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D E P A R T M E N T
O F T H E
T R E A S U R Y
N E WS
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR RELEASE AT 2:30 P.M.
November 16, 1994
CONTACT:
Office of Financing
202/219-3350
TREASURY TO AUCTION 2-YEAR AND 5-YEAR NOTES
TOTALING $28,250 MILLION
The Treasury will auction $17,250 million of 2-year notes
and $11,000 million of 5-year notes to refund $15,381 million of
publicly-held securities maturing November 30, 1994, and to raise
about $12,875 million new cash.
In addition to the public holdings, Federal Reserve Banks
hold $530 million of the maturing securities for their own
accounts, which may be refunded by issuing additional amounts
of the new securities.
The maturing securities held by the public include $766
million held by Federal Reserve Banks as agents for foreign
and international monetary authorities. Amounts bid for these
accounts by Federal Reserve Banks will be added to the offering.
Both the 2-year and 5-year note auctions will be conducted
in the single-price auction format. All competitive and non
competitive awards will be at the highest yield of accepted
competitive tenders.
Tenders will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington, D. C.
This offering of Treasury securities is governed by the terms
and conditions set forth in the Uniform Offering Circular (31 CFR
Part 356) for the sale and issue by the Treasury to the public of
marketable Treasury bills, notes, and bonds.
;
cK
Details about each of the new securities are given in the
attached offering highlights.
oOo
Attachment
LB-1234
HIGHLIGHTS OF TREASURY OFFERINGS TO THE PUBLIC OF
2-YEAR AND 5-YEAR NOTES TO BE ISSUED NOVEMBER 30, 1994
November 16, 1994
Offering Amount ..................
$17,250 million
Description of Offering:
Term and type of security . . . . . 2-year notes
Series ..........................
Series AN-1996
CUSIP n u m b e r ....................
912827 R9 5
Auction date . ...................November 21, 1994
Receipt of Tenders (Eastern Standard time):
Noncompetitive tenders ........
Prior to 11:00 a.m.
Competitive tenders ............
Prior to 11:30 a.m.
Issue d a t e ...................... November 30, 1994
Dated d a t e ...................... November 30, 1994
Maturity d a t e ...................... November 30, 1996
Interest rate . ...................Determined based on the
highest accepted bid
Yield ............................
Determined at auction
Interest Payment dates............ May 31 and November 30
Minimum bid amount . . . . . . . .
$5,000
Multiples
................ $1,000
Accrued interest
payable by investor............ None
Premium or discount ..............
Determined at auction
$11,000 million
5-year notes
Series U-1999
912827 S2 9
November 22, 1994
Prior to 12:00 noon
Prior to 1:00 p.m.
November 30, 1994
November 30, 1994
November 30, 1999
Determined based on the
highest accepted bid
Determined at auction
May 31 and November 30
$ 1,000
$ 1,000
None
Determined at auction
T h e f o l l o w i n g r u les a p p l y to all s e c u r i t i e s m e n t i o n e d a b o v e :
Submission of Bids:
Noncompetitive bids . . . Accepted in full up to $5,000,000 at the highest accepted yield
Competitive bids . . . . (1) Must be expressed as a yield with two decimals, e.g., 7.10%
(2) Net long position for each bidder must be reported when the
sum of the total bid amount, at all yields, and the net long
position is $2 billion or greater.
(3) Net long position must be determined as of one half-hour prior
to the closing time for receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield . . . 35% of public offering
Maximum Award ............ 35% of public offering
Payment Terms . . . . . . . Full payment with tender or by charge to a funds account
at a Federal Reserve Bank on issue date
D E P A R T M E N T
OF
THE
T R E A S U R Y
N E WS
r. • WASHINGTON, D.C. • 20220 • (202) 622-2960
Remarks by
Lawrence H. Summers
Undersecretary of the Treasury
California Council on International Trade
November 17, 1994
I
am delighted to be here.
My message to you is simple.
Our economy is better
poised for a period of sustained economic growth than it has been at any time during my
professional lifetime. But that growth depends on our continuing to do what is strongest in
our economic tradition. It depends on our continuing to compete, not retreat, in a
burgeoning international economy.
Let me say a few words about what I think deserves even more emphasis than it has
already received: the private sector revival in the United States.
Then I want to discuss
this administration’s philosophy of export activism, and why promoting market opening
around the world is so important for our own and the world’s economic health.
Private Sector Renewal
You know, five years ago people thought that the United States was not going to be
able to compete with Europe or with Japan. Almost nobody believes that today. It is there
in the numbers:
the United States has created more employment in the last two years than all
the OECD states combined, because we have created 4.5 million jobs and they
have created negative 500,000 jobs.
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l
I
4
It is there in the investment record:
Gross equipment investment’s share of GDP has surged to a level higher than
at any time since World War II, and net business investment in equipment is
as high a proportion of net domestic product as its been in 40 years.
It is there in the productivity growth:
which is so rapid that unit labor costs in the United States have actually fallen
over the last year. And even in 1993 the labor cost of producing a comparable
level of output was almost 40 percent higher in Germany, and 30 percent
higher in Japan than in the United States.
And it is there in a set of stories about the business renaissance. When I make that
case, I like to think of three companies as standing for this private sector revival, although
you could cite many, many other examples.
The first is General Electric, a traditional company that, under pressure from financial
markets, has reinvented itself, quadrupling earnings while cutting its workforce in half in just
over a decade.
And if you look at Ford, if you look at what is now happening at IBM, if you look at
the Fortune 100 companies in the United States and you see how they have downsized and
increased productivity over the last decade, and then you look at the Fortune 100 of Europe
or the Fortune 100 of Japan, you see many fewer new entrants, you see many fewer
instances of success.
' It is there in what is perhaps our best forward-looking indicator -- the fact that the
U.S. stock market was worth 20 percent less than the Japanese stock market in 1989, but
today is worth nearly 30 percent more.
The second company that I think stands for what is different in the United States
2
today is Microsoft. Microsoft is worth 80 percent as much, in market value terms, as IBM.
That says something about America’s capacity for entrepreneurship. That says something
about a venture capital industry that is envied around the world. That says something about
why American firms take 75 percent of the world’s software market. And it says something
about how well our capital markets find and promote the technologies of tomorrow.
I
think the third reason for optimism about the United States -- and I would cite
Federal Express as an example, but I could have chosen many other companies as an
example — is that in all the important areas of post-industrial technology or services, the
United States is far ahead. That’s the case whether it is Federal Express in delivery, Disney
in entertainment, McDonald’s in fast food, or WalMart in retail.
All of this sits on a foundation of fiscal and monetary discipline. For the first time in
30 years, we’re enjoying an investment-led recovery from a low-inflation base. For the first
time in decades, our national debt is going to fall as a proportion of our national income.
And for the first time since I can remember, we’re going to have the lowest budget deficit as
a proportion of income of all the G-7 countries.
A powerful private sector. Solid fundamentals. That’s why American firms are now
competing so effectively.
That’s why our exports have grown twice as rapidly over the last
eight years as those of Japan or Western Europe.
Export Activism
The economic system is changing more rapidly than ever before. New technologies,
new ideas, new products, new ways of selling things are everywhere. If we are to realize
the full potential of change, we have to make sure that we can prosper by selling -- not just
at home -- but around the world. If we are to realize the global economy’s full potential,
then trade must become a focal point of our foreign policy.
That’s why this administration
has made expanding exports, and reducing the barriers to our goods, the focus of its
3
attention.
I
call our strategy export activism. It is not the reactive protectionist strategy of the
past that seeks to erect walls, to benefit industries that are able to squawk loudly. Nor is it
the turn the other cheek, laissez-faire policy that some of my friends in the economics
profession would recommend.
Instead, it is a strategy based on a simple premise: more trade is good. More trade
creates jobs, it underpins growth, it ensures prosperity. And trade lays the indispensable
basis for political and social progress that can anchor emerging economies in a changing
world.
Part of our export activist philosophy involves the vigorous promotion of U.S. goods
abroad. That wouldn’t be necessary in an ideal world. But this isn’t an ideal world.
Whether it’s direct presidential involvement in the sale of aircraft to Saudi Arabia, whether
it’s Secretary Brown’s tireless efforts to ensure our presence in dynamic new markets —the
$40 billion worth of contracts signed with Indonesia this week alone - - 1 think it’s clear that
this administration has worked harder to promote the interests of business abroad than any
previous administration.
We’re also cutting homegrown hurdles to trade. This administration has removed $30
billion worth of high-tech and computer goods out from under the maze of export licensing
and authority requirements, a legacy of the Cold War. And we think another $40 billion
worth of exports can be cleared to make it easier for our producers to sell abroad.
Our activism means we won’t stand by and let other governments aid their producers
and close markets to ours. Exim, the Export-Import Bank, has made a commitment to resist
tied aid offers from other countries with tied aid from the US, so that our firms can compete
on a level playing field.
That and other initiatives have reduced the use of tied aid by $8
billion over 1992. That’s $8 billion more in commercial projects we can now bid for.
4
Reducing Foreign Barriers
But the key to our export activist policy is ensuring that American firms have every
opportunity to compete and sell their products abroad. For 50 years we’ve given foreign
firms that opportunity here at home, maintaining the most open markets of any major
country.
That may have been right in 1954, or in 1964, or even in 1974. But it’s not right
in 1994.
Other countries’ barriers have to come down, so that American firms can compete on
a fair and level playing field. That is the heart of the administration’s trade policy.
It’s the
heart of NAFTA, and of GATT.
Look at what happened with NAFTA. Mexican trade barriers came down 5 times as
much as ours. That has made an absolutely enormous difference to the United States
economy. Exports to Mexico were up in the first half of this year by 17 percent, nearly three
times faster than to the rest of the world, despite the fact that Mexico suffered a serious
recession. In fact, Mexico has just passed Japan as the second largest consumer of our
products, with Canada, our number one customer, raising its imports by 10 percent.
No one industry has been the sole beneficiary, because the benefits have been almost
across the board. Ford, Archer-Daniels-Midland, Procter and Gamble, have seen sales to
Mexico as much as quadruple -- and they’ll double and triple again before NAFTA’s
immediate effects are spent. Ford’s vehicle exports alone have skyrocketed 30 times over.
And a full 100,000 new jobs have been created for American workers.
It’s fair to say that NAFTA has been the single most important shot in the arm this
economy has seen in years. But NAFTA’s significance goes beyond mere commercial
advantage. Mexico as a society passed through a difficult period earlier this year. Alot of
people gave the Treasury Department credit when we responded to the Colosio assassination
by opening a swap line. But the truth is, that’s not what ensured stability in Mexico. What
5
was much more important was that Mexican reform was locked in by NAFTA.
That’s
what ensured that the momentum of privatization, of liberalization, of openness to foreign
investment could continue. NAFTA is what kept Mexico on the right path, protecting
stability in our hemisphere, while keeping this key economic partner healthy and dynamic.
GATT
That brings me of course to the GATT. And as you think about all the political
wrangling that will take place over the next few weeks, as you watch all the strategic moves
on the chessboard, keep in mind just what is at stake.
Implementing the Uruguay Round is without a doubt the single most important
decision this Congress will make, and perhaps the most important decision any Congress will
make for decades.
Whatever your economic persuasion, whether you are a free-trader or a
mercantilist, this will be the single most important measure Congress can enact to help the
United States economy in the foreseeable future. Implementation will give a major impetus
to trade liberalization, a major impetus to American firms selling abroad, a major impetus to
those countries that are trying to develop. Rejection will mean that the United States will
have turned its back on the future.
NAFTA was a remarkable achievement for the United States. But the Uruguay
Round is worth more than five NAFTAs in direct benefits to the United States alone. It’s
worth countless more in gains to our trading partners around the world.
Almost every independent estimate, from the Brookings Institute to the Institute for
International Economics, has concluded that the GATT will add a minimum $100 billion, and
maybe far more, to annual United States income within 10 years. That’s $16 billion annually
for California alone. That’s $1,700 for every family of four. And those are just the direct
gains. The indirect gains -- from erosion of monopoly power, from better rules that will cut
6
political risk and uncertainty —will be even greater.
Reductions in worldwide tariffs will mean a $750 billion tax cut for the entire planet
over ten years, the largest in human history. If you’re a mercantilist, if you don’t believe
the United States should support open markets, you should know that other countries will be
doing the vast amount of tariff cutting. Foreign states, many of them the dynamic new
markets, will be cutting tariffs from rates as high as 70 percent to near our average level of 4
percent. That means tariffs cut on manufactured products by 1/3. That means deep cuts of
from 50 to 100 percent on the kinds of computer parts, semiconductor manufacturing
equipment, and other high-tech goods in which the United States specializes.
Just as important, GATT will extend the discipline of open markets to whole new
sectors where we are strongest. The theft of intellectual property ~ pirate CDs, records,
pharmaceuticals ~ costs U.S. producers $60 billion yearly. GATT will prevent that
intellectual property theft for the first time. Services are the most dynamic part of the U.S.
economy, accounting for 60 percent of U.S. jobs. Services will be covered for the first
time. And our farmers, whose produce has been blocked by export subsidies and outright
bans, will find profound new opportunities to sell overseas.
Of course, GATT will add from 300,000 to 700,000 new jobs to our economy, based
on conservative estimates.
I ’ve heard the criticisms of GATT, the warnings that it will somehow impinge on
U.S. sovereignty. Let me say unequivocally that these warnings are groundless. Our
negotiators wanted to improve the rules for enforcing international trade agreements, because
we’re the ones who plan to play by the rules. The United States has launched far more
complaints against trade violators than any other country over GATT’s forty year history.
It’s in our interest to see that violators —countries that use hidden trade barriers, or openly
break agreements -- are detected quickly. What’s more, WTO dispute resolution decisions
that go against us do not become binding under American law, and do not override American
7
law. It’s up to us to decide how to respond -- whether we want to retain our laws as they
are, or follow the international ruling. That means that no organization can require us to
dismantle our environmental law, or any state regulations, or any American statute.
As for the agreements negotiated under the Uruguay Round itself, the main ones -like most-favored nation obligations, decision-making, and dispute settlement, can only be
amended when all WTO members agree on them. We can’t be railroaded by the other
members.
So whether you look at the WTO’s ability to enforce the rules which benefit our
exporters, or change the system, we’re the ones who have the most to gain. And no
international trade organization can force the United States to do what we decide is against
our interest.
GATT’s economic importance is unquestionable. But its political significance may be
even more important.
If you take a long-run view of the world, if you step back and ask, how history will
regard this period -- the really significant thing is not the end of the Cold War. The real
story, the most important event of our time, will be the fact that this was the 20-year period
of human history in which 3 billion people living in the developing world got on a rapid
escalator towards modernity.
It is estimated that by the year 2010 there will be 600 million people in India and
China and Indonesia with a standard of living that is equal to the average of Spam’s. That is
a seismic shift in human affairs. It is a shift that reflects the successful export of one of the
things the United States has been trying to export for a generation —a philosophy about open
markets. And it represents both an enormous economic opportunity for exporters, as well as
a remarkable political opportunity to consolidate stability, prosperity, and democracy in the
world.
8
I
talked about how NAFTA helped anchor economic and social reform in Mexico.
GATT represents the same kind of opportunity for the newly developing countries. They
look to the United States to see what kind of societies they should be developing. They look
to us to see whether liberalization and economic reform should proceed. Adoption of the
GATT presents them with a model of the kind of world we’d like to see blossom in the 21st
century.
There are votes that test nations. The vote on the League of Nations after WWI w as'
such a vote. The Congress of the United States voted wrong. That is one of the reasons
why the twenty years, from 1920 to 1940, are such a dark period in human history,
culminating in the second world war.
The vote on the Marshall plan after World War II was such a vote that tested our
nation. That vote went the other way. We saw a Europe where war became an
impossibility. We saw the 25 most rapid years of growth in the history of humankind.
Now, after the Cold War, Congress will soon vote on the Uruguay Round. The
result will declare whether we are a nation that hides behind barriers, or tears them down. It
will declare whether we are a nation that embraces the future, or flees from it. If the 20th
century was the American century, then a vote for GATT declares that the 21st century will
be the American century as well.
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9
D E P A R T M E N T
OF
T H E
T R E A S U R Y
OFFICE OF PUBLIC AFFAIRS • 1500 PENNS&VAÌVIAAyETOE, N .W .^ WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
November 18, 1994
E T OF THETREASUSY
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
NORTH ATLANTIC ASSEMBLY
WASHINGTON, D.C.
I
thought I’d take my time with you this morning to discuss some of our recent
developments - economic and political - here in the United States. And I’d like to
observe that there’s a great deal of truth in the saying that the more things change, the
more they stay the same.
Clearly, the political landscape in the United States is far different today than
what it was two weeks ago. The landscape may have changed, yes. But our challenges
have not changed.
Immediately after the election, President Clinton told the new leadership on
Capitol Hill that he was ready to work with them to reach our goals in a nonpartisan
manner. He has reiterated that point in the days since. I learned in my years as
Chairman of the Finance Committee, and as a minority member, that cooperation takes
you a great deal farther than does confrontation.
What lies ahead of us today is as challenging as it was two weeks ago, and there is
a significant amount of common ground.
For instance, the Clinton Administration wants to reform our welfare system, to
encourage those who can work to take jobs. This administration supports the line-item
veto. I believe the new congressional leadership also shares our goal of sustaining the
growth we have created, and keeping inflation low, as we have been able to do. We
agree on the desirability of a tax cut for middle-income Americans, but something of that
nature must be properly paid for. No one wants higher interest rates and slow growth if
it’s the price for a slightly smaller tax burden.
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(MORE)
2
We also agree government should be smaller, and we’ve been doing a great deal
on that last one.
I
have 8,000 fewer employees in the Treasury Department than were there the
day I entered Treasury. Across government there are more than 70,000 fewer than since
President Clinton began reducing the size of government and reinventing government.
There will be 272,000 fewer federal employees in four years, and it will be the smallest
federal work force in 30 years.
We also must not slack in reducing the deficit. We have come a great distance.
We’ll have it down by well over $120 billion at the end of this year from what we had on
our hands when this administration took office. But unless we start dealing with the
growth in the cost to the federal government of health care, we’re likely to start wiping
out the progress we have made on bringing down the deficit.
What we have accomplished in the past two years has made a difference, a real
difference. America today is the most productive and competitive nation in the world.
We are in a better position to have a sustained recovery than any time in years, going
back to Kennedy’s day.
We are in this position because this administration gave our private sector the
tools it needed to do what it does best ~ invest, grow, create jobs.
What is the case today? Our economy has created about 5 million jobs. That’s
more than all the other OECD states combined. Net business investment in equipment
in relation to our net domestic product hasn’t been higher in 40 years. Productivity
growth has been so strong that unit labor costs have actually fallen in the past year. The
cost of production is 40 percent higher in Germany and 30 percent higher in Japan.
Growth is steady, and inflation is low. What we have now is this nation’s first recovery
led by investment in 30 years.
The primary aim of this administration is to ensure that the considerable
economic gains we have made in the past two years are not lost. Our goal is to keep the
recovery moving steadily along, growing and creating jobs.
To do that, it will take both parties working together. I saw a poll in Time
Magazine earlier this week that said that’s what Americans expect now. It said 78
percent, nearly four out of every five Americans, believe the new majority in Congress
should work with the President —with him, for progress, not against him, for gridlock.
There is now a shared responsibility to govern. Like the President, I’m looking
forward to working together with Congress to meet our challenges.
3
Just as the domestic challenges have not changed just because we have gone
through an election cycle, neither have the challenges we face abroad.
One of the key challenges the North Atlantic Assembly region faces is the
creation of economic stability in the transitioning economies of the East.
Five years ago the Berlin Wall came down. I heard a radio report the other day
that in many places in Berlin now it is difficult to tell the Wall was ever there. But the
physical landscape and the economic landscape are two different things. The remnants
of command economies still remain.
Our shared challenge is to continue to do all we can to see that this transition is
completed. This administration has played a leading role in assisting the transformation,
and it will continue to do so.
The progress to date has been tremendous ~ uneven ~ but tremendous. Poland,
which started the process, hit its economic trough and has rebounded. Next to Albania,
it is the fastest growing economy in Europe. Over half the output from Poland,
Hungary, and the Czech and Slovak Republics now comes from the private sector.
These and other countries in Eastern Europe and the former Soviet Union have
come a great distance on the path of reform. Inflation has been slashed. Subsidies to
inefficient state-run firms have been cut. Prices have been freed and economies are
being privatized.
The Russian economic landscape has been transformed —where the state once
ruled, a burgeoning private sector is taking its place.
This fall in Madrid, Ukraine’s president pledged a bold reform program to the
G-7, and our follow-though on support for those reforms will be critical to their success
next year.
Western assistance has been critical in encouraging and supporting this sweeping
shift to markets and democracy. Together, we have offered bilateral aid, debt
rescheduling, most-favored-nation treatment for their exports, and intensified support
from the IMF, the World Bank and the EBRD to nurture reform.
The G-7 created the Special Privatization and Restructuring Program to invest in
the new private sector firms in Russia. And the IMF created the Systemic
Transformation Facility, a unique lending facility for transition economies. It provides
quick support for initial stabilization until the more far-reaching, traditional IMF
program can be put in place.
4
And also as a consequence of our meetings in Madrid last month, the IMF has
increased the annual access limit for borrowing to 100 percent of country quotas.
The assistance the Treasury Department is providing is not limited to the
economic aspect of the transition process. Several of our senior law enforcement
officials visited Russia this summer to explore expanded collaboration. There are real
problems with crime in Russia. Our Customs Service, the Secret Service, the Internal
Revenue Service and our Financial Crimes Enforcement Network all are working with
their Russian counterparts to fight organized crime, drug smuggling and financial fraud.
So the effort just isn’t economic aid, or technical advice from economists and the
like. It’s aimed at strengthening not just the economy, but also the state that administers
the transformation.
Now I don’t have a crystal ball and I can’t tell you how the transformation is
going to turn out. I can tell you that in the final analysis, the responsibility lies with
these emerging economies. But there is a significant collective responsibility on the part
of our nations to do all in our power to encourage this process. This administration has
done and will continue to do its part.
There is another aspect of our international agenda that remains constant —the
push to expand markets and lower trade barriers.
Our North American Free Trade Agreement has been in effect for going on 11
months now, and the returns are clear. Our trade is up and jobs are being created as a
result. The first six months of the year brought enough new economic activity to support
as many as 100,000 new jobs. The lesson is obvious -- trade is growth and trade is jobs.
President Clinton is on his way home now from the meeting of the Asia-Pacific
Economic Cooperation organization. If you recall, the leaders agreed to work toward a
free trade area encompassing the region by the year 2020. If you count Canada and
Mexico in the mix, our total two-way trade in this region last year was $670 billion.
Trade growth in the region has been in double digits most years.
We’ll be talking trade, among other things, next month in Miami at the Summit of
the Americas. I touched on what an impact the North American Free Trade Agreement
is having. Counting Mexico, our two-way trade with Latin America and the Caribbean
last year was $160 billion.
And our two-way trade with the EU was nearly $200 billion last year.
And we are working across the board for trade improvements that benefit not just
the United States, but everyone. Take for instance our negotiations with Japan to obtain
greater market access.
5
That brings me to the final point I want to make this morning about what remains
unchanged today on our agenda.
In less than two weeks the House, and then the Senate, will vote on the Uruguay
Round of the General Agreement on Tariffs and Trade.
No vote Congress will take in the foreseeable future will do as much to create
jobs and sustain growth in this country ~ and by extension, create jobs and sustain
growth abroad by lowering tariffs and leveling out the playing field.
For the United States, this agreement means 500,000 new, better-paying jobs. It
means $150 billion a year in increased income at the decade mark - an average of
$1,700 for every family every year. It means the largest global tax cut ever undertaken almost $750 billion in reduced tariffs that consumers and business will have to pay.
If we fail, how long will it take before another agreement is reached? Seven
years? Ten years? How long? How much will we give up in terms of lost potential,
slowed development, curtailed job creation? I can tell you that waiting just six months
costs us $70 billion in lost production over a decade.
We have a singular opportunity here to act as a leader and take a bold step that
will benefit all trading nations. There are votes that test nations, and this is one of them.
The United States has demonstrated extraordinary leadership in broadening trade
opportunities and in advocating free trade, and I expect that GATT will pass. However,
Fm taking nothing for granted and putting everything I have into ensuring it’s passage in
these last two weeks. There is just too much at stake here.
Thank you.
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D E P A R T M E N T
OF
T H E
TREASURY
©A
j!7 89
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE,
T R E A S U R Y
NE WS
^ WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
November 18, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
GATT EVENT FOR ASSOCIATION EXECUTIVES
W e're getting down to the crunch now. The vote will be in about 10 days. We
cannot afford to sit back. We cannot afford to rest. That’s why we asked each of you to
come today for one more pitch about why GATT is a good deal.
You may be familiar with most of this, but I’ve always said that in Washington
you have to repeat something 42 times before it is taken as fact, so I’m going to say this
one more time.
No vote Congress will take all year is as important to our economy as this one. It
means half a million jobs. It means $150 billion a year in increased economic activity. It
means greater market access and lower tariffs for virtually every segment of our
economic structure.
Time after time these days we see evidence of just how important trade is to our
economy. Look at what this administration has done to recognize that fact and act on it.
The North American Free Trade Agreement -- it was a year ago yesterday that
NAFTA cleared the House. I guess we should be saying happy birthday to N A FTA
That was a tough one, but it’s paying off now. After the first eight months, our exports
to Mexico were up 21 percent over last year, and there was enough economic activity to
support as many as 100,000 new jobs.
Look at Asia and the Pacific. The president’s on his way home from the APEC
meeting where the leaders agreed to work for a free trade area spanning the Pacific by
the year 2020.
We have the summit of the Americas coming up, where talk about broadening
our trade ties will be an important factor.
LB-1237
(MORE)
But right now, today, what’s in front of us and what we have to act on is the
Uruguay Round of the General Agreement of Tariffs and Trade.
I
don’t think many of you recall back to the days of Smoot-Hawley, but if you
remember from your reading, it was a very protectionist time, not just here but around
the world. This country had tariffs of 60 percent or more. And it showed in how our
economy was structured. Just one job in 30 was trade-related.
But now, eight trade rounds later, it is far far different. Our tariffs are down
around 4 percent, more or less, and one job in 13 is related to trade. As our economy
matures and as others around the globe begin to develop, trade is the way for us to go in
sustaining growth in our economy.
This agreement is going to bring down the tariffs that make it hard for us to
compete. And look at the markets out there for us ~ Asia, the fastest growing region of
the world. Latin America, second fastest.
There are critical benefits across the spectrum in our economy, and one of the
more important ones is in the area of intellectual property rights. We’re doing more
than just bringing down tariffs with GATT, we’re seeing to it that entrepreneurs in our
economy who come up with good ideas don’t get ripped off. The estimates are that
American businesses lose something on the order of $60 billion because of
counterfeiting.
I
was up in New Jersey a couple of days ago, and the example I used was an
unauthorized copy of a Bruce Springsteen CD. Now my tastes run a bit more toward
Sinatra and Streisand than Springsteen ~ but the point is, we gain important protections
with GATT for a variety of areas in which intellectual property rights are critical -music, software, pharmaceuticals, chemicals.
The intellectual property right protections take on even more importance in light
of something I saw the other day - that in 1995, the computer software market
worldwide will exceed the market for computer hardware. And we have 75 percent of
the software market.
So this agreement is about more than just opening up markets by lowering tariffs
abroad to our goods and services.
There are four other important points I want to make today about the Uruguay
Round.
First, this is the largest tax cut in history, and I can’t imagine saying no to a tax
cut like this. Worldwide this agreement will save business and consumers nearly $750
billion -- nearly three quarters of a trillion dollars - that’s how much of a reduction in
the burden of tariffs there will be for producers and consumers.
Second, my counterparts overseas call asking what the problem is. We’re the only
country that has to make up the lost income —even though in the long run it will bring
in far more than we’re losing. It’s a money-maker for the government, a deficit reducer,
but we did the responsible thing and put together a package to replace what we’re losing.
Third, what kind of a signal would it send to the rest of the world if the country
of free trade turned its back on the most significant trade agreement ever negotiated -one negotiated under presidents of both parties?
And fourth, think what would happen when we went out to sell overseas. Our
tariffs average 4 percent, and the tariffs that are coming down abroad are up there in
some cases at 70 percent, 80 percent. Our corporations could be looking at a situation
where their competitors have low tariffs when they go for export business, but our firms
run smack into those higher tariffs.
All that would do is lose us business, maybe cost us jobs, cost us income we might
otherwise have earned.
We have a big vote 10 days from now. The private sector has done a good job of
spreading the word about the benefits of GATT. But you can’t sit back and rest.
Let me ask a question: If we fail, how long will it take before another agreement
is reached? Seven years? Ten years? How long? How much will we give up in terms
of lost potential, slowed development, curtailed job creation? I can tell you that waiting
just six months costs us $70 billion in lost production over a decade.
I
want to leave you with the thought that we have a singular opportunity here to
act as a leader and take a bold step that will benefit all trading nations. There are votes
that test nations, and this is one of them.
The United States has demonstrated extraordinary leadership in broadening trade
opportunities and in advocating free trade, and I expect that GATT will pass. However,
I’m taking nothing for granted and putting everything I have into ensuring it’s passage in
these last days. There is just too much at stake here.
Thank you.
-30-
D E P A R T M E N T
OF
T H E
T R E A S U R Y
NE WS
TREASURY
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
November 17, 1994
Contact: Michelle Smith
(202) 622-2960
BENTSEN, RUBIN, PANETTA, KANTOR TO DISCUSS GATT
Treasury Secretary Lloyd Bentsen, National Economic Council Chairman Robert
Rubin, Chief of Staff to the President Leon Panetta and United States Trade Representative
Mickey Kantor will discuss the importance of passing the Uruguay Round this year with a
group of Washington trade association representatives at 2 p.m. tomorrow. Friday,
November 18.
The event will be held in the Cash Room of the Treasury Department, 1500
Pennsylvania Avenue, N.W.
Media without Treasury or White House press credentials should contact Treasury’s
Office of Public Affairs with the following information by noon Friday for clearance into the
building: name, date of birth and social security number.
-30-
LB-1238
D IÏ P A
R T M IÏ N T
OF
T R E / 1 S U R Y
T H E
N E WS
TREASURY
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA-AVENUE, ty.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
November 22, 1994
Monthly Release of U.S. Reserve Assets
The Treasury Department today released U.S. reserve assets data for the month of
October 1994.
As indicated in this table, U.S. reserve assets amounted to $78,172 million at the end
of October 1994, up from $76,532 million in September 1994.
U.S. Reserve Assets
(in millions of dollars)
End
of
Month
Total
Reserve
Assets
Gold
Stock 1/
Special
Drawing
Rights 2 /3 /
Foreign
Currencies
4/
Reserve
Position in
IMF 2 /
1994
September
76,532
11,054
9,971
43,440
12,067
October
78,172
11,053
10,088
44,692
12,339
1/ Valued at $42.2222 per fine troy ounce.
2 / Beginning July 1974, the IMF adopted a technique for valuing the SDR based on a
weighted average of exchange rates for the currencies of selected member countries. The
U.S. SDR holdings and reserve position in the IMF also are valued on this basis
beginning July 1974.
3 / Includes allocations of SDRs by the IMF plus transactions in SDRs.
4 / Valued at current market exchange rates.
LB-1239
Tenders for $17,316 million of 2-year notes, Series AN-1996,
to be issued November -30, *1994 and to mature November 30, 1996
were accepted today (CUSIP: 912827R95).
The interest rate on the notes will be 7 1/4%. All
competitive tenders at yields lower than 7.30% were accepted in
full. Tenders at 7.30% were allotted 98%. All noncompetitive and
sucessful competitive bidders were allotted securities at the yield
of 7.30%, with an equivalent price of 99.908. The median yield
was 7.29%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 7.28%;
that is, 5% of the amount of accepted competitive bids were
tendered at or below that yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$47,324,103
Accepted
$17,316,439
The $17,316 million of accepted tenders includes $1,195
million of noncompetitive tenders and $16,121 million of
competitive tenders from the public.
In addition, $1,090 million of
high yield to Federal Reserve Banks
international monetary authorities.
of tenders was also accepted at the
Reserve Banks for their own account
securities.
LB-1240
tenders was awarded at the
as agents for foreign and
An additional $265 million
high yield' from Federal
in exchange for maturing
..................
11
.
Department of the Treasury •
-■
— *»ê* p r it ri'* a»
Bureau of the PulMié Déhii } fy 1
r
FOR IMMEDIATE RELEASE
November 21, 1994
fâv ¿ 3 3d un un yo y~ Q_ y
^CÏOiÿrACT: Office of Financing
202-219-3350
■UF r HBTRCAcj , ,
RESULTS OF TREASURY'S AUCTION 'OF 13-WEEK BILLS
Tenders for $13,694 million of 13-week bills to be issued
November 25, 1994 and to mature February 23, 1995 were
accepted today (CUSIP: 912794Q64).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.38%
5.40%
5.40%
Investment
Rate
5.53%
5.55%
5.55%
Price
98.655
98.650
98.650
$20,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 42%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$50,001,788
Accepted
$13,693,530
$43,929,987
1.775.537
$45,705,524
$7,621,729
1.775.537
$9,397,266
3,165,664
3,165,664
1.130.600
$50,001,788
1.130.600
$13,693,530
?!? ij» fi p y p n r* f * r* %
/*
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
¿ny / j M M / / M 7
CONTACT*: Tirrice of Financing
202-219-3350
FOR IMMEDIATE RELEASE
November 21. 1994
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $13,660 million of 26-week bills to be issued
November 25, 1994 and to mature May 25, 1995 were
accepted today (CUSIP: 912794S39).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.84%
5.86%
5.85%
Investment
Rate
6.10%
6.12%
6.11%
Price
97.064
97.054
97.059
$23,440,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 10%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
LB-1242
Received
$47,067,610
Accepted
$13,660,309
$40,973,008
1.489.212
$42,462,220
$7,565,707
1.489.212
$9,054,919
3,300,000
3,300,000
1.305.390
$47,067,610
1.305.390
$13,660,309
FOR IMMEDIATE RELEASE
November 22, 1994
CONTACT: Office of Financing
202-219-3350
J p t n t,
3
h fi ftf
RESULTS OF TREASURY'S AUCTION OF 5-YEAR NOTES
i 682
u 3i v U £ h R 2
Tenders for $11,016 million of 5-year notes, Series U-1999,
to be issued November 30,, .1994 and to mature November 30, 1999
were accepted today (CUSIP: 912 82-7S.2'9% ,;-{y
The interest rate on the notes will be 7 3/4%. All
competitive tenders at yields lower than 7.81% were accepted in
full. Tenders at 7.81% were allotted 78%. All noncompetitive and
successful competitive bidders were allotted securities at the yield
of 7.81%, with an equivalent price of 99.756. The median yield
was 7.80%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 7.75%;
that is, 5% of the amount of accepted competitive bids were
tendered at or below that yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$32,924,299
Accepted
$11,016,255
The $11,016 million of accepted tenders includes $798
million of noncompetitive tenders and $10,218 million of
competitive tenders from the public.
In addition, $530 million of tenders was awarded at the
high yield to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $265 million
of tenders was also accepted at the high yield from Federal
Reserve Banks for their own account in exchange for maturing
securities.
LB-1243
D E P A R T M E N T
OF
T H E
T R E A S U R Y
N E WS
I
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N-W- ¿W ASHINGTON, D.C. • 20220 • (202) 622-2960
CONTACT:
FOR RELEASE AT 2:30 P.M.
November 22, 1994
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $27,200 million, to be issued December 1,
1994. This offering will provide about $1,350 million of new
cash for the Treasury, as the maturing bills are outstanding in
the amount of $25,847 million.
Federal Reserve Banks hold $6,843 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $2,584 million as agents for
foreign and international monetary authorities, which may be *
refunded within the offering amount at.the weighted average
discount rate of accepted competitive tenders. Additional
amounts may be issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
oOo
Attachment
LB-1244
©
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED DECEMBER 1, 1994
November 22, 1994
Offering Amount
.....................
$13,600 million
$13,600 million
D e s c r i p t i o n of O f f e r i n g s
182-day bill
912794 S4 7
November 28, 1994
December 1, 1994
June 1, 1995
June 2, 1994
$16,913 million
91-day bill
Term and type of security ........
CUSIP n u m b e r ............... . . 912794 Q7 2
November 28, 1994
Auction date
Issue date .................. . . December 1, 1994
Maturity d a t e ............• . . . . March 2, 1995
Original issue date .............. September 1, 1994
Currently outstanding ............ $12,395 million
Minimum bid amount .............. $10,000
$ 1,000
Multiples .......................
$10,000
$ 1,000
The following rules a p ply to all securities m e n t i o n e d a b o v e :
Submission of Bids:
Noncompetitive b i d s ..............Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
Competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield . . . . . . .
Maximum Award ...................
Receipt of Tenders:
Noncompetitive tenders
..........
Competitive tenders ..............
Pavment Terms ..........
.....
35% of public offering
35% of public offering
Prior to 12:00 noon Eastern Standard time
on auction day
Prior to 1:00 p.m. Eastern Standard time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
hhmrhmhhhhmmmhhhrhhhhhhhhhhii
Monthly Treasury Statement
;£RAP'qf sReceipt$( and Outlays
of the United States Government
/ C. Off n A
W i £ J *r| y y / K
~
! 7
For Fiscal Year 199$ Thrt>i>ghi October 31, 1994, and Other Periods
Highlight
T h is issue in c lu d e s b u d g e t e s tim a te s fo r fu ll fis c a l y e a rs 1 9 9 5 a n d
1 9 9 6 , b a s e d o n th e
Mid-Session
Review o f the FY 1995 Budget, re le a s e d b y th e O ff ic e o f M a n a g e m e n t a n d B u d g e t o n J u ly 14, 1 9 9 4 .
RECEIPTS, OUTLAYS, AND SURPLUS/DEFICIT
THROUGH OCTOBER 1994
Contents
Summary, page 2
Receipts, page 6
Outlays, page 7
Means of financing, page 20
Receipts/outlays by month, page 26
Federal trust funds/securities, page 28
Receipts by source/outlays by
function, page 29
Explanatory notes, page 30
C o m p ile d a n d P u b lis h e d b y
Department o f the Treasury
Financial Management Service
mu
Introduction
of receipts are treated as deductions from gross receipts; revolving and manage
ment fund receipts, reimbursements and refunds of monies previously expended are
treated as deductions from gross outlays; and interest on the public debt (public
issues) is recognized on the accrual basis. Major information sources include
accounting data reported by Federal entities, disbursing officers, and Federal
The Monthly Treasury Statement o f Receipts and Outlays of the United States
Government (MTS) is prepared by the Financial Management Service, Department of
the Treasury, and after approval by the Fiscal Assistant Secretary of the Treasury, is
normally released on the 15th workday of the month following the reporting month.
The publication is based on data provided by Federal entities, disbursing officers,
Reserve banks.
and Federal Reserve banks.
Triad of Publications
The MTS Is part of a triad of Treasury financial reports. The Daily Treasury
Statement is published each working day of the Federal Government. It provides
Audience
The MTS is published to meet the needs of: Those responsible for or interested
in the cash position of the Treasury; Those who are responsible for or interested in
the Government’s budget results; and individuals and businesses whose operations
depend upon or are related to the Government’s financial operations.
data on the cash and debt operations of the Treasury based upon reporting of the
Treasury account balances by Federal Reserve banks. The MTS is a report of
Government receipts and outlays, based on agency reporting. The U.S. Government
Annual Report is the official publication of the detailed receipts and outlays of the
Government. It is published annually in accordance with legislative mandates given
to the Secretary of the Treasury.
Disclosure Statement
This statement summarizes the financial activities of the Federal Government
and off-budget Federal entities conducted in accordance with the Budget of the U.S.
Government, i.e., receipts and outlays of funds, the surplus or deficit, and the means
of financing the deficit or disposing of the surplus. Information is presented on a
modified cash basis: receipts are accounted for on the basis of collections; refunds
Table 1.
Data Sources and Information
The Explanatory Notes section of this publication provides information concern
ing the flow of data into the MTS and sources of information relevant to the MTS.
Summary of Receipts, Outlays, and the Deficit/Surplus of the U.S. Government, Fiscal Years 1994 and 1995,
by Month
[$ millions]
Period
Outlays
Receipts
FY 1994
Deficit/Surplus (—)
October ....
November ...
December ...
January .....
February ....
March ......
April .......
May .......
June .......
July ........
August .....
September
78,668
83,107
125,408
122,966
72,874
93,108
141,326
83,546
138,124
84,827
97,338
135,895
124,090
121,488
133,114
107,718
114,440
125,423
123,872
115,602
123,275
118,025
121,608
131,903
45,422
38,381
7,705
-15,248
41,566
32,315
-17,454
32,057
-14,850
33,198
24,270
-3,993
Year-to-Date
1,257,187
1,460,557
203,370
October ....
89,024
121,472
32,448
Year-to-Date
89,024
121,472
32,448
FY 1995
Note: Details may not add to totals due to rounding.
2
Table 2.
Summary of Budget and Off-Budget Results and Financing of the U.S. Government, October 1994 and
Other Periods
[$ millions]
Classification
This
Month
Current
Fiscal
Year to Date
Budget
Estimates
Full Fiscal
Year1
Prior
Fiscal Year
to Date
(1994)
Budget
Estimates
Next Fiscal
Year (1996)1
Total on-budget and off-budget results:
Total receipts ................................
89,024
89,024
1,354,333
78,668
1,425,699
On-budget receipts ..........................
Off-budget receipts .........................
65,384
23,639
65,384
23,639
1,000,459
353,874
55,864
22,804
1,052,086
373,613
121,472
121,472
1,521,447
124,090
1,604,939
95,298
26,174
95,298
26,174
1,229,419
292,028
100,567
23,523
1,298,044
306,895
Total surplus (+) or deficit (— ) .................
-32,448
-32,448
-167,114
-45,422
-179,240
On-budget surplus (+) or deficit (— )
Off-budget surplus (+) or deficit (— ) ...........
-29,914
-2,535
-29,914
-2,535
-228,960
+61,846
-44,704
-719
-245,958
+66,718
Total on-budget and off-budget financing .........
32,448
32,448
167,114
45,422
179,240
Means of financing:
Borrowing from the public ....................
Reduction of operating cash, increase (— ) ......
By other means ............................
32,457
-480
471
32,457
-480
471
175,699
4,255
33,646
7,521
192,078
Total outlays ................................
On-budget outlays ..........................
Off-budget outlays ..........................
'These figures are based on the Mid-Session Review o f the F Y 1995 Budget, released by the
Office of Managem ent and Budget on July 14, 1994.
Figure 1.
-8,585
... No Transactions.
Note: Details may not add to totals due to rounding.
Monthly Receipts, Outlays, and Budget Deficit/Surplus of the U.S. Government, Fiscal Years 1994 and 1995
$ billions
FY
FY
94
95
3
-12,838
Figure 2.
Monthly Receipts of the U.S. Government, by Source, Fiscal Years 1994 and 1995
$ billions
Total Receipts
Social Security
Income Taxes
Other Taxes and Receipts]
Oct.
Figure 3.
Dec.
Jun
Feb.
FY
FY
94
95
Monthly Outlays of the U.S. Government, by Function, Fiscal Years 1994 and 1995
$ billions
Total Outlays
Social Security & Medicare
National Defense
| Interest
Dec.
Feb.
Apr.
Jun.
Aug.
Table 3.
Summary of Receipts and Outlays of the U.S. Government, October 1994 and Other Periods
[$ millions]
Classification
Budget
Estimates
Full Fiscal Year1
This Month
Current
Fiscal
Year to Date
43,239
3,470
43,239
3,470
37,680
2,158
603,065
143,950
23,639
7,624
1,073
351
4,275
1,206
1,848
2,300
23,639
7,624
1,073
351
4,275
1,206
1,848
2,300
22,804
6,636
1,046
343
3,597
990
1,708
1,706
353,874
103,063
27,756
4,578
55,975
14,706
21,986
25,380
Comparable
Prior Period
Budget Receipts
Individual income taxes ................................................................
Corporation income taxes .............................
Social insurance taxes and contributions:
Employment taxes and contributions (off-budget) ........
Employment taxes and contributions (on-budget) .........
Unemployment insurance ............................
Other retirement contributions ........................
Excise taxes ........................................
Estate and gift taxes ................................
Customs duties ......................................
Miscellaneous receipts ................................
................
89,024
89,024
78,668
1,354,333
(On-budget) ....................................................... ....................
65,384
65,384
55,864
1,000,459
(Off-budget) ...................... ..................................................
23,639
23,639
22,804
353,874
354
184
18
3,601
7,599
305
17,672
2,638
1,949
1,683
354
184
18
3,601
7,599
305
17,672
2,638
1,949
1,683
378
158
20
3,993
4,893
264
23,147
2,550
1,805
1,710
2,931
3,078
197
11,143
61,277
3,690
258,894
31,159
30,302
15,663
23,050
26,072
2,903
884
908
2,353
488
3,444
23,050
26,072
2,903
884
908
2,353
488
3,444
25,432
24,562
2,645
527
749
3,362
843
3,151
341,677
331,313
27,755
7,306
11,641
32,720
5,394
37,495
19,732
34
1,699
438
-651
845
3,410
65
19,732
34
1,699
438
-651
845
3,410
65
17,638
-102
2,806
430
239
1,079
3,335
14
324,235
16,970
37,737
6,658
895
14,439
40,437
752
Total Receipts .............| .......................................
Budget Outlays
Legislative Branch ...................................
The Judiciary ........................ ..............--- Executive Office of the President .......................
Funds Appropriated to the President ....................
Department of Agriculture .............................
Department of Commerce .............................
Department of Defense— Military .......................
Department of Defense— Civil ..........................
Department of Education .............................
Department of Energy ................................
Department of Health and Human Services, except Social
Security ...........................................
Department of Health and Human Services, Social Security ...
Department of Housing and Urban Development ..........
Department of the Interior .............................
Department of Justice .................................
Department of Labor .................................
Department of State .................................
Department of Transportation ..........................
Department of the Treasury:
Interest on the Public Debt ..........................
Other ............................................
Department of Veterans Affairs ....................................................
Environmental Protection Agency .......................
General Services Administration ........................
National Aeronautics and Space Administration ............
Office of Personnel Management .......................
Small Business Administration ..........................
Other independent agencies:
Resolution Trust Corporation .........................
Other ............................................
Allowances ..........................................
Undistributed offsetting receipts:
Interest ..........................................
Other ............................................
-471
3,476
-471
3,476
7
1,409
-11,113
7,935
-1,075
-611
-2,596
-611
-2,596
-359
-2,593
-91,780
-38,279
Total outlays ......................................................................... .
121,472
121,472
124,090
1,521,447
95,298
95,298
100,567
1,229,419
(On-budget) .............................................................................
(Off-budget) ...........................................................................
26,174
26,174
23,523
292,028
Surplus (+) or deficit (—) .......................................................
-32,448
ááf-32,448
-45,422
-167,114
(On-budget) .............................................................................
-29,914
-29,914
-44,704
-228,960
(Off-budget) ...........................................................................
-2,535
-2,535
-7 1 9
+61,846
’These figures are based on the Mid-Session Review o f the F Y 1995 Budget, released by the
Office of Managem ent and Budget on July 14, 1994.
Note: Details may not add to totals due to rounding.
5
Table 4.
Receipts of the U.S. Government, October 1994 and Other Periods
[$ millions]
Classification
Gross
Receipts
Refunds
(Deduct)
Receipts
Gross
Receipts
Refunds
(Deduct)
Receipts
Individual income taxes:
3,919
3,919
Gross
Receipts
Refunds
(Deduct)
Receipts
34,284
27
4,053
40,480
40,480
Withheld .......................................
Presidential Election Campaign Fund ................
Other ..........................................
Prior Fiscal Year to Date
Current Fiscal Year to Date
This Month
44,399
1,160
43,239
38,364
684
37,680
2,043
3,470
4,269
2,111
2,158
20,597
20,597
H
(**)
20,597
(**)
(**)
20,597
Total— Individual income taxes .....................................
44,399
1,160
43,239
Corporation income taxes .............. ......................................
5,513
2,043
3,470
5,513
19,673
338
(**)
(**)
19,673
338
(**)
(**)
19,673
338
(**)
(**)
19,673
338
(**)
(**)
20,011
20,011
20,011
20,011
3,592
36
3,592
36
3,592
36
3,592
36
2,207
2,207
(**)
(**)
(**)
(**)
(**)
(**)
3,628
3,628
3,628
3,628
2,207
2,207
Social insurance taxes and contributions:
Employment taxes and contributions:
Federal old-age and survivors ins. trust fund
Federal Insurance Contributions Act taxes
Self-Employment Contributions Act taxes
Deposits by States .................
Other .............................
Total— FOASI trust fund ...........
Federal disability insurance trust fund:
Federal Insurance Contributions Act taxes
Self-Employment Contributions Act taxes
Receipts from railroad retirement account
Deposits by States .................
Other ............................
Total— FDI trust fund .............
Federal hospital insurance trust fund:
Federal Insurance Contributions Act taxes ........
Self-Employment Contributions Act taxes .........
Receipts from Railroad Retirement Board .........
Deposits by States ...........................
7,189
....
7,189
7,189
....
7,189
6,328
....
6,328
90
....
90
90
....
90
....
....
....
....
....
....
....
....
....
....
....
- ..... ........ ... ...... ............................ C_^)______ CJ).................C *)
Total— FHI trust fund .......................
7,279
Railroad retirement accounts:
Rail industry pension fund .....................
Railroad Social Security equivalent benefit ........
200
153
Total— Employment taxes and contributions ....
....
7
^
7,279
193
______ 153
31,270________ 7
31,263
7,279
....
7,279
6,328
....
6,328
200
7
193
173
(* *)
"•73
153..... ... ...... 153______ 135.................135
31,270________ 7
31,263
29,440_______ (* *)
Unemployment insurance:
State taxes deposited in Treasury ............ ...
Federal Unemployment Tax Act taxes ......... ....
Railroad unemployment taxes ................ ....
Railroad debt repayment ...................
791
281
5
4
791
277
5
791
281
5
4
791
277
5
804
241
5
r *)
Total— Unemployment insurance ............ ....
1,077
4
1,073
1,077
4
1,073
1,050
4
4
29,440
804
238
5
1 *)
1,046
Other retirement contributions:
Federal employees retirement — employee
contributions ......................
Contributions for non-federal employees ..
342
9
342
9
342
9
342
9
338
5
338
5
Total— Other retirement contributions ...
351
351
351
351
343
343
Total— Social insurance taxes and
contributions ........................................................
32,698
11
32,687
32,698
11
32,687
30,832
4
30,828
Miscellaneous excise taxes1 .....................
Airport and airway trust fund ....................
Highway trust fund .............................
Black lung disability trust fund ...................
2,355
444
1,453
60
30
6
1
2,325
438
1,452
60
2,355
444
1,453
60
30
6
1
2,325
438
1,452
60
1,716
439
1,420
55
31
1,685
439
1,419
55
Total— Excise taxes ......... .................................... .
4,312
37
4,275
4,312
37
4,275
3,630
32
3,597
1,234
28
1,206
1,015
25
990
Excise taxes:
1
Estate and gift taxes ...........................................................
1,234
28
1,206
Customs duties ......................... ...........................................
1,961
114
1,848
1,961
114
1,848
1,798
90
1,708
1,954
351
6
1,954
345
1,954
351
6
1,954
345
1,524
183
1
1,524
182
Total — Miscellaneous receipts ................................
2,306
6
2,300
2,306
6
2,300
1,707
1
1,706
Total — Receipts .................... ; ................ .......... .......
92,423
3,399
89,024
92,423
3,399
89,024
81,615
2,948
78,668
Total — On-budget ................. I ..................................
68,784
3,399
65,384
68,784
3,399
65,384
58,811
2,948
55,864
Total — Off-budget ......................... ...........................
23,639
23,639
23,639
23,639
22,804
Miscellaneous Receipts:
Deposits of earnings by Federal Reserve banks .........
All other ............................................................................
include s amounts for the windfall profits tax pursuant to P.L. 9 6-223.
No Transactions.
(* *) Less than $ 50 0,0 00 .
Note: Details may not add to totals due to rounding.
6
22,804
Table 5.
Outlays of the U.S. Government, October 1994 and Other Periods
[$ millions]
Current Fiscal Year to Date
This Month
Classification
Gross
Outlays
Applicable
Receipts
Outlays
Gross
Outlays
Legislative Branch:
13
6
29
2
3
13
3
35
2
3
-1
-1
-1
-1
354
355
354
379
2
2
2
1
13
6
29
2
3
-1
Total— Legislative Branch ................................................
355
1
1
I
13
6
29
2
3
13
6
29
2
3
(* *)
(‘ *)
Gross
Outlays
37
61
8
2
20
198
35
67
7
2
21
172
35
67
7
2
21
172
Outlays
35
66
7
2
20
172
35
66
7
2
20
172
Senate .........................................
House of Representatives ..........................
Joint items ......................................
Congressional Budget Office .......................
Architect of the Capitol ............................
Library of Congress ...............................
Government Printing Office:
Revolving fund (net) .............................
General fund appropriations .......................
General Accounting Office ..........................
United States Tax Court ..........................
Other Legislative Branch agencies ...................
Proprietary receipts from the public ..................
Intrabudgetary transactions .........................
Applicable
Receipts
Prior Fiscal Year to Date
(*
(* *)
1
1
Applicable
Receipts
r *)
1
1
r *)
2
Outlays
37
60
8
2
20
198
13
3
35
2
3
(* *)
-1
378
The Judiciary:
2
Supreme Court of the United States ................
Courts of Appeals, District Courts, and other judicial
services .......................................
Other ..........................................
174
8
r *)
174
8
174
8
(‘ *)
174
8
151
6
Total—The Judiciary ........................................................
184
1 *)
184
184
(* *)
184
158
1
(* *)
1
*)
151
6
158
Executive Office of the President:
Compensation of the President and the White House
Office .........................................
Office of Management and Budget ..................
Other ..........................................
4
5
9
4
5
9
4
5
9
4
5
9
4
5
10
4
5
10
Total— Executive Office of the President ....................
18
18
18
18
20
20
80
1,914
1,280
(* *)
4
3
61
1,914
1,280
52
1,865
1,400
3
6
61
1,914
1,280
(* *)
4
3
-6
26
3,255
3,282
Funds Appropriated to the President:
International Security Assistance:
Guaranty reserve fund ..........................
Foreign military financing grants ..................
Economic support fund ..........................
Military assistance ....... ......................
Peacekeeping Operations ...............
Other ........................................
Proprietary receipts from the public ...............
80
1,914
1,280
(**)
4
3
20
20
6
I i
4
3
-6
26
3,255
3,322
10
2
41
1,865
1,400
3
9
2
-9
20
3,302
Total— International Security Assistance ..........
3,282
International Development Assistance:
Multilateral Assistance:
Contribution to the International Development
Association ................................
International organizations and programs .........
Other ......................................
246
91
134
246
91
134
246
91
134
246
91
134
194
9
129
194
9
129
472
472
472
472
331
331
90
64
28
90
64
28
90
64
28
90
64
28
130
46
48
130
46
48
Total— Multilateral Assistance ................
Agency for International Development:
Functional development assistance program .......
Sub-Saharan Africa development assistance .......
Operating expenses ..........................
Payment to the Foreign Service retirement and
disability fund ...............................
Other ......................................
Proprietary receipts from the public .............
Intrabudgetary transactions ....................
Total— Agency for International Development
....
Peace Corps ..................................
Overseas Private Investment Corporation ...........
Other .........................................
Total— International Development Assistance ......
96
3
30
93
-30
96
3
30
93
— 30
34
7
38
26
-38
277
32
245
277
32
245
257
46
212
8
2
10
10
1
8
-8
9
8
2
10
10
1
8
-8
9
14
2
9
12
(* *)
14
-9
9
769
43
726
769
43
726
614
57
557
-141
— 141
-141
218
-19
1,076
1 *)
-1,298
1
23
1,076
(*
3,601
5,011
International Monetary Programs ....................
Military Sales Programs:
Special defense acquisition fund ...................
Foreign military sales trust fund ...................
Kuwait civil reconstruction trust fund ...............
Proprietary receipts from the public ................
Other ..........................................
23
1,076
(**)
Total— Funds Appropriated to the President ................
5,011
-141
42
1,298
1
1,410
7
42
I
1,298
1
1,410
-19
1,076
(* *)
-1,298
1
46
1,035
3,601
5,236
218
(* *)
(*I
1,166
11
46
1,035
(* *)
-1,166
■
1,243
3,993
Table 5.
Outlays of the U.S. Government, October 1994 and Other Periods— Continued
Classification
Gross
Outlays
Applicable
Receipts
Department of Agriculture:
Agricultural Research Service ...............
Cooperative State Research Service ..........
Extension Service .........................
Animal and Plant Health Inspection Service ....
Food Safety and Inspection Service ..........
Agricultural Marketing Service ................
Soil Conservation Service:
Watershed and flood prevention operations ...
Conservation operations ...................
Other ........................... .......
Agricultural Stabilization and Conservation Service:
Conservation programs ...................
Other ..................................
Farmers Home Administration:
Credit accounts:
Agricultural credit insurance fund .........
Rural housing insurance fund ............
Other ................................
Salaries and expenses ...................
Other ..................................
Gross
Outlays
Applicable
Receipts
Outlays
Applicable
Receipts
Gross
Outlays
Outlays
59
31
28
42
39
111
59
31
28
42
39
111
59
31
28
42
39
111
56
33
33
33
38
110
30
35
8
30
35
8
30
35
8
30
35
8
26
39
....
26
39
6
......
6
1,686
42
1,686
42
1,686
42
1,686
42
507
47
38
69
144
285
38
69
247
254
48
11
48
11
(**)
48
11
46
9
165
487
322
165
555
22
22
22
-51
91
30
3
58
85
190
86
62
30
3
-132
-1
107
26
2
56
151
292
72
2,006
279
408
106
216
48
11
r *)
Total— Farmers Home Administration ......
487
322
Foreign assistance programs ................
Rural Development Administration:
Rural development insurance fund ..........
Rural water and waste disposal grants .....
Other .................................
Rural Electrification Administration ...........
Federal Crop Insurance Corporation ..........
Commodity Credit Corporation:
Price support and related programs ........
National Wool Act Program ...............
22
Total— Food and Nutrition Service .
Outlays
59
31
28
42
39
111
144
285
Food and Nutrition Service:
Food stamp program .............
State child nutrition programs ......
Women, infants and children programs
Other .........................
Prior Fiscal Year to Date
Current Fiscal Year to Date
This Month
91
30
3
58
85
190
86
62
30
3
-132
-1
2,006
279
1,727
29
K| *>
3,054
....
29
507
47
101
259
(**)
360
146
-5
46
9
196
-51
43
64
26
2
-236
80
950
1,727
1,358
(**)
(**)
(*1
1 *)
2,128
528
312
86
2,128
528
312
86
2,128
528
312
86
2,053
439
239
34
2,053
439
239
34
3,054
3,054
3,054
2,766
121
166
235
39
121
166
235
39
121
166
235
39
151
42
9
30
■
2,128
528
312
86
106
216
1
56
33
33
33
38
109
....
....
2,766
Forest Service:
National forest system .............
Forest and rangeland protection .....
Forest service permanent appropriations
Other ...........................
121
166
235
39
Total— Forest Service ............
561
....
561
561
....
561
233
....
233
56
3
57
52
-57
56
3
57
52
-57
49
3
111
46
-111
Other ............... .........
Proprietary receipts from the public .
Intrabudgetary transactions .......
151
42
9
30
(**)
i I
8,566
967
7,599
8,566
967
7,599
6,181
1,288
4,893
Economic Development Administration ................
Bureau of the Census ............................
Promotion of Industry and Commerce ... ............
23
44
20
3
21
44
20
23
44
20
3
21
44
20
22
34
22
1
21
34
22
Science and Technology:
National Oceanic and Atmospheric Administration ....
Patent and Trademark Office .....................
National Institute of Standards and Technology ......
Other ............................... •— ••••...
180
-7
29
11
1
180
,— 7
29
11
1
4
180
—7 .
29
7
164
—3
23
11
(**)
4
180
-7
29
7
3
163
3
23
7
Total— Science and Technology .................
213
4
209
213
4
209
194
4
191
Other ............................. — ..... ....
Proprietary receipts from the public ..................
Intrabudgetary transactions ....... .................
Offsetting governmental receipts ....................
20
20
-9
(* *)
9
20
-9
9
9
12
9
-12
(* *)
305
320
16
264
Total— Department of Agriculture
Department of Commerce:
Total— Department of Commerce ..................................
(* *)
320
16
20
( )
16
305
280
Table 5.
Outlays of the U.S. Government, October 1994 and Other Periods— Continued
[$ millions]
Classification
Gross
Outlays
Applicable
Receipts
Prior Fiscal Year to Date
Current Fiscal Year to Date
This Month
Outlays
Gross
Outlays
Applicable
Receipts
Outlays
Gross
Outlays
Applicable
Receipts
Outlays
Department of Defense— Military:
Military personnel:
Department of the Army .........................
Department of the Navy .........................
Department of the Air Force ......................
1,093
1,695
924
1,093
1,695
924
1,093
1,695
924
1,093
1,695
924
2,204
2,241
2,190
2,204
2,241
2,190
3,713
3,713
3,713
3,713
6,634
6,634
1,623
1,451
1,492
1,539
1,623
1,451
1,492
1,539
1,623
1,451
1,492
1,539
1,623
1,451
1,492
1,539
1,519
1,599
1,694
1,601
1,519
1,599
1,694
1,601
6,105
6,105
6,105
6,105
6,413
6,413
Procurement:
Department of the Army .........................
Department of the Navy .........................
Department of the Air Force ......................
Defense agencies ...............................
713
1,937
1,312
292
713
1,937
1,312
292
713
1,937
1,312
292
713
1,937
1,312
292
749
2,116
1,998
269
749
2,116
1,998
269
Total— Procurement ...........................
4,254
4,254
4,254
4,254
5,131
5,131
Research, development, test, and evaluation:
Department of the Army .........................
Department of the Navy .........................
Department of the Air Force ......................
Defense agencies ...............................
337
697
852
614
337
697
852
614
337
697
852
614
337
697
852
614
462
506
1,337
682
462
506
1,337
682
2,501
2,501
2,501
2,501
2,987
2,987
Military construction:
Department of the Army .........................
Department of the Navy .........................
Department of the Air Force ......................
Defense agencies ...............................
61
47
121
196
61
47
121
196
61
47
121
196
61
47
121
196
53
91
95
166
53
91
95
166
Total— Military construction .....................
425
425
425
425
404
89
70
77
13
89
70
77
10
89
70
77
13
89
70
77
10
75
64
82
8
-41
29
-41
29
-41
29
-99
-17
174
-14
174
-14
174
-14
1,697
-12
1
C *)
9
1
1
1
Total— Military personnel .......................
Operation and maintenance:
Department of the Army .........................
Department of the Navy .........................
Department of the Air Force ......................
Defense agencies ...............................
Total— Operation and maintenance .............
Total— Research, development, test and evaluation ...
Family housing:
Department of the Army .........................
Department of the Navy .........................
Department of the Air Force ......................
Defense agencies ...............................
Revolving and management funds:
Department of the Army .........................
Department of the Navy ................ .........
Department of the Air Force ......................
Defense agencies:
Defense business operations fund ...............
Other .......................................
Trust funds:
Department of the Army .........................
Department of the Navy .........................
Department of the Air Force ......................
Defense agencies ...............................
Proprietary receipts from the public:
Department of the Army .........................
Department of the Navy .........................
Department of the Air Force ......................
Defense agencies ...............................
Intrabudgetary transactions:
Department of the Army .........................
Department of the Navy .........................
Department of the Air Force ......................
Defense agencies ...............................
Offsetting governmental receipts:
Department of the Army .........................
Defense agencies ...............................
Total— Department of Defense— Military
3
-41
29
3
174
fl4
(**)
H5
.....1
I
(**)
......
......
■
■
23
71
159
130
-23
-71
-159
-130
...
...
118
439
....
118
439
118
439
....
101
........
101
101
........
-9
-9
10
-9
1 *)
18,060
388
9
.....
I
5
4
10
(**)
10
H
1
......
......
23
71
159
130
4
■
10
49
-23
-71
-159
-130
....
....
....
....
118
439
123
101
-9
90
47
17,672
23,696
11
404
...
....
3
75
64
82
5
-99
-17
1,697
-13
B
8
H
49
118
129
106
191
-118
-129
-106
-191
123
....
11
90
47
(* *)
17,672
18,060
388
550
23,147
Table 5.
Outlays of the U.S. Government, October 1994 and Other Periods— Continued
[$ millions]
Current Fiscal Year to Date
This Month
Classification
Gross
Outlays
Applicable
Receipts
Outlays
Gross
Outlays
Applicable
Receipts
Outlays
Prior Fiscal Year to Date
Gross
Outlays
Applicable
Receipts
Outlays
Department of Defense— Civil
Corps of Engineers:
Construction, general ............................
Operation and maintenance, general ................
Other .................................. .....&S3
Proprietary receipts from the public ................
Total— Corps of Engineers .....................
Military retirement:
Payment to military retirement fund ................
Retired pay ...................................
Military retirement fund ..........................
Intrabudgetary transactions .......................
Education benefits ................................
Other ..........................................
Proprietary receipts from the public ..................
Total— Department of Defense— Civil ............................
18
376
332
11,470
11,470
11,908
11,908
2,287
-11,470
-26
3
-2
2,287
— 11,470
-26
4
2,287
-11,470
— 26
3
-2
2,218
-11,908
8
2
1 *)
1
2,218
-11,908
8
2
—1
2,638
2,659
2,638
2,560
10
2,550
18
376
394
11,470
11,470
2,287
1 470
2,659
(* *)
2
21
322
18
18
-26
4
9
80
87
164
106
144
144
394
9
80
87
164
-9
106
144
144
-18
106
144
144
?«*-18
106
144
144
9 *)
2
21
Department of Education:
Office of Elementary and Secondary Education:
Compensatory education for the disadvantaged ......
Impact aid .....................................
School improvement programs ....................
Indian education ...............................
Other .........................................
356
34
102
5
2
356
34
102
5
2
356
34
102
5
2
356
34
102
5
2
387
6
117
6
1
387
6
117
Total— Office of Elementary and Secondary
Education ...................................
499
499
499
499
516
516
1
Office of Bilingual Education and Minority Languages
Affairs .........................................
Office of Special Education and Rehabilitative Services:
Special education ...............................
Rehabilitation services and disability research ........
Special institutions for persons with disabilities .......
Office of Vocational and Adult Education .............
15
15
15
15
15
15
247
165
10
119
247
165
10
119
247
165
10
119
247
165
10
119
224
183
6
71
224
183
6
71
Office of Postsecondary Education:
College housing loans ...........................
Student financial assistance ......................
Federal family education loans ....................
Higher education ................................
Howard University ..............................
Other .........................................
6
750
3
66
1
5
17
|B a
750
3
66
1
5
6
750
3
66
1
5
17
vtBlil
750
3
66
1
5
703
— 35
65
7
-2
Office of Postsecondary Education .........
831
17
814
831
17
814
738
Office of Educational Research and Improvement ......
Departmental management .........................
Proprietary receipts from the public ..................
44
39
44
39
3
44
39
-3
34
34
3
44
39
|p|-3
Total— Department of Education .......... ........................
1,969
20
1,949
1,969
20
1,949
1,821
1,084
1,084
1,084
1,084
1,083
1,083
85
297
1
31
35
21
85
297
1
31
35
21
85
297
1
31
35
21
85
297
1
31
35
21
120
300
3
31
33
16
120
300
3
31
33
16
(* *)
22
74
22
74
r *)
22
74
27
29
1 1
27
28
Total
11
— 11
703
— 35
65
7
fej|2
11
727
4
34
34
—4
15
1,805
Department of Energy:
Atomic energy defense activities ....................
Energy programs:
General science and research activities .............
Energy supply, R and D activities .................
Uranium supply and enrichment activities ...........
Fossil energy research and development ............
Energy conservation .............................
Strategic petroleum reserve ......................
Clean coal technology ...........................
Nuclear waste disposal fund ......................
Other .........................................
22
74
Total— Energy programs .......................
566
1 1
566
566
r *)
566
558
11
558
Power Marketing Administration .....................
Departmental administration ........................
Proprietary receipts from the public ..................
Intrabudgetary transactions .........................
Offsetting governmental receipts ....................
182
253
135
182
253
135
89
4
47
253
-205
— 59
-4
167
29
4
47
253
-205
-59
-4
2
78
29
— 58
22
—2
344
1,683
344
1,683
1,860
149
1,710
Total— Department of Energy ................................. .......
205
-59
2,027
10
205
-59
2,027
58
22
Table 5.
Outlays of the U.S. Government, October 1994 and Other Periods— Continued
[$ millions]
Current Fiscal Year to Date
This Month
Classification
Gross
Outlays
Applicable
Receipts
Outlays
Gross
Outlays
Applicable
Receipts
Outlays
Prior Fiscal Year to Date
Gross
Outlays
Applicable
Receipts
Outlays
Department of Health and Human Services, except Social
Security:
Public Health Service:
Food and Drug Administration ....................
Health Resources and Services Administration .......
Indian Health Services ...........................
Centers for Disease Control and Prevention .........
National Institutes of Health .......................
Substance Abuse and Mental Health Services
Administration .................................
Agency for Health Care Policy and Research ........
Assistant secretary for health .....................
Total— Public Health Service
79
178
158
162
768
r *)
191
12
55
1,603
(**)
79
178
158
162
768
79
178
158
162
768
191
12
55
191
12
55
1,603
1,603
(* *)
(* *)
79
178
158
162
768
60
131
136
98
781
(* *)
....
....
....
....
60
131
136
98
781
191
12
55
200
10
......
......
200
10
51
....
51
1,603
1,467
(* *)
1,467
Health Care Financing Administration:
Grants to States for Medicaid .................
Payments to health care trust funds ...........
6,622
3,062
6,622
3,062
6,622
3,062
6,622
3,062
7,394
3,765
7,394
3,765
Federal hospital insurance trust fund:
Benefit payments ..........................
Administrative expenses ....................
Interest on normalized tax transfers ..........
7,737
96
7,737
96
7,737
96
7,737
96
7,338
94
7,338
94
7,834
7,834
7,834
7,834
7,432
7,432
Federal supplementary medical insurance trust fund:
Benefit payments ..........................
Administrative expenses ....................
4,681
118
4,681
118
4,681
118
4,681
118
4,520
129
4,520
129
Total— FSMI trust fund ...................
4,799
4,799
4,799
4,799
4,650
4,650
Other .....................................
-7
-7
-7
-7
18
18
Total— Health Care Financing Administration ....
22,309
22,309
22,309
22,309
23,259
23,259
Social Security Administration:
Payments to Social Security trust funds .........
Special benefits for disabled coal miners ........
Supplemental security income program ..........
630
62
225
630
62
225
630
62
225
630
62
225
977
69
1,924
977
69
1,924
Total— Social Security Administration ..........
917
917
917
917
2,970
2,970
1,737
66
30
22
51
6
63
240
355
1,737
66
30
22
51
6
63
240
355
1,737
66
30
22
51
6
63
240
355
1,737
66
30
22
51
6
63
240
355
1,446
453
38
42
42
38
59
138
285
1,446
453
38
42
42
38
59
138
285
158
(* *)
158
/* *\
(* *)
158
/* «
(* *)
158
(* *)
255
255
2,797
Total— FHI trust fund ....................
Administration for children and families:
Family support payments to States ................
Low income home energy assistance ..............
Refugee and entrant assistance ...................
Community Services Block Grant ..................
Payments to States for afdc work programs ........
Interim assistance to States for legalization ..........
Payments to States for child care assistance .......
Social services block grant .......................
Children and families services programs ...........
Payments to States for foster care and adoption
assistance ....................................
Other .........................................
Total— Administration for children and families .....
Administration on aging ............................
Office of the Secretary ............................
Proprietary receipts from the public ........
Intrabudgetary transactions:
Payments for health insurance for the aged:
Federal hospital insurance trust fund ...
Federal supplementary medical insurance trust fund ..
Payments for tax and other credits:
Federal hospital insurance trust fund .............
Other .......................................
Total—Department of Health and Human Services,
except Social Security ..............
..............
2,728
....
2,728
2,728
....
2,728
2,797
52
41
....
....
1,538
52
41
-1,538
52
41
....
....
....
1,538
52
41
§¡-1,538
43
16
— 3,061
-3,061
-3,061
....
-3,061
-3,765
—1
....
-1
-1
24,588
1,538
23,050
24,588
....
....
1,354
43
16
-1,354
-3,765
-1
1,538
23,050
26,786
1,355
25,432
Table 5.
Outlays of the U.S. Government, October 1994 and Other Periods— Continued
[$ millions]
Applicable
Receipts
Gross
Outlays
Prior Fiscal Year to Date
Current Fiscal Year to Date
This Month
Classification
Outlays
Applicable
Receipts
Gross
Outlays
Outlays
Applicable
Receipts
Gross
Outlays
Outlays
Department of Health and Human Services, Social
Security (off-budget):
Federal old-age and survivors Insurance trust fund:
Benefit payments .........................
Administrative expenses and construction .....
Payment to railroad retirement account ......
Interest expense on interfund borrowings .....
Interest on normalized tax transfers .........
23,371
41
22,407
139
....
....
22,407
139
23,413
22,546
....
22,546
3,200
89
3,200
89
2,926
66
2,926
66
3,289
3,289
3,289
2,992
2,992
■
-630
-630
1 *)
-630
-977
1 *)
26,072
26,072
26,072
10
8
2
10
8
562
333
44
15
12
65
411
55
151
278
44
15
12
65
562
333
44
15
12
65
411
55
34
327
2
855
343
10
23,371
41
....
....
23,371
41
23,371
41
23,413
....
23,413
23,413
3,200
89
3,200
89
Total— FDI trust fund ...... ...................
3,289
Proprietary receipts from the public ..................
Intrabudgetary transactions1 ........................
-630
Total—Department of Health and Human Services,
Social Security(off-budget) ................ .......... .............
26,072
Total— FOASI trust fund ................
Federal disability insurance trust fund:
Benefit payments ................................................................
Administrative expenses and construction ...........
Payment to railroad retirement account .............
Interest on normalized tax transfers ................
(* *)
....
(* *)
(*1
-977
24,562
i *)
24,562
2
13
5
8
151
278
44
15
12
65
525
384
42
5
9
55
374
59
(* *)
151
326
42
5
9
55
(* *)
34
327
2
855
343
10
i 1
37
266
1
886
257
3
11
y H
Department of Housing and Urban Development:
Housing programs:
Public enterprise funds ......................................................
Credit accounts:
Federal housing administration fund ..............
Housing for the elderly or handicapped fund ......
Other .......................................
Rent supplement payments ......................
Homeownership assistance .......................
Rental housing assistance ........................
Rental housing development grants ................
Low-rent public housing .........................
Public housing grants ...........................
College housing grants ..........................
Lower income housing assistance .................
Section 8 contract renewals ......................
Other .........................................
Total
Housing programs ......................
1 *)
37
266
1
886
257
3
34
327
2
855
343
10
(* *)
34
327
2
855
343
10
2,611
474
2,137
2,611
474
2,137
2,483
438
2,045
2
1
1
2
1
1
5
15
—9
221
11
1
221
11
1
221
11
1
217
14
Public and Indian Housing programs:
Low-rent public housing— Loans and other expenses ...
Payments for operation of low-income housing
projects .................. ...................
Community Partnerships Against Crime .............
Other ....................................................................................
221
11
1
Total— Public and Indian Housing programs ................
234
1
234
234
1
234
236
15
221
Government National Mortgage Association:
Management and liquidating functions fund ....................
Guarantees of mortgage-backed securities ......................
53
50
3
53
50
3
133
H ’)
181
-48
53
50
3
53
50
3
133
181
-48
329
88
25
13
329
88
12
300
42
31
15
300
42
17
13
429
374
15
359
93
7
66
2
2,903
3,293
Total— Government National Mortgage Association —
Community Planning and Development:
Community Development Grants .......................................
Home investment partnerships program ..........................
Other ....................................................................................
329
88
25
13
329
88
12
Community Planning and Development ............
442
13
429
442
Management and Administration ..........................................
Other .......................................................................................
Proprietary receipts from the public .....................................
Offsetting governmental receipts ..........................................
93
7
93
7
93
7
2,903
3,440
Total
Total— Department of Housing and Urban
Development ..................................... ............................
3,440
537
12
537
217
14
I ’)
66
2
649
2,645
Table 5.
Outlays of the U.S. Government, October 1994 and Other Periods— Continued
[$ millions]
Current Fiscal Year to Date
This Month
Classification
Gross
Outlays
Applicable
Receipts
Outlays
Gross
Outlays
Applicable
Receipts
Outlays
Prior Fiscal Year to Date
Gross
Outlays
Applicable
Receipts
Outlays
Department of the Interior:
Land and minerals management:
Bureau of Land Management:
Management of lands and resources ..........
Other ....................................
Minerals Management Service .................
Office of Surface Mining Reclamation and
Enforcement ...............................
62
128
75
32
32
32
32
24
24
Total— Land and minerals management ........
297
297
297
297
161
161
31
18
37
7
31
18
29
31
18
37
7
31
18
29
24
19
36
11
24
19
24
58
13
2
58
11
58
13
2
58
11
42
15
3
42
12
Total— Water and science ...................
156
10
146
156
10
146
135
14
121
Fish and wildlife and parks:
United States Fish and Wildlife Service .........
National Biological Survey .................... ...
National Park Service ........................
78
11
119
78
11
119
78
11
119
78
11
119
78
78
103
103
Total— Fish and wildlife and parks ...............
208
208
208
208
182
182
Bureau of Indian Affairs:
Operation of Indian programs .....................
Indian tribal funds ..............................
Other .........................................
129
— 21
72
r *)
129
-21
71
129
-21
72
r *)
129
-21
71
95
9
19
(* *)
95
9
19
Total— Bureau of Indian Affairs .................
180
1 *)
179
180
r *>
179
124
(* *)
123
230
7
-181
-1
230
7
230
7
-181
-1
100
3
191
884
1,075
11
196
136
82
133
200
116
92
-2
35
196
136
82
133
190
116
92
-2
-35
46
908
954
353
30
27
353
30
27
39
39
Water and science:
Bureau of Reclamation:
Construction program .......................
Operation and maintenance ..................
Other .....................................
Central Utah project ..........................
Geological Survey .............................
Bureau of Mines .............................
Territorial and international affairs ....................
Departmental offices ..............................
Proprietary receipts from the public ..................
Intrabudgetary transactions .........................
Offsetting governmental receipts ...... ..............
230
7
Total— Department of the Interior ...................................
1,075
62
128
75
181
-1
62
128
75
62
128
75
181
-1
52
17
69
52
17
69
147
-16
100
3
-147
-16
(* *)
rB
162
527
191
884
688
11
190
173
67
102
169
61
21
35
196
136
82
133
190
116
92
-2
-35
46
908
783
353
30
27
353
30
27
345
29
9
345
29
9
39
39
16
16
959
959
Department of Justice:
Legal activities ...................................
Federal Bureau of Investigation .....................
Drug Enforcement Administration ....................
Immigration and Naturalization Service ................
Federal Prison System .............................
Office of Justice Programs .........................
Other ........................................
Intrabudgetary transactions .........................
Offsetting governmental receipts ....................
196
136
82
133
200
116
92
—2
Total— Department of Justice .........................................
954
(*
10
I
190
173
67
102
159
61
21
23
(* *)
-23
33
749
Department of Labor:
Employment and Training Administration:
Training and employment services .................
Community Service Employment for Older Americans ...
Federal unemployment benefits and allowances ......
State unemployment insurance and employment service
operations ....................................
Payments to the unemployment trust fund ..........
Advances to the unemployment trust fund and other
funds .......................................
13
Table 5.
Outlays of the U.S. Government, October 1994 and Other Periods— Continued
[$ millions]
Current Fiscal Year to Date
This Month
Classification
Gross
Outlays
Applicable
Receipts
Outlays
Gross
Outlays
Applicable
Receipts
Prior Fiscal Year to Date
Outlays
Gross
Outlays
Applicable
Receipts
Outlays
Department of Labor:—Continued
Unemployment trust fund:
Federal-State unemployment insurance:
State unemployment benefits ..................
State administrative expenses .................
Federal administrative expenses ................
Veterans employment and training .............
Repayment of advances from the general fund ...
Railroad unemployment insurance ................
Other ..... ..................................
1,407
224
6
9
1,407
224
6
9
1,407
224
6
9
1,407
224
6
9
2,317
285
90
11
2,317
285
90
11
4
1
4
1
4
1
4
1
5
2
5
2
Total— Unemployment trust fund ...............
1,650
1,650
1,650
1,650
2,710
2,710
Other .........................................
8
8
8
8
8
8
2,106
2,106
2,106
4,075
23
72
23
67
21
82
46
16
22
19
19
21
82
46
16
22
19
19
21
82
46
16
22
19
19
15
87
48
14
19
11
38
r *)
-1
¡$$|1
2,353
2,402
206
20
206
20
35
-5
35
-5
256
256
180
45
Total— Employment and Training Administration ....
2,106
Pension Benefit Guaranty Corporation ................
Employment Standards Administration:
Salaries and expenses ..........................
Special benefits ............. ..................
Black lung disability trust fund ....................
Other .........................................
Occupational Safety and Health Administration .........
Bureau of Labor Statistics .........................
Other ..........................................
Proprietary receipts from the public................ .
Intrabudgetary transactions .........................
72
;;-s-1
Total— Department of Labor ............................................
2,402
49
21
82
46
16
22
19
19
(* *)
49
49
(* *)
I
4,075
50
17
15
87
48
14
19
11
38
(* *)
(* *)
-963
50
3,362
(*
-1
-963
2,353
3,412
206
20
206
20
190
37
190
37
35
35
-5
33
9
33
9
256
256
269
269
180
45
554
10
........
4
554
10
6
4
(* *)
49
Department of State:
Administration of Foreign Affairs:
Salaries and expenses ..........................
Acquisition and maintenance of buildings abroad .....
Payment to Foreign Service retirement and disability
fund .........................................
Foreign Service retirement and disability fund .......
Other .........................................
Total— Administration of Foreign Affairs ..........
International organizations and Conferences
Migration and refugee assistance .......
International narcotics control ..........
Other .............................
Proprietary receipts from the public .....
Intrabudgetary transactions ............
Offsetting governmental receipts .......
180
45
....
6
.....
'§ll5
6
6
3
3
180
45
6
3
(‘ *)
(* *)
(* *)
C *)
488
488
488
488
843
843
1,779
15
20
1,779
15
20
1,779
15
20
1,779
15
20
1,770
4
31
1,770
4
31
Total— Federal Highway Administration .......
1,814
1,814
1,814
1,814
1,805
1,805
19
19
19
20
20
Total— Department of State
3
i *)
....
6
....
Department of Transportation:
Federal Highway Administration:
Highway trust fund:
Federal-aid highways .....................
Other ...................................
Other programs ..........................
National Highway Traffic Safety Administration ....
19
Federal Railroad Administration:
Grants to National Railroad Passenger Corporation
Other ....................................
344
17
1
344
16
344
17
1
344
16
58
21
1
58
20
Total— Federal Railroad Administration .......
361
1
360
361
1
360
79
1
78
14
Table 5.
Outlays of the U.S. Government, October 1994 and Other Periods— Continued
[$ millions]
This Month
Classification
Gross
Outlays
Applicable
Receipts
Current Fiscal Year to Date
Outlays
Gross
Outlays
Applicable
Receipts
Outlays
Prior Fiscal Year to Date
Gross
Outlays
Applicable
Receipts
Outlays
Department of Transportation:— Continued
Federal Transit Administration:
Formula grants ..................... ...........
Discretionary grants ................ ...........
Other ............................ ...........
137
144
40
137
144
40
137
144
40
137
144
40
192
113
19
192
113
19
Total— Federal Transit Administration .........
321
321
321
321
324
324
Federal Aviation Administration:
Operations ................................ ...
245
245
245
245
369
369
Airport and airway trust fund:
Grants-in-aid for airports ....................
Facilities and equipment .....................
Research, engineering and development ........
Operations ................................
177
150
20
96
177
150
20
96
177
150
20
96
177
150
20
96
132
79
13
132
79
13
443
443
443
443
224
224
Total— Airport and airway trust fund ...........
Other .........................................
(* *)
rB
(*1
(* *)
fl1
688
688
142
20
40
16
(* *)
142
20
40
16
Total— Coast Guard ...........................
218
(*1
Maritime Administration ............................
Other ..........................................
Proprietary receipts from the public ..................
Intrabudgetary transactions .........................
Offsetting governmental receipts ....................
36
33
39
Total— Department of Transportation ............................
Total— Federal Aviation Administration ............
688
Coast Guard:
Operating expenses .............................
Acquisition, construction, and improvements .........
Retired pay ...................................
Other .........................................
(* *)
(* *)
11
11
(* *)
r *)
(* *)
B *)
688
593
12
593
142
20
40
16
(* *)
142
20
40
16
200
12
32
7
r *)
200
12
32
6
218
218
1 *)
218
252
1 1
251
-3
33
r *)
36
33
39
(* *)
(* *)
-3
33
(* *)
62
19
14
(* *)
(* *)
13
6
-6
3,490
46
3,444
Departmental offices:
Exchange stabilization fund .......................
Other .........................................
-99
18
1
Financial Management Service:
Salaries and expenses ..........................
Payment to the Resolution Funding Corporation ......
Claims, judgements, and relief acts ................
Net interest paid to loan guarantee financing accounts .
Other .........................................
18
587
51
79
2
I *)
49
19
(* *)
13
6
-6
3,490
46
3,444
3,167
16
3,151
-100
18
-99
18
1
-100
18
-17
33
1
-18
33
18
587
51
79
2
18
587
51
79
2
18
587
51
79
2
13
587
51
I *)
11
737
737
737
663
-114
-114
-114
-114
-114
P S*|j14
28
18
132
-2
-29
13
28
18
132
-2
-29
13
28
18
132
-2
-29
13
28
18
132
... ' W -2
-29
13
23
16
128
-1
7-11
13
23
16
128
-1
— 11
13
111
306
99
111
306
99
111
306
99
111
306
99
97
265
60
97
265
60
19
19
19
19
101
13
101
13
101
13
101
13
17
2
395
13
17
2
395
13
649
649
649
649
850
850
(* *)
Department of the Treasury:
Total— Financial Management Service .............
Federal Financing Bank .........................
Bureau of Alcohol, Tobacco and Firearms:
Salaries and expenses ........................
Internal revenue collections for Puerto Rico .......
United States Customs Service ...................
Bureau of Engraving and Printing .................
United States Mint .............................
Bureau of the Public Debt ......................
Internal Revenue Service:
Processing tax returns and assistance ...........
Tax law enforcement .........................
Information systems ..........................
Payment where earned income credit exceeds liability
for tax ....................................
Health insurance supplement to earned income credit
Refunding internal revenue collections, interest ....
Other ......................................
Total— Internal Revenue Service ...............
737
....
15
....
13
587
51
(* *)
11
....
663
Table 5.
Outlays of the U.S. Government, October 1994 and Other Periods— Continued
[$ millions]
Current Fiscal Year to Date
This Month
Classification
Gross
Outlays
Applicable
Receipts
Outlays
Gross
Outlays
Applicable
Receipts
Outlays
Prior Fiscal Year to Date
Gross
Outlays
Applicable
Receipts
Outlays
Department of the Treasury:— Continued
18,682
1,051
17,429
209
17,429
209
19,732
19,732
17.S38
17,638
5
166
2
-166
-1,180
-60
-1,356
60
18,682
1,051
19,732
19,732
Total— Interest on the public debt .......... ....
Total— Department of the Treasury .................... ...........
18,682
1,051
18,682
1,051
Interest on the public debt:
Public issues (accrual basis) ................ ....
Special issues (cash basis) .................. ....
Other ............................................................................. ....
Proprietary receipts from the public ...........................
Receipts from off-budget federal entities .................
Intrabudgetary transactions .........................................
Offsetting governmental receipts ...............................
36
29
15
51
31
11
51
31
11
4
1
4
1
5
-347
56
-1,356
— 56
17,949
413
17,536
1,175
34
1,097
18
21
1,097
-3
22
62
42
105
73
3
36
111
38
1,400
73
7
87
1
6
4
96
2
9
-13
406
1,758
132
1,626
49
117
51
88
rI
51
88
-1,180
-60
-1,180
60
19,999
232
19,766
19,999
232
19,766
1,175
56
22
1,175
34
1,175
56
22
22
62
42
105
73
3
68
93
48
105
73
3
87
1
6
4
87
1
9
4
406
491
49
117
49
117
-1,180
8
2
347
2
-166
2
166
2
36
21
13
51
26
10
51
26
10
United States Secret Service .................. ....
Comptroller of the Currency ................... ....
Office of Thrift Supervison .................... ....
Department of Veterans Affairs:
Veterans Health Administration:
....
Other ......................................................................... ....
Veterans Benefits Administration:
Public enterprise funds:
Guaranty and indemnity fund ..........
Loan guaranty revolving fund ..........
Other ..............................
Compensation and pensions .............
Readjustment benefits ..... ............
Post-Vietnam era veterans education account
Insurance funds:
National service life ..................
United States government life ..........
Veterans special life ..................
Other ........................ .......
Total— Veterans Benefits Administration ...
68
93
48
105
73
3
87
1
9
4
491
Construction ............................
Departmental administration ...............
Proprietary receipts from the public:
National service life ....................
United States government life ............
Other ................................
Intrabudgetary transactions ................
49
117
Total— Department of Veterans Affairs ......
1,886
46
31
6
3
85
23
(*g
57
-2
1,699
1,886
67
152
140
60
292
1
67
152
140
60
292
-22
-250
-1
23
438
461
-645
-69
44
19
r *)
-645
-69
44
19
(* *)
1 *)
-651
-6 5 0
187
3
85
-23
I *)
-57
-2
-7
1,699
3,004
67
73
153
124
36
1
67
152
140
60
292
-22
-250
-1
23
438
453
-645
-69
44
19
284
-49
-17
22
23
(* *)
57
-23
(**)
-57
-2
-2
46
31
6
187
54
40
35
3
-18
70
4
1,400
73
7
96
2
6
-13
30
1 *)
16
-30
198
2,806
(* *)
22
67
73
153
124
36
-22
(‘ *)
-16
-7
Environmental Protection Agency:
Program and research operations ..........
Abatement, control, and compliance ........
Water infrastructure financing .............
Hazardous substance superfund ...........
Other .................................
Proprietary receipts from the public .........
Intrabudgetary transactions ................
Offsetting governmental receipts ............
Total—Environmental Protection Agency ...
67
152
140
60
292
I *)
22
-250
461
(* *)
22
-250
1
-1
23
430
General Services Administration:
Real property activities ...................
Personal property activities ................
Information Resources Management Service ...
Other ................................
Proprietary receipts from the public .........
-645
-69
44
19
Total—General Services Administration —
-6 5 0
16
C *)
i
*)
r *)
-651
240
284
-49
1 -17
22
(* *)
r *)
H*)
239
Table 5.
Outlays of the U.S. Government, October 1994 and Other Periods— Continued
[$ millions]
Current Fiscal Year to Date
This Month
Classification
Gross
Outlays
Applicable
Receipts
Outlays
Gross
Outlays
Applicable
Receipts
Outlays
Prior Fiscal Year to Date
Gross
Outlays
Applicable
Receipts
Outlays
National Aeronautics and Space Administration:
539
385
28
126
1
Research and development .....................
Space flight, control, and data communications ....
Construction of facilities .......................
Research and program management .............
Other ......................................
391
304
28
69
53
391
304
28
69
53
391
304
28
69
53
391
304
28
69
53
539
385
28
126
1
Total— National Aeronautics and Space
Administration ............................................................
845
845
845
845
1,079
1,079
288
288
288
288
266
266
3,124
50
-75
I *)
25
3,124
1,285
114
1
25
3,124
50
-75
2,985
1,244
110
1
7
...
Office of Personnel Management:
Government payment for annuitants, employees health
and life insurance benefits ....................
Payment to civil service retirement and disability fund
Civil service retirement and disability fund .........
Employees health benefits fund .................
Employees life insurance fund ...................
Retired employees health benefits fund ..........
Other ......................................
Intrabudgetary transactions:
Civil service retirement and disability fund:
General fund contributions ..................
Other ...................................
3,124
1,285
114
1
25
1,235
189
1
1,235
189
1
■
25
1,146
129
1
2,985
98
-19
(* *)
7
-3
-2
-2
-2
-3
4,835
1,425
3,410
4,835
1,425
3,410
4,610
1,275
3,335
Public enterprise funds:
Business loan fund .........................
Disaster loan fund ..........................
Other .....................................
Other ......................................
17
44
2
45
20
21
2
17
44
2
45
20
21
2
r *)
-3
23
(**)
45
48
19
5
33
54
34
2
(* *)
-3
23
1 1
45
(**)
-6
-15
3
32
Total— Small Business Administration ...................
108
43
65
108
43
65
104
89
14
15
15
13
12
13
12
10
286
15
(**)
10
286
10
286
275
275
714
7
20
353
15
76
5
714
-5
20
278
10
52
7
13
25
9
52
7
13
-110
7
439
14
124
-127
-2
-87
(* *)
328
3
348
1
277
8
348
r *)
312
12
37
r *)
52
Ï —5
(*1
1
23
261
17
11
10
6
55
9
36
(**)
-12
261
17
11
10
6
55
9
73
141
17
13
6
3
1
3
17
(* *)
-12
261
17
11
10
6
55
9
56
141
17
13
6
3
1
3
2
5
(* *)
-4
-5
-4
-3
2
5
-4
0u'i_5
48
10
-3
(* *)
-4
Total—Office of Personnel Management ..............
-2
Small Business Administration:
Other independent agencies:
Action ......................................
Board for International Broadcasting .............
Corporation for National and Community Service ...
Corporation for Public Broadcasting .............
District of Columbia:
Federal payment ............................
Other .....................................
Equal Employment Opportunity Commission .......
Export-Import Bank of the United States ..........
Federal Communications Commission .............
Federal Deposit Insurance Corporation:
Bank insurance fund ........................
Savings association insurance fund .............
FSLIC resolution fund .......................
Affordable housing and bank enterprise .........
Federal Emergency Management Agency:
Public enterprise funds — ...................
Disaster relief ..............................
Emergency management planning and assistance ..
Other .....................................
Federal Trade Commission .....................
Interstate Commerce Commission ................
Legal Services Corporation .....................
National Archives and Records Administration ......
National Credit Union Administration:
Credit union share insurance fund .............
Central liquidity facility .......................
Other .....................................
15
1 *)
10
286
■
714
7
20
353
15
■
76
5
714
-5
20
278
10
312
12
37
439
14
124
-127
-2
-87
12
(**)
23
261
17
11
10
6
55
9
-3
11 -3
36
17
■
12
■
H
r *)
135
3
(**)
10
10
(* *)
38
-8
Table 5.
Outlays of the U.S. Government, October 1994 and Other Periods— Continued
[$ millions]
Current Fiscal Year to Date
This Month
Classification
Gross
Outlays
Applicable
Receipts
Gross
Outlays
Outlays
Applicable
Receipts
Outlays
Other independent agencies:—Continued
National Endowment for the Arts ...................
National Endowment for the Humanities ....... ......
National Labor Relations Board .....................
National Science Foundation ........................
Nuclear Regulatory Commission .....................
Panama Canal Commission .........................
Postal Service:
Public enterprise funds (off-budget) ................
Payment to the Postal Service fund ................
Railroad Retirement Board:
Federal windfall subsidy ..........................
Federal payments to the railroad retirement accounts ...
Rail industry pension fund:
Advances from FOASDI fund ...................
OASDI certifications ...........................
Administrative expenses ........................
Interest on refunds of taxes ....................
Other .......................................
Intrabudgetary transactions:
Payments from other funds to the railroad
retirement trust funds .......................
Other .....................................
Supplemental annuity pension fund ................
Railroad Social Security equivalent benefit account ....
Other .........................................
Prior Fiscal Year to Date
Gross
Outlays
Applicable
Receipts
Outlays
20
11
11
222
-6
2
18
14
17
185
-4
-1
20
11
11
222
40
47
648
61
3,616
61
22
46
22
46
23
12
23
12
-91
91
6
17
1
-91
91
6
17
1
-91
91
6
17
1
-91
90
5
(* *)
1
-91
90
5
-46
246
397
-46
246
397
-46
246
397
-46
246
397
-12
239
385
-12
239
385
I *)
1 1
(* *)
(* *)
(*E
(*1
689
689
689
653
653
613
20
26
1,015
73
221
1,085
1,211
10
20
984
87
179
1,204
210
-471
20
26
265
73
11
878
11
44
7
10
20
106
87
134
9,010
6,006
3,005
8,567
7,151
1,416
(* *)
1 1
(*i
(* *)
18
14
17
185
-4
-1
18
14
17
185
41
46
648
61
3,805
61
22
46
22
46
-91
91
6
17
1
18
14
17
185
41
46
3,805
61
45
46
23,157
Total— Railroad Retirement Board ................
689
Resolution Trust Corporation .......................
Securities and Exchange Commission ................
Smithsonian Institution .... .......................
Tennessee Valley Authority .........................
United States Information Agency ...................
Other ..........................................
613
20
26
1,015
73
221
1,085
210
-471
20
26
265
73
11
Total— Other independent agencies ..............................
9,010
6,006
3,005
750
45
46
3,157
750
47
45
4,125
-509
61
(* *)
1
Undistributed offsetting receipts:
(* *)
Other interest ...................................
Employer share, employee retirement:
Legislative Branch:
United States Tax Court:
Tax court judges survivors annuity fund ........
The Judiciary:
Judicial survivors annuity fund ...................
Department of Defense— Civil:
Military retirement fund ........................
Department of Health and Human Services, except
Social Security:
Federal hospital insurance trust fund:
Federal employer contributions ................
Postal Service employer contributions ..........
Payments for military service credits ...........
Department of Health and Human Services, Social
Security (off-budget):
Federal old-age and survivors insurance trust fund:
Federal employer contributions ................
Payments for military service credits ...........
Federal disability insurance trust fund:
Federal employer contributions ................
Payments for military service credits ...........
Department of State:
Foreign Service retirement and disability fund ......
Office of Personnel Management:
Civil service retirement and disability fund ........
Independent agencies:
Court of veterans appeals retirement fund .......
Total— Employer share, employee retirement ......
(*1
-1,021
— 1,021
-1,021
-1,021
-1,081
-1,081
-158
-45
-158
-45
-158
-45
-158
-45
^w F 159
-37
-159
-37
-394
-394
-394
-394
-425
-425
-71
-71
-71
-71
-46
-46
-8
8
-8
-8
-9
-9
-746
-816
-816
— 2,442
— 2,572
-746
:i.;
-746
-746
— 2,442
....
— 2,442
— 2,442
18
■
....
....
— 2,572
Table 5.
Outlays of the U.S. Government, October 1994 and Other Periods— Continued
[$ millions]
Classification
Gross
Outlays
Applicable
Receipts
Prior Fiscal Year to Date
Current Fiscal Year to Date
This Month
Gross
Outlays
Outlays
Applicable
Receipts
Gross
Outlays
Outlays
Applicable
Receipts
Outlays
Undistributed offsetting receipts:—Continued
Interest received by trust funds:
The Judiciary:
Judicial survivors annuity fund ...................
Department of Defense— Civil:
Corps of Engineers ...........................
Military retirement fund ........................
Education benefits fund ........................
Soldiers’ and airmen’s home permanent fund ......
Other .......................................
Department of Health and Human Services, except
Social Security:
Federal hospital insurance trust fund .............
Federal supplementary medical insurance trust fund ..
Department of Health and Human Services, Social
Security (off-budget):
Federal old-age and survivors insurance trust fund ...
Federal disability insurance trust fund .............
Department of Labor:
Unemployment trust fund ......................
Department of State:
Foreign Service retirement and disability fund ......
Department of Transportation:
Highway trust fund ............................
Airport and airway trust fund ...................
Oil spill liability trust fund .......................
Department of Veterans Affairs:
National service life insurance fund ..............
United States government life Insurance Fund .....
Environmental Protection Agency ..................
National Aeronautics and Space Administration .......
Office of Personnel Management:
Civil service retirement and disability fund .........
Independent agencies:
Railroad Retirement Board ......................
Other .......................................
Other .........................................
Total— Interest received by trust funds ...........
(* *)
,tt363
-1
-1
(* *)
(* *)
-363
-1
-1
r *)
(* *)
"• -363
-1
-1
(* *)
(* *)
-363
-1
-1
r *)
(* *)
-169
1 *)
-3
(* *)
(* *)
-169
(* *)
-3
(* *)
-8
-33
-8
-33
-8
-33
-8
-33
-7
-13
-7
-13
-66
-16
-66
-16
-66
•-16
-66
-16
-44
-15
-44
-15
-32
*5sS32
-32
-32
-11
-11
r *)
(**)
(*J
-1
-1
-36
-8
(*1
-19
-1
(*I
-19
-1
(* *)
-36
-8
(* *)
-2
(* *)
c *)
-2
(* *)
r *)
-2
C *)
r *)
-2
(* *)
(. .)
(* *)
-2
(* *)
I *)
r *)
(* *)
-36
-8
r *)
Ä'X-8
-2
(* *)
(* *)
rB
-5
-5
-5
-5
-3
-3
-10
1
-31
s i -10
1
-31
tfl-10
1
-31
-10
1
-31
-36
-1
-35
-36
-1
-35
-611
-611
-611
-611
-359
-359
Rents and royalties on the outer continental shelf lands ..
Sale of major assets .............................
Spectrum auction proceeds .........................
154
-154
154
—3,053_______154
21
-154
-3,207
-2,931_______ 21
-21
Total— Undistributed offsetting receipts ........................
-3,053
154
-3,207
Total outlays ........................................................ •.................
135,116
13,644
121,472
135,116
13,644
121,472
138,800
14,710
124,090
Total on-budget ...... ............ ............................I f .............
105,785
10,487
95,298
105,785
10,487
95,298
111,152
10,585
100,567
Total off-budget...... ..................... .................... ..............
29,331
3,157
26,174
29,331
3,157
26,174
27,648
4,125
-2,952
23,523
Total surplus (+) or deficit .................................................
-32,448 §
-32,448 §
-45,422
Total on-budget ................. ...............................................
-29,914 J
-29,914 g
-44,704
-2,535 1
. -2,535 §
-7 1 9
Total off-budget — .........................................................
MEMORANDUM
[$ millions]
Receipts offset against outlays
Current
Fiscal Year
to Date
Proprietary receipts ........................................
Receipts from off-budget federal entities .......................
Intrabudgetary transactions ..................................
Governmental receipts ......................................
Total receipts offset against outlays .......................
Comparable Period
Prior Fiscal Year
3,894
4,172
....
19,242
151
21,665
129
23,565
25,688
... No Transactions.
(* *) Less than $ 50 0 ,0 0 0
Note: Details may not add to totals due to rounding
’ Includes FICA and SEC A tax credits, non-contributory military service credits, special benefits
for the aged, and credit for unnegotiated OASI benefit checks.
2The Postal Service accounting is composed of thirteen 28-day accounting periods. To
conform with the M T S calendar-month reporting basis used by all other Federal agencies, the M TS
reflects USPS results through 10/1 4 and estimates for $ 1 ,1 15 million through 10/31.
19
Table 6.
Means of Financing the Deficit or Disposition of Surplus by the U.S. Government, October 1994 and Other Periods
[$ millions]
Net Transactions
Assets and Liabilities
Directly Related to
Budget Off-budget Activity
Account Balances
Current Fiscal Year
(— ) denotes net reduction of either
liability or asset accounts
Beginning of
Fiscal Year to Date
Close of
This month
This Month
This Year
Prior Year
This Year
This Month
Liability accounts:
Borrowing from the public:
Public debt securities, issued under general Financing authorities:
Obligations of the United States, issued by:
...................... •••
United States Treasury .,....
Federal Financing Bank 1................................
Total, public debt securities ............................
