. For tax years beginning in 2002, the limitation under § 512(d)(1), regarding the exemption of annual dues required to be paid by a member to an agricultural or horticultural organization, is $120.

.15 Insubstantial Benefit Limitations for Contributions Associated with Charitable Fund-Raising Campaigns.

(1) Low cost article. For tax years beginning in 2002, the unrelated business income of certain exempt organizations under § 513(h)(2) does not include a "low cost article" of $7.90 or less.

(2) Other insubstantial benefits. For tax years beginning in 2002, the $5, $25, and $50 guidelines in section 3 of Rev. Proc. 90-12, 1990-1 C.B. 471 (as amplified and modified), for disregarding the value of insubstantial benefits received by a donor in return for a fully deductible charitable contribution under § 170, are $7.90, $39.50, and $79.00, respectively.

.16 Funeral Trusts. For a contract entered into during calendar year 2002 for a "qualified funeral trust," as defined in § 685, the trust may not accept aggregate contributions by or for the benefit of an individual in excess of $7,700.

.17 Expatriation to Avoid Tax. For calendar year 2002, the thresholds used under § 877(a)(2), regarding whether an individual's loss of United States citizenship had the avoidance of United States taxes as one of its principal purposes, are more than $120,000 for "average annual net income tax" and $599,000 or more for "net worth."

.18 Valuation of Qualified Real Property in Decedent's Gross Estate. For an estate of a decedent dying in calendar year 2002, if the executor elects to use the special use valuation method under § 2032A for qualified real property, the aggregate decrease in the value of qualified real property resulting from electing to use § 2032A that is taken into account for purposes of the estate tax may not exceed $820,000.

.19 Annual Exclusion for Gifts.

(1) For calendar year 2002, the first $11,000 of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts under § 2503 made during that year.

(2) For calendar year 2002, the first $110,000 of gifts to a spouse who is not a citizen of the United States (other than gifts of future interests in property) are not included in the total amount of taxable gifts under §§ 2503 and 2523(i)(2) made during that year.

.20 Generation-Skipping Transfer Tax Exemption. For calendar year 2002, the generation-skipping transfer tax exemption under § 2631, which is allowed in determining the "inclusion ratio" defined in § 2642, is $1,100,000.

.21 Luxury Automobile Excise Tax. For calendar year 2002, the excise tax under §§ 4001 and 4003 is imposed on the first retail sale of a passenger vehicle (including certain parts or accessories installed within six months of the date after the vehicle was first placed in service), to the extent the price exceeds $40,000.

.22 Passenger Air Transportation Excise Tax. For calendar year 2002, the tax under § 4261(c) on any amount paid (whether within or without the United States) for any transportation of any person by air, if such transportation begins or ends in the United States, generally is $13.20. However, in the case of a domestic segment beginning or ending in Alaska or Hawaii as described in § 4261(c)(3), the tax only applies to departures and is at the rate of $6.60.

.23 Reporting Exception for Certain Exempt Organizations with Nondeductible Lobbying Expenditures. For tax years beginning in 2002, the annual per person, family, or entity dues limitation to qualify for the reporting exception under § 6033(e)(3) (and section 5.05 of Rev. Proc. 98-19, 1998-7 I.R.B. 30), regarding certain exempt organizations with nondeductible lobbying expenditures, is $83 or less.

.24 Notice of Large Gifts Received from Foreign Persons. For tax years beginning in 2002, recipients of gifts from certain foreign persons may have to report these gifts under § 6039F if the aggregate value of gifts received in a taxable year exceeds $11,642.

.25 Persons against Which a Federal Tax Lien is Not Valid. For calendar year 2002, a federal tax lien is not valid against (1) certain purchasers under § 6323(b)(4) that purchased personal property in a casual sale for less than $1,130 or (2) a mechanic's lienor under § 6323(b)(7) that repaired or improved certain residential property if the contract price with the owner is not more than $5,660.

.26 Property Exempt from Levy. For calendar year 2002, the value of property exempt from levy under § 6334(a)(2) (fuel, provisions, furniture, and other household personal effects, as well as arms for personal use, livestock, and poultry) may not exceed $6,780. The value of property exempt from levy under § 6334(a)(3) (books and tools necessary for the trade, business, or profession of the taxpayer) may not exceed $3,390.

.27 Interest on a Certain Portion of the Estate Tax Payable in Installments. For an estate of a decedent dying in calendar year 2002, the dollar amount used to determine the "2-percent portion" (for purposes of calculating interest under § 6601(j)) of the estate tax extended as provided in § 6166 is $1,100,000.

.28 Attorney Fee Awards. For fees incurred in calendar year 2002, the attorney fee award limitation under § 7430(c)(1)(B)(iii) is $150 per hour.

.29 Periodic Payments Received under Qualified Long-Term Care Insurance Contracts or under Certain Life Insurance Contracts. For calendar year 2002, the stated dollar amount of the per diem limitation under § 7702B(d)(4), regarding periodic payments received under a qualified long-term care insurance contract or periodic payments received under a life insurance contract that are treated as paid by reason of the death of a chronically ill individual, is $210.

SECTION 4. EFFECTIVE DATE

.01 General Rule. Except as provided in section 4.02, this revenue procedure applies to tax years beginning in 2002.

.02 Calendar Year Rule. This revenue procedure applies to transactions or events occurring in calendar year 2002 for purposes of section 3.16 (funeral trusts), section 3.17 (expatriation to avoid tax), section 3.18 (valuation of qualified real property in decedent's gross estate), section 3.19 (annual exclusion for gifts), section 3.20 (generation-skipping transfer tax exemption), section 3.21 (luxury automobile excise tax), section 3.22 (passenger air transportation excise tax), section 3.25 (persons against which a federal tax lien is not valid), section 3.26 (property exempt from levy), section 3.27 (interest on a certain portion of the estate tax payable in installments), section 3.28 (attorney fee awards), and section 3.29 (periodic payments received under qualified long-term care insurance contracts or under certain life insurance contracts).

SECTION 5. DRAFTING INFORMATION

The principal author of this revenue procedure is Richard Ennis of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Mr. Ennis on (202) 622-7057 (not a toll-free call).