41,418
41,418
11,023
4,677,750
15,000
4,677,750
15,000
4,719,167
15,000
41,418
41,418
11,023
4,692,750
4,692,750
4,734,167
1,325
79,045
4,656,448
Plus premium on public debt securities ................
Less discount on public debt securities ................
-8
415
-8
415
-8
-455
1,333
78,631
1,333
78,631
Total public debt securities net of Premium and
discount .......................................
40,995
40,995
11,470
4,615,453
4,615,453
-2,106
-2,106
47
28,543
28,543
26,437
38,889
38,889
11,517
4,643,996
4,643,996
4,682,885
6,494
6,494
7,242
1,213,115
1,213,115
1,219,609
Agency securities, issued under special financing authorities (see
Schedule B. for other Agency borrowing, see Schedule C) .......
Total federal securities ...................................
Deduct:
Federal securities held as investments of government accounts
(see Schedule D) ...................... .............
Less discount on federal securities held as investments of
government accounts ..............................
62
62
-20
1,472
1,472
1,533
Net federal securities held as investments of government
accounts .......................................
6,432
6,432
7,263
1,211,644
1,211,644
1,218,076
Total borrowing from the public ...................
32,457
32,457
4,255
3,432,352
3,432,352
3,464,810
Accrued interest payable to the public ..........................
Allocations of special drawing rights ............................
Deposit funds ..............................................
Miscellaneous liability accounts (includes checks Outstanding etc.) ...
6,129
84
273
-4,669
6,129
84
273
-4,669
9,245
-125
1,051
-5,359
43,287
7,189
7,320
4,938
43,287
7,189
7,320
4,938
49,417
7,274
7,593
268
Total liability accounts ...............................................................................
34,275
34,275
9,067
3,495,087
3,495,087
3,529,362
Cash and monetary assets:
U.S. Treasury operating cash:1
Federal Reserve account ..................................
Tax and loan note accounts ...............................
-1,684
2,164
-1,684
2,164
ÎÜS-11,257
-22,389
6,848
29,094
6,848
29,094
5,164
31,258
Balance ..............................................
480
480
-33,646
35,942
35,942
36,422
Special drawing rights:
Total holdings ...........................................
S D R certificates issued to Federal Reserve banks .............
117
117
-165
9,971
-8,018
9,971
-8,018
10,088
-8,018
Balance ................ ..............................
117
117
-165
1,953
1,953
2,070
Reserve position on the U.S. quota in the IMF:
U.S. subscription to International Monetary Fund:
Direct quota payments ..................................
Maintenance of value adjustments ........................
Letter of credit issued to IMF .............................
Dollar deposits with the IMF ...............................
Receivable/Payable (— ) for interim maintenance of value
adjustments ............................................
455
134
-6
455
134
-6
-676
23
-7
31,762
7,163
-25,923
-96
31,762
7,163
-25,923
-96
31,762
7,618
-25,789
-102
-314
-314
458
-837
-837
-1,151
Balance ..............................................
269
269
- -202
12,069
12,069
12,337
Loans to International Monetary Fund .........................
Other cash and monetary assets .............................
2,658
2,658
2,678
(“ )
21,417
I *)
21,417
(* *)
24,074
Total cash and monetary assets ...........................
3,523
3,523
5^-31,336
71,380
71,380
74,903
Net activity, guaranteed loan financing ..........................
Net activity, direct loan financing ...............................
Miscellaneous asset accounts .................................
-97
490
-2,028
-97
490
-2,028
-180
365
-5,153
-9,721
12,667
— 1,386
-9,721
12,667
-1,386
-9,818
13,157
-3,413
Total asset accounts .................................................................................
1,889
1,889
-36,304
72,941
72,941
74,829
+3,422,146
+3,422,146
+3,454,532
Asset accounts (deduct)
Excess of liabilities (+) or assets (—) ......................................................
+32,386
+32,386
+45,371
Transactions not applied to current year's surplus or deficit (see
Schedule a for Details) ........................................
62
62
51
Total budget and off-budget federal entities (financing of deficit (+)
or disposition of surplus ( -) ) ...................................................................
+32,448
+32,448
+45,422
’ Major sources of information used to determine Treasury’s operating cash income include the
Daily Balance Wires from Federal Reserve Banks, reporting from the Bureau of Public Debt,
electronic transfers through the Treasury Financial Communication System and reconciling wires
from Internal Revenue Centers. Operating cash is presented on a modified cash basis, deposits
are reflected as received and withdrawals are reflected as processed.
62
+3,422,146
... No Transactions.
(* *) Less than $ 50 0,0 00
Note: Details may not add to totals due to rounding
20
+3,422,146
+3,454,595
Table 6.
Schedule A— Analysis of Change in Excess of Liabilities of the U.S. Government, October 1994 and
Other Periods
[$ millions]
Fiscal Year to Date
Classification
This Month
This Year
Prior Year
3,422,146
3,422,146
3,218,965
Excess of liabilities beginning of period (current basis) ...........
3,422,146
3,422,146
3,219,491
Budget surplus (— ) or deficit:
Based on composition of unified budget in prior fiscal yr .......
Changes in composition of unified budget ....................
32,448
32,448
45,422
Total surplus (— ) or deficit (Table 2) ..........................
32,448
32,448
45,422
Total-on-budget (Table 2) ..................................
29,914
29,914
44,704
Total-off-budget (Table 2) ..................................
2,535
2,535
719
Transactions not applied to current year’s surplus or deficit:
Seigniorage .............................................
-62
-62
-51
Excess of liabilities beginning of period:
Based on composition of unified budget in preceding period ....
Adjustments during current fiscal year for changes in composition
of unified budget:
Revisions by federal agencies to the prior budget results ....
526
Total-transactions not applied to current year’s Surplus or
deficit ........................... ....................
-62
-62
-51
Excess of liabilities close of period ................... .......H .....................
3,454,532
3,454,532
3,264,862
Table 6.
Schedule B— Securities Issued by Federal Agencies Under Special Financing Authorities, October 1994 and
Other Periods
[$ millions]
Net Transactions
(—) denotes net reduction of
liability accounts
Account Balances
Current Fiscal Year
Classification
Beginning of
Fiscal Year to Date
Close of
This month
This Month
Prior Year
This Year
This Month
This Year
Agency securities, issued under special financing authorities:
Obligations of the United States, issued by:
Export-Import Bank of the United States ...............
Federal Deposit Insurance Corporation:
FSLIC resolution fund .............................
Obligations guaranteed by the United States, issued by:
Department of Defense:
Family housing mortgages .........................
Department of Housing and Urban Development:
Federal Housing Administration .....................
Department of the Interior:
Bureau of Land Management ......................
Department of Transportation:
Coast Guard:
Family housing mortgages ....... ...............
Obligations not guaranteed by the United States, issued by:
Legislative Branch:
Architect of the Capitol ...........................
Independent agencies:
Farm Credit System Financial Assistance Corporation ...
National Archives and Records Administration .........
Postal Service ...................................
Tennessee Valley Authority ........................
-2,109
-2,109
16
26,121
26,121
24,012
Total, agency securities ....................... ........................
-2,106
-2,106
47
28,543
28,543
26,437
2
2
r *)
(* *)
r *)
538
538
538
1 *)
6
6
6
30
112
112
114
13
13
13
(
1
... No Transactions.
(* *) Less than $500,0 00 .
Note: Details may not add to totals due to rounding.
21
1
1
)
(
)
\
)
192
192
193
1,261
298
1,261
298
1,261
298
Table 6.
Schedule C (Memorandum)— Federal Agency Borrowing Financed Through the Issue of Public Debt Securities,
October 1994 and Other Periods
[$ millions]
Account Balances
Current Fiscal Year
Transactions
Classification
Fiscal Year to Date
Beginning of
Close of
This month
This Month
This Year
Prior Year
This Year
This Month
Borrowing from the Treasury:
Funds Appropriated to the President:
International Security Assistance:
Guaranty reserve fund ...................................
Agency for International Development:
International Debt Reduction ...............................
Housing and other credit guaranty programs .................
Private sector revolving fund ..............................
Overseas Private Investment Corporation ......................
Department of Agriculture:
Foreign assistance programs ...... .........................
Commodity Credit Corporation ...............................
Farmers H ome Administration:
Agriculture credit insurance fund ...........................
Self-help housing land development fund ....................
Rural housing insurance fund ..............................
Rural Development Administration:
Rural development insurance fund ..........................
Rural development loan fund ..............................
Rural Electrification Administration:
Rural communication development fund .....................
Rural electrification and telephone revolving fund ..............
Rural Telephone Bank ...................................
Department of Education:
Guaranteed student loans ..................................
College housing and academic facilities fund ...................
College housing loans .....................................
Department of Energy:
Isotope production and distribution fund ......................
Bonneville power administration fund .........................
Department of Housing and Urban Development:
Housing programs:
Federal Housing Administration ............................
Housing for the ederly and handicapped .....................
Public and Indian housing:
Low-rent public housing ..................................
Department of the Interior:
Bureau of Reclamation Loans ...............................
Bureau of Mines, Helium Fund ..............................
Bureau of Indian Affairs:
Revolving funds for loans .................................
Department of Justice:
Federal prison industries, incorporated .........................
Department of Transportation:
Federal Railroad Administration:
Railroad rehabilitation and improvement financing funds ........
Settlements of railroad litigation ............................
Amtrak corridor improvement loans .........................
Regional rail reorganization program ........................
Federal Aviation Administration:
Aircraft purchase loan guarantee program ...................
Department of the Treasury:
Federal Financing Bank revolving fund ........................
Department of Veterans Affairs:
Loan guaranty revolving fund ................
Guaranty and indemnity fund ................
Direct loan revolving fund ...................
Vocational rehabilitation revolving fund ........
Environmental Protection Agency:
Abatement, control, and compliance loan program
Small Business Administration:
Business loan and revolving fund .............
337
337
413
413
750
315
125
1
16
315
125
1
16
315
125
1
16
550
16,909
550
16,909
544
1,967
-7
4,942
Î :rßc7
-14,942
-1,748
1
975
-1,748
1
975
gS-2,385
4,032
■
4,497
4,032
(* *)
4,497
2,284
1
5,472
715
40
715
40
SÄäpiO
2,091
21
2,091
21
2,806
61
31
695
116
695
116
57
8,212
586
57
8,212
586
57
8,907
702
1,288
1,288
1,605
596
411
1,605
596
411
1,605
1,884
411
58
14
2,617
14
2,617
14
2,617
-47 5
783
8,484
783
8,484
762
7,714
135
135
135
11
252
11
252
11
252
26
26
25
20
20
20
14
-3 9
2
39
14
-3 9
2
39
14
-3 9
2
39
(* *)
(* *)
(‘ *)
94,357
94,357
91,936
-21
-77 0
-1
1 -2,422
22
-21
-77 0
1,323
13
-1
-2,422
-1,981
Table 6.
Schedule C (Memorandum)— Federal Agency Borrowing Financed Through the Issue of Public Debt Securities,
October 1994 and Other Periods— Continued
[$ millions]
Account Balances
Current Fiscal Year
Transactions
Classification
Beginning of
Fiscal Year to Date
Close of
This month
This Month
This Year
Prior Year
This Year
This Month
Borrowing for the Treasury:— Continued
Other independent agencies:
Export-Import Bank of the United States ..........
Federal Emergency Management Agency:
National insurance development fund ............
Pennsylvania Avenue Development Corporation:
Land aquisition and development fund ..........
Railroad Retirement Board:
Railroad retirement account ...................
Social Security equivalent benefit account .......
Smithsonian Institution:
John F. Kennedy Center parking facilities .......
Tennessee Valley Authority .....................
Total agency borrowing from the Treasury
financed through public debt securities issued .
220
-1
220
-1
813
231
2,632
2,632
2,852
87
87
87
85
85
85
2,128
2,781
2,128
2,781
2,128
2,781
20
150
20
150
20
150
-15,524
-2,381
163,642
163,642
148,118
-7
-6
3,785
3,785
3,779
5
5
-93
21,916
21,916
21,921
-260
'■'-260
6,063
24,391
3,675
6,063
24,391
3,675
6,063
24,131
3,675
1,624
-145
1,624
1^-145
1,624
-145
63
63
62
1,747
110
1,747
110
1,747
106
22
22
22
15
665
15
665
15
665
—15,524
Borrowing from the Federal Financing Bank:
Funds Appropriated to the President:
Foreign military sales ..........................
Department of Agriculture:
Rural Electrification Administration ...............
Farmers Home Administration:
Agriculture credit insurance fund ..............
Rural housing insurance fund .................
Rural development insurance fund .............
Department of Defense:
Department of the Navy .......................
Defense agencies .............................
Department of Education:
Student Loan Marketing Association .............
Department of Health and Human Services,
Except Social Security:
Medical facilities guarantee and loan fund .........
Department of Housing and Urban Development:
Low rent housing loans and other expenses ......
Community Development Grants ................
Department of Interior:
Territorial and international affairs ................
Department of Transportation:
Federal Railroad Administration .................
Federal Transit Administration ...................
Department of the Treasury:
Financial Management Service ..................
General Services Administration:
Federal buildings fund .........................
National Aeronautics and Space Administration:
Space flight, control and data communications ....
Small Business Administration:
Business loan and investment fund ..............
Independent agencies:
Export-Import Bank of the United States .........
Pennsylvania Avenue Development Corporation ....
Postal Service ................................
Resolution Trust Corporation ...................
Tennessee Valley Authority .....................
Total borrowing from the Federal Financing Bank
-30
-1
-1
-4
-4
-8
-30
41
35
1,780
1,780
1,821
-7
-7
581
581
574
8
— 1,200
-798
-200
8
-1,200
-798
-200
7
3,926
250
8,973
26,519
3,400
3,926
250
8,973
26,519
3,400
3,926
258
7,773
25,721
3,200
-2,422
-2,422
109,360
109,360
106,938
41
Sill .849
-1,981
... No Transactions.
Note: This table includes lending by the Federal Financing Bank accomplished by the purchase
of agency financial assets, by the acquisition of agency debt securities, and by direct loans on
behalf of an agency. The Federal Financing Bank borrows from Treasury and issues its own
securities and in turn may loan these funds to agencies in lieu of agencies borrowing directly
through Treasury or issuing their own securities.
(* *) Less than $ 50 0 ,0 0 0
Note: Details may not add to totals due to rounding
23
Table 6.
Schedule D—-Investments of Federal Government Accounts in Federal Securities, October 1994 and
Other Periods
[$ millions]
Securities Held as Investments
Current Fiscal Year
Net Purchases or Sales (—)
Classification
Beginning of
Fiscal Year to Date
Close of
This month
This Month
Prior Year
This Year
This Year
This Month
Federal funds:
Department of Agriculture .................
Department of Commerce .................
Department of Defense— Military:
Defense cooperation account .............
Department of Energy ....................
Department of Housing and Urban Development:
Housing programs:
Federal housing administration fund:
Public debt securities ................
Government National Mortgage Association:
Management and liquidating functions fund:
Public debt securities ................
Agency securities ...................
Guarantees of mortgage-backed securities:
Public debt securities ................
Agency securities ...................
Other ................................
Department of the Interior:
Public debt securities ...................
Department of Labor ....... .............
Department of Transportation ..............
Department of the Treasury ................
Department of Veterans Affairs:
Canteen service revolving fund ...........
Veterans reopened insurance fund .........
Servicemen’s group life insurance fund .....
Independent agencies:
Export-Import Bank of the United States ...
Federal Deposit Insurance Corporation:
Bank insurance fund ..................
Savings association insurance fund ......
FSLIC resolution fund
Public debt securities ................
Federal Emergency Management Agency:
National flood insurance fund ...........
National Credit Union Administration .......
Postal Service .........................
Tennessee Valley Authority ...............
Other ................................
Other ..................................
3
r *)
(**)
-4
107
-4
107
-77
-77
13
13
13
-10
5
4,527
5
4,527
11
4,634
31
5,742
5,742
5,664
16
16
16
3,713
1
193
3,713
1
193
3,745
1
212
2,722
5,330
974
7,452
2,722
5,330
974
7,452
3,181
5,303
985
7,507
37
522
3
B ~2
(* *)
31
31
17
19
19
22
459
143
-50
16
459
|j|-27
11
55
d':)h 2 7
11
55
(* *)
-2
-38
-2
— 38
-2
37
524
41
37
524
41
-57
-57
118
57
57
123
3
123
3
-9
-6
13,972
2,493
13,972
2,493
14,095
2,495
78
78
560
1,649
1,649
1,727
8
-658
-2,690
3
-123
8
-658
-2,690
3
-123
-71
-30
702
-65
5
-155
200
3,052
1,271
3,954
1,017
2,626
200
3,052
1,271
3,954
1,017
2,626
200
3,060
613
1,263
1,020
2,503
Total public debt securities .............
Total agency securities ................
-2,780
-2,780
1,219
61,564
17
61,564
17
58,784
17
Total Federal funds ...................... .....
” -2,780
-2,780
1,219
61,581
61,581
58,801
8
8
4
1 *)
(* *)
(* *)
4
5
27
4
5
27
12
5
27
29
2
29
2
11
r *)
245
273
r *)
245
273
(* *)
273
275
(* *)
Trust funds: <
Legislative Branch:
Library of Congress ....................
United States Tax Court ................
Other ................................
The Judiciary:
Judicial retirement funds .................
Department of Agriculture .................
Department of Commerce .................
Department of Defense— Military:
Voluntary separation incentive fund ........
Other ................................
Department of Defense— Civil:
Military retirement fund ..................
Other ................................
24
24
(* *)
(**)
20
4
763
157
763
157
786
157
10,797
31
10,797
31
10,823
-3
105,367
1,307
105,367
1,307
116,164
1,338
24
Table 6.
Schedule D— Investments of Federal Government Accounts in Federal Securities, October 1994 and
Other Periods— Continued
[$ millions]
_________________
Securities Held as Investments
Current Fiscal Year
Net Purchases or Sales (—)
Classification
Beginning of
Fiscal Year to Date
Close of
This month
This Month
This Year
This Year
Prior Year
This Month
Trust Funds— Continued
Department of Health and Human Services, except Social Security:
Federal hospital insurance trust fund:
Public debt securities .................................
Federal supplementary medical insurance trust fund ..........
Other ................................................
Department of Health and Human Services, Social Security:
Federal old-age and survivors insurance trust fund:
Public debt securities ...................... ...........
Federal disability insurance trust fund .....................
Department of the Interior:
Public debt securities ...................................
Department of Justice ...................................
Department of Labor:
Unemployment trust fund ................................
Other ................................................
Department of State:
Foreign Service retirement and disability fund ...............
Other ................................................
Department of Transportation:
Highway trust fund ....................................
Airport and airway trust fund ............................
Other ................................................
Department of the Treasury ...............................
Department of Veterans Affairs:
General post fund, national homes .......................
National service life insurance:
Public debt securities .................................
United States government life Insurance Fund ..............
Veterans special life insurance fund .......................
Environmental Protection Agency ...........................
National Aeronautics and Space Administration ...............
Office of Personnel Management:
Civil service retirement and disability fund:
Public debt securities .................................
Employees health benefits fund ...........................
Employees life insurance fund ...........................
Retired employees health benefits fund ....................
Independent agencies:
Harry S. Truman memorial scholarship trust fund ...........
Japan-United States Friendship Commission ................
Railroad Retirement Board ..............................
Other ...............................................
502
-7 5 0
9
502
-75 0
9
-97 4
602
10
128,716
21,489
836
128,716
21,489
836
129,218
20,739
845
653
688
653
688
-56 9
-63 5
413,425
6,100
413,425
6,100
414,078
6,788
46
46
-11
106
234
234
280
-3 8 0
-9
-38 0
-9
-67 6
-8
39,788
59
39,788
59
39,408
50
-2 4
-2 4
-8 2
7,179
50
7,179
50
7,155
50
-50 3
80
2
-2 6
-5 0 3
80
2
-2 6
-78 0
273
-4
-2 4
17,694
12,206
1,683
258
17,694
12,206
1,683
258
17,191
12,286
1,685
233
38
38
38
-6 2
-1
-5
117
-6 2
-1
-5
117
-61
-2
-6
4
11,852
115
1,509
6,250
16
11,852
115
1,509
6,250
16
11,791
114
1,503
6,367
16
-2,000
-6 3
78
-2,000
-6 3
78
-1,857
-4 7
25
338,889
7,572
14,929
1
338,889
7,572
14,929
1
336,889
7,509
15,008
1
53
17
12,203
226
53
16
12,164
297
*)
(**)
(-3*9
T
(**)
(***))
1
-3 9
(**)
*)
I *)
-11 2
r
71
71
3
53
17
12,203
226
Total public debt securities ............................
9,274
9,274
6,023
1,151,534
1,151,534
1,160,808
Total trust funds ......... ................ .......................................
9,274
9,274
6,023
1,151,534
1,151,534
1,160,808
Grand to t a l............................ ................................................................
6,494
6,494
7,242
1,213,115
1,213,115
1,219,609
I
Note: Investments are in public debt securities unless otherwise noted.
Note: Details may not add to totals due to rounding.
... No Transactions
(* *) Less than $500,0 00 .
25
Table 7.
Receipts and Outlays of the U.S. Government by Month, Fiscal Year 1995
[$ millions]
Fiscal
Classification
Receipts:
Individual income taxes ...........
Corporation income taxes ..........
Social insurance taxes and
contributions:
Employment taxes and
contributions .................
Unemployment insurance ........
Other retirement contributions .....
Excise taxes ....................
Estate and gift taxes .............
Customs duties ..................
Miscellaneous receipts .............
Oct.
Nov.
Dec.
Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
To
Date
Com
parable
Period
Prior
F.Y.
43,239
3,470
43,239
3,470
37,680
2,158
31,263
1,073
351
4,275
1,206
1,848
2,300
31,263
1,073
351
4,275
1,206
1,848
2,300
29,440
1,046
343
3,597
990
1,708
1,706
Total— Receipts this year .......
89,024
89,024
(On-budget) ................
65,384
65,384
(Off-budget) ................
23,639
23,639
Total—Receipts prior year .......
78,668
78,668
(On budget) ...................
55,864
55,864
(O ff budget) ...................
22,804
22,804
Outlays
Legislative Branch ................
The Judiciary ...................
Executive Office of the President....
Funds Appropriated to the President:
International Security Assistance ...
International Development
Assistance ...................
Other ........................
Department of Agriculture:
Foreign assistance, special export
programs and Commodity Credit
Corporation .................
Other ........................
Department of Commerce ..........
Department of Defense:
Military:
Military personnel .............
Operation and maintenance .....
Procurement ................
Research, development, test, and
evaluation .................
Military construction ...........
Family housing ..............
Revolving and management
funds .....................
Other .....................
Total Military .............
Civil ........................
Department of Education ...........
Department of Energy .............
Department of Health and Human
Services, except Social Security:
Public Health Service ...........
Health Care Financing Administration:
Grants to States for Medicaid ...
Federal hospital ins. trust fund ....
Federal supp. med. ins. trust
fund .....................
Other .....................
Social Security Administration .....
Administration for children and
families .....................
Other ........................
Department of Health and Human
Services, Social Security:
Federal old-age and survivors ins.
trust fund ...................
Federal disability ins. trust fund ...
Other ........................
Department of Housing and Urban
Development ..................
354
184
18
354
184
18
378
158
20
3,255
3,255
3,302
726
-381
726
— 381
557
133
1,749
5,850
305
1,749
5,850
305
900
3,993
264
3,713
6,105
4,254
3,713
6,105
4,254
6,634
6,413
5,131
2,501
425
247
2,501
425
247
2,987
404
226
147
280
147
280
1,568
-217
17,672
17,672
23,147
2,638
1,949
1,683
2,638
1,949
1,683
2,550
1,805
1,710
1,603
1,603
1,467
6,622
7,834
6,622
7,834
7,394
7,432
4,799
3,055
917
4,799
3,055
917
4,650
3,783
2,970
2,728
-4,508
2,728
-4,508
2,797
-5,060
23,413
3,289
-630
23,413
3,289
-630
22,546
2,992
-977
2,903
2,645
K IM
2,903
26
Table 7.
Receipts and Outlays of the U.S. Government by Month, Fiscal Year 1995— Continued
[$ millions]
Classification
Outlays— Continued
Department of the Interior .........
Department of Justice.............
Department of Labor:
Unemployment trust fund ........
Other ........................
Department of State .............
Department of Transportation:
Highway trust fund .............
Other ........................
Department of the Treasury:
Interest on the public debt .......
Other ........................
Department of Veterans Affairs:
Compensation and pensions ......
National service life .............
United States government life .....
Other ........................
Environmental Protection Agency ....
General Services Administration .....
National Aeronautics and Space
Administration ..................
Office of Personnel Management ....
Small Business Administration ......
Independent agencies:
Fed. Deposit Ins. Corp.:
Bank insurance fund ..........
Savings association insurance
fund .....................
FSLIC resolution fund .........
Postal Service:
Public enterprise funds (offbudget) ...................
Payment to the Postal Service
fund .....................
Resolution Trust Corporation ......
Tennessee Valley Authority .......
Other independent agencies ....
Undistributed offsetting receipts:
Employer share, employee
retirement ...........
Interest received by trust funds ...
Rents and royalties on outer
continental shelf lands ........
Other ..................
Totals this year:
Total outlays ....................................
Oct.
Nov.
Dec.
Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Fiscal
Year
To
Date
884
908
884
908
527
749
1,650
702
488
1,650
702
488
2,710
652
843
1,794
1,650
1,794
1,650
1,774
1,377
19,732
34
19,732
34
17,638
-102
105
64
1
1,528
438
651
105
64
1,528
438
-651
1,400
66
2
1,338
430
239
845
3,410
65
845
3,410
65
1,079
3,335
14
!M27
-127
52
-2
-87
-2
-87
-5
(* *)
648
648
-509
61
-471
265
2,719
61
-471
265
2,719
61
7
106
1,705
-2,442
-611
-2,442
-611
-2,572
-359
-154
(* *)
-154
(* *)
-21
(* *)
121,472
121,472
(On-budget) ................
95,298
95,298
(Off-budget) ................
26,174
26,174
Total-surplus (+) or deficit ( -) ...
Com
parable
Period
Prior
F.Y.
-32,448
-32,448
(On-budget) ................
-29,914
-29,914
(Off-budget) ................
-2,535
-2,535
Total borrowing from the public __
32,457
32,457
Total-oullavs prior vear .........
124,090
124,090
(On-budget) ......... ........
100,567
100,567
(Off-budget) .................
23,523
23,523
Total-surplus (+) or deficit (—) prior
vear .......................
-45,422
-45,422
(On-budget) ...... ..........
-44,704
-44,704
(Off-budget) .................
I 779!
4,255
-719
... No transactions.
(* *) Less than $500,0 00 .
Note: Details may not add to totals due to rounding.
27
Table 8.
Trust Fund Impact on Budget Results and Investment Holdings as of October 31, 1994
[$ millions]
Securities held as Investments
Current Fiscal Year
Fiscal Year to Date
This Month
Classification
Beginning of
Receipts
Outlays
Excess
Receipts
Outlays
Excess
This Year
Trust receipts, outlays, and investments
held:
Airport ..............................
Black lung disability ...................
Federal disability insurance .............
Federal employees life and health .......
Federal employees retirement ...........
Federal hospital insurance .............
Federal old-age and survivors insurance ....
Federal supplementary medical insurance ...
Highways ...........................
Military advances .....................
Railroad retirement ....................
Military retirement ....................
Unemployment .......................
Veterans life insurance ................
All other trust ........................
1,141
7,574
21,018
4,545
1,489
1,298
402
12,854
1,105
25
709
443
46
3,289
11
3,160
7,834
23,413
4,799
1,942
1,076
666
2,287
1,650
95
127
2
14
508
-11
-2,019
-260
-2,395
-254
-454
222
-264
10,567
-545
-70
582
5,623
56,462
18,652
50,839
18,652
5,623
32,187
5,623
37,809
32,187
5,623
54,189
17
92,260
17
-38,071
54,189
17
92,260
17
-38,071
-38,071
54,172
92,243
-38,071
2,958
2,958
89,024
121,472
445
60
3,797
1,141
7,574
21,018
4,545
1,489
1,298
402
12,854
1,105
25
709
443
46
3,289
11
3,160
7,834
23,413
4,799
1,942
1,076
666
2,287
1,650
95
127
2
14
508
-11
-2,019
HE|260
-2,395
¡?254
-454
222
-264
10,567
-545
-70
582
Total trust fund receipts and outlays
and investments held from Table 6D ...............................
Less: Interfund transactions ..............
56,462
18,652
50,839
18,652
Trust fund receipts and outlays on the basis
of Tables 4 & 5 .......................
37,809
Total Federal fund receipts and outlays __
Less: Interfund transactions .............
Federal fund receipts and outlays on the
basis of Table 4 & 5 ....................
445
60
3,797
This Month
Close of
This Month
12,206
12,206
12,286
6,100
22,503
346,317
128,716
413,425
21,489
17,694
6,100
22,503
346,317
128,716
413,425
21,489
17,694
6,788
22,518
344,322
129,218
414,078
20,739
17,191
12,203
105,367
39,788
13,477
12,251
12,203
105,367
39,788
13,477
12,251
12,164
116,164
39,408
13,408
12,525
1,151,534
1,151,534
1,160,808
mÊStÊÈÊÊBÈlÈÈiÊÊm
54,172
92,243
Less: offsetting proprietary receipts .......
2,958
2,958
Net budget receipts & outlays ..........
89,024
121,472
-32,448
... No transactions.
Note: Interfund receipts and outlays are transactions between Federal funds and trust funds
such as Federal payments and contributions, and interest and profits on investments in Federal
securities. They have no net effect on overall budget receipts and outlays since the receipts side of
such transactions is offset against bugdet outlays. In this table, Interfund receipts are shown as an
adjustment to arrive at total receipts and outlays of trust funds respectively.
-32,448
Note: Details may not add to totals due to rounding.
28
Table 9.
Summary of Receipts by Source, and Outlays by Function of the U.S. Government, October 1994
and Other Periods
[$ millions]
Classification
This Month
Fiscal Year
To Date
Comparable Period
Prior Fiscal Year
RECEIPTS
Individual income taxes ......................
Corporation income taxes ....................
Social insurance taxes and contributions:
Employment taxes and contributions ..........
Unemployment insurance ...................
Other retirement contributions ...............
Excise taxes ...............................
Estate and gift taxes .......................
Customs ......................... ........
Miscellaneous ..............................
43,239
3,470
43,239
3,470
37,680
2,158
31,263
1,073
351
4,275
1,206
1,848
2,300
31,263
1,073
351
4,275
1,206
1,848
2,300
29,440
1,046
343
3,597
990
1,708
1,706
Total ............................................. ...................
89,024
89,024
78,668
18,801
4,339
1,115
525
3,418
2,048
858
3,434
1,171
3,705
8,631
11,099
15,275
26,702
1,677
1,340
1,261
18,669
-2,596
18,801
4,339
1,115
525
3,418
2,048
858
3,434
1,171
3,705
8,631
11,099
15,275
26,702
1,677
1,340
1,261
18,669
-2,596
24,284
4,732
1,421
425
1,912
1,442
377
3,130
896
3,562
9,315
10,729
17,367
25,538
2,819
1,009
642
17,082
-2,593
121,472
121,472
124,090
NET OUTLAYS
National defense ............................
International affairs ..........................
General science, space, and technology ........
Energy ...................................
Natural resources and environment .............
Agriculture ................................
Commerce and housing credit ................
Transportation .............................
Community and Regional Development ..........
Education, training, employment and social services
Health ....................................
Medicare ..................................
Income security .............................
Social Security .............................
Veterans benefits and services ................
Administration of justice ......................
General government .........................
Interest ................... ...............
Undistributed offsetting receipts ...............
Total —
............................ ................... I —
Note: Details may not add to totals due to rounding.
29
Explanatory Notes
the employee and credits for whatever purpose the money was withheld.
Outlays are stated net of offsetting collections (including receipts of
revolving and management funds) and of refunds. Interest on the public
debt (public issues) is recognized on the accrual basis. Federal credit
programs subject to the Federal Credit Reform Act of 1990 use the cash
basis of accounting and are divided into tw o components. The portion of
the credit activities that involve a cost to the Government (mainly
subsidies) is included within the budget program accounts. The remaining
portion of the credit activities are in non-budget financing accounts.
Outlays of off-budget Federal entities are excluded by law from budget
totals. However, they are shown separately and combined with the onbudget outlays to display total Federal outlays.
1. Flow of Data Into Monthly Treasury Statem ent
The M onthly Treasury Statem ent (MTS) is assembled from data in the
central accounting system. The major sources of data include monthly
accounting reports by Federal entities and disbursing officers, and daily
reports from the Federal Reserve banks. These reports detail accounting
transactions affecting receipts and outlays of the Federal Government
and off-budget Federal entities, and their related effect on the assets and
liabilities of the U.S. Government. Information is presented in the MTS on
a modified cash basis.
2. Notes on Receipts
Receipts included in the report are classified into the following major
categories: (1) budget receipts and (2) offsetting collections (also called
applicable receipts). Budget receipts are collections from the public that
result from the exercise of the Government’s sovereign or governmental
powers, excluding receipts offset against outlays. These collections, also
called governmental receipts, consist mainly of tax receipts (including
social insurance taxes), receipts from court fines, certain licenses, and
deposits of earnings by the Federal Reserve System. Refunds of receipts
are treated as deductions from gross receipts.
Offsetting collections are from other Government accounts or the
public that are of a business-type or market-oriented nature. They are
classified into tw o major categories: (1) offsetting collections credited to
appropriations or fund accounts, and (2) offsetting receipts (i.e., amounts
deposited in receipt accounts). Collections credited to appropriation or
fund accounts normally can be used without appropriation action by
Congress. These occur in tw o instances: (1) when authorized by law,
amounts collected for materials or services are treated as reimburse
ments to appropriations and (2) in the three types of revolving funds
(public enterprise, intragovernmental, and trust); collections are netted
against spending, and outlays are reported as the net amount.
Offsetting receipts in receipt accounts cannot be used without being
appropriated. They are subdivided into two categories: (1) proprietary
receipts— these collections are from the public and they are offset against
outlays by agency and by function, and (2) intragovernmental funds—
these are payments into receipt accounts from Governmental appropria
tion or funds accounts. They finance operations within and between
Government agencies and are credited with collections from other
Government accounts. The transactions may be intrabudgetary when the
payment and receipt both occur within the budget or from receipts from
off-budget Federal entities in those cases where payment is made by a
Federal entity whose budget authority and outlays are excluded from the
budget totals.
Intrabudgetary transactions are subdivided into three categories:
(1) interfund transactions, where the payments are from one fund group
(either Federal funds or trust funds) to a receipt account in the other fund
group; (2) Federal intrafund transactions, where the payments and
receipts both occur within the Federal fund group; and (3) trust intrafund
transactions, where the payments and receipts both occur within the trust
fund group.
Offsetting receipts are generally deducted from budget authority and
outlays by function, by subfunction, or by agency. There are four types of
receipts, however, that are deducted from budget totals as undistributed
offsetting receipts. They are: (1) agencies’ payments (including payments
by off-budget Federal entities) as employers into employees retirement
funds, (2) interest received by trust funds, (3) rents and royalties on the
Outer Continental Shelf lands, and (4) other interest (i.e., interest collected
on Outer Continental Shelf money in deposit funds when such money is
transferred into the budget).
4. Processing
The data on payments and collections are reported by account symbol
into the central accounting system. In turn, the data are extracted from
this system for use in the preparation of the MTS.
There are two major checks which are conducted to assure the
consistency of the data reported:
1. Verification of payment data. The monthly payment activity reported by
Federal entities on their Statements of Transactions is compared to the
payment activity of Federal entities as reported by disbursing officers.
2. Verification of collection data. Reported collections appearing on
Statements of Transactions are compared to deposits as reported by
Federal Reserve banks.
5. Other Sources of Information About Federal Government
Financial Activities
• A Glossary o f Terms Used in the Federal Budget Process, March
1981 (Available from the U.S. General Accounting Office, Gaithersburg,
Md. 20760). This glossary provides a basic reference document of
standardized definitions of terms used by the Federal Government in the
budgetmaking process.
• Daily Treasury Statem ent (Available from GPO, Washington, D.C.
20402, on a subscription basis only). The Daily Treasury Statem ent is
published each working day of the Federal Government and provides data
on the cash and debt operations of the Treasury.
• M onthly Statem ent o f the Public Debt o f the United States
(Available from GPO, Washington, D.C. 20402 on a subscription basis
only). This publication provides detailed information concerning the public
debt.
• Treasury Bulletin (Available from GPO, Washington, D.C. 20402, by
subscription or single copy). Quarterly. Contains a mix of narrative, tables,
and charts on Treasury issues, Federal financial operations, international
statistics, and special reports.
• Budget o f the United States Government, Fiscal Year 19 —
(Available from GPO, Washington, D.C. 20402). This publication is a
single volume which provides budget information and contains:
-Appendix, The Budget o f the United States Government, F Y 19 —
-The United States Budget in Brief, FY 19 —
-Special Analyses
-Historical Tables
-Management o f the United States Government
-M ajor Policy Initiatives
3. Notes on Outlays
0 United States Government Annual Report and Appendix (Available
from Financial Management Service, U.S. Department of the Treasury,
Washington, D.C. 20227). This annual report represents budgetary
results at the summary level. The appendix presents the individual receipt
and appropriation accounts at the detail level.
Outlays are generally accounted for on the basis of checks issued,
electronic funds transferred, or cash payments made. Certain outlays do
not require issuance of cash or checks. An example is charges made
against appropriations for that part of employees’ salaries withheld for
taxes or savings bond allotments — these are counted as payments to
30
Scheduled Release
The release date for the November 1994 Statement
will be 2:00 pm EST December 21, 1994.
For sale by the Superintendent of Documents, U.S. Government Printing
Office, Washington, D.C. 20402 (202) 512-1800. The subscription price is
$35.00 per year (domestic), $43.75 per year (foreign).
No single copies are sold.
The Monthly Treasury Statement is now available on the Department of Commerce’s Economic Bulletin Board.
For information call (202)482-2939.
D E P A R T M E N T
OF
TREASURY
J7 89
T H E
T R E A S U R Y
N E WS
OFFICE OF PUBLIC AFFAIRS • lSO O -PJ^SYIA^NIAAV^NyE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
Contact:
EMBARGOED UNTIL
12 p.m. Sunday, November 27, 1994
Rebecca Lowenthal
(202) 622-2960
PRE-SUMMIT CUSTOMS CONFERENCE WILL ADDRESS HEMISPHERIC TRADE
AND FINANCIAL ISSUES, TARGET BUSINESS COMMUNITY
The Treasury Department announced today that the U.S. Customs Service will host a
conference for the international trade and financial community December 4-6, 1994 in
Miami, Florida. The conference will precede the Summit of the Americas, the largest
gathering of Western Hemisphere leaders in history.
An estimated 3,000 exhibitors, speakers, and participants will examine how
hemispheric trade affects government and business on a practical level, and how customs,
international trade and banking officials can smooth the flow of commerce and systematize
customs laws and regulations. The symposium will feature a series of discussions on topics
of interest to international businesses, including opportunities in emerging capital markets,
issues facing the region’s textile trade, changes in customs agency procedures in the
hemisphere and NAFTA implementation. Customs, trade and financial representatives from
at least 21 countries will lend diverse international perspective to the panels.
"This is a fitting prelude to the Summit of the Americas as well as a tremendous
opportunity for all members of the trade community to examine the challenges facing us,"
said Treasury Under Secretary for Enforcement Ronald K. Noble. "As hemispheric trade
continues to grow, all of those who do business in the region —be they bankers, brokers,
importers or exporters —need to understand the laws governing trade, the prospects for
integrated and automated regulation, and the prospects for growth in the financial sectors of
the many young democracies."
Under Secretary Noble and Frederico Peña, Secretary of the U.S. Department of
Transportation, are scheduled to speak during the three-day conference. Also expected are
Customs Commissioner George Weise, Treasury Assistant Secretary for Management George
Muñoz; Senator Bob Graham of Florida; Florida Governor Lawton Chiles; and Florida
Comptroller Gerald Lewis.
Event co-hosts include banking associations, the Port of Miami, and other
organizations with interest in vital regional trade issues.
-30LB-1245
FOR IMMEDIATE RELEASE
November 28, 1994
Contact: Hamilton Dix
(202) 622-2960
TREASURY ANNOUNCES SYSTEMS SECURITY AWARD WINNERS
Treasury Assistant Secretary for Management George Muñoz Monday announced
Carlos Moura and the Office of Information Resources are the winners of Treasury’s third
annual Telecommunications and Information Systems Security Awards.
The awards recognize effectiveness in implementation, management or improvement in
telecommunications and information systems security.
Moura, the individual award winner, is a computer security program manager with the
Criminal Investigations Division of the Internal Revenue Service. He initiated the program
which scopes sensitive but unclassified systems under operations and under development at
both headquarters and field levels. He drafted security policy, implementing dial-up access,
created an ongoing security awareness training program, and recommended innovative security
measures for a secure LAN (local area network).
Winner of the organization award, the Office of Information Resources (OIR) at the
Financial Management supports the Electronic Certification System where over 60 million
federal payments a month are electronically signed. This system is one of the most
significant technological advances in the government’s financial business operations in recent
times and will serve as an important foundation for future secure commercial applications.
Announcing the awards, Muñoz said, "This awards program has a direct impact on the
improvement of Treasury telecommunications and information security systems. I am
encouraged by the number and high calibre of nominations in this third awards presentation."
The awards will be formally presented at the Treasury Department on December 6.
-30LB-1246
0
fe lÉ
hSMË
V
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
LIBRARY ROOM 5310
FOR IMMEDIATE RELEASE
November 28, 1994
iß^ e#U U U J
CONTACT: Office of Financing
202-219-3350
07 i
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
•
wi ■•11'*. I R C AoU ti 1
Tenders for $13,642 million of 13-week bills to be issued
December 1, 1994 and to mature March 2, 1995 were
accepted today (CUSIP: 912794Q72).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.43%
5.44%
5.44%
Investment
Rate
5.58%
5.59%
5.59%
Price
98.627
98.625
98.625
$3,520,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 55%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$48,676,439
Accepted
$13,641,591
$43,119,318
1.403.659
$44,522,977
$8,084,470
1.403.659
$9,488-,129
3,392,880
3,392,880
760.582
$48,676,439
760.582
$13,641,591
An additional $190,218 thousand of bills will be
issued to foreign official institutions for new cash.
LB-1247
UBLIC DEBT NEWS
Department of the Treasury • Bureau oi the Public Debt • Washington, DC 20239
/ D V f ) A A H riI. IP
id nP A
r f HO OH 5 370^
FOR IMMEDIATE RELEASE
November 28, 1994
TO
3 U Ï*
030 74
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $13,627 million of 26-week bills to be issued
December 1, 1994 and to mature June 1, 1995 were
accepted today (CUSIP: 912794S47).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.84!
5.86;
5.86:
Investment
Rate
6 . 10 :
6 . 12 :
6 . 121
Price
97.048
97.037
97.037
Tenders at the high discount rate were allotted 55%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
Type
Competitive
Noncompetitive
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$45, 273,,988
$13, 626, 613
$39, 136,,801
1, 214 ,049
$40, 350,,850
$7, 489, 426
11 214. 049
703, 475
-CA
00
TOTALS
3, 450,,000
3, 450, 000
1. 473 j,138
$45, 273,,988
1. 473 ,138
$13, 626, 613
An additional $368,262 thousand of bills will be
issued to foreign official institutions for new cash.
LB-1248
D E P A R T M I1 N T
• i
T HE
O F
T R E A S U R Y
'
TREASURY
J789
N E WS
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
The International Economic Situation
Remarks by
Lawrence H. Summers
Under Secretary of the Treasury
to the 1994 Business Issues Conference
Institute of Internal Auditors
November 14, 1994
Introduction
I
am delighted to be here. My message to you is simple. The United States has the
most dynamic private sector in the world. Our economy is better poised for a period of
strong, sustained economic growth than it has been at any time during my professional
lifetime. But that growth depends on our continuing to do what Americans do well. As
President Clinton has said, we must compete, rather than retreat.
Let me say a few words about what I think deserves even more emphasis than it has
already received: the private sector revival in the United States. I will also talk a little bit
about the macroeconomic basis of the current expansion in the United States, and the
prospects for global expansion. Then I want to discuss this administration’s philosophy of
export activism, and why promoting market opening around the world is so important for our
own and the world’s economic strength.
Private Sector Renewal
You know, five years ago people thought that the United States was not going to be
l
¿ft
able to compete with Europe or with Japan. Today, many fewer believe that. It is there in
the numbers:
o
the United States has created more employment in the last two years than all
the OECD states combined, because they have created negative 500,000 jobs.
It is there in the investment record:
o
Gross equipment investment’s share of GDP has surged to a level higher than
at any time since World War II, and net business investment in equipment is
as high a proportion of net domestic product as it has been 40 years.
It is there in the productivity growth:
o
which is so rapid that unit labor costs in the United States have actually fallen
over the last year. And even in 1993, the labor cost of producing a
comparable level of output was almost 40 percent higher in Germany, and 30
percent higher in Japan than in the United States.
And it is there in a set of stories about the business renaissance. When I make that
case, I like to think of three companies as standing for this private sector revival, although
you could cite many, many other examples.
The first is General Electric, a traditional industrial company that, under pressure
from financial markets, has reinvented itself, quadrupling earnings while cutting its
workforce in half in just over a decade.
And if you look at Ford, if you look at what is now happening at IBM, if you look at
the Fortune 100 companies in the United States and you see how they have downsized and
increased productivity over the last decade, and then you look at the Fortune 100 of Europe
2
or the Fortune 100 of Japan, you see many fewer new entrants, many fewer instances of
success.
It is there in what is perhaps our best forward-looking indicator -- the fact that the
U.S. stock market was worth 20 percent less than the Japanese stock market in 1989, but
today is worth nearly 30 percent more.
The second company that I think stands for what is different in the United States
today is Microsoft. Microsoft is worth 80 percent as much, in market value terms, as IBM.
That says something about America’s capacity for entrepreneurship. That says something
about a venture capital industry that is envied around the world. That says something about
why American firms take 75 percent of the world’s software market, and about America’s
business position in the world.
I
think the third reason for optimism about the United States —and I would cite
Federal Express as an example, but I could have chosen many other companies — is that in
all the important areas of post-industrial technology or services, the United States is far
ahead. That’s the case whether it is Federal Express in delivery, Disney in entertainment,
McDonald’s in fast food, or WalMart in retail.
It is because our private sector is so strong, because it has been able to compete so
effectively, that American exports have grown twice as rapidly over the last eight years as
those of Japan or Western Europe. It is for that reason that we can afford to have economic
policies that are guided by hope, rather than governed by fear.
The Macroeconomic Foundation
Let me say a few things about the macroeconomic foundation we are setting for our
companies to compete. Then I will come to the area of trade policy.
I said before that I was more optimistic about this recovery than about any expansion
during my professional lifetime. That is because this is the first investment-led, low-inflation
recovery that the United States has enjoyed since John Kennedy was President.
That is significant. It is significant because one clear lesson emerges from post-war
economic history. No recovery has ever died of old age. Recoveries have died because
they have been murdered by the Federal Reserve, with inflation control as the motive.
Inflation rises. People get properly nervous. The Fed rightly hits the brakes. The
economy goes into a skid, and we experience a recession. That was the pattern in 1958.
That was the pattern in 1967. That was the pattern in 1970. That was the pattern in 1974.
That was the pattern in 1982. And that was the pattern in 1989.
If we are going to avoid a repeat of that pattern, it is essential that inflation be kept
under control. And inflation is at its lowest level since the 1960’s.
It is necessary that we expand capacity so that the demand for output can rise without
giving rise to price pressures. And that is why it is so significant that investment is leading
this recovery, to the point where our investment figures are more favorable than they have
been in a generation.
What is responsible for this investment-led recovery?
The President’s program of deficit reduction jump-started the economy by getting
long-term interest rates down fast. For the first time since Harry Truman was President, the
budget deficit is going to decline for three successive years. ’
For the first time in my memory, the United States is going to have the smallest
budget deficit relative to its income of all the G-7 nations.
For the first time since the late 1970’s, instead of our national debt rising faster than
our GNP, our national debt will shrink as a proportion of national income, over the next few
years.
Sustainable fiscal policy. Strong monetary policy. The iministration has made clear
on repeated occasions that it shares the Federal Reserve’s objective of sustained recovery
with low inflation.
This President and this Secretary of the Treasury have consistently recognized that the
Federal Reserve must act independently toward these crucial objectives.
Of course, a critical part of macroeconomic policy is understanding the importance of
exchange rate policy. Secretary Bentsen made clear our exchange rate policy in early 1993,
when he emphasized that exchange rates should reflect economic fundamentals, and when he
rejected artificial manipulation of exchange rates. Despite a good deal of rumors to the
contrary, we saw that as the right policy then, and it remains the right policy today.
We have rejected the counsel of those who would suggest that somehow the United
States should be indifferent to a further decline of the dollar, or that we should welcome
some competitive advantage that would result. The American economy does not need any
currency-induced adrenalin. American businesses are competing more effectively by selling
better products at lower costs into increasingly open markets than at any time in the past.
We have no need or reason to use the dollar as a tool for trade policy.
Promoting Growth Abroad
Our private sector is unmatched. We are in a strong cyclical position. That is why
we have been so concerned with promoting growth abroad and opening foreign markets.
At a London meeting in 1993, we agreed with our G-7 partners on a three-pronged
global growth strategy: a reduction of the budget deficit in the United States, fiscal stimulus
in Japan, and lower interest rates in Europe.
That strategy, manifested in Japanese tax cuts and interest rates reductions of several
hundred basis points across Europe, is now yielding a worldwide expansion. For the first
time in some years, we are seeing all the major regions of the world growing together. And
that works importantly to our advantage, because that means an increasingly strong market
for U.S. products. The U.S. current account deficit will soon begin to shrink as foreign
appetites for our goods increase.
Opening Foreign Markets
Of course, if you take a long-run view of the world and do not think about the current
business cycle expansion ~ if you step back and ask, how is history going to regard this
period? - the really significant thing is not the current business cycle or expansion. It is the
fact that this was the 20-year period of human history in which 3 billion people living in the
developing world got on a rapid escalator toward modernity.
It is estimated that by the year 2010 there will be 600 million people in India, China
and Indonesia with a standard of living that is equal to Spain’s average. That is a
tremendous change, underway in today’s world. It is a change that reflects the successful
export of one of the things the United States has been trying to export for a generation ~ a
philosophy about open markets. And it is a huge potential commercial advantage for the
United States.
Think about American relations with Latin America. Think about American relations
with the developing countries of Asia. Think about Americans relations with Europe. And
then think about European relationships with Latin America, or Latin American relationships
with the developing countries of Asia. And it is clear that the United States sits at the hub of
the world economic system.
6
■
■ ' - V ? *-*
■
-• v-". -
• - * * V- f .*?■ £ ■
That economic system is changing more rapidly than ever before. New technologies,
new ideas, new products, new ways of selling things are everywhere. If we are to realize
the full potential of change, we have to make sure that we can prosper by selling - not just
at home —but around the world.
That is why the administration has made trade such a priority. I call our strategy
export activism. It is not the reactive protectionist strategy of the past that seeks to erect
walls, to benefit industries that are able to squawk loudly. Nor is it the turn the other cheek,
laissez-faire policy that some of my friends in the economics profession would recommend.
Instead, it is a strategy based on a simple premise: more trade leads to more
prosperity.
For 50 years, the United States has had the most open markets of any major country.
Whether the question is restrictions on manufactured goods, subsidies to agriculture,
regulatory inhibitions on banks —we have been the freest and most open economy. It has
been too long. That openness may have been right in 1954, or in 1964, or 1974. But it’s
not right in 1994.
Other countries’ barriers have to come down, so that American firms can compete on
a fair and level playing field.
That has been the heart of the administration’s trade policy. Look at what happened
with NAFTA. Mexican trade barriers came down 5 times as much as ours. The resulting
increase in our exports has already created between 100,000 to 200,000 new American jobs.
And exports to Mexico were up in the first half of this year by 17 percent, despite the fact
that Mexico suffered a serious recession.
But adoption of the NAFTA had perhaps an even more important result. Mexico as a
society passed through a difficult period earlier this year, with the Colosio assassination. But
7
political and social stability was maintained, the work of building Mexico’s economy
continued. I believe that much of the credit for that relative stability, for Mexico’s passage
through that rocky period, can be attributed to NAFTA.
GATT
There are votes that test nations. The vote on the League of Nations after WWI was
such a vote. The Congress of the United States voted wrong. That is one of the reasons
why the twenty-five years from 1920 to 1940 are such a dark period in human history,
culminating in the Second World War.
The vote on the Marshall Plan after World War II was such a vote that tested our
nation. That vote went the other way. We saw a Europe in which war became an
impossibility. We saw the 25 most rapid years of growth in the history of humankind.
Now, after the Cold War, Congress will soon find itself voting on GATT. It will be
voting on an agreement supported by President Reagan and President Bush, and concluded
by President Clinton. It will be voting on an agreement that will provide the largest tax cut
in the history of humankind, some $750 billion for the entire planet. It will be voting on an
agreement that will bring down barriers to manufactured goods by a full 1/3 —that for the
first time will extend the discipline of international competition to areas where the United
States has a huge advantage -- intellectual property, agriculture, and services, which accounts
for $180 billion in exports, and 70 percents of U.S. jobs. Congress will be voting on an
agreement that will bring whole new regions of the globe into the world trading system,
setting an example of liberalism, prosperity, and integration for vast new populations.
Whether or not we vote GATT up or down will likely be the most important decision
this Congress makes, and perhaps the most important decision taken by any Congress in
decades. With it, we will give a major impetus to trade liberalization, a major impetus to
American firms selling abroad, a major impetus to those countries that are trying to develop.
8
Without it, the United States will have turned its back on the future.
And make no mistake.
A GATT delayed could well be a GATT destroyed.
Even without GATT’s important political and strategic ramifications, a vote for the
Uruguay Round accord is about the closest decision imaginable to a free lunch. The
agreement will add some $100 to $200 billion yearly to U.S. income within 10 years. That’
$1,700 per family of four, an estimated $16 billion for Californians alone.
It will add anywhere from 300,000 to 700,000 new jobs to our economy, based on
conservative estimates.
And it will help us close our budget deficit, providing some $3 in new federal
revenues for every $1 in revenue lost.
A vote for GATT is a vote for what has always been strongest in American culture,
our ability to compete, to face new challenges squarely. It is a vote that will declare that we
are a nation of hope, rather than fear.
We are confronting the many barriers to trade in Japan and in China. We are going
to pursue free trade in the hemisphere at the Summit of the Americas Conference, and in
Asia through APEC. And I think it is fair to say that whether it is direct presidential
involvement in sales of aircraft to Saudi Arabia, or Secretary Brown’s tireless efforts to
ensure a U.S. presence in emerging markets, this administration has worked harder to
promote the interests of business abroad than any previous administration.
Put all of this together. A private sector that is the most dynamic in the world. A
strong macroeconomic foundation. A commitment to internationalism that exploits
America’s unique economic position in the world. I think it is fair to say that if the 20th
century was the American century, then economically, the 21st will be as well.
9
FOR RELEASE AT 2:30 P.M.
November 29, 1994
CONTACT:
Office of Financing
202/219-3350
TREASURY TO AUCTION CASH MANAGEMENT BILL
The Treasury will auction approximately $8,000 million
of 20-day Treasury cash management bills to be issued
December 2, 1994.
Competitive and noncompetitive tenders will be
received at all Federal Reserve Banks and Branches.
Tenders will not be accented for bills to be maintained on
the book-entrv records of the Department of the Treasury
(TREASURY DIRECT). Tenders will not be received at the
Bureau of the Public Debt, Washington, D. C.
Additional amounts of the bills may be issued to
Federal Reserve Banks as agents for foreign and inter
national monetary authorities at the average price of
accepted competitive tenders.
This offering of Treasury securities is governed by
the terms and conditions set forth in the Uniform Offering
Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes,
and bonds.
Details■about the new security are given in the
attached offering highlights.
oOo
Attachment
LB-1249
HIGHLIGHTS OF TREASURY OFFERING
OF 20-DAY CASH MANAGEMENT BILL
November 29, 1994
Offerincr A m o u n t ..........
$8,000 million
Description of Offerincr:
Term and type of security .
CUSIP number ............
Auction date ............
Issue date ..............
Maturity date ............
Original issue date . . . .
Currently outstanding . . .
Minimum bid amount . . . .
Multiples ............... ..
Minimum to hold amount . .
Multiples to hold . . . . .
20-day Cash Management Bill
912794 P5 7
November 30, 1994
December 2, 1994
December 22, 1994
June 23, 1994
$51,654 million
$1,000,000
$1,000,000
$10,000
$1,000
Submission of Bids:
Noncompetitive bids . . . . Accepted in full up to $1,000,000 at
the average discount rate of accepted
competitive bids
Competitive bids . . . (1) Must be expressed as a discount rate
with two decimals, e.g., 7.10%.
(2) Net long position for each bidder must
be reported when the sum of the total
bid amount, at all discount rates, and
the net long position is $2 billion or
greater.
(3) Net long position must be determined
as of one half-hour prior to the
closing time for receipt of competi
tive tenders.
Maximum Recoanized Bid
at a Sinale Yield
. . . 35% of public offering
Maximum A w a r d .............
35% of public offering
Receipt of Tenders :
. . Prior to 12:00 noon Eastern Standard
time on auction day
Competitive tenders . . . . Prior to 1:00 p.m. Eastern Standard
time on auction day
Noncompetitive tenders
Payment T e r m s .............
Full payment with tender or by charge
to a funds account at a Federal
Reserve Bank on issue date
D E P A R T M E N T
OF
T H E
T R E A S U R Y
N E WS
r
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUe J ^ ^ } ^ASHINGTON, D.C. • 20220 • (202) 622-2960
CONTACT ; Office of Financing
202/219-3350
FOR RELEASE AT 2:30 P.M.
November 29, 1994
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $27,200 million, to be issued December 8,
1994. This offering will provide about $2,100 million of new
cash for the Treasury, as the maturing bills are outstanding in
the amount of $25,088 million.
Federal Reserve Banks hold $6,569 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $1,769 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders. Additional
amounts may be issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
oOo
Attachment
LB-1250
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED DECEMBER 8, 1994
November 29, 1994
Offering Amount ....................
$13,600 million
$13,600 million
91-day bill
912794 Q8 0
December 5, 1994
December 8, 1994
March 9, 1995
March 10, 1994
$28,805 million
$ 10,000
$ 1,000
182-day bill
912794 S5 4
December 5, 1994
December 8, 1994
June 8, 1995
December 8, 1994
Description of Offering:
Term and type of security ........
CUSIP number ....................
Auction date ....................
Issue date ......................
Maturity date ....................
Original issue date ..............
Currently outstanding ............
Minimum bid amount ..............
Multiples ........................
$ 10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive b i d s .............. Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
Competitive b i d s .......... ..
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
at a Single Y i e l d ............ 35% of public offering
Maximum Award ....................
35% of public offering
Receipt of Tenders:
Noncompetitive tenders ..........
Prior to 12:00 noon Eastern Standard time
on auction day
Competitive tenders ...............
Prior to 1:00 p.m. Eastern Standard time
on auction day
Payment Terms
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
D E P A R T M E N T
OF
T H E
T R E A S U R Y
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
Contact: Hamilton Dix
(202) 622-2960
FOR IMMEDIATE RELEASE
November 29, 1994
BENTSEN AND WILLARD SCOTT TO SPEAK AT WORLD AIDS DAY PROGRAM
Treasury Secretary Lloyd Bentsen and Willard Scott of NBC’s "Today" show will
speak at the Treasury Department’s observance of World AIDS Day at 11 a.m., Thursday,
December 1 in the Cash Room at Treasury.
Also joining Secretary Bentsen will be Deputy Assistant Secretary for Administration
Alex Rodriguez and keynote speaker Lynn McCombs of the Metro D.C. Teens AIDS
Network.
An AIDS Walk around the White House will take place at 1 p.m. beginning at the
moat entrance of the Treasury building.
One of two sections of the AIDS quilt dedicated to Federal employees who have died
of AIDS related complications will be on display in the north lobby of the main Treasury
building Thursday from 8 a.m until 5:30 p.m.
Media without Treasury, White House, State, Defense or Congressional credentials
wishing to attend should contact the Office of Public Affairs at (202) 622-2960. This
information may be faxed to (202) 622-1999.
-30LB-1251
T HE
ïfrJk!
T R E A SU R Y
IH ^ H l
op
TREASURY
/7 8 9
NEWS
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
Contact: Michelle Smith
(202) 622-2960
FOR IMMEDIATE RELEASE
November 29, 1994
BENTSEN, KANTOR TO JOIN SEVERAL SENATORS IN SUPPORT FOR GATT
Treasury Secretary Lloyd Bentsen will join United States Trade Representative
Mickey Kantor and several United States Senators as they show their support for Senate
passage of the General Agreement on Tariffs and Trade (GATT) at a press briefing
tomorrow afternoon.
The briefing will be at 3 p.m. tomorrow, Wednesday, November 30 in room SC-5 in
the Capitol.
-30-
LB-1252
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
November 29, 1994
STATEMENT OF TREASURY SECRETARY LLOYD BENTSEN
HOUSE VOTE ON GATT
The House has taken the first step toward creating hundreds of thousands of new,
better-paying jobs for Americans. We are now on the verge of enacting the most significant
trade deal in global history. The Senate must take the final step and demonstrate to the
world our leadership and our commitment to free trade.
-30-
LB-1253
D E P A R T M E N T
OF
T H E
TREASURY!
T R E A S U R Y
IN E W S
V /
/ 7 ft Q
^
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE,
^ASFpNGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
November 30, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
GATT NOW BREAKFAST
This is it. The end of the road. Tomorrow the Senate will take the most
important trade vote in this country in 60 years.
We won a great, bipartisan boost from the House yesterday. I think the message
is finally sinking in up here on the Hill that this is a good deal. But we cannot sit back
and say that just because we think we can win that we’re going to win. It isn’t a slam
dunk and I’m going to be working this every step of the way. I hope you will too.
I
feel a bit like the coach in the locker room at half time. We did well in the first
half, but the game isn’t over. It’s going to go right down to the wire.
I’ve been around Washington for more than a week or two, and one of the things
I’ve learned is you have to say something over and over and over before it sinks in here.
You may be familiar with some of what I’m about to say, but bear with me. I’m going to
say it for the 42nd time so you have a bit more ammunition to take out there and fight
with.
Sixty years ago this nation retreated behind the protectionist wall of SmootHawley. A great deal of the world followed suit. We had a depression, a World War,
we had to do the Marshall plan. Much of what followed Smoot-Hawley is directly
traceable to that protectionist streak.
I’m not for a minute predicting a recession if GATT fails, but we will be giving up
a great deal, a great deal -- particularly in terms of global economic leadership.
Tomorrow we have to cross a procedural hurdle. We only need a majority to pass
GATT, but we must have 60 votes to waive the Senate’s rules on the financing of GATT.
That’s the real test here. I’m not worried about the financing, it will bring in enough to
pay for itself and help reduce the deficit.
LB-1254
'
(MORE)
2
I’m concerned there’s room there for someone to try to have it both ways ~ say
they’re all for GATT and everything it can bring, but that they just couldn’t see waiving
the rules. Let me tell you, no one gets a pass on this one. They’re either for GATT or
they’re not. No in between. No weaving. No dodging. No ducking.
You know, we’ve come a long way since Smoot-Hawley. Our tariffs used to be up
in the 60 percent range, and now they’re down around 4 percent, more or less. It used
to be that one job in 30 was related to trade. These days that figure is more like one in
13. As our economy matures, trade is the approach we need to sustain growth.
The Uruguay Round will make a critical contribution to continuing the growth .
we’re seeing. Our economists tell me that it will add 500,000 jobs to the economy. They
tell me that a decade from now we’ll have $150 billion more activity in our economy
than now.
This agreement is going to bring down the tariffs that make it hard for us to
compete. The taxes American products and services face when we’re competing in world
markets will come down by well over one-third. Some of those taxes are being lifted
entirely.
That means greater opportunities and greater competitiveness for American
businesses. We have the most competitive, innovative and productive private sector in
the world. And look at the markets out there for us -- Asia, the fastest growing region
of the world. Latin America, second fastest. Why would we want to turn our back on
that opportunity?
This agreement has critical benefits across the spectrum for our economy. And
one of the important advances is in the area of intellectual property rights.
We’re doing more than just bringing down tariffs with GATT. We’re seeing to it
that entrepreneurs in our economy who come up with good ideas don’t get ripped off.
The estimates are that American businesses lose something on the order of $60 billion
each year because of counterfeiting. My picture was in the paper the week before last
holding up a bootleg Bruce Springsteen CD to illustrate that point.
The intellectual property right protections take on even more importance in light
of something I saw the other day - that in 1995, the computer software market
worldwide will exceed the market for computer hardware. And we have 75 percent of
the software market.
There are several other points I want to make quickly today about the Uruguay
Round.
3
First, this is the largest tax cut in history, and I can’t imagine saying no to a tax
cut like this. Worldwide this agreement will save business and consumers nearly $750
billion ~ that’s how much of a reduction in the burden of tariffs there will be for
producers and consumers.
Second, think what would happen when we went out to sell overseas without this
agreement. Our tariffs average 4 percent, and the tariffs that are coming down abroad
are up there in some cases at 70 percent, 80 percent. Our corporations could be looking
at a situation where your competitors have low tariffs when they go for export business,
but our firms run smack into those higher tariffs.
All that would do is lose us business, maybe cost us jobs, cost us income we might
otherwise have earned.
Third, it was Congress that said back in 1988 that it wanted a better way to
resolve trade disputes, and we have that now with this agreement. We pushed for it, and
it’s in here.
Fourth, we get rid of the free riders with GATT. Those are the fellows who don’t
sign on to reducing their tariffs but they’re delighted to take advantage of MFN status
here in our markets. We pushed for that in GATT.
And finally, what kind of a signal would it send to the rest of the world if the
country of free trade turned its back on the most significant trade agreement ever
negotiated? What does it say if we reject a deal negotiated under two Republican and
one Democratic president over a span of seven years? Almost everyone’s waiting on us
to show our leadership on this one.
Let me ask another question: If we fail, how long will it take before another
agreement is reached? Seven years? Ten years? How long? How much will we give
up in terms of lost potential, slowed development, curtailed job creation? I can tell you
that waiting just six months costs us $70 billion in lost production over a decade.
We have a big vote tomorrow. The private sector has done a good job of
spreading the word about the benefits of GATT. The GATT Now organization has done
an excellent job. But we cannot sit back, quit now and just assume GATT’s going to
pass. I don’t want to wake up Friday morning and say, "If I’d only talked to one more
senator we could have won it."
The Senate tomorrow has a singular opportunity to show its leadership. It can
take a bold step that will benefit not just our nation, but all 124 countries which have
signed the Uruguay Round. The Senate tomorrow can vote to open markets for
American businesses. And it can vote to give American workers better jobs and higher
incomes. This is the most important vote of the year for this Congress.
4
There are votes that test nations, and this is one of them. The Senate must vote
yes on the budget waiver, and it must vote yes to GATT.
Thank you.
-30-
NEWS
TREASURY
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
November 30, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
GATT PRESS CONFERENCE ON CAPITOL HILL
I
want to thank the senators for their support. It’s a smart choice. With their
help we’re going to put this trade deal into effect.
With the House vote yesterday, and these announcements today, I think
momentum is swinging our way. It’s still a tough fight, and we’re going to press it right
down to the time they start calling the roll. But I’m confident we can succeed.
There’s a great deal at stake here ~ hundreds of thousands of jobs for American
workers and $150 billion a year in increased economic activity in this country. Those
jobs and the extra economic activity will strengthen and sustain the economic growth
that’s been taking place.
What’s also at stake here, among other things, is American leadership. We’re the
country of free traders. We’ve pushed this GATT agreement to completion through two
Republican Presidents and a Democratic President. Thirty-three countries have had the
foresight to adopt the agreement already. Over 90 countries are watching to see if we
stay a world leader and step up and enact this legislation.
We have the lowest tariffs around, and we’re going to bring down the tariffs
abroad by well over a third. This will make a whale of a difference when we go out with
our products and compete in the world. And that will have a huge impact here at home
as it creates jobs and begins to raise incomes for Americans.
We’re also talking about a tremendous global tax cut, nearly $750 billion. That’s
how much less in a tariff burden there will be for producers and consumer all over the
world. This deal is business friendly and consumer friendly.
LB-1255
(MORE)
2
So we’re glad to have the help of these senators in convincing the rest of the
Senate to do what the House has done - approve this trade agreement. Trade is truly a
bipartisan issue. There are no party labels in what we send overseas. It doesn’t say
"made by a Democrat" or "made by a Republican." It says "Made in the USA, by
Americans." And with GATT, we’re going to see a great many more labels like that.
-30-
Press 202-622-2960
November 3 0 , 1994
FEDERAL FINANCING BANK
Charles D. Haworth, Secretary, Federal Financing Bank (FFB),
announced the following activity for the month of October 1994.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $106.9 billion on October 31,
1994, posting a decrease of $2,421.5 million from the level on
September 30, 1994. This net change was the result of a decrease
in holdings of agency debt of $2,197.9 million, in holdings of
agency assets of $261.3 million, and an increase in holdings of
agency-guaranteed loans of $37.6 million. FFB made 17
disbursements during the month of October. FFB also received 22
prepayments in October.
Attached to this release are tables presenting FFB October
loan activity and FFB holdings as of October 31, 1994.
LB-1256
Page 2 of 3
FEDERAL FINANCING BANK
OCTOBER 1994 ACTIVITY
BORROWER
DATE
--------- --------- AMOUNT
OF ADVANCE
--------- FINAL ------- INTEREST
MATURITY
RATE
AGENCY DEBT
RESOLUTION TRUST CORPORATION
Note 24 /Advance #1
10/3
$26,519,121,475.46
1/3/95
4.959% S/A
GOVERNMENT - GUARANTEED LOANS
GENERAL SERVICES ADMINISTRATION
Foley Square Office Bldg.
HCFA Services
Foley Square Courthouse
GSA Refinancings
Memphis IRS Service Cent.
HCFA Headquarters
Foley Square Office Bldg.
Oakland Office Building
Atlanta CDC Office Bldg.
10/5
10/5
10/17
10/21
10/21
10/25
10/27
10/27
10/31
$7,620,825.00
$78,117.00
$8,088,093.00
$2,167,107.70
$9,474,623.03
$6,040,600.00
$6,496,998.00
$289,414.00
$441,847.00
12/11/95
6/30/95
12/11/95
9/27/04
1/3/95
6/30/95
12/11/95
9/5/23
9/1/95
6.318%
5.979%
6.246%
7.561%
5.259%
6.082%
6.460%
8.215%
6.178%
10/18
10/24
10/31
$7,488,645.96
$519,457.00
$300,000.00
11/2/26
11/2/26
11/2/26
8.008% S/A
8.164% S/A
8.140% S/A
10/3
10/20
10/26
10/27
$200,000.00
$1,110,000.00
$1,291,000.00
$2,564,000.00
12/31/96
12/31/14
12/31/96
12/31/96
6.776%
7.887%
6.995%
7.020%
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
GSA/PADC
ICTC Building
ICTC Building
ICTC Building
RURAL UTILITIES SERVICE
Head Lakes Electric #372
Guam Telephone Auth. #371
Sho-Me Power #382
Brazos Electric #332
S/A is a Semi-annual rate:
Qtr. is a Quarterly rate.
Qtr.
Qtr.
Qtr.
Qtr.
1
Page 3 o f
3
FEDERAL FINANCING BANK
(in m illio n s )
P roaram
O c to b e r 3 1 .
A g e n c y D e b t:
D ep a rtm e n t o f T r a n s p o r ta t io n
E x p o r t - I m p o r t Bank
R e s o l u t i o n T r u s t C o r p o r a tio n
T e n n e s s e e V a lle y A u th o r ity
U .S . P o s ta l S e r v ic e
s u b -to ta l*
$
1994
664.7
3,926.4
25,721.2
3,200.0
7.773.1
41,285.4
S eo tem b e r 3 0 .
$
1994
664.7
3,926.4
26,519.1
3,400.0
8.973.1
43,483.3
N et C hange
1 0 /1 /9 4 -1 0 /3 1 /9 4
$
0.0
0.0
-797.9
-200.0
-1,200.0
-2,197.9
FY ' 9 4 N e t C h a n g e
1 0 /1 /9 4 -1 0 /3 1 /9 4
$
0.0
0.0
-797.9
-200.0
-1.200.0
-2,197.9
A gen cy A s s e ts :
Fm H A-ACIF
Fm H A-RDIF
FmHA-RHIF
D H H S -H e a lt h M a i n t e n a n c e O r g .
D H H S -M e d ic a l F a c i l i t i e s
R u r a l U t i l i t i e s S e r v ic e -C B O
S m a ll B u s in e s s A d m in is t r a t io n
s u b -to ta l*
6,063.0
3,675.0
24,131.0
25.3
34.5
4,598.9
1 -0
38,528.7
6,063.0
3,675.0
24,391.0
25.3
35.8
4,598.9
1 .0
38,790.0
0.0
0.0
-260.0
0.0
-1.2
0.0
0 .0
-261.3
0.0
0.0
-260.0
0.0
-1.2
0.0
G o v e rn m e n t-G u a r a n tee d L o a n s:
D O D - F o r e ig n M i l i t a r y S a l e s
D H U D -C om m u n ity D e v . B l o c k G r a n t
D H U D - P u b lic H o u s i n g N o t e s
G e n e r a l S e r v ic e s A d m in is tr a tio n +
D O I -V ir g in I s l a n d s
D O N -S h ip L e a s e F i n a n c i n g
R u ra l U t i l i t i e s S e r v ic e
S B A -S m a ll B u s in e s s I n v e s t m e n t C o s .
S B A - S t a t e / L o c a l D e v e lo p m e n t C o s .
DOT—S e c t i o n 5 1 1
s u b -to ta l*
3,778.9
106.4
1,746.5
2,079.0
21.9
1,479.6
17,321.8
53.8
518.9
14.6
27,121.4
3,785.4
109.9
1,746.5
2,029.6
21.9
1,479.6
17,316.6
56.6
523.0
14.6
27,083.8
-6.5
—3 • 5
0.0
49.4
0.0
0.0
5 •2
-2.8
-4.1
0,0
37.6
-6.5
—3 . 5
0.0
49.4
0.0
0.0
5*2
-2.8
-4.1
$106,935.6
$109,357.1
$-2,421.5
g r a n d -to ta l*
♦ f i g u r e s m ay n o t t o t a l d u e t o
+ d o e s n o t in c lu d e c a p it a liz e d
r o u n d in g
in te r e s t
o«o
-261.3
_____ o . o
37.6
$-2,421.5
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
November 30, 1994
' CONTACT: Office of Financing
202-219-3350
RESULTS OF T R E M u R Y ^ A U C T I O N O F 20-DAY BILLS
Tenders for $8,005 milliori of 20-day bills to be issued
December 2, 1994 and to mature December 22, 1994 were
accepted today (CUSIP: 912794P57).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.43%
5.47%
5.45%
Investment
Rate
5.53%
5.56%
5.55%
Price
99.698
99.696
99.697
Tenders at the high discount rate were allotted 17%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
LB-1257
Received
$35,651,000
$35,650,000
Accepted
$8,005,000
$8,004,000
________1.000
1.000
$35,651,000
$8,005,000
0
0
____________ 0
$35,651,000
___________ 0
$8,005,000
■**
NE WS
r
TREASURY
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYEVANIA AVENUE, N.W .(» WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
December 1, 1994
CONTACT: Scott Dykema
(202) 622-2960
U.S.-ISRAELI TAX TREATY TO TAKE EFFECT THIS YEAR
The Treasury Department announced today that an income tax treaty with Israel
will take effect at the end of the year.
The United States and Israel exchanged instruments of ratification late November
30, bringing the treaty into force on December 30. New withholding tax rates under the
treaty apply to amounts paid beginning February 1, 1995. For other purposes, the treaty
covers taxable years beginning January 1, 1995.
The treaty was signed in 1975 but wasn’t approved at the time. The treaty and
amending protocols signed in 1980 and 1993 were given final approval by the U.S.
Senate September 23, 1994.
-30-
LB-1258
D E P A R T M E N T
TREASURY
OF
THE-
T R E A S U R Y
N E WS
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
December 1, 1994
REMARKS OF TREASURER MARY ELLEN WITHROW
WORLD AIDS DAY CEREMONY
This is World AIDS Day, and we’re here to underscore the seriousness of HIV
and of AIDS.
There is a terrible human price that is paid because of this disease. We see
reminders of it all around us -- the quilt here today, for instance. What that quilt tells us
is that AIDS touches families -- not just individuals ~ families ... parents, children, aunts,
uncles, cousins ~ families, not just individuals. There are also names on the quilt of
members of our work family ~ the family of federal employees.
The theme of today’s activities is AIDS and families -- protecting and caring for
the ones you love -- and I want to talk about that in just a few minutes.
But first, I want to step back and look at the big picture. AIDS is more than a
disease that tragically touches the lives of our families, AIDS is a tragedy as far as
economies are concerned. Larry talked about the global picture, and I want to talk
about the impact here at home.
In our country, an estimated 1 million to 1.5 million people are HIV-positive.
There are over 400,000 diagnosed cases of AIDS. There have been over 240,000 deaths
because of AIDS. It is the number one killer of women of child-bearing age in nine
major U.S. cities. Overall, AIDS is the 8th leading cause of death in this country. It is
the leading killer of American men in the 22-44 age group, and the fourth leading killer
of women in that age group.
Those last statistics point to the economic impact of AIDS in the United States.
The 22-44 age group represents the period when Americans are in their most productive
years. This year there are estimates that we will spend well over $13 billion treating
AIDS, and it could exceed $15 billion next year. With that kind of money you could run
the entire Treasury Department —from the Customs Service to the IRS -- and have
plenty left over to cover a few other government operations.
LB-1259
2
There are estimates that the drain on our economy by the year 2000 from AIDS
could surpass $100 billion.
Clearly, when you look at the big picture ~ either from a public health standpoint
or from the economic perspective -- this is a very serious matter.
Now, there is something we can do nationally that can make a difference for
those with AIDS and their families.
Many of you worked long and hard this year trying to get health care reform
enacted. It didn’t happen. However, the cause has been advanced. I believe that
sometime soon we’ll be seeing some advances -- perhaps not all at one time, perhaps bit
by bit.
There’s an aspect of our system that affects a great many families, including those
in which a family member has AIDS or is HIV positive -- that’s refusing insurance to
people who have pre-existing conditions.
I believe ~ and I know Secretary Bentsen feels this way ~ that Congress in the
coming year should look at this particular reform. Congress should think about it not
just because it can benefit the HIV community, but because it will help every family in
this country where there’s a fear about losing health coverage.
Finally, there’s something else everyone in this room can do, and that’s become
involved in the AIDS education process. Right now, AIDS is a fatal disease. Research
will change that some day. But for now, that’s a fact. Ten years ago, science didn’t fully
understand this disease, but now the methods of transmission are well-known.
The best way to beat AIDS is by education —prevention through education. It’s
easy now to find literature on AIDS. We even have brochures on the table outside the
Treasury clinic in the basement, and I believe we have some materials to hand out to
everyone this morning.
While every individual has the responsibility to learn about AIDS, parents have a
special responsibility to teach their children. Growing up can be a confusing time —all
the changes taking place, all the pressures. Every child needs to learn that they must
think before they act. Every child needs to learn there are consequences to
inappropriate behavior. And there is no one better equipped to teach a child about
AIDS than a parent.
So this year, as we focus on the family and AIDS, I would urge each of you to
educate your children about AIDS, its causes and prevention. The cost of failure is
immense, and the reward for success is life.
-30-
D E P A R T M E N T
OF
T H E
T R E A S U R Y
N E WS
TREASURY
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
December 1, 1994
REMARKS OF TREASURY UNDERSECRETARY LAWRENCE SUMMERS
TREASURY WORLD AIDS DAY CEREMONY
We have a great number of events here at Treasury, and I think it’s particularly
important that we have ones such as this one on AIDS. Ultimately, the information we
share here could save lives, and there’s nothing more important than that.
I know Secretary Bentsen wanted very much to be with us today. However, we’re
going right down to the wire on the GATT trade treaty, so Mrs. Withrow and I are pinch
hitting for him while he works to get the treaty through. I can assure you, Secretary
Bentsen shares our concerns about AIDS and is very supportive of Treasury’s
educational efforts.
By the way, in honor of our master of ceremonies this morning, I’m going to
forecast sunny skies for GATT.
The theme for this World AIDS Day is the family, and I don’t think there’s a
family in the world that hasn’t been touched by AIDS, or knows someone who has. The
statisticians tell us that one adult in every 250 across the world has the HIV virus.
We all have our own ways for looking at issues. If you’re involved in domestic
policy you look at it from the domestic angle, how it affects our health care system or
our economy. In a few minutes, Mrs. Withrow is going to talk about that perspective.
If you re in international policy as I am, you would tend to look at it from the
standpoint of what AIDS means around the world.
Right now, today, the World Health Organization estimates there are 17 million
people around the world who are HIV-positive. That’s roughly the combined
populations of New Zealand and Australia. And the estimates are that by the year 2000
- just six years from now ~ there could be anywhere between 30 million and 100 million
people with the HIV virus.
LB-1260
(MORE)
2
Right now, today, there are 1.5 million infants who are H-I-V positive. These are
kids bom without a chance.
I
have to travel a great deal, and when Fm overseas talking with my counterparts,
or reading the economic literature, it’s easy to see what an impact AIDS is having.
Let me give you some examples. In Africa, Uganda is trying desperately to turn
its economy around. That’s hard to do when one person in ten has HIV.
The government in Thailand is beginning to report shortages of skilled labor. In
Zambia, one in five workers in the copper industry has H-I-V. Copper is big business
for Zambia.
The statistics go on. Four of every five new cases are going to be in the
developing world.
The implications are staggering. The World Bank, at the urging of the United
States, is beginning to emphasize the importance of AIDS as a threat to economic
development. As you can tell from the figures I mentioned, we’re already starting to see
how AIDS can effect local economies.
There are estimates that AIDS will cost the global economy half a trillion dollars
by the end of the decade. That’s nearly 1.5 percent of the combined gross domestic
product of all nations.
The impact is very real, not just in other countries, but also here at home. Yes,
it’s becoming an economic problem. But at the heart of it, HIV and AIDS is a human
problem. We have to fight it with everything we have - with research dollars, with care
and compassion for those who have contracted the virus, and with education.
That’s why we’re here today - to fight AIDS with education, and to acknowledge
that every family, whether it’s our family at home, the family of a friend, or our family in
the work place, is affected and needs our support.
-30-
D E P A R T M E N T
r
OF
T H E
TREASURY
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE,
T R E A S U R Y
NE W S
D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
December 1, 1994
REGULATIONS TO HELP CASINOS FIGHT MONEY LAUNDERING, BENTSEN SAYS
Treasury Secretary Lloyd Bentsen said regulations taking effect Thursday, December
1, will give casinos new tools to counter money laundering.
"Our goal is to shape effective counter-money laundering policies while reducing
unnecessary regulatory burden," Bentsen said. "We want to enable financial institutions,
including casinos, to be more effective and responsive in taking steps to prevent and detect
money laundering, and in supporting swift enforcement actions."
The regulations come under the Bank Secrecy Act, or BSA, which is at the core of
Treasury’s program to combat financial crimes including money laundering and tax evasion.
It is administered by Treasury’s Financial Crimes Enforcement Network, known as FinCEN.
The most important provisions of the newly effective regulations include:
* a requirement that casinos establish and maintain written BSA compliance
programs that emphasize the use of automated systems, the need for independent
audits of compliance, and the training of casino employees; and
* enhanced requirements for customer identification with the opening of a deposit or
credit account at a casino.
Although the regulations go into effect on December 1, there will be a six-month
period for casinos to put the new procedures in place. The regulations were originally issued
in March 1993 and were scheduled to become effective in September 1993. Their effective
date was extended until December 1994 while Treasury determined how best to implement the
measures. The final product reflects comments by state regulators and representatives of the
casino industry.
As part of its effort to reduce regulatory burden, Treasury has withdrawn some
provisions of the regulations which could have imposed significant costs on casinos and
required significant changes in gaming procedures, without clear off-setting compliance
benefits. Under the reduction efforts, Treasury has:
LB-1261
* eliminated a provision from the original regulations which would have required
casinos to record and verify the identification of any customer whose transactions
in currency on a gaming day reached $3,000 (and to track those transactions at
$500 intervals);
* withdrawn a provision that casinos obtain missing customer information when a
customer’s multiple transactions in aggregate, exceed $10,000 in currency;
* eliminated a provision requiring casinos to maintain a chronological record
identifying all transactions occurring at the cashier’s window; and
* withdrawn a requirement that casinos maintain a list of customers who are known
by aliases.
"We believe that the 1993 Regulations can be safely altered in light of our intention to
issue regulations in the near future requiring financial institutions, including casinos, to report
suspicious transactions and establish counter-money laundering measures including, ’know
your customer’ policies and programs," said Ronald K. Noble, Treasury’s Under Secretary for
Enforcement. "With this in mind, the modifications to the 1993 regulations should not reduce
the value of information that casinos are required to maintain or report, or more importantly,
reduce the level of BSA compliance by casinos."
Today’s actions are the first of several steps Treasury will take within the next year to
apply its new counter-money laundering programs to casinos and other non-bank financial
institutions. Thus, for example, the details of the required compliance program include terms
that anticipate Treasury’s adopting of suspicious transaction reporting requirements applicable
to casinos, among others.
In addition, FinCEN anticipates publishing in the near future a notice of rulemaking
that would propose making certain Indian gaming establishments subject to appropriate
provisions of the BSA and, as a related mattèr, would propose exempting many small casinos
from reporting and recordkeeping rules designed for larger establishments.
Although casinos in Nevada have been exempted from compliance with the reporting
and recordkeeping requirements contained in the BSA regulations since 1985, the exemption
requires Nevada to maintain a state casino regulatory system which "substantially meets the
reporting and recordkeeping requirements" of the BSA regulations, including those that
became effective on December 1.
-30Contacts: Chris Peacock/Treasury
(202) 622-2960
Joyce McDonald/FinCEN
(703) 905-3770
D E P A R T M E N T
OF
T H E
T R E A S U R Y
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
December 1, 1994
Contact: Michelle Smith
202-622-2960
STATEMENT OF TREASURY SECRETARY LLOYD BENTSEN
PASSAGE OF GATT
The Senate has given the American economy what it needs ~ additional
encouragement to keep growing and creating jobs. This Congress’s final act was a
bipartisan one that will pay billions upon billions of dollars in benefits to our economy
for years to come. The value of cooperation is clear. This administration and the new
Congress, working together in a cooperative and nonpartisan way, can continue to take
the steps that will further strengthen our recovery and improve living standards for
Americans.
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LB-1262
FOR IMMEDIATE RELEASE
December 2, 1994
Contact: Michelle Smith
(202) 622-2960
BENTSEN RELEASES NATIONAL TREATMENT STUDY
Treasury Secretary Lloyd Bentsen on Friday submitted to Congress the 1994 Report
on Foreign Treatment of U.S. Financial Institutions.
The Report, submitted every four years by Treasury, examines the degree of national
treatment and market access afforded U.S. banks and securities firms in 41 markets. It also
describes U.S. Government efforts to remove barriers to trade in financial services and
reviews the presence and treatment of foreign financial services firms in the United States.
The Report shows that extensive multilateral and bilateral negotiations have brought
significant improvements in the terms on which U.S. firms compete in financial markets
abroad. However, the Report also notes that many significant denials of market access and
equality of competitive opportunity remain.
"While many countries have begun to recognize the economic benefits that come from
liberalization of the financial sector, national treatment is still the exception rather than the
rule in too many important markets," Secretary Bentsen said.
Among the improvements, the Report cites the conclusion and entry into force of the
North American Free Trade Agreement, which opens the Mexican market to the
establishment of U.S. banks, securities firms and other types of financial intermediaries for
the first time in over 50 years.
Bilateral negotiations with Japan, China, Korea and Taiwan have yielded progress in a
number of key areas. And, as part of the recently completed Uruguay Round, a new
General Agreement on Trade in Services (GATS) was adopted which establishes a framework
of multilateral disciplines which can be applied to trade in financial services.
Despite these improvements, U.S. financial institutions face significant problems
LB-1263
competing in many important financial markets. The report highlights the specific barriers to
entry and operating constraints in the financial sector.
"U.S. financial institutions are world class competitors," Secretary Bentsen stated.
"They will succeed where they are given the opportunity to compete, and we are determined
to ensure that they have that opportunity in the key markets around the globe."
Secretary Bentsen outlined a three part strategy encouraging further financial
liberalization.
First, we are working hard in the Uruguay Round to open financial markets on a
multilateral basis. "But unless other commercially important countries are prepared to
commit to open their markets to U.S. financial institutions, the United States will not be
prepared to accept an MFN obligation in financial services in the WTO, " Secretary Bentsen
said.
Second, and as a complement to the multilateral negotiations, we are continuing a
number of intensive bilateral negotiations in key markets. Secretary Bentsen said,
"Achieving a satisfactory outcome in the Japan Framework Talks on financial services will
be particularly important to create the momentum necessary to achieve a multilateral
agreement in the GATS." U.S. policy is that the results achieved in these negotiations
should be extended to all countries on a MFN basis.
And, finally, the United States is engaged on a variety of other fronts to encourage
the development and integration of capital markets around the world, through the technical
assistance and loan programs offered by the multilateral financial institutions and efforts to
encourage cooperation among financial regulators.
The report also reviews the developments in the U.S. financial market that affect
foreign financial institutions, and reaffirms U.S. policy of affording national treatment to
foreign financial institutions.
"We want to continue to keep our markets open to foreign financial institutions.
They play an important role in financing investment in the United States, and they help keep
our financial markets the most competitive and innovative in the world," Secretary Bentsen
said. "But we also need to ensure that foreign countries provide the same degree of access
to our firms in their markets."
The Report’s Executive Summary is attached. The full Report will be available
through the Department of the Treasury and the Comptroller of the Currency in midDecember.
-30-
EXECUTIVE SUMMARY
Current conditions are quite different than they were four years ago when the 1990 National
Treatment Study was completed. International trade in financial services has taken on much
greater significance. Intensive multilateral and bilateral negotiations have led to significant
improvements in the terms on which U.S. firms compete in offering financial services abroad.
An historic North American Free Trade Agreement (NAFTA), including important commitments
on financial services, was concluded and has entered into effect. The European Union’s single
market program in financial services is being implemented and expanded geographically.
Bilateral negotiations on financial services with Japan have continued in the context of the U.S.Japan Framework for a New Economic Partnership with the objective of achieving a
comprehensive agreement that can contribute to the successful conclusion of the General
Agreement on Trade in Services (GATS) negotiations. Uruguay Round negotiations on financial
services, although not concluded, have produced interim commitments that could give U.S. firms
more secure access, and in some respects better access, to some foreign markets than they had
before. The principal negotiating objective of the United States in the extended negotiations on
financial services is to achieve substantially full market access and national treatment in
commercially important countries.
There also have been several major developments in U.S. financial legislation and regulation.
In the banking area, the Foreign Bank Supervision Enhancement Act of 1991 (FBSEA)
strengthened U.S. bank regulators’ authority to regulate and supervise the activities of foreign
banks in the United States. Among other measures, the statute includes a prudential provision
that all foreign bank applicants seeking to establish branches and agencies must be subject to
comprehensive consolidated supervision by their home country authorities. In September 1994,
the Congress enacted, and President Clinton signed into law, the Interstate Banking and
Branching Efficiency Act of 1994, a major step forward that should facilitate greater geographic
diversification in the U.S. banking system. The act provides domestic and foreign banks with
nationwide banking opportunities.
In other financial services, U.S. regulators have taken a number of steps to simplify access to
U.S. securities markets by foreign firms and issuers, without compromising investor protection.
The Securities and Exchange Commission (SEC) has modified and simplified certain disclosure
requirements that facilitate access to U.S. capital markets, including accepting, for the first time,
cash flow statements prepared in accordance with international accounting standards. A total
of 305 new foreign corporate issuers have entered the U.S. markets since January 1990,
including companies from Germany, China, Chile, Venezuela, and Brazil. In addition, under
Rule 144A, introduced in April 1990, resales of certain restricted securities have been exempted
from SEC registration requirements; nearly half of the 514 issuers or guarantors under this rule
have been foreign. Also, since 1992, the SEC has eased restrictions on foreign advisers to
provide further incentives for foreign advisers to provide services to U.S. clients. The
Commodity Futures Trading Commission (CFTC) has implemented measures to facilitate 24hour trading of U.S. and foreign exchange-traded products on approved electronic trade
3
EXECUTIVE SUM MARY
management instruments by exempting from CFTC regulations foreign firms that are subject to
"comparable" regulatory schemes by home country authorities.
These developments in the U.S. market preserved national t'eatment for foreign financial
institutions. Where new opportunities were created, they were extended on an equal basis to
foreign and domestic institutions. Where new prudential standards were established, they have
been applied on a national treatment basis.
During this period, both houses of Congress passed bills designed to reinforce the
administration’s efforts to encourage further liberalization of foreign financial markets. Both
the proposed Fair Trade in Financial Services (FTFS) Act, which passed the Senate in March
1994, and the more narrow National Treatment in Banking Act, which passed the House in
September 1994, would have provided discretionary authority to limit the opportunities afforded
in the United States to financial institutions from countries that deny national treatment and
market access to U.S. financial institutions. Neither bill became law.
Foreign financial institutions continue to maintain a large and diverse presence in the United
States. As of June 30, 1994, 288 foreign banks from 60 countries operated 580 agencies and
branches, 91 banking subsidiaries, 12 Edge corporations, and six New York State Investment
Companies. Foreign banks’ U.S. affiliates’ share of total U.S. banking assets was 21.0 percent,
including 32.7 percent of business loans. SEC staff has identified the number of foreign persons
that have equity interests of 25 percent or more in registered broker-dealers to be approximately
173, out of a total of about 8,000 registered broker-dealers in the United States. In 1993,
foreign-owned broker-dealers lead- managed 149 bond issues in the United States totalling $35.1
billion, and 33 equity issues totalling $2.2 billion. In addition, there are roughly 312 foreign
investment advisers (up from approximately 200 in 1990) registered in the United States and 127
foreign firms that are permitted to engage in commodity futures and options brokerage activities.
IMPROVEMENTS IN NATIONAL TREATMENT ABROAD SINCE THE 1990 REPORT
In a number of foreign markets, progress has been made since the 1990 National Treatment
Study to expand the opportunities afforded to foreign financial institutions. National laws and
regulatory practices have been amended as countries recognized the importance of foreign
participation in creating deeper more efficient capital markets. The general embrace throughout
most of the emerging markets of economic reform and liberalization provided impetus to
financial deregulation and liberalization. In many important instances, these changes were a
direct consequence of negotiations or discussions between U.S. and foreign officials.
Significant developments since the last study include the following:
4
EXECUTIVE SUM M ARY
(1) The financial services chapter of the NAFTA entered into force, providing market access
and national treatment for U.S. financial institutions in Mexico and Canada. The agreement also
establishes a formal consultative group and a dispute settlement mechanism. For the first time
in over 50 years, U.S. banks, securities firms and other types of financial intermediaries will
be allowed to establish and operate in Mexico, subject to limits on market share during a
transition period that ends January 1, 2000.
(2) The European Union has provided access to the single market in financial services on a
reciprocal national treatment basis. The Second Banking Directive, which gives universal
banking powers throughout the member states to locally incorporated subsidiaries, went into
effect on January 1, 1993. The Investment Services Directive, which will expand the range of
securities activities that locally incorporated subsidiaries may provide throughout the area, will
go into effect on January 1, 1996. Early indications are that U.S. banks and securities firms
established in the area are planning to take full advantage of the expanded business opportunities
offered by the single market.
Direct branches of foreign financial services firms will continue to be subject to the regulation
of individual member states. In some of these countries, branches of U.S. banks are subject to
operating restrictions based on local capital that do not apply to branches of EU banks. Bilateral
negotiations between U.S. regulators and their German counterparts resulted in substantial
alleviation of local capital requirements for U.S. bank branches in Germany.
(3) Bilateral negotiations between the U.S. Treasury and financial authorities in Japan, China,
Korea, and Taiwan have yielded substantive progress in a number of key areas.
In Japan, foreign investment trust management companies were permitted in 1990 to establish
for the first time. Also in 1990, limited access was given to investment advisers, including U.S.
investment advisers, to manage a small portion of private pension fund monies. (The percentage
of eligible private pension fund money was expanded in October 1994.) The range of securities
products that securities firms may now underwrite and sell in Japan has been expanded slightly.
In addition, the long process of deregulating deposit interest rates, begun in the late 1970s, was
completed in October 1994. Other improvements include expanded swap opportunities for
securities firms, the addition of new derivatives products and bank licenses for securities firms.
v
In China, the number of permissible locations for foreign branch banking has been expanded to
some extent and the Chinese authorities have committed to further liberalization. In addition,
foreign banks may now buy and sell foreign exchange on behalf of foreign-invested joint
ventures. Foreign financial firms also may participate in underwriting offshore securities issued
by Chinese residents, and, for the first time, foreign securities firms may now establish
representative offices in China. In addition, foreign securities firms may now provide brokerage
services for a certain class of Chinese securities.
5
EXECUTIVE SUM M ARY
In Korea, progress was made to improve foreign banks’ cost of funding. The Finance Ministry
raised the limits on local currency funding that can be obtained through the issuance of
certificates of deposit and agreed not to reduce swap lines without first consulting with foreign
banks. Less restrictive rules also were adopted in the treatment of local capital for the purpose
of establishing bank lending limits. Certain restrictions on foreign investment in Korean
securities were eased; a further liberalization has been announced for 1995. Since 1992, foreign
securities firms have been permitted to establish branch offices in Korea. In March 1992, the
Ministry of Finance announced that Korea would formulate a three-stage "Blueprint" for
comprehensive financial sector liberalization. Implementation of these measures is underway.
In early 1994, Korea established an unofficial subcommittee to study and make recommendations
on reform of the foreign exchange system. An announcement is expected by the Ministry of
Finance before the end of 1994.
In June 1994, Taiwan partially lifted the ban on foreign investment in local banks. Soon
afterward, Taiwan announced the easing of certain criteria for foreign bank branch entry, the
immediate elimination of geographical and numerical restrictions on bank branching, and a
reduction of the waiting period between establishment of an initial branch and additional
branches from five years to two years. In addition, the ceiling on foreign banks’ acceptance of
local currency deposits was eliminated. (Previously, the limit on lending in local currency for
a single customer had been relaxed for banks with capital above certain levels.) In addition,
foreign securities firms may now establish subsidiaries or branches that can provide the same
services as domestic securities firms. And restrictions on aggregate securities purchases by
foreign institutional investors have been partially eased.
(4) As part of the recently completed Uruguay Round, a new General Agreement on Trade in
Services (GATS) was adopted, establishing a framework of multilateral disciplines that can be
applied to trade in financial services. These disciplines include market access, national
treatment, and most-favored-nation (MFN) obligations. The United States conducted an
intensive series of negotiations during the Uruguay Round with some 40 countries plus the
European Union, which represented its 12 member states. The negotiations were aimed at
securing binding commitments to the obligations of the GATS with few significant limitations.
Sixty-one of the over 100 parties to the agreement made commitments under the GATS in the
financial services area. Countries with developed and relatively open financial markets generally
agreed to extend national treatment and market access in the financial services area. A limited
number of other countries took modest steps toward that standard. Many others insisted on
retaining severe limitations on market access and national treatment.
The following are illustrative of some of the more significant steps toward financial liberalization
made since the GATS negotiations began. Argentina has eliminated legal impediments to foreign
financial services firms establishing and operating in its market. Australia now allows branches
of foreign banks to establish for wholesale banking business. Hong Kong recently eased limits
EXECUTIVE SUM M ARY
on the number of offices that foreign banks can open for "backroom" operations. India has
liberalized, to some extent, entry for foreign bank branches; Pakistan recently allowed one U.S.
bank to open new branches. The Philippines has opened itself to the establishment of new
foreign banks for the first time since 1948 and allowed the establishment of universal banks.
Venezuela has implemented legislation at the beginning of 1994 significantly expanding foreign
banks’ ability to enter that market. In many cases, however, these positive steps, some of which
are very recent, remain to be incorporated in the countries GATS commitments.
(5) Finally, financial services markets that hardly existed four years ago in several Eastern
European countries have undergone significant developmert in which a role is being played by
foreign financial services providers.
CONTINUING PROBLEM AREAS
Despite these improvements, significant denials of market access, national treatment and equality
of competitive opportunity remain. This section describes a number of the more important
impediments that remain in the banking and securities sectors.
Banking
In many areas of the world, resistance to the entry/establishment of foreign banks continues.
•
Brazil’s Constitution prohibits new entry of foreign banks and imposes a freeze on
increases in foreign participation in the ownership of existing institutions.
•
A number of other countries have formal moratoria on the issuance of new domestic
(onshore) banking licenses. Often, this applies to both domestic and foreign banks, but
the effect may fall disproportionately on the latter. Currently, these countries include
Chile, the Czech Republic, Malaysia, Singapore, and Thailand.
•
Some countries still prohibit entry via direct branches. Both Canada and Mexico
maintain such a prohibition, an issue open to future negotiation under NAFTA.
•
Others discourage branches, either jure or de facto, including Colombia, Hungary,
Indonesia, Poland, Russia, and South Africa.
•
In addition to prohibiting de novo foreign bank entry, Malaysia requires previously
established foreign bank branches to convert into subsidiaries.
7
EXECUTIVE SUM M ARY
•
Indonesia allows entry only in joint venture form, which precludes 100 percent foreign
ownership. In addition, in order to establish these entities are subject to higher capital
requirements than domestic counterparts.
•
In some markets branches of foreign banks are allowed to enter, but then are subject to
limitations on the number of additional branches, or are confined to a limited geographic
area. Generally, the limits include off-site ATMs. Such restrictions are found in China,
Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, and Thailand.
•
Narrow forms of reciprocity are applied by a number of countries. For example, in
approving branch applications, India takes into account the number of Indian banks
established in the applicant’s home country.
•
Certain countries prohibit foreign banks from participating in local currency business.
This includes China, and in Russia a moratorium was imposed until January 1, 1996, on
all foreign bank operations with Russian residents unless the bank was already servicing
residents before the decree was issued.
•
Some countries place global ceilings on foreign banks’ share of total banking system
assets. This list currently includes Canada, although U.S. and Mexican banks are
exempted from the limits. (Canada will eliminate the ceiling effective on or before the
date of establishment of the World Trade Organization.)
•
A number of countries impose investment screening regimes that permit new
establishment or expansion of operation to be refused at the discretion of the reviewing
agency, with no or with overly broad criteria for refusal. These provisions are a matter
of concern even when not used against U.S. firms. (Screening applies in the securities
sector as well.)
After establishment, direct branches of foreign banks often face impediments to operation
resulting from host country rules on capital. Limits on activities such as lending and foreign
exchange positions may be tied to locally held capital rather than the parent company’s capital.
Because this requirement necessitates the expense of holding a large amount of capital locally,
it in large measure vitiates the advantage of operating as a branch rather than as a subsidiary.
•
8
In a number of European Union current and prospective member countries, local capital
requirements still apply to branches of non-EU banks, but not to branches of banks of
EU member countries.
EXECUTIVE SUMMARY
•
Other countries, including Brazil, Korea, and Turkey apply burdensome capital
requirements to foreign banks’ operations.
In some markets, a high degree of concentration in the banking industry and official tolerance
of restrictive practices by private banks work to the disadvantage of foreign banks.
•
In Singapore, and Malaysia, foreign banks are not able to gain access to the ATM
networks of local banks, and are prohibited from establishing their own networks.
Lack of transparency in the development and implementation of laws and regulations is still a
serious problem in a number of countries.
Securities
In many securities markets, restrictions on entry/establishment continue to exist.
•
In Brazil, the same constitutional prohibition on new entry and freeze on foreign
participation that exists in the banking sector also exists in the securities sector.
•
South Africa prohibits entry of foreign securities firms in any form other than unlicensed
"nameplate" operations.
•
In Malaysia and in Turkey no new brokerage licenses are being issued.
•
China permits only representative offices as a general matter; however, one joint venture
investment bank with U.S. participation was approved in October 1994.
•
Some countries prohibit wholly foreign-owned securities subsidiaries.
Korea, Malaysia, and Pakistan.
•
In the Philippines, foreign firms can establish wholly-owned brokerages, but they can
hold only minority stakes in firms with broader securities powers.
•
In a number of cases, limits on foreign participation are especially tight for firms
involved in mutual fund or pension fund management. This is so in Korea and Taiwan.
These include
The establishment of foreign securities firms also can be impeded by discriminatory capital
requirements.
•
In Indonesia, joint ventures, the only means by which foreigners currently can enter the
market, are subject to discriminatory capital requirements.
9
EXECUTIVE SUMMARY
Various limitations may be placed on market share after establishment.
•
In Japan, access by investment advisers to manage public and private pension funds is
severely limited, even though other private financial mstitutions face no such legal
obstacles.
Membership on stock exchanges may be necessary for full participation in securities markets.
Access to membership on local stock exchanges may be unavailable or available only on an
unfavorable basis, based on reciprocity, or subject to numerical limitation.
•
Examples of this include Malaysia, Singapore, and Thailand.
Exchange controls and overall restrictions on foreign investment can have an important effect
on the ability of U.S. firms to provide financial services. Limits may be placed on foreign
access to securities listed on local stock exchanges, including ceilings on the percentage of
foreign ownership, prohibition of purchases by foreign individuals, and ceilings on purchases
by foreign institutional investors.
•
Such restrictions exist in China, India, Indonesia, Korea, Taiwan, and Thailand.
Limitations on domestic capital market activities or cross-border capital flows, while generally
applicable, may have a disproportionate impact on U.S. securities firms that are well-positioned
to introduce foreign residents to U.S. financial services and products.
•
In Japan, restrictive regulation on the issuance of corporate securities can limit
underwriting opportunities for foreign securities firms. The Securities Exchange Law,
and the manner in which it is administered, severely limit the scope of opportunity for
foreign securities firms to introduce innovative new financial instruments.
•
Japan also retains broad administrative measures on capital account transactions that have
the effect of impeding market access for certain types of financial products.
FUTURE LIBERALIZATION — A THREE-PRONGED STRATEGY
The problems identified in this summary and described in greater detail throughout the study
present major challenges for U.S. financial institutions. These challenges are particularly acute
in the emerging markets. Although many countries have begun to recognize the economic
benefits that come from liberalization of the financial sector, national treatment is still the
exception rather than the rule in too many important markets.
10
EXECUTIVE SUM M ARY
The efforts of the United States to encourage further liberalization are concentrated on three
areas. First, the United States is continuing its effort in the GATS to negotiate commitments
that open financial markets and provide national treatment in those markets on an MFN basis.
Second, this multilateral effort is reinforced by bilateral efforts in markets where the United
States has particularly important interests. Third, the United States has undertaken a number
of other initiatives to promote capital market development and integration in emerging financial
markets and to help build the regulatory infrastructure that must complement the liberalization
process.
GATS
The extended negotiations on financial services in the GATS will continue through the first six
months after the World Trade Organization is established. The United States will continue
negotiations with commercially important developed and developing countries, including those
discussed in this report. In these negotiations, the United States seeks binding commitments to
reduce or eliminate barriers to national treatment and market access, within a clearly specified
and reasonable period of time. Our objective is to achieve substantially full market access and
national treatment for U.S. financial institutions in a broad range of commercially important
developed and developing countries. This remains the condition for the United States to accept
an MFN obligation on financial services under the GATS.
Intensive Bilateral Discussions
The Treasury Department has also been engaged for a number of years in bilateral financial
market discussions with Japan, China, Korea, and Taiwan. These bilateral negotiations have
been intensified in the context of the Uruguay Round, providing helpful impetus to the
multilateral process. United States policy is that the results achieved in these negotiations should
be extended to all countries on an MFN basis.
Other Initiatives
The United States also is engaged in a variety of other initiatives to encourage change that will
lead to more developed and integrated financial markets around the world.
•
In the World Bank and the regional development banks, the U.S. has promoted the
development of investment and financial sector loans that encourage liberalization of
barriers to foreign entry and participation.
•
In the International Monetary Fund (IMF), the U.S. is supporting an effort to extend the
discipline that now exists on exchange restrictions on current account transactions to the
restrictions applied to capital account transactions.
11
EXECUTIVE SUMMARY
In the Organization for Economic Cooperation and Development (OECD), the United
States strongly supported a major expansion of liberalization obligations covering
financial services activities.
In the regional context, the U.S. has promoted cooperative efforts by regulatory agencies
to help develop the regulatory infrastructure necessary for further capital market
deregulation and integration.
—
The U.S. is working with Latin American countries through the Summit of
Americas to promote financial market development, capital market liberalization,
and enhanced financial regulatory cooperation.
—
The first meeting of finance ministers from the Asia Pacific Economic
Cooperation (APEC) forum was held in March 1994. At that meeting, the
ministers agreed on the need to broaden and deepen local capital markets and to
better mobilize domestic savings. They also discussed several issues of common
concern as APEC members seek to develop their financial markets and to attract
foreign capital.
DEPARTM ENT OF TH E TR EASUR Y
W A S H I N G T O N , D.C.
December §§ 1994
SECRETARY OF TH E TREASURY
T h e H o n o r a b l e A 1 Gore
P r e s i d e n t of t h e Senate
W ashington, D.C.
20510
D e a r Mr.
President:
P u r s u a n t to t h e F i n a ncial R e p o r t s A c t of 1988 (Pub. L. 100-418,
sec. 3601 et seg. ; 22 U.S.C. 5351 et s e g . ) , I a m p l e a s e d t o
s u b m i t t h e "1994 R e p o r t on F o r e i g n T r e a t m e n t of U.S. F i n a n c i a l
Institutions.” This Report updates and expands upo n the National
T r e a t m e n t S t u d i e s c o m p l e t e d by t h e U.S. T r e a s u r y in 1979, 1984,
1986, a n d 1990.
T h e 1994 R e p o r t e x a m i n e s t h e d e g r e e of n a t i o n a l
t r e a t m e n t a n d m a r k e t a c cess a f f o r d e d U.S. f i n a n c i a l i n s t i t u t i o n s
in t h i r t y b a n k i n g and t h i r t y - t w o s e c u r i t i e s m a r k e t s , a n d u n d e r
the F i n a n c i a l Se r v i c e s D i r e c t i v e s of t h e E u r o p e a n Union.
The
R e p o r t a l s o d e s c r i b e s U.S. G o v e r n m e n t e f f o r t s t o r e m o v e b a r r i e r s
to t r a d e in f i n a n c i a l s e r v i c e s a n d r e v i e w s t h e p r e s e n c e a n d
t r e a t m e n t of f o r e i g n f i n a n c i a l s e r v i c e s f i r m s in t h e U n i t e d
States.
I n t e n s i v e m u l t i l a t e r a l a nd b i l a t e r a l n e g o t i a t i o n s h a v e l ed to
s i g n i f i c a n t i m p r o v e m e n t s s i n c e t h e las t r e p o r t in t h e t e r m s o n
w h i c h U.S. f i rms c o m pete in o f f e r i n g f i n a n c i a l s e r v i c e s a b r oad.
T he N o r t h A m e r i c a n Free T r a d e A g r e e m e n t ( N A F T A ) , w h i c h i n c l u d e s
i m p o r t a n t c o m m i t m e n t s on f i n a n c i a l services, h a s e n t e r e d into^
effect.
T h e E u r o p e a n U n i o n * s s i n g l e m a r k e t in f i n a n c i a l s e r v i c e s
is b e i n g i m p l e m e n t e d on t h e b a s i s of r e c i p r o c a l n a t i o n a l
treatment.
B i l a t e r a l n e g o t i a t i o n s w i t h Japan, China, K o r e a a n d
T a i w a n h a v e y i e l d e d p r o g r e s s in a n u m b e r of k e y areas.
Uruguay
R o u n d n e g o t i a t i o n s on f i n a n c i a l s e r v i c e s h a v e p r o d u c e d i n t e r i m
c o m m i t m e n t s t h a t c o uld g i v e U.S. f i r m s m o r e s e c u r e access, a n d in
some r e s p e c t s b e t t e r access, t o s o m e f o r e i g n m a r k e t s .
D e s p i t e t h e s e improvements, l ack of n a t i o n a l t r e a t m e n t a n d l a c k
of e q u a l i t y of c o m p e t i t i v e o p p o r t u n i t y is s t i l l t o o p r e v a l e n t in
to o m a n y i m p o r t a n t markets, a n d in a n u m b e r of c o m m e r c i a l l y i m p o r t a n t markets, the r u l e r a t h e r t h a n t h e e x c e p t i o n .
This
R e p o r t d e s c r i b e s those p r o b l e m s in detail.
T h e U n i t e d S t a t e s is
c o n t i n u i n g its e f f orts in t h e G A T S t o n e g o t i a t e c o m m i t m e n t s t h a t
o pen f i n a n c i a l m a r k e t s a nd p r o v i d e n a t i o n a l t r e a t m e n t in t h o s e
m a r k e t s on an M F N basis.
B i l a t e r a l n e g o t i a t i o n s w i t h Japan,
China, K o r e a a n d T a i w a n h a v e b e e n i n t e n s i f i e d in t h e c o n t e x t of
t h e U r u g u a y Round, p r o v i d i n g h e l p f u l i m p e t u s t o t h e m u l t i l a t e r a l
process.
Sincerely,
D E P A R T M E N T O F T H E TR E A S U R Y
W A S H I N G T O N , D.C.
December .1, 1994
SECRETARY O F T H E TR E A S U R Y
T h e H o n o r a b l e T h o m a s S. F o l e y
S p e a k e r of t h e H o u s e of R e p r e s e n t a t i v e s
W a s h i n g t o n , D.C.
20515
D e a r Mr.
Speaker:
P u r s u a n t to t h e F i n a n c i a l R e p o r t s A c t of 1988 (Pub. L. 100-418,
sec. 3601 et s e a . : 22 U.S.C. 5351 et s e g . ), I am p l e a s e d to
s u b m i t t h e ” 1994 R e p o r t on F o r e i g n T r e a t m e n t of U.S. F i n a n c i a l
Institutions.”
T h i s R e p o r t u p d a t e s a nd e x p ands u p o n t h e N a t i o n a l
T r e a t m e n t S t u d i e s c o m p l e t e d b y t h e U.S. T r e a s u r y in 1979, 1984,
1986, a n d 1990.
T h e 1994 R e p o r t e x a m i n e s the d e g r e e of n a t i o n a l
t r e a t m e n t a n d m a r k e t a c c e s s a f f o r d e d U.S. f i n a n c i a l i n s t i t u t i o n s
in t h i r t y b a n k i n g a n d t h i r t y - t w o s e c u r i t i e s m a r kets, a nd u n d e r
t h e F i n a n c i a l S e r v i c e s D i r e c t i v e s of t h e E u r o p e a n Union.
T he
R e p o r t a l s o d e s c r i b e s U.S. G o v e r n m e n t e f f orts to r e m o v e b a r r i e r s
t o t r a d e in f i n a n c i a l s e r v i c e s a n d r e v i e w s t he p r e s e n c e and
t r e a t m e n t of f o r e i g n f i n a n c i a l s e r v i c e s firms in t h e U n i t e d
States.
I n t e n s i v e m u l t i l a t e r a l a n d b i l a t e r a l n e g o t i a t i o n s h a v e led to
s i g n i f i c a n t i m p r o v e m e n t s s i nce t h e last r e p o r t in t h e t e r m s on
w h i c h - U . S . f i r m s c o m p e t e in o f f e r i n g fin a n c i a l s e r v i c e s abroad.
T h e N o r t h A m e r i c a n F r e e T r a d e A g r e e m e n t ( N A F T A ) , w h i c h i n c ludes
i m p o r t a n t c o m m i t m e n t s on f i n a n c i a l services, h a s e n t e r e d into
effect.
T h e E u r o p e a n U n i o n ' s s i n g l e m a r k e t in f i n a n c i a l s e r v i c e s
is b e i n g i m p l e m e n t e d o n t h e b a s i s of r e c i p r o c a l n a t i o n a l
treatment.
B i l a t e r a l n e g o t i a t i o n s w i t h Japan, China, K o r e a a nd
T a i w a n h a v e y i e l d e d p r o g r e s s in a n u m b e r of k e y areas.
Uruguay
Rou n d negotiations on financial services have produced interim
c o m m i t m e n t s t h a t c o u l d g i v e U.S. f i rms m o r e s e c u r e access, a n d in
s o m e r e s p e c t s b e t t e r access, t o s o m e f o r e i g n markets.
D e s p i t e t h e s e i m p r o v e m e n t s , lac k of n a t i o n a l t r e a t m e n t a n d lack
of e q u a l i t y of c o m p e t i t i v e o p p o r t u n i t y is still t o o p r e v a l e n t in
t o o m a n y i m p o r t a n t m a r kets, a n d in a n u m b e r of c o m m e r c i a l l y i m p o r t a n t m a r k e t s , t h e r u l e r a t h e r t h a n the e x c e ption.
This
R e p o r t d e s c r i b e s t h o s e p r o b l e m s in detail.
Th e U n i t e d Stat e s is
c o n t i n u i n g its e f f o r t s in t he G A T S to n e g o t i a t e c o m m i t m e n t s t h a t
o p e n f i n a n c i a l m a r k e t s a nd p r o v i d e n a t i o n a l t r e a t m e n t in t h o s e
m a r k e t s on an M F N basis.
B i l a t e r a l n e g o t i a t i o n s w i t h Japan,
China, K o r e a a n d T a i w a n h a v e b e e n i n t e n s i f i e d in t h e c o n t e x t of
t h e U r u g u a y Round, p r o v i d i n g h e l p f u l impetus to t h e m u l t i l a t e r a l
process.
Sincerely,
/
*2 ' / ^ M .
EXECUTIVE SUMMARY
Current conditions are quite different than they were four years ago when the 1990 National
Treatment Study was completed. International trade in financial services has taken on much
greater significance. Intensive multilateral and bilateral negotiations have led to significant
improvements in the terms on which U.S. firms compete in offering financial services abroad.
An historic North American Free Trade Agreement (NAFTA), including important commitments
on financial services, was concluded and has entered into effect. The European Union’s single
market program in financial services is being implemented and expanded geographically.
Bilateral negotiations on financial services with Japan have continued in the context of the U.S.Japan Framework for a New Economic Partnership with the objective of achieving a
comprehensive agreement that can contribute to the successful conclusion of the General
Agreement on Trade in Services (GATS) negotiations. Uruguay Round negotiations on financial
services, although not concluded, have produced interim commitments that could give U.S. firms
more secure access, and in some respects better access, to some foreign markets than they had
before. The principal negotiating objective of the United States in the extended negotiations on
financial services is to achieve substantially full market access and national treatment in
commercially important countries.
There also have been several major developments in U.S. financial legislation and regulation.
In the banking area, the Foreign Bank Supervision Enhancement Act of 1991 (FBSEA)
strengthened U.S. bank regulators’ authority to regulate and supervise the activities of foreign
banks in the United States. Among other measures, the statute includes a prudential provision
that all foreign bank applicants seeking to establish branches and agencies must be subject to
comprehensive consolidated supervision by their home country authorities. In September 1994,
the Congress enacted, and President Clinton signed into law, the Interstate Banking and
Branching Efficiency Act of 1994, a major step forward that should facilitate greater geographic
diversification in the U.S. banking system. The act provides domestic and foreign banks with
nationwide banking opportunities.
In other financial services, U.S. regulators have taken a number of steps to simplify access to
U.S. securities markets by foreign firms and issuers, without compromising investor protection.
The Securities and Exchange Commission (SEC) has modified and simplified certain disclosure
requirements that facilitate access to U.S. capital markets, including accepting, for the first time,
cash flow statements prepared in accordance with international accounting standards. A total
of 305 new foreign corporate issuers have entered the U.S. markets since January 1990,
including companies from Germany, China, Chile, Venezuela, and Brazil. In addition, under
Rule 144A, introduced in April 1990, resales of certain restricted securities have been exempted
from SEC registration requirements; nearly half of the 514 issuers or guarantors under this rule
have been foreign. Also, since 1992, the SEC has eased restrictions on foreign advisers to
provide further incentives for foreign advisers to provide services to U.S. clients. The
Commodity Futures Trading Commission (CFTC) has implemented measures to facilitate 24hour trading of U.S. and foreign exchange-traded products on approved electronic trade
3
EXECUTIVE SUM MARY
management instruments by exempting from CFTC regulations foreign firms that are subject to
"comparable" regulatory schemes by home country authorities.
These developments in the U.S. market preserved national treatment for foreign financial
institutions. Where new opportunities were created, they were extended on an equal basis to
foreign and domestic institutions. Where new prudential standards were established, they have
been applied on a national treatment basis.
During this period, both houses of Congress passed bills designed to reinforce the
administration’s efforts to encourage further liberalization of foreign financial markets. Both
the proposed Fair Trade in Financial Services (FTFS) Act, which passed the Senate in March
1994, and the more narrow National Treatment in Banking Act, which passed the House in
September 1994, would have provided discretionary authority to limit the opportunities afforded
in the United States to financial institutions from countries that deny national treatment and
market access to U.S. financial institutions. Neither bill became law.
Foreign financial institutions continue to maintain a large and diverse presence in the United
States. As of June 30, 1994, 288 foreign banks from 60 countries operated 580 agencies and
branches, 91 banking subsidiaries, 12 Edge corporations, and six New York State Investment
Companies. Foreign banks’ U.S. affiliates’ share of total U.S. banking assets was 21.0 percent,
including 32.7 percent of business loans. SEC staff has identified the number of foreign persons
that have equity interests of 25 percent or more in registered broker-dealers to be approximately
173, out of a total of about 8,000 registered broker-dealers in the United States. In 1993,
foreign-owned broker-dealers lead- managed 149 bond issues in the United States totalling $35.1
billion, and 33 equity issues totalling $2.2 billion. In addition, there are roughly 312 foreign
investment advisers (up from approximately 200 in 1990) registered in the United States and 127
foreign firms that are permitted to engage in commodity futures and options brokerage activities.
IMPROVEMENTS IN NATIONAL TREATMENT ABROAD SINCE THE 1990 REPORT
In a number of foreign markets, progress has been made since the 1990 National Treatment
Study to expand the opportunities afforded to foreign financial institutions. National laws and
regulatory practices have been amended as countries recognized the importance of foreign
participation in creating deeper more efficient capital markets. The general embrace throughout
most of the emerging markets of economic reform and liberalization provided impetus to
financial deregulation and liberalization. In many important instances, these changes were a
direct consequence of negotiations or discussions between U.S. and foreign officials.
Significant developments since the last study include the following:
4
EXECUTIVE SUM M ARY
(1) The financial services chapter of the NAFTA entered into force, providing market access
and national treatment for U.S. financial institutions in Mexico and Canada. The agreement also
establishes a formal consultative group and a dispute settlement mechanism. For the first time
in over 50 years, U.S. banks, securities firms and other types of financial intermediaries will
be allowed to establish and operate in Mexico, subject to limits on market share during a
transition period that ends January 1, 2000.
(2) The European Union has provided access to the single market in financial services on a
reciprocal national treatment basis. The Second Banking Directive, which gives universal
banking powers throughout the member states to locally incorporated subsidiaries, went into
effect on January 1, 1993. The Investment Services Directive, which will expand the range of
securities activities that locally incorporated subsidiaries may provide throughout the area, will
go into effect on January 1, 1996. Early indications are that U.S. banks and securities firms
established in the area are planning to take full advantage of the expanded business opportunities
offered by the single market.
Direct branches of foreign financial services firms will continue to be subject to the regulation
of individual member states. In some of these countries, branches of U.S. banks are subject to
operating restrictions based on local capital that do not apply to branches of EU banks. Bilateral
negotiations between U.S. regulators and their German counterparts resulted in substantial
alleviation of local capital requirements for U.S. bank branches in Germany.
(3) Bilateral negotiations between the U.S. Treasury and financial authorities in Japan, China,
Korea, and Taiwan have yielded substantive progress in a number of key areas.
In Japan, foreign investment trust management companies were permitted in 1990 to establish
for the first time. Also in 1990, limited access was given to investment advisers, including U.S.
investment advisers, to manage a small portion of private pension fund monies. (The percentage
of eligible private pension fund money was expanded in October 1994.) The range of securities
products that securities firms may now underwrite and sell in Japan has been expanded slightly.
In addition, the long process of deregulating deposit interest rates, begun in the late 1970s, was
completed in October 1994. Other improvements include expanded swap opportunities for
securities firms, the addition of new derivatives products and bank licenses for securities firms.
In China, the number of permissible locations for foreign branch banking has been expanded to
some extent and the Chinese authorities have committed to further liberalization. In addition,
foreign banks may now buy and sell foreign exchange on behalf of foreign-invested joint
ventures. Foreign financial firms also may participate in underwriting offshore securities issued
by Chinese residents, and, for the first time, foreign securities firms may now establish
representative offices in China. In addition, foreign securities firms may now provide brokerage
services for a certain class of Chinese securities.
5
EXECUTIVE SUM M ARY
In Korea, progress was made to improve foreign banks’ cost of funding. The Finance Ministry
raised the limits on local currency funding that can be obtained through the issuance of
certificates of deposit and agreed not to reduce swap lines without first consulting with foreign
banks. Less restrictive rules also were adopted in the treatment of local capital for the purpose
of establishing bank lending limits. Certain restrictions on foreign investment in Korean
securities were eased; a further liberalization has been announced for 1995. Since 1992, foreign
securities firms have been permitted to establish branch offices in Korea. In March 1992, the
Ministry of Finance announced that Korea would formulate a three-stage "Blueprint” for
comprehensive financial sector liberalization. Implementation of these measures is underway.
In early 1994, Korea established an unofficial subcommittee to study and make recommendations
on reform of the foreign exchange system. An announcement is expected by the Ministry of
Finance before the end of 1994.
In June 1994, Taiwan partially lifted the ban on foreign investment in local banks. Soon
afterward, Taiwan announced the easing of certain criteria for foreign bank branch entry, the
immediate elimination of geographical and numerical restrictions on bank branching, and a
reduction of the waiting period between establishment of an initial branch and additional
branches from five years to two years. In addition, the ceiling on foreign banks’ acceptance of
local currency deposits was eliminated. (Previously, the limit on lending in local currency for
a single customer had been relaxed for banks with capital above certain levels.) In addition,
foreign securities firms may now establish subsidiaries or branches that can provide the same
services as domestic securities firms. And restrictions on aggregate securities purchases by
foreign institutional investors have been partially eased.
(4) As part of the recently completed Uruguay Round, a new General Agreement on Trade in
Services (GATS) was adopted, establishing a framework of multilateral disciplines that can be
applied to trade in financial services. These disciplines include market access, national
treatment, and most-favored-nation (MFN) obligations. The United States conducted an
intensive series of negotiations during the Uruguay Round with some 40 countries plus the
European Union, which represented its 12 member states. The negotiations were aimed at
securing binding commitments to the obligations of the GATS with few significant limitations.
Sixty-one of the over 100 parties to the agreement made commitments under the GATS in the
financial services area. Countries with developed and relatively open financial markets generally
agreed to extend national treatment and market access in the financial services area. A limited
number of other countries took modest steps toward that standard. Many others insisted on
retaining severe limitations on market access and national treatment.
The following are illustrative of some of the more significant steps toward financial liberalization
made since the GATS negotiations began. Argentina has eliminated legal impediments to foreign
financial services firms establishing and operating in its market. Australia now allows branches
of foreign banks to establish for wholesale banking business. Hong Kong recently eased limits
6
EXECUTIVE SUM M ARY
on the number of offices that foreign banks can open for "backroom” operations. India has
liberalized, to some extent, entry for foreign bank branches; Pakistan recently allowed one U.S.
bank to open new branches. The Philippines has opened itself to the establishment of new
foreign banks for the first time since 1948 and allowed the establishment of universal banks.
Venezuela has implemented legislation at the beginning of 1994 significantly expanding foreign
banks’ ability to enter that market. In many cases, however, these positive steps, some of which
are very recent, remain to be incorporated in the countries’ GATS commitments.
(5) Finally, financial services markets that hardly existed four years ago in several Eastern
European countries have undergone significant development in which a role is being played by
foreign financial services providers.
CONTINUING PROBLEM AREAS
Despite these improvements, significant denials of market access, national treatment and equality
of competitive opportunity remain. This section describes a number of the more important
impediments that remain in the banking and securities sectors.
Banking
In many areas of the world, resistance to the entry/establishment of foreign banks continues.
•
Brazil’s Constitution prohibits new entry of foreign banks and imposes a freeze on
increases in foreign participation in the ownership of existing institutions.
•
A number of other countries have formal moratoria on the issuance of new domestic
(onshore) banking licenses. Often, this applies to both domestic and foreign banks, but
the effect may fall disproportionately on the latter. Currently, these countries include
Chile, the Czech Republic, Malaysia, Singapore, and Thailand.
•
Some countries still prohibit entry via direct branches. Both Canada and Mexico
maintain such a prohibition, an issue open to future negotiation under NAFTA.
•
Others discourage branches, either jure or de facto, including Colombia, Hungary,
Indonesia, Poland, Russia, and South Africa.
•
In addition to prohibiting de novo foreign bank entry, Malaysia requires previously
established foreign bank branches to convert into subsidiaries.
7
EXECUTIVE SUM MARY
•
Indonesia allows entry only in joint venture form, which precludes 100 percent foreign
ownership. In addition, in order to establish these entities are subject to higher capital
requirements than domestic counterparts.
•
In some markets branches of foreign banks are allowed to enter, but then are subject to
limitations on the number of additional branches, or are confined to a limited geographic
area. Generally, the limits include off-site ATMs. Such restrictions are found in China,
Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, and Thailand.
•
Narrow forms of reciprocity are applied by a number of countries. For example, in
approving branch applications, India takes into account the number of Indian banks
established in the applicant’s home country.
•
Certain countries prohibit foreign banks from participating in local currency business.
This includes China, and in Russia a moratorium was imposed until January 1, 1996, on
all foreign bank operations with Russian residents unless the bank was already servicing
residents before the decree was issued.
•
Some countries place global ceilings on foreign banks’ share of total banking system
assets. This list currently includes Canada, although U.S. and Mexican banks are
exempted from the limits. (Canada will eliminate the ceiling effective on or before the
date of establishment of the World Trade Organization.)
•
A number of countries impose investment screening regimes that permit new
establishment or expansion of operation to be refused at the discretion of the reviewing
agency, with no or with overly broad criteria for refusal. These provisions are a matter
of concern even when not used against U.S. firms. (Screening applies in the securities
sector as well.)
After establishment, direct branches of foreign banks often face impediments to operation
resulting from host country rules on capital. Limits on activities such as lending and foreign
exchange positions may be tied to locally held capital rather than the parent company’s capital.
Because this requirement necessitates the expense of holding a large amount of capital locally,
it in large measure vitiates the advantage of operating as a branch rather than as a subsidiary.
•
8
In a number of European Union current and prospective member countries, local capital
requirements still apply to branches of non-EU banks, but not to branches of banks of
EU member countries.
EXECUTIVE SUM M ARY
•
Other countries, including Brazil, Korea, and Turkey apply burdensome capital
requirements to foreign banks’ operations.
In some markets, a high degree of concentration in the banking industry and official tolerance
of restrictive practices by private banks work to the disadvantage of foreign banks.
•
In Singapore, and Malaysia, foreign banks are not able to gain access to the ATM
networks of local banks, and are prohibited from establishing their own networks.
Lack of transparency in the development and implementation of laws and regulations is still a
serious problem in a number of countries.
Securities
In many securities markets, restrictions on entry/establishment continue to exist.
•
In Brazil, the same constitutional prohibition on new entry and freeze on foreign
participation that exists in the banking sector also exists in the securities sector.
•
South Africa prohibits entry of foreign securities firms in any form other than unlicensed
"nameplate" operations.
•
In Malaysia and in Turkey no new brokerage licenses are being issued.
•
China permits only representative offices as a general matter; however, one joint venture
investment bank with U.S. participation was approved in October 1994.
•
Some countries prohibit wholly foreign-owned securities subsidiaries.
Korea, Malaysia, and Pakistan.
•
In the Philippines, foreign firms can establish wholly-owned brokerages, but they can
hold only minority stakes in firms with broader securities powers.
•
In a number of cases, limits on foreign participation are especially tight for firms
involved in mutual fund or pension fund management. This is so in Korea and Taiwan.
These include
The establishment of foreign securities firms also can be impeded by discriminatory capital
requirements.
•
In Indonesia, joint ventures, the only means by which foreigners currently can enter the
market, are subject to discriminatory capital requirements.
9
EXECUTIVE SUM MARY
Various limitations may be placed on market share after establishment.
•
In Japan, access by investment advisers to manage public and private pension funds is
severely limited, even though other private financial institutions face no such legal
obstacles.
Membership on stock exchanges may be necessary for full participation in securities markets.
Access to membership on local stock exchanges may be unavailable or available only on an
unfavorable basis, based on reciprocity, or subject to numerical limitation.
•
Examples of this include Malaysia, Singapore, and Thailand.
Exchange controls and overall restrictions on foreign investment can have an important effect
on the ability of U.S. firms to provide financial services. Limits may be placed on foreign
access to securities listed on local stock exchanges, including ceilings on the percentage of
foreign ownership, prohibition of purchases by foreign individuals, and ceilings on purchases
by foreign institutional investors.
•
Such restrictions exist in China, India, Indonesia, Korea, Taiwan, and Thailand.
Limitations on domestic capital market activities or cross-border capital flows, while generally
applicable, may have a disproportionate impact on U.S. securities firms that are well-positioned
to introduce foreign residents to U.S. financial services and products.
•
In Japan, restrictive regulation on the issuance of corporate securities can limit
underwriting opportunities for foreign securities firms. The Securities Exchange Law,
and the manner in which it is administered, severely limit the scope of opportunity for
foreign securities firms to introduce innovative new financial instruments.
•
Japan also retains broad administrative measures on capital account transactions that have
the effect of impeding market access for certain types of financial products.
FUTURE LIBERALIZATION — A THREE-PRONGED STRATEGY
The problems identified in this summary and described in greater detail throughout the study
present major challenges for U.S. financial institutions. These challenges are particularly acute
in the emerging markets. Although many countries have begun to recognize the economic
benefits that come from liberalization of the financial sector, national treatment is still the
exception rather than the rule in too many important markets.
10
EX ECUTIVE SUM M ARY
The efforts of the United States to encourage further liberalization are concentrated on three
areas. First, the United States is continuing its effort in the GATS to negotiate commitments
that open financial markets and provide national treatment in those markets on an MFN basis.
Second, this multilateral effort is reinforced by bilateral efforts in markets where the United
States has particularly important interests. Third, the United States has undertaken a number
of other initiatives to promote capital market development and integration in emerging financial
markets and to help build the regulatory infrastructure that must complement the liberalization
process.
GATS
The extended negotiations on financial services in the GATS will continue through the first six
months after the World Trade Organization is established. The United States will continue
negotiations with commercially important developed and developing countries, including those
discussed in this report. In these negotiations, the United States seeks binding commitments to
reduce or eliminate barriers to national treatment and market access, within a clearly specified
and reasonable period of time. Our objective is to achieve substantially full market access and
national treatment for U.S. financial institutions in a broad range of commercially important
developed and developing countries. This remains the condition for the United States to accept
an MFN obligation on financial services under the GATS.
Intensive Bilateral Discussions
The Treasury Department has also been engaged for a number of years in bilateral financial
market discussions with Japan, China, Korea, and Taiwan. These bilateral negotiations have
been intensified in the context of the Uruguay Round, providing helpful impetus to the
multilateral process. United States policy is that the results achieved in these negotiations should
be extended to all countries on an MFN basis.
Other Initiatives
The United States also is engaged in a variety of other initiatives to encourage change that will
lead to more developed and integrated financial markets around the world.
•
In the World Bank and the regional development banks, the U.S. has promoted the
development of investment and financial sector loans that encourage liberalization of
barriers to foreign entry and participation.
•
In the International Monetary Fund (IMF), the U.S. is supporting an effort to extend the
discipline that now exists on exchange restrictions on current account transactions to the
restrictions applied to capital account transactions.
11
EXECUTIVE SUMMARY
In the Organization for Economic Cooperation and Development (OECD), the United
States strongly supported a major expansion of liberalization obligations covering
financial services activities.
In the regional context, the U.S. has promoted cooperative efforts by regulatory agencies
to help develop the regulatory infrastructure necessary for further capital market
deregulation and integration.
—
The U.S. is working with Latin American countries through the Summit of
Americas to promote financial market development, capital market liberalization,
and enhanced financial regulatory cooperation.
—
The first meeting of finance ministers from the Asia Pacific Economic
Cooperation (APEC) forum was held in March 1994. At that meeting, the
ministers agreed on the need to broaden and deepen local capital markets and to
better mobilize domestic savings. They also discussed several issues of common
concern as APEC members seek to develop their financial markets and to attract
foreign capital.
D E P A R T M E N T
OF
T H E
T R E A S U R Y
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
iEC
i 3-
U V O v 0
CONTACT:
FOR RELEASE AT 2:30 P.M.
December 2, 1994
Office of Financing
202/219-3350
TREASURY'S 52-WEEK BILL OFFERING
The Treasury will auction approximately $17,000 million of
52-week Treasury bills to be issued December 15, 1994. This
offering will provide about $750 million of new cash for the
Treasury, as the maturing 52-week bill is currently outstanding
in the amount of $16,238 million. In addition to the maturing
52-week bills, there are $24,299 million of maturing 13-week and
26-week bills.
Federal Reserve Banks hold $10,708 million of bills for
their own accounts in the three maturing issues. These may be
refunded at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $3,028 million of the three
maturing issues as agents for foreign and international monetary
authorities. These may be refunded within the offering amount at
the weighted average discount rate of accepted competitive
tenders. Additional amounts may be issued for such accounts if
the aggregate amount of new bids exceeds the aggregate amount of
maturing bills. For purposes of determining such additional
amounts, foreign and international monetary authorities are
considered to hold $572 million of the maturing 52-week issue.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities is
governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about the new security are given in the attached
offering highlights.
oOo
Attachment
LB-1264
HIGHLIGHTS OF TREASURY OFFERING OF 52-WEEK BILLS
TO BE ISSUED DECEMBER 15, 1994
December 2, 1994
O f ferina A m o u n t
........
•
$17,000 million
D e s c r i p t i o n of Offering:
364-day bill
912794 T6 1
December 8, 1994
December 15, 1994
December 14, 1995
December 15, 1994
$16,238 million
$10,000
$1,000
Term and type of security
CUSIP number ..........
Auction date ..........
Issue date ...........
Maturity date ..........
Original issue date . . .
Maturing amount.........
Minimum bid amount . . .
Multiples .............
S u b m i s s i o n of Bids:
Accepted in full up to $1,000,000
at the average discount rate of
accepted competitive bids.
(1) Must be expressed as a discount rate
with two decimals, e.g., 7.10%.
(2) Net long position for each bidder
must be reported when the sum of the
total bid amount, at all discount
rates, and the net long position are
$2 billion or greater.
(3) Net long position must be reported
one half-hour prior to the closing
time for receipt of competitive bids.
Noncompetitive bids . . . •
Competitive bids
. . .
M a x i m u m R e c o c m i z e d B id
at a Sinale Y i e l d
. . •
35% of public offering
35% of public offering
M a x i m u m A w a r d ............
R e c e i p t of Tenders:
Noncompetitive tenders
•
Competitive tenders . . . •
P a y ment T e r m s ............
Prior to 12:00 noon Eastern Standard
time on auction day.
Prior to 1:00 p.m. Eastern Standard
time on auction day.
Full payment with tender or by charge
to a funds account at a Federal
Reserve bank on issue date.
D E P A R T M E N T
TREASURY
OF
THE
T R E A S U R Y
NE WS
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. « WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
December 2, 1994
IS SYSTEMIC RISK DEAD?
Richard S. Carnell, Assistant Secretary of the Treasury
for Financial Institutions
Office of the Comptroller of the Currency Conference on Banking,
Financial Markets and Systemic Risk
Concern over systemic risk raises important issues about the adequacy of our existing
framework for supervising depository institutions. In short, is systemic risk dead? And if
not, why not?
In the course of this century, Congress has enacted the Federal Reserve Act, the
Banking Acts of 1933 and 1935, the Financial Institutions Supervision Act of 1966, the
International Lending Supervision Act of 1983, the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989, and the Federal Deposit Insurance Corporation Improvement
Act of 1991 (FDICIA). If, with such a broad array of regulatory measures in hand, we have
still not eradicated systemic risk,1 is there something fundamentally flawed in our approach
to the problem? I know that many of the academics here would answer the last question with
a resounding "Yes!", but I will postpone my own response until later in the discussion. As
for whether systemic risk is dead, I would have to answer in the negative. But its survival
does not necessarily indicate massive shortcomings in the existing regulatory framework or
even a need for additional tools. But it does suggest that our future success in keeping
systemic risk to tolerable levels will depend on how well we use the supervisory tools we
already have.
To illustrate the point, consider a familiar analogy. In the mid-1980s and again this
past year, some critics of the prevailing monetary policy asked, "Is inflation dead?" The
critics implied that inflation was indeed dead and that the Federal Reserve could therefore
safely turn its attention to stimulating the economy. Whatever one’s judgment about current
monetary policy, there is a very real sense in which inflation never dies. The inflation rate
remains subject to unexpected supply shocks, such as those OPEC imparted in the 1970s.
More broadly, because in the long run the money supply strongly influences the general level
of prices, inflation will remain dormant only while money growth remains subdued. It is
LB-1265
like a blaze that is never finally extinguished, requiring constant vigilance to prevent it from
rekindling. Furthermore, because monetary policy actions affect the inflation rate only after
a substantial lag (variously estimated at between 18 months and three years), one cannot
prevent inflation by acting only after the inflation rate actually begins to accelerate.
Similarly, systemic risk, although currently under control, remains a latent threat
awaiting only an unexpected shock or a gross policy error to show its ugly face. That it
rarely manifests itself twice in exactly the same form compounds the challenge of controlling
it.
As for the adequacy of our basic regulatory framework for containing systemic risk,
there are at least two possible conclusions. One is that the existing framework provides the
necessary policy tools to keep systemic risk at an acceptably low level, albeit with no
guarantee that we will always use those tools appropriately. The other is that the regulatory
framework is fundamentally flawed, and it is just a matter of time until bitter experience
demonstrates the need for a massive revision of legislation currently on the books to deal
with systemic risk.
I would argue that, at least as concerns the banking system during the remainder of
this decade, the former conclusion is closer to the mark than the latter. That is to say, we
have the tools necessary to limit systemic risk, and are likely to use them appropriately. I
base this judgment on a step-by-step evaluation of the tools we have, how they have been
used in the past, and what the prospects are for their use in the future.
Certainly, the Federal Reserve Act put in place the key policy tool for containing a
banking crisis. By creating a central bank with lender of last resort responsibilities,
Congress intended to assure that healthy, well-managed banks with good assets could always
obtain liquidity in time of crisis. Toward that end, Congress gave the Federal Reserve
System wide latitude in determining what could serve as acceptable collateral for loans from
the discount windows of the regional Federal Reserve banks. This lending capability,
combined with the Fed’s later development of open market operations, should have sufficed
to contain all but the most severe cases of systemic risk associated with exogenous shocks.
The new system failed its first real test, in the 1930s. Yet that failure is now widely
understood to have resulted not from any basic deficiency in the arsenal of policy tools
available to combat the crisis, but from failure to use those tools effectively. As Friedman
and Schwartz have documented at great length, the Fed ignored lessons about appropriate
central bank behavior known since the time of Walter Bagehot, and stood aside as the
nation’s banking system collapsed.
For those who weren’t satisfied with having a lender of last resort to combat systemic
risk, the Banking Act of 1933 included a second major response to such risk: federal deposit
insurance. If runs were a key channel for transmitting adverse effects from poorly managed,
failing banks to otherwise healthy banks —a notion that recent research has called into
question -- then deposit insurance should play an important role in confining the effects of
failures to the institutions immediately involved.
From 1934 through the early 1980s, deposit insurance received credit for dramatically
stabilizing the banking system. Bank failures declined to the minuscule rate of fewer than
ten per year, almost all involving small banks that failed through fraud or malfeasance.
More recently, scholars have emphasized that the weakest banks had virtually all closed by
1933, and that the economy strengthened greatly with the onset of World War II. But
whatever the reason, runs -- a familiar feature of earlier banking crises —essentially
disappeared.
During the 1980s, bank failures accelerated sharply, marked first by defaults on farm
loans and later by losses on commercial real estate. This might seem to belie the adequacy
of the tools available to regulators. But once again, the fault lay less in the tools than in how
they were used. Regulators seemingly forgot hard-won lessons —known to bankers and
regulators alike -- about the perverse incentives of deposit insurance and the dangers of
capital forbearance. Thrift regulators allowed institutions to operate for a decade or longer
after becoming book-value insolvent —a national disgrace, and one which greatly
exacerbated the losses those institutions caused to the taxpayers. Although banking
regulators did not carry forbearance that far, they received just criticism for the inequity of
treating some institutions as "too big to fail," and for such lapses as permitting banks to
increase their commercial real estate exposure just as other lenders were leaving the market.
Why, then, do I believe that the existing array of supervisory and regulatory tools
should prove adequate to deal with systemic risk? First of all, despite major shortcomings in
supervisory policy, the banking and thrift crises of the 1980s never threatened such a
breakdown of the system as occurred in the 1930s. On the contrary, the payment system
functioned without interruption, runs remained basically nonexistent, and credit remained
generally available, albeit with some painful tightening in some regions and economic
sectors.
Second, the Fed’s prompt reaction to the stock market crash of 1987, when it took
extraordinary measures to assure that liquidity was available to the market, suggests that the
central bank has learned its lessons well since the 1930s. It also deserves good marks for
gradually withdrawing the excess liquidity after the crash had run its course.
Third, and just as importantly, 1991 saw two cmcial additions to the tools available to
regulators for dealing with banking crises: the instructions f o r using the other tools, together
with an im proved set o f incentives. These came in the form of FDICIA’s prompt corrective
action and least-cost resolution provisions. Prompt corrective action requires regulators to
impose increasingly stringent restrictions and requirements on an institution as its capital
declines below required levels - with the goal of resolving the institution’s problems at no
loss or minimal loss to the deposit insurance fund. Least-cost resolution curtails too-big-tofail policies by generally requiring the FDIC to resolve failed or failing institutions using the
method least costly to the deposit insurance fund.2 Exceptions can be made only if necessary
to avoid "serious adverse effects on economic conditions or financial stability," and then only
if proposed by two-thirds majorities of both the Federal Reserve Board and the FDIC’s
Board of Directors and approved by the Secretary of the Treasury. The legislative history
indicates that Congress intended this exception "for those rare instances in which the failure
of an institution could threaten the entire financial system."
Prompt corrective action codified supervisory principles regulators had known for
decades, but which they had a tendency to discard under pressure. By tying mandatory
supervisory intervention -- including resolution -- to an institution’s capital position, FDICIA
limited regulators’ discretion to prolong and ultimately increase the agony associated with
depository institution failures. And in so doing, it helped counteract the old incentives to
practice forbearance and overextend the federal safety net.
The initial results of prompt corrective action and least-cost resolution are positive.
With capital deficiencies now carrying clear and fairly predictable consequences, banks and
thrifts have corrected those deficiencies -- so much so that today an undercapitalized
institution is a lonely outlier. Fewer institutions are getting into trouble, and those that
ultimately fail are imposing even smaller losses on the FDIC. And one no longer hears all
that loose talk about not needing to concern oneself with an institution’s credit quality
because the institution was too big to fail. The potential for problems at sick institutions to
spread to healthy institutions - insofar as it existed - is further reduced.
But that is not cause for complacency. We need to remain vigilant against the natural
tendency to forget the lessons of a crisis once the crisis subsides. If institutions have federal
deposit insurance, they should also have real capital. And we should not let an institution be
walled off from market discipline by the perception that it is too big to fail.
I question whether any institution is really too big to fail, especially if we understand
"failure" as being broader than liquidation. As we all know, some very large banks have
failed in an economic sense. Of course, "too big to fail" refers not to the economic concept
of failure, strictly defined, but to the regulatory recognition of that failure. Just as there is a
difference between a student failing a course and the professor recognizing that failure by
giving the student an "F," there is an equally sharp distinction between the failure of a bank
and its recognition and resolution. Thus, even though some banks are too big to liquidate
without unduly disrupting the financial system, regulators’ adherence to a clearly stated rule
in reorganizing banks, wiping out existing stockholders’ claims, and giving haircuts to
uninsured creditors will serve the economic functions of failure.
In concluding, I would like to return to the question posed earlier as to whether our
regulatory framework, as presently constituted, is fundamentally flawed. My judgment that
it should prove adequate to deal with systemic risk is an evaluation of only one dimension of
performance. If alternative ways can be devised to achieve that same end that also enhance
the financial system’s competitiveness, efficiency, progressiveness, and responsiveness to
social goals, we should certainly explore them. A variety of suggestions for substituting
market discipline for formal government supervision come to mind in this context. But that
is a question that goes far beyond the scope of my comments today.
-301.
Systemic risk is the risk of a sudden, unexpected, and widespread collapse of confidence in
the financial system, with potentially large effects on the real economy.
2.
For a detailed discussion of the incentive effects intended in FDICIA, see Camell, "A Partial
Antidote to Perverse Incentives: The FDIC Improvement Act of 1991,” Annual Review of
Banking Law, vol 12 (1993), pp. 317-71.
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N<W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
^ yu3 I
CONTACT: Scott Dykema
(202) 622-2960
FOR IMMEDIATE RELEASE
December 5, 1994
REMARKS OF ASSISTANT SECRETARY FOR TAX POLICY
LESLIE B. SAMUELS ON THE
PENSION BENEFIT GUARANTY CORPORATION (PBGC)
PROVISIONS OF THE GATT
As a member of the PBGC Board, Secretary Bentsen is pleased that the GATT
legislation included important provisions that will improve the retirement security of
millions of Americans and ensure the future financial strength of the PBGC.
Since Secretary Reich formed an interagency task force in early 1993, the
Treasury has been a very active participant in developing the Administration’s legislative
proposals. I am pleased that the final product achieves the major goals that we set out
to accomplish at the beginning of the process.
• Employers will now be required to fund their pension plans responsibly.
• PBGC premiums will be more directly related to the financial risk presented by
the plans that are insured.
• Impediments to plan funding will be removed.
• The rights of workers to know the status of their plans and to obtain their
benefits will be expanded.
• And last, but certainly not least, the PBGC deficit will soon be eliminated.
When this process started, no one gave us much chance of success, certainly not
this year. But, as we developed the financing package for the GATT, the Treasury
Department recognized that there was an opportunity to further the funding of this
historic trade bill, while also enhancing the retirement security of American workers. In
the end, each proposal will, in its own way, make a significant and lasting contribution to
the economic security of all Americans.
-30LB—1266
D E P A R T M E N T
OF
T H E
T R E A S U R Y
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
December 5, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
NATIONAL PRESS CLUB
WASHINGTON D.C.
Tve thought about this speech —a lot. I want to talk mostly about the Summit of
Americas, but I know what’s on your mind: budgets, Congress, and contracts.
In the next two years, Democrats won’t run a campaign of obstruction. You
always have a responsibility to your party, but country has to come first.
We want to work with Republicans. I hope they’re successful in reforming
Congress and in giving items like the line-item veto to the President. I never knew
anything that man created that couldn’t be made better, and they can make it better.
But those who’ve been here a while know we’ve learned some lessons —one, in
particular. There’s no sense in repeating mistakes on the budget. I voted for the ’81 tax
bill that created the budget problem. That bill was complete with overly optimistic
assumptions, and it ended in a bidding war to see who could please the public more -the President or Congress.
If we didn’t have to pay the interest on the increase of the debt between 1981 and
’92, we’d have balanced the budget last year and had a $50 billion surplus this fiscal year.
We’ve come too far in cutting the budget deficit to let the next Congress turn back and
start cooking the books.
I think Americans will remember this last session as the Congress that turned the
economy around. Part of that is what it did on the budget, but a big part is what it did
to liberalize trade, to create opportunities for Americans to sell around the world.
GATT will be a tremendous boost to global trade. It will be over five NAFTAs
for us. And think what NAFTA has accomplished in just one year. It’s boosted trade
20 percent between the U.S. and Mexico. It did what we advertised. It’s created 130,000
jobs here.
LB-1267
CEOs always tell me: "Mr. Secretary, we can build great products, but
Washington has to set policies that help open up markets in other countries." Under
the President’s leadership, this Congress did that. We did it with bi-partisan support, by
working together, by cooperating.
By the way, free trade agreements have to help all partners, or you don’t do them.
NAFTA has helped Mexico and Canada, as well as us.
I work with finance ministers the way I work with Congress. When I have an idea
or an issue to discuss —I pick up the phone. I call Theo Waigel in Germany or Kenneth
Clarke in Britain. I talked to Pedro Aspe in Mexico often, and I look forward to the
same relationship with his successor, Jaime Serra Puche.
Five days from now, the President will host 33 other heads of state from this
hemisphere. They’ll get to know one another. They’ll make plans. They’ll build
relationships -- just like we should do in Washington.
I’ll tell you something. The leaders wouldn’t be coming here, if the United States
didn’t show some leadership.
Make a list of the 10 things that this country does well. I’d put on the list that we
have good relationships with other nations. That when we said we’d open our markets,
we did. Or when, for half a century, we’ve had tools that could destroy the world, we
haven’t used them.
The President didn’t send soldiers into Haiti to grab territory. We did it to
protect democracy and freely-elected governments. I don’t think anyone would tell you
that democracies would be spreading, and markets opening, and free elections held if it
hadn’t been for our example.
The last time the leaders of this hemisphere came together was 1967. Lyndon
Johnson was President. And 10 of today’s democracies were under non-democratic rule.
Only one country - only Cuba - has not turned democratic.
What a feeling it will be for the President to walk into a room in Miami, and
greet 33 of his colleagues, all freely-elected. What a feeling.
Let me tell you a difference between the leaders of ’67 and those of ’94. One
word - self-confidence. Several of them and many of their cabinet members were
educated at American schools and went home preaching free markets.
The discussions will be very much a two-way street. These leaders are not afraid
to get in a room and discuss opportunities. It won’t be: what can we get from the U.S.?
It’ll be: what can we do together?
3
Look at Argentina. Who thought a Peronista would lead his country to privatize
companies, and open markets, and lower tariffs? And who thought in Argentina that this
would be politically popular?
Look at Chile. Since 1984, they’ve had uninterrupted growth. Investment there is
at a rate similar to the Asian Tigers. They’re ready for a free trade agreement with the
United States. President Clinton committed to that and watch what happens in Miami.
I’ll tell you what -- if we don’t work with our hemispheric neighbors to build free trade in
the Americas, they’ll find more European and Japanese partners.
Look at Brazil. They elected as their president Fernando Henrique Cardoso,
their former finance minister. Usually finance ministers are the first out the door, but
they elected him by a strong margin because he stabilized Brazil’s economy. He brought
inflation down when no one thought it could be done and that no one cared. And it was
phenomenally popular.
Look at Mexico. I was born and reared on that border. I watched election after
election, where leaders would win by running against the Colossus of the North. Now
they look at the U.S. as an opportunity for trade.
When I came to the Senate, in 1971, the first trip I took was to Mexico. I went
with Mike Mansfield to talk about increasing trade between our countries. That year, we
exported $1 billion in products to Mexico every 10 weeks. Now, we export a billion
every week.
Since 1971, the Latin American countries have more than doubled their GDP.
They’ve cut their illiteracy rate in half. They’ve cut their poverty rates —although it is
still way too high. Wealth in this part of the world is still too concentrated; not everyone
is sharing the fruits of growth - yet. But that’s the kind of changes going on.
Largely because of Canada and Mexico, this hemisphere is our most important
export market. Of our export growth over the past year, 60 percent has been here.
We’re selling $200 billion in American products to our neighbors in this
hemisphere. That’s more than we sell to Europe or Asia. Four million Americans pick
up a pay check everyday, because of our neighbors.
Focusing specifically on Latin America, it may not be our biggest market, but it’s
the only region in the world where we enjoy a substantial trade surplus. Four years in a
row, Latin America has seen economic growth. Mountains of debt have been worked
down to a manageable size in all but a few countries. Government deficits are down.
Inflation is under control almost everywhere. States are privatizing and reducing
regulations.
Capital is going into Latin America, not coming out. In the last 12 years, the total
value traded on the seven largest Latin stock markets increased from under $10 billion
to around $200 billion today.
Investment is way up. At first the money came from the Latins, bringing home
the money they sent out a dozen years ago. Then American investors saw it as an
opportunity. Now the world does.
This is a very different Latin America, isn’t it? When Lyndon Johnson went to
the ’67 summit, the big question was: "How much aid will the U.S. provide?"
One finance minister after another has told me: Lloyd - we don’t want aid. We want
trade.
They share the same belief we do —that the private sector is the engine of
growth. They want the same thing we want -- economic growth with low inflation. And
we share a culture -- we’re lucky to have the Latin culture as part of our own heritage.
In Miami, we’ll look to shape the hemisphere for the future. Last week, we held
consultations with the delegations. We’ve been working on the agenda for months, and
it’s coming together nicely. Many ideas are not ours -- they are what others have in
mind. It will be a forward looking meeting.
At the top of the agenda will be economic issues: How can we integrate the
hemisphere economically?
How can we make it easier to communicate and travel across borders? How do
we cut costs of doing business? How do we free up flows of capital? How do we
facilitate investment? How do you finance the infrastructure projects, because we’ll need
to build bridges and ports and telecommunication lines.
And the most important question of all - what I’ve been talking about all day - is
trade. There are 23 trade agreements between countries in this hemisphere. We’ll look
at how to make it even freer trade.
Beyond trade, we’ll discuss how to make democracies work better.
Everyone needs to re-invent government. We’ll share ideas, for instance, on how to fight
the drug trade, how to fight corruption, and how to fight money laundering.
I don’t want to come out of this with just economies winning. I want to come out
with crooks losing. Money laundering is a $300 billion illegal business worldwide, and
we need to fight it —together.
I’m very interested in this one. Many of the Finance Ministers are, too. I’m
hosting a meeting with them in Miami. You’ll see concrete progress.
5
The leaders also will discuss making democracies endure. They’ll talk about
producing healthier and more educated citizens, eradicating poverty, and protecting
environmental resources.
We won’t create a million new bureaucracies. That’s the last thing we need. For
the most part, if we have a new initiative, we’ll rely on what’s out there now.
An example is the Inter-American Development Bank. They have a proven
record for advancing growth in Latin America and the Caribbean, and we want to see
more of that. They already have capital to support development in the hemisphere.
We’ll ask them to focus on areas needing the most work - on the kinds of things the
private sector can’t do alone.
I really believe that the most meaningful thing coming out of the summit won’t be
what happens in Miami.
It will be what happens after Miami - to see if we continue our cooperation; and
to see if we start right away, or if we drag our feet. I think you’ll have a pretty clear
picture of what to look for. You can watch to see the follow through.
Let me end on this. Voters in democracies ~ whether here or elsewhere -- show
up at the polls every few years. They want government to work.
They want government doing what government does best: to enforce the laws; to
protect the environment; to make sure children are educated; and to create a framework
in which the private sector, and people, can prosper.
This summit will let leaders share ideas on how we can all do a better job of
governing. I’m optimistic heading into Miami. I’m optimistic of what we’ll accomplish in
the years beyond.
-30-
V
FOR IMM E D I A T E R E L E A S E
D e c e m b e r 5, 1994
Cp
t
RE S U L T S OF T R E A S U R Y 'S A U C T I O N OF 1 3 -WEEK B I L L S
T e n d e r s for $13,609 million- of 1 3 -week b i l l s to b e i s s u e d
D e c e m b e r 8, 1994 a n d to m a t u r e M a r c h 9, 1995 w e r e
a c c e p t e d t o d a y (CUSIP: 9 1 2 7 9 4 Q 8 0 ) .
R A N G E OF A C C E P T E D
COMPETITIVE B I D S :
Low
High
Average
Discount
Rate
5.78%
5.85%
5.83%
Investment
Rate
5 . 95%
6.02%
6.00%
P r ice
98.539
98.5 2 1
98.526
$4,1 1 0 , 0 0 0 was a c c e p t e d at l o w e r yields.
Te n d e r s at the h i g h d i s c o u n t rate w e r e a l l o t t e d 13%.
T he i n v e s t m e n t rate is the e q u i v a l e n t c o u p o n - i s s u e yield.
TE N D E R S R E C E I V E D A N D A C C E P T E D
(in thousands)
Received
$40,844,224
Accepted
$13,609,224
$35,710,914
1.604.071
$37,314,985
$8,475,914
1.604.071
$10,079,985
3,168,655
3,168,655
360.584
$40,844,224
360.584
$13,609,224
TOTALS
T ype
Competitive
Noncompetitive
Subtotal, P u b l i c
Federal R e s e r v e
Foreign Official
Institutions
TOTALS
A n a d d i t i o n a l $ 1 6 5,216 t h o u s a n d of b i l l s wil l be
issu e d to f o r e i g n of f i c i a l i n s t i t u t i o n s for n e w cash.
LB-1268
PIà P u b l ic
k
'¿A
DEBT NEWS
1
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
' BP / P Y
10 0 ** 5 310
CONTACT:
FOR IMM E D I A T E R E L E A S E
D e c e m b e r 5, 1994
O f f i c e of F i n a n c i n g
202-219-3350
R E S U L T S OF T R E A S U R Y 'S A U C T I O N OF 2 6 -WEEK B I L L S
T e n d e r s for $ 1 3 ,631 m i l l i o n of 2 6 -week b i l l s to b e i s s u e d
D e c e m b e r 8, 1994 a n d to m a t u r e Jun e 8, 1995 w e r e
a c c e p t e d t o d a y (CUSIP: 9 1 2 7 9 4 S 5 4 ) .
R A N G E OF A C C E P T E D
C O M P E T I T I V E BIDS:
Low
High
Average
Discount
Rate
6.31%
6.33%
6.33%
Investment
R a t e ______ P r i c e
6.61%
96.810
6.63%
96.800
6.63%
96.800
$45,000 w as a c c e p t e d at l o w e r yields.
T e n d e r s at the h i g h d i s c o u n t rat e w e r e a l l o t t e d 97%.
The i n v e s t m e n t rate is the e q u i v a l e n t c o u p o n - i s s u e yield.
TENDERS RECEIVED AND ACCEPTED
(in thousands)
Received
$47,532,142
$13,630,971
$41,542,065
1.401,761
$42,943,826
$7,640,894
1.401.761
$9,042,655
3,400,000
3,400,000
1.1 8 8 . 3 1 6
$47,532,142
1.188.316
$13,630,971
TOTALS
Typ e
Competitive
Noncompetitive
Subtotal, P u blic
Federal R e s e r v e
Foreign Official
Institutions
TOTALS
A n a d d i t i o n a l $5 4 4 , 6 8 4 t h o u s a n d of b i l l s w i l l be
issu e d to f o r e i g n of f i c i a l i n s t i t u t i o n s fo r n e w cash.
LB-1269
D E P A R T M E N T
T H E
T R E A S U R Y
TREASURY
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENfUE; N.W.’«* WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
December 6 ,1 9 9 4
STATEMENT OF TREASURY SECRETARY LLOYD BENTSEN
I have submitted my resignation as Secretary of the Treasury effective December
22. After a career in public service I want to go back to Texas, to my roots, and return
to the private sector.
Before becoming Treasury Secretary, I had decided to leave the Senate this year
and return home and to the private sector while I still had a spring in my step. In
September I informed the President of my desire to leave, and told him I would remain
until after the elections and the completion of our agenda for the year.
I want to thank President Clinton for the opportunity to serve as Treasury
Secretary. I also want to thank the dedicated professionals at the Treasury Department
for the job they have done and the support they have provided.
Throughout my tenure, President Clinton has afforded me unprecedented access.
It was invaluable in accomplishing our goals. In the post-Cold War world, President
Clinton recognized that economic security is a critical underpinning for national security,
and he made Treasury a regular participant in the Summit process.
I know my successor will have the same access and ability to affect economic
policy that I enjoyed. And let me say just a few words about Bob. The President asked
me who I thought would make a good Treasury Secretary, and the first name I had for
him was Bob Rubin. He is a man of honor and integrity. He has a broad knowledge of
our problems and programs, and he has the ability to sit down with Congress and work
things out. It was an excellent choice, Mr. President.
Few nations offer their citizens so many opportunities to serve and succeed in
both the private and public sectors. Our economic and political system gives those with
day-to-day, hands-on experience in the free market the unique opportunity to enter
government service and apply that knowledge on a national scale. It likewise allows
them to turn around and take the experience of governing back to the private sector, the
force that drives our economy. That is what I am doing.
LB-1270
(MORE)
2
In a very real sense, I have lived the American Dream: from being raised during
the Depression on a Texas farm, to serving in both houses of Congress, having a business
career, and both running for the second-highest job in the country and serving in the
Cabinet.
There are any number of ways in which one can help others: teaching, preaching,
healing and more. But I have found that in no other endeavor can one affect as many
lives —hopefully for the better —than by public service. It has been a privilege and an
honor to work for my country both as a civilian and as a soldier. It reflects how strongly
I believe in the American system.
I have worked to make a difference over the years —from increased retirement
security for our elderly to greater access to health care for lower-income women and
children. We advanced the health care debate this year substantially, and I am confident
legislation improving our system ultimately will result.
It’s been a great time to be Treasury Secretary. And it’s a great time to be
bowing out as Treasury Secretary. I couldn’t leave with the economic flag flying any
higher. We have the best numbers we’ve had in 30 years. I believe history will show
that we have made the economic future of our children and grandchildren more secure
by the politically difficult actions we have taken.
With this President’s leadership, we did what so many people said we couldn’t do
-- we cut $87 billion off the budget deficit in just two years. We’ve seen more than 5
million jobs added to the economy. Inflation is low. Businesses are investing at record
rates. We’ve shrunk the federal government. We’re growing faster than our trading
partners. We opened up markets with NAFTA and the GATT. We’ve encouraged
economic and political change around the world. And maybe the greatest achievement is
that with prosperity we’ve also had peace.
I want to thank all of you in the press. I’ve enjoyed our relationship. I’ve tried to
make myself available and talk straight with you. I always said - ask me enough times
when I’d be out of here, and one day you’d get it right. I may even be in touch with
some of you, because when you go into business it doesn’t hurt to have friends in the
media.
And finally, I want to thank B.A., the best partner any man could have over these
past 51 years. Together, we’ll return soon to Texas, the private sector, our family, our
friends, and our roots.
-30-
As prepared for delivery
Integration and Democracy Across the Hemisphere
Remarks by
Lawrence H. Summers
Under Secretary for International Affairs
Customs, Trade, and Finance Symposium
Miami, Florida
December 6, 1994
Introduction
Thank you very much. I’m delighted to be here.
This is a tremendously exciting period in Florida. It’s exciting, because this week
leaders of all the democratic countries in the hemisphere will meet in Miami for the first
time in three decades, at the Summit of the Americas. It’s exciting, because they’ll be
thinking about ways to consolidate and continue the monumental economic and political
transformation which has taken hold of Latin America in such a brief span of time. And it’s
exciting, because Florida stands on the geographic and financial edge of that mushrooming
LB-1271
1
new region, poised to take advantage of a $13 trillion hemispheric market -- nations hungry
for trade, investment, and growth.
Think about how different our region looks today, compared to how it looked only 5
years ago. Who would have dreamt that economies only a decade ago wrestling with capital
flight would today be thinking about what to do with the mammoth flows of capital racing to
get in -- some $170 billion in net foreign investment, over the first three years of the decade.
Who would have thought that nations ruled for centuries by feudal families and junta
would today feel a shortage of finance experts, judges, and constitutional scholars.
And who would have imagined that nations which for decades sealed themselves in,
rejecting economic and commercial progress, would today be opening themselves up, tearing
down barriers, paving the way for U.S. investment and trade.
I’ve seen it myself, in Buenos Aires, where shoppers throng down streets on which
one used to be able to track the exchange rate by how fast shoe-shine boys raised their
prices. And in Mexico, where clusters of new factories and businesses hug the U.S.Mexican border.
That’s the way the picture looks today. That’s the remarkable new set of
opportunities that have opened up for all of you. And those are the opportunities which the
Summit of the Americas this week, and continued U.S. initiatives in Latin America in the
months ahead, will ensure remain open to you as expansion to our South continues.
A Hemispheric Community
If I had to sum up the vast changes which have occurred in such a short time span in
our hemisphere, I’d say that nations which were once tied by the bonds of dependency now
form a community linked by interdependency, with all the opportunities and responsibilities
2
that entails.
We have become a community of democracies, sharing a belief that liberty and
human rights offer the best chance of providing prosperity for all. Where 20 years ago less
than half the population to our south could be said to live in freedom, now 90 percent can.
Mexico, Brazil, Uruguay -- every season brings new elections to remind us of democracy’s
victory.
Across the continent, a new generation of leaders, educated in the virtues of
democracy and civic society, are assuming power.
We have become a community of prosperity, agreed upon the twin pillars that support
economic expansion in our societies — sound macroeconomic policies on the one hand, and
market-led growth on the other.
One sees that in the new emphasis on fiscal and monetary restraint -- Mexico and
Argentina both meeting the low-inflation, low-public deficit economic criteria laid down at
Maastricht for European Monetary Union -- a test which most European countries themselves
fail.
One sees that in the success nations have had in bringing inflation down — from a 400
percent average for the region in the 1980s to a 12 percent average, and the election of
governments pledged to holding prices down, in Brazil and elsewhere.
One sees that because from Canada to Mexico, from Peru to Trinidad and Tobago,
governments are selling public sector firms —over 2,000 so far —to staunch the
hemorrhaging of government budgets, to inject the adrenalin of competition into their
economies, and to unchain the shackles that once bound private initiative and drive.
We have become a community of trading partners. Countries which for years thought
3
they could go it alone - by keeping tariffs high, excluding foreign investments, and making
everything they needed themselves ~ now realize that prosperity arrives when borders are
thrown open, exposing economies to the bracing winds of competition commerce.
There are by my count 23 trade agreements in our hemisphere. Look at Mercosur,
which on January 1 will link 200 million Brazilians, Argentineans, Paraguayans and
Uruguayans in free trade.
And tariffs blocking outside goods will come down too, to an
average 14 percent from near 35 percent in Brazil’s case, The five member Andean Group
created a free trade zone two years ago. The Central American Common Market has cut
tariffs from averages of 50 percent to the 5 to 20 range.
That’s why Latin intra-regional trade has nearly quadrupled over just 10 years, to
$26 billion. It’s why GM’s Brazilian subsidiary just built a $100 million plant in Argentina
to build pickups trucks for Brazil.
It’s why Argentina and Chile now share a gas pipeline,
and Venezuelan bonds now are issued on Colombian financial markets.
Of course, NAFTA has been the single most important shot in the arm our economy
has seen in years, creating more than 100,000 jobs so far. And our exports to Mexico were
up 17 percent in the first half of this year, nearly three times faster than to the rest of the
world, despite the fact that Mexico suffered a serious recession. In fact, Mexico recently
passed Japan as the second largest consumer of our products, with Canada, our number one
customer, raising its imports by 10 percent. From the 3000 percent jump in Ford’s vehicle
exports, to Toyota racing to build plants for the new North American market, NAFTA
speaks volumes about what hemispheric integration can accomplish.
In short, the nations of the hemisphere have become a community joined by a
common purpose —to consolidate the work of democratization, to further our goals of
market-led growth, and to work together to improve the governmental institutions on which
social progress and prosperity depend.
4
Summit of the Americas
That is why President Clinton called the Summit of the Americas, to foster these
common economic, political, and social goals. And it is essential to the United States that
Summit, and the initiatives which it sets in motion, succeed.
It is essential for economic reasons, because those who have taken the high
macroeconomic road are being rewarded -- Peru, enjoying the world’s fastest growing
economy for much of this year, Argentina, whose 35 percent growth over the decade was the
third fastest in the world, just behind China and Thailand. And I could go on — growth near
23 percent in Chile over the decade, 15 percent in Colombia.
The United States has a tremendous stake in ensuring that that economic expansion,
and our participation in it, continue. The western hemisphere will develop into a $13 trillion
market in less than 10 years. And it is already our fastest growing market for exports,
providing a full 60 percent of our export growth over the past year. We sell nearly $200
billion to our hemispheric neighbors —more than we sell to Europe, including Russia, and
more than we sell to Asia.
In fact, Venezuela buys more than Russia, and Ecuador more
than Hungary and Poland combined.
Latin America already has 30 energy and infrastructure mega-projects scheduled for
the 1990s, at a cost of $140 billion. Brazil alone will spend $4 billion on environmental
goods and services we specialize in, over the next four years.
All told, Latin America will be a better customer for our exports than Western
Europe, by the end of the century. United States economic security will never be sure unless
our region remains dynamic, growing, and integrated.
Success is essential for strategic reasons as well -- to anchor stability in our
hemisphere. NAFTA has taught us that free trade’s implications are far more than
5
commercial. Mexican society passed through a difficult period earlier this year, with the
Colosio assassination. But political and social stability was maintained, and the work of
building Mexico’s economy continued. I believe that much of the credit for Mexico’s
passage through that rocky period can be attributed to NAFTA. And that lesson, about
trade’s ability to anchor economic and social reform, holds out great promise for the rest of
the region.
And success is essential for moral reasons. Integration and trade-led growth are the
only means to offer prosperity to all the hemisphere’s people. And that will cement social
stability, ensuring that nations do not slide back into the civil warfare and oppression from
which they so recently escaped.
I ’d like to spend my last few minutes discussing the specific items which will be on
the agenda at the Summit. They fall into two broad categories —on the one hand, proposals
to further trade and integration, and on the other, efforts to improve the role of governments,
as they perform the functions which underpin democracy and social progress.
An Agenda for Trade
Hemisphere-wide integration must be a central goal for the United States and our
other neighbors. By some estimates, free trade across the hemisphere could triple U.S.
exports to $290 billion in the region, and add some 4 to 6 million jobs to our economy by
the year 2003. The vast majority of these would be high-skill, high-wage positions.
That’s too great a boon to pass up. That’s too large a bounty to squander.
Latin American and Caribbean tariff barriers remain about 5 times higher than in the
United States. Those barriers must come down, to give our companies unlimited access to
those markets, and help businesses and consumers in both directions.
6
Moreover, we must ensure that the regional free-trade zones now under construction - though helpful in the short run —do not permanently fragment the hemispheric market.
I am confident that the assembled leaders will be able to agree on specific proposals
for bringing down tariffs and other barriers to trade, to move our hemisphere towards fullfledged integration in the decades ahead.
Unbuckling tariffs isn’t the only form integration must take. Customs practices and
regulations must be harmonized, to make it easier to do business across borders. Laws and
procedures must become transparent and manageable. Remaining barriers to investment and
capital flows must be removed.
I think we’ll see important new initiatives announced at the Summit on these items as
well. The leaders will discuss ways to cooperate in strengthening Latin American securities
markets, freeing up restrictions on capital flows, and coordinating transborder
telecommunications and infrastructure.
Together, these initiatives will vastly speed up the process of attaining an integrated
hemispheric market. And they will lock in the steps towards macroeconomic reform and
liberalization already taken, ensuring that we remain on the path towards economic progress.
Effective Democracy
There is a second set of items on the Summit agenda, centered on the need to ensure
that governments are democratic in substance, as well as in form. We must reinvent our
hemisphere’s governments. Government by the people must be government for the people.
Effective government, responsive to its citizens’ needs, is the substance of democracy.
Better government does not mean more government. Rather, it calls for governments
to strengthen their capacities to perform the essential functions needed for economic and
7
social progress.
There are several components to better governance. First, better governance means
creating and bolstering the kinds of legal and regulatory infrastructures without which
businesses cannot function, and citizens’ needs cannot met. Responsive and efficient
governments, with a well-trained cadre of professionals, are essential in every arena, from
supervising banks to immunizing children. The private sector cannot flourish in an
environment without consistent laws and tax structures, and without well-trained civil
servants to run them. Civil society cannot prosper without strong enforcement of legitimate
laws.
The leaders at the Summit will draft programs to bolster these governmental
structures, through cooperation where that can help, or by redirecting domestic priorities
where that is appropriate. The Organization of American States and the international
financial institutions, including the Inter-American Development Bank, will be asked to
refocus their efforts, through programs to train civil servants and aid in the creation of
regulatory and legal regimes.
The gathered leaders will also reach agreement on initiatives
to curb corruption, to combat money laundering, and to battle the drug trade —all of which
corrode the new market-based, democratic societies under construction to our south.
There is a second task that governments must accomplish. They must ensure that the
benefits of prosperity reach all segments of the population, through investments in people.
Prosperity that is not inclusive cannot be enduring. Democracy cannot hold if
prosperity does not come with it.
True, the proportion of poor across Latin America has fallen from 39 percent to
nearly 30 percent over the past two decades. True, the number of illiterate adults has
dropped from near 30 to 15 percent, the infant mortality rate from 82 to 44. But that’s 30
percent too many poor, and 15 percent too many who can’t read, and far too many infants
8
who die prematurely.
Latin America continues to be the region with the world’s most skewed income
distribution. Mexico’s wealthiest fifth of the population enjoy 27 times more wealth than
Mexico’s poorest. In Argentina, the ratio is 16. That compares with averages of only 5 to
10 across developing Asia.
These aren’t just numbers. The hundreds of thousands of children who live on Latin
American streets, the squadrons of troops which patrol Rio’s ghettos, testify to the ways
poverty can ravage even dynamic societies.
Poverty threatens the continuation of social and economic progress. And it’s a sign
that a nation has failed to invest in its greatest resource -- its people. Investments in primary
education rather than university education, in primary and maternal health care rather than
expensive hospitals for the upper crust - these are the investments which offer the highest
returns. For when the lion’s share of educational resources go to support a minority of
university students, or the lion’s share of health resources go to support tertiary care in urban
hospitals, efficiency suffers. And the evident reinforcement of inequality through
government action undermines the civic trust that is a precondition for democracy.
The leaders at the Summit will agree on a set of priorities and programs for
investments in their people —through basic education, primary and maternal health, and
essential social services. That will consolidate the transformation of Latin American society.
And it will give our hemisphere the human resources needed for continued growth over the
next century.
Governments have a third function in Latin America —to support the institutions of
civil society which were held back by years of poverty and dictatorship. United States
democracy is built on rotary clubs, political groups, community organizations — all avenues
for civic participation. Non-governmental organizations, community groups, grassroots
9
organizations in Latin America must be strengthened if they are to form a new basis there for
social cohesion. Such cohesion, and institutions which foster it, serve to underpin
democracy. Without such cohesion, societies cannot remain stable and productive.
The leaders at the Summit will set some clear goals to ensure that Latin America
develops these forms of social and institutional capital, so that democratic society can
prosper. They will consider initiatives to help indigenous peoples, women, and other
excluded groups participate in government and civic life. They will look at ways of using
the Organization of American States more effectively to bolster democracy and human rights,
to support electoral systems, and aid in the redesign of judicial and legislative systems.
Initiatives will be announced to foster greater participation for community and grass roots
organizations. Finally, programs for preserving and passing on our hemisphere’s many
cultural traditions will be discussed.
Conclusion
The nations represented at the Summit form a community united by a common
purpose. That community will be stronger coming out of the Summit. It will grow stronger
as the processes set in motion at the Summit take hold.
We will become a more prosperous community — as the consolidation of
macroeconomic reforms continues, as the last vestiges of restrictions on the private sector are
removed, and as the work of opening our economies, and integrating them with one another,
continues.
And we will be a community not with more government, but with better government - as the strengthening of institutional and regulatory frameworks proceeds, as nations
continue to consolidate the institutions which undergird democratic society, and as
investments in our region’s people are improved.
10
I began my remarks by talking about the changes in thinking that catalyzed our
hemisphere’s transformation over the past decade. Of all the changes in thinking, I think the
most important has been the realization that integration is not just a thing that government’s
do. It’s something that people do. Countries are no longer defined by governments. They’re
defined by businesses, industries, communities, and individuals - all united by common
concerns.
The true test of whether we succeed in our effort to integrate our hemisphere won’t
be the words said in Miami. It will be the actions all of us - in the private and public
sectors —take in the years ahead.
The 20th century has been described as the American century. I am confident that
with a new generation of leaders dedicated to democracy, a new generation of leaders
dedicated to market-economies, and a new generation of leaders dedicated to integration, the
21st century will be a century for all the Americas. Thank you.
11
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR RELEASE AT 2:30 P.M.
December 6, 1994
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $27,200 million, to be issued December 15,
1994. This offering will provide about $2,900 million of new
cash for the Treasury, as the maturing 13-week and 26-week bills
are outstanding in the amount of $24,299 million. In addition to
the maturing 13-week and 26-week bills, there are $16,238 million
of maturing 52-week bills. The disposition of this latter amount
was announced last week.
Federal Reserve Banks hold $10,708 million of bills for
their own accounts in the three maturing issues. These may be
refunded at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $3,149 million of the three
maturing issues as agents for foreign and international monetary
authorities. These may be refunded within the offering amount
at the weighted average discount rate of accepted competitive
tenders. Additional amounts may be issued for such accounts if
the aggregate amount of new bids exceeds the aggregate amount
of maturing bills. For purposes of determining such additional
amounts, foreign and international monetary authorities are
considered to hold $2,577 million of the original 13-week and
26-week issues.
Tenders for the bills will be received at Federal Reserve
Banks and Branches and at the Bureau of the Public Debt,
Washington, D. C. This offering of Treasury securities is
governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of thè new securities are given in the
attached offering highlights.
oOo
Attachment
LB-1272
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED DECEMBER 15, 1994
December 6, 1994
Offering Amount ...................
$13,600 million
$13,600 million
91-day bill
912794 Q9 8
December 12, 1994
December 15, 1994
March 16, 1995
September 15, 1994
$11,957 million
182-day bill
912794 S6 2
December 12, 1994
December 15, 1994
June 15, 1995
December 15, 1994
$ 10,000
$ 1,000
$ 10,000
$ 1,000
Description of Offering:
Term and type of security ........
CUSIP number ....................
Auction date ....................
Issue date . . .......... .
. . .
Maturity date ....................
Original issue date ..............
Currently outstanding . . ........
Minimum bid amount ..............
Multiples ........................
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive b i d s .............. Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids.
Competitive b i d s .......... ..
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
at a Single Y i e l d ............ 35% of public offering
Maximum A w a r d ........ ........... 35% of public offering
Receipt of Tenders:
Noncompetitive tenders . ........
Prior to 12:00 noon Eastern Standard time
on auction day
Competitive tenders . . . . . . . .
Prior to 1:00 p.m. Eastern Standard time
on auction day
Payment T e r m s .................... Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
Contact: Peter Hollenbach
(202) 219-3302
FOR RFT.EASE AT 3:00 PM
December 6, 1994
PUBLIC DEBT ANNOUNCES ACTIVITY FOR
SECURITIES IN THE STRIPS PROGRAM FOR NOVEMBER 1994
Treasury’s Bureau of the Public Debt announced activity figures for the month of November
1994, of securities within the Separate Trading of Registered Interest and Principal of
Securities program (STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)
$811,130,552
Held in Unstripped Form
$585,788,909
Held in Stripped Form
$225,341,643
Reconstituted in November
$9,485,212
The accompanying table gives a breakdown of STRIPS activity by individual loan description.
The balances in this table are subject to audit and subsequent revision. These monthly figures
are included in Table VI of the Monthly Statement of the Public D e b t entitled "Holdings of
Treasury Securities in Stripped Form."
Information about "Holdings of Treasury Securities in Stripped Form" is now available on the
Department of Commerce’s Economic Bulletin Board (EBB). The EBB, which can be
accessed using personal computers, is an inexpensive service provided by the Department of
Commerce. For more information concerning this service call 202-482-1986.
oOoPA-168
(LB-1273)
TA8LE VI— H0LDIN6S OF TREASURY SECURITIES IN STRIPPED FORM. NOVEMBER 30. 1994
(In thousands)
Loan Description
Maturity Oate
11-1/4% Note A-1995...
11-1/4% Note B-1995...
10-1/2% Note C-1995...
9-1/2% Note 0-1995......
8-7/8% Note A-1996....
7-3/8% Note C-1996....
7-1/4% Note 0-1996__ _
8-1/2% Note A-1997....
8-5/8% Note 8-1997....
8-7/8% Note C-1997....
8-1/8% Note A-1998....
9% Note B-1998.......
9-1/4% Note C-1998....
8-7/8% Note 0-1998....
8-7/8% Note A-1999....
9-1/8% Note 8-1999....
8% Note C-1999.......
7-7/8% Note 0-1999....
8-1/2% Note A-2000....
8-7/8% Note 8-2000....
8-3/4% Note C-2000......
8-1/2% Note 0-2000....
7-3/4% Note A-2001....
8% Note 8-2001.......
7-7/8% Note C-2001... i
7-1/2% Note 0-2001....
7-1/2% Note A-2002....
S-3/8% Note B-2002... .
6-1/4% Note A-2003....
5-3/4% Note 8-2003....
5-7/8% Note A-2004....
7-1/4% Note 8-2004....
7-1/4% Note C-2004....
7-7/8% Note 0-2004....
11-5/8% Bond 2004........
12% 8ond 2005........
10-3/4% Sond 2005.....
9-3/8% Bond 2006.... .
11-3/4% Bond 2009-14....
11-1/4% Bond 2015.....
10-5/8% Bond 2015.....
9-7/8% Bond 2015......
9-1/4% Bond 2016.....
7-1/4% Bond 2016 ...
... 2/15/95....
... 5/15/95....
... 8/15/95....
... 11/15/95...
... 2/15/96....
... 5/15/96....
... 11/15/96...
... 5/15/97....
... 8/15/97....
... 11/15/97...
... 2/15/98....
... 5/15/98....
... 8/15/98....
... 11/15/98...
... 2/15/99....
... 5/15/99....
... 8/15/99....
... 11/15/99...
... 2/15/00....
... 5/15/00....
... 8/15/00....
... 11/15/00...
... 2/15/01......
... 5/15/01....
... 8/15/01....
... 11/15/01...
... 5/15/02....
... 8/15/02......
... 2/15/03....
... 8/15/03....
... 2/15/04....
... 5/15/04....
... 8/15/04......
... 11/15/04...
... 5/15/05....
... 8/15/05....
... 2/15/06....
... 11/15/14...
... 2/15/15....
... 8/15/15....
... 11/15/15...
... 2/15/16....
... 5/15/16....
*
I|
I
Principal
Amount Outstanding
|
|---------- --------- — — — ----- — -— — ---- 11 Reconstituted
Total
| Portion Held in | Portion Held in || This Month#l
| Unstri pped Form | Stripped Form 11
l
_l_____________ I_____________ II_____________
14,400
1.236.800 i|
5,697.061 |
|
6.933.861 |
2.703.200 ¡I
7.200
4,423.886 |
|
7,127.086 |
22.400
2.918.800 ¡j
5.037.101 |
1
7.955.901 |
25.600
3.896.000 (I
3.422.550 1
|
7.318.550 |
-01.724.800
¡
I
6.721.258 |
8.446.058 |
52.800
1.963.200
(
I
18.122.443
j
|
20.085.643 |
51.200
2.512.000 II
17.746.810 |
1
20.258.810 |
47.200
1.102.800 ¡I
8.818.437 |
|
9.921.237 |
12.800
1.524.800 ¡I
7.838.036 |
|
9.362.836 |
16.000
2.451.200 ¡I
7.357.129 |
|
9,808.329 1
-01.163.520 ¡j
7,995.548 |
|
9.159,068 |
25.000
6,756.187 |
2.409.200 II
|
9.165,387 |
119,200
2.460.800 ¡I
8.881.846 |
|
11.342.646 |
49.600
2.931.200 j|
6,971.575 |
j
9,902.875 1
134,400
1.598.400 II
8.121.223 |
i
9.719.623 |
81,600
3,324.800 ¡I
6.722.303 |
|
10.047.103 |
55.000
2.053,900 ||
8,109.744 |
|
10.163,644 |
174,400
2.971.200 ¡I
7.802.760 j
|
10,773,960 |
10.000
1,788.400 ¡j
8.884.633 |
10.673.033 j
14.400
4.332.800 ¡j
6.163.430 j
10.496.230 j
79,680
3.138.080
¡
I
7.942.566 j
j
11.080.646 |
126,400
2.790.400 ¡I
8,729.282 |
11.519.682 |
72,000
1,997,600
|
|
9.315.202
|
|
11.312.802 |
-02.475.050 ¡I
9.923.033 |
I
12.398.083 j
144,000
1.992;-00b ¡I
10.347.185 |
|
12.339.185 j
125.520
998.080 ||
23.228.022 |
|
24.226.102 |
-0815.920 ¡j
10.898.477 |
j
11,714.397 |
-0401.600 ¡j
23.457.415 |
|
23.859.015 |
512
27.840 ¡j
23.534.851 |
|
23.562.691 |
-0155.200 ¡I
27,855.828 |
|
28.011.028 |
-012.955.077 |
-0- ¡j
|
12.955,077 |
-0-0- ¡1
14.440.372 |
|
14.440.372 |
-0-o- ¡1
13.346.467 |
|
13.346.467 j
-0-0¡
1
14.373.778 |
|
14.373.778 |
352.000
3.232.000 (I
5.069.806 |
|
8.301.806 |
48.000
1,457.750 ¡1
2.803.008 |
4.250.758 j
22.400
988.800 j|
8.280.913 |
|
9.269.713 |
-0640 ¡I
4.755.276 1
4.755.916 1
348.800
4.338.400 I]
1.667.184 |
6.005.584 j
401,440
7.428.960 ¡j
5.238,839 j
12.667.799 j
187.520
5.428,480 ||
1.721.436 |
|
7.149,916 |
134.400
4.369.500
|
|
2.530.259 |
|
6.899.859 |
108.000
1.204.000 ||
6.062.854 |
j
7.266.854 |
42.400
678.400
j
|
18.145.151
|
j
18.823.551 j
TABLE VI— HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM. NOVEMBER 30. 1994
(In thousands)
Principal Amount Outstanding
1
||
1
Loan Description
Total
i
- | ----------------------------------- 1
.........1 1 /1 5 /1 6 .......... |
|
1
i
18.864,448 |
1
18.194,169 j
7 ,2 9 3 ,2 0 9
......... 8 /1 5 /1 7 ............
|
14.016,858 j
7 ,2 2 3 ,2 5 8 |
6 ,7 9 3 ,6 0 0
¡I
571,200
......... 5 /1 5 /1 8 ............
j
8 .7 0 8 ,6 3 9 1
1 .5 7 7 .4 3 9
7 ,1 3 1 .2 0 0 ¡ j
291.200
......... 1 1 /1 5 /1 8 ..........
j
9 .0 3 2 .8 7 0 j
2 ,0 2 6 ,2 7 0 j
......... 2 /1 5 /1 9 ............
1
1 9 .250.798 j
......... 8 /1 5 /1 9 ............
I
2 0.213.832 1
j
Maturity Oate
1
Bond 2016................ |
8-3/4% Bond 2017................ |
8-7/8% Bond 2017................ 1
9-1/8% Bond 2018................ 1
9% Bond 2018......................... j
8-7/8% Bond 2019................ 1
8-1/8% Bond 2019................ |
8-1/2% Bond 2020................ j
8-3/4% Bond 2020................ I
8-3/4% Bond 2020................ j
7-7/8% Bond 2021................ 1
8-1/8% Bond 2021................ |
8-1/8% Bond 2021................ 1
8% Bond 2021......................... 1
7-1/4% Bond 2022................ 1
7-5/8% Bond 2022................ 1
7-1/8% Bond 2023................ 1
6-1/4% Bond 2023................ 1
7-1/2% Bond 2024................ 1
1
Total............ 1
7-1/27.
.........5 /1 5 /1 7 ............
......... 2 /1 5 /2 0 ............
1
|
_
10.228.868 j
Portion Held in
Unstripped Form
|
Portion Held in
Stripped Form
Reconstituted
This Month#l
|
(|
|
||
__________ 1___________________ I I —
1 7 .8 8 2 ,4 4 8 |
j
j
9 8 2 .0 0 0 | |
-0 -
1 0 ,9 0 0 ,9 6 0 ¡j
743,520
j|
142.200
4 .7 9 4 .7 9 8 |
1 4 .4 5 6 .0 0 0 j |
648.000
1 6 .8 4 9 .3 5 2 |
3 .3 6 4 .4 8 0 ¡ j
449,920
4 .7 9 5 .6 6 8
7 ,0 0 6 .6 0 0
|
5 .4 3 3 .2 0 0
¡I
408.400
316.320
......... 5 /1 5 /2 0 ............
j
10.158.883 j
3 .6 5 1 .5 2 3
1
6 .5 0 7 .3 6 0 ¡ j
......... 8 /1 5 /2 0 ............
j
21.41 8 .6 0 6 j
4 .7 0 3 .0 8 6
j
1 6 .7 1 5 .5 2 0 ¡I
660.640
11.113.373 j
9 ,5 2 1 .3 7 3
j
.1 .5 9 2 .0 0 0
¡I
224.000
11.958,888 j
4 .2 6 5 ,7 6 8
1
7 ,6 9 3 ,1 2 0
II
172.160
4 ,7 0 4 ,2 8 2
1
7 .4 5 9 ,2 0 0 ¡ j
313.280
......... 2 /1 5 /2 1 ............. 1
......... 5 /1 5 /2 1 ............
1
......... 8 /1 5 /2 1 ............
j
1 2 .163,482 1
......... 1 1 /1 5 /2 1 ..........
|
3 2 .7 9 8 .3 9 4 |
7 ,1 6 3 ,2 1 9
1
2 5 .6 3 5 .1 7 5
||
1 .0 5 4 .1 0 0
......... 8 /1 5 /2 2 ............
|
1 0 ,352.790 1
8 .3 3 0 .3 9 0
j
2 .0 2 2 .4 0 0
¡j
9 8.400
......... 1 1 /1 5 /2 2 ..........
I
1 0 .699,626 j
4 .1 8 4 .4 2 6
j
6 .5 1 5 ,2 0 0
¡j
80.000
......... 2 /1 5 /2 3 .............
1
18.374.361
1 4 .51 3 .5 6 1
|
3 .8 6 0 ,8 0 0
¡j
152.000
......... 8 /1 5 /2 3 ............
|
2 2 .9 0 9 ,0 4 4 j
2 8 6 .2 0 8 ¡j
53,600
......... 1 1 /1 5 /2 4 ..........
1
1 1 .469,662 j
1 1 ,4 6 9 ,6 6 2 j
| ---------------------------- 1— ---------------------------- 1—
......................................
|
81 1 .1 3 0 ,5 5 2 |
1
2 2 .6 2 2 .8 3 6 |
5 8 5 .7 8 8 .9 0 9 |
- 0 - ¡j
-------------- 11
1 -2 2 5 .3 4 1 .6 4 3
||
-0 9 ,4 8 5 .2 1 2
#lEffective May 1, 1987, securities held in stripped form were eligible for reconstitution to their unstripped form.
•• n
*
Note: On the 4th workday of each month Table VI will be available after 3:00 pm eastern time on the Commerce Department'
Economic Bulletin Board (EBB). The telephone number for more information about EBB is (202) 482-1986. The balanc
in this table are subject to audit and subsequent adjustments.
HPUBLIC DEBT NEWS
Department of the Treasury • Bureau of thç Public Debt • Washington, DC 20239
I n s CONTACT:
1 u i Ü
FOR IMMEDIATE RELEASE
December 8, 1994
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
Tenders for $17,000 million of 52-week bills to be issued
December 15, 1994 and to mature December 14, 1995 were
accepted today (CUSIP: 912794T61).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
6.72%
6.76%
6.75%
Investment
Rate_____ Price
7.18%
93.205
7.23%
93.165
7.22%
93.175
$10,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 63%.^
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
LB-1274
Received
$41,926,816
Accepted
$17,000,426
$36,206,040
1.195.776
$37,401,816
$11,279,650
1.195.776
$12,475 >426
4,200,000
4,200,000
325.000
$41,926,816
325.000
$17,000,426
T H E
D E P A R T M E N T
T R E A S U R Y
N E WS
TREASURY
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
December 9, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
COUNCIL ON STRATEGIC AND INTERNATIONAL STUDIES
MIAMI BEACH, FLORIDA
I was in the neighborhood, so Bob Mosbacher invited me to drop by. I thought it
might be good for me, too, because Tm going into the private sector, and it doesn’t hurt to
hob nob with CEOS.
This will be a great summit. 34 democratic leaders are here, That’s 10 more than
the last hemispheric summit, in 1967.
aid wUUhe U S ^ r a v f r i ^ n Araeril?1: B
thenI
don’t wan, md We w i t traie
mmiSter ^
been worked down2
Am.e r*c^
down. Inflation is under c S
regulations.
B
that economic'gromh^i ust £ 2 2
|H
L
^
^
H
bi? H f l was: "How much
haS l°ld me: Lloyd I
ago. either. Mountains of debt have
B
B
l l B B i dcficits 3
States are privatizing and reducing
" * * * "» ^
°f
*>d
capita.
3 S B
l f l * e F“
M
B
We’U be discussing
a $300 billion annual E i l B W W I W I I l B ■ ■
We’ll also discuss money laundering,
economies winning a n d 2 o T s losing
my> We Want t0 001116 out of ^ with
S’
LB-1275
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
Jec !
uu
I 13 7
FOR IMMEDIATE RELEASE
December 8, 1994
Contact: Peter Hollenbach
(202) 219-3302
NOVEMBER SAVINGS BONDS SALES TOTAL $677 MILLION
Savings Bonds sales for November totaled $677 million, pushing the value of U.S. Savings
Bonds held by Americans to $179.9 billion, up 5 percent over a year ago.
Series EE Savings Bonds issued on or after March 1, 1993, and held five years or longer, earn
the market-based interest rate if it averages more than the guaranteed minimum of 4 percent.
If redeemed during the first five years, bonds earn 4 percent. Bonds issued before March 1993
retain their existing guaranteed minimum rates until they enter a new extended maturity period.
The current semiannual market-based rate effective Nov. 1, 1994, through April 30, 1995, is
5.92 percent.
Interest earnings on Savings Bonds are exempt from State and local income taxes, and Federal
income taxes on the interest earnings can be deferred.
Current rate information can be obtained by calling the Savings Bonds Marketing Office’s
toll-free number, 1-800-4US-BOND.
-more-
PA-169
(LB-1276)
FOR IMMEDIATE RELEASE
December 9, 1994
STATEMENT OF TREASURY SECRETARY LLOYD BENTSEN
I’m glad that the U.S. Treasury Department and Haiti are signing today the papers
that will set the stage for clearing Haiti’s arrears with the international financial institutions.
Almost $85 million of past due payments will be cleared.
This will unlock about $250 million in new lending to support Haiti’s economic
recovery and development. By Christmas, the World Bank will lend $20 million to Haiti.
I’m particularly proud of this agreement, because it was an international partnership
of 10 countries that made it possible. The United States and Haiti led the effort, but we also
had the support of European, Asian, and Latin American countries.
The U.S. military has done an excellent job in bringing democracy to Haiti. Finance
Minister Rey, you have been a loyal supporter of the democratic movement, and our efforts
today will allow Haiti to move on the road to economic recovery.
-30-
LB-1277
D E P A R T M E N T
OF
T H E
T R E A S U R Y
Op
N E WS
TREASURY
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
December 10, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
SUMMIT OF THE AMERICAS, CABINET BREAKFAST
MIAMI, FLORIDA
Well, 12 days and I’ll be back in the piivate sector.
One thing I’ve noticed in the last week: everybody is asking questions requiring me to
look back. What are you most proud of? What do I want as my legacy?
Forget it — I don’t look back. I look ahead. A business friend of mine once said
when you leave an organization, it doesn’t matter what you leave behind, what’s important is
what you had a hand in starting.
I’m proud that we had a hand in starting America’s economic turnaround. We’ve
created 5 million jobs, kept inflation low, and we did what they said we couldn’t — cut $87
billion off the budget deficit in two years. I’m proud that we started downsizing
government. We have 71,000 fewer government employees than we did 22 months ago.
And I’m very enthused about what we’re starting today ~ and what it will mean for
trade in this hemisphere.
We started in the ’80s with the Canadian Free Trade Agreement —we helped push
that through when I was Finance Chairman. Then we expanded it to NAFTA. It was tough,
because some unions sincerely believed it would cost this country jobs. We understood their
concerns —they had seen plants close because imports came in. And it wasn’t two-way
trade. We couldn’t ship our products out because their markets were protected.
NAFTA is different because we are opening new markets. The auto industry will
export about 60,000 American-made cars this year to Mexico. Now the big complaint you
hear from Detroit is: too much overtime.
Today, we’re taking the big jump. The President will be meeting with the other
leaders to discuss creating a free trade zone throughout the hemisphere.
LB-1278
0
2
Secretary Christopher, Secretary Brown, and I had a hand in starting this trade
agreement, but it’s the private sector —it’s you —who will make it work or not.
We’re selling $200 billion in American products in this hemisphere. That’s more
than we sell to Europe or Asia. Think of what those numbers could be 10 years from now
because of what we’re starting in Miami.
- But it’s up to you. We’re opening the doors. But you have to do the selling. I sure
hope you take advantage of what makes your selling job easier. The fact that we’re
multicultural — that we have a strong Latin culture. The Japanese have the advantage in
Asia. We have it here.
Latin America may not be our biggest market, but it’s the only region in the world
where we enjoy a substantial trade surplus. If things are open, we can compete with anyone.
The Japanese car companies have 19 percent of the Latin American market. The American
car companies have 27 percent.
This is not the same Latin America of 10 years ago. Government deficits are down.
Inflation is under control almost everywhere. States are privatizing and reducing regulations.
In the ’80s people were turned off to Latin America because of the debt problem. I
had a meeting with the finance ministers yesterday. We didn’t focus on debt. We focused
on investing. What a difference.
We talked about capital formation and how to encourage the opening up of capital
markets. They wanted to know what they needed to do to attract investments.
I told them that there are a lot of emerging countries around the world looking for
capital: Asian countries, Eastern European countries, and Russia. The finance minister
from Nicaragua compared his country to Eastern Europe. They went from war to peace,
from authoritarian regime to democracy, and from central planning to a market economy. .
We agreed that we need laws that have continuity and stability. And I can announce
today that we will set up a Committee on Hemisphere Financial Issues. Treasury officials
from the various countries will meet and create a process for encouraging the development
and integration of capital markets.
We also talked about money laundering. It’s a $300 billion problem, worldwide.
Half is drug money, and half is from arms trafficking, tax evasion, and crimes like that. We
need to form a partnership, because if one country has a weak program, the launderers will
find it and put their money there.
3
We talked about what a serious threat this is to ffee-market economies. 1 wish you
could have heard the finance minister of Haiti yesterday, pleading to put in tighter
international controls so criminals don't corrupt their financial system. Or you should have
heard the ministers from Barbados and St. Kitts and Nevis talk about the dangers of money
laundering. We're going to follow-up on this one.
Let me end with this. Over the years, I’ve talked and many people have talked about
the 20th Century as the American Century. People say that the 21st Century will belong to
Asia. Or to Japan. Or to China. Or to Europe.
Don’t put us down.
1 see the growth potential in this hemisphere. I see the able leaders those
democracies have produced. I see you —the most.competitive businesses in the world. And
I say, if we show leadership, the next century can be the Americas Century.
Legacies? Well, I do have one wish. We all should have it. Having our names
attached to having helped start the 21st Century as the Americas Century.
-30-
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
m I q M 0 Q I 3 2 .7
Contact: Peter Hollenbach
(202) 219-3302
FOR IMMEDIATE RELEASE
December 7, 1994
TRW CHAIRMAN JOSEPH T. GORMAN HEADS
1995 U.S. SAVINGS BONDS VOLUNTEER COMMITTEE
Joseph T. Gorman, Chairman and Chief Executive Officer, TRW Inc., has been named
chairperson of the 1995 U.S. Savings Bonds Volunteer Committee. The appointment, by
Secretary of the Treasury Lloyd Bentsen, took effect today at the Committee’s annual
Washington meeting. Mr. Gorman succeeds 1994 national chairperson William Ferguson,
Chairman and CEO of NYNEX Corporation, New York.
Mr. Gorman will lead the 1995 savings bond campaign through a committee of top business
and government executives representing leading American industries and major metropolitan
areas. The committee leads the national volunteer effort in support of the U.S. Savings
Bond Program. More than 7.2 million individuals buy bonds through the payroll savings
plan.
Mr. Gorman became Chairman and Chief Executive Officer of Cleveland-based TRW in
December 1988, after serving as president and chief operating officer since January 1985.
He has been a director of the company since 1984. Mr. Gorman joined TRW in 1968 as
a member of the company’s legal department.
Mr. Gorman is a member or director of several international, business and economic groups.
He is chairman of the Business Roundtable’s Education Task Force and the Defense
Industry Initiative Steering Committee. He is the immediate past chairman of the U.S. Japan Business Council and the U.S. government’s Industry Policy Advisory Committee. Mr.
Gorman is one of three U.S. appointees to the Japan Import Board and was previously the
vice chairman of the U.S. - Canada Automotive Select Panel. He is a director of The
Procter & Gamble Company and the Aluminum Company of America and is a member of
the advisory board of BP America Inc.
He has held several leadership positions in Ohio and the Cleveland area, including service
as the 1994 Cleveland Geographic Chairman of the U.S. Savings Bonds Volunteer
Committee.
A list of members of the 1995 U.S. Savings Bonds Volunteer Committee is attached.
oOo
PA-167
(LB-1279)
1995 U.S. SAVINGS BONDS VOLUNTEER COMMITTEE
National Chairperson
Joseph T. Gorman
Chairman and CEO
TRW Inc.
Cleveland, OH
INDUSTRY CHAIRPERSONS
ELECTRICAL EQUIPMENT
ADVERTISING/PUBLIC RELATIONS
John J. Dooner, Jr.
President and COO
McCann-Erickson Worldwide
AEROSPACE
Dr. Edward C. Stone
Director
Jet Propulsion Laboratory
AIR TRANSPORTATION
Ronald W. Allen
Chairman and CEO
Delta Air Lines, Inc.
Edmund M. Carpenter
Chairman and CEO
General Signal Corporation
ELECTRONICS
Dr. Barry M. Horowitz
President and CEO
The MITRE Corporation
ENTERTAINMENT
Sherry Lansing
Chairman - Motion Pictures
Paramount Pictures Corporation
GLASS AND BUILDING
MANUFACTURING
BANKING
J . Terrance Murray
Chairman, President & CEO
Fleet Financial Group
I
Jerry E. Dempsey
Chief Executive Officer
PPG Industries Inc.
HEALTH SERVICES
COMPUTERS & BUSINESS EQUIPMENT
James A. Unruh
Chairman and CEO
UNISYS Corporation
Lois J. Moore
President and CEO
Harris County Hospital
District
COUNTY GOVERNMENT
HIGHER EDUCATION
The Honorable Gary Locke
County Executive
King County
Seattle, WA
Dr. Blenda J. Wilson
President
California State University,
Northridge
INDUSTRIAL MANUFACTURING
STATE GOVERNMENT
Duane D. Fitzgerald
President and CEO
Bath Iron Works
The Honorable
Ann M. Richards
Governor of Texas
PACKAGING AND FOREST PRODUCTS
STEEL
Marvin A. Pomerantz
Chairman and CEO
Gaylord Container Corporation
Herbert Elish
Chairman, President and CEO
Weirton Steèl Corporation
PETROLEUM. COAL & REFINING
TELECOMMUNICATION
Joseph C. Farrell
Chairman and CEO
The Pittston Company
William T. Esrey
Chairman and CEO
Sprint Corporation
PUBLIC TRANSPORTATION
UTILITIES
Alan F . Kiepper
President
New York City Transit
Authority
Frederick W. Buckman
President and CEO
PacificCorp
RAILROADS
GEOGRAPHIC CHAIRPERSON
John W. Snow
President and CEO
CSX Corporation
ATLANTA
RETAIL FOODS
John F. Schwegmann
Chief Executive Officer
Schwegmann Giant Super Markets
I
F . Duane Ackerman
President and CEO
BellSouth Telecommunications
BOSTON
Donald B . Reed
President and CEO
NYNEX-New England
RETAIL MERCHANDISING
CHICAGO
Alan G. Hassenfeld
Chairman and CEO
Hasbro Inc.
SCHOOLS
Dr. J. Howard Hinesley
Superintendent of Schools
Pinellas County Board of
Education
Donald C. Trauscht
Chairman and CEO
Borg-Warner Security
Corporation
CINCINNATI
Daniel J. Meyer
Chairman and CEO
Cincinnati Milacron, Inc.
NEW JERSEY
COLUMBUS
James H. Gilmour
Executive Vice President
and C00
National City Bank, Columbus
James R. Leva
Chairman and CEO
General Public Utilities
Corporation
NEW YORK
*
DALLAS
John L . Adams
Chairman and CEO
Texas Commerce Bank
Harry P . Kamen
Chairman and CEO
Metropolitan Life Insurance
Company
DENVER
PHILADELPHIA
James W. McAnally
President
Martin Marietta Astronautics
Joseph F. Paquette, Jr.
Chairman and CEO
PECO Energy Co.
DETROIT
PHOENIX
James E. Wilkes
President
Ameritech - Michigan
Edward T . Hurd
President, Industrial Controls
Honeywell Inc.
HOUSTON
PITTSBURGH
Philip J. Carroll
President and CEO
Shell Oil Company
Edward V. Randall
President and CEO
PNC Bank NA Pittsburgh
LOS ANGELES
ST. LOUIS
Michael R. Bowlin
President and CEO
ARCO
1
John F. McDonnell
Chief Executive Officer
McDonnell Douglas Corporation
MILWAUKEE
SEATTLE
Richard A. Abdoo
Chairman, President and CEO
Wisconsin Energy Corporation
John V. Rindlaub
Chairman and CEO
Seafirst Bank
MINNEAPOLIS-ST. PAUL
WASHINGTON. DC
Andrew P . Czaj kowski
President and CEO
Blue Cross/Blue Shield of
Minnesota
Barbara Davis Blum
President and CEO
Adams National Bank
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
December 12, 1994
CONTAéTV’ Office of Financing
202-219-3350
RESULTS OF TREASURERS' AUCTION OR) 13-WEEK BILLS
Tenders for $13,655 million of 13-week bills to be issued
December 15, 1994 and to mature March 16/1995 were
accepted today (CUSIP: 912794Q98).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Discount
Rate
Investment
Rate
Low
High
Average
Price
98.547
98.544
98.544
$3,000,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 92%.
The investment rate is the equivalent coupon-issue yield
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$48,063,334
Accepted
$13,654,730
$42,811,435
1.572.374
$44,383,809
$8,402,831
1.572.374
$9,975,205
3,158,380
3,15'8,380
521.145
$48,063,334
521.145
$13,654,730
An additional $192,855 thousand of bills will be
issued to foreign official institutions for new cash.
LB-1280
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
:1CONTACT: Office of Financing
202-219-3350
FOR IMMEDIATE RELEASE
December 12, 1994
RESULTS OF TREASURY,' S
OF 26-WEEK BILLS
Tenders for $13,654 million of 26-week bills to be issued
December 15, 1994 and to .mature June 15, 1995 were
accepted today (CUSIP: 912794S62).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
6. 31%
6. 32%
6. 32%
Investment
Rate
6.61%
6.62%
6.62%
Price
96.810
96.805
96.805
Tenders at the high. discount rate were allotted 86
The investment rate is the equivalent coupon-issue
TENDERS RECEIVED AND ACCEPTED (in. thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$51,101,003
Accepted
$13,653,563
$44,735,170
1.372.753
$46,107,923
$7,287,730
1.372.753
$8,660,483
3,350,000
3,350,000
1.643.080
$51,101,003
1.643.080
$13,653,563
An additional $607, 645 thousand of bills will be
issued to foreign official institutions for new cash.
LB-1281
NE WS
r
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR RELEASE AT 2:30 P.M.
December 13, 1994
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $26,000 million, to be issued December 22,
1994. This offering will result in a paydown for the Treasury of
about $33,650 million, as the maturing bills total $59,659
million, (including the 66-day cash management bills issued
October 17, 1994, in the amount of $15,040 million, the 37-day
cash management bills issued November 15, 1994, in the amount of
$12,009 million, and the 20-day cash management bills issued
December 2, 1994, in the amount of $8,005 million).
Federal Reserve Banks hold $6,509 million of the five
maturing bills for their own accounts, which may be refunded
within the offering amount at the weighted average discount rate
of accepted competitive tenders.
Federal Reserve Banks'hold $6,833 million of the five
maturing issues as agents for foreign and international monetary
authorities, which may be refunded within the offering amount
at the weighted average discount rate of accepted competitive
tenders. Additional amounts may be issued for such accounts if
the aggregate amount of new bids exceeds the aggregate amount
of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
oOo
Attachment
LB-1282
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED DECEMBER 22, 1994
December 13, 1994
Offering Amount . . . . .
Description of Offering:
Term and type of security
CUSIP number ..........
Auction date ..........
Issue date . ..........
Maturity date . . .... .
Original issue date . . .
Currently outstanding . .
Minimum bid amount . . .
Multiples ..............
$13,000 million
$13,000 million
91-day bill
912794 R2 2
December 19, 1994
December 22, 1994
March 23, 1995
September 22, 1994
$11,777 million
182-day bill
912794 S7 0
December 19, 1994
December 22, 1994
June 22, 1995
December 22, 1994
$ 10,000
$ 1,000
$ 10,000
$ 1,000
The following rules apply to all securities mentioned above;
Submission of Bids:
Noncompetitive b i d s .......... .. . Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
Competitive b i d s ................
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield . . . . . . .
35% of public offering
35% of public offering
Maximum Award
Receipt of Tenders :
Noncompetitive tenders
. . . . . .
Competitive tenders . . . .
. . . .
Payment Terms .................. ..
Prior to 12:00 noon Eastern Standard time
on auction day
Prior to 1:00 p.m. Eastern Standard time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
The Government Purchase Card
,/... we pledge to: significantly expand the use of purchase
cards over levels existing in January 1993, with a target
increase of at least 100% by October 1,1994..."
September 1994
Reinventing the Federal Government
We will invent a government that puts people first, by• Putting Customers First
• Cutting Red Tape
• Empowering Employees to Get Results
• Cutting Back to Basics
PREFA CE
Last October, Dr. Steven Kelman, the Administrator of OMB's
Office of Federal Procurement Policy, asked Senior Agency
Procurement Executives to voluntarily sign a pledge to promote
one of the first National Performance Review's procurement
recommendations: to provide managers with the ability to
authorize employees who have a bona fide need to. buy small
dollar items directly using a purchase card.
Signing pledges was new to Procurement Executives; there was
nothing like this in the Federal Acquisition Regulation.
Nevertheless, ten of them agreed that, in one year, they would
increase purchase card usage by 100% over January 1993 usage.
The year is up. While the final tabulation will not be
available until mid-October, by the end of the tenth month,
July, they had increased purchase card usage by 119%, making
82,000 purchases per month worth almost $19,000,000. While
meeting the pledge is gratifying in itself, the real merit here
is in the success stories heard from those program managers and
their employees who have been entrusted to buy what they need,
when they need it, to do their jobs.
Since starting this
project, the ten agencies have made 750,000 purchases faster,
better and at less cost with the card.
Plus, they report
virtually no waste or abuse.
The following report documents the work of the Departments of
Commerce, Energy, Health and Human Services, Interior, State,
Transportation, Treasury, Office of Personnel Management and
Federal Emergency Management Agency in meeting this pledge.
It documents what they found, what they did and what they
recommend as next steps.
Procurement Executives from the
concurred in this report.
above
named
agencies
have
CONTENTS
EXECUTIVE SUMMARY .............................................. ....................... .
1
Taking the Pledge
3
...........................................................................................
Purchase Card C o u n cil..............................................
4
Publicizing the Purchase Card
.....................................................................
4
Industry F oru m ................................................................................................
5
Cost Benefit Analysis ...........................................
6
Moving Purchases to Program Offices
8
.......................................................
Successes of the Purchase C a rd .....................
9
Purchase Card Barriers and S olu tion s...........................
11
Unfinished B u sin e ss........................................................................................
20
Next Steps ........................................................................................................
22
A P P E N D IC E S
A. PLEDGE
B. PURCHASE CARD GROWTH
C. CARDHOLDER SUCCESS STORIES
D. PURCHASE CARD COUNCIL MEMBERS
E X E C U T IV E
SUM M ARY
The National Performance Review identified Government procurement
r e f o r m as o n e w a y of a c h i e v i n g a G o v e r n m e n t t h a t w o r k s b e t t e r a n d
c o s t s less.
Increasing use of the G o v ernment Purchase Card was
i d e n t i f i e d as a c o m p o n e n t o f p r o c u r e m e n t r e f o r m .
T h r o u g h t h e e f f o r t s o f t h e P r o c u r e m e n t E x e c u t i v e s f r o m t he
D e p a r t m e n t s of C o m m e r c e , E n e r g y , H e a l t h a n d H u m a n Services,
Interior, State, T r a n s p o r t a t i o n a n d T r e a s u r y , t h e O f f i c e of
Personnel Management, the Federal E m e r g e n c y M a n a g e m e n t A g e n c y and
t h e C o m m i s s i o n e r , I n f o r m a t i o n R e s o u r c e s M a n a g e m e n t S e r v i c e at t h e
G e n e r a l S e r v i c e s A d m i n i s t r a t i o n , u s e of t h e G o v e r n m e n t P u r c h a s e
Card has increased dramatically.
T h e G o v e r n m e n t P u r c h a s e C a r d is
a s u c c e s s story, y e t t h e r e a r e s t i l l m a n y o p p o r t u n i t i e s to e x p a n d
its use.
This report will detail how actual experience using the
Government Purchase Card has demonstrated the following
advantages :
o
Expedited "on the spot" pu r c h a s i n g rath e r than paperwork
l a n g u i s h i n g " i n t h e s y s t e m " f or t w o t o s i x week s .
o
E m p o w e r i n g t h e e n d u s e r s to b u y w h a t t h e y n e e d to d o
t h e i r job s r a t h e r t h a n r e l y i n g on a p u r c h a s i n g a g e n t f o r
i t e m s c o s t i n g les s t h a n $2,500.
o
A d m i n i s t r a t i v e s a v i n g s of $ 5 3 . 7 7 p e r t r a n s a c t i o n w h e n
compared with traditional Government purchasing and payment
methods.
o
Improved accountability.
Ten Executive Branch agencies pledged, thro u g h their Procurement
E x e c u t i v e s , and, a t GSA, t h e i r C o m m i s s i o n e r , IRMS, to i n c r e a s e
p u r c h a s e c a r d u s a g e a n d t h e n u m b e r of c a r d h o l d e r s by 100% b y
O c t o b e r 1994.
In July, w e r e p o r t e d t o t h e A d m i n i s t r a t o r of t h e
O f f i c e of F e d e r a l P r o c u r e m e n t P o l i c y (OFPP) t h a t t h e p l e d g e h a d
b e e n f u l l y h o n o r e d t h r e e m o n t h s early.
A s of J u l y 1994, t h e s e 10
agencies w e r e mak i n g 81,895 buys w o r t h $20,182,358 per month;
1 1 9 % m o r e t h a n t h e J a n u a r y 1993 b e n c h m a r k .
This report demonstrates how the pledge was honored.
Initially,
P r o c u r e m e n t E x e c u t i v e s f r o m Com m e r c e , T r a n s p o r t a t i o n , Energy,
HHS, I n t e r i o r , S t a t e a n d T r e a s u r y f o r m e d a P u r c h a s e C a r d Council.
O F P P a n d F i n a n c i a l M a n a g e m e n t S e r v i c e s (FMS) a l s o p a r t i c i p a t e d in
this council.
M e m b e r s h i p g r e w as o t h e r a g e n c i e s e i t h e r s i g n e d
t h e p l e d g e or e x p r e s s e d i n t e r e s t in l e a r n i n g m o r e .
M e m b e r s of
this council:
o
successfully challenged administrative and regulatory
b a r r i e r s to c a r d use,
o
shared
"best practices"
in i m p l e m e n t a t i o n a n d t r a i n i n g ,
o
p r o m o t e d c a r d u s e at c o n f e r e n c e s ,
and
o
p u b l i c i z e d t h e b e n e f i t s of t he c a r d b y p u b l i s h i n g a n
informal newsletter.
We firmly b e l i e v e that the Government Purchase Card still offers
m a n y u n t a p p e d o p p o r t u n i t i e s to s t r e a m l i n e p r o c u r e m e n t a n d c u t
costs.
A l t h o u g h g r e a t p r o g r e s s h a s b e e n m a d e s i n c e w e s i g n e d the
pl e d g e , w e h a v e i n c l u d e d a l i s t i n g of a d d i t i o n a l a c t i o n s w h i c h we
r e c o m m e n d t o f u r t h e r i m p l e m e n t t he p r o g r a m t h r o u g h o u t t h e F e d e r a l
Government.
2
Taking the Pledge
T h e N a t i o n a l P e r f o r m a n c e R e v i e w (NPR) e s t a b l i s h e d a g o a l t o
c r e a t e a G o v e r n m e n t t h a t w o r k s b e t t e r a n d c o s t s less.
G o v e r n m e n t - w i d e p r o c u r e m e n t r e f o r m w a s i d e n t i f i e d as o n e a v e n u e
to a c c o m p l i s h t h i s o b j e c t i v e . O n e of t h e p r i n c i p a l N P R
p r o c u r e m e n t r e f o r m r e c o m m e n d a t i o n s w a s to e x p a n d t h e u s e o f t h e
G o v e r n m e n t p u r c h a s e c a r d f o r b u y i n g s m a l l d o l l a r items t o a c h i e v e
a more responsive, efficient and streamlined m e c h a n i s m for small
purchasing.
T h e p u r c h a s e c a r d is a V I S A c r e d i t c a r d t h a t t h e
G o v e r n m e n t u s e s t o b u y s m a l l d o l l a r s u p p l i e s a n d services.
T h e e f f o r t t o i n c r e a s e t h e u s e of t h e p u r c h a s e c a r d f o c u s e d on
a c t i o n s u n d e r $2,500.
T h i s t h r e s h o l d w a s c h o s e n for s e v e r a l
r e a sons:
first, t h e c u r r e n t t h r e s h o l d f or c o m p e t i t i o n is $ 2 , 5 0 0
—
program personnel can buy without obtaining competitive quotes
as l o n g as t h e p r i c e t h e y a r e q u o t e d is f a i r a n d r e a s o n a b l e ;
p u r c h a s e s u n d e r $ 2 , 5 0 0 a r e g e n e r a l l y less c o m p l e x a n d d o n o t
r e q u i r e e x t e n s i v e p r o c u r e m e n t k n o w l e d g e ; a n d i t e m s a re o f t e n
available off-the-shelf for immediate delivery.
G o v e r n m e n t - w i d e s m a l l p u r c h a s e s t a t i s t i c s f o r f i s c a l y e a r 1993
i n d i c a t e t h a t o u t of 1 9 , 2 6 2 , 1 3 0 a c t i o n s w o r t h $22 b i l l i o n
a p p r o x i m a t e l y 10 m i l l i o n of t h e a c t i o n s t o t a l l i n g a p p r o x i m a t e l y
$4 b i l l i o n a r e u n d e r $2,500.
M a k i n g t h e p u r c h a s e c a r d a v a i l a b l e , w i t h a p p r o p r i a t e t r a i n i n g , to
m o r e i n d i v i d u a l s o u t s i d e of p r o c u r e m e n t o f f i c e s w i l l g r e a t l y
a s s i s t in m o v i n g t h e p r o c u r e m e n t p r o c e s s f r o m r e d t a p e t o r e s u l t s
by e n a b l i n g p r o g r a m o f f i c e s t o o b t a i n t h e i r r e q u i r e m e n t s o n a
timely and cost effective basis without burdensome paperwork,
l a y e r s of a p p r o v a l s a n d w a s t e d t i m e g o i n g t h r o u g h t h e p r o c u r e m e n t
office for each purchase.
To h e l p r e a c h t h e g o a l t o e x p a n d u s a g e of t h e p u r c h a s e card, t h e
P r o c u r e m e n t E x e c u t i v e f o r t h e D e p a r t m e n t of t h e T r e a s u r y
s p e a r h e a d e d a p r o j e c t t o d e m o n s t r a t e e n d o r s e m e n t of t h i s r e f o r m
initiative by signing a pledge to increase purchase card u s age by
100% b y O c t o b e r 1994.
T h e p l e d g e w a s m a d e t o Dr. S t e v e n K e l m a n ,
A d m i n i s t r a t o r of t h e O f f i c e of F e d e r a l P r o c u r e m e n t P o l i c y ( O F P P ) .
A c o p y o f t h e p l e d g e is a t t a c h e d as A p p e n d i x A.
It w a s t h e f i r s t
pledge of the pr o c u r e m e n t reinvention agenda and set the baseline
a n d s e r v e d as a m o d e l f o r o t h e r p l e d g e s t o follow.
■QflH
I n i t i a l l y , P r o c u r e m e n t E x e c u t i v e s f r o m t h e D e p a r t m e n t s of
Com m e r c e , I n t e r i o r , H e a l t h a n d H u m a n Se r v i c e s , State,
T r a n s p o r t a t i o n a n d T r e a s u r y s i g n e d t h e pl e d g e .
The Commissioner,
I n f o r m a t i o n R e s o u r c e s M a n a g e m e n t Service, G e n e r a l S e r v i c e s
A d m i n i s t r a t i o n (GSA) a l s o signed. A s h o r t t i m e later, t h e
D e p a r t m e n t of E n e r g y , t h e F e d e r a l E m e r g e n c y M a n a g e m e n t A g e n c y a n d
3
t h e O f f i c e of P e r s o n n e l M a n a g e m e n t d e m o n s t r a t e d s u p p o r t o f t h i s
i n n o v a t i v e e f f o r t b y a l s o s i g n i n g t h i s p l e dge.
O n J u l y 21, 1 9 9 4 , t h e T r e a s u r y P r o c u r e m e n t E x e c u t i v e r e p o r t e d to
Dr. K e l m a n t h a t t h e p l e d g e h a d b e e n met, t h r e e m o n t h s a h e a d of
schedule.
A s o f J u l y 1994, s a l e s h a d i n c r e a s e d b y 119%.
The ten
pledge agencies are making over 1 million purchases a yea r using
t h e G o v e r n m e n t p u r c h a s e card.
A s u m m a r y c h a r t s h o w i n g g r o w t h of
t h e p u r c h a s e c a r d p r o g r a m at t h e t e n a g e n c i e s t h a t s i g n e d t h e
p l e d g e is s h o w n as A p p e n d i x B.
In a d d i t i o n t o i n c r e a s i n g sales, m e m b e r s a l s o p l e d g e d to p l a c e
t h e c a r d i n t o t h e h a n d s of a p p r o p r i a t e l y t r a i n e d l i n e m a n a g e r s
and other non-procurement personnel; identify and eliminate
i n t e r n a l i m p e d i m e n t s to t he m a x i m u m b e n e f i c i a l u s e of t h e
purchase card and actively promote and support legislation to
e l i m i n a t e s t a t u t o r y i m p e d i m e n t s ; and, finally, c o o p e r a t e w i t h
e a c h o t h e r a n d O F P P to s h a r e e x p e r i e n c e s r e l e v a n t t o t h e e x p a n d e d
u s e of t h e p u r c h a s e card.
Purchase Card Council
S o o n a f t e r t h e p l e d g e w a s signed, t h e T r e a s u r y P r o c u r e m e n t
E x e c u t i v e e s t a b l i s h e d t h e P u r c h a s e C a r d Council.
The Council*s
mission was to help agencies meet the pledge.
Initially, the
C o u n c i l c o n s i s t e d of r e p r e s e n t a t i v e s f r o m t h e p l e d g e a g e n c i e s .
O F P P a n d T r e a s u r y ' s F i n a n c i a l M a n a g e m e n t S e r v i c e (FMS) w e r e als o
r e p r e s e n t e d o n t h e C o u n c i l a n d s e r v e d as a d v i s o r s .
R e p r e s e n t a t i v e s f r o m t h e A g r i c u l t u r e R e s e a r c h S e r v i c e of U S D A a n d
the Drug Enforcement Administration attended several meetings.
F e d e r a l P r i s o n I n d u s t r i e s p a r t i c i p a t e d t o s e e h o w i n c r e a s e d c ard
u s a g e w o u l d a f f e c t its program.
The Council was chaired by
Tre a s u r y .
A l i s t of P u r c h a s e C a r d C o u n c i l r e p r e s e n t a t i v e s is
c o n t a i n e d in A p p e n d i x D.
Publicizing the Purchase Card
The Purchase Card Council promoted the Government p u r c h a s e card
b y p u b l i s h i n g a r t i c l e s in j o u r n a l s a n d m a g a z i n e s , p a r t i c i p a t i n g
at s m a l l b u s i n e s s fairs, a n d c r e a t i n g its o w n p u b l i c a t i o n .
S i nce
b y l aw p u r c h a s e s u n d e r $2 5 , 0 0 0 a re r e s e r v e d f or s m a l l b u s i n e s s ,
w e (the P u r c h a s e Council) c o n c e n t r a t e d o u r p u b l i c i z i n g e f f o r t s on
small, d i s a d v a n t a g e d a n d w o m e n - o w n e d b u s i n e s s e s .
C a r d C o o v . a n i n f o r m a l bulletin, w a s p u b l i s h e d b y t h e C o u n c i l to
p r o m o t e u s e of t h e G o v e r n m e n t p u r c h a s e c a r d b y s h a r i n g
i n f o r m a t i o n w i t h o t h e r G o v e r n m e n t a g e n c i e s t h a t a r e u s i n g or
c o n s i d e r i n g u s i n g t h e card.
Treasury and the Small Business Adminis t r a t i o n c o - s p o n s o r e d the
P r o c u r e m e n t O p p o r t u n i t i e s E x p o - 9 4 at A n d r e w s A i r F o r c e B a s e on
4
A p r i l 20, 1994.
GSA and Treasury exhibited the Government
p u r c h a s e c a r d at t h i s c o n f e r e n c e .
O v e r 600 small, w o m e n - o w n e d
and minority businesses visited the booth to obtain information
a b o u t t h e card.
A n o t h e r small, w o m e n —o w n e d a n d m i n o r i t y b u s i n e s s c o n f e r e n c e ,
T r e a s u r y ' s P A R T N E R S H I P S '94, h e l d on M a y 4, 1994, at t h e M e l l o n
A u d i t o r i u m in W a s h i n g t o n , D.C., i n c l u d e d a G S A e x h i b i t o n t h e
G o v e r n m e n t p u r c h a s e card.
M a n y of t h e $1.7 m i l l i o n o n — t h e — s p o t
p u r c h a s e s m a d e at t h e c o n f e r e n c e w e r e m a d e w i t h a G o v e r n m e n t
p u r c h a s e card.
To further publicize the program, h onorary purchase cards were
p r e s e n t e d to T r e a s u r y S e c r e t a r y B e n t s e n a n d A s s i s t a n t S e c r e t a r y
(Management), G e o r g e Muñoz.
A p h o t o g r a p h of t h e c a r d b e i n g
p r e s e n t e d to S e c r e t a r y B e n t s e n w a s o n t h e c o v e r of I n s i d e
Treasury.
Dr. K e l m a n w a s p r e s e n t e d w i t h an h o n o r a r y c a r d a t a
subsequent Procurement Executives Association meeting.
This card
w a s f r a m e d a n d h a n g s in h i s o f f i c e f o r all v i s i t o r s t o see.
T r e a s u r y , at y e t a n o t h e r P a r t n e r s h i p c o n f e r e n c e h e l d A u g u s t 2324, 1994, in L os A n g e l e s , C a l i f o r n i a , m a d e al l o n - t h e - s p o t
p u r c h a s e s w i t h t h e G o v e r n m e n t p u r c h a s e card.
T r e a s u r y ' s D i r e c t o r f or S m a l l a n d D i s a d v a n t a g e d B u s i n e s s
U t i l i z a t i o n p r o g r a m s w r o t e l e t t e r s t o t h e U.S. C h a m b e r of
C o m m e r c e a n d N a t i o n a l S m a l l B u s i n e s s U n i t e d r e q u e s t i n g t h e m to
p u b l i s h an a r t i c l e in t h e i r n e w s l e t t e r s to f u r t h e r e d u c a t e t h e
s m a l l b u s i n e s s c o m m u n i t y a b o u t t h e p u r c h a s e card.
Na t i o n a l Small
B u s i n e s s U n i t e d p u b l i s h e d t h e a r t i c l e in I s s u e No. 9 4 — 4 of t h e i r
Small Business US A newsletter.
In a d d i t i o n . S e t - A s i d e - A l e r t , a
P u b l i c a t i o n of t h e S m a l l B u s i n e s s P r e s s a n d t h e N a t i o n a l
A s s o c i a t i o n of W o m e n B u s i n e s s O w n e r s p u b l i s h e d n a r r a t i v e s a b o u t
t h e pr o g r a m .
T h e p u b l i c i t y c r e a t e d s i g n i f i c a n t i n t e r e s t in t h e b u s i n e s s a n d
Government community.
H u n d r e d s of c a l l s w e r e r e c e i v e d f r o m
companies wanting basic information about the program.
State and
l o c a l G o v e r n m e n t age n c i e s , s u c h as t h e O f f i c e of t h e C o m p t r o l l e r
of t h e S t a t e of Texas, c a l l e d a n d w e r e p r o v i d e d h e l p f u l a d v ice.
Industry Forum
In o n e of t h e e a r l y m e e t i n g s of t h e P u r c h a s e C a r d C o u n c i l , it w a s
d e c i d e d t o s e t u p a n i n d u s t r y f o r u m in t h e W a s h i n g t o n a r e a w h e r e
Government and private industry could meet and discuss their
programs.
However, after three Purchase Council m e m b e r s attended
First Bank's annual private industry user conference on the VISA
P u r c h a s i n g C a r d P r o g r a m in M i n n e a p o l i s , M i n n e s o t a , it w a s
realized that private industry's program was modeled
substa n t i a l l y after the G o v ernment's program.
T h i s is a r a r e
5
i n s t a n c e w h e r e t h e F e d e r a l G o v e r n m e n t h a s t a k e n t h e l e a d in
d e v e l o p i n g a p r o g r a m w h i c h is b e i n g c o p i e d b y p r i v a t e industry.
Cost Benefit Analysis
P a r t i c i p a t i n g a g e n c i e s w e r e a s k e d to p e r f o r m a d e t a i l e d c o s t
b e n e f i t a n a l y s i s o n s m a l l p u r c h a s e s of $ 2 , 5 0 0 a n d below, in o r d e r
t o c o m p a r e t h e c o s t s of m a k i n g p u r c h a s e s u s i n g w r i t t e n p u r c h a s e
o r d e r s in a c e n t r a l i z e d s m a l l p u r c h a s i n g o f f i c e v e r s u s u s i n g
p u r c h a s e c a r d s in p r o g r a m o f f i c e s w h e r e t h e r e q u i r e m e n t exists.
A s t a n d a r d i z e d m e t h o d o l o g y w a s d e v e l o p e d for u s e b y all
p a r t i c i p a n t s , a l t h o u g h a g e n c i e s w e r e f r e e to t a i l o r it t o t h e i r
circumstances.
In addition, s o m e a g e n c i e s h a d a l r e a d y c o n d u c t e d
cost-benefit analyses that were considered sufficiently up-tod a t e t o b e v a l i d f or t h e p u r p o s e s of t h i s study.
T h e m e t h o d o l o g y i n v o l v e d m e a s u r i n g or e s t i m a t i n g t h e t i m e
r e q u i r e d for all t h e v a r i o u s s t e p s n e c e s s a r y to a c q u i r e s u p p l i e s
or s e r v i c e s u n d e r $ 2 , 5 0 0 for a s i n g l e p u r c h a s e .
F o r e a c h step,
a p p l i c a b l e s a l a r y r a t e s w e r e c o m p u t e d (in t h i s p o r t i o n of t h e
a n a l y s i s , c o s t s o t h e r t h a n d i r e c t a nd i n d i r e c t p e r s o n n e l c o s t s
w e r e negl i g i b l e ) a n d a v e r a g e t o t a l c o s t s w e r e s u m m a r i z e d fo r
w r i t t e n p u r c h a s e o r d e r s a nd p u r c h a s e cards.
T h e m a j o r e l e m e n t s of t h e a n a l y s i s w e r e as follows:
■
R e q u i s i t i o n Phase.
This includes defining the requirement,
p r e p a r i n g a r e q u i s i t i o n (if a p p l i c a b l e ) , o b t a i n i n g f u n d i n g
a u t h o r i z a t i o n , a n d o b t a i n i n g a ny n e c e s s a r y a p p r o v a l s .
■
P u r c h a s e Phase.
I n c l u d e s s t e p s s u c h as a d m i n i s t r a t i v e
r e v i e w of r e q u i s i t i o n , r e v i e w b y p u r c h a s i n g s t a f f for
r e q u i r e d sources, c o n t a c t i n g v e n dors, d o c u m e n t i n g t h e
s o l i c i t a t i o n / o f f e r , s e l e c t i o n of v e ndor, a n d i s s u i n g t h e
purchase order.
■
A d m i n i s t r a t i o n Phase.
o u t t h e order.
■
R e c e i v i n g Phase.
A c t i o n s i n v o l v e d in r e c e i v i n g ,
a n d a c c e p t a n c e a r e i n c l u d e d in t h i s phase.
■
I n v o i c e Phase.
Includes actions related to revie w i n g and
a p p r o v i n g t h e i n v o i c e b e f o r e it g o e s t o t h e f i n a n c e o f f i c e
f o r pa y m e n t .
■
Finance Processing.
This includes sending the purchase
order, r e c e i v i n g r e p o r t a n d i n v o i c e t o f i n a n c e ; v e r i f y i n g
the cardholder statements and following-up on late
s t a t e m e n t s ; a n d r e c o n c i l i n g d i s p u t e d items.
Finance office
m a k i n g s u r e t h a t s t a t e m e n t ar e r e c e i v e d f r o m e a c h
This phase primarily includes closing
6
inspection
cardholder; verifying that statements are signed by each
c a rdholder and approving official; m a t c h i n g recei v i n g
reports with invoices; comparing statements with invoice
r e p o r t ; r e c o n c i l i n g l ist of d i s p u t e d items; f i l l i n g o u t
n o t i f i c a t i o n s of i n v o i c e a d j u s t m e n t form; and, e n t e r i n g
i n v o i c e a m o u n t o n t o s c h e d u l e for payme n t .
It s h o u l d b e n o t e d that, in t h e c a s e of s o m e a g e n c i e s , a n a l y s e s
d o n e in t h e p a s t i n c l u d e d a n a d m i n i s t r a t i v e fee as p a r t o f t h e
c o s t of u s i n g t h e p u r c h a s e card.
A s of M a r c h 1994, t h e
a d m i n i s t r a t i v e f ee w a s e l i m i n a t e d f r o m t h e c o n tract.
Because the
fee w a s less t h a n h a l f o f o n e p e r c e n t for t h e las t y e a r of t h e
c o n t r a c t p e r i o d , its i m p a c t on a n y cos t b e n e f i t a n a l y s i s w a s
negligible.
A l s o n o t i n c l u d e d in t h e c o s t b e n e f i t a n a l y s i s a r e t h e
p r o d u c t i v i t y b a s e d r e f u n d s t h a t c a n be e a r n e d by t h e G o v e r n m e n t
u n d e r the* p r e s e n t p u r c h a s e c a r d contract.
These refunds are
e a r n e d for p a y m e n t of t h e c o n s o l i d a t e d i n v o i c e s o o n e r t h a n 39*
d a y s a f t e r i t s re c e i p t .
T h e r e f u n d is .01% of t h e n e t s a l e s
a m o u n t f or e a c h d a y e a r l i e r t h a n 39 d a y s t h a t t h e i n v o i c e is
paid.
P r o d u c t i v i t y b a s e d r e f u n d s (.05% of n e t sales) a r e a l s o
a v a i l a b l e if a n a g e n c y e l e c t s t o r e c e i v e r e p o r t s e l e c t r o n i c a l l y .
The results of the cost benefit analysis show that the average
c o s t ( a r i t h m e t i c mean) a m o n g t h e p a r t i c i p a t i n g a g e n c i e s f o r
p r o c e s s i n g a p u r c h a s e o r d e r a n d a p u r c h a s e card buy, f r o m
i d e n t i f i c a t i o n of t h e r e q u i r e m e n t t h r o u g h c l o s u r e of t h e sale,
a nd p a y m e n t a r e as follows:
C o s t of P u r c h a s e O r d e r -■ $ 9 4.20
C o s t of P u r c h a s e C a r d
= $40.43
»
Potential
Savings
= $53.77
A l t h o u g h t h e r a n g e of c o s t s r e p o r t e d b y t h e a g e n c i e s is
r e l a t i v e l y w i de, a s i n g l e f a c t o r s u c h as e x t e n t of r e l i a n c e o n
a u t o m a t e d p r o c e d u r e s c o u l d e x p l a i n m u c h of t h e v a r i a n c e s .
In
a d d i t i o n , it is w o r t h n o t i n g t h a t e v e r y ana l y s i s , w i t h o u t
e x c e p t i o n , s h o w e d a f i n a n c i a l a d v a n t a g e for t h e p u r c h a s e card,
a n d t h e a v e r a g e f i g u r e s i n d i c a t e t h a t a c o s t s a v i n g s of o v e r 5 0%
is r e a l i s t i c .
It s h o u l d b e n o t e d t h a t m o s t of t h e s a v i n g s a re n o t in t h e
pr o c u r e m e n t office.
S a v i n g s a re d i f f i c u l t t o p i n p o i n t s i n c e t h e y
a re in t h e m u l t i p l e o f f i c e s t h a t identify, p r o c e s s a n d p a y f o r ^
r e q u i r e m e n t s u n d e r $2,500.
W h i l e s ome of t h e s a v i n g s w i l l b e in
t h e p r o c u r e m e n t p r o c e s s , s a v i n g s w i l l b e a c h i e v e d in t h e f i n a n c e
o f f i c e as w e l l as t h e m a n y o f f i c e s t h a t a p p r o v e r e q u i s i t i o n s ,
p u r c h a s e o r d e r s o r i n v o i c e s on t h e i r t e d i o u s j o u r n e y f r o m t h e
o f f i c i a l w h o n e e d s t h e s e r v i c e s or s u p p l i e s t o t h e p r o v i d e r s of
7
t h e s e r v i c e s or supplies.
Moving Purchases to Program Offices
A n a n a l y s i s w a s m a d e of th e n u m b e r of p u r c h a s e s u n d e r $ 2 , 5 0 0
c u r r e n t l y m a d e b y p u r c h a s e o r d e r s p r e p a r e d in t h e p r o c u r e m e n t
o f f i c e w h i c h c o u l d be m o v e d o u t o f t h e p r o c u r e m e n t o f f i c e a n d
p u r c h a s e d b y t h e p r o g r a m or o p e r a t i o n s o f f i c e h a v i n g t h e need,
t h u s e l i m i n a t i n g p r o c u r e m e n t a d m i n i s t r a t i v e lea d t i m e r a n g i n g
f r o m 10 t o 45 days.
Th e a n a l y s i s s h o w e d that, f or f i s c a l y e a r
1995, a g e n c i e s c a n m o v e 30% of p u r c h a s e o r d e r a w a r d s u n d e r $ 2 , 5 0 0
o u t of t h e p r o c u r e m e n t o f f i c e s a n d i n t o p r o g r a m a r e a s u t i l i z i n g
t h e p u r c h a s e card.
T h i s m e a n s t h a t in f i s c a l y e a r 1995, a m o n g
t h e p a r t i c i p a t i n g agencies, at l e a s t 1 5 0 , 0 0 0 p u r c h a s e s c o u l d be
m o v e d o u t of p r o c u r e m e n t o f f i c e s i n t o p r o g r a m offic e s .
These
f i g u r e s d o n o t i n c l u d e t h e D e p a r t m e n t o f D e f e n s e or n o n
p a r t i c i p a t i n g c i v i l i a n agencies.
F o r f i s c a l y e a r s 1996 a n d 1997, t h e a n a l y s i s of p u r c h a s e o r d e r s
p r o j e c t e d a 10% d e c l i n e in t h e i r u s e e a c h year, t h e r e f o r e
i n c r e a s i n g up to 50% in t h r e e y e a r s t h e n u m b e r of t r a n s a c t i o n s
t h a t w i l l be c o n d u c t e d b y p r o g r a m p e r s o n n e l .
We see no r e a s o n
that this conclusion should not be applied Government-wide.
A s p a r t of t he analysis, t h e p a r t i c i p a t i n g a g e n c i e s r e v i e w e d t h e
n u m b e r of p u r c h a s e s t h a t a p u r c h a s i n g a g e n t m a d e u n d e r $ 2 , 5 0 0 in
o n e f i s c a l year.
T h i s a n a l y s i s s h o w e d t h a t o n average, a
p u r c h a s i n g a g e n t p e r f o r m e d b e t w e e n 650 a n d 700 a c t i o n s p e r year.
W i t h 3 0% of p r o c u r e m e n t a c t i o n s b e i n g m o v e d o u t of t h e
p r o c u r e m e n t o f f i c e s in f i s c a l y e a r 1995, a n d 10% p e r y e a r in
f i s c a l y e a r s 1996 a n d 1997, s u b s t a n t i a l a d m i n i s t r a t i v e a n d
p e r s o n n e l s a v i n g s w i l l b e achieved.
A s s t a t e d above, u s i n g t h e p u r c h a s e c a r d i n s t e a d of i s s u i n g a
p u r c h a s e o r d e r t h e g o v e r n m e n t saves, on average, $ 5 3 . 7 7 p e r
transaction.
With the 150,000 purch a s e s identified to b e m a d e
u s i n g t h e p u r c h a s e c a r d o u t s i d e t h e p r o c u r e m e n t office, a n
a d m i n i s t r a t i v e s a v i n g s of $8 m i l l i o n c o u l d be r e a l i z e d in f i s c a l
y e a r 1995.
T h e D e p a r t m e n t s of C o m m e r c e a n d T r a n s p o r t a t i o n h a v e b e e n u s i n g
t h e p u r c h a s e c a r d p r o g r a m s i n c e its i n c e ption, a n d h a v e c o m e m u c h
c l o s e r t o m a x i m i z i n g its p o t e n t i a l t h a n o t h e r a g e n c i e s t h a t
started usi n g the program recently.
These two agencies m a y
t h e r e f o r e n o t r e a l i z e t h e s a m e g r o w t h in t h e p r o g r a m a n d s a v i n g s
as s o m e o f t he n e w e r u s e r a g e n cies.
F u l l i m p l e m e n t a t i o n of t h e p u r c h a s e c a r d p r o g r a m w i l l s h i f t w o r k
o u t of t h e p u r c h a s i n g o f f i c e a n d t h e r e b y a l l o w r e s o u r c e s t o b e
r e d e p l o y e d to w o r k o n o t h e r m a t t e r s .
Contract administration, a
function that has traditionally taken a back seat to contract
8
p l a c e m e n t , is a n a r e a t h a t n e e d s g r e a t e r a t t e n t i o n .
t h i s p h a s e of t h e c o n t r a c t c y c l e t h a t t h e G o v e r n m e n t
v u l n e r a b l e t o w a s t e a n d abuse.
It is in
is m o s t
Successes of the Purchase Card
T h e p o s i t i v e i m p a c t of t he G o v e r n m e n t p u r c h a s e c a r d o n t h e
p u r c h a s i n g s y s t e m c a n be d e m o n s t r a t e d b o t h w i t h s t a t i s t i c s a n d
individual experiences.
As w e h a v e s h o w n in a p r e v i o u s s e c t i o n
of t h i s report, t h e u s e of t h e p u r c h a s e c a r d c a n r e d u c e t h e
a d m i n i s t r a t i v e c o s t s a n d t ime i n v o l v e d in m a k i n g a p u r c h a s e .
It
s t r e a m l i n e s p r o c u r e m e n t p r o c e d u r e s , c u t s d o w n o n t h e u s e of
i m p r e s t f u n d s w h i l e p r o v i d i n g g r e a t e r a c c o u n t a b i l i t y , a n d it
e x p e d i t e s p a y m e n t s t o vendors.
A n e m p l o y e e of t h e D e p a r t m e n t o f t h e T r e a s u r y o f f e r s t h e
f o l l o w i n g o b s e r v a t i o n s on a d m i n i s t r a t i v e c o s t s a v i n g s a n d
s t r e a m l i n i n g o b t a i n e d t h r o u g h t h e u s e of t h e card:
" E v e r y o n e of o u r P u r c h a s e C a r d t r a n s a c t i o n s h a s b e e n
positive.
I c a n h o n e s t l y s a y t h a t f r o m t h e o n s e t of t h e
p u r c h a s e card, p r o c u r e m e n t of g o o d s a n d s e r v i c e s h a s b e e n
h a s s l e free.
P r i o r to t h e card, w e w e r e r e q u i r e d t o p r e p a r e
a n SF 148 ( R e q u i s i t i o n f o r S u p p l i e s / S e r v i c e s ) , s u b m i t it to
p r o c u r e m e n t , w a i t for t w o m o n t h s f o r a p u r c h a s e order, w a i t
a n o t h e r m o n t h f o r delivery, a n d t h e p o o r v e n d o r h a d t o w a i t
y e t a n o t h e r m o n t h for p a y ment.
N o w w e r e c e i v e t h e g o o d s in
a m a t t e r of d a y s f rom t h e t i m e t h e o r d e r is p l a c e d a n d t h e
v e n d o r is p a i d in a t i m e l y manner.
T h e p u r c h a s e c a r d is a
w o n d e r f u l r e s o u r c e ."
T r e a s u r y a l s o p i n p o i n t s th e a d v a n t a g e s of t h e p u r c h a s e c a r d o v e r
t h e i m p r e s t fund:
" C e r t i f i c a t i o n of p u r c h a s e c a r d s t a t e m e n t s is l e s s t i m e
c o n s u m i n g t h a n t h e p r e p a r a t i o n , r e v i e w a n d s u b m i s s i o n of
imprest fund replenishment p a c k a g e s . Purchases can be made
t e l e p h o n i c a l l y r a t h e r t h a n in p e r s o n .
Accounting activity
is m o r e a c c u r a t e s i n c e t h e c o m m i t m e n t is e s t a b l i s h e d a t t h e
t i m e of t h e p u r c h a s e , w h e r e a s i m p r e s t f u n d a c t i v i t y is n o t
c h a r g e d u n t i l t h e m o n t h l y a c c o u n t a b i l i t y is p e r f o r m e d . "
T h e D e p a r t m e n t of E n e r g y s u c c e s s w i t h t h e p u r c h a s e c a r d w a s
e v i d e n t w h e n t h e A u g u s t 17, 1994, r e p o r t s h o w e d t h a t 4 , 412
purc h a s e card transactions we r e conducted.
Using the interagency
c o u n c i l c o s t fi g u r e s , t h a t e q u a t e s t o a s a v i n g of $ 2 3 7 , 2 3 3 . 2 4 for
t h i s o n e m o n t h alone.
D u r i n g f i s c a l y e a r 1993, E n e r g y p r o c e s s e d
3 6 , 1 3 6 p u r c h a s e or d e r s .
If a l l c o u l d b e h a n d l e d b y t h e p u r c h a s e
card, t h e p o t e n t i a l s a v i n g s w o u l d be $ 1 , 9 4 3 , 0 3 2 . 7 2 .
They also
a u t h o r i z e d u s e of t h e c a r d for t w o m a n a g e m e n t a n d o p e r a t i n g
contractors.
The contractors operate government-owned facilities
9
and the title to the equipment and products they purchase vests
in t h e G o v e r n m e n t .
T h e i r P r o c u r e m e n t E x e c u t i v e n o t e s t h a t MIt is
a p l e a s u r e t o o b s e r v e th e e x p a n s i o n of a p r o g r a m w h i c h w i l l
decrease administrative expenses and delays."
T h e D e p a r t m e n t of C o m m e r c e r e p o r t s t h a t t h e p u r c h a s e c a r d p r o g r a m
is n o t o n l y a s u c c e s s in t h e U n i t e d S t a t e s b u t o v e r s e a s as well.
T h e y h a d i n i t i a t e d , at t h e r e q u e s t of t h e I n t e r n a t i o n a l T r a d e
A d m i n i s t r a t i o n , U.S. and F o r e i g n C o m m e r c i a l S e r v i c e ( U S & F C S ) , an
o v e r s e a s p i l o t p u r c h a s e c a r d p r o g r a m on O c t o b e r 23, 1992.
This
p i l o t i n v o l v e d f o u r coun t r i e s :
England, Be l g i u m , V e n e z u e l a , a n d
Canada.
O n e c a r d h o l d e r w a s i d e n t i f i e d in e a c h of t h e s e
countries.
T h e p i l o t r e v e a l e d t h a t t h e p u r c h a s e c a r d is i d e a l l y
s u i t e d f o r t h e f o r e i g n s e r vice.
It is c o s t effe c t i v e , u s e s t h e
daily exchange rates without any additional conversion fees and
h a s h e l p e d to r e d u c e p r o c u r e m e n t fees a s s o c i a t e d w i t h u s i n g
p u r c h a s e o r d e r s overseas.
T h e o v e r s e a s p r o g r a m is n o l o n g e r a
pilot but an established permanent p rogram similar to their
s t a t e s i d e pr o g r a m .
T h e r e a r e n o w 96 c a r d h o l d e r s , i n c l u d i n g 3 in
China, in 45 c ountries.
A n e m p l o y e e at t h e D e p a r t m e n t of S t a t e r e p orts:
" H e a r i n g h o w o t her a g e n c i e s g r a p p l e d w i t h a nd s o l v e d i s s u e s
t h a t w e r e c r o p p i n g u p d u r i n g t h e e x p a n s i o n of t h e i r p r o g r a m
r e a l l y h e l p e d us d e v e l o p t h e p e r s i s t e n c e a n d p e r s p e c t i v e to
k e e p pu s h i n g .
We w e r e a b l e to t a k e a d v a n t a g e of t h e
information exchange opportunities offered through the
P u r c h a s e C a r d Council, a n d w e a d o p t e d m a n y of t h e " b e s t
p r a c t i c e s " t h a t o t h e r a g e n c i e s h a d f o u n d t o be t r i e d a n d
true.
T h e r e s u l t s a r e clear:
State's domestic program,
i m p l e m e n t e d t h r o u g h its O f f i c e of A c q u i s i t i o n , h a s t a k e n o ff
a n d is c u r r e n t l y g r o w i n g i n c r e m e n t a l l y . "
T h e D e p a r t m e n t of Interior, in its e f f o r t s t o m a k e t h e p u r c h a s e
c a r d a s u c cess, h o s t e d f o u r w o r k s h o p s o n p r o g r a m c h a n g e s in t h e
p u r c h a s e c a r d p r o g r a m for h u n d r e d s of c u r r e n t a n d f u t u r e
cardholders.
T h e s e w o r k s h o p s w e r e o p p o r t u n i t i e s to a n s w e r
questions and address concerns.
Interior also formed a purchase
c a r d w o r k i n g g r o u p to c o o r d i n a t e e f f o r t s a m o n g t h e i r b u r e a u s .
T h e t e a m c o m p l e t e d a r e v i e w of t h e I n t e r i o r p u r c h a s e c a r d
program.
T h e w o r k i n g g r o u p ' s a i m is t o a c h i e v e a b a l a n c e b e t w e e n
streamlining the process and ensuring that cardholders are fully
t r a i n e d a n d t h a t e f f e c t i v e m a n a g e m e n t c o n t r o l s a re in p l a c e to
m i n i m i z e t h e p o t e n t i a l for m i suse.
T h e F e d e r a l E m e r g e n c y M a n a g e m e n t A g e n c y (FEMA) h a s r e l i e d on t h e
p u r c h a s e c a r d in t h e r e c o v e r y p r o c e s s d u r i n g p r e s i d e n t i a l l y
declared disasters.
F E M A u s e s t h e c a r d in t h e p r o c u r e m e n t o f f i c e
as w e l l as in p r o g r a m o f f ices.
O v e r 80% of c a r d s i s s u e d b y F E M A
have been issued to non-procurement personnel.
M a n y of t h e
10
e m p l o y e e s h a v e r e s p o n s i b i l i t y fo r o n - s i t e d i s a s t e r r e c o v e r y .
Several emergency response teams within FEMA have been identified
a n d i n d i v i d u a l s h a v e b e e n d e s i g n a t e d as c a r d h o l d e r s .
Also,
i n d i v i d u a l s w i t h i n F E M A ' s M o b i l e R e s p o n s e S u p p o r t units, w h i c h
a r e l o c a t e d in v a r i o u s r e g i o n s of t h e U n i t e d States, h a v e b e e n
d e s i g n a t e d as c a r d h o l d e r s a n d h a v e s u c c e s s f u l l y u t i l i z e d t h e c a r d
in s e v e r a l d i s a s t e r s i t u a t i o n s .
P e r h a p s n o t h i n g s p e a k s a b o u t s u c c e s s as d i r e c t l y as t h e w o r d s of
t h o s e w h o h a v e e x p e r i e n c e d t h e b e n e f i t s of u s i n g t h e card.
We
i n c l u d e s o m e of t h e i r s t o r i e s in A p p e n d i x C.
Purchase Card Barriers and Solutions
T h i s s e c t i o n of t h e r e p o r t c i t e s s o m e c o m m o n p u r c h a s e c a r d
b a r r i e r s t h a t p r o c u r e m e n t offices, p u r c h a s e c a r d h o l d e r s a n d
p r o g r a m o f f i c e s p e r c e i v e as r o a d b l o c k s in i m p l e m e n t i n g t h e
p u r c h a s e c a r d t o its f u l l e s t p o t e n t i a l .
The Purchase Card
Council, t h r o u g h its m a n y m e e t i n g s a n d d i s c u s s i o n s o v e r t h e p a s t
s e v e r a l m o n t h s h a s o f f e r e d its o wn s o l u t i o n s to s o m e of t h e s e
b a r r i e r s w h i c h a r e i n d i c a t e d below.
How e v e r , m a n y o t h e r s w i l l
r e q u i r e r e v i e w a n d d i s p o s i t i o n by o t h e r a p p r o p r i a t e a u t h o r i t i e s
s u c h as O F P P a n d t h e O f f i c e of F e d e r a l F i n a n c i a l M a n a g e m e n t
(OFFA), the General Services Administration (GSA), the Federal
A c q u i s i t i o n R e g u l a t i o n (FAR) S e c r e t a r i a t ; or l e g i s l a t i o n m a y be
n e e d e d to r e m o v e or a m e n d c u r r e n t laws a n d r e g u l a t i o n s w h i c h
a f f e c t e x p a n s i o n of t h e G o v e r n m e n t - w i d e p u r c h a s e c a r d p r o g r a m .
T h e c u r r e n t A c q u i s i t i o n R e f o r m B i l l a d d r e s s e s s o m e of t h e s e
issues.
Several agencies represented on the Purchase Card Council have
e s t a b l i s h e d t h e i r o w n i n t e r n a l p u r c h a s e c a r d w o r k i n g g r o ups,
workshops, pil o t programs, courses and training m a t e r i a l s to
m a r k e t t h e p r o g r a m ' s v a l u e a n d to a d d r e s s i n t e r n a l b a r r i e r s
unique to their respective organizations.
In add i t i o n , s o m e of
these agencies have interfaced with private industry to learn
about their program(s) and h o w they compare with the current
G o v ernment program.
T h e f o l l o w i n g is a l i s t i n g c o m p i l e d f r o m i n f o r m a t i o n o b t a i n e d
f r o m t h e p a r t i c i p a t i n g a g e n c i e s on t h e P u r c h a s e C a r d C o u n c i l of
p urchase card barriers, solutions currently available to agencies
and r e c ommended solutions for other barriers requiring higher
government intervention:
1.
Barrier: L a c k of F e d e r a l A c q u i s i t i o n R e g u l a t i o n
c o v e r a g e f o r u s i n g t h e p u r c h a s e card.
(FAR)
Solution: R e c o m m e n d F A R S e c r e t a r i a t a d d s t r o n g F A R c o v e r a g e
w h i c h a d d r e s s e s a n d e n c o u r a g e s t h e u s e of t h e G o v e r n m e n t - w i d e
p u r c h a s e c a r d p r o g r a m w i t h o u t a d d i t i o n a l p a p e r w o r k s u c h as an
11
a c c o m p a n y i n g p u r c h a s e order.
S i n c e m u c h f o c u s is o n p r o m o t i n g
g r e a t e r u s e o f t h e p u r c h a s e c a r d for s m a l l p u r c h a s e s , t h i s is
a n o t h e r w a y t o e m p h a s i z e its u s e a nd f u r t h e r m a r k e t t h e c a r d as
t h e p r e f e r r e d p u r c h a s i n g m e t hod.
It a l s o w o u l d c u t d o w n o n
p a p e r w o r k in a g e n c i e s , e s p e c i a l l y t h e D e p a r t m e n t of D e f e n s e w h i c h
requires a purchase order to accompany each purchase card
transaction.
S e v e r a l A g e n c i e s p r e f e r t h a t t h e r e n o t be F A R c o v e r a g e f or u s e of
p u r c h a s e c a r d s f or t h e f o l l o w i n g reasons:
T h e y ar e g e t t i n g a l o n g f ine w i t h o u t it a n d t h i n k t h e y a re
b e t t e r o f f no t h a v i n g c o v e r a g e t h e y d o n o t need.
They
s h o u l d b e a b l e t o e s t a b l i s h t h e i r i n t e r n a l p r o c e d u r e s as
just that —
internal procedures — with o u t needing a
regulation.
T h e y w i s h t o r e t a i n m a x i m u m f l e x i b i l i t y on u s e of t h e c a r d
a n d are c o n c e r n e d t h a t t o a dd F A R c o v e r a g e w i l l o p e n t h e
d o o r for i m p e d i m e n t s n o w or later.
A n a n a l o g y is F A R
c o v e r a g e of t a s k o r d e r c ontracts.
The Government has been
using task order contracts without impediment for a long
time.
R a i s i n g t h e i s sue of F A R c o v e r a g e o n l y o p e n s t h e d o o r
to u n w a n t e d r e s t r i c t i o n s .
Action: F A R C o u n c i l
2 .
Barrier: P r o g r a m o f f i c e p e r s o n n e l do n o t w a n t t o a c c e p t a
p u r c h a s e card.
Solution: M a k e t h e p r o g r a m a t t r a c t i v e t o them.
Agency
p r o c e d u r e s s h o u l d be simple, d i r e c t a n d u n e n c u m b e r e d b y
u n n ecessary regulations and paperwork.
The Purchase Card Council
r e c o m m e n d s t h a t eac h a g e n c y e s t a b l i s h a p o l i c y t o p r o m o t e u s e of
t h e c a r d in p r o g r a m o f f i c e s f or p u r c h a s e s u n d e r $2,500, a n d g i v e
p u r c h a s i n g o f f i c e s t he o p t i o n t o r e j e c t c e r t a i n c l a s s e s of
requisitions.
F o r example, t h e U.S. C u s t o m s S e r v i c e is c u r r e n t l y
d i r e c t i n g all p u r c h a s e s u n d e r $2,500 b e m a d e w i t h p u r c h a s e cards.
Also, F E M A h a s i n i t i a t e d p o l i c y to h a v e all p u r c h a s e s u n d e r
_
$2,500, a n d a t l e a s t 50% of p u r c h a s e s u n d e r $ 2 5 ,000, b e m a d e w i t h
t h e card.
Action: S e n i o r P r o c u r e m e n t E x e c u t i v e s
Barrier: A p p r o v i n g O f f i c i a l r e v i e w of m o n t h l y c a r d h o l d e r
s t a t e m e n t s w h e r e t he c a r d h o l d e r is a w a r r a n t e d c o n t r a c t i n g
officers.
3 .
Solution: This is not required in the contract. Agencies
may address this issue in their own internal procedures.
12
Action: S e n i o r P r o c u r e m e n t E x e c u t i v e s
4 .
Barrier: D i s p u t e s p r o c e s s is t o o c u m b e r s o m e .
Solution: I n c l u d e d i s p u t e s p r o c e s s in a g e n c y p r o c e d u r e s a n d
in c a r d h o l d e r a n d a p p r o v i n g o f f i c i a l t r a i n i n g s e s s i o n s ; r e v i e w
d i s p u t e s p r o c e d u r e to m a k e s u r e it is s i m p l e a n d u n c o m p l i c a t e d .
I n d u s t r y p r a c t i c e s m i r r o r p e r s o n a l u s e of a c r e d i t card.
If
p o s s i b l e , s i m p l i f y to be in l i n e w i t h
industry p r a c t i c e s . Have GSA and p urchase card c o n t r a c t o r ^
r e v i e w t h e d i s p u t e s p r o c e d u r e s in t h e c o n t r a c t a n d s t r e a m l i n e , if
possible.
Action: S e n i o r P r o c u r e m e n t E x e c u t i v e s
5 .
Barrier: V e n d o r s a r e r e l u c t a n t to a c c e p t t h e p u r c h a s e card;
v e n d o r s i n c r e a s e q u o t e w h e n p u r c h a s e c a r d is used.
Solution: I n c r e a s e v e n d o r a w a r e n e s s of t h e P u r c h a s e C a r d
Program by publishing articles about the program and the
a d v a n t a g e s of t h e p u r c h a s e card.
Treasury's Director for the
Small Disadvantaged Business Program identified several
o r g a n i z a t i o n s s u c h as t h e N a t i o n a l Small B u s i n e s s U n i t e d , t h e
N a t i o n a l F e d e r a t i o n of I n d e p e n d e n t B u s i n e s s a n d t h e U S C h a m b e r of
C o m m e r c e as g o o d s o u r c e s to p u b l i s h articles.
Treasury published
a r t i c l e s in m o s t of t h e s e o r g a n i z a t i o n s ' n e w s l e t t e r s .
In
a c c o r d a n c e w i t h V I S A proc e d u r e s , v e n d o r s c a n n o t i n c r e a s e p r i c e s
a f t e r t h e y a ire t o l d t h a t t he p u r c h a s e w i l l be c h a r g e d t o t h e
c r e d i t card.
I n c l u d e in a g e n c y r e g u l a t i o n s a n d t r a i n i n g
a w a r e n e s s of t h i s practice.
N o t i f y V I S A if a n y v e n d o r c h a r g e s
a d d i t i o n a l m o n i e s for u s i n g t h e p u r c h a s e card.
Action: G S A C o n t r a c t i n g O f f i c e r / P u r c h a s e c a r d
contractor/VISA.
6.
Barrier: V e n d o r s c h a r g i n g s a l e s tax; n o t r e f u n d i n g s a l e s
tax.
Solution: P u b l i c i z e p u r c h a s e card; i n c l u d e l a n g u a g e t h a t
G o v e r n m e n t is t a x exempt; a p p r o a c h V I S A t o s e n d o u t m a i l i n g t o
its c u s t o m e r s a b o u t t h e G o v e r n m e n t ' s t a x e x e m p t s t a t u s ; e d u c a t e
c a r d h o l d e r s a b o u t G o v e r n m e n t t a x e x e m p t s t a tus; d u r i n g t r a i n i n g
p r o v i d e c a r d h o l d e r s w i t h t i p s on h o w to a v o i d s a l e s tax.
Include
in p r o c e d u r e s a l i m i t u p t o w h i c h c a r d h o l d e r s c a n p a y t h e t a x
( g e n e r a l l y u p t o $10.00). L o o k f o r v e n d o r s t h a t w i l l h o n o r t h e
G o v e r n m e n t 's t a x e x e m p t s t a t u s .
Action: A g e n c y P u r c h a s e C a r d C o o r d i n a t o r s / G S A C o n t r a c t i n g
Officer.
7.
Barrier: S i n g l e p u r c h a s e d o l l a r l i m i t a t i o n of $ 2 , 5 0 0 ; o f f i c e
13
m o n t h l y d o l l a r l i m i t a t i o n of $ 1 0 ,0 0 0 .
Solution: S i n g l e p u r c h a s e l i m i t a t i o n s a r e w i t h i n a g e n c y
d i s c r e t i o n u p to t h e s m a l l p u r c h a s e d o l l a r limit.
O f f i c e limi t s
a r e s e t b y a g e n c y / b u r e a u a n d m a y be r a i s e d or l o w e r e d d e p e n d i n g
o n t h e need.
Although some agencies believe that the single purchase dollar
l i m i t of p r o g r a m p e r s o n n e l (who ar e n o t w a r r a n t e d c o n t r a c t i n g
o f f i cers) s h o u l d be k e p t at $ 2 , 5 0 0 o r below, t h e m i n d s e t of
r e s t r i c t i n g n o n p r o c u r e m e n t c a r d h o l d e r s t o t h i s l i m i t is s l o w l y
cha n g i n g .
T h i s is e v i d e n c e d b y th e D O C w h i c h c u r r e n t l y a l l o w s
t h e i r H e a d s of C o n t r a c t i n g O f f i c e s (HCOs) t o r a i s e a
nonprocurement cardholder's single p u r c h a s e dollar limit above
$ 2 , 5 0 0 at t h e i r d i s c r e t i o n .
Also, t h i s p a s t M a rch, D O C
e s t a b l i s h e d a p i l o t p u r c h a s e c a r d p r o g r a m f or f o u r s e l e c t e d
o f f i c e s ( n o n p r o c u r e m e n t ) , t h e p u r p o s e of w h i c h is t o i n c r e a s e
their purchasing authority up to $25,000 w h e n the identified
cardholders have received the proper training.
These offices
were specifically identified by DOC's Deputy Secretary to receive
a n i n c r e a s e in t h e i r p u r c h a s i n g a u t h o r i t y .
T h e s u c c e s s of t h i s
p i l o t p r o g r a m w i l l d e t e r m i n e w h e t h e r it w i l l be e x p a n d e d t o o t h e r
o f f i c e s t h r o u g h o u t DOC.
T r e a s u r y a n d t h e O f f i c e of P e r s o n n e l M a n a g e m e n t h a v e s i m i l a r
programs.
T r e a s u r y h a s i n c r e a s e d a u t h o r i t y t o $ 1 0 , 0 0 0 in
s e l e c t e d cases.
I n t e r i o r h a s i n c r e a s e d t h e s i n g l e p u r c h a s e d o l l a r l i m i t s for
s e r v i c e s f or e m e r g e n c y crews.
It is a n i n v a l u a b l e t o o l in
e m e r g e n c y s i t u a t i o n s r e s u l t i n g f r o m h u r r i c a n e s , s e v e r e flooding,
f i r e f i g h t i n g a n d s e a r c h a n d r e s c u e o p e r a t i o n s w h e r e t h e u s e of
p u r c h a s e o r d e r s or c a s h a d v a n c e s a r e n o t p r a c t i c a l .
They have
a l s o i n c r e a s e d a u t h o r i t y for s p e c i a l s i t u a t i o n s s u c h as
s u p p o r t i n g t h e C o n v e n t i o n for I n t e r n a t i o n a l T r a d e of E n d a n g e r e d
S p e c i e s t o be h e l d in F o r t L a u d e r d a l e , F l o r i d a in N o v e m b e r 1994.
F E M A h a s i n c r e a s e d s i n g l e p u r c h a s e a u t h o r i t y to $ 5 , 0 0 0 f or
p r o g r a m p e r s o n n e l in s e v e r a l cases.
In addition, increased
a u t h o r i t y h a s b e e n g r a n t e d on a - c a s e - b y - c a s e b a s i s a n d is
c u r r e n t l y b e i n g c o n s i d e r e d by F E M A f o r w i d e r d i s s e m i n a t i o n .
FEMA
a l l o w s m o n t h l y l i m i t s to b e s u g g e s t e d b y p r o g r a m o f f i c e s b a s e d on
t h e i r p a r t i c u l a r n e e d s an d budgets.
T r a n s p o r t a t i o n h a s a p i l o t p r o g r a m in t h e p e r s o n n e l o f f i c e s of
its O p e r a t i n g A d m i n i s t r a t i o n s w h i c h i n c r e a s e d t h e i r d e l e g a t i o n of
p r o c u r e m e n t a u t h o r i t y to $25,000.
T h e d e l e g a t i o n is f o r s u p p l i e s
a n d s e r v i c e s r e l a t i n g to t r a i n i n g r e q u i r e m e n t s .
Action: S e n i o r P r o c u r e m e n t E x e c u t i v e s
14
8 .
Barriers P u r c h a s e c a r d s c a n o n l y b e u s e d b y t h e i n d i v i d u a l
w h o s e n a m e is on t h e card.
Solution: V I S A r e g u l a t i o n s p r o h i b i t i s s u i n g p u r c h a s e c a r d s
to other than individuals.
Recommend that the GSA contracting
o f f i c e r d i s c u s s t h i s i s s u e w i t h VISA.
Action: G S A C o n t r a c t i n g O f f i c e r
9.
Barrier: N o n - p r o c u r e m e n t p e r s o n n e l a r e r e l u c t a n t t o u s é t h e
p u r c h a s e c a r d b e c a u s e of all t h e r e g u l a t i o n s t h e y m u s t c o m p l y
with.
Solution: A t t h e t i m e of t h i s r e p ort, t h e r e is n o c o m p l e t e
s o l u t i o n t o t h i s pr o b l e m .
However, it is a n t i c i p a t e d t h a t w h e n
t h e p e n d i n g p r o c u r e m e n t r e f o r m l e g i s l a t i o n is s i g n e d i n t o law, it
w i l l e l i m i n a t e m a n y of t h e s e p r o b l e m s .
W e b e l i e v e t h a t as a
r e s u l t of th e e m p h a s i s c i t e d by t h e N P R t o r e d u c e r e d t a p e a n d
r e m o v e l a y e r s of r e g u l a t i o n s , a n d b y a g e n c i e s c h a n g i n g t h e i r
p r o c e d u r e s , t h e r e w i l l b e s o m e relief.
Many mandatory sources
f or s u p p l y a n d s e r v i c e s are a w a r e of t h e N P R a n d a r e l o o k i n g for
w a y s to i m p r o v e t h e i r p o l i c i e s a n d p r o c e d u r e s .
F o r ex a m p l e , G S A
is e l i m i n a t i n g m a n d a t o r y u s e of s u p p l y s c h e d u l e s a n d c o n v e r t i n g
t h e c o n t r a c t t y p e f r o m r e q u i r e m e n t s c o n t r a c t to i n d e f i n i t e delivery indefinite-quantity contracts.
They are replacing
m a n d a t o r y m u l t i p l e award, s i n g l e a w a r d a n d i n t e r n a t i o n a l f e d e r a l
s u p p l y s c h e d u l e s as t h e y expire.
In t h e m e a n t i m e p r o c u r e m e n t
o f f i c e s at e a c h a g e n c y m u s t b e p r e p a r e d t o a s s i s t a n d e d u c a t e
p r o g r a m o f f i c e s in t h e s e a r e a s u n t i l c h a n g e s a r e r e a l i z e d t h r o u g h
c o n g r e s s i o n a l l egislation.
Action: S e n i o r P r o c u r e m e n t E x e c u t i v e s
10.
Barrier:
empl o y e e s .
Some agencies are not issuing cards to t e mporary
Solution: S e v e r a l a g e n c i e s h a v e i s s u e d c a r d s t o t e m p o r a r y
e m p l o y e e s t y i n g t h e e x p i r a t i o n o f t h e c a r d t o t h e l e n g t h of t h e
a p p o i n t m e n t or p r o j e c t .
Fo r e x a m p l e , F E M A h a s i s s u e d p u r c h a s e
c a r d s to t e m p o r a r y e m p l o y e e s a n d h a s e n c o u n t e r e d no p r o b l e m s .
D O C r e c e n t l y a m e n d e d its g u i d e l i n e s t o i n c l u d e i s s u i n g c a r d s to
t e mporary employees, although their contr a c t i n g offices may
impose limitations.
Action: S e n i o r P r o c u r e m e n t E x e c u t i v e s
11.
Barrier: R e q u i r e m e n t to u s e t h e F e d e r a l S u p p l y S c h e d u l e s .
Solution: S e e s o l u t i o n t o I t e m 9.
Action: G S A
15
12.
Barrier: S o m e G S A F e d e r a l S u p p l y S c h e d u l e v e n d o r s d o n ot
a c c e p t t h e p u r c h a s e card.
Solution: S o l i c i t a t i o n s i s s u e d by G S A for s c h e d u l e c o n t r a c t s
f o r s u p p l i e s (other t h a n t e l e c o m m u n i c a t i o n a nd t e l e p h o n e
e q u i p m e n t ) a n d s e r v i c e s (other t h a n t e l e p r o c e s s i n g services)
i n c l u d e t h e G S A c l a u s e " A c c e p t a n c e of G o v e r n m e n t C o m m e r c i a l
C r e d i t C a r d , ” d a t e d D e c e m b e r 1989, as a m e t h o d of p a y m e n t .
A c c e p t a n c e of t h e c a r d is n o t m a n d a t o r y . T h e P u r c h a s e C a r d
C o u n c i l s u g g e s t s t h a t G S A i n c l u d e m a n d a t o r y a c c e p t a n c e of t he
p u r c h a s e c a r d as an o r d e r i n g i n s t r u m e n t in all of t h e i r f e d e r a l
supply schedule contracts.
Action: G S A
13.
Barrier: S o m e o f f i c e s s t i l l r e q u i r e a r e q u i s i t i o n ,
i.e.
Budget/Accounting.
Solution: T h i s n e e d s t o be a d d r e s s e d on an a g e n c y - b y - a g e n c y
basis.
T reasury and Interior have issued department-wide policy
s t a t i n g t h a t a r e q u i s i t i o n is n o t n e e d e d w h e n t h e c a r d is u s e d
o u t s i d e o f t h e p r o c u r e m e n t office.
Transportation has also
i s s u e d p o l i c y w h i c h doe s n o t r e q u i r e a r e q u i s i t i o n for c r e d i t
card purchases.
Action: S e n i o r P r o c u r e m e n t E x e c u t i v e s
14.
Barrier: R e s i s t a n c e f r o m f u n c t i o n a l areas.
p u r c h a s e c a r d s w i l l save money.
Need proof that
Solution: T h e P u r c h a s e C a r d Council, in its e f f o r t s to s h o w
t h a t u s i n g t h e p u r c h a s e c a r d s a v e s t i m e a n d money, c o m p l e t e d a
j o i n t c o s t b e n e f i t a n a l y s i s w h i c h c o m p a r e d the c o s t of u s i n g a
p u r c h a s e o r d e r t o a g o v e r n m e n t p u r c h a s e card.
This analysis
t a k e s i n t o a c c o u n t t h e t i m e it t a k e s p r o c u r e m e n t a n d f i n a n c e to
p r o c e s s a n action.
C ost fo r e a c h m e t h o d of p r o c u r e m e n t w a s
a v e r a g e d o u t f r o m d a t a c o l l e c t e d f r o m n i n e c i v i l i a n federal^
a g e n c i e s , (HHS, GSA, C o m m erce, State, T r e a sury, T r a n s p o r t a t i o n ,
Interior, FEM A and O P M ) . The final analysis establishes a cost
of $ 9 4 . 2 0 f o r a p r o c e s s i n g a p u r c h a s e o r d e r a n d $ 4 0 . 4 3 f o r u s i n g
a p u r c h a s e card.
Action: S e n i o r P r o c u r e m e n t E x e c u t i v e s
15.
Barrier: T h e T r e a s u r y F i n a n c i a l M a n u a l (TFM) r e q u i r e s a c o s t
b e n e f i t a n a l y s i s p r i o r t o u s i n g t h e p u r c h a s e c a r d f or
t r a n s a c t i o n s o v e r $ 2 ,0 0 0 .
Solution: T h e F i n a n c i a l M a n a g e m e n t Service, w i t h a s s i s t a n c e
f r o m t h e P u r c h a s e C a r d Council, r e v i s e d t h e T F M a n d t h e
r e q u i r e m e n t to c o n d u c t a c o s t b e n e f i t a n a l y s i s f o r p u r c h a s e s ove r
16
$2 , 0 0 0
was eliminated.
Aetion:
Completed
16.
Barrier: T h e r e a r e t o o m a n y " s o u r c e c o n s t r a i n t s " s u c h as
h a v i n g to u s e t h e N a t i o n a l I n d u s t r i e s f o r t h e B l i n d ( N I B ) , t h e
N a t i o n a l I n d u s t r i e s f or t h e S e v e r e l y H a n d i c a p p e d ( N I S H ) , " U N I C O R "
(trade n a m e f o r F e d e r a l P r i s o n I n d u s t r i e s ( F P I ) , Inc.) a n d t h e
G o v e r n m e n t P r i n t i n g O f f i c e ( G P O ) , etc. t o m a k e it e f f i c i e n t to
e x p a n d d i s t r i b u t i n g c a r d s to n o n - p r o c u r e m e n t c a r d h o l d e r s .
Solution: T h e p r o p o s e d p r o c u r e m e n t r e f o r m l e g i s l a t i o n w i l l
n o t e l i m i n a t e N I B / N I S H or FPI as r e q u i r e d so u r c e s .
Cardholder
t r a i n i n g c a n m a k e t h e s e r e q u i r e m e n t s less c o n f u s i n g .
The
C o m m i t t e e f o r t h e B l i n d a n d S e v e r e l y H a n d i c a p p e d is a v a i l a b l e to
a s s i s t in p u r c h a s e c a r d t r a i n i n g at a n y agency.
T h e y also
prov i d e a video about their program.
In a d d i t i o n , n o n
p r o c u r e m e n t p e r s o n n e l n e e d to b e m a d e a w a r e of t h e G S A C u s t o m e r
S u p p l y Centers.
The Centers are located across the country and
s e l l m a n y of t h e m a n d a t o r y s u p p l y i t ems f r o m N I B / N I S H a n d FPI.
O n c e a n a c c o u n t is e s t a b l i s h e d w i t h a S u p p l y Center, t h e p u r c h a s e
c a r d c a n be u s e d to order.
P r i n t i n g a n d r e l a t e d s e r v i c e s m u s t be o b t a i n e d w i t h v e r y f e w
e x c e p t i o n s e x c l u s i v e l y t h r o u g h t h e U.S. G o v e r n m e n t P r i n t i n g
O f f i c e (GPO).
P r i n t i n g a nd r e l a t e d s e r v i c e s c o s t i n g $ 1 , 0 0 0 or
les s m a y be o b t a i n e d f r o m o t h e r s o u r c e s o n l y if a w a i v e r is
p r o v i d e d by GPO.
Cardholders who require these services must
f o l l o w t h e i r o w n a g e n c y ’s i n t e r n a l p o l i c i e s a n d p r o c e d u r e s .
Action: S e n i o r P r o c u r e m e n t E x e c u t i v e s
17.
Barrier: M a n y a g e n c i e s
t h e c o n tract.
i m p o s e m o r e r e s t r i c t i o n s t h a n a r e in
Solution: T h e G S A c o n t r a c t i d e n t i f i e s t h r e e l i m i t a t i o n s o n
t h e u s e of t h e p u r c h a s e card.
T h e s e ar e c a s h a d v a n c e s , r e n t a l or
l e a s e of l a n d or b u i l d i n g s a n d t e l e c o m m u n i c a t i o n s (telephone)
services.
Telephone equipment m a y be purchased, unless
r e s t r i c t e d b y a n agency.
A g e n c i e s m u s t c o m p l y w i t h t h e r u l e s of
t h e con t r a c t , how e v e r , a d d i t i o n a l l i m i t a t i o n s h a m p e r t h e f u l l
p o t e n t i a l u s e of t h e card.
Agencies should review their
procedures and remove u n n ecessary limitations.
Action: S e n i o r P r o c u r e m e n t E x e c u t i v e s
18.
Barrier: M a n y o f f i c e s a r e r e s t r i c t i n g n o n - p r o c u r e m e n t
cardholders from buying controlled property with the purchase
card.
Solution: T h i s b a r r i e r is s i m i l a r t o t h e o n e i d e n t i f i e d in
17
I t e m 17.
The Purchase Card Council emphasizes that overly
restrictive purchase card limitations should be reviewed and
d e l e t e d f r o m an a g e n c y ' s i n t e r n a l p r o c e d u r e s .
A s an e x a m p l e , D O C
r e c e n t l y r e v i e w e d its p u r c h a s e c a r d g u i d a n c e a n d d e l e t e d s e v e r a l
a g e n c y i m p o s e d limit a t i o n s .
When cardholders purchase
a c c o u n t a b l e p r o p e r t y s u c h as t e l e v i s i o n s , v i d e o c a m eras, p e r s o n a l
c o m p u t e r s , etc., t h e y a r e r e q u i r e d t o c o m p l e t e a p p l i c a b l e a g e n c y
f o r m s a n d f o r w a r d t h e m to t h e p r o p e r t y O f f ice.
We recommend
close coordination with property management offices in the
d e c i s i o n of w h a t r e s t r i c t i o n s c a n be e l i m i n a t e d a n d h o w t h e
a c c o u n t a b l e p r o p e r t y is r e p orted.
Action: S e n i o r P r o c u r e m e n t E x e c u t i v e s
19. Barrier: F E M A a t t e m p t e d t o u s e t h e p u r c h a s e c a r d t o p a y
u t i l i t y bills.
The card was not accepted because the purchase
s h o w e d u p as a c a s h advance.
A c c o r d i n g to t h e G S A p u r c h a s e c a r d
c o n tract, c a s h a d v a n c e s ar e n o t p e r m i t t e d .
Solution: R e c o m m e n d e d t h a t F E M A d i s c u s s t h i s i s s u e w i t h t he
G S A C o n t r a c t i n g O f f i c e r to d e t e r m i n e if a n y t h i n g c a n b e d o n e to
f a c i l i t a t e u s e of t h e c a r d t o p a y u t i l i t y bills.
Action: F E M A / G S A c o n t r a c t i n g officer.
20.
Barrier: S o m e o f f i c e s r e q u i r e f i n a n c i a l d i s c l o s u r e
s t a t e m e n t s f r o m cardh o l d e r s .
Solution: C u r r ently, i n d i v i d u a l a g e n c i e s a r e o b t a i n i n g
l e gal o p i n i o n s f r o m t h e i r O f f i c e of G e n e r a l Counsel.
This should
be a d d r e s s e d b y G A O o n a G o v e r n m e n t - w i d e basis.
Action: G A O
21.
Barrier: T h e p u r c h a s e c a r d is u s e d o n l y in p r o c u r e m e n t
o f f i c e s , n o t p r o g r a m / o p e r a t i n g offices.
Solution: S a v i n g s a s s o c i a t e d w i t h t h e u s e of t h e p u r c h a s e
c a r d r e s u l t f r o m e l i m i n a t i o n of p a p e r w o r k a n d h a n d l i n g , s u c h as
t h e e l i m i n a t i o n of h a v i n g to p r e p a r e a r e q u i s i t i o n a n d g o t h r o u g h
the approval process.
D e p a r t m e n t a l or a g e n c y p o l i c y s h o u l d
m a n d a t e , w h e n e v e r possible, u s e of t h e c a r d o u t s i d e of
p r o c u r e m e n t o f f i c e s to r e a l i z e t h e m a x i m u m s a v i n g s a s s o c i a t e d
w i t h its use.
Action: Departmental management
22.
Barrier: L a c k of m a n a g e m e n t s u p p o r t f o r t h e p r o g r a m .
Solution: I s s u e p o l i c y at th e h i g h e s t l e v e l of t h e
D e p a r t m e n t / A g e n c y in s u p p o r t of t h e p r o g r a m .
G i v e it t h e p r o p e r
18
m a n a g e m e n t attention and oversight.
Action: D e p a r t m e n t a l / a g e n c y a d m i n i s t r a t i v e m a n a g e m e n t
23.
Barrier: I n a b i l i t y t o c o l l e c t s m a l l / m i n o r i t y / w o m e n - o w n e d
business statistics.
Solution: V I S A is w o r k i n g o n e s t a b l i s h i n g a d a t a b a s e t h a t
w o u l d c a p t u r e t he b u s i n e s s s i z e a n d s o c i o - e c o n o m i c s t a t u s of
businesses.
T h e d a t a b a s e is s c h e d u l e d f o r c o m p l e t i o n in c a l e n d a r
y e a r 1995.
W e s u g g e s t t h a t t h e G S A c o n t r a c t i n g o f f i c e r s t a y in
c l o s e c o n t a c t w i t h V I S A to b r i n g t h i s p r o j e c t t o c o n c l u s i o n .
Action: G S A c o n t r a c t i n g o f f i c e r / V I S A
24.
Barrier: D i f f i c u l t y in g e t t i n g u s e r f r i e n d l y e l e c t r o n i c
reports from the purchase card c o n t r a c t o r .
Solution: H a v e t he G S A c o n t r a c t i n g o f f i c e r w o r k w i t h t h e
c o n t r a c t o r t o r e s o l v e t h i s issue.
Make user friendly
e l e c t r o n i c a l l y t r a n s m i t t e d r e p o r t s a h i g h e r p r i o r i t y in t h e n e x t
contract.
Action: G S A
25.
Barrier: A c c o u n t r e c o n c i l i a t i o n c a n be a p r o b l e m in m a n y
f i n a n c e offices.
Solution: 1) R e v i e w a g e n c y p r o c e d u r e s to a s s u r e t h a t
cardholders give vendors time to make credit adjustments before
filing paperwork which will compound the problem.
2) T h e D i r e c t o r , M o d e r n i z a t i o n of A d m i n i s t r a t i v e P r o c e s s e s ( M A P ) ,
U.S. D e p a r t m e n t of A g r i c u l t u r e (USDA) is i m p l e m e n t i n g a B u s i n e s s
P r o c e s s R e d e s i g n (BPR) i n i t i a t i v e f o c u s e d on t h e u s e of c r e d i t
c a r d s f or m a k i n g s m a l l p u r c h a s e s .
The purchase card account
r e c o n c i l i a t i o n p r o c e s s w i l l be a m a j o r p a r t of t h e B P R r e v i e w .
A s p a r t of t h e review, U S D A w i l l d o c u m e n t t h e c u r r e n t p r o c e s s a n d
b e n c h m a r k b e s t - i n - b u s i n e s s p r o c e s s e s in t h e f e d e r a l a n d p r i v a t e
sector.
A s e t of a l t e r n a t i v e s w i l l b e d e v e l o p e d .
USDA will
s e l e c t a p p r o p r i a t e a c t i o n s to i m p r o v e t h e p r o c e s s f o r p u r c h a s i n g
v i a t h e c r e d i t card.
R e s u l t s of t h e B P R r e v i e w w i l l b e s h a r e d
w i t h o t h e r i n t e r e s t e d f e d e r a l a g e n c i e s , a n d O F F A / O M B f or p o s s i b l e
G o v e r n m e n t - w i d e use.
3) I n t e r i o r h a d r e q u e s t e d a n o p i n i o n f r o m G A O f o r a d e c i s i o n o n
t h e a v a i l a b i l i t y of f a s t p a y p r o c e d u r e s f o r c r e d i t c a r d p u r c h a s e s
in o r d e r t o s i m p l i f y t h e r e c o n c i l i a t i o n p r o c e s s .
G A O in t u r n
p o s e d t h e q u e s t i o n t o T r e a s u r y ' s F i n a n c i a l M a n a g e m e n t S e r vice.
I n t e r i o r ' s r e q u e s t r e s u l t e d in t h e d e c i s i o n t o i n c l u d e in t h e
T r e a s u r y F i n a n c i a l M a n u a l r e v i s e d r e g u l a t i o n s a l l o w i n g p a y m e n t of
19
t h e c o n s o l i d a t e d i n v o i c e on t i m e e v e n if a l l c a r d h o l d e r
s t a t e m e n t s h a v e n o t b e e n received.
This should eliminate
d i s c r e p a n c i e s c o m p o u n d e d b y late p a y m e n t of t h e invoice.
4) T r a n s p o r t a t i o n h a s i s s u e d p o l i c y c o n c e r n i n g t h e u s e of d e f a u l t
o b j e c t c l a s s c o d e s w h i c h m a k e t he c r e d i t c a r d r e c o n c i l i a t i o n
p r o c e s s e a s ier.
T h e y a l l o w c a r d h o l d e r s to d e f a u l t t o o n e o b j e c t
c l a s s c o d e w h e n p a y i n g t h e V I S A invoice.
Action: S e n i o r P r o c u r e m e n t E x e c u t i v e s / U S D A
26.
Barrier: H a v i n g t o o m a n y d i f f e r e n t t y p e s of c r e d i t cards.
Solution: U n d e r t h e c u r r e n t s y s t e m t h e G o v e r n m e n t u s e s at
l e a s t t h r e e d i f f e r e n t c r e d i t cards: g a s o l i n e c r e d i t card, t r a v e l
c r e d i t c a r d a n d t h e p u r c h a s e card.
All three cards are managed
by GSA.
W e s u g g e s t t h a t G S A r e v i e w t h e s e t h r e e p r o g r a m s a n d if
p o s s i b l e , c o m b i n e i n t o one.
Action: G S A
Unfinished Business
In t h i s f i n a l s e c t i o n of t h e report, we o f f e r t h e f o l l o w i n g list
of a c t i o n s a n d s u g g e s t i o n s w h i c h a r e b e y o n d t h e s c o p e of t h e
P u r c h a s e C a r d C o u n c i l membe r s .
We firmly believe that these
a c t i o n s w i l l f u r t h e r p r o m o t e t he u s e of t h e G o v e r n m e n t P u r c h a s e
Card, a n d t h e r e f o r e c u t a d m i n i s t r a t i v e e x p e n s e s a n d a c h i e v e o t h e r
NP R goals and objectives.
1. T h e F e d e r a l A c q u i s i t i o n R e g u l a t i o n d o e s n o t p r o v i d e g u i d a n c e
r e g a r d i n g u s e of G o v e r n m e n t P u r c h a s e Card.
The FAR Council
s h o u l d i n c l u d e t h e G o v e r n m e n t P u r c h a s e C a r d in its r e w r i t e of t h e
FAR, u n d e r a c k n o w l e d g e d s i m p l i f i e d p u r c h a s e p r o c e d u r e s .
2. T h e T r e a s u r y F i n a n c i a l M a n u a l p r e s c r i b e s p a y m e n t r e g u l a t i o n s
a n d i n c l u d e s g u i d a n c e r e g a r d i n g t h e u s e of t h e P u r c h a s e Card.
If
t h e c r e d i t c a r d w i l l be c o n s i d e r e d b o t h a p a y m e n t t o o l a n d a
p r o c u r e m e n t inst r u m e n t , c o v e r a g e s h o u l d b e c o n t a i n e d in t h e F A R
a n d t h e T F M (see FAR, above) . O t h e r w i s e , it s h o u l d b e d e l e t e d
f r o m t h e F A R if it's c o n s i d e r e d a p a y m e n t tool; or, d e l e t e d f r o m
t h e T F M if i t ' s o n l y c o n s i d e r e d a p r o c u r e m e n t i n s t r u m e n t .
FMS' p o s i t i o n is t h a t t h e p u r c h a s e c a r d is a p a y m e n t m e c h a n i s m
f i r s t a n d a p r o c u r e m e n t m e c h a n i s m second.
An official there
states: " T h e c a r d is an a l t e r n a t i v e t o p a y i n g a v e n d o r v i a cash,
check, d e b i t card, t h i r d p a r t y draft, or o t h e r p a y m e n t
instrument.
T h e c a r d is a c a s h m a n a g e m e n t d i s b u r s e m e n t t o o l
w h i c h w e r e g u l a t e u n d e r a u t h o r i t y of t he C a s h M a n a g e m e n t
I m p r o v e m e n t A c t of 1990, a n d t h e C a s h M a n a g e m e n t I m p r o v e m e n t A c t
A m e n d m e n t s of 1992.
Speci f i c a l l y , T r e a s u r y , FMS h a s i s s u e d
r e g u l a t i o n s at 31 C F R 206 w h i c h r e q u i r e t h a t a ll a g e n c i e s
20
d i s b u r s e f u n d s v i a t h e m e c h a n i s m w h i c h T r e a s u r y , FMS, d e e m s m o s t
cost-effective.
This includes use of the purchase c a r d . M
3. S t a n d a r d i z e d e d u c a t i o n of p r o g r a m o f f i c e p e r s o n n e l w o u l d
s t r e n g t h e n t h e a c c o u n t a b i l i t y of G o v e r n m e n t P u r c h a s e C a r d u s e and
compliance with purchasing regulations.
We recommend that
F e d e r a l A c q u i s i t i o n I n s t i t u t e (FAI) d e v e l o p c o m p e t e n c y b a s e d
t r a i n i n g c r i t e r i a a nd t h a t t h e y be a p p l i e d G o v e r n m e n t - w i d e , w i t h
b e s t p r a c t i c e s of t h e d e c e n t r a l i z e d t r a i n i n g p r o g r a m s ado p t e d .
4. It is f air t o c h a l l e n g e t he s t a t u s quo.
G S A has p l a y e d a
p i v o t a l r o l e in p r o m o t i n g u s e of t h e c a r d a n d in e s t a b l i s h i n g a
sound contractual relationship with the contractor.
N e v e r t h e l e s s , it is i n c u m b e n t u p o n u s t o a s k q u e s t i o n s a n d s e e k
a n s w e r s f or t h e future.
Is t h e c u r r e n t s y s t e m of h a v i n g o n e
centralized contract to serve the entire Gover n m e n t the optimum
system?
C o u l d a g e n c i e s o b t a i n b e t t e r b u s i n e s s a r r a n g e m e n t s or
e n h a n c e d s e r v i c e by c o m p e t i n g c o n t r a c t s o n a d e c e n t r a l i z e d b a s i s ?
S h o u l d an a g e n c y o t h e r t h a n G S A n e g o t i a t e t h e c o n t r a c t ?
F i n a n c i a l M a n a g e m e n t S e r v i c e h a s t h e e x p e r t i s e to n e g o t i a t e
c o n t r a c t s w i t h f i n a n c i a l i n s t i t u t i o n s t a k i n g into c o n s i d e r a t i o n
t he c o s t of f u n d s and o v e r a l l c o s t s t o t h e f e d e r a l g o v e r n m e n t .
T h e y a r e t h e l e a d e r in d e a l i n g w i t h f i n a n c i a l i n s t i t u t i o n s .
C o u l d t h e y n e g o t i a t e a c o n t r a c t t h a t is m o r e f a v o r a b l e t o t h e
Government?
C o u l d o ne c a r d be u s e d f or p u r c h a s i n g , t r a v e l ,
g a s oline, cash, etc.?
5. T h e G S A c o n t r a c t s t i p u l a t e s t h a t c a r d s be i s s u e d t o
individuals.
G o v e r n m e n t o f f i c e s f r e q u e n t l y a r e o r g a n i z e d in s u c h
a way that several individuals w i t h i n the office m a y have a
l e g i t i m a t e n e e d to m a k e p u r c h a s e s f o r t h e o f f i c e a n d
a c c o u n t a b i l i t y m a y be s t r o n g e n o u g h t o s u p p o r t s e v e r a l u s e r s of
o ne card.
W o u l d it n o t d e c r e a s e a d m i n i s t r a t i v e c o s t s if s e v e r a l
a u t h o r i z e d u s e r s w e r e p e r m i t t e d in c o n t r o l l e d c i r c u m s t a n c e s to
u t i l i z e a s i n g l e o f f i c e c a rd?
We r e c o mmend that this be analyzed
a n d t h a t t h e c o n t r a c t s p e c i f i c a t i o n s be c h a n g e d to p e r m i t t h i s if
i n d e e d it is f o u n d to be m o r e u s e f u l a n d r e s u l t in f u r t h e r n e t
savings.
W h i l e w e r e c o m m e n d t h a t t h e a b o v e b e l o o k e d at, w e m u s t a l s o n o t e
t h a t n o t all p l e d g e a g e n c i e s f a v o r t h i s a p p r o a c h .
In addition,
FMS o p p o s e s u s e of a g e n e r i c card.
T h e y c i t e t w o r e a s o n s : 1)
V I S A a n d M a s t e r C a r d b y l a w s p r o h i b i t t h e i s s u a n c e of a c a r d w h i c h
d o e s n o t c o n t a i n th e n a m e of a p e r s o n .
The G o vernment should not
e x p e c t t h e a s s o c i a t i o n s t o c h a n g e t h e i r b y l a w s for o u r p r o g r a m
b e c a u s e t h i s r u l e is m e a n t to k e e p f r a u d a t a m i n i m u m w h i c h in
t u r n k e e p s t h e i n t e r c h a n g e fee s c h a r g e d t o m e r c h a n t s a t a l o w e r
level; and, 2) t h e G o v e r n m e n t l o s e s a c c o u n t a b i l i t y , a n d t h e r e f o r e
is s u b j e c t to m o r e fraud, w h e n a s p e c i f i c p e r s o n ' s n a m e d o e s n o t
a p p e a r o n t h e card.
21
6 . F e d e r a l S u p p l y S c h e d u l e s a nd G S A S u p p l y C a t a l o g s c o n t i n u e to
be a m a n d a t o r y s o u r c e f o r G o v e r n m e n t p u r c h a s e s .
We recommend
m a k i n g t h e m n o n - m a n d a t o r y for p u r c h a s e s u n d e r $ 2 , 5 0 0 t o p r o m o t e
p u r c h a s e c a r d use.
Next Steps
1. T u r n o v e r r e s p o n s i b i l i t y for full,
t o t h e F e d e r a l P r o c u r e m e n t Council.
meaningful
implementation
2. P u r c h a s e C a r d C o u n c i l m e m b e r s c o u l d b e c o m e a r e s o u r c e t o t h e
F e d e r a l P r o c u r e m e n t Council.
3. O v e r t h e last t e n m o n t h s t he P u r c h a s e C a r d C o u n c i l m e m b e r s
h a v e g a i n e d e x p e r t k n o w l e d g e a b o u t t h e p u r c h a s e c a r d p r o g r a m , and
h o w t o m a k e it work.
T h e y are a v e r y k n o w l e d g e a b l e a n d a c a p a b l e
r e s o u r c e a n d s h o u l d be c a l l e d u p o n i n d i v i d u a l l y or as a g r o u p to
a d d r e s s , in w h a t e v e r d e t a i l is n e c e s s a r y , the f i n d i n g s a n d
r e c o m m e n d a t i o n s c o n t a i n e d in t h i s report.
For e x a mple, t h e y
c o u l d p r e p a r e t h e f i r s t d r a f t of t h e p r o p o s e d F A R l a n g u a g e or
t h e y c o u l d p a r t i c i p a t e w i t h t h e A d m i n i s t r a t o r , O F P P in h i g h level
m e e t i n g s w i t h GSA, SBA, NIB/NISH, e t c . , w h e r e t h e i r i n p u t w o u l d
be valuable.
22
A P P E N D IX A
PLEDGE
The V ice President and the National Performance R eview (NPR) have established a goal o f
moving from red tape to results to create a governm ent that works better and costs less. One
o f the NPR recommendations to reinvent Federal procurem ent is to expand the use o f
purchase cards in buying relatively sm all dollar value item s. Purchase cards offer the
potential o f a more efficient, streamlined mechanism to pay for small purchases. They also
provide a cost effective payment m echanism, with possible savings ranging form $30 to over
$200 per sm all purchase transaction as opposed to the use o f conventional paym ent methods.
Given the volum e o f sm all purchases, m illions o f dollars in transaction costs can be saved
each year by effective use o f the purchase cards.
W e, the undersigned members o f the Procurement E xecutives Association are committed to
the accomplishment o f the NPR recommendation both to im prove our procurement system s
as w ell as to reduce the costs o f the Government to the United States taxpayer. A ccordingly,
we pledge to:
•
Significantly expand the use o f purchase cards over levels existing in January
1993, with a target increase o f at least 100% by October 1, 1994, for those
agencies which have not yet made maximum effective use o f the card.
•
Significantly increase the number o f purchase card holders over levels existing
in January 1993, with a target increase in users o f at least 100% by October 1,
1994, for those agencies which have not made maximum appropriate
distribution o f the card.
•
Place the purchase card into the hands o f appropriately trained lin e managers
and other non-procurement personnel for the accomplishment o f transactions
under $2,500.
•
Identify and elim inate internal im pedim ents to the maximum beneficial use o f
the purchase card and actively promote and support legislation to elim inate
statutory impediments.
•
Cooperate with each other and the O ffice o f Federal Procurement Policy to
share experiences relevant to the expanded use o f the purchase card.
In October 1994 w e w ill m eet to assess our performanc
/"SBirl Kinney |
Department o f Com /nerce
Robert W elch
Paul D enett
Department o f the Interior
Federal Em ergency M anagement
A ssociation
/
Linda H iggins^ u
Department o f Transportation
Lloyd Pratsch
Department o f State
Terrance Tychan
O ffice o f Personnel M anagement
• §
Purchase Card Growth
in Agencies* that signed the Pledge
Sales ($)
Purchases (#)
25,(XX),(XX)
100,000
59% Increase
119% Increase
80,000
15 .(XX),(XX)
60,000
10,(XX),000
40,000
A P P E N D IX B :
20.(XX),000
20,000
5,(XX),000
Jan 1993
July 1994
♦Departments of Commerce, Interior, State, Treasury,
Transportation, Health & Human Services, Energy,
General Services Administration, FEMA, and Office of
Personnel Management
Jan 1993
July 1994
A P P E N D IX C
CARDHOLDER SUCCESS STORIES
T h e D e p a r t m e n t of t h e T r e a s u r y r e p o r t s t h a t t h e c a r d c a n s a v e
both time and money by permitting a cardholder to seize the
o p p o r t u n i t y for a t i m e l y p u r c h a s e :
"While attempting to expeditiously purch a s e privacy panels
for the Miami Aviation Branch Facility, I r e c e i v e d quotes
f o r a n a p p r o x i m a t e c o s t of $4,000.
I located a liquidator
w h o h a d o v e r s t o c k e d b r a n d n e w p a n e l s w h o w a s w i l l i n g t o sell
t h e m for $2,450, i n c l u d i n g d e l i v e r y a n d i n s t a l l a t i o n p r o v i d e d the t r a n s a c t i o n w a s e x e c u t e d sw i f t l y , b e c a u s e h e
s o l d on a 'first come, f i r s t se r v e d ' basis.
I coordinated
t h e p u r c h a s e w i t h R e g i o n a l P r o c u r e m e n t , a n d I w a s a b l e to
p u r c h a s e the p a n e l s w i t h t h e p u r c h a s e card.
I saved
a p p r o x i m a t e l y $ 2 , 0 0 0 a n d at l e a s t t w o m o n t h s p r o c e s s i n g
time.
T his is a t r u e s u c c e s s s t o r y . "
T r e a s u r y a l s o reports:
" W h i l e on an e n f o r c e m e n t o p e r a t i o n in Miam i , t h e S a v a n n a h
L a b o r a t o r y h a d t r o u b l e w i t h its m o b i l e van.
We used our
p u r c h a s e c a r d to r e p a i r t h e van.
It w a s G o o d F r i d a y a n d n o t
m a n y r e p a i r p l a c e s w e r e open.
T h a n k s t o t h e p u r c h a s e card,
w e w e r e a b l e to f i n d a c o m p a n y t h a t a c c e p t e d t h e V I S A
p u r c h a s e card, a n d w e w e r e q u o t e d a r e a s o n a b l e price.
It's
goo d to know w h e n we are on m o b i l e operations t h roughout the
cou n t r y , we c a n r e l y o n t h e c a r d . "
T h e D e p a r t m e n t of C o m m e r c e r e p orts:
"The NOAA National Weather Service had requirements to hire
d a y l a b o r e r s to c l e a n u p c o n s t r u c t i o n s i t e s at d i f f e r e n t
l o c a t i o n s a n d t h e v e n d o r w o u l d n o t a c c e p t a p u r c h a s e order.
T h e l a b o r e r s w e r e h i r e d on a n h o u r l y basis, so e s t i m a t e s
wer e used wit h the understanding tha t the ve n d o r w o u l d only
i n v o i c e for a c t u a l h o u r s w o r k e d .
B e c a u s e of t i m e
constraints the Government Purchase Card was the most
l o g i c a l a n d a d v a n t a g e o u s m e t h o d f o r t h e G o v e r n m e n t t o use.
Requirements were received on Friday afternoon.
A telephone
call was placed to the vendor that same day to have laborers
on site the following Monday morning."
"W e w e r e w o r k i n g a p r o j e c t f o r N a t i o n a l O c e a n s S u r v e y t o
support the A n t a r c t i c a Program.
A r e q u e s t c a m e in f o r an
e m e r g e n c y g e n e r a t o r t h a t h a d to b e o r d e r e d a n d s h i p p e d b y
25
M a r c h 25 t o a c c o m p a n y p e r s o n s f l y i n g o u t to A n t a r c t i c a .
An
o r d e r w a s p l a c e d on M a r c h 24, a n d t he g e n e r a t o r w a s
d e l i v e r e d M a r c h 25.
W e u s e d t h e V I S A I M P A C card,
e l i m i n a t i n g p a p e r w o r k a s s o c i a t e d w i t h a p u r c h a s e o r d e r ."
T h e D e p a r t m e n t of H e a l t h a n d H u m a n S e r v i c e s (HHS) h a s h a d its
s h a r e of s u c c e s s e s w i t h t h e p u r c h a s e card.
H e r e ar e j u s t a f e w
of HHS* stories:
" W h e n t h e P r e s i d e n t g a v e t he g o - a h e a d on F e b r u a r y 17, 1994
t o i n a u g u r a t e t h e W h i t e H o u s e C o n f e r e n c e on A g i n g ( W H C O A ) ,
it w a s n e c e s s a r y to e s t a b l i s h an o f f i c e f r o m s c r a t c h in j ust
a f e w w e e k s in l e a s e d s p a c e t h a t w a s n o t c l o s e t o H H S
headquarters.
P u r c h a s e c a r d s w e r e o b t a i n e d in les s t h a n o n e
w e e k f r o m R o c k y M o u n t a i n Bank, e n a b l i n g t h e W H C O A o f f i c e s to
b e u p a n d r u n n i n g qu i c k l y , w i t h a full c o m p l e m e n t of o f f i c e
supplies and necessary equipment.”
" T h e H HS O f f i c e of t h e A s s i s t a n t S e c r e t a r y f or P e r s o n n e l
A d m i n i s t r a t i o n w a s a c q u i r i n g a n e w g e n e r a t i o n of m o r e
powerful personal computers (PC). When the installation was
a l m o s t c o m p l e t e , it w a s r e a l i z e d t h a t t h e P C ' s h a d b e e n
o r d e r e d w i t h o u t t h e " L A N chips" t h a t w o u l d p e r m i t t h e m to
o p e r a t e o n t h e l o c a l a r e a network.
The machines that were
critical to meeting payroll deadlines were quickly
i d e n t i f i e d a n d t h e n e c e s s a r y L A N c h i p s w e r e p r o c u r e d a nd
i n s t a l l e d w i t h i n a f e w days, u s i n g th e p u r c h a s e c a r d (the
r e m a i n d e r of t h e m i s s i n g c h i p s w e r e p r o c u r e d t h r o u g h m o r e
ordinary channels)."
"As p a r t of t h e r e a s o n a b l e a c c o m m o d a t i o n f or h a n d i c a p p e d
employees, HHS provides a braille printer to a bli n d
p e r s o n n e l m a n a g e m e n t spec i a l i s t .
Although most braille
p r i n t e r s u s e p a p e r in a 11x11 i n c h size, t h i s e m p l o y e e
p r e f e r r e d a m o r e s t a n d a r d 8 - 1 / 2 x 1 1 inc h paper, a s i z e w h i c h
is r a t h e r u n u s u a l a n d h a r d e r to stock.
During his
p r e p a r a t i o n f o r a s p e e c h on q u a l i t y m a n a g e m e n t , t h e p a p e r
ra n out and immediate re-stocking was made usi n g the
a d m i n i s t r a t i v e o f f i c e p u r c h a s e card.
By relying on the
p u r c h a s e c a r d for q u i c k action, t h i s e m p l o y e e ' s p r o d u c t i v i t y
w a s m a i n t a i n e d at t h e u s u a l h i g h level."
F r o m t h e D e p a r t m e n t of I n t e r i o r ' s B u r e a u of L a n d M a n a g e m e n t :
"Wild Hor s e and Burro personnel from our Ne w M e x i c o office
w e r e c a l l e d in to i n v e s t i g a t e a n a l l e g e d m i s t r e a t e d ,
n e g l e c t e d g r o u p of h o r s e s in C e n t r a l Texas.
The animals
r e q u i r e d i m m e d i a t e f e e d an d v e t e r i n a r y s e r v i c e s f o r t h e i r
survival.
O n e of ou r p e o p l e h a d a card, w h i c h w a s u s e d to
obtain the services."
26
MA G o v e r n m e n t v e h i c l e b r e a k s d o w n on l a t e F r i d a y a f t e r n o o n .
T h e em p l o y e e , d o i n g a r a n g e survey, is s t r a n d e d in a r e m o t e
o f f - r o a d area, 50 m i l e s f r o m t h e n e a r e s t town.
U s i n g his
radio, h e c o n t a c t s h i s office, w h o r e a c h e s a g a r a g e w h o w i l l
t o w t h e vehicle, a n d t h e e m p l o y e e o u t o f t h e a r e a b e f o r e
dark.
The garage wants immediate payment.
Fortunately, the
employee has a VISA ca r d . ”
"A s u r v e y g r o u p w a s in t h e f i e l d o b t a i n i n g g e o d e t i c data.
T h e b a t t e r i e s of t h e s a t e l l i t e r e c e i v i n g u n i t s w o u l d n o t
h o l d t h e i r charge.
T h e c r e w c h i e f d e c i d e d to u s e h i s
p u r c h a s e c a r d to b u y c i g a r e t t e l i g h t e r p l u g - i n s f o r t h e
v e h i c l e , u s i n g t h e cars, so t h a t t he r e c e i v e r s c o u l d be
p l u g g e d int o t h e v e h i c l e b a t t e r y system.
This saved several
d a y s of d o w n t i m e of t h e c r e w . ”
”A n A n c h o r a g e , Alaska, e m p l o y e e w e n t o u t t o an i s o l a t e d a r e a
t o work.
H i s b o a t m o t o r failed.
He n e e d e d i m m e d i a t e
repairs.
H e f o u n d a source, b u t t he v e n d o r w o u l d n o t a c c e p t
a n SF-44, w h i c h h e c a r r i e d w i t h him.
He called the
A n c h o r a g e o f f i c e f o r help.
T h e p u r c h a s i n g a g e n t t a l k e d to
t h e vendor, w h o g l a d l y a c c e p t e d t he p u r c h a s i n g a g e n t * s V I S A
c a r d as payme n t .
The employee, p r eviously reluctant to
a c q u i r e t h e card, n o w h a s a p p l i e d for i t . ”
P u r c h a s e c a r d s h e l p t he S t a t e D e p a r t m e n t at t h e Summit:
”T h e D e p a r t m e n t of S t a t e p a r t i c i p a t e d s i g n i f i c a n t l y in
o r g a n i z i n g , m a k i n g l o g i s t i c a l a r r a n g e m e n t s for, a n d
c o n d u c t i n g t h e “A s i a n P a c i f i c E c o n o m i c C o n f e r e n c e ” ( A P E C ) ,
in Seattle, W a s h i n g t o n .
H e a d s of S t a t e f r o m m a n y n a t i o n s
a t t e n d e d , i n c l u d i n g P r e s i d e n t Clinton.
The Government
P u r c h a s e C a r d w a s i n v a l u a b l e in p r o v i d i n g a s t r e a m l i n e d
p u r c h a s i n g t e c h n i q u e for r e l a t e d e x p e n s e s s u c h as t h e r e n t a l
of b a r g e s a n d aircraft.
W i t h o u t t he card, w e w o u l d h a v e
l o s t m a n y o p p o r t u n i t i e s to m a k e t h e a r r a n g e m e n t s w e n e e d e d
t o m a k e i m m e d i a t e l y a n d on t h e spot.
We intend to use the
c a r d f o r m a k i n g l o g i s t i c a l a r r a n g e m e n t s f or an u p c o m i n g
S u m m i t of t h e A m e r i c a s .”
H u r r i c a n e s , f l o o d s an d e a r t h q u a k e s d i d n ' t s t o p t h e D e p a r t m e n t of
T r a n s p o r t a t i o n from fulfilling the i r mission.
" A f t e r H u r r i c a n e A n d r e w hit, t h e P r e s i d e n t s e n t t h e
S e c r e t a r y of T r a n s p o r t a t i o n t o F l o r i d a to s u r v e y t h e d a m a g e
a n d a s s i s t in e m e r g e n c y e f f o r t s .
Through a coordinated
effort between the card-issuing bank and Transportation,
p u r c h a s e c a r d s w e r e i s s u e d w i t h i n 18 h o u r s to t h e S e c r e t a r y
a n d others.
T h i s u n i q u e s i t u a t i o n is y e t a n o t h e r e x a m p l e
t h a t i l l u s t r a t e s t h e r e s u l t s of t h e s u c c e s s f u l p a r t n e r s h i p
betw e e n the Government and th e p urchase card."
27
H e r e is an e x a m p l e on h o w t h e p u r c h a s e c a r d h a s h e l p e d F E M A d e a l
wit h disas t e r situations:
'•As s o o n as F E M A w a s p u t on a l e r t r e g a r d i n g t h e s o u t h e a s t e r n
f l o o d s t h a t o c c u r r e d t h i s s u m m e r , its O f f i c e of P u b l i c
A f f a i r s s h i p p e d s e v e r a l p i e c e s of v i d e o and p r o d u c t i o n
e q u i p m e n t to t h e D i s a s t e r F i e l d O f f i c e ( D F O ) . T h i s
e q u i p m e n t w a s to b e u s e d in c o o r d i n a t i o n w i t h F E M A ' s M o b i l e
E m e r gency Response System units to perform satellite u p
l i n k s a n d n a t i o n w i d e liv e b r o a d c a s t s of t he o n g o i n g
e m e r g e n c y s i t u a t i o n and r e c o v e r y efforts.
Technicians were
u n a b l e t o u t i l i z e the e q u i p m e n t as t h e r e w e r e s o m e p a r t s
m i s s i n g . T h e n e c e s s a r y equ i p m e n t , s h o r t m i c r o p h o n e s , a n d
a u d i o m i x e r s , w e r e s h i p p e d f r o m F E M A h e a d q u a r t e r s in
W a s h i n g t o n , D.C. t o the D F O in A t l anta, G e o r g i a v i a D e l t a
Airlines.
The equipment was received within hours at the
Atla n t a International Airport.
Nor m a l l y , s u c h s e r v i c e s are
p a i d f o r b y p u r c h a s e orders, t a k i n g d a y s to p r o c e s s .
In
t h i s case, t h e f r e i g h t c h a r g e s w e r e p a i d o n - t h e - s p o t w i t h
t h e p u r c h a s e c a r d and as a result, t h e live s a t e l l i t e
b r o a d c a s t a i r e d as s c h e d u l e d w i t h o u t de l a y . "
28
A P P E N D IX
D
P U R C H A S E C A R D C O U N C IL
NAME
DEPARTMENT
PHONE & FAX NUMBER
Annelie Kuhn
Treasury
202-622-0203
202-622-2273
Martha Lanigan
Treasury
202-622-0194
202-622-2273
Lynn H u d s o n
State
703-516-1680
703-875-6155
Kevin Mooney
Transportation
202-366-4975
2 0 2 — 3 6 6 — 7 5 IQ
Enrique Aveleyra
Transportation
202-366-6115
202-366-7174
Mary Lou Benzel
GSA
703-305-6658
703-305-5094
Gary G a r n e r
Treasury
202-874-6751
202-874-7321
Mik e C o l v i n
HHS
202-690-7887
202-690-8772
Joseph Zimmer
OFPP
202-395-6167
202-395-5105
Nellie Cassels
Commerce
202-482-4167
202-482-1711
Gayle F i s c h e t t i
Interior
202-208-6705
202-208-6301
Lesl i e B r o w n
FEMA
202-646-4589
202-646-3695
Vivian Bethea
OPM
202-606-2240
202-606-1464
Richard Langston
Energy
202-586-8247
202-586-0545
Cleopatra Cherry
Justice/DEA
202-307-1360
202-307-7818
Tom P o s p i c h a l
Justice/FPI
202-508-8438
202-628-1597
April Nord e e n
Agriculture/ARS
301-344-2878
301-344-0333
N E WS
r
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR RELEASE AT 2:30 P.M.
December 14, 1994
CONTACT:
Office of Financing
202/219-3350
TREASURY TO AUCTION 2-YEAR AND 5-YEAR NOTES
TOTALING $28,250 MILLION
The Treasury will auction $17,250 million of 2-year notes
and $11,000 million of 5-year notes to refund $24,387 million of
publicly-held securities maturing December 31, 1994, and to raise
about $3,875 million new cash.
In addition to the public holdings, Federal Reserve Banks
hold $2,430 million of the maturing securities for their own
accounts, which may be refunded by issuing additional amounts
of the new securities.
The maturing securities held by the public include $1,899
million held by Federal Reserve Banks as agents for foreign
and international monetary authorities. Amounts bid for these
accounts by Federal Reserve Banks will be added to the offering.
Both the 2-year and 5-year note auctions will be conducted
in the single-price auction format. All competitive and non
competitive awards will be at the highest yield of accepted
competitive tenders.
Tenders will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington, D. C.
This offering of Treasury securities is governed by the terms
and conditions^ set forth in the Uniform Offering Circular (31 CFR
Part 356) for the sale and issue by the Treasury to the public of
marketable Treasury bills, notes, and bonds.
Details about each of the new securities are given in the
attached offering highlights.
oOo
Attachment
LB-1283
m
HIGHLIGHTS OF TREASURY OFFERINGS TO THE PUBLIC OF
2-YEAR AND 5-YEAR NOTES TO BE ISSUED JANUARY 3, 1995
December 14, 1994
Offering Amount . . . . .
Description of Offering:
Term and type of security
Series ................
CUSIP number ..........
Auction date ..........
Issue date ............
Dated date ............
Maturity date ..........
Interest rate ..........
Yield ..............
Interest payment dates. .
Minimum bid amount . . .
Multiples ..............
Accrued interest
payable by investor . .
Premium or discount . . .
$17,250 million
$11,000 million
2-year notes
AP-1996
912827 S3 7
December 21, 1994
January 3, 1995
January 3, 1995
December 31, 1996
Determined based on the
highest accepted bid
Determined at auction
June 30 and December 31
$5,000
5-year notes
V-1999
912827 S4 5
December 22, 1994
January 3, 1995
January 3, 1995
December 31, 1999
Determined based on the
highest accepted bid
Determined at auction
June 30 and December 31
$1,000
$ 1,000
$ 1,000
None
Determined at auction
None
Determined at auction
The fol l o w i n g rules a p p l y to all s e c u r i t i e s m e n t i o n e d a b o v e :
Submission of Bids:
Noncompetitive bids . . . Accepted in full up to $5,000,000 at the highest accepted yield
Competitive bids . . . . (1) Must be expressed as a yield with two decimals, e.g., 7.10%
(2) Net long position for each bidder must be reported when the
sum of the total bid amount, at all yields, and the net long
position is $2 billion or greater.
(3) Net long position must be determined as of one half-hour prior
to the closing time for receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield . . . 35% of public offering
Maximum Award . . ........ 35% of public offering
Receipt of Tenders :
Prior to 12:00 noon Eastern Standard time on auction day
Noncompetitive tenders
Competitive tenders . . . Prior to 1:00 p.m. Eastern Standard time on auction day
Payment Terms ............ Full payment with tender or by charge to a funds account at a
Federal Reserve Bank on issue date
/x.~/r-?v
CONTINGENT PAYMENT DEBT BRIEFING MATERIALS
m
ISSliç: How do we tax debt obligations that have contingent interest or principal payments?
The following are examples of instruments covered by the proposed regulations:
Ex.
Bond issues for $1,000 and promises to pay $1,000 plus the increase, if any,
in the value of a commodity, in three years.
Ex.
Bond pays current interest. At maturity, the principal is linked to the value of
stocks or commodities.
I
"Structured notes" is the term used by the financial community for these instruments
(although the term includes some instruments that would not be subject to the
proposed regulations).
Whv is this important:
The proposed regulations address an area of major uncertainty in the tax law. The tax bar
and representatives of issuers and investors have urged the Treasury and 1RS to make
guidance in this area a priority. The uncertainty in this area has created opportunities for
some taxpayers to structure transactions to avoid taxes. In addition the uncertainty prevented
those who wanted results that are consistent with the economics from getting those results.
The proposed regulations give the needed guidance in this area by providing tax rules that
match the economics. This will discourage abusive transactions and provide reasonable
results for legitimate transactions.
Short sum m ary:
The proposed regulations provide tax results that follow the economics of the instruments.
The result is that issuers will have deductions and holders will have inclusions of interest
over the life of the instrument based on a rate determined by the pricing of the instrument.
When the contingent payments are made, adjustments to income correct these deductions or
inclusions. Special rules will allow taxpayers that hedge a debt instrument to integrate the
hedge and the debt instrument and treat them as a single instrument that is taxed according to
its economics.
Prospective effective date:
These regulations are proposed regulations that apply only to instruments issued after the
regulations are finalized. The integration rules are similarly effective only after they are
finalized, and taxpayers may not begin integrating hedges with debt instruments until that
time. We have withdrawn the prior proposed regulations, which provided for inaccurate
accruals.
J
[4830-01-u]
VW CUd
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[FI-59-91]
RIN
1545-AQ86
Debt Instruments with Original Issue Discount; Contingent Payments
AGENCY:
Internal Revenue Service (1RS), Treasury.
ACTION:
Notice of proposed rulemaking and notice of public hearing.
SUMMARY:
This document contains proposed regulations relating to
the tax treatment of debt instruments that provide for one or more
contingent payments.
This document also contains proposed
regulations that provide for the integration of a contingent payment
or variable rate debt instrument with a related hedge and proposed
amendments to the final original issue discount regulations that
were published in the Federal Register on February 2, 1994.
The
proposed regulations in this document would provide needed guidance
to holders and issuers of contingent payment debt instruments.
This
document also provides a notice of a public hearing on the proposed
regulations.
DATES:
1995.
Written comments must be received by Thursday, March 16,
Requests to appear and outlines of topics to be discussed at
the public hearing scheduled for Thursday, March 16, 1995, at 10
a.m. must be received by Thursday, February 23, 1995.
ADDRESSES:
Send submissions to:
C C :DOM :CORP:T:R (FI-59-91), room
5228, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044.
In the alternative, submissions may be hand
delivered between the hours of 8 a.m. and 5 p.m. to:
2
C C :DOM :CORP:T :R (FI-59-91), Courier's Desk, Internal Revenue
Service, 1111 Constitution Avenue NW, Washington, DC.
FOR FURTHER INFORMATION CONTACT:
Concerning the regulations (other
than §1.1275-6), Andrew C. Kittler,
Blanchard,
(202) 622-3940, or William E.
(202) 622-3950; concerning §1.1275-6, Michael S. Novey,
(202) 622-3900; concerning submissions and the hearing, Michael
Slaughter,
(202) 622-7190 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained in this notice of
proposed rulemaking have been submitted to the Office of Management
and Budget for review in accordance with the Paperwork Reduction Act
(44 U.S.C. 3504(h)).
Comments on the collections of information
should be sent to the Office of Management and Budget, Attn:
Desk
Officer for the Department of the Treasury, Office of Information
and Regulatory Affairs, Washington, DC 20503, with copies to the
Internal Revenue Service, Attn:
1RS Reports Clearance Officer,
PC :F P , Washington, DC 20224.
The collections of information are in §§1.1275-3(b) (1) (i),
1 .1275-4(b)(4)(iv), and 1.1275-6(f).
This information is required
by the 1RS to determine the amount of income, deductions, gain, or
loss attributable to a contingent payment debt instrument.
This
information will be used for audit and examination purposes.
The
likely respondents and recordkeepers are businesses and other
organizations.
Estimated total annual reporting and recordkeeping burden:
95,000 hours.
3
The estimated annual burden per respondent/recordkeeper varies
from .3 to .5 hours, depending on individual circumstances, with an
estimated average of .475 hours.
Estimated number of respondents/recordkeepers:
Estimated annual frequency of responses:
200,000.
1.
Background
Section 1275(d) of the Internal Revenue Code of 1986
(Code)
grants the Secretary the authority to prescribe regulations under
the original issue discount (OID) provisions of the Code, including
regulations relating to debt instruments that provide for contingent
payments.
On April 8, 1986, the 1RS published in the Federal
Register a notice of proposed rulemaking (51 FR 12022) relating to
debt instruments with OID.
Section 1.1275-4 of the .1986 proposed
regulations provided rules for contingent payment debt instruments.
On February 28, 1991, the 1RS published in the Federal Register a
proposed amendment to §1.1275-4
(56 FR 8308), which would have
bifurcated certain contingent payment debt instruments into their
component parts
(§1.1275-4(g)) .
On December 22, 1992, the 1RS published in the Federal Register
a notice of proposed rulemaking that substantially revised the 1986
proposed regulations
(57 FR 60750), and on February 4, 1994, the 1RS
published in the Federal Register final OID regulations
4799).
(59 FR
However, neither the 1992 proposed regulations nor the final
OID regulations contained rules for contingent payment debt
instruments under §1.1275-4.
The 1RS received numerous written comments on §1.1275-4, as
originally proposed in 1986 and as amended in 1991.
In addition, on
4
November 17, 1986, the 1RS held a public hearing to discuss the 1986
proposed regulations, including §1.1275-4.
Commentators criticized §1.1275-4 of the 1986 proposed
regulations'because the regulations ignored the economics of many
contingent payment debt instruments.
In particular, commentators
believed that the 1986 proposed regulations did not reflect the
reasonable expectations of the parties because the regulations used
a "wait and see" approach to the accrual of interest determined by
reference to contingencies.
The commentators noted that, with
respect to certain contingent payment debt instruments, the 1986
proposed regulations resulted in a significant backloading of
interest.
Commentators also criticized the 1991 proposed .amendment to
§1.1275-4.
Commentators argued that there is rarely a unique set of
components into which a contingent payment debt instrument can be
bifurcated.
In addition, commentators questioned whether it is
appropriate to bifurcate a contingent payment debt instrument
because it is often unclear how the contingent components should be
taxed.
Some commentators suggested that it is preferable to determine
interest accruals on a contingent payment debt instrument by
assuming that the issue price of the debt instrument will bear a
return at the applicable Federal rate (AFR) or some other specified
rate.
Other commentators suggested that it is preferable to
determine interest accruals by constructing a projected payment
schedule and accruing on the basis of the projections.
5
Explanation of Provisions
In general.
The proposed regulations in this document contain new rules for
the treatment of contingent payment debt instruments (§1.1275-4).
The proposed regulations provide separate rules for debt instruments
that are issued for cash or publicly traded property and for debt
instruments that are issued for nonpublicly traded property.
The
proposed regulations also provide special rules for tax-exempt
obligations.
Section 1.1275-4, as proposed on April 8 , 1986, and
amended on February 28, 1991, is superseded as of fINSERT DATE THIS
DOC U M E N T IS PUBLISHED IN THE FEDERAL R E G I S T E R ! .
The proposed regulations provide a rule to determine the
imputed principal amount of a contingent payment debt instrument
issued for nonpublicly traded property.
The proposed regulations
also provide rules for the integration of certain debt instruments
with related hedges (§1.1275-6).
In addition, the proposed
regulations amend the rules for variable rate debt instruments in
§1.1275-5 of the final OID regulations.
Finally, the proposed
regulations make conforming changes to certain provisions of the
final OID regulations, such as the regulations under section 483.
Section 1.1275-4
A.
Contingent payment debt instruments.
Applicability.
Section 1.1275-4 of the proposed regulations generally applies
to any debt instrument that provides for one or more contingent
payments.
The proposed regulations, however, do not apply to a debt
instrument that has an issue price determined under section
1273(b)(4), a variable rate debt instrument, a debt instrument
6
subject to §1.1272-1(c) (certain debt instruments that provide for
alternative payment schedules), a debt instrument subject to section
1272(a) (6) (REMIC interests and certain other debt instruments that
are subject^to prepayment), or, except as provided in section 988, a
debt instrument subject to section 988 (a debt instrument that
provides for payments denominated in, or determined by reference to,
a nonfunctional currency). The 1RS and Treasury request comments on
whether other types of debt instruments should be excluded from the
rules of §1.1275-4, such as certain prepayable obligations included
in a pool.
Section 1.1275-4 of the proposed regulations applies only to a
contingent payment debt instrument that constitutes a debt
instrument for federal income tax purposes.
No inference is
intended under the proposed regulations as to whether a particular
instrument constitutes a debt instrument for federal income tax
purposes.
Although the proposed regulations do not define the term
contingent payment, the proposed regulations treat certain payments
as not being contingent.
For example, if a payment is subject to
either a remote or incidental contingency, the payment is not a
contingent payment.
A contingency is remote if there is either a
remote likelihood that the contingency will occur or a remote
likelihood that the contingency will not occur.
A contingency is
incidental if the potential amount of the payment under any
reasonably expected market conditions is insignificant relative to
the total expected payments on the debt instrument.
Under the
proposed regulations, a debt instrument does not provide for
7
contingent payments merely because it is convertible into stock of
the issuer or a related party.
However, if a debt instrument is
convertible into stock of an unrelated party, the debt instrument is
a contingent payment debt instrument.
B . The noncontinaent bond method.
The noncontingent bond method applies to a contingent payment
debt instrument that has an issue price determined under §1.1273-2
or §1.1274-2(b)(3).
For example, the noncontingent bond method
generally applies to a contingent payment debt instrument issued for
money or publicly traded property.
Under the noncontingent bond method, a projected payment
schedule is determined for a debt instrument, and interest accrues
on the debt instrument based on this schedule.
The projected
payment schedule for a debt instrument consists of all noncontingent
payments and a projected amount for each contingent payment.
If the
actual amount of a contingent payment differs from the projected
amount of the payment, appropriate adjustments are taken into
account to reflect this difference.
Although the actual amount of a contingent payment is not fixed
or determinable when a contingent payment debt instrument is issued,
the noncontingent bond method, in effect, treats the projected
amounts of contingent payments like fixed payments and requires
interest accruals based on the projected amounts.
The 1RS and
Treasury believe that this method is consistent with Congress'
intent under the OID provisions to require a current accrual of
interest on a debt instrument.
8
While other methods suggested by commentators also require a
current accrual of interest, the noncontingent bond method requires
interest accruals based on a rate that is implicit in the debt
instrument and provides a means of determining whether payments are
0
appropriately treated as interest or principal. The IRS and
Treasury believe that the noncontingent bond method is the most
appropriate method for achieving this purpose.
For example, methods
that require accrual at a fixed rate for all debt instruments often
will over-accrue or under-accrue interest on a particular debt
instrument.
In addition, the methods may not always provide an
appropriate measure of the interest and principal components of a
payment.
Because of the inaccuracies under these methods, the IRS
and Treasury rejected these methods.
1.
Projected payment schedule.
The projected payment schedule for a contingent payment debt
instrument is determined as of the debt instrument's issue date.
Except in the case of a contingent payment that is fixed more than 6
months before it is due, the projected payment schedule remains
fixed throughout the term of the debt instrument and any income,
deductions, gain, or loss attributable to the debt instrument are
based on the schedule.
The projected payment schedule for a debt instrument consists
of all noncontingent payments and a projected amount for each
contingent payment.
The proposed regulations provide rules for
determining the projected amount of each contingent payment included
in a projected payment schedule.
Under the proposed regulations,
9
contingent payments are either quotable contingent payments or
nonquotable contingent payments.
A quotable contingent payment is a contingent payment that is
substantially similar to a property right for which forward price
0
quotes are readily available.
In general, the projected amount of a
quotable contingent payment is the forward price of the property
right.
If a contingent payment is substantially similar to an
option and forward price quotes are not readily available for the
option, the projected amount of the payment is the spot price of the
option on the issue date, if readily available, compounded at the
AFR from the issue date to the date the payment is due.
Under the proposed regulations, a property right includes a
right, an obligation, or a combination of rights or obligations.
For example, options and forward contracts are property rights.
More complicated contingent payments are constructed from
combinations of rights and obligations.
A contingent payment is substantially similar to a property
right if, under reasonably expected market conditions, the value and
timing of the amount to be paid or received pursuant to the property
right are expected to be substantially the same as the value and
timing of the contingent payment.
It is irrelevant for purposes of
testing substantial similarity whether the property right must be
settled in cash or in property or whether the credit rating of the
issuer is different from the party giving the price quote.
It is
also irrelevant whether a property right is available in the same
denomination as the measure of the contingent payments.
10
Quotes for the substantially similar property right are
readily available if they are readily available from brokers,
traders, or dealers during specified time periods.
Although price
quotes for over-the-counter property rights often are not widely
*
disseminated because the rights may be privately tailored for a
particular transaction, quotes for over-the-counter property rights
generally will be treated as readily available if customers could
obtain quotes from brokers, traders, or dealers.
Commentators have stated that any method requiring taxpayers to
create payment schedules using expected values would be difficult to
apply.
They have said that there is too much variation in the
expected values of the property rights embedded in contingent
payment debt instruments to allow for the creation of payment
schedules that are not susceptible to abuse or to challenge upon
examination on the basis of hindsight.
The noncontingent bond method, however, generally sets the
projected amounts of market-based contingent payments by using
forward prices for the embedded property rights rather than expected
values.
It is the understanding of the IRS and Treasury that
forward prices are available for almost all of the market-based
property rights embedded in contingent payment debt instruments.
For example, these property rights generally may be obtained on a
separate basis for hedging purposes.
Moreover, the IRS and Treasury
understand that dealers and certain information services provide
daily quotations of the prices of contingent payment debt
instruments held by regulated investment companies to allow the
companies to determine their net asset values.
To do this, the
11
price of the separate elements of the contingent payment debt
instruments, including the embedded property rights, must be
determined.
Thus, the IRS and Treasury believe that, in general, it
will not be-difficult for issuers of contingent payment debt
instruments to obtain forward price quotes for the property rights
embedded in the debt instruments.
The proposed regulations include a number of provisions
designed to address other concerns with the pricing requirement.
First, the pricing requirement only applies if quotes are readily
available.
Therefore, when it is not feasible to obtain a quote,
pricing is not required.
Second, the IRS and Treasury understand that the price a broker
or dealer develops for any property right embedded in a contingent
payment debt instrument when pricing the debt instrument as a whole
will not necessarily translate into a forward price for the property
right determined on a separate basis.
For example, the price of the
property right embedded in a contingent payment debt instrument may
include charges for financial intermediation that would not be
imposed if the property right were purchased separately.
Thus, the
rules that apply to an issuer who must set a projected payment
schedule allow substantial flexibility.
Further, the IRS and Treasury recognize that quotes for thinly
traded property rights may vary and that the bid-ask spread may be
substantial.
The proposed regulations, therefore, provide that a
taxpayer may use any reasonable quote to determine the projected
amount of a payment.
The proposed regulations also provide that the
taxpayer may use bid price, ask price, or midpoint price quotes to
12
determine the projected amounts of quotable contingent payments.
However, the taxpayer must make this determination on a consistent
basis.
For example, a taxpayer cannot use ask prices to determine
the projected amounts for some contingent payments on a debt
instrument and bid prices to determine the projected amounts for
other contingent payments on the instrument.
Finally, if a
contingent payment is equivalent to more than one combination of
property rights, taxpayers may use any reasonable combination.
However, it is not reasonable to construct a combination of property
rights that contains property rights for which forward price quotes
are unavailable if there are other possible combinations that
consist only of property rights for which forward price quotes are
readily available.
A nonquotable contingent payment is any contingent payment that
is not a quotable contingent payment.
For example, contingent
payments based on oil production or the issuer's gross receipts are
generally nonquotable contingent payments.
The projected amount of a nonquotable contingent payment is
generally based on the projected yield of the contingent payment
debt instrument.
The projected yield is a reasonable rate for the
debt instrument that, as of the issue date, reflects general market
conditions, the credit quality of the issuer, and the terms and
conditions of the debt instrument.
For this purpose, the proposed
regulations provide that a reasonable rate is not less than the AFR
or the yield on the debt instrument determined without regard to the
nonquotable contingent payments.
will substantially exceed the AFR.
In many cases, a reasonable rate
Once the projected yield is
13
determined, the projected amount of each nonquotable contingent
payment is determined so that the projected payment schedule
reflects the projected yield.
The projected amount of each payment,
however, must reasonably reflect the relative expected values of the
nonquotable contingent payments.
The proposed regulations provide simplifying rules to determine
the projected payment schedule of a contingent payment debt
instrument that would be a variable rate debt instrument except that
it provides for a single quotable contingent payment at maturity or
does not guarantee a sufficient return of stated principal.
Under
the proposed regulations, the projected amounts of the variable
interest payments are determined using the rules of §1.1275-5(e),
rather than the general rules for quotable contingent payments.
For
example, if the contingent payment debt instrument provides for
stated interest at a single qualified floating rate and a quotable
contingent payment at maturity, the projected amounts of the
interest payments are based on the value of the rate as of the
instrument's issue date and the projected amount of the contingent
payment is determined under the rules for quotable contingent
payments.
The proposed regulations require the issuer to construct the
projected payment schedule.
If an issuer fails to produce a
projected payment schedule as required, the issuer will be treated
as failing to meet the recordkeeping requirements under section 6001
necessary to support the deduction of interest.
To avoid potential
audit disputes about the projected amount of a contingent payment,
the proposed regulations provide that the issuer's projected payment
14
schedule will be respected unless the schedule is unreasonable.
A
projected payment schedule generally will be considered unreasonable
if it is set with a purpose to accelerate or defer interest
accruals.
fn determining whether a projected payment schedule is
unreasonable, consideration will be given to whether the interest on
a contingent payment debt instrument determined under the schedule
has a significant effect on the issuer's or the holder's U.S. tax
liability.
For example, a projected payment schedule prepared by an
issuer that is a non-U.S. taxpayer will be given special scrutiny
because no schedule would have an effect on the issuer's U.S. tax
liability.
The proposed regulations provide that all holders of a
contingent payment debt instrument are bound by the issuer's
projected payment schedule and that an issuer must provide the
schedule to the holders.
A holder may vary from the projected
payment schedule provided by the issuer only if the projected
payment schedule is unreasonable.
If an issuer does not create a
projected payment schedule as required or the issuer's schedule is
unreasonable, a holder must apply the projected payment schedule
rules to determine a reasonable projected payment schedule.
If a
holder is not using the issuer's projected payment schedule, the
holder must explicitly disclose this fact on its timely filed
federal income tax return and must explain why it is not using the
issuer's schedule.
Because the proposed regulations allow considerable
flexibility, taxpayers may attempt to create uneconomic accruals by
intentionally overstating or understating the projected amounts of
15
the contingent payments.
Taxpayers must use actual prices in
setting the payment schedule and are given flexibility only within
the range of reasonable prices.
For example, the prices of an
issuer's or'a holder's hedges may be used to determine
reasonableness.
Under the rules of section 6001, taxpayers must
maintain adequate contemporaneous records to support the projected
payment schedule.
In addition, the rules of §1.1275-2T(g)
(the OID
anti-abuse rule) apply to transactions subject to the proposed
regulations, including transactions in which the taxpayer attempts
to create payment schedules that cause uneconomic accruals.
Attempts to overstate or understate the amounts of the projected
payments will give rise to adjustments of tax liability, and, if
appropriate, penalties.
2.
Adjustments.
Under the noncontingent bond method, if the actual amount of a
contingent payment differs from the projected amount of the payment,
the difference results in either a positive or negative adjustment
that must be taken into account by the taxpayer.
The purpose of the
adjustments is to correct the interest accruals that have occurred
to date on the debt instrument.
Therefore, the adjustments
generally increase or decrease the amount of interest on a
contingent payment debt instrument.
If the actual amount of a contingent payment is greater than
the projected amount of the payment, the difference is a positive
adjustment.
If the projected amount of a contingent payment is
greater than the actual amount of the payment, the difference is a
16
negative adjustment.
Positive and negative adjustments for a
taxable year are netted for each taxable year.
A net positive adjustment for a taxable year is treated by the
taxpayer as'additional interest for the year.
A net negative
adjustment for a taxable year is taken into account as follows.
First, a net negative adjustment for a taxable year offsets the
interest that accrued on the debt instrument for the year based on
the projected payment schedule.
Second, if the net negative adjustment exceeds the amount of
interest that accrued on the debt instrument for the taxable year,
the excess is treated as an ordinary loss by the holder or as
ordinary income by the issuer.
However, the amount treated as
ordinary loss by the holder is limited to the amount by which the
holder's total prior interest inclusions on the debt instrument
(including all net positive adjustments) exceed the total net
negative adjustments on the debt instrument previously treated as
ordinary loss by the holder.
Similarly, the amount treated as
ordinary income by the issuer is limited to the amount by which the
issuer's total prior interest deductions on the debt instrument
(including all net positive adjustments) exceed the total net
negative adjustments on the debt instrument previously treated as
ordinary income by the issuer.
Third, because a negative adjustment adjusts interest accruals,
if the net negative adjustment exceeds the sum of the amount of
interest that accrued on the debt instrument for the taxable year
and the amount treated as ordinary loss (or income) for the taxable
year, the excess is treated as a negative adjustment that occurs on
17
the first day of the succeeding taxable year.
As a result, the
excess offsets interest accruals on the debt instrument in future
taxable years.
Fourthr any unused net negative adjustment reduces the amount
realized by the holder on the sale, exchange, or retirement of a
contingent payment debt instrument.
Similarly, any unused net
negative adjustment is taken into account by the issuer on
retirement of a contingent payment debt instrument as income from
the discharge of indebtedness.
The IRS and Treasury request
comments on whether the regulations should provide specific rules
governing the treatment of net negative adjustments determined on
the occurrence of other events.
The IRS and Treasury chose this method for taking adjustments
into account because it provided a relatively simple method for
adjusting the yield.
However, the method may produce inappropriate
results, for example, if there are large adjustments in the early
years of a debt instrument.
Other methods, such as a method that
spreads adjustments over the term of the debt instrument, would
produce more accurate results but would be more complex.
The IRS
and Treasury request comments on whether another method should be
used for taking adjustments into account.
3.
Adjusted issue price, basis, and retirement.
Under the noncontingent bond method, the adjusted issue price
of a contingent payment debt instrument, adjustments to the holder's
basis in the debt instrument, and the amount of any contingent
payment treated as made on the scheduled retirement of the debt
instrument are determined using the projected payment schedule
18
rather than actual contingent payments.
This rule is appropriate
because positive or negative adjustments are used to take into
account the difference between actual amounts and projected amounts
of contingent payments.
This difference would be counted twice if
adjusted issue price, adjusted basis, and the amount deemed paid on
retirement were based on the actual amounts of contingent payments
rather than the projected amounts.
4.
Character on sale, exchange, or retirement.
Under the noncontingent bond method, any gain recognized by a
holder on the sale, exchange, or retirement of a contingent payment
debt instrument is treated as interest income.
Similarly, any loss
recognized by a holder on the sale, exchange, or retirement of a
contingent payment debt instrument is treated as ordinary loss to
the extent of the holder's prior interest inclusions (reduced by
prior ordinary losses attributable to net negative adjustments) on
the instrument. Although this rule is inconsistent with the
treatment of noncontingent debt instruments, the rule is necessary
because of the treatment of net positive and net negative
adjustments.
The rule prevents a taxpayer who sells a contingent
payment debt instrument immediately before a positive adjustment
occurs from converting the interest income from the adjustment into
capital gain or from converting the amount by which a negative
adjustment would reduce interest income into capital loss.
Consistent with the rule's purpose, the rule does not apply to a
sale, exchange, or retirement that occurs when there are no
outstanding contingent payments due on a debt instrument.
19
5.
Other special rules.
Although most contingent payment debt instruments can be dealt
with under the above provisions, the proposed regulations provide
additional rules for certain other circumstances.
For example, the
proposed regulations provide rules for a holder whose basis in a
contingent payment debt instrument is different from the debt
instrument's adjusted issue price (e.g., a secondary market
purchaser of the debt instrument). Under the proposed regulations,
the holder continues to accrue interest and determine adjustments
based on the original projected payment schedule.
The holder,
however, must allocate the difference between basis and adjusted
issue price to the accruals or projected payments on the debt
instrument over the remaining term of the debt instrument.
Amounts
allocated to a taxable year are recovered as if they were positive
or negative adjustments, as appropriate.
*
The proposed regulations require only a reasonable, rather than
an exact, allocation of the difference between basis and adjusted
issue price.
For example, if almost all of the difference is
attributable to changes in the expected value of a contingent
payment, the holder may allocate the difference to the contingent
payment.
Similarly, a taxpayer may allocate a portion of the
difference to accruals if the taxpayer determines that the portion
is attributable to changes in interest rates.
A taxpayer may make
this determination by comparing rates on similar debt instruments,
by looking to changes in standard interest rate indices that have
occurred since the date the contingent payment debt instrument was
issued, or by other appropriate means.
The proposed regulations
20
require the holder's allocation to be reasonable based on all the
facts and circumstances.
In the case of a contingent payment debt instrument that is
exchange listed property (within the meaning of §1.1273-2 (f) (2)),
the proposed regulations provide a safe harbor that allows holders
to account for the difference between the debt instrument's adjusted
issue price and the holder's basis under the same rules that apply
to acquisition premium on a noncontingent debt instrument under
section 1272(a)(7) and §1.1272-2.
The IRS and Treasury recognize that the method provided in the
proposed regulations for allocating the difference between basis and
adjusted issue price may be difficult to apply because the
difference may be attributable to both changes in interest rates and
in the expected values of the contingent payments.
Other methods
for making the allocation were considered in drafting the proposed
regulations, but were not adopted because they were not believed to
be sufficiently accurate.
The IRS and Treasury believe that
contingent payment debt instruments (other than exchange listed debt
instruments) rarely trade in the secondary market and, therefore,
the need to make the allocation will occur only infrequently.
The
IRS and Treasury request comments on this issue.
The proposed regulations also provide rules for a debt
instrument that has a contingent payment that is fixed more than 6
months before the payment is due.
Under the proposed regulations,
an adjustment is made on the date the payment is fixed, and the
amount of the adjustment is equal to the difference between the
present value of the fixed amount and the present value of the
21
projected amount of the contingent payment.
The adjusted issue
price is modified to reflect the adjustment and the projected
payment schedule is changed to reflect the fixed payment.
The IRS
and Treasury are concerned about whether this method may produce
inappropriate accelerations of income or deductions and request
comments on whether other methods, such as a method that spreads the
income or deductions, are more appropriate.
In addition, the proposed regulations provide rules for debt
instruments that have both payments that are contingent as to time
and payments that are contingent as to amount.
If a taxpayer has an
option to put or call the debt instrument, to exchange the debt
instrument for other property, or to extend the maturity date of the
debt instrument, the projected payment schedule is determined by
using the principles of §1.1272-1 (c) (5) . Under the proposed
regulations, if an option to put, call, or exchange the debt
instrument is assumed to be exercised under the principles of
§1.1272-l(c)(5), it is generally reasonable to assume that the
option is exercised immediately before it expires.
If the option is
exercised at an earlier time, the exercise is treated as a sale or
exchange of the debt instrument.
The proposed regulations reserve on other types of timing
contingencies.
The IRS and Treasury request comments on the
appropriate treatment of other types of timing contingencies.
C.
Method for debt instruments not subject to the
noncontindent bond method.
The proposed regulations provide a method for contingent
payment debt instruments not subject to the noncontingent bond
method.
In general, the method applies to a debt instrument that
22
has an issue price determined under §1.1274-2 (e.g., a nonpublicly
traded debt instrument issued in a sale or exchange of nonpublicly
traded property). The method in the proposed regulations is
generally similar to the rules prescribed in §1.1275-4 (c) of the
1986 proposed regulations.
Under the proposed regulations, the payments on a contingent
payment debt instrument (the overall debt instrument) are divided
into two components:
(1) a noncontingent component consisting of
all noncontingent payments and the projected amounts of any quotable
contingent payments, and (2) a contingent component consisting of
all nonquotable contingent payments.
The noncontingent component is treated as a separate debt
instrument and is taxed under the general OID rules (including the
noncontingent bond method if the separate debt instrument provides
for quotable contingent payments). However, no interest payments on
the separate debt instrument are qualified stated interest payments
and the de minimis rules do not apply to the separate debt
instrument. The issue price of the separate debt instrument is the
issue price of the overall debt instrument.
See the discussion
below for the determination of the stated principal amount and the
imputed principal amount of the overall debt instrument for purposes
of section 1274.
In general, a nonquotable contingent payment is not taken into
account until the payment is made.
When a nonquotable contingent
payment (other than a contingent payment accompanied by a payment of
adequate stated interest) is made, a portion of the payment is
treated as principal, based on the amount determined by discounting
23
the payment at the AFR from the payment date to the issue date, and
the remainder is treated as interest.
Special rules are provided if
a nonquotable contingent payment becomes fixed more than 6 months
before it is due.
D.
Tax-exempt obligations.
The proposed regulations provide special rules for tax-exempt
obligations.
The IRS and Treasury believe that, given the limited
exclusion provided in section 103, it is generally inappropriate to
treat payments on a property right embedded in a tax-exempt
obligation as interest on an obligation of a State or political
subdivision (i.e., as tax-exempt interest).
Therefore, while the
noncontingent bond method generally applies to tax-exempt contingent
payment obligations, all positive adjustments are treated as taxable
gain from the sale or exchange of the obligation rather than as
interest.
Negative adjustments are treated as reducing tax-exempt
interest, and, therefore, are generally not taken into account as
deductible losses.
If negative adjustments on a tax-exempt
obligation exceed the total tax-exempt interest a holder receives or
accrues on a tax-exempt obligation, the excess is treated as loss
from the sale or exchange of the obligation.
This rule is similar
to the rule that applies to exchange gains and losses on tax-exempt
obligations under §1.988-3 (c) (2).
In addition, the proposed
regulations provide that the projected yield determined for a
tax-exempt obligation may not exceed the greater of the yield on the
obligation determined without regard to contingent payments and the
tax-exempt AFR that applies to the obligation.
If the projected
24
payment schedule results in a higher yield, projected payments must
be reduced appropriately.
E.
Cross border transactions.
The 1RS and Treasury are concerned about various issues
0
relating to the treatment of foreign holders of contingent payment
debt instruments.
For example, the 1RS and Treasury are concerned
about the possibility for tax avoidance that may arise when a
contingent payment debt instrument is structured with payments that
approximate the yield on an equity security.
The 1RS and Treasury
invite comments on this issue and other issues concerning the proper
taxation of foreign holders of contingent payment debt instruments
issued by U.S. persons or U.S. holders of contingent payment debt
instruments issued by foreign persons.
Section 1.1274-2
Imputed principal amount.
In general, the issue price of a debt instrument subject to
section 1274 is determined by reference to the instrument's imputed
principal amount.
The 1992 proposed regulations under section 1274
provided that, in the case of a contingent payment debt instrument,
the imputed principal amount of the debt instrument was the present
value of the fixed payments plus the fair market value of the
contingent payments.
A number of commentators objected to the rule,
especially because of the difficulty in valuing the contingent
payments typically provided for in debt instruments subject to
section 1274.
Other commentators objected to the rule's effect on
the buyer's basis in the property acquired and the seller's amount
realized on the sale or exchange.
In response to these comments,
the final OID regulations reserved on the issue to allow further
25
study and to coordinate the issue with the regulations relating to
contingent payment debt instruments.
Under the proposed regulations, the imputed principal amount of
a contingent payment debt instrument subject to section 1274 is the
sum of the present values of the fixed payments and the present
values of the projected amounts of any quotable contingent payments.
Consistent with the treatment of the fixed payments and any quotable
contingent payments as a separate debt instrument under §1.1275-4 of
the proposed regulations, nonquotable contingent payments are not
taken into account to determine the stated principal amount or the
imputed principal amount of a contingent payment debt instrument.
This rule is''generally consistent with the 1986 proposed regulations
under section 1274.
The proposed regulations also provide that the imputed
principal amount of a variable rate debt instrument that provides
for payments at a single objective rate is determined by assuming
that the payments on the debt instrument are the same as the
payments on the equivalent fixed rate debt instrument determined
under §1.1275-5 (e) .
The 1RS and Treasury request comments on the effect of the
proposed regulations on other provisions of the Code, including
section 108(e)(11), which measures the amount of discharge of
indebtedness income in a debt-for-debt exchange by the issue price
of the newly issued debt instrument.
Conforming amendments to section 483.
The proposed regulations provide rules under section 483 for
the treatment of contingent payments under a contract for the sale
26
or exchange of property (§1.483-4).
In general, the rules are the
same as the rules for a debt instrument subject to section 1274,
except that a taxpayer takes interest into account under its own
method of accounting.
Section 1.1275-5
Variable rate debt instruments.
In response to comments, the proposed regulations include
changes to the final regulations under §1.1275-5 regarding the
treatment of variable rate debt instruments. The proposed
regulations redefine an objective rate as a rate (other than a
qualified floating rate) that is determined using a single fixed
formula and that is based on objective financial or economic
information.
The rate, however, must not be based on information
that is within the control of the issuer (or a related party) or
that is, in general, unique to the circumstances of the issuer (or a
related party), such as dividends, profits, or the value of the
issuer's stock.
The new definition of objective rate is broader
than the definition in the final regulations and includes, for
example, a rate based on changes in a general inflation index.
The proposed regulations also make it clear that a variable
rate debt instrument may not provide for any contingent payments
other than certain variable rates of interest.
Finally, the
proposed regulations clarify the treatment of a variable rate debt
instrument under §1.1275-5(e)(2).
In general, a variable rate debt
instrument described in §1.1275-5(e)(2) is treated like a fixed
payment debt instrument for purposes of OID and qualified stated
interest accruals.
The changes to §1.1275-5 (e) (2) clarify the final
27
OID regulations and, therefore, are proposed to be effective for
debt instruments issued on or after April 4, 1994.
Because of the special rules for tax-exempt contingent payment
obligations ,in the proposed regulations, the IRS and Treasury
request comments on the definition of an objective rate for taxexempt obligations under §1.1275-5 (c) (5) .
Section 1.1275-6
Integration.
Many commentators suggested that the integration of contingent
payment debt instruments with associated hedges provides the best
method of taxing contingent payment debt instruments that are
hedged.
The proposed regulations respond to this suggestion by
providing for the integration of contingent or variable rate debt
instruments with certain financial instruments (§1.1275-6).
The
integration rules are issued under the authority of section 1275(d),
and until the proposed regulations under §1.1275-6 are finalized,
the integration rules are not a permissible means of determining the
character and timing of income, deductions, gains, and losses.
The rules in the proposed regulations are modeled after the
integration rules of section 988(d) and §1.988-5(a). The rules in
the proposed regulations, however, have been modified to reflect the
different policy concerns underlying the rules for taking currency
gain or loss into account and for taking interest income or
deductions into account.
The IRS and Treasury intend to make
conforming changes to §1.988-5(a) and request comments on the extent
to which §1.988-5 (a) should be modified to conform to the proposed
regulations.
28
The integration rules apply to qualifying debt instruments,
which are defined as contingent payment debt instruments, variable
rate debt instruments, and the synthetic debt instruments that are
the result of integration under the proposed regulations.
Thus, the
integration rules do not apply to fixed rate debt instruments.
For a financial instrument to qualify as a hedge under the
proposed regulations (a §1.1275-6 hedge), the combined cash flows of
the qualifying debt instrument and the financial instrument must
permit the calculation of a yield to maturity or must be the same as
the cash flows on a variable rate debt instrument that pays interest
at a qualified floating rate or rates.
Thus, the proposed
regulations generally require a perfect hedge.
Section 1.1275-6
hedges, however, are not limited to hedging transactions as defined
in §1.1221-2(b).
For example, a §1.1275-6 hedge need not reduce
risk from all of the operations of a business.
A debt instrument
held by a taxpayer cannot be a §1.1275-6 hedge of a debt instrument
issued by the taxpayer and a debt instrument issued by a taxpayer
cannot be a §1.1275-6 hedge of a debt instrument held by the
taxpayer.
Physical assets, such as inventory, generally will not be
treated as §1.1275-6 hedges because they do not provide the
predictable cash flows necessary to create a perfect hedge.
A
supply or sales contract, however, may qualify as a §1.1275-6 hedge.
Stock does not qualify as a §1.1275-6 hedge.
To qualify as an integrated transaction, the taxpayer must
issue or acquire a qualifying debt instrument, enter into a
§1.1275-6 hedge, and meet six requirements.
First, the taxpayer
must satisfy the identification requirements of the proposed
29
regulations/ such as by entering a description of the qualifying
debt instrument and the §1.1275-6 hedge in its books and records.
Second, the §1.1275-6 hedge must not be with a related party (other
than a member of the same consolidated group making the separateentity election under §1.1221-2(d)).
Third, the same taxpayer must
enter into the qualifying debt instrument and the §1.1275-6 hedge.
Fourth, if the taxpayer is a foreign person engaged in a U.S. trade
or business who issues or acquires the qualifying debt instrument or
enters into the §1.1275-6 hedge through the trade or business, all
items of income and expense associated with the debt instrument or
hedge (other than interest expense that is subject to §1.882-5) must
be effectively connected with the U.S. trade or business.
Fifth,
the qualifying debt instrument, any other debt instrument that is
part of the same issue as the qualifying debt instrument, or the
§1.1275-6 hedge cannot have been part of an integrated transaction
that was previously legged out of by the taxpayer.
Finally, the
§1.1275-6 hedge must be entered into by the taxpayer on or after the
date the taxpayer issues or acquires the qualifying debt instrument.
If the taxpayer meets these requirements, the qualifying debt
instrument and the §1.1275-6 hedge are integrated and the resulting
synthetic debt instrument is taxed accordingly.
The Commissioner may require integration if a qualifying debt
instrument and a financial instrument have, in substance, the same
combined cash flows as a fixed or variable rate debt instrument.
Therefore, even if the taxpayer fails one or more of the
requirements for integration, the Commissioner may integrate a
qualifying debt instrument and a financial instrument.
For example,
30
if the taxpayer fails to meet the identification requirements, or
enters into a hedge with a related party, the Commissioner may
integrate the transaction.
The Commissioner also may integrate a
transaction'even if the hedge is not perfect.
Thus, taxpayers may
not avoid integration by altering the hedge so that there is a small
amount of basis risk or the payments under the hedge do not fully
match the payments on the qualifying debt instrument.
The
Commissioner will not integrate a debt instrument with an imperfect
hedge, however, if the taxpayer retains substantial risk.
The proposed regulations provide rules for legging into and
legging out of an integrated transaction.
Legging into an
integrated transaction generally means entering into the hedge after
the qualifying debt instrument is issued or acquired by the
taxpayer.
If a taxpayer legs into an integrated transaction, the
qualifying debt instrument is subject to the separate transaction
rules up to the leg-in date, except that the day before the leg-in
date is treated as the end of an accrual period for purposes of ■
computing OID and interest accruals on the qualifying debt
instrument.
After the taxpayer legs in, the qualifying debt instrument and
the §1.1275-6 hedge are integrated.
Built-in gain or loss on the
qualifying debt instrument is not treated as realized on the leg-in
date (contrary to the rule for currency gain or loss in
§1.988-5 (a) (6) (i)) . Because the built-in gain or loss will be
reflected in the accruals on the synthetic debt instrument, the
built-in gain or loss on the leg-in date will be recognized over the
term of the synthetic debt instrument.
31
This approach allows taxpayers to alter the timing of income or
deductions on a qualifying debt instrument.
For example, a taxpayer
expecting a large positive adjustment on a contingent payment debt
instrument before the maturity date can spread the adjustment over
the remaining term of the debt instrument by legging into an
integrated transaction.
Other approaches to legging in, however,
create similar opportunities.
For example, an approach that would
mark a qualifying debt instrument to market and defer any built-in
gain or loss would present even greater opportunities for deferral.
Requiring mark-to-market gain or loss to be taken into account
immediately would provide opportunities for acceleration.
The IRS
and Treasury believe that taking the built-in gain or loss into
account over the term of the qualifying debt instrument produces the
most reasonable result.
To prevent abuse, however, the proposed
regulations include a special rule providing that if a taxpayer legs
into an integrated transaction with a principal purpose of deferring
or accelerating income, the Commissioner may treat the qualifying
debt instrument as sold or otherwise terminated and reacquired or
reissued on the leg-in date or may refuse to allow integration.
Legging out of an integrated transaction generally means
disposing of or otherwise terminating the §1.1275-6 hedge or the
qualifying debt instrument.
If the Commissioner has integrated a
qualifying debt instrument and a financial instrument, the taxpayer
is treated as legging out only if the taxpayer ceases to meet the
requirements for Commissioner integration.
If a taxpayer legs out,
the synthetic debt instrument is treated as sold or otherwise
disposed of for its fair market value and any income, deduction,
32
gain, or loss is taken into account immediately.
The component the
taxpayer retains (either the §1.1275-6 hedge or the qualifying debt
instrument) is treated as immediately reacquired for, or entered
into at, it£ fair market value on the leg-out date.
In order to
prevent taxpayers from inappropriately generating tax losses by
legging into and immediately legging out of an integrated
transaction, the proposed regulations contain a wash sale rule that
disallows losses if the taxpayer legs out within 30 days of legging
into an integrated transaction.
If a qualifying debt instrument and a §1.1275-6 hedge are
integrated, the instruments are no longer subject to the rules that
govern each instrument separately, except as specifically provided
in the regulations or by publication in the Internal- Revenue
Bulletin.
Instead, the instruments are subject to the rules that
would govern the synthetic debt instrument.
For example, the
qualifying debt instrument and §1.1275-6 hedge are not treated as
part of a straddle under section 1092, but the interest on the
synthetic debt instrument may be subject to the interest
capitalization rules of section 263(g).
The issue price of the synthetic debt instrument is the
adjusted issue price of the qualifying debt instrument.
The issue
date of the synthetic debt instrument is the date the §1.1275-6
hedge is acquired.
The term of the synthetic debt instrument is the
period from the issue date of the synthetic debt instrument to the
maturity date of the qualifying debt instrument.
If the synthetic
debt instrument is a borrowing, its stated redemption price at
maturity is the sum of all amounts paid or to be paid on the
33
qualifying debt instrument and on the §1.1275-6 hedge, reduced by
all amounts received or to be received on the hedge and any amounts
that would be qualified stated interest on the synthetic debt
instrument.' If the synthetic debt instrument is a loan, its stated
redemption price at maturity is the sum of all amounts received or
to be received on the qualifying debt instrument and the §1.1275-6
hedge, reduced by all amounts paid or to be paid on the hedge and
any amounts that would be qualified stated interest on the synthetic
debt instrument.
The rules for determining the stated redemption price at
maturity are designed to cover situations where payments on the
hedge move inversely to the payments on the qualifying debt
instrument.
For example, if a holder of a qualifying debt
instrument purchases an option to hedge the debt instrument, the
amount paid by the holder must be taken into account as an
adjustment to the instrument's stated redemption price at maturity.
Separate transaction treatment is required for certain limited
purposes.
For example, the rules of sections 871(a), 881, 1441, and
1442 must be applied on a separate transaction basis.
Similarly,
any information reporting rules for the qualifying debt instrument
continue to apply as if the qualifying debt instrument and the
§1.1275-6 hedge were not part of an integrated transaction.
The IRS
and Treasury request comments on whether the regulations should
specifically provide separate transaction treatment for other
purposes.
The IRS and Treasury also request comments on whether
rules similar to §1.6045-1(d)(6)(iii) of the proposed regulations
(regarding broker reporting of an integrated transaction under
34
§1.988-5) should be adopted for an integrated transaction under
§1.1275-6.
The IRS and Treasury intend to propose rules coordinating
§1.1275-6 with section 475.
Comments are requested on this issue.
Proposed Effective Date
In general, the proposed regulations in this document are
proposed to be effective for debt instruments issued on or after the
date that is 60 days after the date final regulations are published
in the Federal Register.
Special Analyses
It has been determined that this notice of proposed rulemaking
is not a significant regulatory action as defined in EO 12866.
Therefore, a regulatory assessment is not required. . It also has
been determined that section 553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) and the Regulatory Flexibility Act (5
U.S.C. chapter 6) do not apply to these regulations, and, therefore,
a Regulatory Flexibility Analysis is not required.
Pursuant to
section 7805(f) of the Internal Revenue Code, this notice of
proposed rulemaking will be submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its
impact on small business.
Comments and Public Hearing
Before these proposed regulations are adopted as final
regulations, consideration will be given to any written comments (a
signed original and eight (8) copies) that are submitted timely to
the IRS.
copying.
All comments will be available for public inspection and
35
A public hearing has been scheduled for Thursday, March 16,
1995, at 10 a.m. in the Auditorium, Internal Revenue Building, 1111
Constitution Avenue NW, Washington, DC.
Because of access
restrictions, visitors will not be admitted beyond the Internal
Revenue Building lobby more than 15 minutes before the hearing
starts.
The rules of 26 CFR 601.601(a)(3) apply to the hearing.
Persons that wish to present oral comments at the hearing must
submit their written comments and an outline of the topics to be
discussed (signed original and eight (8) copies) by Thursday,
February 23, 1995.
A period of 10 minutes will be allotted to each person for
making comments.
An agenda showing the scheduling of the speakers will be
prepared after the deadline for receiving outlines has passed.
Copies of the agenda will be available free of charge at the
hearing.
Drafting Information
Several persons from the Office of Chief Counsel and the
Treasury Department participated in developing these regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as
follows:
Part 1--INCOME TAXES
36
Paragraph 1.
The authority citation for part 1 is amended by
adding two entries in numerical order to read as follows:
Authority:
26 U.S.C. 7805 * * *
Section 1.483-4 also issued under 26 U.S.C. 483(f).
* * *
Section 1.1275-6 also issued under 26 U.S.C. 1275(d).
Par. 2.
SI.483-4
* * *
Section 1.483-4 is added to read as follows:
Contingent payments.
(a) In general.
If a contract for the sale or exchange of
property subject to section 483 (the overall contract) provides for
one or more contingent payments, interest under the contract is
generally computed and accounted for under rules similar to those
that would be applicable if the contract were a debt instrument
subject to §1.1275-4(c). Consequently, all noncontingent payments
and quotable contingent payments (within the meaning of
§1.1275-4(b) (4) (i)) under the overall contract are treated as if
made under a separate contract, and interest accruals on this
separate contract are computed under rules similar to those
contained in §1.1275-4(c)(3).
Each nonquotable contingent payment
(within the meaning of §1.1275-4(b)(4)(ii)), if any, under the
overall contract is characterized as principal and interest under
rules similar to those contained in §1.1275-4(c)(4).
However, any
interest, or amount treated as interest, on a contract subject to
this section is taken into account by a taxpayer under the
taxpayer's regular method of accounting (e.g., an accrual method or
the cash receipts and disbursements method).
(b) Examples. The following examples illustrate the provisions
of paragraph (a) of this section.
37
Example 1. Deferred payment sale with contingent interest-(i) Facts. On January 1, 1996, A sells depreciable personal
property to B. As consideration for the sale, B issues to A a debt
instrument with a maturity date of December 31, 2000. The debt
instrument provides for a principal payment of $200,000 on the
maturity date, and a payment of interest on December 31 of each year
equal to a percentage of the total gross income derived from the
property in that year. However, the total interest payable on the
debt instrument over its entire term is limited to a maximum of'
$50,000. Assume that the short-term applicable Federal rate on
January 1, 1996, is 4 percent, compounded annually, and the mid
term applicable Federal rate on January 1, 1996, is 5 percent,
compounded annually.
(ii) Treatment of noncontinqent payment as separate contract.
Each contingent payment of interest is a nonquotable contingent
payment (within the meaning of §1.1275-4 (b) (4) (ii)) . Accordingly,
under paragraph (a) of this section, for purposes of applying
section 483 to the debt instrument, the right to the noncontingent
payment of $200,000 at maturity is treated as a separate contract.
The amount of unstated interest on this separate contract is equal
to $43,295, tihich is the amount by which the amount of this deferred
payment under the contract ($200,000) exceeds the present value of
the deferred payment ($156,705), calculated using the test rate of 5
percent, compounded annually (the mid-term applicable Federal rate
on the date of the sale). The $200,000 payment at maturity is thus
treated as consisting of a payment of interest of $43,295 and a
payment of principal of $156,705. The interest is includible in A's
gross income, and deductible by B, under their respective methods of
accounting.
(iii) Treatment of contingent payments. Assume that the amount
of the contingent payment that is paid on December 31, 1996, is
$20,000. Under paragraph (a) of this section, the $20,000 payment
is treated as a payment of principal of $19,231 (the present value,
as of the date of sale, of the $20,000 payment, calculated using a
test rate equal to 4 percent, compounded annually) and a payment of
interest of $769. The $769 interest payment is includible in A's
gross income, and deductible by B, in their respective taxable years
in which December 31, 1996 occurs. The amount treated as principal
gives B additional basis in the property on December 31, 1996. The
remaining contingent payments on the debt instrument are accounted
for similarly, using a test rate of 4 percent, compounded annually,
for the payments made on December 31, 1997, and December 31, 1998,
and a test rate of 5 percent, compounded annually, for the payments
made on December 31, 1999, and December 31, 2000.
Example 2 . Contingent stock pavout--(i) Facts. M Corporation
and N Corporation each owns one-half of the stock of O Corporation.
On January 1, 1996, pursuant to a reorganization qualifying under
section 368(a)(1)(B), M contracts to acquire the one-half interest
of 0 held by N for an initial distribution on that date of 30,000
shares of M voting stock, and a non-assignable right to receive up
to 10,000 additional shares of M's voting stock during the next 3
38
years, provided the net profits of 0 exceed certain amounts
specified in the contract. No interest is provided for in the
contract. No additional shares are received in 1996 or in 1997. In
1998, the annual earnings of 0 exceed the specified amount and on
December 31, 1998, an additional 3,000 M voting shares are
transferred to N. Assume that the fair market value of the 3,000
shares on December 31, 1998, is $300,000 and that the short-term
applicable Federal rate on January 1, 1996, is 4 percent, compounded
annually. Assume also that M and N are calendar year taxpayers.
(ii)
Allocation of interest. Assume that the right to receive
the additional shares is a nonquotable contingent payment (within
the meaning of §1.1275-4(b)(4)(ii)). Section 1274 does not apply to
the right to receive the additional shares because the right is not
a debt instrument for federal income tax purposes. As a result, the
transfer of the 3,000 M voting shares to N is a deferred payment
subject to section 483 and a portion of the shares is treated as
unstated interest under that section. The amount of interest
allocable to the shares is an amount equal to the excess of $300,000
(the fair market value of the shares on December 31, 1998) over
$266,699 (the present value of $300,000, determined by discounting
the payment at the test rate of 4 percent, compounded annually, from
December 31, 1998, to January 1, 1996). As a result, the amount of
interest allocable to the payment of the shares is $33,301 ($300,000
- $266,699). Both M and N take the interest into account in 1998.
(c)
Effective date. This section applies to sales and
exchanges that occur on or after the date that is 60 days after
final regulations are published in the Federal Register.
Par. 3.
In §1.1001-1, the first sentence of paragraph (g) is
amended by adding the language "(other than a debt instrument that
provides for one or more contingent payments)" immediately following
the language "If a debt instrument".
Par. 4.
1.
Section §1.1272-1 is amended by:
Removing the language "(or schedules)" in the first
sentence of paragraph (c) (1) and adding the language " (or a
reasonable number of schedules)" in its place.
2.
Removing the language "See regulations under section
1275(d)" in the fourth sentence of paragraph (c)(1) and adding the
language "See §1.1275-4" in its place.
39
Par. 5.
SI.1274-2
applies.
Section 1.1274-2 is revised to read as follows:
Issue price of debt instruments to which section 1274
* ★ ★ ★ ★
0
(f) * * *
(2)
Stated interest at an objective rate. For purposes of
paragraph (c) of this section, the imputed principal amount of a
variable rate debt instrument (within the meaning of §1.1275-5(a))
that provides for stated interest at a single objective rate is
determined by assuming that the debt instrument provides for a fixed
rate that reflects the yield that is reasonably expected for the
instrument.
This paragraph (f)(2) is effective for debt instruments
issued on or after the date that is 60 days after final regulations
are published in the Federal Register.
(g) Treatment of contingent payment debt instruments.
For
purposes of paragraph (c) of this section, the stated principal
amount of a debt instrument that provides for one or more contingent
payments is the sum of the noncontingent principal payments and the
projected amounts of any quotable contingent principal payments (as
determined under §1.1275-4 (b) (4) (i)) . The imputed principal amount
of the debt instrument is the sum of the present value of each
noncontingent payment and the present value of the projected amount
of each quotable contingent payment.
For additional rules relating
to a debt instrument that provides for one or more contingent
payments, see §1.1275-4.
This paragraph (g) is effective for debt
instruments issued on or after the date that is 60 days after final
regulations are published in the Federal Register.
* * * * *
40
Par. 6.
In §1.1275-3, paragraph (b)(1)(i) is revised to read
as follows:
SI.1275-3
*
*
*
*
OID information reporting requirements.
*
*
(b) * * * (1) * * *
(1) Set forth on the face of the debt instrument the issue
price, the amount of OID, the issue date, the yield to maturity,
and, in the case of a debt instrument subject to the rules of
§1.1275-4(b), the projected payment schedule; or
★ ★ ★ ★ ★
Par. 7.
Section 1.1275-4 is added to read as follows:
§1.1275-4 Contingent payment debt instruments.
(a) Applicability--(1) In general. Except as provided in
paragraph (a)(2) of this section, this section applies to any debt
instrument that provides for one or more contingent payments.
In
general, paragraph (b) of this section applies to a contingent
payment debt instrument that is issued for money or publicly traded
property and paragraph (c) of this section applies to a contingent
payment debt instrument that is issued for nonpublicly traded
property.
Paragraph (d) of this section provides special rules for
tax-exempt obligations.
If a taxpayer holds (or issues) a
contingent payment debt instrument that the taxpayer hedges, see
§1.1275-6 for the treatment of the debt instrument and the hedge by
the taxpayer.
(2) Exceptions. This section does not apply to-(i) A debt instrument that has an issue price determined under
section 1273(b)(4);
41
(ii) A variable rate debt instrument (as defined in §1.1275-5);
(iii) A debt instrument subject to §1.1272-1 (c) (a debt
instrument that provides for an alternative payment schedule (or
schedules) applicable upon the occurrence of a contingency (or
contingencies));
(iv) A debt instrument subject to section 988 (except as
provided in section 988 and the regulations thereunder); or
(v) A debt instrument to which section 1272(a)(6) applies
(certain interests in or mortgages held by a REMIC, and certain
other debt instruments with payments subject to acceleration).
(3) Insolvency and default. A payment is not contingent merely
because of the possibility of impairment by insolvency, default, or
similar circumstances.
(4) Convertible debt instruments. A debt instrument does not
provide for contingent payments merely because it provides for a
right to convert the debt instrument into the stock of the issuer,
into the stock or debt of a related party (within the meaning of.
section 267(b) or 707(b) (1)), or into cash or other property in an
amount equal to the approximate value of such stock or debt.
(5) Remote and incidental contingencies. A payment on a debt
instrument is not a contingent payment if, as of the issue date, the
contingency is either remote or incidental.
A contingency is remote
if there is either a remote likelihood that the contingency will
occur or a remote likelihood that the contingency will not occur.
contingency is incidental if the potential amount of the payment
under any reasonably expected market conditions is insignificant
relative to the total expected payments on the debt instrument.
A
42
/(b) Noncontinqent bond method--(1) Applicability. The
noncontingent bond method described in paragraph (b) of this section
applies to a contingent payment debt instrument that has an issue
price determined under §1.1273-2 (e.g., a contingent payment debt
instrument that is issued for money or publicly traded property).
The noncontingent bond method also applies to a contingent payment
debt instrument that has an issue price determined under
§1.1274-2(b)(3) (a contingent payment debt instrument issued in a
potentially abusive situation).
(2) In general. Under the noncontingent bond method, interest
on a debt instrument must be taken into account whether or not the
amount of any payment is fixed or determinable in the taxable year.
The amount of interest that is taken into account for each accrual
period is determined by constructing a projected payment schedule
for the debt instrument and applying rules similar to those for
accruing OID on a noncontingent debt instrument.
The projected
payment schedule is determined as of the issue date and is based on
forward prices, if readily available, or on the projected pattern of
expected payments and a projected yield.
If the actual amount of a
contingent payment is not equal to the projected amount, appropriate
adjustments are made to reflect the difference.
(3) Description of method. The following steps describe how to
compute the amount of income, deductions, gain, and loss under the
noncontingent bond method.
(i) Step one:
Determine a projected payment schedule.
Determine the projected payment schedule for the debt instrume'
43
of the debt instrument's issue date under the rules of paragraph
(b)(4) of this section.
(ii) Step two:
Determine the projected yield. Based on the
issue price'of the debt instrument and the projected payment
schedule, determine the projected yield of the debt instrument in
the manner described in §1.1272-1(b)(1)(i).
(iii) Step three:
Determine the daily portions of interest.
Determine the daily portions of interest on the debt instrument for
a taxable year as follows.
The amount of interest that accrues in
each accrual period is the product of the projected yield of the
debt instrument (properly adjusted for the length of the accrual
period) and the debt instrument's adjusted issue price at the
beginning of the accrual period.
See paragraph (b)(7)(ii) of this
section for rules for determining the adjusted issue price of the
debt instrument.
The daily portions of interest are determined by
allocating to each day in the accrual period the ratable portion of
the interest that accrues in the accrual period.
Except as modified
by paragraph (b)(3)(iv) of this section, the daily portions of
interest are includible in income by a holder for each day in the
holder's taxable year on which the holder held the debt instrument,
and are deductible by the issuer for each day during the issuer's
taxable year on which the issuer was primarily liable on the debt
instrument.
(iv) Step four:
Adjust the amount of income or deductions for
differences between projected and actual contingent payments. Make
appropriate adjustments to the amount of income or deductions
attributable to the debt instrument in a taxable year for any
44
differences between projected and actual contingent payments.
See
paragraph (b)(6) of this section to determine the amount of an
adjustment and the treatment of the adjustment.
(4)
Method of determining projected payment schedule. This
paragraph (b)(4) provides rules for determining the projected
payment schedule for a debt instrument.
The projected payment
schedule includes each noncontingent payment and the projected
amount of each contingent payment.
The schedule is determined as of
the issue date and remains fixed throughout the term of the debt
instrument (except under special rules that apply to a payment that
is fixed more than 6 months before it is due under paragraph
(b)(9)(ii) of this section). Under the rules of section 6001,
taxpayers must maintain adequate contemporaneous records to support
the projected payment schedule.
(i) Quotable contingent payments-- (A) In general.
If a right
to a contingent payment is substantially similar to a property right
for which forward price quotes are readily available (a quotable
contingent payment), the projected amount of the contingent payment
is equal to the forward price of the property right. The forward
price of a property right is an amount one party would agree, as of
the issue date, to pay an unrelated party for the property right on
the settlement date (e.g., the date payments under the property
right are to be made).
For purposes of paragraph (b)(4) of this
section, a property right includes a right, an obligation, or a
combination of rights or obligations.
(B)
Quotes readily available. For purposes of paragraph
(b)(4)(i) of this section, quotes are readily available for a
45
property right if, at any time during the 60-day period ending 30
days after the issue date, one or more quotations for a price on the
property right are readily available from brokers, traders, or
dealers.
(C) Substantially similar. A right to a contingent payment is
substantially similar to a property right if, under reasonably
expected market conditions, the value and timing of the amount to be
paid or received pursuant to the property right (whether in the form
of a cash payment or the delivery of property) are expected to be
substantially the same as the value and timing of the contingent
payment.
(D) Special rule for contingent payments substantially similar
to options. A right to a contingent payment that is substantially
similar to an option or combination of options, and that is not
otherwise a quotable contingent payment, is treated as a quotable
contingent payment if spot price quotations for the option or
options are readily available.
The projected amount of the
contingent payment is the spot price of the option or options on the
issue date compounded at the applicable Federal rate for the debt
instrument (within the meaning of §1.1274-4(b)) from the issue date
to the date the payment is due.
(E) Reasonable determination of projected amounts. The
projected amounts of quotable contingent payments may be determined
based on either the bid, ask, or midpoint price quotes of the
substantially similar property rights, provided the determination is
reasonable and is made on a consistent basis.
If price quotations
vary among different quotation sources, any reasonable quotation may
46
be used.
If a right to a contingent payment is substantially
similar to more than one combination of property rights for which
forward price quotes are readily available (or options for which
spot prices'are readily available), any reasonable combination may
be used.
(ii) Quotes not readily available.
If a debt instrument
provides for one or more contingent payments that are not described
in paragraph (b)(4)(i) of this section (nonquotable contingent
payments), the projected amount of each contingent payment on the
debt instrument is determined as follows.
First, determine the
projected amount of each quotable contingent payment under paragraph
(b)(4)(i) of this section.
Second, determine the projected yield of
the debt instrument.
The projected yield is a reasonable rate for
the debt instrument.
A reasonable rate is a rate that, as of the
issue date, reflects general market conditions, the credit quality
of the issuer, and the terms and conditions of the debt instrument
(e.g., the existence of collateral securing the debt instrument or
the uncertainty inherent in the contingent payments). A reasonable
rate is never less than, and may substantially exceed, the
applicable Federal rate for the debt instrument (within the meaning
of §1.1274-4(b)), and may not be less than the yield on the debt
instrument based on the projected payment schedule set without
regard to the nonquotable contingent payments.
Third, select a
projected amount for each nonquotable contingent payment so that the
projected payment schedule results in the projected yield and
reasonably reflects the relative expected values of the nonquotable
contingent payments.
47
(iii)
Debt instruments similar to variable rate debt
instruments. Notwithstanding paragraphs (b)(4)(i) and (ii) of this
section, the projected payment schedules for certain debt
instruments similar to variable rate debt instruments.are determined
as follows:
(A) Single quotable contingent payment at maturity.
If a debt
instrument would qualify as a variable rate debt instrument under
§1.1275-5 except that it provides for a single quotable contingent
payment at maturity, the projected payment schedule is determined as
follows.
First, construct the equivalent fixed rate debt instrument
for the debt instrument under the principles of §1.1275-5 (e),
disregarding the contingent payment at maturity.
Second, determine
the projected amount of the contingent payment at maturity in
accordance with paragraph (b)(4)(i) of this section.
Third, set the
projected payment schedule by combining the payment schedule for the
equivalent fixed rate debt instrument with the projected amount of
the contingent payment.
(B) Principal not fully guaranteed.
If a debt instrument would
qualify as a variable rate debt instrument under §1.1275-5 except
that it does not meet the principal payment requirement of
§1.1275-5(a)(2), the projected payment schedule is determined by
constructing the equivalent fixed rate debt instrument for the debt
instrument under the principles of §1.1275-5(e).
(iv)
Issuer/holder consistency. The projected payment schedule
used by the issuer to compute interest accruals and adjustments
determines the interest accruals and adjustments of the holder.
The
issuer must provide the projected payment schedule to the holder in
48
a manner consistent with the issuer disclosure rules of
§1.1275-2 (e).
If the issuer does not create a projected payment
schedule for a debt instrument or the payment schedule set by the
issuer is unreasonable, the holder of the debt instrument must set
the projected payment schedule under the rules of paragraph (b)(4)
of this section.
A holder that sets its own projected payment
schedule must explicitly disclose this fact and the reason why the
holder set its own schedule (e.g., why the projected payment
schedule prepared by the issuer is unreasonable). Unless otherwise
prescribed by the Commissioner, the disclosure must be made on a
statement attached to the holder's timely filed federal income tax
return for the taxable year that includes the acquisition date of
the debt instrument.
(v) Issuer's determination respected. The issuer's
determination of the projected payment schedule will be respected
unless the schedule is unreasonable.
A projected payment schedule
will generally be considered unreasonable if the schedule is set'
with a purpose to accelerate or defer interest accruals on the debt
instrument.
In determining whether a projected payment schedule is
unreasonable, consideration will be given to whether the interest on
the debt instrument determined under the projected payment schedule
has a significant effect on the issuer's or holder's U.S. tax
liability.
(vi) Examples. The following examples illustrate the
provisions of paragraph (b)(4) of this section.
In each example,
assume that the debt instrument described is a debt instrument for
federal income tax purposes.
No inference is intended, however, as
49
to whether the debt instrument constitutes a debt instrument for
federal income tax purposes.
Example 1. Contingent payment substantially similar to an
option--(i) Facts. On January 1, 1996, W corporation issues for
$1,000,000 a debt instrument that matures on December 31, 2000. The
debt instrument has a stated principal amount of $1,000,000, payable
at maturity. The debt instrument also provides for a payment at
maturity equal to $10,000 times the increase, if any, in the value
of a nationally known composite index of stocks from January 1,
1996, to the maturity date.
(ii)
Projected payment schedule. Under paragraph (b)(4) of
this section, the projected payment schedule for the debt instrument
consists of the $1,000,000 payment at maturity plus the projected
amount of the contingent payment at maturity. The right to the
contingent payment is substantially similar to a long call option on
the index that is exercisable only on December 31, 2000. Thus, if
quotes for the forward price of the option are readily available,
the projected amount of the contingent payment is the forward price
of the option. If quotes for the forward price are not readily
available and quotes for the spot price of the option are readily
available, the projected amount of the contingent payment is the
option's spot price on the issue date compounded at the applicable
Federal rate for the debt instrument from the issue date to the
maturity date.
Example 2 . Contingent payment substantially similar to a
forward contract-- (i) Facts. On January 1, 1996, X corporation
issues for $1,000,000 a debt instrument that matures on December 31,
2005. The debt instrument provides for annual payments of interest
at the rate of 6 percent and for a payment at maturity equal to
$1,000,000, plus the excess, if any, of the price of 1,000 units of
a commodity on the maturity date over $350,000, or less the excess,
if any, of $350,000 over the price of 1,000 units of the commodity
on the maturity date.
(ii) Projected payment schedule. Under paragraph (b)(4) of
this section, the projected payment schedule for the debt instrument
consists of ten annual payments of $60,000 and a projected amount
for the contingent payment at maturity. The right to the contingent
payment is substantially similar to a right to a payment of
$1,000,000 combined with a forward contract for the purchase of
1.000 units of the commodity for $350,000 on December 31, 2005.
Assume forward price quotes to purchase the commodity on December
31, 2005, are readily available on the issue date.
(A) Assume that on the issue date the forward price to purchase
1.000 units of the commodity on December 31, 2005, is $350,000. The
projected amount of the contingent payment is $1,000,000, consisting
of the $1,000,000 base amount and no additional amount to be
received or paid under the forward contract. Although the amount to
be received or paid under the forward contract is projected to be
50
zero, the contingency is not incidental (within the meaning of
paragraph (a)(5) of this section) because the potential amount to be
received or paid based on the forward contract is not insignificant
relative to the total expected payments on the debt instrument under
any reasonably expected market conditions.
(B) Assume, alternatively, that on the issue date the forward
price to purchase 1,000 units of the commodity on December 31, 2005,
is $370,000. The projected amount of the contingent payment is
$1,020,000, consisting of the $1,000,000 base amount plus the excess
$20,000 of the forward price of the commodity over the purchase
price of the commodity under the forward contract.
(C) Assume, alternatively, that on the issue date the forward
price to purchase 1,000 units of the commodity on December 31, 2005,
is $330,000. The projected amount of the contingent payment is
$980,000, consisting of the $1,000,000 base amount minus the excess
$20,000 of the purchase price of the commodity under the forward
contract over the forward price of the commodity.
Example 3 . Contingent payment substantially similar to a
combination of rights--(i) Facts. Assume the same facts as in
Example 2 of this paragraph (b)(4)(vi), except that the debt
instrument also provides for a cap and a floor on the contingent
payment at maturity, so that the payment may not exceed $1,300,000
and may not be less than $700,000.
(ii) Projected payment schedule. Under paragraph (b)(4) of
this section, the projected payment schedule for the debt instrument
consists of ten annual payments of $60,000 and a projected amount
for the contingent payment at maturity. The right to the contingent
payment is substantially similar to a right to a payment of
$1,000,000 combined with a forward contract for the purchase of •
1,000 units of the commodity for $350,000 on December 31, 2005, and
two options on 1,000 units of the commodity that are exercisable
only on December 31, 2005: one a long put option with an exercise
price of $50,000, and the other a short call option with an exercise
price of $650,000. The projected amount of the contingent payment
is determined by combining the forward prices of these property
rights.
Example 4 . Noncruotable contingent payments-- (i) Facts . On
January 1, 1996, Y issues for $1,000,000 a debt instrument that
matures on December 31, 1999. The debt instrument has a stated
principal amount of $1,000,000, payable at maturity, and provides
for payments on December 31 of each year of $20,000 plus 5 percent
of Y's gross receipts, if any, for the year. Assume that a
reasonable rate for the debt instrument (within the meaning of
paragraph (b)(4)(ii) of this section) is 7.5 percent, compounded
annually.
(ii) Projected yield. The debt instrument provides for
nonquotable contingent payments. Under paragraph (b)(4)(ii) of this
section, the projected yield is 7.5 percent, compounded annually.
51
(iii)
Projected payment schedule. Assume that Y anticipates
that it will have no gross receipts in 1996, but that it will have
gross receipts in later years, and those gross receipts will grow
each year for the next three years. Based on its business
projections^ Y believes that it is not unreasonable to expect that
its gross receipts in 1998 and each year thereafter will grow by
between 6 percent and 13 percent over the prior year. Thus, Y must
take these expectations into account in establishing a projected
payment schedule for the debt instrument that results in a yield of
7.5 percent, compounded annually. Accordingly, Y could reasonably
set the following projected payment schedule for the debt
instrument :
Date
12/31/1996
12/31/1997
12/31/1998
12/31/1999
Noncontingent payment
$
20,000
20,000
20,000
1 , 020,000
Contingent payment
$
0
70,000
75,600
83,850
Example 5 . Debt instrument that provides for a variable rate
of interest and a single quotable contingent payment at maturity-(i) Facts. On January 1, 1996, W corporation issues for $1,000,000
a debt instrument that matures on December 31, 2000. The debt
instrument has a stated principal amount of $1,000,000, payable at
maturity. The debt instrument also provides for semiannual payments
of interest and a payment at maturity equal to $5,000 times the
increase, if any, in the value of a nationally known composite index
of stocks from January 1, 1996, to the maturity date. The rate of
interest on the debt instrument is the value of 6-month LIBOR on the
payment date. On the issue date, the value of 6-month LIBOR is 4
percent, compounded semiannually. Assume that the payment at
maturity based on the index is a quotable contingent payment.
(ii)
Projected payment schedule. Because the debt instrument
would qualify as a variable rate debt instrument under §1.1275-5
except that it provides for a single quotable contingent payment at
maturity, paragraph (b)(4)(iii) of this section applies to the debt
instrument. Under paragraph (b)(4)(iii)(A) of this section, the
projected payment schedule is determined by first constructing the
equivalent fixed rate debt instrument for the debt instrument.
Under §1.1275-5(e), the equivalent fixed rate debt instrument is a
5-year debt instrument that provides for semiannual payments of
interest at 4 percent, compounded semiannually. Next, the projected
amount of the contingent payment is determined in accordance with
paragraph (b)(4)(i) of this section. The right to the contingent
payment based on the stock index is substantially similar to a long
call option on the index that is exercisable only on December 31,
2000. Thus, the projected amount of the contingent payment is the
forward price of the option, assuming quotes for the forward price
of the option are readily available. Finally, the projected payment
schedule is determined, consisting of 10 semiannual payments of
interest at 4 percent and a payment at maturity equal to $1,000,000
plus the forward price of the option on the index.
52
(5) Qualified stated interest. No amounts payable on a debt
instrument to which paragraph (b) of this section applies constitute
qualified stated interest within the meaning of §1.1273-1(c).
(6) Adjustments under the noncontinaent bond method. This
paragraph (b)(6) provides rules for the treatment of positive and
negative adjustments under the noncontingent bond method.
(i) Determination of positive and negative adjustments.
If the
amount of a contingent payment is more than the projected amount of
the contingent payment, the difference is a positive adjustment on
the date of the payment.
If the amount of a contingent payment is
less than the projected amount of the contingent payment, the
difference is a negative adjustment on the date of the projected
payment.
(ii) Treatment of net positive adjustment. The amount, if any,
by which total positive adjustments on a debt instrument in a
taxable year exceed the total negative adjustments on the debt
instrument in the taxable year is a net positive adjustment.
A net
positive adjustment is treated as additional interest for the
taxable year.
(iii) Treatment of net negative adjustment. The amount, if
any, by which total negative adjustments on a debt instrument in a
taxable year exceed the total positive adjustments on the debt
instrument in the taxable year is a net negative adjustment.
A
taxpayer's net negative adjustment on a debt instrument for a
taxable year is treated as follows:
(A) Reduction of interest accruals. A net negative adjustment
first reduces interest for the taxable year that the taxpayer would
53
otherwise account for on the debt instrument under paragraph
(b) (3) (iii) of this section.
(B) Ordinary income or loss.
If the net negative adjustment
exceeds the 'interest for the taxable year that the taxpayer would
otherwise account for on the debt instrument under paragraph
(b) (3) (iii) of this section, the excess is treated as ordinary loss
by a holder and ordinary income by an issuer.
However, the amount
treated as ordinary loss by a holder is limited to the amount by
which the holder's total interest inclusions on the debt instrument
exceed the total amount of the holder's net negative adjustments
treated as ordinary loss on the debt instrument in prior taxable
years.
The amount treated as ordinary income by an issuer is
limited to the amount by which the issuer's total interest
deductions on the debt instrument exceed the total amount of the
issuer's net negative adjustments treated as ordinary income on the
debt instrument in prior taxable years.
(C) Carryforward.
If the net negative adjustment exceeds the
sum of the amounts treated by the taxpayer as a reduction of
interest and as ordinary income or loss (as the case may be) on the
debt instrument for the taxable year, the excess is a negative
adjustment carryforward for the taxable year.
(JJ In general. Except as provided in paragraph
(b) (6) (iii) (C) (2.) of this section, a negative adjustment
carryforward on a debt instrument for a taxable year is treated as a
negative adjustment on the debt instrument on the first day of the
succeeding taxable year.
54
(2) In year of sale, exchange, or retirement. Any negative
adjustment carryforward on a debt instrument for a taxable year in
which the debt instrument is sold, exchanged, or retired reduces the
amount realized by the holder on the sale, exchange, or retirement.
Any negative adjustment carryforward for a taxable year in which the
debt instrument is retired is taken into account by the issuer as
income from the discharge of indebtedness under section 61(a)(12).
(iv) Cross references.
If a holder has a basis in a debt
instrument that is different than the debt instrument's adjusted
issue price, the holder may have additional positive or negative
adjustments under paragraph (b)(9)(i) of this section.
If the
amount of a contingent payment is fixed more than 6 months before
the date it is due, the amount and timing of the adjustment are
determined under paragraph (b)(9)(ii) of this section.
If all the
remaining contingent payments on a debt instrument become fixed
substantially contemporaneously, the timing of the adjustment is
determined under paragraph (b)(9)(v) of this section.
(v) Examples. The following examples illustrate the provisions
of paragraph (b)(6) of this section.
In each example, assume that
the debt instrument described is a debt instrument for federal
income tax purposes.
No inference is intended, however, as to
whether the debt instrument constitutes a debt instrument for
federal income tax purposes.
Example 1. Net negative adjustment--(i) Facts. On June 13,
1996, Z, a calendar year taxpayer, purchases a debt instrument at
original issue for $1,044. Assume that the debt instrument is
subject to paragraph (b) of this section. The projected payment
schedule provides for projected payments of $100 on December 31,
1996, and $1,100 on December 31, 1997. Based on the projected
payment schedule, Z's total daily portions of interest would be $56
for 1996 and $100 for 1997.
55
(ii) Adjustment in 1996. Assume that the payment actually made
on December 31, 1996, is $25, rather than the projected $100. Under
paragraph (b)(6)(i) of this section, Z has a negative adjustment of
$75 on December 31, 1996, attributable to the difference between the
amount of the actual payment and the amount of the projected
payment. Because Z has no positive adjustments for 1996, Z has a
net negative adjustment of $75 on the debt instrument for 1996.
This net negative adjustment reduces to zero the $56 total daily
portions of interest Z would otherwise include in income in 1996.
Accordingly, Z has no interest income on the debt instrument for
1996. Because Z has no interest inclusions on the debt instrument
for prior taxable years, the remaining $19 of the net negative
adjustment is a negative adjustment carryforward for 1996 that
results in a negative adjustment of $19 on January 1, 1997.
(iii) Adjustments in 1997. Assume that the payment actually
made on December 31, 1997, is $1,150, rather than the projected
$1,100. Under paragraph (b)(6)(i) of this section, Z has a positive
adjustment of $50 on December 31, 1997, attributable to the
difference between the amount of the actual payment and the amount
of the projected payment. Because Z also has a negative adjustment
of $19 on January 1, 1997, Z has a net positive adjustment of $31 on
the debt instrument for 1997 (the excess of the $50 positive
adjustment over the $19 negative adjustment). Therefore, Z has $131
of interest income on the debt instrument for 1997 (the net positive
adjustment plus the $100 total daily portions of interest that are
taken into account by Z in that year).
Example 2 . Net negative adjustment at maturity--(i) Facts.
Assume the same facts as in Example 1 of this paragraph (b)(6)(v),
except that the payment actually made on December 31, 1997, is
$1,010, rather than the projected $1,100.
(ii) Adjustments in 1997. Under paragraph (b)(6)(i) of this
section, Z has a negative adjustment of $90 on December 31, 1997,
attributable to the difference between the amount of the actual
payment and the amount of the projected payment. In addition, Z has
a negative adjustment of $19 on January 1, 1997. Because Z has no
positive adjustments in 1997, Z has a net negative adjustment of
$109 for 1997. This net negative adjustment reduces to zero the
$100 total daily portions of interest Z would otherwise include in
income for 1997. Therefore, Z has no interest income on the debt
instrument for 1997. Because Z has no interest inclusions on the
debt instrument for prior taxable years, the remaining $9 of the net
negative adjustment constitutes a negative adjustment carryforward
for 1997 that reduces the amount realized by Z on retirement of the
debt instrument.
(7) Adjusted issue price, adjusted basis, and retirement--(i)
In general.
Paragraph (b)(7) of this section provides rules under
the noncontingent bond method to determine the adjusted issue price
56
of a debt instrument, the holder's basis in a debt instrument, and
the amount of any contingent payment made on a scheduled retirement.
Paragraph (b)(7) of this section also provides rules for an
unscheduled,retirement.
In general, because any difference between
the actual amount of a contingent payment and the projected amount
of the payment is taken into account as an adjustment to income or
deduction, the projected payments are treated as the actual payments
for purposes of making adjustments to issue price and basis and
determining the amount of any contingent payment made on a scheduled
retirement.
Except as provided in paragraph (b)(7)(iv) of this
section, positive and negative adjustments are not taken into
account for purposes of paragraph (b)(7) of this section.
(ii) Definition of adjusted issue price. The adjusted issue
price of a debt instrument is equal to the debt instrument's issue
price, increased by the interest previously accrued on the debt
instrument under paragraph (b)(3)(iii) of this section (determined
without regard to any adjustments taken into account under paragraph
(b) (3) (iv) of this section), and decreased by the amount of any
noncontingent payment and the projected amount of any contingent
payment previously made on the debt instrument.
See paragraph
(b)(9)(ii) of this section for special rules that apply when a
contingent payment is fixed more than 6 months before it is due.
(iii) Adjustments to basis. A holder's basis in a debt
instrument is increased by the interest previously accrued by the
holder on the debt instrument under paragraph (b)(3)(iii) of this
section (determined without regard to any adjustments taken into
account under paragraph (b)(3)(iv) of this section), and decreased
57
by the amount of any noncontingent payment and the projected amount
of any contingent payment previously made on the debt instrument to
the holder.
See paragraphs (b)(9)(i) and (ii) of this section for
special rules that apply when basis is different than adjusted issue
price or a contingent payment is fixed more than 6 months before it
is due.
(iv) Amount realized on a scheduled retirement. For purposes
of determining the amount realized by a holder and the repurchase
price paid by the issuer on the scheduled retirement of a debt
instrument, a holder is treated as receiving, and the issuer is
treated as paying, the projected amount of any contingent payment
due at maturity.
The amount realized on a scheduled retirement of a
debt instrument and the issuer's repurchase price on the retirement,
however, may be reduced under paragraph (b) (6) (iii) (C) (2.) of this
section (regarding the treatment of negative adjustment
carryforwards determined in the taxable year of the retirement).
(v) Unscheduled retirements. An unscheduled retirement of a
debt instrument (or the receipt of a pro-rata prepayment that is
treated as a retirement of a portion of a debt instrument under
§1.1275-2 (f)) is treated as a sale or exchange of the debt
instrument (or a pro rata portion of the debt instrument) by the
holder to the issuer for the amount paid by the issuer to the
holder.
(vi) Examples. The following examples illustrate the
provisions of paragraph (b)(7) of this section.
In each example,
assume that the debt instrument described is a debt instrument for
federal income tax purposes.
No inference is intended, however, as
58
to whether the debt instrument constitutes a debt instrument for
federal income tax purposes.
Example 1. Adjusted issue price, adjusted basis, and
retirement--(i) Facts. Assume the same facts as in Example 1 of
paragraph (b)(6)(v) of this section.
(ii) Adjustment to issue price and basis. Based on the
projected payment schedule, Z's total daily portions of interest on
the debt instrument would be $56 for 1996. Therefore, the adjusted
issue price of the debt instrument and Z's adjusted basis in the
debt instrument are increased by this amount ($56), despite the fact
that, under paragraph (b) (6) (iii) of this section, Z has a net
negative adjustment for 1996 of $75 that reduces to zero the $56
total daily portions of interest otherwise accounted for by Z in
that year. In addition, the adjusted issue price of the debt
instrument and Z's adjusted basis in the debt instrument are
decreased on December 31, 1996, by the projected amount of the
payment on that date ($100). Thus, on January 1, 1997, Z's adjusted
basis in the debt instrument and the adjusted issue price of the
debt instrument are $1,000.
(iii) Retirement. Based on the projected payment schedule, Z's
adjusted basis in the debt instrument immediately before the payment
at maturity is $1,100. Even though Z receives $1,15-0 at maturity,
for purposes of determining the amount realized by Z on retirement
of the debt instrument, Z is treated as receiving the projected
amount of the contingent payment on December 31, 1997. Therefore, Z
is treated as receiving $1,100 on December 31, 1997. Because Z's
adjusted basis in the debt instrument immediately before its
retirement is $1,100, Z recognizes no gain or loss on the
retirement. Z, however, does include $131 as interest income on the
debt instrument in 1997. See Example 1 of paragraph (b)(6)(v) of
this section.
Example 2 . Negative adjustment carryforward for year of sale-(i) Facts. Assume the same facts as in Example 1 of paragraph
(b) (6) (v) of this section, except that Z sells the debt instrument
on January 1, 1997, for $1,075.
(ii) Gain on sale. On the date the debt instrument is sold,
Z's adjusted basis in the debt instrument is $1,000. Because Z has
a negative adjustment on the debt instrument on January 1, 1997, of
$19 under paragraph (b)(6)(iii)(C)(1) of this section, and has no
positive adjustments on the debt instrument in 1997, Z has a net
negative adjustment for 1997 of $19. Because Z has included no
interest on the debt instrument in income in 1997 or previous years,
the entire $19 net negative adjustment constitutes a negative
adjustment carryforward for the taxable year of the sale. Under
paragraph (b)(6)(iii)(C)(2) of this section, the $19 negative
adjustment carryforward reduces the amount realized by Z on the sale
of the debt instrument from $1,075 to $1,056. Thus, Z has a gain on
the sale of $56.
59
Example 3 . Negative adjustment carryforward for year of
retirement--(i) Facts. Assume the same facts as in Example 1 of
paragraph (b)(6)(v) of this section, except that the payment
actually made on December 31, 1997, is $1,010, rather than the
projected $1,100. Thus, Z will have a $9 negative adjustment
carryforward for 1997, the year of retirement. See Example 2 of
paragraph (b)(6)(v) of this section.
(ii) Loss on retirement. Immediately before the payment at
maturity, Z's adjusted basis in the debt instrument is $1,100.
Under paragraph (b)(7)(iv) of this section, Z is treated as
receiving the projected amount of the contingent payment, or $1,100,
as the payment at maturity. Under paragraph (b) (6) (iii) (C) (2.) of
this section, however, this amount is reduced by any negative
adjustment carryforward determined for the taxable year of
retirement to calculate the amount Z realizes on retirement of the
debt instrument. Thus, Z has a loss of $9 on the retirement of the
debt instrument, equal to the amount by which Z's adjusted basis in
the debt instrument ($1,100) exceeds the amount Z realizes on the
retirement of the debt instrument ($1,100 minus the $9 negative
adjustment carryforward).
(8)
Character on sale, exchange, or retirement--(i) Gain. Any
gain recognized by a holder on the sale, exchange, or retirement of
a debt instrument is interest income.
(ii) Loss. Any loss recognized by a holder on the sale,
exchange, or retirement of the debt instrument is ordinary loss to
the extent that the holder's total interest inclusions on the debt
instrument exceed the total net negative adjustments on the debt
instrument the holder took into account as ordinary loss.
Any
additional loss is treated as loss from the sale, exchange, or
retirement of the debt instrument.
(iii) Special rule if there are no remaining contingent
payments on the debt instrument. Notwithstanding paragraphs
(b)(8)(i) and (ii) of this section, if, at the time of the sale,
exchange, or retirement of the debt instrument, there are no
remaining contingent payments due on the debt instrument, any gain
60
or loss recognized by the holder on the debt instrument is gain or
loss from the sale, exchange, or retirement of the debt instrument.
(iv) Fixed but deferred payments. For purposes of paragraph
(b)(8) of this section, a contingent payment that is fixed within
the 6-month period ending on the due date of the payment is treated
as a contingent payment even after the payment is fixed.
See
paragraph (b)(9)(ii) of this section, under which a contingent
payment that is fixed more than 6 months before it is due is not
treated as a contingent payment after it is fixed.
(v) Examples. The following examples illustrate the provisions
of paragraph (b)(8) of this section.
In each example, assume that
the debt instrument described is a debt instrument for federal
income tax purposes.
No inference is intended, however, as to
whether the debt instrument constitutes a debt instrument for
federal income tax purposes.
Example 1 . Gain on sale--(i) Facts. On January 1, 1997, D, a
calendar year taxpayer, sells a debt instrument that is subject to
paragraph (b) of this section for $1,350. On that date, D has an
adjusted basis in the debt instrument of $1,200. In addition, D has
a negative adjustment carryforward of $50 for 1996 that results in a
negative adjustment of $50 on January 1, 1997, under paragraph
(b) (6) (iii) (C) (1.) of this section. D has no positive adjustments on
the debt instrument on January 1, 1997.
(ii) Character of gain. Under paragraph (b)(6) of this
section, the $50 negative adjustment on January 1, 1997, results in
a negative adjustment carryforward for 1997, the taxable year of the
sale of the debt instrument. Under paragraph (b)(6)(iii)(C)(2) of
this section, the negative adjustment carryforward reduces the
amount realized by D on the sale of the debt instrument from $1,350
to $1,300. As a result, D realizes a $100 gain on the sale of the
debt instrument, equal to the $1,300 amount realized minus D's
$1,200 adjusted basis in the debt instrument. Under paragraph
(b)(8)(i) of this section, the gain is interest income to D.
Example 2 . Ordinary loss on sale--(i) Facts. On January 1,
1996, E, a calendar year taxpayer, purchases a debt instrument at
original issue for $1,000. The debt instrument is a capital asset
in the hands of E. The debt instrument provides for a payment of
61
$1,000 at maturity on December 31, 2001, and for quotable contingent
payments on December 31, 1997, 1999, and 2001. The projected
payment schedule provides for projected payments of $275 on December
31, 1997, $200 on December 31, 1999, and $1,127 on December 31,
2001. Thus, the projected yield on the debt instrument is 10
percent, compounded annually. Based on the projected payment
schedule, tfie total daily portions of interest would be $100 for
1996, $110 for 1997, and $93.50 for 1998.
(ii) Adjustment for 1997. Assume that the payment actually
made on December 31, 1997, is $150, rather than the projected $275.
Under paragraph (b)(6)(i) of this section, E has a negative
adjustment of $125 on December 31, 1997. Because E has no positive
adjustments for 1997, E has a net negative adjustment of $125 on the
debt instrument for 1997. This net negative adjustment reduces to
zero the $110 total daily portions of interest E would otherwise
include in income in 1997. Accordingly, E has no interest income on
the debt instrument for 1997. Because E had $100 of interest
inclusions for 1996, the remaining $15 of the net negative
adjustment is an ordinary loss to E for 1997.
(iii) Determination of amount and character of loss on sale.
Assume that E sells the debt instrument for $950 on December 31,
1998. On that date, E has an adjusted basis in the debt instrument
of $1,028.50 ($1,000 original basis, plus total daily portions of
$100 for 1996, $110 for 1997, and $93.50 for 1998, minus the $275
projected amount of the December 31, 1997 payment). As a result, E
realizes a $78.50 loss on the sale of the debt instrument (the
difference between the sales price and E's adjusted basis in the
debt instrument). The total amount of E's interest inclusions on
the debt instrument as of December 31, 1998 ($100 in 1996 and $93.50
in 1998) exceeds the total amount of net negative adjustments on the
debt instrument E treated as ordinary loss as of that date ($15 in
1997) by more than $78.50. Therefore, under paragraph (b)(8)(ii) of
this section, the $78.50 loss on the debt instrument is treated as
an ordinary loss by E.
Example 3 . Loss on sale of a debt instrument-- (i) Facts.
Assume the same facts as in Example 2 of this paragraph (b)(8)(v),
except that the payment actually made on December 31, 1997, is $0,
rather than the projected $275.
(ii) Adjustment for 1997. Under paragraph (b)(6)(i) of this
section, E has a negative adjustment of $275 on December 31, 1997.'
Because E has no positive adjustments for 1997, E has a net negative
adjustment of $275 on the debt instrument for 1997. This net
negative adjustment reduces to zero the $110 total daily portions of
interest E would otherwise include in income in 1997. Accordingly,
E has no interest income on the debt instrument for 1997. Because E
had $100 of interest inclusions for 1996, $100 of the remaining $165
net negative adjustment is treated by E as an ordinary loss for
1997. The remaining $65 of the net negative adjustment is a
negative adjustment carryforward for 1997 that results in a negative
adjustment of $65 on January 1, 1998.
62
(iii) Determination of amount and character of loss on sale.
Assume that E sells the debt instrument for $900 on January 1, 1998.
On that date, E has an adjusted basis in the debt instrument of $935
($1,000 original basis, plus total daily portions of $100 for 1996
and $110 for 1997, minus the $275 projected amount of the December
31, 1997 payment). Because E has no other adjustments for 1998, and
E's interest inclusions on the debt instrument in prior taxable
years do not exceed the total net negative adjustments E treated as
ordinary loss in those years, the $65 negative adjustment on Jahuary
1, 1998, results in a negative adjustment carryforward of $65 for
1998. Under paragraph (b) (6) (iii) (C) (2.) of this section, the $65
negative adjustment carryforward reduces the amount E realizes on
the sale of the debt instrument from $900 to $835. As a result, E
realizes a $100 loss on the sale of the debt instrument (the
difference between the amount realized and E's adjusted basis in the
debt instrument). Because E's total interest inclusions on the debt
instrument do not exceed the total net negative adjustments E
treated as ordinary loss on the debt instrument, E's loss on the
sale of the debt instrument is treated as a capital loss.
(9 )
Operating rules. The rules of paragraph (b)(9) of this
section apply in the special circumstances described below,
notwithstanding any other rule of paragraph (b) of this section.
(i)
Basis different than adjusted issue price. This paragraph
(b)(9)(i) provides rules for a holder whose basis in a debt
instrument is different than the adjusted issue price of the debt
instrument (e.g., a subsequent holder that purchases the debt
instrument for more or less than the instrument's adjusted issue
price).
General rule. A holder whose basis in a debt instrument is
different than the adjusted issue price of the debt instrument
accrues interest under paragraph (b)(3)(iii) of this section and
makes adjustments under paragraph (b)(3)(iv) of this section based
on the projected payment schedule determined as of the issue date of
the debt instrument.
However, upon acquiring the debt instrument,
the holder must reasonably allocate any difference between the
adjusted issue price and the basis to daily portions of interest or
projected payments over the remaining term of the debt instrument.
Allocations are taken into account under paragraphs (b)(9)(i)(B) and
(C) of this section.
(B) Baéis greater than adjusted issue price.
If a holder's
basis in a debt instrument exceeds the debt instrument's adjusted
issue price, the amount allocated to a daily portion of interest or
to a projected payment is treated as a negative adjustment on the
date the daily portion accrues or the payment is made.
The holder's
adjusted basis in the debt instrument is reduced by the amount the
holder treats as a negative adjustment under this paragraph
(b) (9) (i) (B) .
(C) Basis less than adjusted issue price. If a holder's basis
in a debt instrument is less than the debt instrument's adjusted
issue price, the amount allocated to a daily portion of interest or
to a projected payment is treated as a positive adjustment on the
date the daily portion accrues or the payment is made.
The holder's
adjusted basis in the debt instrument is increased by the amount-the
€
holder treats as a positive adjustment under this paragraph
(b) (9) (i) (C) .
(D) Premium and discount rules do not apply. The rules for
accruing premium and discount in sections 171, 1272(a)(7), 1276, and
1281 do not apply.
Other rules of those sections continue to apply
to the extent relevant.
(E) Safe harbor for exchange listed debt instruments.
If a
contingent payment debt instrument is exchange listed property
(within the meaning of §1.1273-2 (f) (2)), it is reasonable for a
holder of the debt instrument to allocate any difference between the
64
holder's basis and the adjusted issue price of the debt instrument
Pro"ra^a to daily portions of interest (as determined under
paragraph (b) (3) (iii) of this section) over the remaining term of
the debt instrument.
(F)
Examples. The following examples illustrate the provisions
of paragraph (b)(9)(i) of this section.
In each example# assume
that the debt instrument described is a debt instrument for federal
income tax purposes.
No inference is intended# however# as to
whether the debt instrument constitutes a debt instrument for
federal income tax purposes.
In addition# assume that each debt
instrument is not exchange listed property.
Example 1. Basis greater than adjusted issue price--(i) Facts.
On July 1# 1997# Z purchases for $1#405 a debt instrument that
natures on December 31, 1998# and promises to pay on the maturity
date $1,000 plus the increase# if any# in the price of a specified
amount of a commodity from the issue date to the maturity date. The
debt instrument was originally issued on January 1# 1996, for an
issue price of $1,000. Z is a calendar year taxpayer. The
projected payment schedule for the debt instrument (determined as of
the issue date) provides for a single payment at maturity of $1,350.
Thus, the debt instrument has a projected yield of 10.25 percent#
compounded semiannually. At the time of the purchase# the debt
instrument has an adjusted issue price of $1,162# assuming
semiannual accrual periods ending on December 31 and June 30 of each
year. The increase in the value of the debt instrument over its
adjusted issue price is due to an increase in the expected amount of
the contingent payment and not to a decrease in market interest
rates.
|i§| Allocation of the difference between basis and adjusted
issue price. Z's basis in the debt instrument on July 1# 1997# is
$1,405. Under paragraph (b)(9)(i)(B) of this section# Z allocates
the $243 difference between basis ($1,405) and adjusted issue price
($1,162) to the contingent payment at maturity. Z's allocation of
the difference between basis and adjusted issue price is reasonable
because the increase in the value of the debt instrument over its
adjusted issue price is due to an increase in the expected amount of
the contingent payment.
(iii) Treatment of debt instrument for 1997. Based on the
projected payment schedule# $60 of interest accrues on the debt
instrument from July 1, 1997 to December 31# 1997 (the product of
the debt instrument's adjusted issue price on July 1# 1997 ($1,162)
65
and the projected yield properly adjusted for the length of the
accrual period (10.25 percent/2)). Z has no net negative or
positive adjustments for 1997. Thus, Z includes in income $60 of
total daily portions of interest for 1997. On December 31, 1997,
Z's adjusted basis in the debt instrument is $1,465 ($1,405 original
basis, plus total daily portions of $60 for 1997).
(iv) Effect of allocation to contingent payment at maturity.
Assume that the payment actually made on December 31, 1998, is
$1,400, rather than the projected $1,350. Under paragraph (b)(6)(i)
of this section, Z has a positive adjustment of $50 on December 31,
1998. Under paragraph (b)(9)(i)(B) of this section, Z has a
negative adjustment of $243 on December 31, 1998. As a result, Z
has a net negative adjustment of $193 for 1998. This net negative
adjustment reduces to zero the $128 total daily portions of interest
Z would otherwise include in income in 1998. Accordingly, Z has no
interest income on the debt instrument for 1998. Because Z had $60
of interest inclusions for 1997, $60 of the remaining $65 net
negative adjustment is treated by Z as an ordinary loss for 1998.
The remaining $5 of the net negative adjustment is a negative
adjustment carryforward for 1998 that reduces the amount realized by
Z on the retirement of the debt instrument from $1,350 to $1,345.
(v) Loss at maturity. On December 31, 1998, Z's basis in the
debt instrument is $1,350 ($1,405 original basis, plus total daily
portions of $60 for 1997 and $128 for 1998, minus the negative
adjustment of $243). As a result, Z realizes a loss of $5 on the
retirement of the debt instrument (the difference between the amount
realized ($1,345) and Z's adjusted basis in the debt instrument
($1,350)). Under paragraph (b)(8)(ii) of this section, the $5 loss
is treated as loss from the retirement of the debt instrument.
Consequently, Z realizes a total loss of $65 on the debt instrument
for 1998 (a $60 ordinary loss and a $5 loss on the retirement of-the
debt instrument).
Example 2 . Basis less than adjusted issue price--(i) Facts.
On January 1, 1998, Y purchases for $910 a debt instrument that pays
7 percent interest semiannually on June 30 and December 31 of each
year, and that promises to pay on December 31, 2000, $1,000 plus or
minus $10 times the positive or negative difference, if any, between
a specified amount and the value of an index on December 31, 2000.
However, the payment on December 31, 2000, may not be less than
$650. The debt instrument was originally issued on January 1, 1996,
for an issue price of $1,000. Y is a calendar year taxpayer. The
projected payment schedule for the debt instrument provides for
semiannual payments of $35 and a contingent payment at maturity of
$1,175. On January 1, 1998, the debt instrument has an adjusted
issue price of $1,060, assuming semiannual accrual periods ending on
December 31 and June 30 of each year. Since the time the debt
instrument was issued, market rates of interest on similar debt
instruments have increased from approximately 10 percent to
approximately 13 percent. In addition, because of a decrease in the
relevant index, the expected value of the contingent payment has
declined by about 9 percent.
66
( ^ ^ J &X J-oc^tion_of_the difference between basis and adjusted
issue—price. Y's basis in the debt instrument on January 1, 1998
is $910. Under paragraph (b)(9)(i)(B) of this section, Y must
allocate the $150 difference between basis ($910) and adjusted issue
price ($1,060) to daily portions of interest or to projected
payments. fhese amounts will be positive adjustments taken into
account at the time the daily portions accrue or the payments are
made.
(A) Based on forward prices on January 1, 1998, Y determines
that approximately $105 of the difference between basis and adjusted
issue price is allocable to the contingent payment. Y allocates the
remaining $45 to daily portions of interest on a pro-rata basis.
This allocation is reasonable.
(B) Assume alternatively that, based on yields of comparable
debt instruments and its purchase price for the debt instrument, Y
determines that approximately $49 of the difference between basis
and adjusted issue price is allocable to daily portions of interest
as follows: $13.32 to the daily portions of interest for the
taxable year ending December 31, 1998; $16.15 to the daily portions
of interest for the taxable year ending December 31, 1999; and
$19.53 to the daily portions of interest for the taxable year ending
December 31, 2000. Y allocates the remaining $101 to the contingent
payment at maturity. This allocation is reasonable.
Example 3. Secondary holder sells debt instrument--(i) Facts.
Assume the same facts as in Example 2 of this paragraph (b)(9)(i)(F)
and that Y allocates $49 to daily portions of interest and $101 to
the contingent payment at maturity, on the same basis as in
paragraph (ii)(B) of Example 2 of this paragraph (b)(9)(i)(F). In
1998, Y has a total of $104.68 of daily portions of interest,
receives two semiannual payments of $35, and has a positive
adjustment of $13.32 from the allocation. Thus, Y has $118 of
interest income on the debt instrument for 1998 ($104.68 of interest
and a $13.32 net positive adjustment). On December 31, 1998, Y has
an adjusted basis of $958 in the debt instrument ($910 original
basis, plus $104.68 total daily portions for 1998 and the $13.32
positive adjustment, minus $70 interest payments for 1998), and the
debt instrument has an adjusted issue price of $1,094.68 ($1,060
adjusted issue price on January 1, 1998, plus $104.68 total daily
portions for 1998, minus $70 interest payments for 1998) .
(ii)
Sale of debt instrument. Assume that Y sells the debt
instrument for $950 on January 15, 1999. In 1999, Y has total daily
portions of interest on the debt instrument (using a semiannual
accrual period ending June 30) of $4.47 and positive adjustments
allocable to the total daily portions of interest in 1999 of $0.64.
Therefore, Y has $5.11 of interest income on the debt instrument for
1999. On January 15, 1999, Y has an adjusted basis in the debt
instrument of $963.11. As a result, Y realizes a $13.11 loss on the
sale of the debt instrument. Under paragraph (b)(8)(ii) of this
section, the loss is an ordinary loss.
67
(ii)
Fixed but deferred contingent payments. This paragraph
(b)(9)(ii) provides rules for computing interest accruals and
adjustments under paragraph (b)(3) of this section when the amount
of a contingent payment becomes fixed more than 6 months before the
payment is due.
For purposes of the preceding sentence, a payment
is treated as a fixed payment if all remaining contingencies with
respect to the payment are remote or incidental.
(A) Determining adjustments. The amount of the adjustment
attributable to the payment is equal to the difference between the
present value of the amount that is fixed and the present value of
the projected amount of the contingent payment.
The present value
of each amount is determined by discounting the amount from the date
the payment is due to the date the payment becomes fixed, using a
discount rate equal to the projected yield on the debt instrument.
The adjustment is treated as a positive or negative adjustment, as
appropriate, on the date the contingent payment becomes fixed.
See
paragraph (b)(9)(v) of this section to determine the timing of the
adjustment if all remaining contingent payments on the debt
instrument become fixed substantially contemporaneously.
(B) Payment schedule. For purposes of paragraph (b) of this
section, the contingent payment is no longer treated as a contingent
payment after the date the amount of the payment becomes fixed.
On
the date the contingent payment becomes fixed, the projected payment
schedule for the debt instrument is modified prospectively to
reflect the fixed amount of the payment.
Therefore, no adjustment
is made under paragraph (b)(3)(iv) of this section when the
contingent payment is actually made.
68
Accrual,period. Notwithstanding the determination under
§1.1272-1(b)(1)(ii) of accrual periods for the debt instrument, an
accrual period ends on the day the contingent payment becomes fixed,
and a new accrual period begins on the day after the day the
contingent payment becomes fixed.
^
Basis and adjusted issue price. The amount of any positive
adjustment on a debt instrument determined under paragraph
(b) (9) (ii) (A) of this section increases the adjusted issue price of
the instrument and the holder's adjusted basis in the instrument.
The amount of any negative adjustment on a debt instrument
determined under paragraph (b)(9)(ii)(A) of this section decreases
the adjusted issue price of the instrument and the holder's adjusted
basis in the instrument.
(E) Special rule for certain contingent interest payments.
Notwithstanding paragraphs (b)(9)(ii)(A), (B), (C), and (D) of this
section, this paragraph (b)(9)(ii)(E) applies to contingent stated
interest payments that are adjusted to compensate for contingencies
regarding the reasonableness of the debt instrument's stated rate of
interest.
For example, this paragraph (b)(9)(ii)(E) applies to a
debt instrument that provides for an increase in the stated rate of
interest if the credit quality of the issuer or liquidity of the
debt instrument deteriorates. Contingent stated interest payments
of this type are recognized over the period to which they relate in
a reasonable manner.
(F) Example.
The following example illustrates the provisions
of paragraph (b)(9)(ii) of this section.
In this example, assume
that the debt instrument described is a debt instrument for federal
69
income tax purposes.
No inference is intended, however, as to
whether the debt instrument constitutes a debt instrument for
federal income tax purposes.
Example. Fixed but deferred payments--(i) Facts. On January
1, 1996, B, a calendar year taxpayer, purchases a debt instrument at
original issue for $1,000. The debt instrument matures on December
31, 2001, and provides for a payment of $1,000 at maturity. In
addition, on December 31, 1998, and December 31, 2001, the debt
instrument provides for payments equal to the excess of the average
daily value of an index for the 6-month period ending on September
30 of the preceding year over a specified amount. The two
contingent payments are substantially similar to options on the
index. Assume that the two contingent payments are quotable
contingent payments, and that, on the issue date, the forward price
of the option that is exercisable on December 31, 1998, is $250 and
the forward price of the option that is exercisable on December 31,
2001, is $440. Assume that B uses annual accrual periods.
(ii) Interest accrual for 1996. Under paragraph (b)(4) of this
section, the debt instrument's projected payment schedule consists
of a payment of $250 on December 31, 1998, and a payment of $1,440
on December 31, 2001. Thus, the debt instrument's projected yield
is 10 percent, compounded annually. B includes a total of $100 of
daily portions of interest in income in 1996. B's adjusted basis in
the debt instrument and the debt instrument's adjusted issue price
on December 31, 1996, is $1,100.
(iii) Interest accrual for 1997--(A) Adjustment. Based on the
projected payment schedule, B would include $110 of total daily
portions of interest in income in 1997. However, assume that on
September 30, 1997, the payment due on December 31, 1998, fixes at
$300, rather than the projected $250. Thus, on September 30, 1997,
B has an adjustment equal to the difference between the present
value of the $300 fixed amount and the present value of the $250
projected amount of the contingent payment. The present values of
the two payments are determined by discounting each payment from the
date the payment is due (December 31, 1998) to the date the payment
becomes fixed (September 30, 1997), using a discount rate equal to
10 percent, compounded annually. The present value of the fixed
payment is $266.30 and the present value of the projected amount of
the contingent payment is $221.91. Thus, on September 30, 1997, B
has a positive adjustment of $44.39 ($266.30 - $221.91).
(B) Effect of adjustment. Under paragraph (b)(9)(ii)(C) of
this section, B's accrual period ends on September 30, 1997. The
daily portions of interest on the debt instrument for the period
from January 1, 1997 to September 30, 1997 total $81.49. The
adjusted issue price of the debt instrument and B's adjusted basis
in the debt instrument are thus increased over this period by
$125.88 (the sum of the daily portions of interest of $81.49 and the
positive adjustment of $44.39 made at the end of the period) to
70
$1,225.88. For purposes of all future accrual periods, including
the new accrual period from October 1, 1997, to December 31, 1997,
the debt instrument's projected payment schedule is modified to
reflect a fixed payment of $300 on December 31, 1998. Based on the
new adjusted issue price of the debt instrument and the new
projected payment schedule, the projected yield on the debt
instrument does not change.
(C)
Interest accrual for 1997. Based on the modified projected
payment schedule, $29.55 of interest accrues during the accrual
period that ends on December 31, 1997. Because B has no other
adjustments during 1997, the $44.39 positive adjustment on September
30, 1997, results in a net positive adjustment for 1997, which is
additional interest for that year. Thus, B includes $155.43 ($81.49
+ $29.55 + $44.39) of interest in income in 1997. B's adjusted
basis in the debt instrument and the debt instrument's adjusted
issue price on December 31, 1997, is $1,255.43 ($1,225.88 from the
end of the prior accrual period plus $29.55 total daily portions for
the current accrual period).
(iv)
Interest accrual for 1998. In 1998, B has no adjustments
and, based on the modified projected payment schedule, includes
$125.54 total daily portions of interest in income (rather than $121
as under the original projected payment schedule). On December 31,
1998, B's adjusted basis in the debt instrument and the adjusted
issue price of the debt instrument are increased by the $125.54
total daily portions of interest included in income under the
modified projected payment schedule, and reduced by $300, the amount
of the fixed payment on December 31, 1998, that is reflected on the
modified projected payment schedule.
(iii)
Timing contingencies. This paragraph (b)(9)(iii)
provides rules for debt instruments that have both payments that are
contingent as to time and payments that are contingent as to amount.
(A) Treatment of certain options.
If a taxpayer has an option
to put or call the debt instrument, to exchange the debt instrument
for other property, or to extend the maturity date of the debt
instrument, the projected payment schedule is determined by using
the principles of §1.1272-l(c)(5).
If an option to put, call, or
exchange the debt instrument is assumed to be exercised under the
principles of §1.1272-1(c)(5), it is generally reasonable to assume
that the option is exercised immediately before it expires.
If the
71
option is exercised at an earlier time, the exercise is treated as a
sale or exchange of the debt instrument.
(B) Other timing contingencies.
[Reserved]
(iv) Allocation of deductions. For purposes of §1.861-8, any
amount treated as an ordinary loss under paragraph (b)(6)(iii)(B) or
(b) (8)(ii) of this section is considered a deduction that is
definitely related to the class of gross income to which interest on
the relevant debt instrument belongs.
Any other deduction or loss
relating to the debt instrument will be subject to the general rules
of §1.861-8.
(v) Special rule when all contingent payments become fixed.
Notwithstanding any other provision of this section, if all the
remaining contingent payments on a debt instrument become fixed
substantially contemporaneously, any positive or negative adjustment
on the instrument is spread over the remaining term of the
instrument in a reasonable manner.
For purposes of the preceding
sentence, a payment is treated as a fixed payment if all remaining
contingencies with respect to the payment are remote or incidental.
(c) Method for debt instruments not subject to the
noncontinaent bond method--(1) Applicability. Paragraph (c) of this
section applies to a contingent payment debt instrument that has an
issue price determined under §1.1274-2 (other than a debt instrument
issued in a potentially abusive situation). For example, paragraph
(c) of this section generally applies to a contingent payment debt
instrument that is issued for nonpublicly traded property.
(2)
Separation into components.
In the case of a debt
instrument subject to paragraph (c) of this section (the overall
72
debt instrument), the noncontingent payments and any quotable
contingent payments (as defined in paragraph (b)(4)(i) of this
section) are subject to the rules in paragraph (c)(3) of this
section, and the nonquotable contingent payments (as defined in
paragraph (b)(4)(ii) of this section) are accounted for separately
under the rules in paragraph (c)(4) of this section.
(3) Treatment of noncontinqent and quotable contingent
payments. The noncontingent payments and any quotable contingent
payments are treated as a separate debt instrument.
The issue price
of the separate debt instrument is the issue price of the overall
debt instrument, determined under §1.1274-2.
No interest payments
on the separate debt instrument are qualified stated interest
payments (within the meaning of §1.1273-1 (c)) and the de minimis
rules of section 1273(a)(3) and §1.1273-1(d) do not apply to the
separate debt instrument.
If the separate debt instrument provides
for a quotable contingent payment, the rules of paragraph (b) of
this section apply to the instrument, notwithstanding paragraph
(b)(1) of this section.
(4) Treatment of noncruotable contingent payments--(i) In
general. Except as provided in paragraph (c)(4)(iii) of this
section, the portion of a nonquotable contingent payment treated as
interest under paragraph (c)(4)(ii)(B) of this section is includible
in gross income by the holder and deductible from gross income by
the issuer in their respective taxable years in which the amount of
the payment becomes fixed.
(ii)
Recharacterization of certain noncruotable contingent
payments-- (A) Amount treated as principal.
In general, a
73
nonquotable contingent payment is treated as a payment of principal
in an amount equal to the present value of the payment, determined
by discounting the payment at the test rate from the date that the
amount of the payment becomes fixed to the issue date.
However, a
0
nonquotable contingent payment accompanied by a payment of adequate
stated interest is treated entirely as a payment of principal.
(B) Amount treated as interest.
If the total amount of a
nonquotable contingent payment exceeds the amount of the payment
treated as principal under paragraph (c)(4)(ii)(A) of this section,
the excess is treated as a payment of interest.
(C) Test rate. The test rate used for purposes of paragraph
(c)(4)(ii)(Aj of this section is the rate that would be the test
rate for the overall debt instrument under §1.1274-4 if the term of
the overall debt instrument began on the issue date of the overall
debt instrument and ended on the date the contingent payment is
fixed.
(iii)
Certain delayed contingent payments-- (A) Deemed issuance
of separate debt instrument.
If a nonquotable contingent payment
becomes fixed more than 6 months before the payment is due, the
issuer and holder are treated as if the issuer had issued a separate
debt instrument on the date the amount of the payment becomes fixed,
maturing on the date that the payment is due.
This separate debt
instrument is treated as a debt instrument to which section 1274
applies.
The stated principal amount of this separate debt
instrument is the amount of the payment that becomes fixed.
An
amount equal to the issue price of this debt instrument is
characterized as interest or principal under the rules of paragraph
74
(c) (4)'(ii) of this section and accounted for under paragraph
(c)(4)(i) of this section, as if this amount had been paid by the
issuer to the holder on the date that the amount of the payment
becomes fixed.
0
To determine the issue price of the separate debt
instrument, all payments under the separate debt instrument are
discounted at the test rate from the maturity date of the separate
debt instrument to the date that the amount of the payment becomes
fixed.
The amount of a contingent payment is treated as fixed even
if, once fixed, the payment is payable in the future together with
interest that is subject to further contingencies.
(B) Test rate.
In applying section 1274 to a separate debt
instrument described in paragraph (c)(4)(iii)(A) of this section,
the test rate for the separate debt instrument is the rate that
would be the test rate for the overall debt instrument under
§1.1274-4 if the term of the overall debt instrument began on the
issue date of the overall debt instrument and ended on the date the
contingent payment is due.
(5)
Gain on sale, exchange, or retirement. Any gain recognized
by a holder on the sale, exchange, or retirement of a debt
instrument subject to paragraph (c) of this section is interest
income.
The preceding sentence does not apply, however, if, at the
time of the sale, exchange, or retirement, there are no remaining
contingent payments on the debt instrument.
For purposes of the
preceding sentence, if a contingent payment becomes fixed more than
6 months before it is due, it is no longer treated as a contingent
payment after the date it is fixed.
4
75
(6)
Examples. The following examples illustrate the provisions
of paragraph (c) of this section.
In each example, assume that the
instrument described is a debt instrument for federal income tax
purposes.
No inference is intended, however, as to whether the debt
instrument constitutes a debt instrument for federal income tax
purposes.
Example 1. Noncruotable contingent interest payments-- (i)
Facts. A owns Blackacre, unencumbered depreciable real estate. On
January 1, 1996, A sells Blackacre to B. As consideration for the
sale, B makes a downpayment of $1,000,000 and issues to A a debt
instrument that matures on December 31, 2000. The debt instrument
provides for a payment of principal at maturity of $5,000,000 and a
contingent payment of interest on December 31 of each year equal to
a fixed percentage of the gross rents B receives from Blackacre in
that year. Assume that the contingent interest payments are
nonquotable contingent payments and that the debt instrument is not
issued in a potentially abusive situation. Assume also that on
January 1, 1996, the short-term applicable Federal rate is 5
percent, compounded annually, and the mid-term applicable Federal
rate is 6 percent, compounded annually.
(ii) Determination of issue price. Under §1.1274-2(g), the
stated principal amount of the debt instrument is $5,000,000. The
imputed principal amount of the debt instrument is $3,736,291, which
is the present value, as of the issue date, of the $5,000,000
noncontingent payment due at maturity, calculated using a discount
rate equal to the mid-term applicable Federal rate. Therefore,
under §1.1274-2(c), the issue price of the debt instrument is
$3,736,291. Under §1.1012-1(g), B's basis in Blackacre on January
1, 1996, is $4,736,291 ($1,000,000 down payment plus the $3,736,291
issue price of the debt instrument).
(iii) Noncontinqent payment treated as separate debt
instrument. Under paragraph (c)(3) of this section, the right to
the noncontingent payment of principal at maturity is treated as a
separate debt instrument. The issue price of this separate debt
instrument is $3,736,291 (the issue price of the overall debt
instrument). The separate debt instrument has a stated redemption
price at maturity of $5,000,000 and, therefore, OID of $1,263,709.
(iv) Treatment of contingent payments. Assume that the amount
of contingent interest that is fixed and payable on December 31,
1996, is $200,000. Under paragraph (c)(4)(ii)(A) of this section,
this payment is treated as consisting of a payment of principal of
$190,476, which is the present value of the payment, determined by
discounting the payment at the test rate of 5 percent, compounded
annually, from the date the payment becomes fixed to the issue date.
Under paragraph (c)(4)(ii)(B) of this section, the remainder of the
/
76
$200,000 payment, $9,524, is treated as interest. The additional
amount treated as principal gives B additional basis in Blackacre on
December 31, 1996. The portion of the payment treated as interest
is includible in gross income by A and deductible by B in their
respective taxable years in which December 31, 1996 occurs. The
remaining contingent payments on the debt instrument are accounted
for similarly, using a test rate of 5 percent, compounded annually,
for the contingent payments due on December 31, 1997, and December
31, 1998, and a test rate of 6 percent, compounded annually, for the
contingent payments due on December 31, 1999, and December 31, 2000.
Example 2 . Fixed but deferred payment--(i) Facts. The facts
are the same as in Example 1 of this paragraph (c)(6), except that
the contingent payment of interest that is fixed on December 31,
1996, is not payable until December 31, 2000, the maturity date.
(ii) Determination of issue price. The determination of the
issue price of the debt instrument, and B's initial basis in
Blackacre, is made in a manner the same as that described in
paragraph (ii) of Example 1 of this paragraph (c)(6). Accordingly,
the issue price of the debt instrument is $3,736,291.
(iii) Treatment of noncontinqent payment. The right to the
noncontingent payment of principal is treated as a separate debt
instrument in a manner the same as that described in paragraph (iii)
of Example 1 of this paragraph (c)(6).
'
(iv) Treatment of contingent payments. Assume that the amount
of the payment that becomes fixed on December 31, 1996, is $200,000.
Because this amount is not payable until December 31, 2000 (the
maturity date), under paragraph (c)(4)(iii) of this section, a
separate debt instrument to which section 1274 applies is treated as
issued by B on December 31, 1996 (the date the payment is fixed);
The maturity date of this separate debt instrument is December 31,
2000 (the date on which the payment is due). The stated principal
amount of this separate debt instrument is $200,000, the amount of
the payment that becomes fixed. The imputed principal amount of the
separate debt instrument is $158,419, which is the present value, as
of December 31, 1996, of the $200,000 payment, computed using a
discount rate equal to the test rate of the overall debt instrument
(6 percent, compounded annually). An amount equal to the issue
price of the separate debt instrument is treated as an amount paid
on December 31, 1996, and characterized as interest and principal
under the rules of paragraph (c)(4)(ii) of this section. The amount
of the deemed payment characterized as principal is equal to
$150,875, which is the present value, as of January 1, 1996 (the
issue date of the overall debt instrument) of the deemed payment,
computed using a discount rate of 5 percent, compounded annually.
The amount of the deemed payment characterized as interest is $7,544
($158,419 - $150,875) which is includible in gross income by A and
deductible by B in their respective taxable years in which December
31, 1996 occurs. The contingent payments made on December 31, 1997,
December 31, 1998, December 31, 1999, and December 31, 2000, are
77
treated in a manner the same as that described in paragraph (iv) of
Example 1 of this paragraph (c)(6).
(d)
Rules for tax-exempt obligations-- (l) Applicability. This
paragraph (d) provides rules for tax-exempt obligations (as defined
in section 1275(a)(3)) subject to this section.
(2) Noncontingent bond method generally applicable- - m
In
general. Except as modified by this paragraph (d), the rules of
paragraph (b) of this section apply to tax-exempt obligations.
(ii) Daily portions. The daily portions of interest determined
under paragraph (b) (3) (iii) of this section are not included in
gross income by the holder.
(iii) Modification to projected payment schedule. The yield on.
a tax-exempt obligation may not exceed the greater of the yield on
the obligation determined without regard to the contingent payments,
and the tax-exempt applicable Federal rate, as determined for
purposes of section 1288(b)(1), that applies to the obligation.
If
the projected yield determined under paragraph (b)(2)(ii) of this
section exceeds the yield determined under the preceding sentence,
appropriate adjustments must be made to the projected payment
schedule to create a projected yield that meets this requirement.
(iv) Positive adjustments. Positive adjustments on a taxexempt obligation are taken into account under this paragraph
(d) (2) (iv) rather than under paragraph (b) (6) of this section.
A
positive adjustment on a tax-exempt obligation is treated as taxable
gain to the holder from the sale or exchange of the obligation in
the taxable year of the adjustment.
78
(v)
Negative adjustments. Negative adjustments on a tax-
exempt obligation are taken into account under this paragraph
(d)(2)(v) rather than under paragraph (b)(6) of this section.
(A) Reduction of interest accruals. Total negative adjustments
for a taxable year first reduce the tax-exempt interest the holder
would otherwise account for on the tax-exempt obligation for the
taxable year under paragraph (b)(3)(iii) of this section.
(B) Reduction of other tax-exempt interest for taxable year.
If the total negative adjustments on the tax-exempt obligation for a
taxable year exceed the tax-exempt interest for the taxable year
that the holder would otherwise account for on the tax-exempt
obligation under paragraph (b)(3)(iii) of this section, the excess
is treated as a reduction of the holder's other tax-exempt interest
income for the taxable year.
However, the amount treated as a
reduction is limited to the amount by which the total tax-exempt
interest the holder accounted for on the tax-exempt obligation in
prior taxable years exceeds the amount of the holder's total
negative adjustments on the tax-exempt obligation that reduced other
tax-exempt interest under this paragraph (d)(2)(v)(B) in prior
taxable years.
(C) Carryforward of negative adjustment.
If the total negative
adjustments on the tax-exempt obligation for a taxable year exceed
the sum of the amounts treated as a reduction of tax-exempt interest
under paragraphs (d)(2)(v)(A) and (B) of this section, the excess is
a negative adjustment carryforward for the taxable year.
(1) In general. Except as provided in paragraph
(d)(2)(v)(C)(2) of this section, a negative adjustment carryforward
79
on a tax-exempt obligation for a taxable year is treated as a
negative adjustment on the tax-exempt obligation on the first day of
the succeeding taxable year.
(2) In year of sale, exchange, or retirement. Any negative
adjustment carryforward on a tax-exempt obligation for a taxable
year in which the debt instrument is sold, exchanged, or retired
reduces the amount realized by the holder on the sale, exchange, or
retirement.
(vi) Gains. Notwithstanding paragraph (b)(8) of this section,
any gain recognized on the sale, exchange, or retirement of a taxexempt obligation is gain from the sale or exchange of the
obligation.
(vii) Losses-- (A) Reduction of tax-exempt interest income.
Notwithstanding paragraph (b)(8) of this section, any loss
recognized on the sale, exchange, or retirement of a tax-exempt
obligation is treated as a reduction of the holder's tax-exempt
interest income for the taxable year of the sale, exchange, or
retirement.
However, the amount treated as a reduction of tax-
exempt interest income by the holder is limited to the amount by
which the holder's total tax-exempt interest on the obligation
exceeds the holder's total negative adjustments on the obligation
that were treated as reductions of tax-exempt interest income under
paragraph (d)(2)(v)(B) of this section.
If the amount that would
reduce tax-exempt interest income measured under the preceding
sentence exceeds the holder's total tax-exempt interest income for
the taxable year, the excess is carried forward to reduce the
holder's tax-exempt interest income in subsequent taxable years.
80
(B) Treatment of excess losses.
If the loss recognized by a
holder on the sale, exchange, or retirement of a tax-exempt
obligation exceeds the amount measured under paragraph
(d) (2) (vii) (a ) of this section, the excess is treated as loss from
the sale or exchange of the tax-exempt obligation.
(e) Timing of income and deductions from notional principal
contracts. For the rules governing the timing of income and
deductions with respect to notional principal contracts
characterized as including a loan, see §1.446-3.
(f) Effective date. This section is effective for debt
instruments issued on or after the date that is 60 days after final
regulations are published in the Federal Register.
Par. 8.
Section 1.1275-5 is amended by:
1.
Revising paragraph (a)(1).
2.
Adding the word "only" immediately following the
parenthetical in the introductory language of paragraph (a) (3) (i) .
3.
Removing the language "less than 1 year" in the first
sentence of paragraph (a)(3)(ii) and adding the language "1 year or
less" in its place.
4.
Adding paragraph (a) (5) .
5.
Revising paragraph (c)(1).
6.
Revising paragraph (d) and adding Example 10.
7.
Revising paragraph (e)(2).
8.
Revising paragraph (e)(3)(v).
The revisions and additions read as follows:
81
SI.1275-5
Variable rate debt instruments.
%
(a) Applicability--(1) In general. This section provides rules
for variable rate debt instruments.
A variable rate debt instrument
is a debt iristrument that meets the conditions described in
paragraphs (a)(2), (3), (4), and (5) of this section.
If a debt
instrument that provides for a variable rate of interest does not
qualify as a variable rate debt instrument, the debt instrument is a
contingent payment debt instrument.
See §1.1275-4 for the treatment
of a contingent payment debt instrument.
If a taxpayer holds (or
issues) a variable rate debt instrument that the taxpayer hedges,
see §1.1275-6 for the treatment of the debt instrument and the hedge
by the taxpayer.
* * ★ * *
(5) No contingent principal payments. The debt instrument must
not provide for any principal payments that are contingent (within
the meaning of §1.1275-4(a)).
★
*
*
★
★
(c) Objective rate--(l) In general--(i) Debt instruments issued
on or after the date that is 60 davs after final regulations are
published in the Federal Register-- (A) In general. Except as
provided in paragraph (c)(1)(i)(B) of this section, for debt
instruments issued on or after the date that is 60 days after final
regulations are published in the Federal Register, an objective rate
is a rate (other than a qualified floating rate) that is determined
using a single fixed formula and that is based on objective
financial or economic information.
For example, an objective rate
generally includes a rate that is based on one or more qualified
82
floating rates or on the yield of actively traded personal property
(within the meaning of section 1092(d)(1)).
(B) Exception. For purposes of paragraph (c)(1)(i)(A) of this
section, an'objective rate does not include a rate based on
information that is within the control of the issuer (or a related
party within the meaning of section 267(b) or 707(b)(1)) or that is
unique to the circumstances of the issuer (or a related party within
the meaning of section 267(b) or 707(b) (1)), such as dividends,
profits, or the value of the issuer's stock.
However, a rate does
not fail to be an objective rate merely because it is based on the
credit quality of the issuer.
(ii)
Debt instruments issued after April 3. 1994. and before
the date that is 60 davs after final regulations are- published in
the Federal Register.
For debt instruments issued after April 3,
1994, and before the date that is 60 days after final regulations
are published in the Federal Register, an objective rate is a rate
(other than a qualified floating rate) that is determined using a
single fixed formula and that is based on-(A) One or more qualified floating rates;
(B) One or more rates where each rate would be a qualified
floating rate for a debt instrument denominated in a currency other
than the currency in which the debt instrument is denominated;
(C) The yield or changes in the price of one or more items of
personal property (other than stock or debt of the issuer or a
related party within the meaning of section 267(b) or 707(b)(1)),
provided each item of property is actively traded within the meaning
83
of section 1092(d)(1) (determined without regard to section
1092(d)(3)); or
(D)
A combination of rates described in paragraphs
(c)(1)(ii)(A), (B), and (C) of this section.
* * * * *
(d) Examples. The following examples illustrate the rules of
paragraphs (b) and (c) of this section.
For purposes of these
examples, assume that the debt instrument is not a tax-exempt
obligation.
In addition, unless otherwise provided, assume that the
rate is not reasonably expected to result in a significant front
loading or back-loading of interest and that the rate is not based
on objective financial or economic information that is within the
control of the issuer (or a related party) or that is unique to the
circumstances of the issuer (or a related party).
* * * * *
Example 4 . Rate based on changes in the value of a commodity
index. X issues a debt instrument that provides for annual interest
payments at the end of each year at a rate equal to the percentage
increase, if any, in the value of an index for the year immediately
preceding the payment. The index is based on the prices of several
actively traded commodities. Variations in the value of this
interest rate cannot reasonably be expected to measure
contemporaneous variations in the cost of newly borrowed funds.
Accordingly, the rate is not a qualified floating rate. However,
because the rate is based on objective financial information, the
rate is an objective rate.
Example 5 . Rate based on a percentage of S&P 500 Index. X
issues a debt instrument that provides for annual interest payments
at the end of each year based on a fixed percentage of the value of
the S&P 500 Index. Variations in the value of this interest rate
cannot reasonably be expected to measure contemporaneous variations
in the cost of newly borrowed funds and, therefore, the rate is not
a qualified floating rate. Although the rate would be an objective
rate under paragraph (c)(1)(i) of this section, the rate is not an
objective rate because it is reasonably expected that the average
value of the rate during the first half of the instrument's term
will be significantly less than the average value of the rate during
the final half of the instrument's term.
84
Example 6 . Rate based on issuers profits. Z issues a debt
instrument that provides for annual interest payments equal to 20
percent of Z's net profits earned during the year immediately
preceding the payment. Variations in the value of this interest
rate cannot reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds. Accordingly, the
rate is not a qualified floating rate. In addition, because the
stated rate is based on objective financial information that is
unique to the issuer's circumstances, the rate is not an objective
rate.
★
★
*
*
*
Example 10. Rate based on an inflation index. On January 1,
1996, X issues a debt instrument that provides for annual interest
payments at the end of each year at a rate equal to 400 basis points
(4 percent) plus the annual percentage change in a general inflation
index (e.g., the Consumer Price Index, U.S. City Average, All Items,
for all Urban Consumers, seasonally unadjusted). Variations in the
value of this interest rate cannot reasonably be expected to measure
contemporaneous variations in the cost of newly borrowed funds.
Accordingly, the rate is not a qualified floating rate. However,
because the rate is based on objective economic information, the
rate is an objective rate.
(e) * * *
(2)
Variable rate debt instrument that provides for annual
payments of interest at a single variable rate.
If a variable rate
debt instrument provides for stated interest at a single qualified
floating rate or objective rate that is unconditionally payable in
cash or in property (other than debt instruments of the issuer), or
that will be constructively received under section 451, at least
annually-(i) All stated interest with respect to the debt instrument is
qualified stated interest;
(ii) The amount of qualified stated interest and the amount of
OID, if any, that accrues during an accrual period is determined
under the rules applicable to fixed rate debt instruments by
assuming that the variable rate is a fixed rate equal to
85
(A) In the case of a qualified floating rate or qualified
inverse floating rate, the value, as of the issue date, of the
qualified floating rate or qualified inverse floating rate; or
(B) In„the case of an objective rate (other than a qualified
inverse floating rate), a fixed rate that reflects the yield that is
reasonably expected for the debt instrument; and
(iii)
Qualified stated interest allocable to an accrual period
is increased (or decreased) if the interest actually paid during an
accrual period exceeds (or is less than) the interest assumed to be
paid during the accrual period under paragraph (e)(2)(ii) of this
section.
(3) * * *
(v) Examples. The following examples illustrate the rules in
paragraphs (e)(2) and (3) of this section.
★
★
★
★
★
Example 3 . Adjustment to qualified stated interest for actual
payment of interest--(i) Facts. On January 1, 1995, Z purchases at
original issue, for $90,000, a variable rate debt instrument that
matures on January 1, 1997, and has a stated principal amount of
$100,000, payable at maturity. The debt instrument provides for
annual payments of interest on January 1 of each year, beginning on
January 1, 1996. The amount of interest payable is the value of
annual LIBOR on the payment date. The value of annual LIBOR on
January 1, 1995, and January 1, 1996, is 5 percent, compounded
annually. The value of annual LIBOR on January 1, 1997, is 7
percent, compounded annually.
(ii) Accrual of OID and qualified stated interest. Under
paragraph (e)(2) of this section, the variable rate debt instrument
is treated as a 2-year debt instrument that has an issue price of
$90,000, a stated principal amount of $100,000, and interest
payments of $5,000 at the end of each year. The debt instrument has
$10,000 of OID and the annual interest payments of $5,000 are
qualified stated interest payments. Under §1.1272-1, the debt
instrument has a yield of 10.82 percent, compounded annually. The
amount of OID allocable to the first annual accrual period (assuming
Z uses annual accrual periods) is $4,743.25 (($90,000 x .1082) $5,000), and the amount of OID allocable to the second annual
accrual period is $5,256.75 ($100,000 - $94,743.25). Under
86
paragraph (e) (2) (iii) of this section, the $2,000 difference between
the $7,000 interest payment actually made at maturity and the $5,000
interest payment assumed to be made at maturity under the equivalent
fixed rate debt instrument is treated as additional qualified stated
interest for the period.
★
★
★
★
★
0
Par. 9.
SI.1275-6
Section 1.1275-6 is added to read as follows:
Integration of qualifying debt instruments.
(a) In general. This section generally provides for the
integration of a qualifying debt instrument with a hedge or
combination of hedges if the combined cash flows of the components
are substantially equivalent to the cash flows on a fixed or
variable rate debt instrument.
The integrated transaction is
generally subject to the rules of this section rather than the rules
each component of the transaction would be subject to on a separate
basis.
The purpose of this section is to permit a more appropriate
determination of the character and timing of income, deductions,
gains, or losses than would be permitted by a separate accounting
for the components.
The rules of this section must be interpreted
consistently with this purpose.
The rules of this section affect
only the taxpayer who holds (or issues) the qualifying debt
instrument and enters into the hedge.
(b) Definitions--(1) Qualifying debt instrument-- (i) In
general. A qualifying debt instrument is a debt instrument subject
to either §1.1275-4 (relating to contingent payment debt
instruments) or §1.1275-5 (relating to variable rate debt
instruments), or is an integrated transaction as defined in
paragraph (c) of this section.
However, a tax-exempt obligation, as
defined in section 1275(a)(3), is not a qualifying debt instrument.
4
87
(ii) Special rule if all payments on a debt instrument are
protoortionallv hedged.
If a debt instrument is a qualifying debt
instrument and all principal and interest payments under the
instrument are hedged in the same proportion, then, for purposes of
this section, the portion of the instrument that is hedged is
treated as a qualifying debt instrument.
(2) Section 1.1275-6 hedge--(i) In general. A §1.1275-6 hedge
is any financial instrument (as defined in paragraph (b)(3) of this
section) such that the combined cash flows of the financial
instrument and the qualifying debt instrument permit the calculation
of a yield to maturity (under the principles of section 1272), or
the right to the combined cash flows would qualify as a variable
rate debt instrument under §1.1275-5 that pays interest at a
qualified floating rate or rates (except for the requirement that
the interest payments be stated as interest). A financial
instrument that hedges currency risk, however, is not a §1.1275-6
hedge.
(ii) Limitation. A taxpayer cannot treat a debt instrument it
issues as a §1.1275-6 hedge of a debt instrument it holds and a
taxpayer cannot treat a debt instrument it holds as a §1.1275-6
hedge of a debt instrument it issues.
(3) Financial instrument.
For purposes of this section, a
financial instrument is a spot, forward, or futures contract, an
option, a notional principal contract, a debt instrument, or a
similar instrument, or combination or series of financial
instruments.
Stock, however, is not a financial instrument for
purposes of this section.
88
(4)
Synthetic debt instrument. The synthetic debt instrument
is the hypothetical debt instrument with the same cash flows as the
combined cash flows of the qualifying debt instrument and the
§1.1275-6 hedge.
(c) Integrated transaction--(1) Integration bv taxpayer.
Except as otherwise provided in this section, a qualifying debt
instrument and a §1.1275-6 hedge are an integrated transaction if
all of the following requirements are satisfied-(i) The taxpayer satisfies the identification requirements of
paragraph (f) of this section on or before the date the taxpayer
enters into the §1.1275-6 hedge.
(ii) None of the parties to the §1.1275-6 hedge are related
within the meaning of section 267(b) or 707(b)(1) (other than
parties that have made a separate-entity election under
§1.1221-2 (d) ) .
(iii) Both the qualifying debt instrument and the §1.1275-6
hedge are entered into by the same individual, partnership, trust,
estate, or corporation (regardless of whether the corporation is a
member of an affiliated group of corporations that files a
consolidated return).
(iv) With respect to a foreign person engaged in a U.S. trade
or business that issues or acquires a qualifying debt instrument or
enters into a §1.1275-6 hedge through the trade or business, all
items of income and expense associated with the qualifying debt
instrument and the §1.1275-6 hedge (other than interest expense that
is subject to §1.882-5) would have been effectively connected with
89
the U.S. trade or business throughout the term of the synthetic debt
instrument had this section not applied.
(v) The qualifying debt instrument, any other debt instrument
that is part of the same issue as the qualifying debt instrument, or
the §1.1275-6 hedge cannot have been part of an integrated
transaction entered into by the taxpayer that has been terminated
under the legging out rules of paragraph (d)(2) of this section.
(vi) The §1.1275-6 hedge is entered into on or after the date
the qualifying debt instrument is issued or acquired.
(2) Integration bv Commissioner. The Commissioner may treat a
qualifying debt instrument and a financial instrument (whether
entered into by the taxpayer or by a related party) as an integrated
transaction if the combined cash flows on the qualifying debt
instrument and financial instrument are substantially the same as
the combined cash flows required for the financial instrument to be
a §1.1275-6 hedge.
The circumstances under which the Commissioner
may require integration include, but are not limited to, the
following:
(i) A taxpayer fails to identify a qualifying debt instrument
and the §1.1275-6 hedge under paragraph (f) of this section.
(ii) A taxpayer issues or acquires a qualifying debt instrument
and a related party (within the meaning of section 267(b) or
707(b)(1)) enters into the §1.1275-6 hedge.
(iii) A taxpayer issues or acquires a qualifying debt
instrument and enters into the §1.1275-6 hedge with a related party
(within the meaning of section 267(b) or 707(b)(1)).
90
'(iv) The taxpayer legs out of an integrated transaction and
subsequently enters into a new §1.1275-6 hedge with respect to the
same qualifying debt instrument or other debt instrument that is
part of the same issue.
(d)
Special rules for legging into and legging out of an
integrated transaction--(1) Legging into--(i) Definition. Legging
into an integrated transaction under this section means that a
§1.1275-6 hedge is entered into after the date the qualifying debt
instrument is issued by the taxpayer or acquired by the taxpayer,
and the requirements of paragraph (c)(1) of this section are
satisfied on the date the §1.1275-6 hedge is entered into (the legin date).
(ii) Treatment.
If a taxpayer legs into an integrated
transaction, the taxpayer treats the qualifying debt instrument
under the applicable rules for accruing interest and OID up to the
leg-in date, except that the day before the leg-in date is treated
as the end of an accrual period.
As of the leg-in date, the
qualifying debt instrument is subject to the rules of paragraph (g)
of this section.
(iii) Anti-abuse rule.
If a taxpayer legs into an integrated
transaction with a principal purpose of deferring or accelerating
income or deductions on the qualifying debt instrument, the
Commissioner may-(A) Treat the qualifying debt instrument as sold for its fair
market value on the leg-in date; or
(B) Refuse to allow the taxpayer to integrate the qualifying
debt instrument and the §1.1275-6 hedge.
91
(2)
Legging out--(i) Definition-- (A) Legging out if the
taxpayer has integrated.
If a taxpayer has integrated a qualifying
debt instrument and a §1.1275-6 hedge under paragraph (c)(1) of this
section, legging out means that, prior to the maturity of the
synthetic debt instrument, the taxpayer disposes of or otherwise
terminates all or a part of the qualifying debt instrument or
§1.1275-6 hedge, the §1.1275-6 hedge ceases to meet the requirements
for a §1.1275-6 hedge, or the taxpayer fails to meet any requirement
of paragraph (c)(1) of this section.
If the taxpayer fails to meet
the requirements of paragraph (c)(1) of this section but meets the
requirements of paragraph (c)(2) of this section, the Commissioner
may treat the taxpayer as not legging out. A taxpayer that disposes
of or terminates both the qualifying debt instrument and the
§1.1275-6 hedge on the same day is considered to have disposed of or
otherwise terminated the synthetic debt instrument rather than to
have legged out.
(B) Legging out if the Commissioner has integrated.
If the
Commissioner has integrated a qualifying debt instrument and a
financial instrument under paragraph (c)(2) of this section, legging
out means that, prior to the maturity of the synthetic debt
instrument, the requirements for Commissioner integration under
paragraph (c)(2) of this section are not met or the taxpayer fails
to meet the requirements for taxpayer integration under paragraph
(c)(1) of this section and the Commissioner agrees to allow the
taxpayer to be treated as legging out.
A taxpayer that disposes of
or terminates both the qualifying debt instrument and the financial
instrument on the same day is considered to have disposed of or
92
otherwise terminated the synthetic debt instrument rather than to
have legged out.
(ii) Operating rules. If a taxpayer legs out (or is treated as
legging out)* of an integrated transaction, the following rules
apply-(A) The transaction is treated as an integrated transaction
during the time the requirements of paragraph (c)(1) or (2) of this
section, as appropriate, are satisfied.
(B) If the §1.1275-6 hedge is disposed of or otherwise
terminated, the synthetic debt instrument is treated as sold or
otherwise terminated for its fair market value on the leg-out date
and, except as provided in paragraph (d)(2)(ii)(D) of this section,
any income, deduction, gain, or loss is realized and recognized on
the leg-out date.
Appropriate adjustments are made as of the leg-
out date to reflect any difference between the fair market value of
the qualifying debt instrument and the adjusted issue price of the
qualifying debt instrument.
For example, if a qualifying debt
instrument is subject to §1.1275-4, a holder must use the principles
of §1.1275-4(b)(9)(i) to compute interest accruals on the instrument
after the leg-out date.
(C) If the qualifying debt instrument is disposed of or
otherwise terminated, the synthetic debt instrument is treated as
sold for its fair market value on the leg-out date and the §1.1275-6
hedge is treated as entered into at its fair market value
immediately after the taxpayer legs out.
(D) If a taxpayer legs out of an integrated transaction by
disposing of or otherwise terminating a §1.1275-6 hedge within 30
93
days of legging into the integrated transaction, then any loss or
deduction determined under paragraph (d)(2)(ii)(B) of this section
is not allowed.
Appropriate adjustments are made to the qualifying
debt instrument to take into account any disallowed loss.
(e) Transactions part of a straddle. At the discretion of the
Commissioner, a transaction may not be integrated under paragraph
(c)(1) of this section if, prior to the time the integrated
transaction is identified, the qualifying debt instrument is part of
a straddle as defined in section 1092(c).
(f) Identification requirements— (1) Identification bv
taxpayer.
For each integrated transaction, a taxpayer must enter
and retain as part of its books and records the following
information-(1) The date the qualifying debt instrument was issued or
acquired by the taxpayer and the date the §1.1275-6 hedge was
entered into by the taxpayer;
(ii) A description of the qualifying debt instrument and the
§1.1275-6 hedge; and
(iii) A summary of the cash flows and accruals resulting from
treating the qualifying debt instrument and the §1.1275-6 hedge as
an integrated transaction (i.e., the cash flows and accruals on the
synthetic debt instrument).
(2) Identification bv trustee on behalf of beneficiary. A
trustee of a trust that enters into a synthetic debt instrument may
satisfy the identification requirements described in paragraph
(f)(1) of this section on behalf of a beneficiary of the trust.
94
(g)
Taxation of integrated transactions- - m
General rule. An
integrated transaction is generally treated as a single transaction
by the taxpayer during the period that the transaction qualifies as
an integrated transaction.
Except as provided in paragraph (g)(12)
of this section, while a qualifying debt instrument and a §1.1275-6
hedge are part of an integrated transaction, neither the qualifying
debt instrument nor the §1.1275-6 hedge is subject to the rules that
would apply on a separate basis to the debt instrument and the
§1.1275-6 hedge, including sections 263(g), 475, 1092, 1256, or
1258, or §§1.446-3, 1.446-4, or 1.1221-2.
The rules that would
govern the treatment of the synthetic debt instrument generally
govern the treatment of the integrated transaction.
For example,
the integrated transaction may be subject to section' 263(g) or, if
the synthetic debt instrument would be part of a straddle, section
1092.
Generally, the synthetic debt instrument is subject to
sections 163(e), 1271 through 1275, and 1286 with terms as follows.
(2) Issue date. The issue date of the synthetic debt
instrument is the date the §1.1275-6 hedge is entered into by the
taxpayer.
(3) Term. The term of the synthetic debt instrument is the
period beginning on the issue date of the synthetic debt instrument
and ending on the maturity date of the qualifying debt instrument.
(4) Issue price. The issue price of the synthetic debt
instrument is the adjusted issue price of the qualifying debt
instrument on the issue date of the synthetic debt instrument.
95
(5) Adjusted issue price. In general, the adjusted issue price
of the synthetic debt instrument is determined under the principles
of §1.1275-1(c).
(6) Qualified stated interest. Qualified stated interest
payments on the synthetic debt instrument are payments that would be
treated as qualified stated interest under the principles of
§1.1273-1(c) if the payments were stated as interest.
(7) Stated redemption price at maturity--(i) Synthetic debt
instruments that are borrowings.
If the synthetic debt instrument
is a borrowing, the instrument's stated redemption price at maturity
is the sum of all amounts paid or to be paid on the qualifying debt
instrument and the §1.1275-6 hedge, reduced by any amounts received
or to be received on the §1.1275-6 hedge and any amounts treated as
qualified stated interest on the synthetic debt instrument under
paragraph (g)(6) of this section.
(ii) Synthetic debt instruments that are loans.
If the
synthetic debt instrument is a loan, the instrument's stated
redemption price at maturity is the sum of all amounts received or
to be received on the qualifying debt instrument and the §1.1275-6
hedge, reduced by any amounts paid or to be paid on the §1.1275-6
hedge and any amounts treated as qualified stated interest on the
synthetic debt instrument under paragraph (g)(6) of this section.
(8)
Source of interest income and allocation of expense. The
source of interest income from the synthetic debt instrument is
determined by reference to the source of income of the qualifying
debt instrument under sections 861(a)(1) and 862(a)(1).
For
purposes of section 904, the character of interest from the
■
96
synthetic debt instrument is determined by reference to the
character of the interest income from the qualifying debt
instrument.
Interest expense is allocated and apportioned under
regulations nander section 861 or under §1.882-5.
(9) Effectively connected income.
Interest income of a foreign
person resulting from a synthetic debt instrument entered into by
the foreign person that satisfies the requirements of paragraph
(c)(1)(iv) of this section is treated as effectively connected with
a U.S. trade or business.
Interest expense of a foreign person
resulting from an integrated transaction entered into by the foreign
person that satisfies the requirements of paragraph (c)(1)(iv) of
this section is allocated and apportioned under §1.882-5.
(10) Not a short-term obligation.
If the synthetic debt
instrument has a term of one year or less, the synthetic debt
instrument is not treated as a short-term obligation for purposes of
section 1272(a)(2)(C).
(11) Special rules for integration bv the Commissioner.
If -the
Commissioner requires integration, appropriate adjustments are made
to the treatment of the synthetic debt instrument, and, if
necessary, the qualifying debt instrument and financial instrument.
For example, the Commissioner may treat a financial instrument that
is not a §1.1275-6 hedge as a §1.1275-6 hedge when applying the
rules of this section.
The issue date of the synthetic debt
instrument is the date determined appropriate by the Commissioner to
require integration.
(12) Retention of separate transaction rules for certain
purposes. This paragraph (g)(12) provides for the retention of
97
separate transaction rules for certain purposes.
In addition, the
Commissioner may require use of separate transaction rules for any
aspect of an integrated transaction by publication in the Internal
Revenue Bulletin (see §601.601(d)(2)(ii) of this chapter).
(i) Foreign persons that enter into integrated transactions
giving rise to U.S. source income not effectively connected with a
U.S. trade or business.
If a foreign person enters into an
integrated transaction that gives rise to U.S. source interest
income (determined under the source rules for the synthetic debt
instrument) not effectively connected with a U.S. trade or business
of the foreign person, paragraph (g) of this section does not apply
for purposes of sections 871(a), 881, 1441, 1442, and 6049.
These
sections of the Internal Revenue Code are applied to' the qualifying
debt instrument and the §1.1275-6 hedge on a separate basis.
For
example, if a U.S. corporation issues a qualifying debt instrument
and enters into a notional principal contract that is a §1.1275-6
hedge, the source of interest on the qualifying debt instrument is
determined under section 861.
In general, the interest constitutes
U.S. source interest that is subject to withholding tax to the
extent provided in sections 871, 881, 1441, and 1442.
The source of
payments on the notional principal contract is determined under
§1.863-7 and, to the extent paid to a non-U.S. person who is not
engaged in a U.S. trade or business, constitutes non-U.S. source
income that is not subject to U.S. withholding tax.
(ii) Relationship between issuer and holder. Because the rules
of this section affect only the taxpayer holding or issuing the
qualifying debt instrument (i.e., either the issuer or a particular
98
holder), any provisions of the Internal Revenue Code or regulations
that govern the relationship between the issuer and holder of the
qualifying debt instrument are applied on a separate basis.
For
example, taxpayers must comply with any reporting or disclosure
requirements on any qualifying debt instrument as if it were not
part of an integrated transaction.
Thus, if required under
§1.1275-4(b)(4), an issuer of a contingent payment debt instrument
subject to integrated treatment must provide the projected payment
schedule to holders.
(h)
Examples. The following examples illustrate the provisions
of this section.
In each example, assume that the qualifying debt
instrument is a debt instrument for federal income tax purposes.
No
inference is intended, however, as to whether the debt instrument
constitutes a debt instrument for federal income tax purposes.
Example 1. Issuer hedge--(i) Facts. On January 1, 1997, V, a
domestic corporation, issues a 5-year debt instrument for $1,000.
The debt instrument provides for annual payments of interest at a
rate equal to the value of 1-year LIBOR and a principal payment of
$1,000 at maturity. On the same day, V enters into a 5-year
interest rate swap agreement with an unrelated party. Under the
swap, V pays 6 percent and receives 1-year LIBOR on a notional
principal amount of $1,000. The payments on the swap are fixed and
made on the same days as the payments on the debt instrument. Also
on January 1, 1997, V identifies the debt instrument and the swap as
an integrated transaction in accordance with the requirements of
paragraph (f) of this section.
(ii) Eligibility for integration. The debt instrument is a
qualifying debt instrument because it is a variable rate debt
instrument. The swap is a §1.1275-6 hedge because it is a financial
instrument and a yield to maturity on the combined cash flows of the
swap and the debt instrument can be calculated. V has met the
identification requirements, and the other requirements of paragraph
(c)(1) of this section are satisfied. Therefore, the transaction is
an integrated transaction under this section.
(iii) Treatment of the synthetic debt instrument. The
synthetic debt instrument is a 5-year debt instrument that has an
issue price of $1,000 and provides for annual interest payments of
$60 and a principal payment of $1,000 at maturity. Under paragraph
99
(g).(6) of this section, the annual interest payments on the
synthetic debt instrument are treated as qualified stated interest
payments. Under paragraph (g)(7)(i) of this section, the synthetic
debt instrument has a stated redemption price at maturity of $1,000
(the sum of all amounts to be paid on the qualifying debt instrument
and the swag, reduced by amounts to be received on the swap and the
annual interest payments on the synthetic debt instrument).
Therefore, the synthetic debt instrument has no OID.
Example 2 . Issuer hedge with an option--(i) Facts. On January
1, 1996, W corporation issues for $1,000 a debt instrument that
matures on December 31, 1998. The debt instrument has a stated
principal amount of $1,000 payable at maturity. The debt instrument
also provides for a payment at maturity equal to $10 times the
increase, if any, in the value of a nationally known composite index
of stocks from January 1, 1996, to the maturity date. On January 1,
1996, W also purchases from an unrelated party an option that pays
$10 times the increase, if any, in the stock index from January 1,
1996, to December 31, 1998. W pays $250 for the option. W
identifies the debt instrument and option as an integrated
transaction in accordance with the requirements of paragraph (f) of
this section.
(ii) Eligibility for integration. The debt instrument is a
qualifying debt instrument because it is a contingent payment debt
instrument. The option is a §1.1275-6 hedge because it is a
financial instrument and a yield to maturity on the combined cash
flows of the option and the debt instrument can be calculated. W
has met the identification requirements, and the other requirements
of paragraph (c)(1) of this section are satisfied. Therefore, the
transaction is an integrated transaction under this section.
(iii) Treatment of the synthetic debt instrument. The
synthetic debt instrument is a 3-year debt instrument with an issue
price of $1,000 that provides for a payment immediately after
issuance of $250 and a payment of $1,000 at maturity. The synthetic
debt instrument has a stated redemption price at maturity of $1,250
and, therefore, has OID of $250. The $250 payment reduces the
adjusted issue price of the synthetic debt instrument to $750
immediately after it is issued. Therefore, the OID allocable to the
first accrual period is based on the $750 adjusted issue price. See
§1.1272 -1(b) .
Example 3 . Hedge with prepaid swap--(i) Facts. On January 1,
1996, H purchases for £1,000 a 5-year debt instrument that provides
for semiannual payments based on 6-month pound LIBOR and a payment
of the £1,000 principal at maturity. On the same day, H enters into
a swap with an unrelated third party under which H receives 10
percent, in pounds, semiannually and pays 6-month pound LIBOR
semiannually on a notional principal amount of £1,000. Payments on
the swap are fixed and made on the same date that H receives
payments on the debt instrument. H also makes a £162 prepayment on
the swap. H identifies the swap and the debt instrument as an
integrated transaction under paragraph (f) of this section.
100
(ii) Eligibility for integration. The debt instrument is a
qualifying debt instrument because it is a variable rate debt
instrument. The swap is a §1.1275-6 hedge because it is a financial
instrument and a yield to maturity on the combined cash flows of the
swap and the debt instrument can be calculated. Although the debt
instrument fs denominated in pounds, the swap hedges only interest
rate risk, not currency risk. See §1.988-5(a) for the treatment of
a debt instrument and a swap if the swap hedges currency risk.
(iii) Treatment of the synthetic debt instrument. The
synthetic debt instrument is a 5-year debt instrument that has an
issue price of £1,000 and provides for semiannual interest payments
of £50 and a principal payment of £1,000 at maturity. Under
paragraph (g)(6) of this section, the semiannual interest payments
are treated as qualified stated interest payments. Under paragraph
(g)(7)(ii) of this section, the synthetic debt instrument's stated
redemption price at maturity is £838 (the sum of all amounts to be
received on the qualifying debt instrument and the §1.1275-6 hedge,
reduced by all amounts to be paid on the §1.1275-6 hedge and the
semiannual interest payments on the synthetic debt instrument).
Because the issue price of the synthetic debt instrument exceeds the
instrument's stated redemption price at maturity, the synthetic debt
instrument does not have OID. The synthetic debt instrument,
however, does have £162 of amortizable bond premium.- The £162
prepayment on the §1.1275-6 hedge made by H on January 1, 1996,
increases the adjusted issue price of the synthetic debt instrument
to £1,162 immediately after it is issued.
Example 4 . Legging into an integrated transaction bv a holder-(i) Facts. On January 1, 1996, X corporation purchases for
$1,000,000 a debt instrument that matures on December 31, 2005. The
debt instrument provides for annual payments of interest at the rate
of 6 percent and for a payment at maturity equal to $1,000,000,
increased by the excess, if any, of the price of 1,000 units of a
commodity on December 31, 2005, over $350,000, and decreased by the
excess, if any, of $350,000 over the price of 1,000 units of a
commodity on that date. Assume that on the issue date the forward
price of the commodity on December 31, 2005, is $370,000. The
projected amount of the payment at maturity, determined under
§1.1275-4(b)(4), therefore, is $1,020,000. On January 1, 1999, X
enters into a cash settled forward contract with an unrelated party
to sell 1,000 units of the commodity on December 31, 2005, for
$450,000. Also on January 1, 1999, X identifies the transaction as
an integrated transaction in accordance with the requirements of
paragraph (f) of this section.
(ii) Eligibility for
integration as of January
integrated transaction on
the debt instrument under
integration. X meets the requirements for
1, 1999. Therefore, X legged into an
that date. Prior to that date, X treats
the applicable rules of §1.1275-4.
(iii) Treatment of the synthetic debt instrument. As of
January 1, 1999, the debt instrument and the forward contract are
101
treated as an integrated transaction. The issue price of the
synthetic debt instrument is equal to the adjusted issue price of
the qualifying debt instrument on the leg-in date, $1,004,804
(assuming one year accrual periods). The term of the synthetic debt
instrument is from January 1, 1999 to December 31, 2005. The
synthetic debt instrument provides for annual interest payments of
$60,000 and-a principal payment at maturity of $1,100,000
($1,000,000 + $450,000 - $350,000). Under paragraph (g)(6) of this
section, the annual interest payments are treated as qualified
stated interest payments. Under paragraph (g)(7)(ii) of this
section, the synthetic debt instrument's stated redemption price at
maturity is $1,100,000 (the sum of all amounts to be received on the
qualifying debt instrument and the §1.1275-6 hedge, reduced by all
amounts to be paid on the §1.1275-6 hedge and the annual interest
payments on the synthetic debt instrument).
Example 5 . Abusive leq-in--(i) Facts. On January 1, 1996, Y
corporation purchases for $1,000,000 a debt instrument that matures
on December 31, 2000. The debt instrument provides for annual
payments of interest at the rate of 6 percent, a payment on December
31, 1998 of the increase, if any, in the price of a commodity from
January 1, 1996 to December 31, 1998, and a payment at maturity of
$1,000,000 and the increase, if any, in the price of the commodity
from December 31, 1998 to maturity. Because the debt instrument is
a contingent payment debt instrument subject to §1.1275-4, Y accrues
interest based on the projected payment schedule.
(ii) Leg-in. By December 1998, the price of the commodity has
substantially increased and Y expects a positive adjustment on
December 31, 1998. On December 20, 1998, Y enters into an agreement
to exchange the two commodity based payments on the debt instrument
for two payments on the same dates of $100,000 each. Y identifies
the transaction as an 'integrated transaction in accordance with the
requirements of paragraph (f) of this section. Y disposes of the
hedge on January 15, 1999.
(iii) Treatment. The legging into an integrated transaction
has the effect of deferring the positive adjustment from 1998 to
1999. Because Y legged into the integrated transaction with a
principal purpose to defer the positive adjustment, the Commissioner
may treat the debt instrument as sold for its fair market value on
the leg-in date, December 20, 1998, or refuse to allow integration.
Example 6 . Integration of offsetting debt instruments--(i)
Facts. On January 1, 1996, Z issues two 10-year debt instruments.
The first, Issue 1, has an issue price of $1,000, pays interest
annually at 6 percent, and, at maturity, pays $1,000, increased by
$1 times the increase, if any, in the value of the S&P 100 Index
over the term of the instrument and reduced by $1 times the
decrease, if any, in the value of the S&P 100 Index over the term of
the instrument. However, the amount paid at maturity may not be
less than $500 or morethan $1,500. The second, Issue 2, has an
issue price of $1,000, pays interest annually at 8 percent, and, at
maturity, pays $1,000, reduced by $1 times the increase, if any, in
102
the value of the S&P 100 Index over the term of the instrument and
increased by $1 times the decrease, if any, in the value of the S&P
100 Index over the term of the instrument. The amount paid at
maturity may not be less than $500 or more than $1,500. As of
January 1, 1996, Z identifies Issue 1 as the qualifying debt
instrument, Issue 2 as a §1.1275-6 hedge, and otherwise meets the
identification requirements of paragraph (f) of this section.
(ii) Eligibility for integration. Both Issue 1 and Issue 2 are
qualifying debt instruments. Z has met the identification
requirements by identifying Issue 1 as the qualifying debt
instrument and Issue 2 as the §1.1275-6 hedge. The other
requirements of paragraph (c)(1) of this section are satisfied.
Therefore, the transaction is an integrated transaction under this
section.
(iii) Treatment of the synthetic debt instrument. The
synthetic debt instrument has an issue price of $1,000, provides for
a payment at maturity of $2,000, and, in addition, provides for
annual payments of $140, which are treated as qualified stated
interest payments under paragraph (g)(6) of this section. The
synthetic debt instrument has a stated redemption price at maturity
of $1,000 (equal to $2,000 to be paid on the qualifying debt
instrument and §1.1275-6 hedge, reduced by the $1,000 received on
the §1.1275-6 hedge). As a result, the synthetic debt instrument
has no OID. The payment of $1,000 received by Z on the §1.1275-6
hedge on January 1, 1996, increases the synthetic debt instrument's
adjusted issue price to $2,000 immediately after it is issued.
(i) [Reserved]
(j) Effective date. This section is effective for qualifying
debt instruments issued on or after the date that is 60 days after
final regulations are published in the Federal Register.
101
a payment at maturity of $2,000, and, in addition, provides for
annual payments of $140, which are treated as qualified stated
interest payments under paragraph (g)(6) of this section. The
synthetic debt instrument has a stated redemption price at maturity
of $1,000 (equal to $2,000 to be paid on the qualifying debt
instrument and §1.1275-6 hedge, reduced by the $1,000 received on
the §1.1275-'6 hedge). As a result, the synthetic debt instrument
has no OID. Under paragraph (g)(5) of this section, the payment of
$1,000 received by Z on the §1.1275-6 hedge on January 1, 1996,
increases the synthetic debt instrument's adjusted issue price to
$2,000 immediately after it is issued.
(i) [Reserved]
(j) Effective date. This section is effective for integrated
transactions entered into on or after the date that is 60 days after
final regulations are published in the Federal Register.
Commissioner of Internal Revenue
«ftD
X
f i’
D E P A R T M E N T
T H E
T R E A S U R Y
NEWS
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
F OR IMMEDIATE RET E A SE
Text as Prepared for Delivery
December 16, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
WHITE HOUSE PRESS BRIEFING ROOM
I spent my tenure as Treasury Secretary with the goal of reducing the deficit. We
cut it by $87 billion. We’re not about to go spend that money.
This proposal —first and foremost —is paid for. If it weren’t paid for, I wouldn’t
be up here talking about it. That’s how strongly I feel about deficit reduction.
If I were you, I’d make sure to ask the question of all the other proposals: are
they paid for? Some of them aren’t paid for. Some increase the deficit.
Two years ago, the. President had the right priority when he started with deficit
reduction. Because we’re ahead of schedule on our progress, because we’re downsizing
the government, he’s ready to fulfill his promise of a middle-income tax cut. H e’s ready
to let the taxpayers benefit from what we’ve accomplished.
What you heard last night are proposals that have long been ideas of Democrats.
IRAs - I worked on IRAs from day one as a Senator. We passed it in 1974; in
1976 we expanded it to non-working spouses; in 1981 we increased the amount that
could be contributed to $2,000; and we tried other things through the years. Look at the
President’s proposal - and it’s very similar to H.R. 11, the Bentsen-Roth bill that passed
in 1992 with a majority of Democrats and Republicans supporting it in the Senate. But
it was vetoed by President Bush.
Or take tax credits for children. Vice President Gore and I proposed such things
in 1992, and President Bush vetoed that one.
(more)
LB-1284
2
On the education proposals —let me show you a chart. Look at the drag college
education is on families. In 1980, it cost families 11 percent of their annual income to
pay a child’s tuition at a four-year public college or 26 percent at a private college.
In 1992, it increased to 15 percent at public; 40 percent at private schools. Middleincome families can’t afford that.
You’ve heard me say this, but I want to repeat it. In 1981, we passed a tax bill
that was complete with overly optimistic assumptions. It ended in a bidding war - a
great big competition to see who could cut taxes more —the President or Congress?
If we didn’t have to pay the interest on the increase of the debt between 1981 and
1992, we’d have balanced the budget last year and had a $50 billion surplus this fiscal
year.
We surely should have learned our lesson by now. We’ve come too far in cutting
the budget deficit to let the next Congress turn back and start cooking the books. The
President wants to make things fair —without cooking the books. That’s the way to do
it.
-30-
Annual Cost of a College Education
as a Share of Median Family Income
50%
■ Public ■ Private
Source: Department of Education, National Center for Education Statistics
Share o f Tax C uts G oing to M iddle Incom e Fam ilies*
President's Proposal vs Republican Contract
Proposal
‘ Families with Incomes Under $100,000
Source: Department of the Treasury, Office of Tax Analysis
Contract
oource: uepanmem o t me i reasury,
^ m c e
ot
lax analysis
Share of Tax Cuts Going to Families With Incomes Over $100,000
President's Proposal vs Republican Contract
President's
Proposal
Source: Department of the Treasury, Office of Tax Analysis
Republican
Contract
FOR IMMEDIATE RELEASE
December 16, 1994
Contact: Michelle Smith
(202) 622-2960
BENTSEN WELCOMES PARIS CLUB DECISION
Treasury Secretary Lloyd Bentsen on Friday welcomed the Paris Club creditor
nations’ agreement to further reduce the debt of poorest countries that show sustained
economic reform.
"This is a critical step in supporting reform efforts and improving the prospects for
economic growth and better living standards in the poorest countries," Secretary Bentsen
said. "We are pleased that the United States and the other creditor governments in the Paris
Club were able to agree on these improved debt relief measures."
The improved terms provide, on a case-by-case basis, two-thirds debt reduction for
the poorest countries, and reduction of the stock of debt for countries with a sustained record
of economic reform.
The Paris Club is the informal name of the ad hoc group of creditor governments that
reschedules debts owed to them by other governments. For heavily indebted poorest
countries, the Paris Club has, until now, provided 50 percent reduction of commercial-term
debt payments coming due during a specific period.
This agreement is significant because in addition to increasing the level of debt
reduction for eligible countries, it provides for the reduction of stock of debt rather than just
for payments coming due in a specific period.
LB-1285
-30-
D E P A R T M E N T
OF
THE
T R E A S U R Y
r
TREASURY
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA
D.C. • 20220 • (202) 622-2960
REMARKS BY
LESLIE B. SAMUELS
ASSISTANT SECRETARY FOR T A X POLICY
SEVENTH ANNUAL INTERNATIONAL
T A X INSTITUTE
GEORGE WASHINGTON UNIVERSITY
December 16, 1994
Good afternoon.
Today I would like to address two issues that are currently receiving a lot of attention
in the Treasury Department. The first issue, which I will discuss only briefly, is revenue
estimating.
Treasury is frequently criticized for using so-called "static” revenue estimates. This
erroneous description implies, for example, that if an increase in the gasoline tax is proposed,
Treasury’s estimators will simply multiply the current level of gasoline consumption by the
change in the tax rate to estimate the expected revenue pickup. This is not accurate. Treasury’s
estimates are in fact "dynamic" because they take into account behavioral changes. For instance,
in the case of a gasoline tax, Treasury would consider the estimated change in gasoline
consumption when estimating the revenue gain. Treasury would not, however, try to determine
the overall effect of a gasoline tax increase on the economy.
Similarly, for the change in individual income tax rates enacted last year, Treasury’s
revenue estimators included several behavior effects. These effects included higher-income
taxpayers switching both from taxable bonds to tax-exempt bonds and from high-dividend stocks
to low-dividend stocks. But Treasury’s estimates did not include any effect of the rate changes
on the overall strength of the U.S. economy. Estimates of effects on the overall economy are
called "macroeconomic feedback effects."
One reason we do not consider macroeconomic effects is that in most cases they are
likely to be relatively small. For example, although the refining industry may be affected by
an increase in the gasoline tax, consumers who cut back on gasoline purchases will probably
spend more on other goods, so the overall effect on the economy is likely to be negligible.
LB-1286
2
There is a more important reason why macroeconomic feedback effects are not
considered. Economists cannot agree on how large these effects would be. Economists use a
wide variety of macroeconomic models and assumptions to forecast future changes in the
economy. Some stress "demand side" effects - the short run effects on the economy resulting
from increased government spending or from tax cuts that give households and businesses more
after-tax income. Others stress "supply side" effects — the long run effects that result from
changes in the after-tax return to work effort or to saving, and thus lead to increased labor
participation or increased capital stock. The spectrum of possible estimates produced by these
different models is very broad. One model may estimate a large feedback effect from a
particular proposal, while a second model may find a small feedback effect from the same
proposal. The result of including feedback effects in estimates would be a bitter debate over
whose model is more accurate.
Because of the great uncertainty surrounding the size of feedback effects, revenue
estimates that include macroeconomic effects would be susceptible to political pressures. The
potential for political misuse of macroeconomic feedback effects should not be underestimated.
Feedback effects could be used to justify tax cuts and/or endless spending, regulatory, and social
policy initiatives. And I have yet to see a proposal that its proponent believes is bad for the
economy. We would be viewed as cooking the books if we claimed favorable macroeconomic
feedback effects from our own proposals. The practical effects would be to undermine the
credibility of the government’s budget estimates and erode confidence in the government in
financial markets (causing interest rates to soar). In contrast, by following a more conservative
approach in preparing budget estimates, surprises are more likely to be favorable —the deficit
might actually decline more rapidly than anticipated. We believe that this is clearly the best
approach to fiscal responsibility.
Now I would like to turn to the second issue that I would like to discuss. Yesterday
Commissioner Richardson brought you up to date on various aspects of the Administration’s
effort to improve compliance in the international area. The focus of my remarks today is one
aspect of this effort - an OECD document entitled "Transfer Pricing Guidelines for Multinational
Enterprises and Tax Administrations - Discussion Draft of Part I." Published in July, it is the
first part of a complete revision of the OECD’s 1979 Transfer Pricing Guidelines. The OECD
is currently considering public comments submitted on the report, and intends to finalize this
portion of the report in June next year. Subsequent portions of the report will cover a number
of additional subjects relevant to transfer pricing —penalties, documentation, cost-sharing, and
corresponding adjustments.
Today I would like to stress that the Treasury Department strongly supports prompt
finalization of the report substantially in its current form, and to urge all of you to support it as
well.
Transfer pricing has always been a very important subject. It attracts a great deal of
scrutiny from legislators, tax administrators and taxpayers. The reason is obvious: transfer
pricing rules and practices determine the allocation of income among tax jurisdictions arising
from related party transactions. And the subject has come under even more intense scrutiny in
recent years.
3
I think that this additional focus is attributable to two causes.
One cause is the increasing pressure to raise revenue in this country and elsewhere. This
scrutiny is appropriate, since each country has a right to expect its taxpayers to pay their fair
share of taxes.
The second cause is the fact that the system has not been working as well as it should.
From the government’s perspective, we see two obvious flaws. First, there is insufficient self
compliance by taxpayers. Second, the legal framework does not offer taxpayers, tax
administrators and courts adequate guidance in cases in which the traditional transfer pricing
methods are inadequate.
Last year at this conference, the Commissioner and I announced a program entitled "Tax
Compliance in a Global Economy." Transfer pricing was at the center of this initiative. We
recognized that a system had to be created under which the United States would collect its fair
share of revenue from taxpayers conducting cross-border transactions with related parties.
However, this revenue must be collected without forcing taxpayers to pay tax on the same
income more than once. Also, the system must not create impossible administrative burdens for
taxpayers and governments.
With these concerns in mind, we have taken the following actions in the past year. To
ensure that taxpayers report an appropriate amount of income to the United States, we issued
temporary penalty regulations in February and final regulations under section 482 in July. Since
the panel earlier this morning discussed these regulations, I will not delve into them again,
except to make the following observation: The penalty provisions are an essential component
of our efforts to make the arm’s length standard work. They are fully consistent with a taxation
system based on the principle of self-compliance. In accordance with this principle, we believe
that taxpayers who make reasonable, good faith efforts to report arm’s length results from their
intercompany transactions should not be penalized - even if it is subsequently demonstrated that
they were wrong. But taxpayers who do not accept their responsibility to attempt to file accurate
tax returns should be penalized. We are open to suggestions as to how to appropriately alleviate
taxpayers’ burdens in fulfilling this duty. But there can be no turning back from the fundamental
principle that underlies these regulations.
Now I now would like to discuss an important piece of the transfer pricing puzzle that
sometimes is overlooked -- the overriding need for international consensus if large scale double
taxation is to be avoided. This concern is the second theme underlying our compliance
initiative.
To address this concern the United States has participated actively in a task force within
the OECD. This group is revising the 1979 Transfer Pricing Guidelines in light of recent
developments in this country and others. The OECD is making an extremely important
4
contribution to tax administration by revising a set of guidelines that in many ways is badly out
of date.
—
It is difficult to overemphasize the importance o f these guidelines. As the consensus
interpretation of the arm’s length standard, the guidelines are the bridge between each country’s
substantive rules during the competent authority process. They also provide a framework for
bilateral discussions leading to Advance Pricing Agreements - or APAs - which are another
critical component of our compliance initiative. Common guidelines permit the competent
authorities to resolve disputes without having first to agree on basic principles. They therefore
greatly facilitate the smooth resolution of difficult cases in mutual agreement procedures and in
the APA process.
The impetus for revising the OECD’s 1979 guidelines is coming to terms with reality.
The reality is that the traditional methods for applying the arm’s length standard are often
inadequate to deal with many transfer pricing cases.
Indeed, the drafters of the 1968 482 regulations and the 1979 guidelines recognized this
problem when they expressly authorized the use of unspecified methods in cases in which the
traditional methods were inadequate. Congress also recognized the problem in 1986 when it
observed that the existing approaches to transfers of intangible property were inadequate.
The United States is not alone in this regard. There has been a similar evolution in many
other countries. We have seen non-traditional applications of the arm’s length standard in
competent authority proceedings and in APAs concluded with many of our most significant
trading partners. The global trading APAs are a prime example of this trend. And we expect
this trend to accelerate.
Because this evolution has not occurred at the same rate, we have seen increasing tension
in the system. Different approaches in different countries have resulted in disputes over the
definition of the arm’s length standard. This is very dangerous. It creates potential for abuse
by those taxpayers bent on reducing their overall tax burden through inappropriate transfer
pricing. At the same time it is difficult for taxpayers to comply with the rules of each country
if inconsistent approaches are adopted. This raises the specter of double taxation.
This is why revised OECD guidelines are so important. They represent broad acceptance
by all our major trading partners of the reality that the traditional methods are appropriate when
the data to apply them is adequate. But the traditional methods must be supplemented by new
methods when the data is not adequate.
If the report is accepted in its current form, it will ensure the future viability of the arm’s
length standard. A consensus interpretation of the arm’s length standard will go far to avoid the
double taxation that would result if inconsistent approaches to transfer pricing were adopted by
different countries. At the same time, when the approaches in various countries are reasonably
5
consistent, it will be more difficult for taxpayers to shift income inappropriately. And taxpayers
interested in complying with one country’s rules will be able to do so without fear of violating
another’s.
Thus, the strengths of the report are both obvious and important. The Treasury
Department strongly supports prompt finalization of the report in its current form.
There seems to be a wariness in certain quarters about revising the 1979 guidelines. This
wariness reflects the interests of different groups. One group suspects that attempts to revise
the guidelines are thinly veiled attempts to overturn the arm’s length standard. They reject
virtually any application of methods other than those specifically sanctioned in the 1979
guidelines. Others draw an opposite conclusion from the report —they see it as perpetuating
the arm’s length standard, which they view as obsolete and unworkable.
To the group that suspects a plot to undermine the arm’s length standard, I say that it is
necessary to revise the OECD guidelines —not to overturn the arm’s length standard, but to save
it.
Inflexible adherence to dogma would forfeit one of the chief advantages of the arm’s
length standard. That advantage is flexibility. Its ability to adopt different approaches
depending on the available data permits a variety of applications -- all of which are intended to
achieve the economically desirable result of treating related and unrelated taxpayers similarly.
Formulary apportionment, based on a predetermined formula that disregards individual facts and
circumstances, does not enjoy this important advantage. If we do not permit taxpayers and tax
administrators to employ the method that is most likely to yield an arm’s length result, then the
results achieved under the arm’s length standard will begin to look as arbitrary as those achieved
under formulary apportionment.
The overwhelming majority of taxpayers and tax administrators recognize the need for
new approaches within the framework of the arm’s length standard. There can be no retreat
from this reality. Rejection of the draft report would mean ignoring this reality. And this would
contribute to lack of consensus and an increase in double taxation and related problems. More
fundamentally, lack of consensus over the definition of the arm’s length standard endangers the
unanimous commitment to the arm’s length standard represented by the draft report.
There is a second group that opposes the report. Like the Treasury Department, this
group has closely observed the turmoil in the area of transfer pricing over the last decade. But
it has proposed a very different solution to the problem. It has concluded that the arm’s length
standard cannot be saved, and a new standard should replace it. Some, but not all, members
of this group urge the United States to abandon the arm’s length standard regardless of whether
or not our trading partners agree. Most in this group advocate formulary apportionment.
There clearly are very important differences between formulary apportionment and the
arm’s length standard. But it may surprise you to hear that we believe both approaches share
a critical characteristic -- neither is acceptable in the absence of consensus. Unlike the arm’s
6
length standard, formulary apportionment is not currently accepted on the international level.
As long as there is substantial consensus on the interpretation and application of the arm’s length
standard, the arm’s length standard will enjoy an overwhelming advantage in relation to any
alternative approach, including formulary apportionment.
For those who doubt whether there is international opposition to formulary
apportionment, please reflect on the draft report. It strongly rejects formulary apportionment.
It enumerates a number of serious problems that would be encountered if formulary
apportionment were adopted on the international level. Many of these problems would exist
even if the international community decided that a formulary approach made sense as a
theoretical matter. I would also add that the report is not an isolated list of concerns by a group
of stubborn bureaucrats. Much of the scholarly literature on this subject, including that written
by proponents of the approach, identifies difficult problems that would have to be resolved
before the approach could be introduced internationally. I refer you to that literature for a
detailed exposition of these problems, and only can briefly outline them today.
The choice of the formula and the definition of the factors in the formula are obvious
areas where basic agreement would be necessary. This process would not be easy, and in my
opinion would not be successful in today’s international environment. While most U.S. states
employ formulary apportionment, even they do not all use the same formula. The economic and
political differences between states in the U.S. that result in differing formulae are much more
pronounced between countries. The inability of the European Union to harmonize the EU’s
income tax systems illustrates some of the difficulties we could expect on the international level.
In addition, the three factor formula used by many states would not be acceptable on the
international level, or at least it would not be acceptable to the United States. Significant income
generated by US multinationals is attributable not to the three factors of property, payroll and
sales, but to intangible property. Congress recognized this fact when it amended section 482
in 1986. The United States potentially would face a major revenue loss if the creation and
ownership of intangible property were not reflected in the income allocations under a formula.
It also would be necessary to agree to a common definition of the taxable base that will
be apportioned under the formula. Reaching such an agreement presents extraordinarily serious
practical problems. Every country has unique accounting and tax rules. These rules regulate
definitions of income, timing of income recognition, as well as deductions for everything from
depreciation to pension contributions. The differences in these rules reflect choices arising out
of each country’s unique set of cultural, political and economic characteristics. But they would
need to be standardized throughout the world to arrive at a uniform definition of the taxable base
subject to apportionment.
Obviously, reaching agreement on these and other important issues would require a great
deal of coordination among tax administrations. At the state level the forum for resolution of this
type of issue is the Multistate Tax Commission. The MTC does an outstanding job of
developing common guidelines for use by its members. It also is substantially aided by the fact
7
that the starting point for application of the formula generally is the federal income tax base.
Having to deal with only one currency and one language also helps. These advantages would
be lost on the international level.
Unfortunately the MTC has no counterpart at the international level to address these
issues. Some new multinational organization would have to be created to perform its function
at the international level. Composed of all the countries that would sign on to a formulary
system, a new Multinational Tax Commission would be delegated the authority to resolve issues
such as the definition of the taxable base, the definition of the factors in the formula, and the
other issues that I have described.
This delegation of authority to this Multinational Tax Commission might prove quite
troublesome. For the system to work, the United States effectively would have to agree that the
Internal Revenue Code would be modified to achieve a worldwide standardized definition of
taxable income. Along with the rest of the world we effectively would forfeit control over a
major portion of our domestic tax policy. I think you will agree that Congress would be very
reluctant to permit our tax policy to be developed in this way.
Transfer pricing rules, in conjunction with our tax treaties, serve two principal purposes.
First, they divide the income of multinationals among the jurisdictions in which the
multinationals do business. Second, they avoid double taxation of such income. These purposes
can be achieved only with consensus. For this reason alone formulary apportionment as used
by our states is not a feasible alternative at this time or in the foreseeable future.
Nevertheless, although highly unlikely, it is theoretically conceivable that at some
undetermined point in the future most of the world could decide to move to formulary
apportionment. None of these problems is insoluble as a theoretical matter, although solving
them would be a very painful process that would entail difficult choices. If these problems could
be resolved in a practical way, a system of formulary apportionment could achieve a consistent
allocation of income among the jurisdictions that sign on to the international agreement. It
would not achieve an allocation of income that resembles the allocation achieved under the arm’s
length standard. But it could allocate income on an objective basis and might not give rise to
double taxation. Nevertheless, it must be emphasized that even with consensus, a shift to
formulary apportionment would be irresponsible without resolution of the kinds of issues I have
described. And it is important to remember that the inflexible results obtained under a
predetermined formula would not resemble the results under the arm’s length standard, where
the method used is tailored to the individual facts and circumstances.
All of this theoretically could happen, but there is no assurance that it ever will. Nor
is there any assurance that it should. If the arm’s length standard can be made to operate
effectively, then the wrenching changes and compromises of autonomy necessitated by a shift
to formulary apportionment or any other system would be unnecessary.
8
In their obsession with the details of the draft report, both groups that question the report
overlook the need for broad international acceptance of any approach to transfer pricing.
Without this consensus, no approach, regardless of its theoretical purity, can be seriously
considered. The report represents a possibly unique opportunity to achieve this consensus.
The primary advantage that die arm’s length standard currently enjoys in relation to
formulary apportionment is the simple fact that most of the world agrees that it should be the
international norm. The report sets forth a common understanding of how the arm’s length
standard is to be applied. If the report is rejected or shelved, the arm’s length standard loses
its chief advantage over formulary apportionment. Without the common bond represented by
the report, there is a risk that the major countries in the world would drift apart in their
applications of the arm’s length standard. Cases of double and under taxation would proliferate.
It would be ironic indeed if those who present themselves as the truest believers in the arm’s
length standard were a chief cause of its downfall. For this reason every taxpayer and
government that is interested in improving the arm’s length standard should support the
finalization of the report in its current form.
I would ask those who prefer formulary apportionment to recognize that it can be a
realistic alternative only if the problems I have described can be resolved and if there is a
consensus in favor of its adoption. If we were to move to formulary apportionment before these
conditions were satisfied, we would find that the cure would be worse than the disease. On the
other hand, if we cannot fix the system and make the arm’s length standard work in a reasonable
way, the sickness will worsen, and we will have to consider our alternatives.
I am, however, optimistic that we can improve on the arm’s length standard and that the
OECD’s draft report will be finalized. At that point the international community can be proud
that it is facilitating international trade and investment without undue concern over double
taxation.
Thank you.
itÊP A
D E P A R T M E N T
THE
T R E A S U R Y
TREASURY
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622*2960
FOR IMMEDIATE RELEASE
December 16, 1994
Contact: Scott Dykema
(202) 622-2960
TAX CUT PROPOSALS IN PRESIDENT CLINTON’S
MIDDLE CLASS BILL OF RIGHTS
Background Information
LB-1287
P relim inary Revenue Estim ates
M id d le -C la s s Tax C u t
__________________________________ ______________________ _________________________________________________ ________________ Fiscal Y e a rs
_________________________________ ___________________________ ____________ 1 6 -D e c -9 4 ________________________ ______________1 9 9 5 - 2 0 0 0
($'s in billions)
C h ild T a x B e n e fit
C redit for children 1 2 -y e a rs and under; credit = $ 2 0 0 for 1 99 6, $ 3 0 0 for 199 7,
$ 4 0 0 for 1998, $ 5 0 0 fo r 1 9 9 9 and thereafter; p h a s e -o u t A G I b etw e en
$ 6 0 ,0 0 0 - $ 7 5 ,0 0 0 ; e ffe c tiv e 1 /1 /9 6
-3 5 .6
E d u c a tio n a n d J o b T ra in in g In c e n tiv e
P h a s e d -in deduction fo r up-to $ 5 ,0 0 0 in p o st-s e co n d ary education and training
e x p e n s e s with p h as e-o u t A G I b etw e en $ 7 0 ,0 0 0 - $ 9 0 ,0 0 0 single,
$ 1 0 0 ,0 0 0 - $ 1 2 0 ,0 0 0 joint; p h as e-in = $ 2 ,0 0 0 fo r 1 9 9 6 , $ 4 ,0 0 0 fo r 1 99 7, $ 6 ,0 0 0
fo r 1 9 9 8 , $ 8 ,0 0 0 for 1 9 9 9 a n d $ 1 0 ,0 0 0 for 2 0 0 0 a n d th e re a fte r
-2 0 .6
S a v in g s In c e n tiv e
E x p an d eligibility for d eductible "front-loaded” IR A s by increasing A G I
eligibility p h ase-o u t from current $ 4 0 ,0 0 0 - $ 5 0 ,0 0 0 to $ 8 0 ,0 0 0 - $ 1 0 0 ,0 0 0
fo r jo in t returns (current $ 2 5 ,0 0 0 - $ 3 5 ,0 0 0 p h a s e -o u t in creased to $ 5 0 ,0 0 0 $ 7 0 ,0 0 0 fo r single returns); add n e w "back-loaded" IR A option; allow
conversion o f existing IR A s into "backloaded" IR A s and retain current la w
non-w orking spouse limit; a llo w pen alty-free w ith d ra w a ls for education,
first h o m e, m edical e x p e n s e s and long-term u n em p lo y m e nt
M id d le -c la s s ta x c u t to ta l
D e p a rtm e n t o f the T reasury
O ffic e o f T a x Analysis
-3 .7
-5 9 .9
DESCRIPTION OF ADMINISTRATION’S TAX PROPOSALS
$500 Child Tax Benefit
A $500 non-refundable credit will be allowed for each dependent child under the age of 13.
The credit will be phased-in and equal $200 for 1996, $300 for 1997, $400 for 1998 and
$500 for 1999 and thereafter. The credit will be phased-out ratably for taxpayers with
adjusted gross income (AGI) between $60,000 and $75,000. The credit must be applied after
the earned income tax credit, and cannot be used to offset alternative minimum tax liability.
Deduction for Post-Secondary Education Expenses
A deduction will be permitted for up to $10,000 of the amounts spent by a taxpayer for
expenditures on post-secondary school education and training expenses for the taxpayer, the
taxpayer’s spouse, and dependents (i.e.. persons for whom the taxpayer is entitled to claim a
dependency exemption). This deduction will allowed "above-the-line," ijL., it will be used in
determining the taxpayer’s adjusted gross income (AGI).
Payments to post-secondary institutions and programs will be deductible if such institutions
and programs are eligible for Federal assistance. This will include most public and nonprofit
universities and colleges and certain vocational schools. Deductible education expenses will
include tuition and fees but will not include meals, lodging, books, or transportation.
Education involving sports, games, or hobbies will not be deductible, unless that education
relates to the student’s current profession or is required as part of a degree program..
The maximum allowable deduction will be phased-in. For 1996, the maximum deduction
will be $2,000. The maximum deduction will increase by $2,000 each year; for 2000 and
later years the maximum deduction will be $10,000. In addition, the maximum deduction
will be phased out ratably for taxpayers filing a joint return with AGI (before the proposed
deduction) between $100,000 and $120,000. For taxpayers filing a head-of-household or
single return, the maximum deduction will be phased out ratably between $70,000 and
$90,000 of AGI (before the proposed deduction).
12/16/94
Individual Retirement Accounts (IRAs)
The proposal is similar to the Bentsen-Roth IRA provisions that were passed by Congress in
late 1992.
Expand the Availability of Deductible IRAs -- Today, eligibility for deductible IRAs is
phased-out for those with adjusted gross income (AGI) of $25,000-$35,000 for individuals
and $40,000-$50,000 for couples. Annual IRA contributions cannot exceed $2,000 per
individual. These income thresholds and the $2,000 maximum contribution are not indexed
for inflation. This results in fewer and fewer Americans being eligible for relatively smaller
and smaller IRA contributions each year.
The proposal would expand the availability of deductible IRAs to most Americans.
Beginning in 1996, the income thresholds for IRA eligibility would be doubled. This means
that the maximum IRA deduction would be phased-out ratably for couples with AGI between
$80,000 and $100,000 and individuals with AGI between $50,000 and $70,000. These
thresholds and the $2,000 contribution limit would be indexed for future inflation.
Taxpayers Get Another IRA Option —Each individual who is eligible for a deductible IRA
would have the option of contributing $2,000 per year either to a traditional deductible IRA
or to a new back-loaded type of IRA -- a Special IRA. Contributions to this new type of
IRA would not be tax deductible, but withdrawals of amounts that have been held in the
account for at least five years would not be included in income. Withdrawals during the
five-year period would be subject to a 10% penalty tax, unless made for one of the purposes
specified below. An individual whose AGI for a year falls below the eligibility thresholds
could convert an existing IRA into a Special IRA.
Penalty-Free IRA Withdrawals -- The proposal would provide exemptions from the 10%
penalty tax on pre-retirement IRA or Special IRA distributions for the following purposes:
Education
To pay post-secondary education costs.
First Home Purchase -- To buy or build a first home.
Care of an Elderly Parent —To pay for nursing home or other costs associated with
caring for an incapacitated parent or grandparent.
Unemployment -- To cover living costs if they have been unemployed for at least 12
consecutive weeks.
Medical expenses —To pay catastrophic medical expenses in excess of 7.5% of AGI.
-
12/16/94
2
-
Current Law and Fully Phased-ln Law Tax Liabilities of Hypothetical Families Under
Administration's Middle-Class Tax Cuts, Based on 1995 Income Levels
Four person family, with $50,000 of wage and salary income, $7,500 of itemized deductions,
and $10,000 in personal exemptions (4 x $2,500).
Case 1. Both children 12 or under.
Current Law Tax
$4,875
Fully Phased-ln Tax
$3,875
Tax Reduction
$1,000
Percent Reduction
21%
Case 2. One child 12 or under, other not, no education expense.
Current Law Tax
$4,875
Fully Phased-ln Tax
$4,375
Tax Reduction
$500
Percent Reduction
10%
Case 3. Both children over 12, education expense $10,000 or more.
Current Law Tax
$4,875
Fully Phased-ln Tax
$3,375
Tax Reduction
$1,500
Percent Reduction
31%
Case 4. One child 12 or under, other child over 12, education expense $10,000 or more.
Current Law Tax
$4,875
Fully Phased-ln Tax
$2,875
Tax Reduction
$2,000
Percent Reduction
41%
Case 5. Two children over 12, no education expense, $2,000 contributed to IRA.
Current Law Tax
$4,875
Fully Phased-ln Tax
$4,575
Tax Reduction
$300
Percent Reduction
6%
Case 6. Same as Case 5, but both spouses work, and $4,000 contributed to IRA.
Current Law Tax
$4,875
Fully Phased-ln Tax
$4,275
Tax Reduction
$600
Percent Reduction
12%
Case 7. One child 12 or under, other child over 12, education expense $10,000
or more, $2,000 contributed to IRA.
Current Law Tax
$4,875
Fully Phased-ln Tax
$2,575
Tax Reduction
$2,300
Percent Reduction
47%
Case 8. No Children, education expense $10,000 or more, $2,000 contributed to IRA.
Current Law Tax
$5,625
12/16/94
Fully Phased-ln Tax
$3,825
Tax Reduction
$1,800
Percent Reduction
32%
Current Law and First Year Tax Liabilities of Hypothetical Families Under Administration's
Middie-Class Tax Cuts, Based on 1995 Income Levels
Four person family, with $50,000 of wage and salary income, $7,500 of itemized deductions,
and $10,000 in personal exemptions (4 x $2,500).
Case 1. Both children 12 or under.
Current Law Tax
$4,875
First Year Law Tax
$4,475
Tax Reduction
$400
Percent Reduction
8%
Case 2. One child 12 or under, other not, no education expense.
Current Law Tax
$4,875
First Year Law Tax
$4,675
Tax Reduction
$200
Percent Reduction
4%
Case 3. Both children over 12, education expense $2,000 or more.
Current Law Tax
$4,875
First Year Law Tax
$4,575
Tax Reduction
$300
Percent Reduction
6%
Case 4. One child 12 or under, other child over 12, education expense $2,000 or more.
Current Law Tax
$4,875
First Year Law Tax
$4,375
Tax Reduction
$500
Percent Reduction
10%
Case 5. Two children over 12, no education expense, $2,000 contributed to IRA.
Current Law Tax
$4,875
First Year Law Tax
$4,575
Tax Reduction
$300
Percent Reduction
6%
Case 6. Same as Case 5, but both spouses work, and $4,000 contributed to IRA.
Current Law Tax
$4,875
First Year Law Tax
$4,275
Tax Reduction
$600
Percent Reduction
12%
Case 7. One child 12 or under, other child over 12, education expense $2,000
or more, $2,000 contributed to IRA.
Current Law Tax
$4,875
First Year Law Tax
$4,075
Tax Reduction
$800
Percent Reduction
16%
Case 8. No Children, education expense $2,000 or more, $2,000 contributed to IRA.
Current Law Tax
$5,625
12/16/94
Fully Phased-ln Tax
$5,025
Tax Reduction
$600
Percent Reduction
11%
FOR IMMEDIATE RELEASE
December 16, 1994
CLINTON TAX CUT PROPOSAL INFORMATION AVAILABLE
Fact sheets on President Clinton’s tax cut proposal, the Middle Class Bill of Rights,
are available from the Treasury Department Office of Public Affairs.
Materials can be picked up at the Main Treasury Building Courier Desk Entrance on
15th Street N.W. which is open from 8 A.M. until 5:45 P.M.
The materials are also available through the Public Affairs Office’s 24-hour fax line.
Dial (202) 622-2040 and request document number 1287.
LB-1288
As indicated in this table, U.S. reserve assets amounted to $74,000 million at the end
of November 1994, down, from $78,172 million in October 1994.
¡j
(g
End
of
Month
Total
Reserve
Assets
US* Reserve Asset*
(in
Gold
S to c k l/
Special
Drawing
R ig h ts !/!/
Foreign
Currencies
a
Reserve
Position in
IMF 2 /
1994
October
78,172
11,053
10,088
44,692
12,339
November
74,000
11,052
10,017
40,894
12,037
1/ Valued at $42.2222 per fíne troy ounce.
2 / Beginning July 1974, the IMF adopted a technique for valuing the SDR based on a
weighted average of exchange rates for the currencies of selected member countries. The
U.S. SDR holdings and reserve position in the IMF also are valued on this basis
beginning July 1974.
3 / Includes allocations of SDRs by the IMF plus transactions in SDRs.
4 / Valued at current market exchange rates.
LB-1289
THE
D E P A R T M E N T
\0
TREASURY
/7 8 ‘
TREASURY
N E WS
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
December 17, 1994
HOUSE REPUBLICAN TAX CUTS WOULD COST
$712 BILLION OVER 10-YEARS, NEW ESTIMATES SHOW
A package of tax cuts offered by House Republicans would cost $712 billion over
the next 10 years compared to $174 billion in cuts included in President Clinton’s Middle
Class Bill of Rights, according to new Treasury Department estimates.
As noted by Treasury Secretary Lloyd Bentsen, the President’s plan is fully paid
for with spending cuts in every year. Details of how the federal budget is to be trimmed
under the President’s package will be discussed Monday by Vice President Gore.
According to the estimates released today, while the GOP tax plan would cost
$197.2 billion between fiscal years 1995-2000, it would cost $514.8 billion between FY
2001-2005.
In contrast, the President’s plan would cost $59.9 billion between FY 1995-2000
and $113.7 billion between FY 2001-2005.
Furthermore, unlike the GOP’s Contract with America, the President’s proposals
are aimed at middle-income Americans. Some 87 percent of the President’s tax cuts go
to families with incomes under $100,000 a year compared to 46 percent under the GOP
proposals. Almost a third (31.9 percent) of the benefits under the GOP plan go to
households with incomes of more than $200,000. In contrast, only 0.6 percent of the
President’s tax cut benefits go to those with incomes more than $200,000.
Tables showing the new 10-year revenue estimates and a chart showing the shares
of tax cut benefits going to families are attached.
-30LB-1290
DEPARTM ENT OF THE TREASURY
W A S H IN G T O N , D .C . 2 0 2 2 0
FIVE- AND TEN-YEAR REVENUE ESTIMATES FOR
PRESIDENT CLINTON’S PROPOSED MIDDLE CLASS TAX CUT
AND
THE HOUSE REPUBLICAN "CONTRACT WITH AMERICA"
December 17, 1994
SUMMARY
The attached tables provide preliminary estimates of the five- year and 10-year
revenue effects of the President’s Middle-Class Tax Cut and the revenue proposals in the
House Republican Contract with America. The President’s proposals would reduce
revenue by $60 billion over five years and $174 billion over 10 years. In contrast, the
House Republican Contract with America would reduce revenue by $197 billion over
five years and by $712 billion over 10 years.
The President’s tax cuts, including the timing of the five-year phase-in, are
designed so that, when combined with spending cuts, they will produce no increase in the
Federal deficit in any year. The Administration is working to identify additional
budgetary savings beyond those already planned. Any such additional savings will then
be available for deficit reduction and/or for phasing-in the tax cuts earlier to deliver
more immediate benefits to middle-income taxpayers. To the extent that the tax cuts are
phased-in earlier, revenue losses from the President’s proposal will be larger than shown
in the tables.
P re lim in a ry R e v e n u e E s tim a te s 1/
PRESIDENT'S MIDDLE CLASS TAX CUT
Fiscal years
12/17/94
Proposal
1995-2005
1995-2000
($ billions)
1 $500 per child tax credit (phased-in); phase-out AGI between $60,000 - $75,000.
-35.6
-89.6
2 Deduction for up to $10,000 in post-secondary education and training expenses (phased-in);
phase-out AGI between $100,000 - $120,000 joint.
-20.6
-60.7
3 Expand eligibility for deductions for IRA's to AGI $100,000 joint; allow penalty-free withdrawals
for education, first home, medical expenses, long term unemployment, and care for
an elderly parent.
-3.7
-23.3
-59.9
-173.6
Middle Class Tax Cut total
D epartm ent of th e Treasury
O ffice o f T a x Analysis
Estim ates for F Y 1995 - F Y 2 0 0 0 are based on the Administration's new econom ic assum ptions that will be incorporated in the F Y 1996 Budget.
T h e estim ates do not incorporate forthcoming Administration econom ic assum ptions for the years 2 0 0 1 -2 0 0 5 .
T h e estim ates for F Y 2001 - F Y 2 0 0 5 are projections m ade by the Treasury's Office o f T a x Analysis.
T h e estim ates for F Y 2001 - F Y 2 0 0 5 will be revised based upon Administration's assumptions, when available.
T h e Adm inistration is working to identify additional budgetary savings beyond those already planned. A ny such additional savings will then be available for
for deficit reduction and/or for phasing-in the tax cuts earlier to deliver more im m ediate benefits to m iddle-incom e tax payers. To the extent that the
ta x cuts are phased-in earlier, revenue losses from the President's proposal will be larger than shown in the table.
P r e lim in a ry E s tim a te s 1/
C O N TR A C T W ITH A M E R IC A - REPUBLICAN R EV E N U E PRO PO SALS
P ro p o s a l
IB - D e c - 9 4
Fiscal Y e a rs
TO 95^2000 "
1995^2005
($'s in billions)
-2 .9
1 R efu n d a b le $ 5 ,0 0 0 tax credit for ado p tio n e xp en s es
-1 .3
2 R e fu n d a b le $ 5 0 0 tax credit for e ld e rc a re e x p e n s e s
-1 .2
-2 .6
-1 0 7 .2
-2 4 3 .8
-9 .0
-1 9 .0
3 $ 5 0 0 p e r child tax credit for fam ilies w ith A G I < $ 2 0 0 ,0 0 0
4 R e d u c e m a rria g e penalty
5 E stablish b ack-lo ad ed IR A
6 P h a s e -in rep eal of n e w S S thresh olds (8 5 % ) e n a c te d in 1 9 9 3
7 L o n g -term c are tax incentives
a
b
L o n g -term care insurance
A llo w ta x -fre e p aym ent of a c c e le ra te d d ea th benefits u n d er life in suran ce policies
8 5 0 % exclusion for indexed capital g ains (Individual & corpo rate)
9 N eu tral cost recovery
10
S m a ll b u sin ess incentives
a R a is e section 1 7 9 expensing limit from $ 1 7 ,5 0 0 to $ 2 5 ,0 0 0
b
c
C la rify h o m e-o ffice deduction
In c re a s e estate ta x exem p tio n from $ 6 0 0 ,0 0 0 to $ 7 5 0 ,0 0 0
T o ta l
-1 .5
-1 7 .9
-1 5 .0
-4 8 .5
0 .0
0 .0
-4.1
-1 1 .8
-0.1
-0 .4
-5 7 .5
-1 7 0 .4
-1 6 9 .5
1 2 .8
0 .0
0 .0
-4 .2
-5 .0
-0 .5
-1.1
-8 .4
-1 9 .1
-1 9 7 .2
-7 1 2 .0
D e p a rtm e n t o f th e T re a s u ry
O ffice o f T a x A n alysis
1/ E s tim a te s fo r F Y 1 99 5 - F Y 2 0 0 0 a re b as ed on th e A dm inistration's n e w e co n o m ic assum ptio n s th a t will be incorporated in the
F Y 1 9 9 6 B u dg et. T h e e stim a te s do not in corpo rate forthcom ing A dm inistration eco n o m ic a ssu m p tio n s for the y ea rs 2 0 0 1 - 2 0 0 5 .
T h e e s tim a te s for F Y 2001 - F Y 2 0 0 5 a re projections m a d e by the T re as u ry's O ffice o f T a x A n alysis.
T h e e s tim a te s fo r F Y 2001 - F Y 2 0 0 5 will be revised b ased upon A d m inistration's assum ptio n s, w h e n available.
S hare o f Tax C uts G oing to M iddle Incom e Fam ilies
President's Proposal vs Republican Contract
100%
80%
60%
40%
20%
0%
President's
Proposal
Families with Incomes Under $100,000
Source: Denartment of the Treasury. Office of Tax Analysis
Republican
Contract
r
FOR IMMEDIATE RELEASE
December 19, 1994
: Office of Financing
202-219-3350
Tenders for $13,068 million of 13-week bills to be issued
December 22, 1994 and to mature March 23, 1995 were
accepted today (CUSIP: 912794R22).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.57%
5.60%
5.59%
Investment
Rate
5.73%
5.76%
5.75%
Price
98.592
98.584
98.587
Tenders at the high discount rate were allotted 41%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
LB-1291
Received
$45,274,797
Accepted
$13,068,076
$39,364,670
1.536.817
$40,901,487
$7,157,949
1.536.817
$8,694,766
3,209,310
3,209,310
1.164.000
$45,274,797
1.164.000
$13,068,076
FOR IMMEDIATE RELEASE
December 19, 1994
^CONTACT: Office of Financing
@FTH£ TR£4$y^y 202-219-3350
RESULTS OF TREASURY7S AUCTION OF 26-WEEK BILLS
Tenders for $13,085 million of 26-week bills to be issued
December 22, 1994 and to mature June 22, 1995 were
accepted today (CUSIP: 912794S70).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
6.27%
6.30%
6.30%
Investment
Rate_____ Price
6.57%
96.830
6.60%
96.815
6.60%
96.815
Tenders at the high discount rate were allotted 61%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type ü
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
LB-1292
Received
$46,286,510
$13,084,670
$39,365,216
1.288.094
$40,653,310
$6,163,376
Ì.288.094
$7,451,470
3,300,000
3,300,000
2.333.200
$46,286,510
2.333.200
$13,084,670
D E P A R T M E N T
OF
THE
T R E A S U R Y
r
TREASURY
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
December 21, 1994
Contact:
Jon Murchinson
(202) 622-2960
BENTSEN PHOTO OPPORTUNITY AT TREASURY
Treasury Secretary Lloyd Bentsen and Mrs. Bentsen will be available for a photo
opportunity today, Wednesday, December 21 at 11 a.m., on the Hamilton Place steps of the
Treasury Department. The Texas state flag will fly over Treasury in honor of the Bentsens,
who will be returning to private life in Houston on Thursday after 30 years of public service
in Washington. Hamilton Place is on the south side of the Treasury . Cameras should be in .
place by 10:45 a.m.
-30-
LB-1293
FOR IMMEDIATE RELEASE
December 20, 1994
STATEMENT BY SECRETARY LLOYD BENTSEN ON PESO DEVALUATION
Mexico’s exchange rate action today will support the healthy development of the
Mexican economy. With a balanced budget, continuing economic reform and prudent
monetary policy, Mexico’s fundamentals remain sound.
-30-
LB-1294
D E P A R T M E N T
T H E
T R E A S U R Y
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AŸËNUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR RELEASE AT 2:30 P .M .
December 20, 1994
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $26,000 million, to be issued December 29,
1994. This offering will provide about $3,175 million of new
cash for the Treasury, as the maturing bills are outstanding in
the amount of $22,821 million.
Federal Reserve Banks hold $6,096 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $3,852 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders. Additional
amounts may be issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
uttering Circular (31 CFR Part 356) for the sale and issue by the
bonds111*7 t0 thS public of marketable Treasury bills, notes, and
Details about each of the new securities are given in the
attached offering highlights.
oOo
Attachment
LB-1295
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED DECEMBER 29, 1994
December 20, 1994
Offering Amount
. . . . .
$13,000 million
$13,000 million
91-day bill
912794 R3 0
December 2 7 , 1994
December 29, 1994
March 30, 1995
September 29, 1994
$11,678 million
182-day bill
912794 S8 8
December 27, 1994
December 29, 1994
June 29, 1995
June 30, 1994
$16,757 million
$ 10,000
$ 1,000
D e s c r i p t i o n of O f f e r i n g :
Term and type of security
CUSIP number ..........
Auction date ..........
Issue date ............
Maturity date ..........
Original issue date . . .
Currently outstanding . .
Minimum bid amount . . .
Multiples ..............
$10,000
$ 1,000
T h e f o l l o w i n g rules a p p l y to all s e c u r i t i e s m e n t i o n e d a b o v e :
Submission of Bids:
Noncompetitive b i d s .............. Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
Competitive b i d s ................
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
at a Single Y i e l d ............ 35% of public offering
Maximum Award .
................ 35% of public offering
Receipt of Tenders :
Noncompetitive tenders
..........
Competitive tenders ........ ..
Payment Terms . ...............
Prior to 12:00 noon Eastern Standard time
on auction day
Prior to 1:00 p.m. Eastern Standard time
on auction day
Full payment with tender or by charge to a funds
account
a t
a
F e d e ra l
R e s e rv e
Bank
on
is s u e
d a te
D E P A R T M E N T
OF
THE
T R E A S U R Y
SEPT, OF THE TREAS-liRY
FOR IMMEDIATE RELEASE
December 20, 1994
Contact:
Jon Murchinson
(202) 622-2960
JOINT STATEMENT OF
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS
AND STATE AND LOCAL GOVERNMENT ASSOCIATIONS
Prudent investment of taxpayer money is a significant responsibility for public
officials. All levels of government, local, state and federal, have an interest in promoting
appropriate investment policies and practices. Indeed, significant attention has been paid by
many governmental entities in enacting state legislation and developing investment guidelines,
but recent losses by certain communities, while not indicative of systemic problems, indicate
that further attention is warranted. In addition, rapid evolution in the capital markets and the
proliferation of new financial instruments have made careful investing more challenging and
complex.
The associations of state and local officials listed below and the President’s Working
Group on Financial Markets have agreed to work together to promote sound investment
policies and practices by state and local governments. We intend to: (1) promote the use of
model investment guidelines such as those already developed by many of the associations; (2)
provide educational materials; (3) conduct training programs; (4) share information and
relevant guidelines developed by federal regulators; and (5) identify possible regulatory or
oversight issues. The investment policies and practices to be discussed will include
management of credit and market risks, internal controls, accounting, reporting and
investment disclosure. We will then address how best to promote the use of these practices.
(Note: Statement issued by Government Finance Officers Association; Municipal
Treasurers Association; National Association of Counties, National Association of State
Auditors, Comptrollers, and Treasurers; National Association of State Treasurers; National
Conference of State Legislatures; National Governors Association; National League of Cities;
U.S. Conference of Mayors and the President’s Working Group on Financial Markets.)
-30LB-1296
The President’s Working Group on Financial Markets
The President’s Working Group on Financial Markets is chaired by Treasury
Secretary Lloyd Bentsen, and includes the chairs of the Federal Reserve Board, the Securities
and Exchange Commission and the Commodity Futures Trading Commission.
Representatives of other regulatory entities with responsibilities related to financial markets,
including the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the
Federal Deposit Insurance Corporation and the Federal Reserve Bank of New York, also
participate.
The Working Group was originally established by Executive Order of the President on
March 18, 1988 in response to the October 1987 stock market decline. In January 1994,
Secretary Bentsen charged the group with considering a wide range of issues in order to
further the goals of enhancing the integrity, efficiency, orderliness and competitiveness of
our nation’s financial markets and maintaining investor confidence. The primary goal of the
Working Group is to promote information sharing among regulators and encourage consistent
regulatory actions across markets and market participants.
D E P A R T M E N T
OF
T H E
T R E A S U R Y
N E WS
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSTI^ a S I A ^ 5 M ^
w /«
WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
As prepared for delivery
December 21, 1994
FAREWELL REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
TREASURY EMPLOYEES
IPs gratifying to see so many of you here, but it makes me wonder, who’s minding
the store?
Well, it’s been a long run, hasn’t it? I’ve had more fun than I can tell you. I have
some thank-yous and observations I want to make. First, the observations.
I walked in the door here 23 months ago -- A brand new administration, Brand
new goals, a new recognition of the fiscal realities. Since then, I’ve been to 23 states and
13 countries, given 453 speeches and had dozens of articles in the paper.
I can tell you this: we’ve come a long way together, and we’ve made a heck of a
difference.
I’m not going to run down every accomplishment, but clearly, we’ve done a great
deal: deficit reduction, the Brady Law and the Crime Bill with the assault weapons ban;
the banking agenda; we advanced the health care debate in this country; there’s NAFTA
and GATT, our help for transitioning economies, the new respect we have in the world
economic community, our expanding trade and political relations throughout Asia and
now what we’re doing in Latin America. It’s clear that economic policy is an integral
part of foreign policy now. The list goes on, but I won’t.
No one person like a Treasury Secretary can accomplish it all. It takes teamwork.
It takes professionalism. It takes dedication. I can say with certainty there’s plenty of all
of that here at the Treasury Department.
I want to thank a great many people, but before I do that, there are some people
who may not be in the room who deserve some recognition -- the people who make this
place run, day after day, night after night, administration after administration.
(More)
LB-1297
2
There are the operators ~ who work around the clock, keeping Treasury in
communication; there are the crews that keep this building looking like the shrine that
it is; there are the drivers and the printers and the people who make sure the computers
keep running and our communications systems are up and running all day and all night.
And there are the career secretaries who support us all every day and keep us on
schedule and on track.
We tend to take what they provide for granted. But I want to tell you, without
them we could not operate, and I want them to know how much I appreciate what they
do.
I go around talking about how many different ways there are to serve -preaching, teaching, healing and the like. And I’m fond of saying that the best way to
touch the most people is in public service. That’s what drew me back into politics and
what has kept me at it all these years ~ the desire to make a difference.
To the professional staff here, I want to say that in all my years in Washington,
I’ve never met a more dedicated, knowledgeable and skillful group of public servants.
You have my gratitude and my respect. You serve at no small sacrifice. I know your
families have paid a price in terms of the nights and weekends, and please tell them how
much I appreciate their contribution.
The kind of people who work here will fly halfway around the world on next to no
notice to iron out a problem, and do it on very little sleep. You’ll stay up all night
crunching numbers so that the people who make policy can have some answers they
know they can count on. There’s an incredible commitment here that I’m not sure the
public understands.
And why do you do it? For the honor of seeing that the people of the United
States have the best government possible and that we are properly represented to the
world community. There’s a certain cynicism out there about government -- people who
see the bad apples and think all of government is that way. There are always bad
apples, but on the whole -- we have the best government in the world - because of
people like you.
Let me tell you a little story. One of our very senior people was headed out to
Dulles recently on yet another short-notice trip to go overseas and do a little firefighting.
I’m not going to name the person, but someone asked them why they put themselves
through all the gyrations and pressure that come with this kind of work.
And the answer was rather telling, and I think it represents the spirit of everyone
here at Treasury. The person said: "I do it because it’s such an honor to represent the
United States of America."
3
That says it for me, too: It’s such an honor to represent the United States of
America.
Now, after today I’m going back in the private sector ~ create a new job for
myself to add to the more than 5 million new ones we have. I think I’ll come in a little
later and leave a little earlier, however. And I promised B.A. I won’t come home for
lunch. One thing I’ll be thinking about in Houston is the memories I will take from my
time here at Treasury.
There never is a perfect time to leave. There’s always one more reason to stay,
one more thing to do, one more project. I leave now knowing that we have made a
difference over these past two years. I leave knowing that you’ll give Bob Rubin the
same loyalty and dedicated service and support that you have given me. I leave knowing
that it’s been a great time to be Treasury Secretary. And I leave with the sense of
having done my best for the people of this country.
Thank you very much for the support you have given me and what you have done
for this country. Happy Holidays and God bless you.
-30-
wS$t
TREASURY
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
December 21, 1994
Contact:
Jon Murchinson
(202) 622-2960
SECRETARY BENTSEN ANNOUNCES CDFI FUND TRANSITION TEAM MEMBERS
Treasury Secretary Lloyd Bentsen announced on Wednesday, December 21 the initial
members of the transition team that will focus on establishing the operations of the
Community Development Financial Institutions Fund and undertake preliminary work to
establish the fund’s programs.
The Community Development and Regulatory Improvement Act of 1994 created the
Community Development Financial Institutions Fund as a wholly-owned government
corporation and authorized the Secretary of the Treasury to hire a transition team to serve as
employees of the fund prior to the appointment of the Administrator. The transition team will
be led by Katharine W. McKee and includes Jeannine S. Jacokes, Patrick O. Quinton and
David C. Rice.
McKee was formerly the associate director of the Center for Community Self-Help in
Durham, N.C. Previously she was a program officer with the Ford Foundation in New York
and West Africa. McKee received a Masters in Public Affairs from the Woodrow Wilson
School of Public and International Affairs at Princeton University and is a graduate of
Bowdoin College, where she received a B.A. in international relations.
Jacokes was previously a staff member on the Senate Committee on Banking, Housing
and Urban Affairs. She has also worked at the Department of Housing and Urban
Development on a variety of community development and finance issues. Jacokes received a
Masters of Regional Planning from the University of North Carolina and graduated from
Aquinas College.
-moreLB-1298
Quinton formerly served as public policy coordinator and a project manager of
Shorebank Advisory Services in Chicago. He was also a program specialist in the Office of
Insured Single Family Housing at the Department of Housing and Urban Development.
Quinton received a M.A. in Public Policy from the University of Chicago’s Irving B. Harris
School of Public Policy Studies and a B.A. in government from Dartmouth College.
Rice previously was president of the Neighborhood Capital Corporation in
Washington, D.C. He was also the executive vice president and chief operating officer of the
Cooperative Assistance Fund, has worked at the Opportunity Funding Corporation and the
Children’s Defense Fund in addition to having held a variety of finance positions with the
IBM World Trade Commission and Mobil Oil Company. Rice has completed course work in
accounting and statistics at the New York University Graduate School of Business and
received a B.A. in economics and business from Lincoln University.
The CDFI Fund will operate programs to provide monetary and technical assistance as
well as other forms of support to community development financial institutions. The fund
will also provide economic incentives to encourage banks, credit unions and other insured
depository institutions to provide financial assistance to CDFIs and to expand their community
service and lending efforts. In addition, the fund will offer training programs to enhance the
capacity of CDFIs and other members of the financial services industry to undertake
community development finance activities.
-30-
D E P A R T M E N T
OF
T H E
T R E A S U R Y
NE WS
TREASURY
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, tf.W? * /WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
December 22, 1994
Contact:
Chris Peacock/Treasury
(202) 622-2960
Joyce McDonald/FinCEN
(703) 905-3770
TREASURY ANNOUNCES NEW ANTI-MONEY LAUNDERING REGULATIONS
FOR WIRE TRANSFERS
The Treasury Department released two final rules Thursday that will for the first time
require uniform recordkeeping for wire transfers under the Bank Secrecy Act (BSA).
The BSA is the core of Treasury’s anti-money laundering efforts and one of the main
elements of this authority is the ability to require financial institutions to retain records that
can be an invaluable tool in criminal, tax or regulatory investigations or proceedings.
"Wire transfers are the arteries of the international financial system," said Treasury
Under Secretary for Enforcement Ron Noble. "Not surprisingly, use of wire transfers is a
necessity for many large scale money laundering schemes. Wire transfers are used both to
move funds out of (or into) the United States and to confuse the money trail."
"These regulations mark a basic shift of our attention from cash at the teller’s window
to concentrating on crime hidden in the details of legitimate commerce."
The rules, which were developed by Treasury and the Federal Reserve Board, strike
an appropriate balance between the costs of compliance and the need of law enforcement
agencies for information relating to wire transfers. Once they take full effect, the two final
rules will assist law enforcement efforts in cases involving wire transfers by requiring
information identifying parties to such transactions, and if necessary making it available to
investigators.
The first rule, issued jointly by Treasury and the Board of Governors of the Federal
Reserve System, requires the collection and retention of information related to wire transfer
transactions.
LB-1299
(more)
■
The second rule requires each financial institution involved in wire transfer
transactions to include identifying information in the payment orders sent to the next
institution in the wire transfer link (so that the information "travels" with the payment order).
The final rules will be lodged with the Federal Register today and published in
accordance with the Register’s schedule.
The preparation of these regulations has been a five-year process. Treasury first
proposed regulations relating to recordkeeping for funds transfers in October 1990, and in
1993 the rules were re-proposed for comment. The final rules announced today will become
effective on January 1, 1996, which gives financial institutions a year to create systems to
implement the regulations.
"I think the industry will find that its concerns are reflected in these final
regulations," Noble said. "For instance, we have excluded smaller transactions - those
below $3,000 - from the recordkeeping process, and that exclusion should be especially
helpful in the case of non-bank transmitters of funds, for example, those who process the
sending of money for family emergencies. In general, we have tried to conform the rules
and their implementation to commercial realities."
Stanley E. Morris, Director of the Financial Crimes Enforcement Network, which
administers the BSA, emphasized that the criminals who continue to use the wire transfer
system do so at their own peril.
"People should not think this is simply more paper," he said. "It’s anything but.
These rules will for the first time give us a significant picture of the details of funds
movement, especially as they relate to the tax haven and off-shore banking preserves used by
international money launderers.
"Over time, our computer systems will be able to map the avenues of illicit money
movement and the people involved in those transactions. "
-30-
Treasury Statement
MRY M 0M 5310 /
,
of Receipts and Outlays
0$
Government
For Fiscal Year 1995 Through November 30, 1994, and Other Periods
fxv t r f î ' T 1 f \ ?* - r -f i
f « p . i
**v* I nc Ii$&j|
Highlight
T h e c u m u la tiv e d e fic it fo r FY 1 9 9 5 is $ 6 9 ,9 1 5 m illio n .
R EC EIPTS, OUTLAYS, AND SU RPLUS/DEFICIT
THROUGH NOVEM BER 1994
B
C o m p ile d a n d P u b lis h e d b y
Department o f the Treasury
Financial Management Service m m m m j
Introduction
of receipts are treated as deductions from gross receipts; revolving and manage
ment fund receipts, reimbursements and refunds of monies previously expended are
treated as deductions from gross outlays; and interest on the public debt (public
issues) is recognized on the accrual basis. Major information sources include
accounting data reported by Federal entities, disbursing officers, and Federal
Reserve banks.
The Monthly Treasury Statement o f Receipts and Outlays o f the United States
Government (MTS) is prepared by the Financial Management Service, Department of
the Treasury, and after approval by the Fiscal Assistant Secretary of the Treasury, is
normally released on the 15th workday of the month following the reporting month.
The publication is based on data provided by Federal entities, disbursing officers,
and Federal Reserve banks.
Triad of Publications
The MTS is part of a triad of Treasury financial reports. The Daily Treasury
Statement is published each working day of the Federal Government. It provides
Audience
The MTS is published to meet the needs of: Those responsible for or interested
in the cash position of the Treasury: Those who are responsible for or interested in
the Government’s budget results; and individuals and businesses whose operations
depend upon or are related to the Government's financial operations.
data on the cash and debt operations of the Treasury based upon reporting of the
Treasury account balances by Federal Reserve banks. The MTS is a report of
Government receipts and outlays, based on agency reporting. The U.S. Government
Annual Report is the official publication of the detailed receipts and outlays of the
Government. It is published annually in accordance with legislative mandates given
to the Secretary of the Treasury.
Disclosure Statement
This statement summarizes the financial activities of the Federal Government
and off-budget Federal entities conducted in accordance with the Budget of the U.S.
Government, i.e., receipts and outlays of funds, the surplus or deficit, and the means
of financing the deficit or disposing of the surplus. Information is presented on a
modified cash basis: receipts are accounted for on the basis of collections; refunds
Table 1.
Data Sources and Information
The Explanatory Notes section of this publication provides information concern
ing the flow of data into the MTS and sources of information relevant to the MTS.
Summary of Receipts, Outlays, and the Deficit/Surplus of the U.S. Government, Fiscal Years 1994 and 1995,
by Month
[$ millions]
Outlays
Deficit/Surplus (—)
January .....
February....
March ......
April .......
May .......
June .......
July ........
August .....
September
78,662
83,102
125,403
122,961
173,186
293,108
141,321
83,541
138,119
84,822
97,333
*135,895
124,085
121,483
133,108
107,713
'114,752
2125,423
123,867
115,597
123,269
118,020
3121,617
*5.6132,133
45,422
38,381
7,705
-15,248
41,566
32,315
-17,454
32,057
-14,850
33,198
24,284
-3,762
Year-to-Date
1,257,453
1,461,067
203,615
89,024
87,673
7121,480
125,131
32,457
37,458
Period
FY 1994
October ....
November ...
December ......
FY 1995
October .
November
Year-to-Date
Receipts
246,612
176,696
69,915
5Outlays have been decreased in the September 1994 by $59 million for additional reporting by
'Receipts have been increased in February 1994 and outlays correspondingly increased by
$317 million to reflect adjustments made by the Internal Revenue Service to the Health Insurance
Supplement to the Earned income Credit.
R eceipts have been increased in March 1994 and outlays correspondingly increased by $6
million to reflect governmental receipts previously reported as offsetting collections.
O utlays have been increased by $14 million in August 1994 to reflect non-budgetary activity
previously reported as offsetting collections by the Maritime Administration.
‘ Receipts have been increased in September 1994 and outlays have been correspondingly
increased by $5 million to reflect governmental receipts previously reported as offsetting
collections by the Air Force.
the Commodity Credit Corporation.
O utlays have been increased in September 1994 by $71 million, $212 million, and $7 mill
for additional reporting by the FHA, PBGC, and the Comptroller of the Currency, respectively.
7Outlays have been increased in October 1994 by $8 million to reflect additional reporting y
the Air Force.
„ . .
Note: The receipt and outlay figures for FY 1994 have been revised to reflect
reclassification of the agency reporting for “Tonnage Duty Increases” , from a govemmen
receipt to an offsetting governmental receipt.
2
Table 2. Summary of Budget and Off-Budget Results and Financing of the U.S. Government, November 1994 and
Other Periods
[$ millions]
Classification
This
Month
Current
Fiscal
Year to Date
Budget
Estimates
Full Fiscal
Year1
Prior
Fiscal Year
to Date
(1994)
Budget
Estimates
Next Fiscal
Year (1996)1
Total on-budget and off-budget results:
Total receipts ...............................
87,673
176,696
1,354,333
161,764
1,425,699
On-budget receipts.........................
Off-budget receipts ........................
62,083
25,590
127,467
49,229
1,000,459
353,874
114,553
47,211
1,052,086
373,613
Total outlays............... ................
125,131
246,612
1,521,447
245,568
1,604,939
On-budget outlays .........................
Off-budget outlays .........................
99,464
25,668
194,770
51,841
1,229,419
292,028
197,281
48,286
1,298,044
306,895
Total surplus (+) or deficit (-) ................
-37,458
-69,915
-167,114
-83,803
-179,240
On-budget surplus (+) or deficit (-) ..........
Off-budget surplus (+) or deficit (-) ..........
-37,381
-78
-67,303
-2,612
-228,960
+61,846
-82,728
-1,075
-245,958
+66,718
Total on-budget and off-budget financing ........
37,458
69,915
167,114
83,803
179,240
Means of financing:
Borrowing from the public ...................
Reduction of operating cash, increase (— ) .....
By other means ...........................
40,528
9,366
-12,435
72,985
8,886
-11,956
175,699
75,283
20,196
-11,675
192,078
'These figures are based on the Mid-SessionReviewoftheFY1995Budget, released by the
Office of Management and Budget on July 14, 1994.
-8,585
... No Transactions.
Note: Details may not add to totals due to rounding.
Figure 1. Monthly Receipts, Outlays, and Budget Deficit/Surplus of the U.S. Government, Fiscal Years 1994 and 1995
$ billions
94
95
3
-12,838
Figure 2.
Monthly Receipts of the U.S. Government, by Source, Fiscal Years 1994 and 1995
Figure 3.
Monthly Outlays of the U.S. Government, by Function, Fiscal Years 1994 and 1995
$ billions
140-1
Total Outlays
Social Security & Medicare
National Defense
Interest
Oct.
Dec.
Feb.
Apr.
Jun.
Aug.
Oct. Nov.
FY
95
4
Table 3. Summary of Receipts and Outlays of the U.S. Government, November 1994 and Other Periods
[$ millions]
Budget
Estimates
Full Fiscal Year1
This Month
Current
Fiscal
Year to Date
Individual income taxes ................................................................
Corporation income taxes .............................
Social insurance taxes and contributions:
Employment taxes and contributions (off-budget) ........
Employment taxes and contributions (on-budget).........
Unemployment insurance ............................
Other retirement contributions ........................
Excise taxes ........................................
Estate and gift taxes ................................
Customs duties ......................................
Miscellaneous receipts................................
37,414
1,497
80,652
4,967
275,314
4,366
603,065
143,950
25,590
8,196
3,249
352
5,518
1,2 2 0
1,827
2,811
49,229
15,821
4,322
702
9,792
2,426
3,674
5,111
47,211
13,754
3,819
728
8,405
2,296
3,396
3A52.476
353,874
103,063
27,756
4,578
55,975
14,706
21,986
25,380
Total Receipts ...........................................................................
87,673
176,696
161,764
1,354,333
(On-budget)....................................... H...................................
62,083
127,467
114,553
1,000,459
(Off-budget) ...........................................................................
25,590
49,229
47,211
353,874
217
169
17
1,130
6,833
300
21,435
2,656
2,322
1,330
570
353
35
4,731
14,432
605
739,115
5,294
4,271
3,013
584
377
37
5,088
«12,041
541
44,943
55,064
5,161
3,433
2,931
3,078
197
11,143
61,277
3,690
258,894
31,159
30,302
15,663
26,650
26,605
2,426
583
818
1,684
841
3,499
49,700
52,677
5,329
1,467
1,726
4,037
1,329
6,944
50,126
50,106
85,060
91,126
1,654
»6,185
1,429
3.6,106,392
341,677
331,313
27,755
7,306
11,641
32,720
5,394
37,495
24,912
-308
3,312
474
639
1,143
3,118
145
44,644
-274
5,011
912
-1 1
1,987
6,528
2 10
39,898
2,4,6,8— 27
5,974
936
-250
2,293
6,214
160
324,235
16,970
37,737
6,658
895
14,439
40,437
752
-1,502
1,983
-1,973
5,459
-1,162
3,217
-11,113
7,935
-1,075
-5,727
-2,575
-6,338
-5,171
-5,533
-5,503
-91,780
-38,279
125,131
246,612
245,568
1,521,447
(On-budget)............................................................................
99,464
194,770
197,281
1,229,419
(Off-budget) ...........................................................................
25,668
51,841
48,286
292,028
Surplus (+) or deficit (—) .......................................................
-37,458
-69,915
-83,803
-167,114
(On-budget)............................................................................
-37,381
-67,303
-82,728
-228,960
(Off-budget) ...........................................................................
-7 8
-2,6 1 2
-1,075
+61,846
Classification
Comparable
Prior Period
Budget Receipts
Budget Outlays
Legislative Branch .........................................................................
The Judiciary .................................................................................
Executive Office of the President ......................
Funds Appropriated to the President ....................
Department of Agriculture .............................
Department of Commerce .............................
Department of Defense— Military .......................
Department of Defense— Civil .........................
Department of Education .............................
Department of Energy................................
Department of Health and Human Services, except Social
Security ...........................................
Department of Health and Human Services, Social Security ...
Department of Housing and Urban Development ..........
Department of the Interior .............................
Department of Justice...................................................................
Department of Labor ....................................................................
Department of State ................. .........................
Department of Transportation ......................................................
Department of the Treasury:
Interest on the Public Debt .....................................................
Other .........................................................................................
Department of Veterans Affairs .........................
Environmental Protection Agency ................................................
General Services Administration ........................
National Aeronautics and Space Administration ............
Office of Personnel Management .......................
Small Business Administration .........................
Other independent agencies:
Resolution Trust Corporation .........................
Other ......
.........
Allowances ......
Undistributed offsetting receipts:
Interest ......
Other ......
Total outlays........................................................ .....................
’piese figures are based on the Mid-SessionReviewoftheFY1995Budget, released by the
Office of Management and Budget on July 14, 1994.
’ Receipts have been increased In February 1994 and outlays correspondingly increased by
♦317 million to reflect adjustments made by the Internal Revenue Service to the Health Insurance
Supplement to the Earned Income Credit.
Includes $62 million for a reclassification of the agency reporting for “Tonnage Duty
ncr®®se8" from a governmental receipt to an offsetting governmental receipt.
ReceiPts have been increased In March 1994 and outlays correspondingly increased by $6
Mon to reflect governmental receipts previously reported as offsetting collections by the
“apartment of the Treasury.
O utlays have been decreased in September 1994 by $59 million, $1 million, and $11 million for
additional reporting for the Commodity Credit Corporation, Federal-Aid Highways, and the
Department of the Treasury, respectively.
1
7Outlays have been increased in October 1994 by $8 million to reflect additional reporting by
the Air Force.
»Outlays have been increased in September 1994 by $71 million, $212 million, and $7 million
for additional reporting by the FHA, PBGC, and the Comptroller of the Currency, respectively.
9Outlays for the Bureau of Land Management have been decreased by $1 million and outlays
for the National Park Service have been increased by $13 million to reflect additional reporting by
the agency in September 1994.
10Outlays have been increased by $14 million in August 1994 to reflect non-budgetary activity
previously reported as offsetting collections by the Maritime Administration.
Note: Details may not add to totals due to rounding.
*!Receipts have been Increased in September 1994 by $5 million to reflect governmental
Pts previously reported as offsetting collections by the Air Force.
5
Table 4.
Receipts of the U.S. Government, November 1994 and Other Periods
[$ millions]
This Month
Classification
Gross
Receipts
Refunds
(Deduct)
Current Fiscal Year to Date
Receipts
Gross
Receipts
Refunds
(Deduct)
Receipts
Prior Fiscal Year to Date
Gross
Receipts
Refunds
(Deduct)
Receipts
Individual income taxes:
Withheld .......................................
Presidential Election Campaign Fund ................
Other..........................................
37,882
2
1,857
72,107
78,361
2
5,776
(“ )
’5,998
Total— Individual income taxes ......................................
39,740
2,327
37,414
84,139
3,487
80,652
78,106
2,792
75,314
Corporation income ta x e s .......................................................
2,682
1,185
1,497
8,195
3,229
4,967
7,125
2,759
4,366
28,099
-1 1 0
28,099
-1 1 0
42,642
Social insurance taxes and contributions:
Employment taxes and contributions:
Federal old-age and survivors ins. trust fund:
Federal Insurance Contributions Act taxes ........
Self-Employment Contributions Act taxes .........
Deposits by States ...........................
Other ......................................
28,426
2-448
8,426
-448
(* *)
(**)
r *)
(* *)
Total— FOASI trust fund .....................
7,978
7,978
217,164
2448
Federal disability insurance trust fund:
Federal Insurance Contributions Act taxes ........
Self-Employment Contributions Act taxes .........
Receipts from railroad retirement account.........
Deposits by States ...........................
Other ......................................
Total— FDI trust fund ................
Federal hospital insurance trust fund:
Federal Insurance Contributions Act taxes ...
Self-Employment Contributions Act taxes ___
Receipts from Railroad Retirement Board ___
Deposits by States ....................
Total— FHI trust fund ........
.......
42,64!
■
(* *)
9 *)
27,989
27,989
42,642
42,64!
17,164
448
20,756
484
20,756
484
4,569
4,565
(* *)
(* *)
(* *)
(**)
C*)
"n
17,612
17,612
21,240
21,240
4,569
4,565
7,934
7,934
15,123
90
15,123
90
13,163
13,163
■
r*)
■
7,934
15,213
....
15,213
13,163
R
n
R
■
7,934
■
1H
(“ )
...
13,163
Railroad retirement accounts:
Rail industry pension hind ..............
Railroad Social Security equivalent benefit ...
109
153
(* *)
109
153
309
305
7
....
302
305
306
285
(* *)
...
306
285
Total— Employment taxes and contributions
33,786
(**)
33,786
65,056
7
65,049
60,965
(* *)
60,965
2,814
438
2,814
435
8
1
1
3,604
719
6
3,604
712
6
3,151
667
7
1
3,249
4,330
8
4,322
3,826
Unemployment insurance:
State taxes deposited in Treasury ...........
Federal Unemployment Tax Act taxes .......
Railroad unemployment taxes ..............
Railroad debt repayment
................
Total— Unemployment insurance .....
3,253
3
3,151
7
Other retirement contributions:
employee
Federal employees retirement
contributions.....................................................
Contributions for non-federal employees ........
344
8
344
8
686
17
686
17
711
17
Total— Other retirement contributions.........
352
352
702
702
728
Total— Social insurance taxes and
contributions ............................................
37,390
3
37,387
70,089
14
70,074
65,519
7
Excise taxes:
Miscellaneous excise taxes3 .................................
Airport and airway trust fund ..............................
Highway trust fund ...............................................
Black lung disability trust fund ...........................
3,590
453
1,448
57
29
3,561
453
1,448
57
5,944
896
2,901
116
59
6
1
5,886
890
2,900
116
4,849
891
2,833
95
347
3,819
711
17
728
2
-85
65,512
4,502
889
2,919
95
Total— Excise taxes .......................................
5,547
29
5,518
9,858
66
9,792
8,669
264
8,405
Estate and gift ta x e s .............................................
1,263
42
1,220
2,497
71
2,426
2,355
59
2,29«
Customs duties .................................................. .
1,965
138
1,827
3,926
252
3,674
3,573
177
3,398
Miscellaneous Receipts:
Deposits of earnings by Federal Reserve banks
All other ............................................................
2,587
223
r *)
2,587
224
4,542
574
6
4,542
569
2,033
4.5,6445
2
2,033
443
2,811
r*)
2,811
5,116
6
5,111
2,478
2
2,476
Total — Miscellaneous receipts ................... .
Total — Receipts ............................... ........... ,
91,398
3,725
87,673
183,821
7,124
176,696
167,823
6,059
161,764
Total — On-budget ..........................................
65,808
3,725
62,083
134,592
7,124
127,467
120,612
6,059
114,553
Total — O ff-budget................. .......... ........... .
25,590
25,590
49,229
49,229
47,211
47,211
includes $62 million for a reclassification of the agency reporting for “Tonnage M
’ Receipts have been increased in February 1994 and outlays correspondingly
ndingly increased
increased by
by
$317 million to reflect adjustments made by the Internal Revenue Service to the Health Insurance
Supplement to the Earned Income Credit.
includes a retroactive adjustment for January 1994 — September 1994, of $13,284 million
and $448 million to the Federal Insurance Contributions Act Taxes and the Self-Employment
Contributions Act Taxes, respectively, to reflect the new distribution between the FOASI and FDI
trust funds.
’ Includes amounts for the windfall profits tax pursuant to P.L. 96-223.
Increases”, from a governmental receipt to an offsetting governmental receipt.
’ Receipts have been increased In March 1994 and outlays correspondingly increased by I
million to reflect governmental receipts previously reported as offsetting collections to »*
Department of the Treasury.
,
’ Receipts have been increased in September 1994 by $5 million to reflect governmen
receipts previously reported as offsetting collections by the Air Force.
... No Transactions.
(* *) Less than $500,000.
6
Table 5. Outlays of the U.S. Government, November 1994 and Other Periods
[$ millions]
Classification
(Legislative Branch:
I Senate .............................................................................
I House of Representatives .............. ............................
I Joint items ......................................................................
I Congressional Budget Office ........................................
I Architect of the Capitol ..................................................
I Library of Congress ........................................................
I Government Printing Office:
Revolving fund (net) ...................................................
General fund appropriations .......................................
[ General Accounting Office .............................................
[ United States Tax Court ...............................................
[ Other Legislative Branch agencies ...............................
[ Proprietary receipts from the public..............................
( Intrabudgetary transactions ............................................
Total—Legislative Branch .........................................
Gross
Outlays
33
62
6
2
20
26
Applicable
Receipts
■
(* *)
(* *)
20
10
34
4
3
1
-1
1
218
Prior Fiscal Year to Date
Current Fiscal Year to Date
This Month
Outlays
Gross
Outlays
33
62
6
2
19
26
68
129
13
3
41
198
20
10
34
4
3
-1
-1
32
16
63
6
6
-2
217
573
2
4
Applicable
Receipts
M
(* *)
1
1
3
Outlays
Gross
Outlays
68
129
13
3
40
198
71
124
14
4
41
227
32
16
63
6
6
-1
-2
21
13
65
6
5
-2
570
588
4
4
Applicable
Receipts
(**)
2
1
1
4
Outlays
71
122
14
4
39
227
21
13
65
6
5
-1
-2
584
[The Judiciary:
i Supreme Court of the United States ..........................
I Courts of Appeals, District Courts, and other judicial
services .........................................................................
I Other ...............................................................................
158
10
1
157
10
332
18
1
331
18
356
18
■
355
18
Total—The Judiciary ................................................
170
1
169
354
1
353
377
<**>
377
3
4
10
3
4
10
6
10
19
6
10
19
8
11
18
8
11
18
17
17
35
35
37
37
22
110
183
■
3
■
-8
137
2,025
1,463
■
7
2
54
136
2,143
1,480
2
8
4
14
83
2,025
1,463
■
7
2
-1 4
310
3,634
68
3,566
3,773
[Executive Office of the President:
[ Compensation of the President and the White House
Office .............................................................................
[ Office of Management and Budget ..............................
Total—Executive Office of the President ............
Funds Appropriated to the President:
International Security Assistance:
Guaranty reserve fund .....................................................
Foreign military financing grants .....................................
Economic support fund .....................................................
Military assistance .............................................................
Peacekeeping Operations ..................................................
Other ............... ..................................................................
Proprietary receipts from the public ...............................
2
57
110
183
■
3
(**>
34
8
42
4
20
83
2,143
1,480
2
8
4
-2 0
74
3,699
53
Total—International Security Assistance ......................
353
International Development Assistance:
Multilateral Assistance:
Contribution to the International Development
Association ...................................................................
International organizations and programs ...................
Other...............................................................................
78
68
78
68
246
170
202
246
170
202
194
41
194
194
41
194
Total— Multilateral Assistance ..................................
146
146
618
618
429
429
Functional development assistance program ................
Sub-Saharan Africa development assistance ................
Operating expenses ........................................................
Payment to the Foreign Service retirement and
disability fund .................................................................
Other...........
Proprietary receipts from the public ..............................
Intrabudgetary transactions ............................................
131
68
47
131
68
47
221
132
74
221
132
74
238
98
91
238
98
91
84
4
103
79
-1 0 3
179
7
133
173
-1 3 3
132
8
90
124
-9 0
Total—Agency for International Development
329
107
222
606
140
467
559
98
461
Peace Corps ...........................................................
Overseas Private Investment Corporation ...........
32
3
4
40
■
32
-3 7
4
41
5
14
50
1
41
-4 5
13
45
5
18
49
m
45
-4 4
18
Total—International Development Assistance ..
515
147
367
1,284
190
1,094
1,056
148
908
International Monetary Programs ..............................
Military Sales Programs:
Special defense acquisition fund ...........................
Foreign military sales trust fund ...........................
Kuwait civil reconstruction trust fund ...................
Proprietary receipts from the public ....................
230
230
89
89
296
8
908
( )
-6 9 7
3
32
1,985
( )
-1 1
1,985
( )
-1,9 9 5
4
37
2,123
l )
1,130
7,028
4,731
7,287
Other ..................................
Other .......
Total—Funds Appropriated to the President ...
1
9
908
C *)
697
3
2,017
888
7
43
1,995
4
2,297
296
44
-7
2,123
1,933
-1,9 3 3
2
2,198
5,088
\
2
)
Table 5.
Outlays of the U.S. Government, November 1994 and Other Periods— Continued
[$ millions]
Current Fiscal Year to Date
This Month
Classification
Department of Agriculture:
Agricultural Research Service..................................
Cooperative State Research Service ......................
Extension Service .....................................................
Animal and Plant Health Inspection Service .........
Food Safety and Inspection Service ......................
Agricultural Marketing Service .................................
Soil Conservation Service:
Watershed and flood prevention operations ......
Conservation operations .......................................
Other .....................................................................
Agricultural Stabilization and Conservation Service:
Conservation programs .........................................
Other ......................................................................
Applicable
Receipts
Gross
Outlays
Gross
Outlays
Outlays
Applicable
Receipts
Outlays
Prior Fiscal Year to Date
Gross
Outlays
Applicable
Receipts
61
42
42
44
38
118
61
42
42
44
38
118
121
73
70
86
77
228
121
73
70
86
77
228
116
74
65
70
76
175
24
42
6
24
42
6
54
77
13
54
77
13
49
13
13
58
71
58
71
1,744
113
1,744
113
1,746
107
1,746
107
91
203
-71
152
164
639
197
418
-33
221
242
542
60
10
(* *)
60
10
108
21
(**)
108
21
263
574
/* *\
V /
94
20
1
94
19
Total— Farmers Home Administration ..............
445
294
151
933
616
317
951
785
166
Foreign assistance programs ..................................
Rural Development Administration:
Rural development insurance fund ......................
Rural water and waste disposal grants ............
Other ......................................................................
Rural Electrification Administration .........................
Federal Crop Insurance Corporation ......................
Commodity Credit Corporation:
Price support and related programs ..................
National Wool Act Program ................................
221
221
243
243
1240
-6
33
4
-65
-223
149
63
8
143
177
56
63
8
-196
-224
173
56
5
98
446
441
263
95
56
5
-343
183
3,038
1
2,752
1
5,045
1
4,478
1
13,980
1,057
2,923
Food and Nutrition Service:
Food stamp program ...........................
State child nutrition programs.............
Women, infants and children programs
Other .....................................................
2,219
647
280
50
2,219
647
280
50
4,347
1,175
593
136
4,347
1,175
593
136
4,218
1,016
499
63
Total— Food and Nutrition Service .
3,196
3,196
6,250
6,250
5,796
Farmers Home Administration:
Credit accounts:
Agricultural credit insurance fund ....................
Rural housing insurance fund ..........................
O th er...................................................................
Salaries and expenses ........................................
Other ......................................................................
20
354
58
33
4
85
92
64
150
315
287
....
93
340
402
566
....
88
H
....
Outlays
1
116
74
65
70
76
174
....
88
49
21
32
\ )
240
79
...
...
i
4,218
1,016
499
63
5,796
Forest Service:
National forest system ...........................
Forest and rangeland protection ...........
Forest service permanent appropriations
Other ........................................................
133
72
12
56
133
72
12
56
253
238
248
96
253
238
248
96
292
81
-33
88
292
81
-33
88
Total— Forest Service .........................
274
274
835
835
428
428
Other .............. .............................................
Proprietary receipts from the public.........
Intrabudgetary transactions .......................
39
36
-88
94
89
-145
111
Total— Department of Agriculture ......
8,033
1,200
6,833
16,599
2,167
14,432
31
31
34
1
30
31
34
54
75
54
3
50
75
54
162
14
36
6
6
2
8
156
14
36
4
211
Department of Commerce:
Economic Development Administration
Bureau of the Census .......................
Promotion of Industry and Commerce
Science and Technology:
National Oceanic and Atmospheric Administration
Patent and Trademark Office ...............................
National Institute of Standards and Technology .
Other .......................................................................
2
88
6
145
6
190
104
-190
1
14,863
2,822
12,041
53
59
43
4
49
59
43
1
Total— Science and Technology .......................
219
Other ..........................................................................
Proprietary receipts from the public.........................
Intrabudgetary transactions .......................................
Offsetting governmental receipts .............................
6
Total— Department of Commerce .................... .
322
6
12
-1 2
342
7
336
329
1
32?
7
7
*7
..
66
66
41
..
*
18______6_____ 12_____ 18_____ 7_____”
433_____ 13
420
395_____ 8____ Ï
26
.....
.....
r*)
21
642
8
300
26
21
..
37
5
25
-21
.....
r)
.......
605
574
222
;;;;;;
33______
Table 5. Outlays of the U.S. Government, November 1994 and Other Periods— Continued
i1
[$ millions]
Classification
Gross
Outlays
Applicable
Receipts
Prior Fiscal Year to Date
Current Fiscal Year to Date
This Month
Applicable
Receipts
Gross
Outlays
Outlays
Outlays
Gross
Outlays
Applicable
Receipts
Outlays
Department of Defense—Military:
Military personnel:
Department of the Army .........................
Department of the Navy .........................
Department of the Air Force ......................
2,019
2,028
1,654
2,019
2,028
1,654
3,112
3,724
2,578
3,112
3,724
2,578
4,513
4,257
3,222
4,513
4,257
3,222
Total— Military personnel .......................
5,701
5,701
9,414
9,414
11,991
11,991
1,968
1,608
2,629
1,632
1,968
1,608
2,629
1,632
3,591
3,060
34,134
3,171
3,591
3,060
4,134
3,171
3,199
3,406
3,533
3,323
3,199
3,406
3,533
3,323
7,837
7,837
13,955
13,955
13,461
13,461
Procurement:
Department of the Army .........................
Department of the Navy .........................
Department of the Air Force ......................
Defense agencies ...............................
415
2,002
1,918
419
415
2,002
1,918
419
1,128
3,939
3,230
712
1,128
3,939
3,230
712
1,416
4,233
3,932
682
1,416
4,233
3,932
682
Total— Procurement ...........................
4,754
4,754
9,009
9,009
10,263
10,263
Research, development, test, and evaluation:
Department of the Army .........................
Department of the Navy .........................
Department of the Air Force ......................
Defense agencies ...............................
397
551
1,300
648
397
551
1,300
648
734
1,249
2,152
1,263
734
1,249
2,152
1,263
960
1,029
2,507
1,366
960
1,029
2,507
1,366
2,896
2,896
5,398
5,398
5,861
5,861
Military construction:
Department of the Army .........................
Department of the Navy .........................
Department of the Air Force ......................
Defense agencies ...............................
87
51
115
284
87
51
115
284
148
98
236
480
148
98
236
480
153
53
190
396
153
53
190
396
Total— Military construction .....................
537
537
961
961
792
792
72
75
85
15
72
75
85
11
160
145
162
28
160
145
162
21
150
107
163
19
150
107
163
14
14
13
-27
41
-27
41
49
95
-311
-26
-137
-40
-137
-41
2,257
-16
1
■
■
B
Operation and maintenance:
Department of the Army .........................
Department of the Navy .........................
Department of the Air Force ......................
Defense agencies ...............................
Total— Operation and maintenance.............
Total— Research, development, test and evaluation ...
Family housing:
Department of the Army .........................
Department of the Navy .........................
Department of the Air Force ......................
Defense agencies ...............................
Revolving and management funds:
Department of the Army .........................
Department of the Navy .........................
Department of the Air Force ......................
Defense agencies:
Defense business operations fund ...............
Other.......................................
Trust funds:
Department of the Army .........................
Department of the Navy .........................
Department of the Air Force ......................
Defense agencies ...............................
Proprietary receipts from the public:
Department of the Army .........................
Department of the Navy .........................
Department of the Air Force ......................
Defense agencies ...............................
Intrabudgetary transactions:
Department of the Army .........................
Department of the Navy .........................
Department of the Air Force ......................
Defense agencies ...............................
Offsetting governmental receipts:
Department of the Army .........................
Defense agencies ...............................
Total-—Department of Defense— Military ...................
4
14
13
-311
-26
B
2
■
C*)
1
1
rm
17
17
120
11
15
62
1
■
27
27
143
82
3179
192
214
9
21,435
39,721
606
5
2
451
49
95
1
3
2
1
2
(“ )
-145
-147
-161
-39
108
22
93
-29
Hi
45,444
2,257
-17
51
108
22
93
4— 29
■
39,115
5
145
147
161
39
-143
-82
-179
-192
126
427
103
-39
126
427
103
-39
EBj
21,649
5
2
1 *)
-120
-11
-15
-62
8
-13
2
-30
8
-13
2
-30
7
7
502
B
44,943
Table 5.
Outlays of the U.S. Government, November 1994 and Other Periods— Continued
[$ millions]
Current Fiscal Year to Date
This Month
Classification
Gross
Outlays
Applicable
Receipts
Outlays
Gross
Outlays
Applicable
Receipts
Prior Fiscal Year to Date
Outlays
Gross
Outlays
Applicable
Receipts
Outlays
Department of Defense— Civil
Corps of Engineers:
Construction, general ..........................................................
Operation and maintenance, general .................................
Other ....................................................................................
Proprietary receipts from the public .................................
109
160
102
Total— Corps of Engineers ............................................
371
Military retirement:
Payment to military retirement fund .................................
Retired pay .........................................................................
Military retirement fund .......................................................
Intrabudgetary transactions ................................................
Education benefits .................................................................
Other .......................................................................................
Proprietary receipts from the public.....................................
22
742
647
11,470
11,470
11,908
11,908
16
6
4,555
-11,470
-10
10
1
2
4,555
-11,470
-10
10
-2
4,405
-11,908
30
59
1
2
4,405
-11,908
30
9
-2
2,656
5,320
25
5,294
5,091
27
5,064
1,080
469
256
215
304
246
4
4
367
765
2,268
2,268
16
7
174
181
291
22
215
304
246
-22
109
160
102
-4
u
■
■
5
25
174
181
291
-25
25
622
Total— Department of Defense— Civil ............................
2,661
Department of Education:
Office of Elementary and Secondary Education:
Compensatory education for the disadvantaged ............
Impact a id ............................................................................
School improvement programs ..........................................
Indian education ................. ...............................................
Other ....................................................................................
501
34
108
6
1
501
34
108
6
1
857
67
211
11
857
67
211
11
4
4
1,080
469
256
12
1
Total— Office of Elementary and Secondary
Education .......................................................................
650
650
1,149
1,149
1,818
1,818
12
1
Office of Bilingual Education and Minority Languages
Affairs ....................................................................................
Office of Special Education and Rehabilitative Services:
Special education ................................................................
Rehabilitation services and disability research .................
Special institutions for persons with disabilities ..............
Office of Vocational and Adult Education ..........................
17
17
33
33
37
37
216
200
12
143
216
200
12
143
463
365
23
262
463
365
23
262
462
364
20
264
462
364
Office of Postsecondary Education:
College housing loans ...................... ............................
Student financial assistance ...........................................
Federal family education loans .......................................
Higher education ..............................................................
Howard University ...........................................................
Other .................................................................................
-7
566
360
60
32
9
6
1,316
363
126
32
14
24
566
360
60
32
9
-18
1,316
363
126
32
14
1,369
593
106
26
1
Total— Office of Postsecondary Education ................
1,026
7
1,018
1,857
24
1,833
2,095
Office of Educational Research and Improvement .........
Departmental management ................................................
Proprietary receipts from the public..................................
31
36
75
76
8
75
76
-8
67
63
4
31
36
-4
Total— Department of Education .................................
2,333
12
2,322
4,302
31
4,271
5,190
Department of Energy:
Atomic energy defense activities .......................................
973
973
2,057
2,057
2,231
322
252
15
46
63
15
322
252
15
46
63
15
407
549
16
76
98
37
407
549
16
76
98
37
237
487
182
74
91
36
33
33
73
73
56
147
56
147
60
67
819
1,385
■
1,385
1,233
51
-178
-253
-82
355
75
257
328
81
4
98
75
-458
-141
-4
719
3,013
Energy programs:
General science and research activities .......................
Energy supply, R and D activities .................................
Uranium supply and enrichment activities ....................
Fossil energy research and development ......................
Energy conservation ........................................................
Strategic petroleum reserve ...........................................
Clean coal technology .....................................................
Nuclear waste disposal fund ..........................................
Other .................................................................................
7
Total— Energy programs .............................................
819
Power Marketing Administration .........................................
Departmental administration ...............................................
Proprietary receipts from the public..................................
Intrabudgetary transactions ................................................
Offsetting governmental receipts .......................................
173
-178
Total— Department of Energy.......................................
1,705
(* *)
M
122
253
-82
■
374
10
458
-141
■
1,330
(**)
3,732
20
264
19
-19
1,369
593
106
26
1
19
2,076
10
67
63
-10
29
5,161
mi
487
182
74
91
36
<**>
■
1,233
201
6
126
81
-101
-132
-6
308
3,433
101
-132
3,741
60
66
Table 5.
Outlays of the U.S. Government, November 1994 and Other Periods— Continued
[$ millions]
Current Fiscal Year to Date
This Month
Classification
Gross
Outlays
Applicable
Receipts
Outlays
Gross
Outlays
Applicable
Receipts
Outlays
Prior Fiscal Year to Date
Gross
Outlays
Applicable
Receipts
Outlays
Department of Health and Human Services, except Social
Security:
Public Health Service:
Food and Drug Administration ....................
Health Resources and Services Administration .......
Indian Health Services ...........................
Centers for Disease Control and Prevention .........
National Institutes of Health .......................
Substance Abuse and Mental Health Services
Administration .................................
Agency for Health Care Policy and Research........
Assistant secretary for health .....................
60
170
173
129
924
(* *)
168
9
-45
60
170
173
129
924
139
349
331
291
1,692
168
9
-45
359
21
10
1,588
3,191
1
1
139
349
331
291
1,692
126
317
288
233
1,737
359
21
10
340
19
108
3,191
3,167
1
126
317
288
233
1,737
340
19
108
1
3,166
Total— Public Health Service ....................
1,588
Health Care Financing Administration:
Grants to States for Medicaid ....................
Payments to health care trust funds ...............
7,545
3,042
7,545
3,042
14,167
6,104
14,167
6,104
14,020
7,511
14,020
7,511
Federal hospital insurance trust fund:
Benefit payments .............................
Administrative expenses........................
Interest on normalized tax transfers
8,850
93
8,850
93
16,587
189
16,587
189
15,258
180
15,258
180
Total— FHI trust fund ........................
8,942
8,942
16,776
16,776
15,438
15,438
Federal supplementary medical insurance trust fund:
Benefit payments .............................
Administrative expenses........................
5,173
116
5,173
116
9,854
234
9,854
234
9,236
252
9,236
252
Total— FSMI trust fund ......................
5,290
5,290
10,089
10,089
9,487
9,487
Other ........................ ................
51
51
44
44
72
72
Total— Health Care Financing Administration .....
24,869
24,869
47,178
47,178
46,529
46,529
Social Security Administration:
Payments to Social Security trust funds ..........
Special benefits for disabled coal miners .........
Supplemental security income program ...........
7
61
2,132
7
61
2,132
637
123
2,357
637
123
2,357
988
137
3,905
988
137
3,905
Total— Social Security Administration ...........
2,200
2,200
3,116
3,116
5,031
5,031
Family support payments to States ...............
Low income home energy assistance .............
Refugee and entrant assistance ..................
Community Services Block Grant .................
Payments to States for afdc work programs .......
Interim assistance to States for legalization .........
Payments to States for child care assistance ........
Social services block grant .......................
Children and families services programs ............
Payments to States for foster care and adoption
assistance ....................................
Other ........................................
1,272
105
42
25
89
29
81
227
371
1,272
105
42
25
89
29
81
227
371
3,009
171
72
47
139
35
145
466
726
3,009
171
72
47
139
35
145
466
726
2,790
574
46
50
106
569
111
324
568
2,790
574
46
50
106
569
111
324
568
276
1
276
1
434
1
434
1
382
382
Total— Administration for children and families ....
2,519
2,519
5,247
5,247
5,520
5,520
■
Administration for children and families:
Administration on aging .........................................................
Office of the Secretary .........................................................
Proprietary receipts from the public.....................................
Intrabudgetary transactions:
Payments for health insurance for the aged:
Federal hospital insurance trust fund ....................... .
Federal supplementary medical insurance trust fund ..
Payments for tax and other credits:
Federal hospital insurance trust fund ..........................
O ther.................................................................................
Total— Department of Health and Human Services,
except Social Security .......................
80
18
....
....
1,582
80
18
-1,582
132
59
....
....
3,120
132
59
-3,120
100
.........
100
29
....
2,738
29
-2,738
-3,042
....
-3,042
-6,103
....
-6,103
-7,511
....
-7,511
52,865
2,739
50,126
-1
28,233
1,582
11
26,650
52,821
.....
3,121
-1
49,700
Table 5.
Outlays of the U.S. Government, November 1994 and Other Periods— Continued
[$ millions]
Current Fiscal Year to Date
This Month
Classification
Gross
Outlays
Applicable
Receipts
Outlays
Gross
Outlays
Applicable
Receipts
Prior Fiscal Year to Date
Outlays
Gross
Outlays
Applicable
Receipts
Outlays
Department of Health and Human Services, Social
Security (off-budget):
Federal old-age and survivors insurance trust fund:
Benefit payments ................................................................
Administrative expenses and construction .......................
Payment to railroad retirement account ...........................
Interest expense on interfund borrowings .......................
Interest on normalized tax transfers .................................
23,342
26
23,342
26
46,713
68
46,713
68
44,812
288
44,812
288
Total— FOASI trust fund ................................................
23,368
23,368
46,781
46,781
45,100
45,100
3,174
70
3,174
70
6,375
158
6,375
158
5,837
153
5,837
153
Total— FDI trust fund .....................................................
3,244
3,244
6,533
6,533
5,990
5,990
Proprietary receipts from the public.....................................
Intrabudgetary transactions6 ..................................................
-7
Total— Department of Health and Human Services,
Social Security(off-budget) .............................................
26,605
Federal disability insurance trust fund:
Benefit payments ................................................................
Administrative expenses and construction .......................
Payment to railroad retirement account ...........................
Interest on normalized tax transfers .................................
(**)
■
-7
-6 3 7
(*I
26,605
52,677
14
11
3
24
478
-7
48
7
8
44
599
55
-120
-62
48
7
8
44
1,040
326
92
22
21
109
216
324
2
816
389
11
249
651
4
1,670
733
21
r*)
8tj
■
(**)
-6 3 7
-9 8 4
52,677
50,107
18
6
26
14
13
1,010
110
31
215
92
22
21
109
71,108
375
75
10
18
110
859
118
249
257
75
10
18
110
■
255
597
3
1,763
530
7
I *)
<**)
-984
50,106
Department of Housing and Urban Development:
Housing programs:
Public enterprise funds .........................
Credit accounts:
Federal housing administration fund .............
Housing for the elderly or handicapped fund ......
Other......................................
Rent supplement payments ......................
Homeownership assistance ......................
Rental housing assistance .......................
Rental housing development grants ...............
Low-rent public housing .........................
Public housing grants ..........................
College housing grants .........................
Lower income housing assistance ................
Section 8 contract renewals .....................
Other ........................................
Total— Housing programs ......................
Public and Indian Housing programs:
Low-rent public housing— Loans and other expenses ...
Payments for operation of low-income housing
projects ......................................
Community Partnerships Against Crime .............
Other .........................................
(**>
m
216
324
2
816
389
11
(**)
249
651
4
1,670
733
21
255
597
3
1,763
530
7
2,350
664
1,685
4,961
1,138
3,823
4,877
991
3,886
239
196
43
241
196
44
255
189
66
214
12
1
435
23
1
435
23
1
432
25
214
12
1
432
25
466
196
270
700
196
504
711
189
522
Government National Mortgage Association:
Management and liquidating functions fund ..........
Guarantees of mortgage-backed securities ..........
39
75
-36
92
125
-34
175
H
264
n
-89
Total— Government National Mortgage Association ....
39
75
-36
92
125
-34
175
264
-89
659
188
47
25
659
188
22
586
80
60
29
586
80
32
25
869
725
29
697
83
4
3
160
11
-3
44
83
4
—44
1,488
5,329
6,576
1,516
5,00«
Total— Public and Indian Housing programs .......
Community Planning and Development:
Community Development Grants ...................
H o m e investment partnerships program .............
Other .........................................
330
100
22
12
330
100
10
Total— Community Planning and Development ......
452
12
440
894
Management and Administration ....................
Other ..........................................
Proprietary receipts from the public..................
Offsetting governmental receipts ....................
66
4
160
11
3
66
4
-3
950
2,426
6,817
Total— Department of Housing and Urban
Development .....................................................................
3,377
12
Table 5.
Outlays of the U.S. Government, November 1994 and Other Periods— Continued
[$ millions]
Current Fiscal Year to Date
This Month
Classification
Department of the Interior.
Land and minerals management:
Bureau of Land Management:
Management of lands and resources .........................
Other .............................. ...................................................
Minerals Management Service . . .
..............
Office of Surface Mining Reclamation and
Enforcement ......................................................................
Gross
Outlays
Applicable
Receipts
Outlays
Gross
Outlays
Applicable
Receipts
Outlays
Prior Fiscal Year to Date
Gross
Outlays
Applicable
Receipts
Outlays
108
59
130
55
36
68
55
36
68
117
164
143
117
164
143
108
«59
130
30
30
61
61
49
49
Total— Land and minerals management .......................
189
189
486
486
346
346
Water and science:
Bureau of Reclamation:
Construction program ...................................................
Operation and maintenance ............................................
Other...............................................................................
Central Utah project .........................................
...........
Geological Survey ! . . . ..........................................................
Bureau of Mines .................................................................
40
21
27
23
23
15
71
39
63
23
81
28
50
43
37
26
4
71
39
41
23
81
24
43
37
76
2
40
21
12
23
23
13
84
29
5
84
24
Total—Water and science .............................................
149
17
132
305
27
278
269
55
215
138
9
127
138
9
127
216
20
246
216
20
246
174
*250
250
Total— Fish and wildlife and parks ...............................
274
274
482
482
423
423
Bureau of Indian Affairs:
Operation of Indian programs ....................
..............
Indian tribal funds ..............................................................
Other .................................................................. .................
107
15
47
1
107
15
46
236
-6
119
2
236
-6
117
234
—64
130
1
234
—64
129
Total— Bureau of Indian Affairs ....................................
169
1
168
349
2
347
300
1
299
Territorial and international affairs .........................................
Departmental offices .............................. ............................
Proprietary receipts from the public......................................
Intrabudgetary transactions ........... ..................................
Offsetting governmental receipts ..........................................
8
56
238
62
345
280
(* *)
(“ )
238
62
-3 4 5
-81
(* *)
111
29
164
8
56
-1 6 4
-8 0
1 *)
(**)
111
29
-2 8 0
—16
(* *)
182
583
1,840
373
1,467
1,462
336
1,126
10
193
141
66
119
210
69
76
-2
-5 3
390
277
148
252
421
184
168
-4
21
363
353
132
226
362
142
153
-1
19
88
390
277
148
252
400
184
168
-4
-8 8
57
363
353
132
226
343
142
153
-1
—57
818
1,836
110
1,726
1,730
76
1,654
385
29
15
385
29
15
738
58
41
738
58
41
681
65
25
681
65
25
-2 6
-2 6
13
13
—46
—46
1,714
1,714
Fish and wildlife and parks:
United States Fish and Wildlife Service ....................... .. .
National Biological Survey ......... .......................................
National Park Service..........................................................
-8 0
Total—Department of the Interior .............................
765
Department of Justice:
Legal activities ........................................................................
Federal Bureau of Investigation ............................................
Drug Enforcement Administration..........................................
Immigration and Naturalization Service .................................
Federal Prison System ...........................................................
Office of Justice Programs ...................................................
Other .......................................................................................
Intrabudgetary transactions ...................................................
Offsetting governmental receipts ..........................................
193
141
66
119
221
69
76
-2
Total—Department of Justice .........................................
Department of Labor
Employment and Training Administration:
Training and employment services ....................................
Community Sendee Employment for Older Americans ...
Federal unemployment benefits and allowances ............
State unemployment insurance and employment service
operations ...........................................................................
Payments to the unemployment trust fund ....................
Advances to the unemployment trust fund and other
funds ..................................................................................
15
53
882
64
13
22
-8 1
174
-1 6
Table 5.
Outlays of the U.S. Government, November 1994 and Other Periods— Continued
[$ millions]
This Month
Classification
Department of Labor— Continued
Unemployment trust fund:
Federal-State unemployment insurance:
State unemployment benefits .....................................
State administrative expenses ....................................
Federal administrative expenses.................................
Veterans employment and training ............................
Repayment of advances from the general fund ......
Railroad unemployment insurance .................................
O ther.................................................................................
Total— Unemployment trust fund ...............................
Gross
Outlays
Applicable
Receipts
Current Fiscal Year to Date
Outlays
1,517
301
1,517
301
10
20
10
20
5
5
1
1,854
Gross
Outlays
9
3
9
3
10
1
5
10
5
1,854
3,504
3,504
5,472
5,472
13
12
12
4,368
7,922
7,922
40
272
38
-611
94
30
46
28
63
34
-601
999
24
42
30
5
13
2,262
4,368
Pension Benefit Guaranty Corporation .................................
Employment Standards Administration:
Salaries and expenses ......................................................
Special benefits ...................................................................
Black lung disability trust fund ..........................................
Other ....................................................................................
Occupational Safety and Health Administration ...................
Bureau of Labor Statistics ...................................................
Other .......................................................................................
Proprietary receipts from the public.....................................
Intrabudgetary transactions ...................................................
73
17
145
17
-6 9 2
48
15
24
9
44
17
-6 9 2
48
15
24
9
44
■
-5 8
38
-611
94
30
46
28
63
Total— Department of Labor ............................................
1,741
1,684
4,143
124
57
124
57
129
38
129
38
10
10
Department of State:
Administration of Foreign Affairs:
Salaries and expenses ......................................................
Acquisition and maintenance of buildings abroad ...........
Payment to Foreign Service retirement and disability
fund ....................................................................................
Foreign Service retirement and disability fund ................
Other ....................................................................................
Outlays
4,734
600
104
19
5
57
Applicable
Receipts
4,734
600
104
19
2,262
-5 8
Outlays
2,924
524
16
29
Total— Employment and Training Administration .........
(**)
Prior Fiscal Year to Date
Gross
Outlays
2,924
524
16
29
Other ....................................................................................
56
Applicable
Receipts
105
1
-5 9
7—55
968
-1
(**)
327
34
-601
99
24
42
30
68
n
-1,760
-5 9
-1,760
4,037
6,130
330
77
330
77
243
92
243
92
129
73
5
129
73
5
125
125
68
26
106
-5 5
68
26
6,185
Total— Administration of Foreign Affairs ......................
358
358
614
614
554
554
International organizations and Conferences .......................
Migration and refugee assistance ........................................
International narcotics control ..............................................
Other .......................................................................................
Proprietary receipts from the public.....................................
Intrabudgetary transactions ...................................................
Offsetting governmental receipts ..........................................
535
64
7
7
535
64
7
7
714
109
714
109
12
10
12
10
915
64
17
4
915
64
17
4
-1 2 9
-1 2 9
-1 2 9
-1 2 9
-1 2 5
-125
Total— Department of S ta te .............................................
841
841
1,329
1,329
1,429
1,429
Department of Transportation:
Federal Highway Administration:
Highway trust fund:
Federal-aid highways ......................................................
O ther.................................................................................
Other programs ...................................................................
1,750
12
22
1,750
12
22
3,530
26
42
3,530
26
42
103,361
14
59
3,361
14
59
Total— Federal Highway Administration .........................
1,784
1,784
3,598
3,598
3,434
3,434
National Highway Traffic Safety Administration ...................
25
25
44
44
40
40
Federal Railroad Administration:
Grants to National Railroad Passenger Corporation ......
Other ....................................................................................
15
1
14
344
32
2
344
30
214
54
2
214
52
Total— Federal Railroad Administration .........................
15
1
14
376
2
374
269
2
266
14
Table 5.
Outlays of the U.S. Government, November 1994 and Other Periods— Continued
[$ millions]
Current Fiscal Year to Date
This Month
Classification
Gross
Outlays
Applicable
Receipts
Outlays
Gross
Outlays
Applicable
Receipts
Outlays
Prior Fiscal Year to Date
Applicable
Receipts
Gross
Outlays
Outlays
of Transportation:— Continued
Federal Transit Administration:
Formula grants .............................................................
Discretionary grants ...................................................
Other ............................................................................
103
192
44
103
192
44
240
336
84
240
336
84
140
240
174
140
240
174
Federal Transit Administration ...................
339
339
661
661
555
555
Federal Aviation Administration:
Operations ...................................................................
36
36
281
281
688
688
179
277
17
408
179
277
17
408
355
428
37
504
355
428
37
504
359
286
35
359
286
35
225
52
41
16
225
52
41
15
367
72
81
32
367
72
81
31
406
43
71
406
43
71
19
552
539
D epartm en t
Total
Airport and airway trust fund:
Grants-in-aid for airports ..........................
Facilities and equipment ..........................
Research, engineering and development .
Operations ..................................................
Total— Airport and airway trust fund ..
Other ..............................................................
Total— Federal Aviation Administration ...
Coast Guard:
Operating expenses .....................................
Acquisition, construction, and improvements
Retired pay ...................................................
Other ..............................................................
Total—Coast Guard ..................................
1
334
335
Maritime Administration ....................................
Other .................................................................
Proprietary receipts from the public................
Intrabudgetary transactions ..............................
Offsetting governmental receipts ....................
...........
1
552
20
13
-6
11
-11
1
538
«11
Total—Department of Transportation ............................
3,507
8
3,499
6,998
54
6,944
6,450
57
6,392
Department of the Treasury:
Departmental offices:
Exchange stabilization fund ...............................................
Other ....................................................................................
-3 2 7
2
-3 2 9
-4 2 6
28
3
-4 2 9
28
-1 1 4
61
2
-1 1 6
61
37
587
135
83
5
34
587
70
2
2
23
23
10
10
Financial Management Service:
Salaries and expenses ......................................................
Payment to the Resolution Funding Corporation ............
Claims, judgements, and relief acts .................................
Net interest paid to loan guarantee financing accounts .
Other ....................................................................................
19
19
84
4
3
84
4
3
37
587
135
83
5
Total—Financial Management Service ...........................
110
110
847
847
717
717
Federal Financing Bank ..........................................................
Bureau of Alcohol, Tobacco and Firearms:
Salaries and expenses ......................................................
Internal revenue collections for Puerto R ico....................
United States Customs Service ............................................
Bureau of Engraving and Printing ........................................
United States Mint .................................................................
Bureau of the Public Debt ...................................................
-1 0 9
-1 0 9
-2 2 3
-2 2 3
-2 2 4
-2 2 4
38
19
170
38
19
170
50
37
280
32
50
37
280
32
-6
-6
28
28
228
596
145
228
596
145
43
Internal Revenue Service:
Processing tax returns and assistance ............................
Tax law enforcement ..........................................................
Information systems ...........................................................
Payment where earned income credit exceeds liability
for tax ...............................................................................
Health insurance supplement to earned income credit ..
Refunding internal revenue collections, interest ..............
Other ......
Total— Internal Revenue Service ....................................
66
66
37
302
4
-4 2
58
6
6
-1 3
45
-1 3
45
37
302
4
-4 2
58
139
328
137
139
328
137
250
634
236
250
634
236
21
21
40
40
34
587
70
125
13
125
13
226
26
226
26
575
43
4
575
1422
22
763
763
1,412
1,412
1,613
1,613
134
15
Table 5.
Outlays of the U.S. Government, November 1994 and Other Periods— Continued
[$ millions]
This Month
Classification
Gross
Outlays
Department of the Treasury:— Continued
United States Secret Service ................................................
Comptroller of the Currency ..................................................
Office of Thrift Supervison ....................................................
44
27
11
Interest on the public debt:
Public issues (accrual basis) .............................................
Special issues (cash basis) ................................................
Applicable
Receipts
Current Fiscal Year to Date
Outlays
Gross
Outlays
44
24
10
95
58
22
18,280
6,632
18,280
6,632
Total— Interest on the public debt ...............................
24,912
Other .......................................................................................
Proprietary receipts from the public.....................................
Receipts from off-budget federal entities ............................
Intrabudgetary transactions ...................................................
Offsetting governmental receipts ..........................................
5
Applicable
Receipts
Outlays
Prior Fiscal Year to Date
Gross
Outlays
Applicable
Receipts
Outlays
95
51
20
74
758
30
36,961
7,683
36,961
7,683
34,080
5,819
34,080
5,819
24,912
44,644
44,644
39,898
39,898
7
450
7
-4 5 0
12
284
5
-2 8 4
-7 1 7
-101
-1,898
161
-1,898
-161
-2,247
101
3
1
-7 1 7
7
2
9
3
74
49
27
12
1°274
-274
-2,247
142
-142
Total— Department of the Treasury ...............................
24,994
390
24,604
44,993
623
44,370
40,301
429
39,872
Department of Veterans Affairs:
Veterans Health Administration:
Medical care .......................................................................
Other ....................................................................................
1,310
53
22
1,310
31
2,484
109
44
2,484
65
2,454
117
43
2,454
74
84
83
2
1,457
116
5
195
206
53
1,562
188
8
106
145
44
1,562
188
8
81
240
69
2,805
184
15
95
95
1
1
182
3
12
3
182
3
18
-1
182
3
18
3
-11
1,849
2,419
2,254
■
52
150
101
268
101
268
25
■
54
-2 5
■
-5 4
■
-2
3,312
5,378
128
251
307
180
332
13
61
100
167
120
41
-1 3
1
-1
14
474
949
583
-6 2
-8 6
87
50
Veterans Benefits Administration:
Public enterprise funds:
Guaranty and indemnity fund ........................................
Loan guaranty revolving fund ........................................
O ther.................................................................................
Compensation and pensions .............................................
Readjustment benefits ........................................................
Post-Vietnam era veterans education account ................
Insurance funds:
National service life ........................................................
United States government life .......................................
Veterans special life ........................................................
Other ....................................................................................
127
114
5
1,457
116
5
9
3
-1
Total— Veterans Benefits Administration ......................
1,928
Construction ............................................................................
Departmental administration ..................................................
Proprietary receipts from the public:
National service life .............................................................
United States government life ..........................................
Other ....................................................................................
Intrabudgetary transactions ...................................................
52
150
r *)
Total— Department of Veterans Affairs .........................
3,492
Environmental Protection Agency:
Program and research operations .........................................
Abatement, control, and compliance ....................................
Water infrastructure financing ...............................................
Hazardous substance superfund ..........................................
Other .......................................................................................
Proprietary receipts from the public .....................................
Intrabudgetary transactions ...................................................
Offsetting governmental receipts ..........................................
43
30
3
61
100
167
120
41
79
179
■
6
89
61
9
5
164
H
Total— Environmental Protection Agency ......................
488
General Services Administration:
Real property activities .........................................................
Personal property activities ...................................................
Information Resources Management Service ......................
Other .......................................................................................
Proprietary receipts from the public .....................................
583
-1 7
43
31
Total— General Services Administration .......................
640
-17
43
31
1
-1
1
639
16
-1 0
272
3,315
118
193
(* *)
118
193
60
-60
113
n
-113
. -7
488
5,974
-7
5,011
6,462
128
251
307
180
332
-3 5
-2 5 0
133
210
323
230
77
1
m
-1
912
972
-6 2
-8 6
87
50
-2 5 8
-6 7
29
47
1
-1
1
-1 1
182
3,587
367
37
6
2,805
184
15
3
12
-11
-4 8
■
-111
-2
-2 5 0
-42
159
6
48
■
111
■
35
123
81
63
-2 4 9
133
210
323
■
34
230
77
-34
2
-2
36
936
-258
-67
29
47
1
-1
1
-250
Table 5.
Outlays of the U.S. Government, November 1994 and Other Periods— Continued
[$ millions]
Current Fiscal Year to Date
This Month
Classification
Gross
Outlays
Applicable
Receipts
Outlays
Gross
Outlays
Applicable
Receipts
Outlays
Prior Fiscal Year to Date
Gross
Outlays
Applicable
Receipts
Outlays
National Aeronautics and Space Administration:
Human space flight ................................................................
Science, aeronautics and technology....................................
Mission support ....................... .............................................
Research and development ...................................................
Spaofl flight, control and data communications...................
Construction of facilities ........................................................
Research and program management ....................................
Other .......................................................................................
73
120
131
460
345
11
1
1
73
120
131
460
345
11
1
1
50
136
191
851
649
39
70
2
50
136
191
851
649
39
70
2
1,135
836
65
255
2
1,135
836
65
255
2
Total—National Aeronautics and Space
Administration ...................................................................
1,143
1,143
1,987
1,987
2,293
2,293
286
286
574
574
593
593
3,105
-2 8
-2 3 8
6,228
2,518
229
1
22
6,228
22
-3 1 3
(**)
22
5,918
2,471
225
1
Office of Personnel Management:
Government payment for annuitants, employees health
and life insurance benefits ..................................................
Payment to civil service retirement and disability fund ......
Civil service retirement and disability fund ...........................
Employees health benefits fund ............................................
Employees life insurance fund ...............................................
Retired employees health benefits fund ..............................
Other .......................................................................................
Intrabudgetary transactions:
Civil service retirement and disability fund:
General fund contributions .............................................
Other.................................................................................
3,105
1,233
114
1
1,261
353
1
-3
-3
■
-3
2,496
542
1
2,497
523
1
33
33
-3
-5
3,118
9,567
3,039
6,528
9,235
3,021
6,214
36
87
1
147
74
66
160
-5
-6
-6
Total—Office of Personnel Management ......................
4,733
1,614
Small Business Administration:
Public enterprise funds:
Business loan fund .............................................................
Disaster loan fund ..............................................................
Other ....................................................................................
Other .......................................................................................
61
84
39
63
1
41
77
129
4
41
42
41
22
21
2
(* *)
86
r *)
86
76
82
60
2
r*)
Total—Small Business Administration ...........................
189
44
145
297
86
210
305
144
18
27
16
34
28
26
286
34
28
26
286
9
32
t*i
275
714
-5
39
468
12
698
Other independent agencies:
Action .......................................................................................
Board for International Broadcasting ....................................
Corporation for National and Community Service ..............
Corporation for Public Broadcasting ....................................
District of Columbia:
Federal payment .................................................................
Other ....................................................................................
Equal Employment Opportunity Commission .......................
Export-Import Bank of the United States ............................
Federal Communications Commission ..................................
Federal Deposit Insurance Corporation:
Bank insurance fund ..........................................................
Savings association insurance fund ..................................
FSLIC resolution fund ........................................................
Affordable housing and bank enterprise ...........................
Federal Emergency Management Agency:
Public enterprise funds ......................................................
Disaster relief ......................................................................
Emergency management planning and assistance .........
..................................................
Other ..............
Federal Trade Commission ...................................................
Interstate Commerce Commission ........................................
Legal Services Corporation ...................................................
National Archives and Records Administration ....................
National Credit Union Administration:
Credit union share insurance fund ....................................
Central liquidity facility ........................................................
Other ......
National Endowment for the Arts ........................................
National Endowment for the Humanities ..............................
National Labor Relations Board ............................................
National Science Foundation ..................................................
Nuclear Regulatory Commission ............................................
Panama Canal Commission ...................................................
3
18
27
16
5,918
-2 6
-2 9 8
!*)
714
7
39
431
18
3
12
8
13
5
76
9
32
(* *)
275
698
-9
31
-1 2 5
14
3
12
31
85
20
■
210
676
806
7
463
-1 3 0
-1
7
1
42
110
317
34
26
15
7
31
17
19
77
4
15— 14
1
19
191
2
104
2
541
313
15
111
-2 0 8
-1 3
430
416
14
578
r *)
752
29
236
-3 3 6
-1 5
342
(**)
471
1
76
205
21
15
5
3
1
25
27
49
205
21
15
5
3
1
25
99
465
38
26
15
9
56
34
63
37
465
38
26
15
9
56
34
152
317
34
26
15
7
31
17
(* *)
27
20
14
20
12
(* *)
1 *)
116
-1
33
26
29
413
-3 5
48
-4
-1
5
3
30
27
29
394
85
90
-4
99
1
5
6
12
13
12
209
-5 6
86
1
1
5
7
12
13
12
209
44
44
H
<**>
1
(**)
17
■
-3 8
6
(* *)
3
5
1
145
94
(**)
3
30
27
29
394
-6 0
-5
6
33
26
29
413
81
87
6
Table 5.
Outlays of the U.S. Government, November 1994 and Other Periods— Continued
This Month
Classification
Other independent agencies:— Continued
Postal Service:
Public enterprise funds (off-budget) .............................
Payment to the Postal Service fund ............................
Railroad Retirement Board:
Federal windfall subsidy ................................................
Federal payments to the railroad retirement accounts
Rail industry pension fund:
Advances from FOASDI fund ....................................
OASDI certifications ....................................................
Administrative expenses .............................................
Interest on refunds of taxes .....................................
O ther............................................................................
Intrabudgetary transactions:
Payments from other funds to the railroad
retirement trust funds ..........................................
Other ........................................................................
Supplemental annuity pension fund ..............................
Railroad Social Security equivalent benefit account ...
Other ...............................................................................
Total— Railroad Retirement Board ............................
Gross
Outlays
Current Fiscal Year to Date
Applicable
Receipts
Outlays
164,155
-1 1 0
7,850
61
22
(* *)
43
46
43
46
47
12
-9 0
90
4
<**)
1
-9 0
90
4
(**)
1
-181
181
10
17
1
-181
181
10
17
1
-17 9
179
11
(**)
1
242
401
(**)
242
401
(**)
-4 6
488
798
1
-4 6
488
798
1
-1 2
478
779
1
669
669
1,358
1,358
1,316
925
24
47
1,817
178
398
2,898
1,599
24
45
1,890
169
389
2,761
336
-1,973
24
47
504
178
62
16,651
13,165
3,486
16,630
14,575
2,055
(* *)
(“ )
4,045
22
m
Resolution Trust Corporation ...........................................
Securities and Exchange Commission ............................
Smithsonian Institution .......................................................
Tennessee Valley Authority ...............................................j
United States Information Agency .....................................
Other ....................................................................................
311
4
21
802
105
177
1,813
126
-1,502
4
21
239
105
52
Total— Other independent agencies ..........................
7,641
7,159
481
Undistributed offsetting receipts:
Other interest ......................................................................
Employer share, employee retirement:
Legislative Branch:
United States Tax Court:
Tax court judges survivors annuity fund ..............
The Judiciary:
Judicial survivors annuity fund ....................................
Department of Defense— Civil:
Military retirement fund ..............................................
Department of Health and Human Services, except
Social Security:
Federal hospital insurance trust fund:
Federal employer contributions ...............................
Postal Service employer contributions ...................
Payments for military service credits ....................
Department of Health and Human Services, Social
Security (off-budget):
Federal old-age and survivors insurance trust fund:
Federal employer contributions ...............................
Payments for military service credits ....................
Federal disability insurance trust fund:
Federal employer contributions ................................
Payments for military service credits .....................
Department of State:
Foreign Service retirement and disability fund ...........
Office of Personnel Management:
Civil service retirement and disability fund .................
Independent agencies:
Court of veterans appeals retirement fund ................
Total— Employer share, employee retirement ............
Interest received by trust funds:
The Judiciary:
Judicial survivors annuity fund .....................................
Department of Defense— Civil:
Corps of Engineers ......................................................
Military retirement fund ................................................
Education benefits fund ................................................
Soldiers’ and airmen’s home permanent fund ...........
O ther...... ...................................................
Prior Fiscal Year to Date
563
r*)
(**)
Gross
Outlays
H
r *>
Applicable
Receipts
Outlays
7,312
1,313
(*1
(* *)
Gross
Outlays
7,516
61
1 1
r *)
Applicable
Receipts
Outlays
8,263
1,316
1,617
I *)
151
C *)
n
-1,005
....
-1,005
-2,026
....
-2,026
-2,193
....
-2,193
-158
-45
....
....
-158
-45
-316
-89
....
....
-316
-89
-317
-73
....
....
-317
-73
-394
....
-394
-788
....
-788
-850
....
-850
-71
....
-71
-141
....
-141
-92
...
-92
-8
....
-8
-17
....
-17
-17
....
-17
-735
....
-735
-1,481
....
-1,481
-1,478
....
-1,478
-2,416
....
-2,416
-4,858
....
-4,858
-5,021
....
-5,021
-4
-4
18
-4
-4
Table 5. Outlays of the U.S. Government, November 1994 and Other Periods— Continued
[$ millions]
This Month
Classification
Undistributed offsetting receipts:— Continued
Department of Health and Human Services, except
Social Security:
Federal hospital insurance trust fund ...........................
Federal supplementary medical insurance trust fund ..
Department of Health and Human Services, Social
Security (off-budget):
Federal old-age and survivors insurance trust fund ...
Federal disability insurance trust fund ...........................
Department of Labor:
Unemployment trust fund ...............................................
Department of State:
Foreign Service retirement and disability fund .............
Department of Transportation:
Highway trust fund ..........................................................
Airport and airway trust fund .........................................
Oil spill liability trust fund ...............................................
Department of Veterans Affairs:
National service life insurance fund ..............................
United States government life Insurance Fund ...........
Environmental Protection Agency .....................................
National Aeronautics and Space Administration ..............
Office of Personnel Management:
Civil service retirement and disability fund ...................
Independent agencies:
Railroad Retirement Board .............................................
Other.................................................................................
Other ....................................................................................
Total—Interest received by trust funds .......................
Gross
Outlays
Applicable
Receipts
Outlays
Gross
Outlays
-5
-4 2
-5
-4 2
-3 5 2
-1 1
Applicable
Receipts
Prior Fiscal Year to Date
Outlays
Gross
Outlays
-1 3
-7 6
-1 3
-7 6
-3 4
-2 9
-3 4
-2 9
-3 5 2
-11
-4 1 8
-2 7
-4 1 8
-2 7
-9 9
-3 2
-9 9
-3 2
-4 5
-4 5
-7 7
-7 7
-1 8
-1 8
(* *)
(* *)
-1
-1
-2
-2
-3 6
-2 3
-2
-3 6
-2 3
-2
-7 2
-31
-2
-7 2
-3 1
-2
-3 7
-2
-2
-3 7
-2
-2
-2
r*)
B
r*)
-2
B
(**)
(* *)
-4
(* *)
(* *)
(* *)
-4
r*)
r *)
r*)
-4
(* *)
(**)
(* *)
-4
(**)
(**)
(* *)
-5 7
-5 7
-6 1
-6 1
-6 2
-6 2
-9 0
-3
-1 0
-9 0
-3
-1 0
-1 0 0
-2
-41
-1 0 0
-2
-41
-151
-3
-2 8
-151
-3
-2 8
-5,727
-6,338
-6,338
-5,5 3 3
-5,7 2 7
Rents and royalties on the outer continental shelf lands ..
Sale of major assets .............................................................
Spectrum auction proceeds ...................................................
Total—Undistributed offsetting receipts ........................
Current Fiscal Year to Date
-8,1 4 3
160
-1 6 0
160
-8,303
313
-3 1 3
-11,196
313
-11,510
Applicable
Receipts
Outlays
-5,533
483
-4 8 3
-10,553
483
-11,036
Total outlays...........................................................................
140,253
15,122
125,131
275,382
28,770
246,612
275,338
29,771
245,568
Total on-budget ............................................. ....................
110,430
10,966
99,464
216,228
21,458
194,770
218,789
21,507
197,281
Total off-budget..................................................................
29,823
4,155
25,668
59,154
7,313
51,841
56,550
8,263
Total surplus (+ ) or deficit ................................................
-37,458
Total on-budget ......................... fe.....................................
-37,381
Total off-budget............................................. ...........
-7 8
!
Memorandum
Receipts offset against outlays
Outlays for the Foreign Assistance Programs have been decreased by $152 million and
ouoays for the Price Support and Related Programs have been increased by $92 million to reflect
additional reporting by the Commodity Credit Corporation in September 1994.
Outlays for the Patent and Trademark Administration and proprietary receipts from the public
nave been increased due to additional reporting by the agency in September 1994.
yutlays for “Operation and Maintenance” have been increased by $13 million and proprietary
receipts from the public have been increased by $5 million to reflect additional reporting by the Air
-83,803
-67,303
-82,728
-2,612
-1,075
[$ millions]
Current
Fiscal Year
to Date
Proprietary receipts ............................................................. ....................
Receipts from off-budget federal entities .........................
Intrabudgetary transactions ................................................ ....................
Governmental receipts ........................................................ ....................
Total receipts offset against outlays ........................... ....................
48,286
-69,915
Comparable Period
Prior Fiscal Year
7,765
6,933
31,544
411
39,720
35,088
334
42,354
10Outlays have been decreased in September 1994 by $1 million, and $11 million for additional
reporting for the Federal-Aid Highways and the Department of the Treasury, respectively.
"O utlays have been increased by $14 million in August 1994 to reflect non-budgetary activity
previously reported as offsetting collections by the Maritime Administration.
12lndudes $62 million for a reclassification of the agency reporting for "Tonnage Duty
Increases", from a governmental receipt to an offsetting governmental receipt.
'•Receipts have been increased in February 1994 and outlays correspondingly increased by
$317 million to reflect adjustments made by the Internal Revenue Service to the Health Insurance
Supplement to the Earned income Credit.
"Receipts have been increased in March 1994 and outlays correspondingly increased by $6
million to reflect governmental receipts previously reported as offsetting collections by the
Department of the Treasury.
'•Prior period adjustment.
'•The Postal Service accounting is composed of thirteen 28-day accounting periods. To
conform with the MTS calendar-month reporting basis used by all other Federal agencies, the MTS
reflects USPS results through 11/11 and estimates for $1,331 million through 11/30.
... No Transactions.
(* *) Less than $500,000
Note: Details may not add to totals due to rounding
includes an adjustment in September 1994 of $39 million for receipts previously reported as
offsetting collections.
•Receipts have been increased in September 1994 and outlays have been correspondingly
"'creased by $5 million to reflect governmental receipts previously reported as offsetting
collections by the Air Force.
, T ’Cu'tes RCA and SECA tax credits, non-contributory military service credits, special benefits
or the aged, and credit for unnegotiated OASI benefit checks.
,
" to y s have been increased in September 1994 by $71 million, $212 million, and $7 million
additional reporting by the FHA, PBGC, and the Comptroller of the Currency, respectively,
f o r ? for 1,16 Bureau ° f Land Management have been decreased by $1 million and outlays
the National Park Service have been increased by $13 million to reflect additional reporting by
™ agency in September 1994.
DisaSiH^T8 ,0 r DePartmental Management have been increased and outlays for the Black Lung
_„™Dwty Trust Fund have been correspondingly decreased by $1 million to reflect additional
a9ency reporting in September 1994.
19
Table 6.
Means of Financing the Deficit or Disposition of Surplus by the U.S. Government, November 1994 and Other Periods
[$ millions]
Net Transactions
(—) denotes net reduction of either
liability or asset accounts
Assets and Liabilities
Directly Related to
Budget Off-budget Activity
Account Balances
Current Fiscal Year
Beginning of
Fiscal Year to Date
Close of
This month
This Month
This Year
Liability accounts:
Borrowing from the public:
Public debt securities, issued under general Financing authorities:
Obligations of the United States, issued by:
United States Treasury .....................................................................
Federal Financing Bank ....................................................................
Prior Year
This Year
44,353
85,770
82,046
4,677,750
15,000
Total, public debt securities ..........................................................
44,353
85,770
82,046
Pius premium on public debt securities ..................................
Less discount on public debt securities ..................................
-8
502
-1 5
917
49
-2,8 2 8
Total public debt securities net of Premium and
discount .................................................................................
84,923
This Month
4,692,750
4,719,167
15,000
4,734,167
4,778,520
1,333
78,631
1,325
79,045
1,317
79,548
4,615,453
4,656,448
4,700,292
4,763,520
15,000
43,843
84,838
Agency securities, issued under special financing authorities (see
Schedule B. for other Agency borrowing, see Schedule C) ..............
326
-1,780
304
28,543
26,437
26,762
Total federal securities .........................................................................
44,169
83,058
85,227
4,643,996
4,682,885
4,727,054
Deduct:
Federal securities held as investments of government accounts
(see Schedule D) ................................................................. .......
Less discount on federal securities held as investments of
government accounts ..............................................................
3,654
10,148
7,115
11,213,104
1,219,598
1,223,252
14
75
-2,8 2 9
21,684
1,745
1,759
Net federal securities held as investments of government
accounts................1...............................................................
3,641
10,073
9,944
1,211,421
1,217,853
1,221,493
Total borrowing from the public .......................................
40,528
72,985
75,283
3,432,575
3,465,033
3,505,561
Accrued interest payable to the public..................................... .................
Allocations of special drawing rights .........................................................
Deposit funds ...............................................................................................
Miscellaneous liability accounts (includes checks Outstanding etc.) ........
-15,166
-1 3 6
-1 3 4
1,228
-9,037
-5 2
139
-3,4 3 3
-9,791
-1 6 9
2,866
-3,929
43,287
7,189
37,316
4,938
49,417
7,274
7,589
4276
34,251
7,137
7,455
1,504
Total liability accounts ................................................................................
26,319
60,602
64,260
3,495,306
3,529,588
3,555,908
Asset accounts (deduct)
Cash and monetary assets:
U.S. Treasury operating cash:5
Federal Reserve account ......................................................................
Tax and loan note accounts ................................................................
183
-9,549
-1,501
-7,385
-10,955
-9,2 4 0
6,848
29,094
5,164
31,258
5,348
21,709
Balance ...............................................................................................
-9,366
-8,886
-20,196
35,942
36,422
27,056
Special drawing rights:
Total holdings .........................................................................................
SDR certificates issued to Federal Reserve banks ...........................
-7 0
46
-1 1 2
9,971
-8,0 1 8
10,088
-8,018
10,017
-8,018
Balance ...............................................................................................
-7 0
46
-1 1 2
1,953
2,070
1,999
Reserve position on the U.S. quota in the IMF:
U.S. subscription to International Monetary Fund:
Direct quota payments ......................................................................
Maintenance of value adjustments ..................................................
Letter of credit issued to IMF .............................................................
Dollar deposits with the IM F ............................................ .................
Receivable/Payable (—) for interim maintenance of value
adjustments ..........................................................................................
-7 3 7
-7 4
7
-2 8 2
60
1
-9 1 6
21
-2
31,762
7,163
-25,923
-9 6
31,762
7,618
-25,789
-1 0 2
31,762
6,881
-25,863
-95
507
193
620
-8 3 7
-1,151
-644
Balance ...............................................................................................
-2 9 7
-2 8
-2 7 7
12,069
12,337
12,040
Loans to International Monetary Fund ...................................................
Other cash and monetary assets ...........................................................
-361
2,297
2,884
(**)
21,417
(* *)
24,074
(**]
23,714
Total cash and monetary assets ........................................................
-10,094
-6,571
-17,700
71,380
74,903
64,809
Net activity, guaranteed loan financing .......................................................
Net activity, direct loan financing ................................................................
Miscellaneous asset accounts .....................................................................
-1 2 9
521
-1,377
-2 2 6
1,012
-3,405
-8 7 3
645
-1,501
«-9,806
712,726
-1,3 8 6
-9,903
13,217
-3,414
-10,032
13,738
-4,791
Total asset accounts ................. .............................................. | ...............
-11,079
-9,191
-19,429
72,915
74,803
63,724
+3,454,785
+3,492,183
62
123
+3,454,848
+3,492,306
...........
+37,398
+69,793
+83,689
Transactions not applied to current year’s surplus or deficit (see
Schedule a for Details)..................................................................................
60
123
114
Total budget and off-budget federal entities (financing of deficit (+ )
or disposition of surplus (—)) ...................................................................
+37,458
+69,915
+83,803
Excess of liabilities (+ ) or assets (—) ...................................
+3,422,391
+3,422,391
•M ajor sources of information used to determine Treasury’s operating cash income
Daily Balance Wires from Federal Reserve Banks, reporting from the Bureau of Public Dew,
electronic transfers through the Treasury Financial Communication System and recorralingwres
from Internal Revenue Centers. Operating cash is presented on a modified cash basis, deposits
are reflected as received and withdrawals sire reflected as processed.
•Includes additional reporting in September 1994 of $71 million and $14 millionror we
Department of Housing and Urban Development and the Maritime Administration, respectively.
'Includes additional reporting in September 1994 of $59 million for the Commodity Crea
Corporation.
... No Transactions.
(* *) Less than $500,000
Note: Details may not add to totals due to rounding
11ncludes an adjustment of —$11 million in September 1994 to reflect additional reporting by
the Commodity Credit Corporation.
includes an adjustment of $212 million in September 1994 to reflect additional reporting by the
PBGC.
includes an adjustment of —$4 million in September 1994 to reflect additional reporting by the
Commodity Credit Corporation.
‘ Includes additional agency reporting in October 1994 of $8 million for the Department of the
Air Force.
20
Table 6.
Schedule A— Analysis of Change in Excess of Liabilities of the U.S. Government, November 1994 and
Other Periods
[$ millions]
Fiscal Year to Date
Classification
This Month
This Year
Prior Year
3,422,146
3,218,965
Excess of liabilities beginning of period:
Based on composition of unified budget in preceding period ....
Adjustments during current fiscal year for changes in composition
of unified budget:
Revisions by federal agencies to the prior budget results ....
3,454,532
253
245
526
Excess of liabilities beginning of period (current basis) ...........
3,454,785
3,422,391
3,219,491
Budget surplus (-) or deficit:
Based on composition of unified budget in prior fiscal yr .......
Changes in composition of unified budget....................
37,458
69,915
83,803
Total surplus (-) or deficit (Table 2) .......................................................
37,458
69,915
83,803
Total-on-budget (Table 2) ......................................................................
37,381
67,303
82,728
Total-off-budget (Table 2) ......................................................................
78
2,612
1,075
Transactions not applied to current year’s surplus or deficit:
Seigniorage .............................................
Net gain (-)/Loss for IMF loan valuation adjustment ...........
-6 0
-1 2 3
-1 1 4
Total-transactions not applied to current year’s Surplus or
deficit.............. .................................
-6 0
-1 2 3
-1 1 4
Excess of liabilities close of period .................... ................................
3,492,183
3,492,183
3,303,180
Table 6.
Schedule B— Securities Issued by Federal Agencies Under Special Financing Authorities, November 1994 and
Other Periods
[$ millions]
Net Transactions
(—) denotes net reduction of
liability accounts
Account Balances
Current Fiscal Year
Classification
Beginning of
Fiscal Year to Date
Close of
This month
This Month
Prior Year
This Year
Agency securities, issued under special financing authorities:
Obligations of the United States, issued by:
Export-Import Bank of the United States ................................................
Federal Deposit Insurance Corporation:
FSLIC resolution fund ............................................................................
Obligations guaranteed by the United States, issued by:
Department of Defense:
Family housing mortgages .....................................................................
Department of Housing and Urban Development:
Federal Housing Administration .............................................................
Department of the Interior:
Bureau of Land Management ................................................................
Department of Transportation:
Coast Guard:
Family housing mortgages .................................................................
Obligations not guaranteed by the United States, issued by:
Legislative Branch:
Architect of the Capitol ......................................... ..............................
Independent agencies:
Farm Credit System Financial Assistance Corporation .......................
National Archives and Records Administration ....................................
Postal Service .........................................................................................
Tennessee Valley Authority ........... .............................. ......................
3
1
Total, agency securities :....................................... ......................
... No Transactions.
(* *) Less than $500,000.
Note: Details may not add to totals due to rounding.
21
5
3
This Year
This Month
(* *)
(* *)
(**)
538
538
538
<**)
6
6
6
41
112
114
117
13
13
13
(**)
(**>
(**)
192
193
195
1,261
298
1,261
298
1,261
298
3
322
-1,787
261
26,121
24,012
24,334
326
-1,780
304
28,543
26,437
26,762
Table 6.
Schedule C (Memorandum)— Federal Agency Borrowing Financed Through the Issue of Public Debt Securities,
November 1994 and Other Periods
[$ millions]
Account Balances
Current Fiscal Year
Transactions
Classification
Fiscal Year to Date
Beginning of
Close of
This month
This Month
This Year
Borrowing from the Treasury:
Funds Appropriated to the President:
International Security Assistance:
Guaranty reserve fund .........................................................................
Agency for International Development:
International Debt Reduction ................................................................
Housing and other credit guaranty programs ....................................
Private sector revolving fund ..............................................................
Overseas Private Investment Corporation ...............................................
Department of Agriculture:
Foreign assistance programs ...................................................................
Commodity Credit Corporation ................................................................
Farmers Home Administration:
Agriculture credit insurance fund ........................................................
Self-help housing, land development fund ..........................................
Rural housing insurance fund ..............................................................
Rural Development Administration:
Rural development insurance fund ......................................................
Rural development loan fund ..............................................................
Rural Electrification Administration:
Rural communication development fund .............................................
Rural electrification and telephone revolving fund ..............................
Rural Telephone Bank .........................................................................
Department of Education:
Guaranteed student loans ........................................................................
College housing and academic facilities fund .........................................
College housing loans ..............................................................................
Department of Energy:
Isotope production and distribution fund ...............................................
Bonneville power administration fund ................................. .................
Department of Housing and Urban Development:
Housing programs:
Federal Housing Administration ...........................................................
Housing for the ederly and handicapped ............................................
Public and Indian housing:
Low-rent public housing ........................................................................
Department of the Interior:
Bureau of Reclamation Loans .................................................................
Bureau of Mines, Helium Fund ..............................................................
Bureau of Indian Affairs:
Revolving funds for loans .....................................................................
Department of Justice:
Federal prison industries, incorporated ...................................................
Department of Transportation:
Federal Railroad Administration:
Railroad rehabilitation and improvement
financing funds ....................................................................................
Settlements of railroad litigation ..........................................................
Amtrak corridor improvement loans ...................................................
Regional rail reorganization program ..................................................
Federal Aviation Administration:
Aircraft purchase loan guarantee program ........................................
Department of the Treasury:
Federal Financing Bank revolving fund ..................................................
Department of Veterans Affairs:
Loan guaranty revolving fund .................................................................
Guaranty and indemnity fund .................................................................
Direct loan revolving fund ........................................................................
Vocational rehabilitation revolving fund ..................................................
Environmental Protection Agency:
Abatement, control, and compliance loan program ...............................
Small Business Administration:
Business loan and revolving fund ...........................................................
Prior Year
337
2,849
-1
-7
-12,093
22
750
750
315
125
1
16
315
125
1
16
315
125
1
16
550
16,909
544
1,967
544
4,816
4,032
■
4,497
2,284
1
5,472
2,284
1
5,472
715
40
-1 0
2,091
21
2,806
61
2,806
61
695
115
31
280
32
57
8,212
586
57
8,907
702
57
8,907
701
1,288
13
1,605
596
411
1,605
1,884
411
1,605
1,884
411
58
14
2,617
14
2,617
14
2,617
-4 7 5
783
8,484
762
7,714
762
7,714
135
135
135
11
252
11
252
11
252
26
25
25
20
20
20
14
-3 9
2
39
14
-3 9
2
39
14
-39
3
39
(‘ *)
(**)
(**>
n
-2,8 3 9
94,357
91,936
90,662
1,107
181
2
2
1,107
181
2
2
1,107
181
2
2
26
26
37
7,289
7,289
7,289
-1
(“ )
r*)
r *)
11
413
-2,3 8 5
(**)
-1,2 7 4
This Month
-1,7 4 8
1
975
-21
-7 7 0
r*)
-15,227
This Year
-3,695
11
<**)
Table 6. Schedule C (Memorandum)— Federal Agency Borrowing Financed Through the Issue of Public Debt Securities,
November 1994 and Other Periods— Continued
[$ millions]
Account Balances
Current Fiscal Year
Transactions
Classification
Beginning of
Fiscal Year to Date
Close of
This month
This Month
This Year
Borrowing for the Treasury:— Continued
Other independent agencies:
Export-Import Bank of the United States .............................................
Federal Emergency Management Agency:
National insurance development fund ..................................................
Pennsylvania Avenue Development Corporation:
Land aquisition and development fund ...............................................
Railroad Retirement Board:
Railroad retirement account .................................................................
Social Security equivalent benefit account .........................................
Smithsonian Institution:
John F. Kennedy Center parking facilities ........................................
Tennessee Valley Authority ......................................................................
-247
478
Total agency borrowing from the Treasury
financed through public debt securities issued ...........................
Borrowing from the Federal Financing Bank:
Funds Appropriated to the President:
Foreign military sales ......................................
Department of Agriculture:
Rural Electrification Administration ............................
Farmers Home Administration:
Agriculture credit insurance fund ........................................................
Rural housing insurance fund ..............................
Rural development insurance fund ......................................................
Department of Defense:
Department of the Navy ...........................................................................
Defense agencies ......................................................................................
Department of Education:
Student Loan Marketing Association ......................................................
Department of Health and Human Services,
Except Social Security:
Medical facilities guarantee and loan fund .............................................
Department of Housing and Urban Development:
Low rent housing loans and other expenses .......................................
Community Development Grants .............................................................
Department of Interior:
Territorial and international affairs ...........................................................
Department of Transportation:
Federal Railroad Administration ..............................................................
Federal Transit Administration .................................................................
Department of the Treasury:
Financial Management Service ................................................................
General Services Administration:
Federal buildings fund ..............................................................................
National Aeronautics and Space Administration:
Space flight, control and data communications ....................................
Small Business Administration:
Business loan and investment fund ........................................................
Independent agencies:
Export-Import Bank of the United States .............................................
Pennsylvania Avenue Development Corporation ....................................
Postal Service ............................................................................................
Resolution Trust Corporation ............................ ......................................
Tennessee Valley Authority ............................... ....................................
Total borrowing from the Federal Financing Bank ........................
-27
477
Prior Year
813
458
This Year
This Month
2,632
2,852
2,605
87
87
87
85
85
85
2,128
2,781
2,128
2,781
2,128
3,259
20
150
20
150
20
150
1,818
-13,706
-19,250
163,642
148,118
149,936
-18
-24
-25
3,785
3,779
3,761
43
48
-92
21,916
21,921
21,964
-150
-410
6,063
24,391
3,675
6,063
24,131
3,675
6,063
23,981
3,675
1,624
-145
1,624
-145
1,624
-145
63
62
54
1,747
110
1,747
106
1,689
105
22
22
22
15
665
15
665
14
665
-30
-8
-9
-58
-1
-58
-5
(* *)
(* *)
-54
-13
(* *)
-30
10
51
52
1,780
1,821
1,831
-10
-16
-15
581
574
564
11
300
-1,392
19
-900
-2,190
-200
16
3,926
250
8,973
26,519
3,400
3,926
258
7,773
25,721
3,200
3,926
268
8,073
24,329
3,200
-1,2 7 4
-3,695
109,360
106,938
105,664
Note: This table includes lending by the Federal Financing Bank accomplished by the purchase
ofagency financial assets, by the acquisition of agency debt securities, and by direct loans on
oehalf of an agency. The Federal Financing Bank borrows from Treasury and issues its own
s®curities and in turn may loan these funds to agencies in lieu of agencies borrowing directly
<nr°ugh Treasury or issuing their own securities.
-2,646
-2,839
... No Transactions.
(* *) Less than $500,000
Note: Details may not add to totals due to rounding
23
Table 6.
Schedule D— Investments of Federal Government Accounts in Federal Securities, November 1994 and
Other Periods
[$ millions]
Securities Held as Investments
Current Fiscal Year
Net Purchases or Sales (—)
Classification
Fiscal Year to Date
Beginning of
Close of
This month
This Month
This Year
Federal funds:
Department of Agriculture .............................................................. ...........
Department of Commerce .............................................................. ...........
Department of Defense— Military:
Defense cooperation account ......................................................
Department of Energy ...................................................................... ...........
Department of Housing and Urban Development:
Housing programs:
Federal housing administration fund:
Public debt securities ........................................................................
Government National Mortgage Association:
Management and liquidating functions fund:
Public debt securities .............................................................
Agency securities ...................................................................
Guarantees of mortgage-backed securities:
Public debt securities ............................................................. .........
Agency securities ...................................................................
Other ...............................................................................................
Department of the Interior:
Public debt securities .................................................................... .........
Department of Labor...... .................................................................. .........
Department of Transportation .......................................................... .........
Department of the Treasury ............................................................. .........
Department of Veterans Affairs:
Canteen service revolving fund ...................................................
Veterans reopened insurance fund ............................................... .........
Servicemen’s group life insurance fund .......................................
Independent agencies:
Export-Import Bank of the United States .................................. .........
Federal Deposit Insurance Corporation:
Bank insurance fund ................................................................. .........
Savings association insurance fu n d .......................................... .........
FSLIC resolution fund
Public debt securities ............................................................. .........
Federal Emergency Management Agency:
National flood insurance fund ...................................................
National Credit Union Administration ............................................ .........
Postal Service ................................................................................. .........
Tennessee Valley Authority ........................................................... .........
Other ............................................................................................... .........
Other .................................................................................................. .........
Prior Year
This Year
This Month
2
1
2
1
2
-3
13
13
2
14
185
-4
291
C ‘)
165
5
4,527
8
4,634
1)
4,818
'(**>
-7 8
81
5,742
5,664
5,664
16
16
16
3,745
1
212
3,781
1
212
(* *)
36
15
-1 6
4
1,191
68
90
19
22
3,713
1
193
473
-4 3
15
1,246
181
-3,192
25
-6 0
2,722
5,330
974
7,452
3,181
5,303
985
7,507
3,195
5,287
989
8,699
37
522
3
37
519
3
-3
-5
-3 8
-5
37
524
41
8
-4 9
161
57
213
13
336
16
197
1
13,972
2,493
14,095
2,495
14,308
2,508
-4 2 0
-3 4 2
602
1,649
1,727
1,307
-7
668
-11
-3
552
1
10
-2,701
■
429
-71
-1 2
1,065
-5 0
1
-4 1 2
200
3,052
1,271
3,954
1*017
2,626
200
3,060
613
1,263
1,020
2,503
200
3,053
1,281
1,253
1,017
3,055
Total public debt securities ...................................................... .........
Total agency securities ..............................................................
2,428
-3 5 2
-1,211
61,564
17
58,784
17
61,212
17
Total Federal funds .......................................................... ..........
2,428
-3 5 2
-1,211
61,581
58,801
61,229
4
(“ )
(* *)
12
M
(**)
4
B
(* *)
4
5
27
12
5
27
16
5
27
1
3
30
4
16
179
(* *)
245
273
(**)
273
275
■
275
278
8
Trust funds:
Legislative Branch:
Library of Congress ............................. ..........
United States Tax Court ......................... ..........
Other ......................................... ..........
The Judiciary:
Judicial retirement funds.......................... ..........
Department of Agriculture .......................... ..........
Department of Commerce ...........................
Department of Defense— Military:
Voluntary separation incentive fund ................. ..........
Other ......................................... .........
Department of Defense— Civil:
Military retirement fund ........................... .........
Other ......................................... .........
24
(“ )
-6
(* *)
18
(* *)
-45
5
763
157
786
157
781
156
3,868
-31
14,666
1
14,336
21
105,367
1,307
116,164
1,338
120,033
1,308
Table 6. Schedule D— Investments of Federal Government Accounts in Federal Securities, November 1994 and
Other Periods— Continued
[$ millions]
Securities Held as Investments
Current Fiscal Year
Net Purchases or Sales (— )
Classification
Beginning of
Fiscal Year to Date
Close of
This month
This Month
This Year
Prior Year
This Year
This Month
Trust Funds— Continued
Department of Health and Human Services, except Social Security:
Federal hospital insurance trust fund:
Public debt securities.....................................
Federal supplementary medical insurance trust fund .............
Other ...................................................
Department of Health and Human Services, Social Security:
Federal old-age and survivors insurance trust fund:
Public debt securities.....................................
Federal disability insurance trust fund .........................
Department of the Interior:
Public debt securities ......................................
Department of Justice .......................................
Department of Labor:
Unemployment trust fund ...................................
Other ...................................................
Department of State:
Foreign Service retirement and disability fund ...................
Other ...................................................
Department of Transportation:
Highway trust fund ........................................
Airport and airway trust fund ................................
Other ...................................................
Department of the Treasury ...................................
Department of Veterans Affairs:
General post fund, national homes ...........................
National service life insurance:
Public debt securities.....................................
Agency securities ........................................
United States government life Insurance Fund ..................
Veterans special life insurance fund ..........................
Environmental Protection Agency ...............................
National Aeronautics and Space Administration ...................
Office of Personnel Management:
Civil service retirement and disability fund:
Public debt securities.....................................
Employees health benefits fund ..............................
Employees life insurance fund ...............................
Retired employees health benefits fund .......................
Independent agencies:
Harry S. Truman memorial scholarship trust fund ...............
Japan-United States Friendship Commission ...................
Railroad Retirement Board ..................................
Other ............ ......................................
-523
-952
7
-21
-1,702
16
-1,770
715
22
128,716
21,489
836
129,218
20,739
845
128,695
19,787
852
-15,124
14,899
-14,470
15,587
-512
-820
413,425
6,100
414,078
6,788
398,954
21,687
-8
38
106
106
234
280
272
1,628
-11
1,248
-20
253
-17
39,788
59
39,408
50
41,036
39
105
-50
80
-50
14
-38
7,179
50
7,155
50
7,259
(**)
-448
-456
36
-27
-951
-376
38
-52
-1,114
341
15
-62
17,694
12,206
1,683
247
17,191
12,286
1,685
222
16,743
11,830
1,721
195
(**)
38
38
38
-122
11,852
11,791
11,723
-3
-12
-14
i *)
115
1,509
6,250
16
114
1,503
6,367
16
113
1,497
6,473
16
-3,566
77
310
338,889
7,572
14,929
1
336,889
7,509
15,008
1
334,919
7,565
15,245
1
53
17
12,203
226
53
16
12,164
297
53
17
12,110
306
-129
-68
-1
-6
107
(* *>
-3
-12
224
-1,970
56
238
I*)
-3,970
-7
316
r *)
m
Si
-1
-102
9
p
r *)
-93
80
1,226
10,500
8,326
1,151,523
1,160,797
1,162,024
Total trust funds ....................................
1,226
10,500
8,326
1,151,523
1,160,797
1,162,024
Grand to ta l....................................................................................................
3,654
10,148
7,115
1,213,104
1,219,598
1,223,252
<**)
-54
Total public debt securities ................................
3
Note: Investments are in public debt securities unless otherwise noted.
Note: Details may not add to totals due to rounding.
No Transactions
(* *) Less than $500,000.
25
Table 7.
Receipts and Outlays of the U.S. Government by Month, Fiscal Year 1995
[$ millions]
Jan.
March
April
May
June
July
Aug.
Sept.
Nov.
43,239
3,470
37,414
1,497
80,652
4,967
75,314
4,366
31,263
1,073
351
4,275
1,206
1,848
2,300
33,786
3,249
352
5,518
1,220
1,827
2,811
65,049
4,322
702
9,792
2,426
3,674
5,111
60,965
3,819
728
8,405
2,296
3,396
2,476
Total— Receipts this year .......
89,024
87,673
176,696
(On-budget) ................
65,384
62,083
127,467
49,229
Receipts:
Individual income taxes ...........
Corporation income taxes ..........
Social insurance taxes and
contributions:
Employment taxes and
contributions .................
Unemployment insurance ........
Other retirement contributions .....
Excise taxes....................
Estate and gift taxes .............
Customs duties..................
Miscellaneous receipts.............
Feb.
Com
parable
Period
Prior
F.Y.
Oct.
Classification
Dec.
Fiscal
Year
To
Date
(Off-budget) ................
23,639
25,590
Total—Receipts prior year .......
78,662
83,102
m ,m
(On budget) ...................
55,858
58,695
114,551
(O ff budget) ...................
22,804
24,407
47,211
354
184
18
217
169
17
570
353
35
584
377
37
3,255
310
3,566
3,699
726
-381
367
452
1,094
71
908
481
1,749
5,850
305
2,973
3,860
300
4,723
9,709
605
3,162
8,879
541
3,713
6,118
4,254
5,701
7,837
4,754
9,414
13,955
9,009
11,991
13,461
10,263
2,501
425
247
2,896
537
242
5,398
961
489
5,861
792
434
147
275
-311
-222
-164
53
2,384
-244
17,680
21,435
39,115
44,943
2,638
1,949
1,683
2,656
2,322
1,330
5,294
4,271
3,013
5,064
5,161
3,433
1,603
1,588
3,191
3,166
6,622
7,834
7,545
8,942
14,167
16,776
14,020
15,438
4,799
3,055
917
5,290
3,092
2,200
10,089
6,147
3,116
9,487
7,584
5,031
2,728
-4,508
2,519
-4,525
5,247
-9,032
5,520
-10,120
23,413
3,289
-630
23,368
3,244
-7
46,781
6,533
-637
45,100
5,990
-984
2,903
2,426
5,329
5,060
Outlays
Legislative Branch ................
The Judiciary ....... ...........
Executive Office of the President....
Funds Appropriated to the President:
International Security Assistance ...
International Development
Assistance ...................
Other ........................
Department of Agriculture:
Foreign assistance, special export
programs and Commodity Credit
Corporation .................
Other ........................
Department of Commerce..........
Department of Defense:
Military:
Military personnel .............
Operation and maintenance .....
Procurement ................
Research, development, test, and
evaluation .................
Military construction ...........
Family housing ..............
Revolving and management
funds .....................
Other .....................
Total Military.............
Civil ........................
Department of Education...........
Department of Energy ..............
Department of Health and Human
Services, except Social Security:
Public Health Service ...........
Health Care Financing Administration:
Grants to States for Medicaid ...
Federal hospital ins. trust fund ....
Federal supp. med. ins. trust
fund .....................
Other .....................
Social Security Administration .....
Administration for children and
families .....................
Other ........................
Department of Health and Human
Services, Social Security:
Federal old-age and survivors ins.
trust fund ...................
Federal disability ins. trust fund ...
Other ........................
Department of Housing and Urban
Development ...................
jailli
26
Table 7. Receipts and Outlays of the U.S. Government by Month, Fiscal Year 1995— Continued
[$ millions]
Classification
Oct.
Nov.
Dec.
Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Fiscal
Year
To
Date
Com
parable
Period
Prior
F.Y.
| Outlays— Continued
Department of the Interior ..........
Department of Justice.............
Department of Labor:
I Unemployment trust fund ........
Other .......................
Department of State .............
Department of Transportation:
Highway trust fund .............
Other.......... .............
Department of the Treasury:
Interest on the public debt .......
Other.......................
Department of Veterans Affairs:
Compensation and pensions ......
National service life .............
United States government life .....
Other .......................
Environmental Protection Agency ....
General Services Administration ......
National Aeronautics and Space
Administration ..................
Office of Personnel Management ....
Small Business Administration ......
Independent agencies:
Fed. Deposit Ins. Corp.:
Bank insurance fund ..........
Savings association insurance
fund .....................
FSLIC resolution fund .........
Postal Service:
Public enterprise funds (offbudget) ...................
Payment to the Postal Service
fund .....................
Resolution Trust Corporation ......
Tennessee Valley Authority .......
Other independent agencies ......
Undistributed offsetting receipts:
Employer share, employee
retirement ...................
Interest received by trust funds ...
Rents and royalties on outer
continental shelf lands ..........
Other.....
Totals this year:
Total outlays .................
884
908
583
818
1,467
1,726
1,126
1,654
1,650
702
488
1,854
-170
841
3,504
533
1,329
5,472
713
1,429
1,794
1,650
1,762
1,737
3,556
3,387
3,375
3,018
19,732
34
24,912
-308
44,644
-274
39,898
-27
105
64
1
1,528
438
-651
1,457
70
1
1,784
474
639
1,562
134
3
3,312
912
-11
2,805
123
3
3,043
936
-250
845
3,410
65
1,143
3,118
145
1,987
6,528
210
2,293
6,214
160
-127
-208
-336
-130
-2
-87
-13
430
-15
342
-1
7
648
-110
538
-747
61
-471
265
2,720
-1,502
239
1,646
61
-1,973
504
4,365
61
-1,162
273
3,753
-2,442
-611
-2,416
-5,727
-4,858
— 6,338
-5,021
-5,533
-154
(**)
-160
■
-313
■
-483
(**)
121,480 125,131
246,612
(On-budget) ................
95,307
99,464
(Off-budget) ................
26,174
25,668
51,841
Total-surplus (+) or deficit (-) ...
-32,457 -37,458
-69,915
(On-budget) .......... ......
-29,922 -37,381
-67,303
(Off-budget) ................
Total borrowing from the public ....
Total-outlays p r io r y e a r
...............
(On-budget) ......................
(Off-budget) ................................
Total-surplus
year . . .
(+)
o r d e fic it
(On-budget) . . .
(Off-budget) .........................
(—)
194,770
-2,535
-7 8
-2,612
32,457
40,528
72,985
75,283
124,085 121,483
245,568
100,562
96,719
197,281
23,523
24,764
48,286
-45,422 -38,381
-83,803
-44,704 -38,024
-82,728
p r io r
-719
-35 7
-1,075
■^No transactions.
(’ *) Less than $500,000.
Note. Details may not add to totals due to rounding.
27
Table 8.
Trust Fund Impact on Budget Results and Investment Holdings as of November 31, 1994
[$ millions]
This Month
Securities held as Investments
Current Fiscal Year
Fiscal Year to Date
Classification
Beginning of
Receipts
Outlays
Excess
Receipts
Outlays
Excess
This Year
Trust receipts, outlays, and investments
held:
Airport..............................................................
Black lung disability .......................................
Federal disability insurance............................
Federal employees life and health ................
Federal employees retirement .......................
Federal hospiUd insurance ............................
Federal old-age and survivors insurance ....
Federal supplementary medical insurance ...
Highways ........................................................
Military advances ............................................
Railroad retirement . 7 . . . . . . . . . . . . . . . . . . . . . . .
Military retirement ..........................................
Unemployment ................................................
Veterans life insurance ..................................
All other tru s t..................................................
2,427
15,798
29,749
9,091
2,972
1,995
754
18,888
4,456
52
1,163
1,325
94
6,533
-201
6,304
16,776
46,781
10,089
3,913
1,985
1,314
4,555
3,504
197
402
-4 0 4
23
14,957
201
-3,877
-9 7 8
-17,032
-9 9 7
-941
11
-5 6 0
14,333
952
-1 4 5
761
682
109,873
30,105
103,569
30,105
6,304
41,277
682
79,768
73,464
6,304
48,076
21
86,217
21
-38,140
102,265
178,485
38
-76,220 I
48,056
86,196
-38,140
102,227
178,447
-76,220
5,299
5,299
-37,458
176,696
246,612
1,286
8,224
8,732
4,546
1,483
697
352
6,034
3,351
27
454
882
48
3,244
-2 1 3
3,144
8,942
23,368
5,290
1,970
908
648
2,268
1,854
102
275
-4 0 6
9
14,449
213
-1,858
-7 1 8
-14,637
-7 4 3
-4 8 7
-211
-2 9 6
3,766
1,497
-7 5
179
Total trust fund receipts and outlays
and investments held from Table 6D ................................................................
Less: Interfund transactions ....................... .
53,411
11,453
52,730
11,453
Trust fund receipts and outlays on the basis
of Tables 4 & 5 ..... ...........................
41,959
Total Federal fund receipts and outlays ...
Less: Interfund transactions .........................
Federal fund receipts and outlays on the
basis of Table 4 & 5 ...................... ...........
476
57
17,693
Less: offsetting proprietary receipts ..............
2,341
2,341
Net budget receipts & outlays .....................
87,673
125,131
... No transactions.
Note: Interfund receipts and outlays are transactions between Federal funds and trust funds
such as Federal payments and contributions, and interest and profits on investments in Federal
securities. They have no net effect on overall budget receipts and outlays since the receipts side of
such transactions is offset against bugdet outlays. In this table, Interfund receipts are shown as an
adjustment to arrive at total receipts and outlays of trust funds respectively.
921
117
21,490
This Month
12,206
12,286
11,830
6,100
22,503
346,317
128,716
413,425
21,489
17,694
6,788
22,518
344,322
129,218
414,078
20,739
17,191
21,687
22,811
342,458
128,695
398,954
19,787
16,743
12,203
105,367
39,788
13,477
12,240
12,164
116,164
39,408
13,408
12,514
12,110
120,033
41,036
13,333
12,547
1,151,523
1,160,797
1,162,024
I
J
-69,9-15 I
Note: Details may not add to totals due to rounding.
28
Close of
This Month
Table 9. Summary of Receipts by Source, and Outlays by Function of the U.S. Government, November 1994
and Other Periods
[$ millions]
Classification
__________
This Month
Fiscal Year
To Date
Comparable Period
Prior Fiscal Year
RECEIPTS
Individual income taxes .... .................
Corporation income taxes .....................
Social insurance taxes and contributions:
Employment taxes and contributions ......
Unemployment insurance .... .......... .
Other retirement contributions ..............
Excise taxes ....... •....... ...............
Estate and gift taxes ................... ....
Customs ........... •.....................
Miscellaneous ..................... .......
37,414
1,497
80,652
4,967
75,314
4,366
33,786
3,249
352
5,518
1,220
1,827
2,811
65,049
4,322
702
9,792
2,426
3,674
5,111
60,965
3,819
728
8,405
2,296
3,396
2,476
Total ................................
87,673
176,696
161,764
22,428
2,177
1,673
166
1,797
2,784
-1,2 4 4
3,506
1,109
4,025
9,525
12,687
16,151
26,612
3,337
1,176
1,556
18.242
-2,5 7 5
41,237
6,516
2,789
691
5.215
4,832
-3 8 6
6,940
2,279
7,730
18,156
23,786
31,426
53,314
5,014
2,516
2,816
36,911
-5,171
47,279
6,695
2,943
935
4,696
3,679
-9 8 4
6,363
1,826
8,704
17,991
22,220
34,086
51,094
6,017
2,315
1,958
33,253
-5,5 0 3
125,131
246,612
245,568
NET OUTLAYS
National defense ..................,.r.......
International affairs ...... ...... ........ — ..•
General science, space, and technology ........
Energy ............................ ......
!Natural resources and environment.... .......
Agriculture ................................
Commerce and housing credit ..... ...... 5..
!Transportation .............. i
Community and Regional Development..........
Education, training, employment and social services
Health ......... ..... .......... .......
Medicare ........ i................. .......
Income security ................. ..........
Social Security ...... ..............
Veterans benefits and services ................
Administration of justice......................
General government ...,............. .........
Interest............ ...... ........... .
Undistributed offsetting receipts ...............
Total ............... ..............
Note: Details may not add to totals due to rounding.
29
Explanatory Notes
the employee and credits for w hatever purpose the money was withheld.
Outlays are stated net of offsetting collections (including receipts of
revolving and management funds) and of refunds. Interest on the public
debt (public issues) is recognized on the accrual basis. Federal credit
programs subject to the Federal Credit Reform Act of 1990 use the cash
basis of accounting and are divided into tw o components. The portion of
the credit activities that involve a cost to the Government (mainly
subsidies) is included within the budget program accounts. The remaining
portion of the credit activities are in non-budget financing accounts.
Outlays of off-budget Federal entities are excluded by law from budget
totals. However, they are shown separately and combined with the onbudget outlays to display total Federal outlays.
1. Flow o f Data Into M onthly Treasury Statem ent
The M onthly Treasury Statem ent (MTS) is assem bled from d ata in the
central accounting system . T h e m ajor sources o f d ata include m onthly
accounting reports by Federal entities and disbursing o fficers, and daily
reports from th e Federal R eserve banks. T hese reports d etail accounting
transactions affectin g receipts and outlays o f th e Federal G overnm ent
and o ff-b u d g et Federal entities, and th eir related e ffe c t on th e assets and
liabilities o f th e U .S . G overnm ent. Inform ation is presented in th e MTS on
a m odified cash basis.
2. Notes on R eceipts
R eceipts included in th e rep ort are classified into th e follow ing m ajor
categories: (1) budget receipts and (2 ) o ffsettin g collections (also called
4. Processing
The data on payments and collections are reported by account symbol
into the central accounting system. In turn, the data are extracted from
this system for use in the preparation of the MTS.
There are tw o major checks which are conducted to assure the
consistency of the data reported:
applicable receipts). B udget receipts a re collections from th e public th at
result from th e exercise o f th e G overnm ent’s sovereign o r governm ental
pow ers, excluding receipts o ffs e t against outlays. T hese collections, also
called governm ental receipts, consist m ainly o f ta x receipts (including
social insurance tax e s ), receipts from court fines, certain licenses, and
deposits o f earnings by th e Federal R eserve S ystem . R efunds o f receipts
are treated as deductions from gross receipts.
O ffsettin g collections are from o th er G overnm ent accounts o r th e
deposited in receipt accounts). C ollections credited to appropriation or
1. Verification of payment data. The monthly payment activity reported by
Federal entities on their Statem ents of Transactions is compared to the
payment activity of Federal entities as reported by disbursing officers.
2. Verification of collection data. Reported collections appearing on
Statem ents of Transactions are compared to deposits as reported by
fund accounts norm ally can be used w ithout appropriation action by
Federal Reserve banks.
public th a t are o f a business-type o r m arket-oriented n atu re. T hey are
classified into tw o m ajor categories: (1) o ffsetting collections credited to
appropriations o r fund accounts, and (2) o ffsetting receipts (i.e ., am ounts
C ongress. T hese occur in tw o instances: (1 ) w hen authorized by law ,
am ounts collected fo r m aterials o r services are treated as reim burse
5. O ther Sources o f Inform ation About Federal Government
m ents to appropriations and (2) in th e th ree typ es o f revolving funds
Financial A ctivities
(public enterp rise, intragovem m ental, and trust); collections are netted
• A Glossary o f Terms Used in the Federal Budget Process, M arch
1981 (Available from the U.S. General Accounting Office, Gaithersburg,
against spending, and outlays are rep orted as th e n et am ount.
O ffsettin g receipts in receipt accounts cannot be used w ith ou t being
receipts— these collections a re from th e public and th ey are o ffs e t against
Md. 20760). This glossary provides a basic reference document of
standardized definitions of term s used by the Federal Government in the
outlays by agency and by function, and (2 ) intragovem m ental funds—
budgetmaking process.
appropriated. T hey are subdivided into tw o categories: (1) proprietary
th ese are paym ents into receipt accounts from G overnm ental appropria
• Daily Treasury Statem ent (Available from GPO, Washington, D.C.
20402, on a subscription basis only). The Dally Treasury Statement is
published each working day of the Federal Government and provides data
on the cash and debt operations of the Treasury.
tion o r funds accounts. T hey finance operations w ithin and betw een
G overnm ent agencies and are credited w ith collections from
o th er
G overnm ent accounts. T h e transactions m ay be intrabudgetary w hen the
paym ent and receipt both occur w ithin th e budget o r from receipts from
o ff-b u d g et F ederal entities in tho se cases w here paym ent is m ade by a
•
Federal entity w hose budget authority and outlays are excluded from the
M onthly Statem ent o f the Public D ebt o f the United
States
(Available from GPO, Washington, D.C. 20402 on a subscription basis
only). This publication provides detailed information concerning the public
budget to tals.
Intrab ud getary transactions a re subdivided into th ree categories:
debt.
(1 ) interfund transactions, w here th e paym ents are from one fund group
(eith er Federal funds o r tru st funds) to a receipt account in th e o th er fund
• Treasury Bulletin (Available from GPO, Washington, D.C. 20402, by
subscription or single copy). Quarterly. Contains a mix of narrative, tables,
and charts on Treasury issues, Federal financial operations, international
group; (2 ) Federal intrafund transactions, w here th e paym ents and
receipts both occur w ithin th e Federal fund group; and (3) tru st intrafund
transactions, w h ere th e paym ents and receipts both occur w ithin th e tru st
statistics, and special reports.
fund group.
O ffsettin g receipts are generally deducted from budget authority and
•
outlays by function, by subfunction, o r by agency. T h ere are fo u r typ es of
Budget o f the United States Government, Fiscal Year 19 —
(Available from GPO, Washington, D.C. 20402). This publication is a
single volume which provides budget information and contains:
receipts, how ever, th a t are deducted from budget to tals as undistributed
o ffsettin g receipts. T hey are: (1 ) agencies’ paym ents (including paym ents
-Appendix, The Budget o f the United States Government, FY19—
-The United States Budget in Brief, FY 19 —
-Special Analyses
-H istorical Tables
-Management o f the United States Government
-M ajor Policy Initiatives
by o ff-b u d g et Federal entities) as em ployers into em ployees retirem ent
funds, (2 ) interest received by tru st funds, (3) rents and royalties on the
O u ter C ontinental S helf lands, and (4 ) o th er interest (i.e ., interest collected
on O u ter C ontinental S helf m oney in d eposit funds w hen such m oney is
transferred into th e budget).
3. Notes on O utlays
• United States Government Annual R eport and Appendix (Available
O utlays a re generally accounted fo r on th e basis o f checks issued,
against appropriations fo r th a t p art o f em ployees’ salaries w ithheld fo r
from Financial Managem ent Service, U.S. Departm ent of the Treasury,
Washington, D.C. 20227). This annual report represents budgetary
results at the summary level. The appendix presents the individual receip
tax e s o r savings bond allotm ents — these are counted as paym ents to
and appropriation accounts at the detail level.
electronic funds tran sferred , o r cash paym ents m ade. C ertain outlays do
not require issuance o f cash o r checks. An exam ple is charges m ade
30
Scheduled R elease
Listed below are the scheduled release d ates fo r the 1995 Statem ents.
The release tim e w ill be 2:00 p.m . EST.
Accountina Month
R elease D ate
January 199 5
2 -2 2 -9 5
February 199 5
3 -2 1 -9 5
M arch 1 9 9 5
4 -2 1 -9 5
April 199 5
5 -1 9 -9 5
M ay 1995
6 -2 1 -9 5
June 199 5
7 -2 4 -9 5
July 199 5
8 -2 1 -9 5
A ugust 199 5
9 -2 2 -9 5
S ep tem ber 199 5
(1)
1 1 -2 2 -9 5
O cto ber 199 5
N ovem ber 199 5
1 2 -2 1 -9 5
D ecem ber 199 5
1 -2 3 -9 6
'Release date subject to completion of year-end reporting requirements.
For sale by the Superintendent of Documents, U.S. Government Printing
Office, Washington, D.C. 20402 (202) 512-1800. The subscription price is
$35.00 per year (domestic), $43.75 per year (foreign).
No single copies are sold.
The Monthly Treasury Statement is now available on the Department of Commerce’s Economic Bulletin Board.
For information call (202)482-2939.
PUBLIC DEBT MEWS
D ep artm en t o f the T reasu ry
•
Bureau o f the Pujg|i|;
^ a ^ jjig o ii, DC
20239
r
FOR IMMEDIATE RELEASE
December 21, 1994
ce °f Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 2-YEAR NOTES
Tenders for $17,289 million of 2 -year notes, Series AP-1996,
to be issued January 3, 1995 and to mature December 31, 1996
were accepted today (CUSIP: 912827S37).
The interest rate on the notes will be 7 1/2%. All
competitive tenders at yields lower than 7.57% were accepted in
full. Tenders at 7.57% were allotted 41%. All noncompetitive and
successful competitive bidders were allotted securities at the yield
of 7.57%, with an equivalent price of 99.873. The median yield
was 7.55%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 7.53%;
that is, 5% of the amount of accepted competitive bids were
tendered at or below that yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$49,368,964
Accepted
$17,289,335
The $17,289 million of accepted tenders includes $2,382
million of noncompetitive tenders and $14,907 million of
competitive tenders from the public.
In addition, $760 million of tenders was awarded at the
high yield to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $1,250 million
of tenders was also accepted at the high yield from Federal
Reserve Banks for their own account in exchange for maturing
securities.
LB-1300
D E P A R T M E N T
OF
T H E
T R E A S U R Y
N E WS
OFFICE OF PUBLIC AFFAIRS • 1500 PEN N SY LV ^M ^A pN U E, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
F OR IMMEDIATE RELEASE
December 22, 1994
STATEMENT OF TREASURY SECRETARY LLOYD BENTSEN
After consultations with the Mexican authorities, the Treasury Department and
the Federal Reserve have agreed to a request from Mexico to activate their respective
swap lines totalling $6.0 billion under the North American Framework Agreement.
With a balanced budget, continuing economic reform, and prudent monetary
policy, Mexico’s economic fundamentals remain sound.
LB-1301
D E P A R T M 1E N T
OF
T H E
TRI i A S U R Y
NE WS
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
December 22, 1994
PENALTY LEVIED AGAINST CAESARS ATLANTIC CITY HOTEL CASINO
The Treasury Department announced Thursday that Caesars Atlantic City has paid a
$57,300 civil money penalty for failing to report to the Internal Revenue Service (IRS)
twelve currency transactions as required by the Bank Secrecy Act (BSA).
The currency transactions were conducted by the casino’s customers from May 1985
to December 1986. In determining the amount of the penalty, Treasury considered the
extensive improvements to the BSA compliance program subsequently implemented by the
casino’s management. Treasury has no evidence that the casino engaged in any criminal
activities in conjunction with these reporting violations.
"Weaknesses in BSA compliance and failures to report currency transactions,
whatever their cause, are extremely serious," said Stanley E. Morris, Director, Financial
Crimes Enforcement Network, which is responsible for enforcing the BSA. "They
potentially deprive Treasury of financial information, which is a vital weapon in the battle
against tax evaders and others who attempt to disguise their transactions from the
government."
Morris commended the IRS for the compliance examination that led to the BSA
penalty. "Today’s action could not have been undertaken without the dedication and skill of
the agents of the IRS Examination Division in Mays Landing, New Jersey."
The BSA requires banks and other financial institutions to keep records and file
currency transaction reports on currency transactions in excess of $10,000. The purpose of
these requirements is to assist the government in combatting money laundering as well as for
use in civil, criminal, tax and regulatory investigations. The BSA permits Treasury to
require institutions to implement anti-money laundering programs and report potentially
suspicious transactions.
(more)
LB-1302
State licensed casinos were brought under BSA compliance in 1985, with the
exception of casinos in Nevada. The casinos there must maintain a state casino regulatory
system, which substantially meets the reporting and recordkeeping requirements of the BSA
regulations.
-30Contact:
Chris Peacock/Treasury
(202) 622-2960
Joyce McDonald/FinCEN
(703) 905-3770
UBLICJBEBT NEWS
Department of the Treasury • Bureau of the PuBiilf Debt • Washington, DC 20239
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 5-YEAR NOTES
Tenders for $11,011 million of 5-year notes, Series V-1999,
to be issued January 3, 1995 and to mature December 31, 1999
were accepted today (CUSIP: 912827S45).
The interest rate on the notes will be 7 3/4%. All
competitive tenders at yields lower than 7.85% were accepted in
full. Tenders at 7.85% were allotted 42%. All noncompetitive and
successful competitive bidders were allotted securities at the yield
of 7.85%, with an equivalent price of 99.593. The median yield
was 7.80%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 7.76%;
that is, 5% of the amount of accepted competitive bids were
tendered at or below that yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$24,439,098
Accepted
$11,011,326
The $11,011 million of accepted tenders includes $918
million of noncompetitive tenders and $10,093 million of
competitive tenders from the public.
In addition, $220 million of tenders was awarded at the
high yield to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $1,180 million
of tenders was also accepted at the high yield from Federal
Reserve Banks for their own account in exchange for maturing
securities.
LB-1303
D E P A R T M E N T
OF
T H E
TREASURY
U
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE,
T R E A S U R Y
E¡ w s
^W ASF^NGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
December 27, 1994
STATEMENT BY UNDER SECRETARY LAWRENCE SUMMERS
Recent movements in the value of the Mexican peso have gone considerably beyond
what can be justified by Mexican economic fundamentals. We have confidence in the
underlying soundness of Mexican economic policies. We are in close contact with the
Mexican and Canadian authorities regarding the situation in currency markets and recognize
that excessive depreciation is in no one’s interest.
-30-
FN-1
UBLIC DEBT NEWS
D
e
p
a
r
t m
e
n
FOR IMMEDIATE RELEASE
December 27, 1994
t o
f t h
e
T
r
e
a
s
u
r
^
COl^ACT: Office of Financing
202-219-3350
ir £a$ u$ y
RESULTS OF TREASURY7S AUCTION OF 13-WEEK BILLS
OF fwc
Tenders for $13,008 million of 13-week bills to be issued
December 29, 1994 and to mature March 30, 1995 were
accepted today (CUSIP: 912794R30).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.53%
5.57%
5.56%
Investment
Rate
5.69%
5.73%
5.72%
Price
98.602
98.592
98.595
Tenders at the high discount rate were allotted 16%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$36,904,970
Accepted
$13,008,270
$31,202,065
1.385.979
$32,588,044
$7,305,365
1.385.979
$8,691,344
3,046,335
3,046,335
1.270.591
$36,904,970
1.270.591
$13,008,270
An additional $201,609 thousand of bills will be
issued to foreign official institutions for new cash.
FN-2
UBLIC DEBT NEWS
D ep artm en t of the T reasu ry
.B ureau o f the Public D ebt
W ash in gton , D C 20239
ûû2637
& ^
FOR IMMEDIATE RELEASErf
CONTACT: Office of Financing
December 27, 1994
' Qf Ti j Er ^EASUHY
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $13,057 million of 26-week bills to be issued
December 29, 1994 and to mature June 29, 1995 were
accepted today (CUSIP: 912794S88).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Discount
Rate
Low
High
Average
6 .22%
6.24%
6.24%
Investment
Rate
6.51%
6.53%
6.53%
Price
96.855
96.845
96.845
Tenders at the high discount rate were allotted 90%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$39,316,670
Accepted
$13,057,170
$32,631,190
1.254.948
$33,886,138
$6,371,690
1.254.948
$7,626,638
3,050,000
3,050,000
2.380.532
$39,316,670
2.380.532
$13,057,170
An additional $377,568 thousand of bills will be
issued to foreign official institutions for new cash.
FN-3
D E P A R T M E N T
OF
THE
T R E A S U R Y
NEWS
^ W A SH IN G T O N , D.C. • 20220 • (202) 622-2960
FO R R E L E A S E A T 2:30 P.M.
D e c e m b e r 27, 1994
CONTACT:
O f fice of F i n a n c i n g
202/219-3350
T R E A SURY'S W E E K L Y B I L L O F F E R I N G
T he T r e a s u r y will a u c tion two series of T r e a s u r y bills
to t a l i n g a p p r o x i m a t e l y $26,800 million, to be issued J a n u a r y 5,
1995.
This o f f e r i n g will pr o v i d e about $1,525 m i l l i o n of n e w
cash for the Treasury, as the m a t u r i n g bills are o u t s t a n d i n g in
the amount of $25,264 million.
F e d eral R e s erve Banks h o l d $6,610 m i l l i o n of the m a t u r i n g
bills for t h e i r o wn accounts, w h i c h m a y be r e f u n d e d w i t h i n the
o f f e r i n g amount at the w e i g h t e d average discount rate of a c c e p t e d
c o m p e titive tenders.
F e deral Re s e r v e Banks h o l d $2,107 m i l l i o n as agents for
foreign a n d international m o n e t a r y authorities, w h i c h m a y be
r e f u n d e d w i t h i n the o f f e r i n g amount at the w e i g h t e d average
discount rate of a c c e p t e d competitive tenders.
Additional
amounts m a y be issued for such accounts if the aggregate amount
of n e w bid s exceeds the aggregate amount of m a t u r i n g bills.
T e n d e r s for the bills will be re c e i v e d at Federal
Reserve B a nks and Bran ches an d at the B u r e a u of the Public
Debt, Washington, D. C.
This of f e r i n g of T r e a s u r y securities
is g o v e r n e d b y the terms a nd conditions set forth in the U n i f o r m
O f f e r i n g C i r c u l a r (31 CFR Part 356) for the sale a n d issue b y the
T r e a s u r y to the p u b l i c of mark e t a b l e T r e a s u r y bills, notes, and
bonds.
D e t a i l s about e a c h of the n e w securities are g i v e n in the
at t a c h e d o f f e r i n g highlights.
oOo
Attachment
FN-4
m
H I G H L I G H T S OF T R E A S U R Y O F F E R I N G S O F W E E K L Y B I LLS
T O BE I S S U E D J A N U A R Y 5, 1995
December 27, 1994
Offering Amount
..................
$13,400 million
$13,400 million
91-day bill
912794 R4 8
January 3, 1995
January 5, 1995
April 6, 1995
April 7, 1994
$29,542 million
$ 10,000
$ 1,000
182-day bill
912794 T8 7
January 3, 1995
January 5, 1995
July 6, 1995
January 5, 1995
D e s c r i p t i o n of O f f e r i n g :
Term and type of security
CUSIP number . . . . . .
Auction date ..........
Issue date . . ........
Maturity date ..........
Original issue date . . .
Currently outstanding . .
Minimum bid amount . . .
Multiples............ .
$ 10,000
$ 1,000
T h e f o l l o w i n g r u les a p p l y to all s e c u r i t i e s m e n t i o n e d a b o v e :
Submission of Bids:
Noncompetitive b i d s .............. Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
Competitive bids .......... . . . (1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield . . . . . . .
Maximum Award .............. . . .
Receipt of Tenders:
Noncompetitive tenders ........ .
35% of public offering
35% of public offering
Prior to 12:00 noon Eastern Standard time
on auction day
Competitive tenders . . . . . . . .
Prior to 1:00 p.m. Eastern Standard time
on auction day
Payment T e r m s .................... Full payment with tender or by charge to a funds
account
a t
a
F e d e ra l
R e s e rv e
Bank
on
is s u e
d a te
D E P A R T M E N T
OF
THE
T R E A S U R Y
TREASURY
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR RELEASE AT 2:30 P.M.
December 28, 1994
CONTACT:
Office of Financing
202/219-3350
TREASURY TO AUCTION CASH MANAGEMENT BILL
The Treasury will auction approximately $14,000
million of 16-day Treasury cash management bills to be
issued January 3, 1995.
Competitive and noncompetitive tenders will be
received at all Federal Reserve Banks and Branches.
Tenders will not be accepted for bills to be maintained on
the book-entrv records of the Department of the Treasury
(TREASURY DIRECT). Tenders will not be received at the
Bureau of the Public Debt, Washington, D. C.
Additional amounts of the bills may be issued to
Federal Reserve Banks as agents for foreign and inter
national monetary authorities at the average price of
accepted competitive tenders.
This offering of Treasury securities is governed by
the terms and conditions set forth in the Uniform Offering
Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes,
and bonds.
Details about the new security are given in the
attached offering highlights.
oOo
Attachment
FN-5
H I G H L I G H T S OP T R E A S U R Y O F F E R I N G
O F 1 6 -DAY C A S H M A N A G E M E N T B I L L
December 28, 1994
$14,000 million
Offering Amount
D e s c r i p t i o n of O f f e r i n g :
Term and type of security
CUSIP number ..........
Auction date ..........
Issue date ............
Maturity date ..........
Original issue date . . .
Currently outstanding . .
Minimum bid amount . . .
Multiples ..............
Minimum to hold amount
Multiples to hold . . . .
16-day Cash Management Bill
912794 P9 9
December 29, 1994
January 3, 1995
January 19, 1995
July 21, 1994
$25,917 million
$ 1 , 000,000
$ 1 , 000,000
$10,000
$1,000
S u b m i s s i o n of B i d s :
Noncompetitive bids
Competitive bids
Maximum Recognized Bid
at a S i n g l e Y i e l d
Maximum A w a r d
. . Accepted in full up to $1,000,000 at
the average discount rate of accepted
competitive bids
(1) Must be expressed as a discount rate
with two decimals, e.g., 7.10%.
(2) Net long position for each bidder must
be reported when the sum of the total
bid amount, at all discount rates, and
the net long position is $2 billion or
greater.
(3) Net long position must be determined
as of one half-hour prior to the
closing time for receipt of competi
tive tenders.
. . . 35% of public offering
............ 35% of public offering
R e c e i p t of T e n d e r s :
Noncompetitive tenders
. . Prior to 12:00 noon Eastern Standard
time on auction day
Competitive tenders . . . . Prior to 1:00 p.m. Eastern Standard
time on auction day
Payment T e r m s
............ Full payment with tender or by charge
to a funds account at a Federal
Reserve Bank on issue date
TJBLIC DEBT NEWS
D ep artm en t o f the T reasu ry
•
B ureau o f the Public D eb t
FOR IMMEDIATE RELEASE
December 29# 1994
• W a sh in g to n , D C 20239
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 16-DAY BILLS
Tenders for $14,009 million of 16-day bills to be issued
January 3, 1995 and to mature January 19, 1995 were
accepted today (CUSIP: 912794P99).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.55%
5.62%
5.59%
Investment
Rate
5.65%
5.72%
5.67%
Price
99.753
99.750
99.752
Tenders at the high discount rate were allotted 12%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$42,975,000
Accepted
$14,009,000
$42,975,000
0
$42,975,000
$14,009,000
0
$14,009,000
0
0
0
$42,975,000
0
$14,009,000
Report to The Congress on
Section 212 Expenses and
The Alternative Minimum Tax
Department o f the Treasury
December 1994
DEPARTM ENT OF TH E TREASURY
W A S H IN G T O N , D .C .
DEC 2 8 1994
S S IS T A N T S E C R E T A R Y
The H o n o r a b l e D a n i e l P a t r i c k M o y n i h a n
Chairman
Committee on Finance
United States Senate
W ashington, D.C. 20510
Dear Mr.
Chairman:
S e c t i o n 13113 of t h e c o n f e r e n c e a g r e e m e n t o n t h e O m n i b u s B u d g e t
R e c o n c i l i a t i o n A c t of 1993 u r g e d t h e D e p a r t m e n t of t h e T r e a s u r y
to s t u d y w h e t h e r t h e p r e s e n t - l a w t r e a t m e n t of s e c t i o n 2 1 2
ex p e n s e s u n d e r t h e a l t e r n a t i v e m i n i m u m t a x (AMT) c r e a t e s a
d i s i n c e n t i v e f or "the l o n g - t e r m i n v e s t m e n t s t h a t C o n g r e s s h a s
in t e n d e d t o f o s t e r t h r o u g h t h e c a p i t a l g a i n s e x c l u s i o n . "
The
conference agreement also urged the Department to prepare a
r e p o r t b y M a r c h 1, 1994.
P u r s u a n t t o t h a t request, I h e r e b y
submit t h e " R e p o r t t o t h e C o n g r e s s o n S e c t i o n 212 E x p e n s e s a n d
the A l t e r n a t i v e M i n i m u m Tax."
I a m s e n d i n g a s i m i l a r l e t t e r t o S e n a t o r B o b Packwood.
Sincerely
L e s l i e B. s a m u e i s
Assistant Secretary
(Tax Policy)
DEPARTM ENT OF TH E TREASURY
W A S H IN G T O N , D .C .
b iS T A N T S E C R E T A R Y
DEC 2 8 1994
The Honorable Sam Gibbons
Acting Chairman
Committee on Ways and Means
U.S. H o u s e of R e p r e s e n t a t i v e s
W a s h i n g t o n , D.C. 20515
D e a r Mr.
Chairman:
S e c t i o n 13113 of t h e c o n f e r e n c e a g r e e m e n t o n t h e O m n i b u s B u d g e t
R e c o n c i l i a t i o n A c t of 1993 u r g e d t h e D e p a r t m e n t of t h e T r e a s u r y
to s t u d y w h e t h e r t h e p r e s e n t - l a w t r e a t m e n t of s e c t i o n 2 1 2
e x p e n s e s u n d e r t h e a l t e r n a t i v e m i n i m u m t a x (AMT) c r e a t e s a
d i s i n c e n t i v e f o r "the l o n g - t e r m i n v e s t m e n t s t h a t C o n g r e s s h a s
intended to foster through the capital gains exclusion."
The
conference agreement also urged the Department to prepare a
r e p o r t b y M a r c h 1, 1994.
P u r s u a n t t o t h a t request, I h e r e b y
s u b m i t t h e " R e p o r t t o t h e C o n g r e s s o n S e c t i o n 212 E x p e n s e s a n d
the A l t e r n a t i v e M i n i m u m Tax."
I a m s e n d i n g a s i m i l a r l e t t e r to R e p r e s e n t a t i v e B i l l Archer.
Sincerely,
L e s l i e B. S a m u e l s
Assistant Secretary
(Tax Policy)
5
REPORT ON SECTION 212 EXPENSES
AND THE ALTERNATIVE MINIMUM TAX
Under present law, certain expenses that are incurred in the production of income
cannot be deducted against income in calculating an individual’s alternative minimum tax
(AMT). These expenses, defined in section 212 of the Internal Revenue Code (IRC), are
generally grouped for tax purposes with other "miscellaneous itemized deductions." In
calculating regular tax, taxpayers are permitted to deduct miscellaneous itemized deductions
only to the extent these deductions exceed two percent of the taxpayers’ adjusted gross
income (AGI). For purposes of the AMT, however, no deductions are allowed for
miscellaneous itemized expenses.
The conferees of the Omnibus Budget Reconciliation Act of 1993 were concerned that
the "... AMT treatment of section 212 expenses might create a disincentive for the long-term
investments that Congress has intended to foster through the capital gains exclusion."1
Consequently, they urged the Treasury Department to study the subject of their concern and
to present its views and recommendations regarding a statutory amendment to the AMT
treatment of section 212 expenses, "along with a discussion of the merits and consequences
of any such amendment." This Report responds to their request.
The first section of this Report provides background on the current treatment of
section 212 expenses and on recent initiatives to modify it. The following section examines
some of the related economic issues, and the final section discusses policy options. The
Report concludes that current law may mismeasure economic income for some individuals
facing the AMT, but that the effects on investment are not likely to be severe. Allowing
section 212 expenses to be deducted for AMT purposes in a manner similar to investment
interest, or similar to a provision in the vetoed Revenue Act of 1992, would improve the
measurement of income under the AMT. However, in the current budgetary environment
and given the uncertain effect on investment, the Treasury Department does not at this time
recommend a change in the law.
I.
Background
Section 212 expenses are expenses that are incurred or paid for the production or
collection of income; the management, conservation, or maintenance of property held for the
production of income; or that are paid in connection with the determination, collection, or
refund of tax. Unless otherwise disallowed, section 212 expenses may be deducted
("expensed") when incurred. Examples of section 212 expenses include: fees for
preparation of tax returns, safe deposit box fees, investment counsel’s fees, and other
1 Conference Report of the Committee on the Budget, House of Representatives to
accompany H.R. 2264, Omnibus Budget Reconciliation Act of 1993, page 528.
1
expenses incurred in connection with the management of investments such as salaries, travel,
research, and office expenses.2 These section 212 expenses are reported as miscellaneous
itemized deductions and are subject to the two percent floor described below. Employee
business expenses (such as union dues, uniforms, certain job-related travel and education) are
another type of section 212 expense reported as miscellaneous itemized deductions subject to
the two percent floor.
Since a minimum tax was adopted in 1969, miscellaneous itemized deductions of
individuals have never been fully allowed in calculating the minimum tax. Under the early
"add-on" minimum tax, their deductibility was limited for many taxpayers. Under its
successor AMT miscellaneous itemized deductions have been fiilly disallowed for all AMT
taxpayers since 1983.3 The Tax Reform Act of 1986 introduced two changes that affected
section 212 expenses. First, it imposed a two-percent-of-AGI floor on most miscellaneous
itemized deductions, including section 212 expenses. The effect was to reduce and, for
many individuals, completely eliminate the deductibility under the regular tax of directly
incurred section 212 expenses. Second, the Act prohibited the indirect deduction of section
212 expenses through most pass-through entities.4 As a result, partnerships and S
corporations no longer deduct section 212 expenses from their ordinary income, but rather,
pass these expenses on to their partners or shareholders as separately stated items. The
section 212 expenses passed through to partners and shareholders who are individuals are, in
turn, deductible only as part of their individual miscellaneous itemized deductions. That is,
they are deductible for regular tax purposes only to the extent they exceed two percent of
AGI (for those taxpayers who itemize deductions), and are not deductible at all for individual
AMT purposes. C corporations that are partners or that incur section 212 expenses directly
can fully deduct such expenses for regular and corporate alternative minimum tax purposes.
Tax legislation passed by both houses of Congress in 1992, but vetoed by the
President, would have allowed a portion of a partner’s distributive share of section 212
expenses to be deductible for individual AMT purposes. Deductibility would have been
limited to the lesser of (1) the individual’s investment income from partnerships, or (2) the
excess of the distributive share of section 212 expenses over two percent of AGI. The
2 Venture capital partnerships frequently incur such expenses as part of their support for
businesses in which they invest.
3 The AMT was enacted in 1978 but through 1982 continued treating miscellaneous
itemized deductions as they had been under the add-on minimum tax. In 1983, the separate
add-on minimum tax was eliminated and the AMT substantially revised.
4 An exception to the prohibition on indirect deduction of section 212 expenses was
provided for regulated investment companies (RICs, or mutual funds), which are publicly
offered.
2
proposal was intended to permit taxpayers paying AMT to claim a deduction against
investment income for expenses incurred in producing that income.5
n.
Economic Issues
The current treatment of section 212 expenses raises several economic issues related
to the measurement of income, the effect on investment, and the partial exclusion of capital
gains from qualifying small business stock enacted in the Omnibus Budget Reconciliation Act
of 1993. The limited data available on the amount of section 212 expenses are discussed at
the end of this section.
A.
The Measurement of Economic Income
Economists commonly define "income" as consumption plus change in net worth in a
particular period. The tax base under an income tax system necessarily deviates from this
theoretical concept for many practical and political reasons, although such deviations often
reduce economic efficiency. Income as defined by economists is net of the expenses needed
to generate it. The definition of income in the Internal Revenue Code is in most cases also
based on a net concept. Counting returns on investments as income without allowing
deductions for the costs of generating them overstates, on an economic basis, the net income
those investments produce.
Measuring annual net income accurately also requires matching the timing of income
and expenses. Costs of producing income fall into two general timing categories: (1)
expenses that produce current or ongoing income, and (2) expenses that produce future
income. To measure income properly, the former type would typically be deducted currently
("expensed"), while expenses attributable to future income would be capitalized. Because of
the time value of money, taxpayers can reduce the present value of their tax liability if they
can deduct expenses immediately while recognizing income in a future year. (The 28 percent
limit on the capital gains tax rate further reduces the tax burden for taxpayers who can
deduct expenses at rates over 28 percent.)
5
The large partnership provisions of H.R. 4210, H.R. 11 (both vetoed in 1992), and of
H.R. 3419, the "Tax Simplification and Technical Corrections Act" which passed the House
of Representatives on May 19, 1994, would disallow 70 percent of miscellaneous itemized
deductions (including section 212 expenses) incurred by large partnerships (generally those
with 250 or more partners) at the partnership level. The remaining 30 percent would be
allowed in calculating the partnership’s ordinary income and would not be subject to the two
percent floor for the individual partners. As the Report on H.R. 3419 states, "The ’70
percent* figure is intended to approximate the amount of such deductions that would be
denied at the partner level as a result of the two-percent floor." (Page 53.)
3
In practice, attributing a particular expense to either future or current income may be
difficult in some cases. The proper allocation may depend on specific facts and
circumstances. Although current law may allow section 212 items to be expensed, the
expenditure may contribute to both current and future gains, and determining the correct
economic division can be difficult.
Consequently, the current law treatment of section 212 expenses, combined with the
benefits of capital gains, has a wide range of effects on taxpayers, compared to the liability
they would have incurred if the timing of income and deductions were exactly matched.
Some taxpayers benefit, others lose, and for a final group the impact is unclear. Taxpayers
that benefit are those subject to the regular tax (particularly those in the top marginal tax
brackets) with miscellaneous itemized deductions substantially exceeding two percent of AGI
whose section 212 expenses produce future income. Taxpayers disadvantaged include those
with all their section 212 expenses disallowed, either by the two percent of AGI floor or by
the AMT, particularly if their expenses produce current income and if their expenses
represent a substantial portion of their investment. The effect on taxpayers does not depend
on whether they incur section 212 expenses directly or through a pass-through entity such as
a partnership.
B.
Effect on Investment
By mismeasuring economic income, the current law treatment of section 212 expenses
can distort the after-tax return on investments involving section 212 expenses. Taxpayers for
whom section 212 expenses are limited or disallowed might find other investments relatively
more attractive. All else equal (such as the pre-tax rate of return), they tend to choose
investment vehicles that do not involve section 212 expenses. However, taxpayers who can
deduct section 212 expenses currently (particularly at rates over 28 percent) and defer
realizing the income produced by those expenses might prefer investments involving section
212 expenses, all else equal. Because the current treatment of section 212 expenses does not
tax (or subsidize) capital income in general —only income from investments involving
section 212 expenses —even for taxpayers under the AMT, the likely effect would be on the
choice of investment opportunities selected, and the avenues through which such investment
is pursued, rather than on the total amount of investment undertaken. A few taxpayers
facing limitations on section 212 expenses might reduce the total amount of investment they
undertake, however, if there are not enough investment opportunities that meet their required
rate of return. However, macroeconomic policy is the primary determinant of the level of
aggregate investment in the economy.
How taxpayers change their investment patterns in response to limitations on section
212 expenses depends on several factors, most importantly on the after-tax return on the
investments and on the type of expense subject to the section 212 limitation. The greater the
difference between after-tax returns of investments involving limited section 212 expenses
and other investments, the more taxpayers will choose alternative investment opportunities.
However, the tax benefits afforded capital gains income (deferral and, for high income
4
investors, a lower nominal tax rate) may offset some of this disadvantage. Some investments
that produce long-term capital gains and on which the section 212 expenses have been
disallowed may still yield higher after-tax returns than investments with neither capital gains
nor disallowed section 212 expenses.6 At the other extreme, investments with substantial
disallowed section 212 expenses can produce low after-tax returns, even with the benefits of
deferral. Some taxpayers subject to the AMT are likely to be in this situation.
Taxpayer response to limitations on section 212 expenses also depends on the type of
expense involved. Some section 212 expenses represent costs incurred on behalf of the
taxpayer that do not affect the business in which the taxpayer has invested. This type of
expense includes investment advice or information services that improve the taxpayer’s
investment decisions. Taxpayers might respond to limitations on deductibility of this type of
expense by buying less — subscribing to fewer investment publications, attending fewer
investment seminars, seeking less investment advice. They might switch to investment
vehicles that required less information on the part of the investor, such as choosing mutual
funds rather than making their own selections of promising companies.
Other section 212 expenses represent expenses incurred on behalf of the business in
which the taxpayer has invested, such as salaries or office expenses, and effectively substitute
for direct costs of the business, benefitting all investors. Treating such expenses differently
if they are incurred by investors than if they are expenses of the business inserts tax
considerations into choosing who can best undertake the expenses. Investors can avoid the
limitation by choosing investment vehicles in which section 212 expenses are not an issue
(such as mutual funds), or in some cases by increasing their direct equity investment in the
business and allowing the business to incur the expenses itself. In this case, the investors’
added contribution would increase their basis, lowering their ultimate capital gains on the
investment. Capitalizing expenses would produce an after-tax rate of return higher than if
the expenses were fully disallowed, but lower than if the expenses were deducted currently.
Although avoiding limitations on section 212 expenses by increasing direct investment could
in some cases result in a more proper measure of income7, it increases transactions costs and
loses the value of intermediation — such as economies of scale, information, experience —
provided by venture capital partnerships and other investment firms to the individual
6 Appendix 1, columns 1 through 4, illustrates some of these differences in after-tax
rates of return under the regular tax and the AMT. It shows that the after-tax return depends
on a number of factors besides the disallowance of section 212 expenses, including pre-tax
rates of return and the relation between tax rates on ordinary income and capital gains, as
well as the importance of disallowed section 212 expenses in the investment. Factors not
illustrated in Appendix Table 1 that also affect after-tax rates of return include the holding
period, inflation, and the particular tax treatment of section 212 expenses.
7 This could occur, for example, if the expenses contributed to future, not current
income.
5
taxpayer-investor. To the extent such firms provide a disproportionate share of investment
for certain industries, those industries may be disadvantaged by the disallowance of section
212 expenses. Limitations on section 212 expenses therefore may change the pattern of
investment, and may even lower the productivity of the investment to the extent the
investment intermediaries are better at managing promising businesses.
C.
Partial Exclusion for Capital Gains on Qualifying Small Business Stock
In 1993, Congress enacted a 50 percent exclusion for capital gains on certain small
business stock held for more than 5 years. One-half of the excluded gains would be a
preference under the alternative minimum tax. Therefore, with the maximum statutory rate
on net capital gains income of 28 percent, the nominal marginal rate on qualifying capital
gains would be 14 percent for most taxpayers under the regular tax and 19.5 or 21 percent
for those on the alternative minimum tax.8 These AMT rates are still substantially lower
than the rates on ordinary income of 36 and 39.6 percent faced by the taxpayers who realize
the largest amounts of capital gains.
The disallowance of section 212 expenses interacts with the small business capital
gains exclusion in several ways and can offset some of the tax rate advantage of investing in
qualifying small businesses. In most cases, though, the disallowance does not eliminate the
advantage.9
1.
For taxpayers subject to the regular tax, the small business capital gains
exclusion provides a clearly higher after-tax return for any investment, even with
disallowed section 212 expenses, compared to returns on equivalent investments
producing regular capital gains.10
,
2.
The small business capital gains provision benefits taxpayers who are subject
to the AMT without considering small business gains.11
3.
If the small business capital gains exclusion moves a taxpayer from the regular
tax to the AMT, the gain from the small business provision depends on how much of
8 With three-fourths of the small business capital gains included in the AMT base, and
AMT rates of 26 and 28 percent, 19.5 = 26 * 3/4, and 21 = 28 * 3/4.
9 Appendix Table 1, columns 5 and 6, illustrates the impact on after-tax rates of return
of the small business capital gains provision.
10 In terms of Appendix Table 1, compare column 3 with column 5.
11 In Appendix Table 1, compare columns 4 and 6.
6
the section 212 expenses the taxpayer can currently claim under the regular tax.12 In
the extreme, a taxpayer with most section 212 expenses allowed under the regular tax
could receive no benefit from the special capital gains exclusion.13
D.
Evidence on Amount of Section 212 Expenses Disallowed
Disallowed section 212 expenses are not reported explicitly on individual income tax
returns but can be estimated by combining evidence from individual returns and returns of S
corporations and partnerships. For 1991, the available evidence suggests that $150 million to
$225 million in section 212 expenses, or 5 to 7 percent of the total coming from flow
through entities, were disallowed. This section presents the evidence behind this estimate.
Table 1 summarizes data related to miscellaneous itemized deductions from individual
income tax returns for 1991. In that year, 7.6 million individual taxpayers deducted $26.5
billion in miscellaneous itemized deductions in excess of two percent of their AGI. These
taxpayers reported an additional $8.7 billion in deductions that were below the two percent
floor, for a total of $35.3 billion. (There is no information on miscellaneous deductions of
taxpayers whose total did not reach two percent of their AGI.) Of these 7.6 million
taxpayers, 148,000 had AMT liability. Their miscellaneous deductions which counted as
AMT preferences equalled $3.4 billion.
Although section 212 expenses incurred directly by individual taxpayers or indirectly
through flow-through entities are treated as miscellaneous deductions, they are not separately
identified in available individual tax return data. Only employee business expenses and,
occasionally, tax preparation expenses are identified. The unidentified deductions, which
represent the upper bound on section 212 expenses reported by individuals, are labeled
"potential investment expenses" in the bottom section of Table 1. 5.4 million taxpayers
reported $11.5 billion potential investment expenses in 1991, of which approximately $9.3
billion exceeded the two percent of AGI floor (stacked last)14. Of this amount over the AGI
threshold, $1.7 billion was reported by 117,000 AMT taxpayers and was treated as a
preference item under the AMT.
12 In terms of Appendix Table 1, compare column 3 with column 6.
13 If the taxpayer were able to deduct a portion of the section 212 expenses at a higher
marginal tax rate on ordinary income than 28 percent, the shift to the AMT would be even
more adverse. Presumably taxpayers would not choose small business capital gain treatment
if doing so would leave them in a less advantageous position. For example, some taxpayers
would be better off deducting their section 212 expenses at a 39.6 percent rate and paying
capital gains tax at 28 percent, rather than declaring the gain as qualified for small business
treatment but being subjected to AMT treatment of the expenses and the gain.
14 Stacked last means that these expenditures are applied last in reaching or surpassing
the two percent floor.
7
Table 1
Miscellaneous Itemized Deductions, 19911
Taxpayers
subject to
regular tax
Taxpayers
subject to
AMT
All Taxpayers
(Dollar amounts in billions)
■Taxpayers with miscellaneous
■itemized deductions
Number of taxpayers
7.4 million
148,000
7.6 million
$31.4
$3.9
$35.3
$8.2
$0.52
$8.7
$23.1
$3.4
$26.5
5.3 million
117,000
5.4 million
$9.6
$1.9
$11.5
Not deducted - under 2% floor
$2.0
$0.22
$2.2
Deductions - Total over 2% floor
$7.6
$1.7
$9.3
Total reported expenses,
deducted and not deducted
Not deducted - under 2% floor
Deductions - Total over 2% floor
■Taxpayers with potential investment
[expense deductions3
Number of taxpayers
Potential investment expenses,
deducted and not deducted
■Source: Unpublished data from 1RS, Individual Income Tax Returns, 1991.
1 For ta x p a y e r s w ith e x p e n se s e x c e e d in g tw o -p e r c e n t-o f* -AGI
flo o r .
2
N o t a p r e f e r e n c e fo r t h e AMT.
M i s c e l l a n e o u s i t e m i z e d d e d u c t i o n s n o t i d e n t i f i e d as
e m p l o y e e b u s i n e s s e x p e n s e s o r as t a x p r e p a r a t i o n expenses,
s t a cked last.
8
From the business side, partnerships and S corporations are instructed to report
section 212 expenses to shareholders and partners on their schedule K -l’s. Table 2 shows
partnerships reporting $3.1 billion in investment expenses in 1991, with most of this reported
by partnerships who list their principal business activity as "Other holding and investment
companies." S corporations reported a small amount of investment expenses.
It is reasonable to assume that all the investment expenses reported by S corporations
were allocated to individuals, but that is not true for partnerships. Not only do partnerships
have many partners who are not individuals, but there can be substantial double counting in
the partnership data, because partnerships can be partners: the same expense could be
reported appropriately on the schedule K of two or more partnerships. When the potential
for double counting and allocations to partners that are not individuals are taken into account,
we estimate that approximately $1-1.5 billion in investment expenses from flow-through
businesses was allocated to individuals.
Table 2
Investment Expenses of Flow-Through Entities, 1991
Partnerships, Total
Investment and other
holding companies
S corporations
Amount
$3.1 billion
$2.3 billion
Returns
80,000
30,000
$0.2 billion
14,000
Source: Unpublished 1RS data from Partnership Tax Returns, and Corporation Tax Returns,
1991.
The data provide no evidence on which individual taxpayers received these flow
through expenses nor, therefore, on what fraction was deductible in excess of the two percent
of AGI floor, or was a preference for AMT purposes. The estimated $1-1.5 billion of
expenses that were allocated to individual partners and S corporation shareholders went to
three types of taxpayers.
(1)
Individuals whose miscellaneous deductions did not reach two percent of their
AGI.
(2)
Some of the 5.3 million taxpayers subject to the regular tax who claimed the
$9.6 billion in miscellaneous itemized deductions that could have been section
212 expenses.
(3)
Some of the 117,000 taxpayers subject to the AMT who had $1.9 billion in
potential investment expenses that were disallowed.
9
If all the $1-1.5 billion from flow-through entities went to taxpayers in categories (2)
and (3) (individuals with miscellaneous deductions over the AGI floor), and if the same
fraction of the $1-1.5 billion was a preference for the AMT as of potential investment
expenses,15 then approximately $150-225 million section 212 expenses from flow-through
entities would have been disallowed as AMT preferences in 1991. This would amount to 5-7
percent of the total of $3.3 billion in section 212 expenses of flow-through entities. This
may represent an upper bound on the estimate of AMT preferences because an unknown
amount of the investment expenses would have been allocated to individuals in category (1)
whose miscellaneous expenses did not reach two percent of their AGI.
E.
Venture Capital
Much of the concern over the disallowance of section 212 expenses relates to its
potential effect on venture capital partnerships and their role in funding new "high-tech"
firms. Available data suggest, however, that individuals contribute a minor share of the
investment funds of venture capital partnerships so it is likely that the treatment of section
212 expenses has little effect on venture capital.
Table 3 summarizes data on the formal part of the venture capital sector on sources of
capital committed by limited partners to institutionally-funded independent private venture
capital funds over the past decade.16 While the venture capital partnerships represented by
the data are not the only source of capital for new businesses, they are an important vehicle
through which individuals invest through partnerships in the later stages of start-up firms.
Data are limited on informal sources of investment funds in start-up businesses, which are
particularly important in the early stages of business growth and in which individual investors
play an important role.
Table 3 suggests that capital from individuals has been, and continues to be, a
relatively small share of total capital contributed to partnerships in the formal venture capital
sector. Pension funds have been the main investors, even though they receive no tax benefits
from deferral of capital gains. Similarly, they are not affected by limitations on deducting
section 212 expenses. Indeed, the vast majority of capital supplied to venture capital
partnerships as reported by the National Venture Capital Association came from investors not
covered by the AMT. The limited role of individuals in venture capital partnerships,
combined with the estimates in the previous section that only a small portion of section 212
expenses flowing to individuals is disallowed by the AMT, suggests that only a small fraction
of investment expenses incurred by venture capital partnerships is affected by the AMT
treatment of section 212 expenses.
15 1.7/11.5 = .15. See Table 1.
16 These data only include the "formal" venture capital firms, as counted by the National
Venture Capital Association; they do not include all new businesses.
10
Table 3
Sources of Capital Committed by Limited Partners
to Institutionally-funded Independent Private
Venture Capital Funds, 1980-1992
(Dollar amounts in billions)
Pension funds
Foreigners
Individuals & families
Corporations
Insurance companies
Endowments & foundations
Total
1980-1991
Amounts
Share
Amounts
10,830
3,877
3,734
3,393
3,289
2,718
27,854
$1,060
283
280
84
370
471
$2,548
38.9%
13.9
13.4
12.2
11.8
9.8
100%
1992
Share
41.6%
11.1
11.0
3.3
14.5
18.5
100%
Source: National Venture Capital Association, 1991 and 1992 Annual Reports, prepared by
Venture Economics.
m.
Summary and Policy Discussion
Although the data related to the current tax treatment of section 212 expenses are
limited, the foregoing analysis leads to several conclusions and policy implications.
1.
From an economic perspective, a proper measure of income would allow
deductions for section 212 expenses that do not benefit future periods as costs of earning
income. However, some of these expenses may benefit future periods, and taxpayers with
section 212 expenses generally benefit from deferral of income and preferential treatment of
capital gains. On balance, it is not clear that these activities are tax disadvantaged, compared
to investments that have neither disallowed section 212 expenses nor capital gains treatment.
Therefore, the theoretical case for removing limits on the deductibility of section 212
expenses on grounds of neutrality is not compelling.
2.
Available data suggest that the AMT disallowance of section 212 expenses
affects only a small fraction of investment expenses from flow-through entities and an even
smaller fraction of taxpayers with such expenses. Of the investment expenses incurred by
partnerships and S corporations in 1991, it is likely that at most 5 to 7 percent were allocated
to individuals and then disallowed as AMT preferences. Of the estimated 5.4 million
taxpayers in 1991 with miscellaneous itemized deductions that might include section 212
expenses, only 117,000 (or two percent) were subject to the AMT, although this two percent
reported $1.7 billion (or 15 percent) of potential investment expenses of individuals with
miscellaneous itemized deductions.
11
Although the current law AMT treatment of section 212 expenses does not appear to
have -- at present or in the future —a substantial economic impact, the impact it does have
may be of concern. There are several possible policy options in response to that concern.
Option 1. Keep current law. This could be supported on the grounds that, for the
reasons summarized above, the treatment of section 212 expenses probably has little
aggregate economic effect.
Option 2. Allow regular tax treatment of section 212 expenses for AMT purposes.
This would remove the tax disadvantage that the current-law AMT disallowance of section
212 expenses imposes on some investments, but it would confer a tax advantage on others
that benefit from deferral of tax on income, and it would result in a loss of revenue.
Option 3. Treat section 212 expenses under AMT in a fashion similar to investment
interest, with expenses allowed to the extent of investment income and the excess deferred to
succeeding years. This approach would address both sources of income mismeasurement
related to the current law treatment of section 212 expenses. It would permit expenses of
generating investment income to be netted against the proceeds from those investments while
limiting the benefit from deducting expenses before paying tax on the associated income.
Option 3 is a broader version of the provision in the vetoed Revenue Act of 1992
dealing with section 212 expenses of partnerships. That provision would have limited
deductibility under the AMT to the lesser of: (1) the individual’s investment income from
partnerships, or (2) the excess of the distributive share of section 212 expenses over two
percent of AGI. While that provision would have helped one group of taxpayers affected by
the AMT limitations on section 212 expenses—individual partners, particularly those with
very large investments in venture capital partnerships-there is no economic logic for
excluding from the relief S corporation shareholders and individuals making direct
investments.
In light of the conclusions from the earlier analysis that the present AMT
disallowance of section 212 expenses does not appear to have a substantial economic impact,
and in light of the continued need for budget restraint, the Treasury Department does not
find a compelling need to revise policy at this time and favors Option 1. If the treatment of
section 212 expenses were to be reformed, the approach reflected in Option 3 applied to
section 212 expenses from all sources would be preferable.
12
APPENDIX
Appendix Table 1 presents examples of after-tax rates of return for hypothetical
investments with given pre-tax returns, with and without capital gains and with differing tax
treatments of section 212 expenses. It also shows the effect on after-tax returns of a
preferential statutory tax rate on capital gains and of the small business capital gains
exclusion under the regular tax and under the AMT.
Investments A and B are virtually the same except for the timing of income:
investment A produces income annually with no capital gain, whereas investment B produces
all return as capital gain in the final year. For both, an initial investment is made and
capitalized in year 1, followed by annual section 212 expenses equivalent to the net pre-tax
rate of return on the investment (either 12 percent or 24 percent). For example, on an initial
investment of $100 which earns a 12 percent return, the annual section 212 expenses are
chosen to be $12.17 For tax purposes, the section 212 expenses are deducted against
ordinary income as incurred, to the extent allowed.
For Taxpayer 1 in the 28 percent tax bracket on ordinary income and capital gains
under the regular tax and the AMT, Investment A that involved no deferral and that yielded
a pre-tax rate of return of 12 percent (column 1, top half of the table) would yield after-tax
returns ranging from 8.6 percent to 5.3 percent depending on the fraction of section 212
expenses that are deductible. If the taxpayer were subject to the AMT where none of the
section 212 expenses were deductible and faced an AMT rate of 28 percent, the after-tax
return would be 5.3 percent.
Alternatively, the taxpayer could receive a 12 percent pre-tax return with Investment
B. Because of the benefit of deferral, this approach would provide higher after-tax returns
than the non-deferral Investment A: with 100 percent of section 212 expenses allowed, a 9.5
percent after-tax return (column 3) instead of 8.6 percent for Investment A (with a marginal
rate of 28 percent). If only half of the section 212 expenses were allowed on Investment B,
the after-tax return would be almost as high (8.5 percent) as the return on Investment A with
all section 212 expenses allowed (8.6 percent). If both types of investments yielded pre-tax
returns of 24 percent (bottom half of the table), the taxpayer would prefer Investment B with
only 25 percent of the section 212 expenses allowed over Investment A with the expenses
allowed in full.
Investments that produce qualifying small business capital gains (columns 5 and 6)
would generate higher after tax-returns for any given level of disallowed section 212
expenses than investments earning regular capital gains.
17
If the amount of section 212 expenses differed, the after-tax rates of return in the
table would be different but the qualitative conclusions would persist.
13
Appendix Table 1
Examples of A fter-Tax Rates of Return on Investments with Different Assumptions on
Tax Rates, Before-Tax Rates of Return, and Disallowed Section 212 Expenses
Percent of
section 212 expenses
allowed
Tax Rate on Capital Gains
Investment A 1/
Investment B 1/
!
No Deferral
With Capital Gains
(No Capital Gains)
Regular Gains
Small Business Capital Gains
Regular
AMT
Regular
AMT
Regular
AMT
Tax
Tax
Tax
(2)
(3)
(4)
(1)
(5)
(6)
NA
NA
28.0%
8.6%
7.8%
7.0%
6.1%
5.3%
—
—
—
9.5%
8.9%
8.3%
7.7%
7.1%
28.0%
14.0%
21.0%
—
12.0%
11.4%
10.8%
10.2%
9.6%
__
—
—
—
Pre-Tax Rate of Return = 12%
Taxpayer 1: tax rate on
ordinary income = 28%
100
75
50
25
0
5.3%
—
—
—
7.1%
8.4%
Taxpayer 2: tax rate on
ordinary income = 36% 21
100
75
50
25
0
7.8%
6.0%
5.8%
4.7%
3.7%
——
10.2%
9.4%
8.6%
7.8%
7.1%
—
-__
5.3%
—M
B
—
—
—
7.1%
12.7%
11.9%
11.1%
10.4%
9.6%
__
—
—
—
8.4%
Pre-Tax Rate of Return = 24%
Taxpayer 1: tax rate on
ordinary income = 28%
100
75
50
25
0
17.3%
15.6%
13.9%
12.2%
10.6%
__
—
—
—
19.4%
18.4%
17.5%
16.5%
15.6%
10.6%
——
—
—
—
15.6%
23.3%
22.3%
21.4%
20.5%
19.6%
——
—
—
—
17.6%
•
Taxpayer 2: tax rate on
ordinary income = 36% 2/
100
75
50
25
0
15.6%
13.6%
11.5%
9.4%
7.4%
_—
—
—
—
20.5%
19.2%
18.0%
16.8%
15.5%
10.6%
——
—
—
—
15.6%
24.4%
23.1%
22.0%
20.8%
19.6%
—_
—
—
—
17.6%
V Investments A and B are the same, before taxes, except for the timing of the receipt of income. In year 1, an
initial investment is made and capitalized. In years 2 through 6, section 212 expenses are incurred equal to the
annualized return on investment (either 12% or 24%). Investment A produces an annual pre-tax flow of net
mcome (income after deduction of section 212 expenses) equal to the rate of return (12% or 24%) in years 2
trough 6. The investment is sold at the end of year 6 for the amount of the initial investment. Investment B
9snerates no income in years 2 through 5, but is sold in year 6 at a gain sufficient to produce the required pre-tax
return (12% or 24%).
2/The maximum AMT rate on ordinary incom e is 28 percent.
Source: Treasury calculations.
14
For Taxpayer 2 who faces a higher statutory rate on ordinary income than does
Taxpayer 1 (28 percent and 36 percent, respectively), the benefits of deferral are even
greater. From a successful investment without deferral yielding 12 percent before taxes
(Investment A, column 1), this taxpayer would receive a 7.8 percent after-tax return. The
taxpayer would prefer Investment B generating regular capital gains even if less than 25
percent of the section 212 expenses were allowed.
As these illustrations show, disallowing some section 212 expenses reduces the return
from the investment, but may still leave the investment relatively tax favored. The results
depend on relative tax rates, rates of return, and the tax treatment of section 212 expenses,
including the importance of disallowed section 212 expenses in the investment.
15
R eport to T he Congress on
Adjusting the Excess Passive Assets Rules
and the
Passive Foreign Investment Company Rules
to Account for Marketing Intangibles
D epartm ent o f the Treasury
N ovem ber 1994
DEPARTM ENT OF THE TREASURY
W A S H IN G T O N , D .C .
A S S IS T A N T S E C R E T A R Y
November 2 2, 1994
The H o n o r a b l e S a m G i b b o n s
Acting Chairman
Committee on Ways and Means
U.S. H o u s e of R e p r e s e n t a t i v e s
W a s h i n g t o n , D.C. 20515
Dea r Mr.
C h a irman:
In t h e C o n f e r e n c e R e p o r t t o t h e O m n i b u s B u d g e t R e c o n c i l i a t i o n A c t
of 1993, C o n g r e s s r e q u e s t e d t h e D e p a r t m e n t of t h e T r e a s u r y to
s t u d y w h e t h e r t h e e x c e s s p a s s i v e a s s e t s r u l e s fo r t h e c u r r e n t
t a x a t i o n of c e r t a i n e a r n i n g of c o n t r o l l e d f o r e i g n c o r p o r a t i o n s
and t h e p a s s i v e f o r e i g n i n v e s t m e n t c o m p a n y r u l e s s h o u l d be
a m e n d e d t o a c c o u n t for i n t a n g i b l e a s s e t s c r e a t e d b y m a r k e t i n g
e x p e n d i t u r e s , in a m a n n e r s i m i l a r t o t h a t u s e d t o a c c o u n t for
a s s e t s c r e a t e d b y r e s e a r c h or e x p e r i m e n t a l e x p e n d i t u r e s .
Congress also requested that the study include Treasury's views
and r e c o m m e n d a t i o n as to w h e t h e r s u c h a n a m e n d m e n t s h o u l d be
made, a l o n g w i t h a d i s c u s s i o n of t h e m e r i t s a n d c o n s e q u e n c e s of
any s u c h ame n d m e n t .
P u r s u a n t t o t h a t request, I h e r e b y s u b m i t t h i s " R e p o r t t o T h e
C o n g r e s s o n A d j u s t i n g t h e E x c e s s P a s s i v e A s s e t s R u l e s a n d t he
P a s s i v e F o r e i g n I n v e s t m e n t C o m p a n y R u l e s t o A c c o u n t fo r M a r k e t i n g
Intangibles".
I am s e n d i n g a s i m i l a r l e t t e r t o R e p r e s e n t a t i v e B i l l A r cher.
Sincerely
L e s l i e B. S a m u e l s
Assistant Secretary
(Tax Policy)
DEPARTM ENT OF TH E TREASURY
W A S H IN G T O N , D .C .
A S S IS T A N T S E C R E T A R Y
November 22, 1994
The Honorable Daniel Patrick Moynihan
Chairman
Committee on Finance
United States Senate
Washington, D.C. 20510
Dear Mr. Chairman:
In the Conference Report to the Omnibus Budget Reconciliation Act
of 1993, Congress requested the Department of the Treasury to
study whether the excess passive assets rules for the current
taxation of certain earning of controlled foreign corporations
and the passive foreign investment company rules should be
amended to account for intangible assets created by marketing
expenditures, in a manner similar to that used to account for
assets created by research or experimental expenditures.
Congress also requested that the study include Treasury's views
and recommendation as to whether such an amendment should be
made, along with a discussion of the merits and consequences of
any such amendment.
Pursuant to that request, I hereby submit this "Report to The
Congress on Adjusting the Excess Passive Assets Rules and the
Passive Foreign Investment Company Rules to Account for Marketing
Intangibles".
I am sending a similar letter to Senator Bob Packwood.
Sincerely
Leslie B. Samuels
Assistant Secretary
(Tax Policy)
CHAPTER 1
INTRODUCTION AND SUMMARY
2.2
Introduction
This report was prepared in response to a request made by
Congress
in
the
Conference
Report
to
the
Omnibus
Budget
Reconciliation Act of 1993 (OBRA 1993).
In the Conference Report,
Congress asked the Department of the Treasury to study whether the
excess passive assets rules for the current taxation of certain
earnings of controlled foreign corporations (CFCs) and the passive
foreign investment company (PFIC) rules should be amended to
account for intangible assets created by marketing expenditures, in
a manner similar to that used to account for assets created by
research or experimental expenditures. Congress requested that the
study include Treasury's views and recommendations as to whether
such an amendment should be made, along with a discussion of the
merits and consequences of any such amendment.
The excess passive assets rules deny deferral of the U.S.
income tax on earnings of CFCs when the CFCs hold excessive
accumulations of passive assets.
Passive asset holdings are
excessive if they exceed 25 percent of the C F C s total assets.
In
determining total assets and passive assets, the CFC must use the
adjusted tax basis of its assets.
The CFC's basis in its total
assets is increased by research and experimental (R&E) expenditures
made in the last three years and by three times the payments made
during the year to license assets of the type created by R&E
expenditures.
Prior to OBRA 1993, a CFC could use the fair market value
method of measuring assets for the PFIC asset test.
Under that
method all assets, including intangible assets, would be included
in the asset test. In OBRA 1993, Congress rejected the fair market
value method, primarily because it proved difficult to administer,
and adopted the adjusted tax basis in its place.
In this context,
assigning a hypothetical basis to R&E assets should be perceived as
a narrow exception to the general rule of using standard tax basis
rules to measure assets when determining the active or passive
nature of a CFC, or to determine whether a CFC has invested its
earnings in excess passive assets.
This report addresses the
question of whether a similar exception to the standard basis rules
should be provided for intangible assets created by marketing
expenditures.
2.2
S ummary
Two tasks must be accomplished if the asset tests for CFCPFICs and for the excess passive assets rules are to be adjusted to
account for intangible assets of the type created by marketing
expenditures (marketing assets) in a way similar to that now used
to account for intangible assets of the type created by R&E
-
2-
expenditures.
First, the marketing expenditures that create
lasting assets must be identified.
Second, a hypothetical basis
must
be
constructed to
represent
the
basis
the
marketing
expenditures would have created if they had been capitalized and
amortized rather than expensed. These tasks pose problems similar
to those encountered in capitalizing R&E expenditures.
Marketing
expenditures can take a variety of forms, some difficult to
identify and measure.
It is also difficult to determine which
marketing expenditures create lasting assets and the economic
lifetimes of those assets.
Most
marketing
expenditures
consist
of
advertising
expenditures that inform potential customers about a firm's
products, or that persuade customers to buy the products.
The
impression left on the potential customers is an intangible asset
that may earn future profits for the firm. The primary difficulty
in measuring advertising assets is determining their economic
lifetime. The lifetimes vary greatly, depending on the industry in
which the advertising occurs, and estimates of the lifetimes are
subject to a great deal of error.
As described in greater detail in chapter 2 of this report, it
is usually even more difficult to measure assets created by other
kinds of marketing expenditures.
In some cases, only a part of a
given kind of marketing expenditure creates a lasting asset. Other
kinds of marketing expenditure cannot be measured directly.
The
problems involved make it impossible to measure accurately assets
created by the various types of marketing expenditures in different
industries.
If marketing assets were to be included in the asset tests for
PFICs
and
for the
excess
passive
assets
rules,
the most
administratively feasible procedure would be to limit the eligible
expenditures
to
those
typically
regarded
as
advertising
expenditures which would be hypothetically capitalized for tax
purposes and to use a uniform lifetime to amortize the capitalized
marketing expenditures.
Based on the literature described in
chapter 4 of this report, the average lifetime of assets created by
such advertising expenditures appears to be considerably shorter
than the average lifetime for R&E assets, but neither average can
be accurately determined.
When proposals have surfaced requiring advertising to be
capitalized and amortized rather than expensed, taxpayers have
argued that the effects of advertising are largely exhausted within
one year
of
the
expenditures,
and
therefore
expensing
is
appropriate.
If marketing assets were measured by using a single
average lifetime of one year, adjusting the asset tests for the
CFC-PFICs and for the excess passive assets rules to account for
the marketing assets would not have a large effect on tax revenues.
It is estimated in chapter 5 that such an adjustment would reduce
-3-
the revenue pick-up from the new excess passive rules and from the
changes that OBRA 1993 made in the asset test for CFC-PFICs by less
than three percent, and perhaps by less than one percent. Based on
estimates for the revenue pick-up produced by Treasury staff and by
the Joint Committee on Taxation, these percentage reductions
translate into absolute reductions of less than $10 million, and
perhaps less than $3 million, over the five-year period from fiscal
year 1994 through fiscal year 1998.
Treasury strongly recommends that no adjustment be made to the
asset tests to account for marketing assets.
The asset tests for
PFICs and for taxing excess passive assets of CFCs use the adjusted
tax basis of assets. Although a basis is created for assets of the
type created by R&E expenditures, there are good reasons for not
providing a similar rule for assets created with marketing
expenditures.
Both research and experimentation expenditures and marketing
expenditures are currently expensed for tax purposes.
An
adjustment to create an intangible asset from either type of
expenditure would be difficult to administer, because it is
difficult to identify and measure the resulting assets.
The need
to provide an adjustment for the R&E assets is more compelling,
however, because the R&E assets typically have a much longer
lifetime than those created with marketing expenditures.
Furthermore, the adjustment for R&E assets uses a definition for
eligible R&E expenditures that was already developed for purposes
of allowing these expenditures to be expensed.
In contrast,
there is currently little administrative guidance as to what is a
marketing expenditure.
These costs are expensed, which provides
administrative convenience and is consistent with taxpayer claims
that the effects of advertising are largely exhausted within one
year of the expenditures.
An adjustment for marketing assets
would require developing a definition of marketing expenditures
in order to isolate these expenditures from other expenses,
adding significant complexity to our tax laws and reducing
administrative convenience associated with expensing marketing
costs.
In light of all these considerations, current treatment
of marketing assets under the asset test is appropriate.
1.3
Organization of the Report
The next chapter provides background on the new rules for
taxing certain earnings of CFCs and the asset test for CFC-PFICs.
Chapter 3 focuses on the problems in identifying marketing
expenditures that may be capitalized and included in the total
assets of a CFC for purposes of sections 965A and 1296.
Chapter
4 examines the evidence on the average economic lifetime of the
assets created by these expenditures.
Chapter 5 provides an
estimate of the revenue consequences of including marketing
-5-
CHAPTER 2
BACKGROUND
2.1 Deferral and the N ew Rules For Taxing Certain Earnings of
Controlled Foreign Corporations
The Internal Revenue Code (IRC) generally does not tax
income earned by U.S. shareholders from investment in a foreign
corporation until the income is repatriated to the United States.
Thus, the U.S. tax on such income is effectively deferred as long
as the income is retained abroad.
The IRC contains several
important exceptions to this general deferral rule, however,
including the subpart F rules for CFCs and the PFIC rules.
These
rules were modified by OBRA 1993 to provide that certain earnings
of CFCs that have excessive amounts of passive assets would be
subject to tax.
In addition, OBRA 1993 modified the PFIC asset
test described below.
Under the subpart F rules, a U.S. shareholder (a person that
owns 10 percent or more of a C F C s voting stock) is required to
include in current income the pro rata share of the "subpart F
income" of the CFC.
A CFC is a foreign corporation more than 50
percent of the voting stock or value of which is owned by U.S.
shareholders.
Subpart F income generally includes passive income
and certain types of active income believed to be very mobile.
Under section 956A, which was added by OBRA 1993, U.S.
shareholders of CFCs that have excessive amounts of passive
assets are required to include in current income their pr o rata
share of a specified portion of the C F C s current and accumulated
earnings.
Excessive passive assets are defined as passive assets
in excess of 25 percent of total assets.
Under the PFIC rules, a U.S. person that owns any stock in a
PFIC is subject to tax under one of two regimes.
A shareholder
in a PFIC may defer U.S. tax until income is realized (either by
payment of a dividend or sale of the stock) and pay an interest
charge for that deferral or may pay current tax on the pro rata
share of the PFIC's total income.
A foreign corporation is a
PFIC if 75 percent or more of its gross income for the taxable
year is passive income, or if 50 percent or more of its assets
produce or are held for the production of passive income.
2.2.
The Asset Test for CFC-PFICs and for the N e w Rules for
Taxing Certain Earnings of CFCs
To determine the amount of excess passive assets held by a
CFC or to determine whether an entity is a PFIC, passive assets
and total assets must be defined and measured.
For a CFC, the
-
6-
rules for measuring all assets are the same for purposes of
sections 965A and 1296.
For all entities, the definition of
passive assets is the same for purposes of sections 956A and
1296.
OBRA 1993 changed the rules for measuring the assets of CFCPFICs.
In particular, a CFC-PFIC must now measure its assets
using the adjusted tax basis.
PFICs that are not CFCs still have
the option of using either adjusted basis or fair market value.
OBRA 1993 also allows CFCs and PFICS to include the value of
certain leased assets in total assets.
The adjusted basis of the
leased property is the unamortized portion of the present value
of the payments made under the lease.
OBRA 1993 also adopted
special rules which apply to CFC-PFICs, to account for active
assets of the type created with R&E expenditures ("R&E assets”) ,
whether the CFC-PFIC owns or licenses the assets.
Under these
rules, the basis of the C F C s total assets is increased by the
sum of R&E expenditures made in the current taxable year and the
two preceding taxable years (including cost sharing payments),
and by three times the total payments made during the taxable
year to unrelated persons and to related U.S. persons for
licensing R&E assets that the CFC uses in the active conduct of
its trade or business.
The allowances in the asset test for R&E expenditures and
for payments for licensing intangible property give the firm
credit for these intangible assets in the asset test, even though
the costs incurred to create them were expensed rather than
amortized.
Taxpayers have raised the question of whether a
similar allowance should be provided for marketing expenditures
that are properly deductible under Code section 162 as ordinary
and necessary business expenses.
-7-
CHAPTER 3
IDENTIFYING ASSET-CREATING MARKETING EXPENDITURES
This chapter describes the various types of expenditures
that may create marketing assets.
It also provides data that can
be used to gauge the importance of marketing assets in the total
assets of CFCs.
3.1
A d v e r t i s i n g Expenditures
Most expenditures that create marketing assets consist of
advertising expenditures.
Advertising expenditures are
undertaken to inform potential customers about a firm's products
and to persuade customers to buy the products.
Advertising
expenditures may thus create a marketing asset (the impression on
potential customers) that earns future profits for the firm.
Advertising usually consists of developing product
information and distributing it through periodicals, direct
mailings, radio or television.
Often, firms contract out the
advertising campaigns, in which case advertising expenditures are
easy to identify and measure; they are the amount paid to the
outside contractor.
If, instead of using an outside contractor,
a firm conducts advertising campaigns using its own resources, it
is more difficult to segregate and measure the advertising costs,
because they would include some costs for resources shared with
other operations of the firm.
The current tax treatment of advertising costs provides
little help in separating advertising expenditures from other
expenses that are deductible from income as ordinary and
necessary business expenses under section 162 of the IRC.
The
Treasury regulations give little guidance on this issue.
Section
1.162-1(a) of the regulations merely provides that "advertising
and other selling expenses" are among the items included in
deductible business expenses.
Section 1.162-20 provides that
"Expenditures for institutional or 'good will' advertising which
keeps the taxpayer's name before the public are generally
deductible as ordinary and necessary business expenses provided
the expenditures are related to the patronage the taxpayer might
reasonably expect in the future."
This lack of detail is probably the result of the
deductibility of advertising expenditures.
Advertising
expenditures need not be separated from other deductible
expenses, only from expenses that are not currently deductible.1
Certain lobbying expenses and other expenses incurred to
influence
legislation
(section
1.162-20
of
the
Treasury
regulations), amounts paid out for permanent improvements that
-
8-
If Congress were to adopt a rule constructing basis for marketing
assets created by advertising expenditures, distinctions between
different types of currently deductible expenses would have to be
made.
There is currently no guidance for distinguishing
advertising expenditures that create assets from other selling
expenses currently deductible under section 162 of the IRC.
This
is not the case for R&E assets, because the IRC defines qualified
R&E expenditures.2
3.2
O ther Types of Asset-Creating Marketing Expenditures
Expenditures other than direct advertising expenditures may
create marketing assets, but these expenditures are harder to
identify and measure.
For example, in some instances charitable
donations can be viewed as an indirect form of advertising.3 As
another example, sales representatives4 may provide information
about a product to potential customers that enhances the firm's
sales for some time into the future, although much of their
activity may provide no value to the firm beyond that received
from an immediate sale.
Sales workers (such as retail clerks)
may also provide some information to customers that enhances
future sales.
This suggests that a complete measure for
expenditures that create marketing assets might include a portion
increase the value of any property (section 263(a) of the IRC), or
for advertising that is "directed towards obtaining future benefits
significantly beyond those associated with ordinary product
advertising" are not currently deductible.
(Revenue Ruling 92-80).
Such distinctions are of little help in separating advertising
expenditures from other expenses currently deductible under section
162 of the IRC.
2
See IRC sections 41 and 174.
3 See Peter Navarro, "Why Do Corporations Give to Charity,"
Journal of Business
(January 1988).
p. 65.
There is some
question, however, about whether charitable donations by firms are
primarily advertising.
See the recent paper by Robert Carroll and
David Joulfaian, "Taxes and Corporate Giving to Charity," Office of
Tax Analysis, U.S. Department of the Treasury, mimeo (January
1994) .
4
In the occupational classification used by the Bureau of
Labor Statistics, sales representatives generally include employees
that go outside their employer's establishment to visit potential
customers and actively solicit their business, whereas sales
workers generally sell to customers that come to their employer's
establishment.
See Employment and Training Administration,
Dictionary of Occupational Titles. Washington, D.C. (1991).
-9-
of charitable contributions, salaries or commissions to the
firm's sales representatives and even some wages of sales
workers.
The portion of these costs that would create a lasting
asset would vary widely from case to case and would be extremely
difficult to measure accurately.
Don Fullerton and Andrew Lyon describe some of the problems
in segregating asset-creating marketing expenditures from other
types of expenditures.5 They note (pages 70-72)
...much of what one considers advertising may be deductible
as another allowable business expense.
For example, a
company that hires a consultant to mount an advertising
campaign could probably deduct this expense as a consultant
fee rather than advertising.
The costs of consumer
relations divisions and sales personnel are deductible
largely as wages.
Second, firms may take less direct
methods to create intangible capital.
While advertising is
one way to create a reputation, a new firm may sell at lower
margins or take greater care in production of customer
service as an alternative way to create intangible capital.
Here, foregone profits is the mechanism by which the firm
invests in future reputation.
As the foregoing discussion suggests, there is much room for
debate over which expenditures create marketing assets and should
therefore be included in the asset test for the excess passive
assets rules and for determining CFC-PFICs.
The amount that
corporations now report for advertising expenditures on their
income tax return may include only a part of the expenditures
that create marketing assets:
it should include payments for
outside advertising services, such as for developing the
advertisements and for distributing them through the media, but
may not include overhead costs associated with in-house
production of advertising services, such as depreciation of
capital equipment used to develop or conduct advertising
campaigns.
Compensation of sales representatives and sales
workers that might create marketing assets is probably not
included.
The R&E expenditures that can be capitalized and included in
the asset tests are defined under section 174 of the IRC and
section 1.174-2 of the Treasury regulations.
A similar
definition of asset-creating marketing expenditures would include
a broader range of expenditures than the advertising expenditures
5
Don Fullerton and Andrew B. Lyon, "Tax neutrality
intangible capital," Tax Policy and the Economy. Lawrence Summers,
editor.
Washington, D.C.:
National Bureau of Economic Research
(November 1987).
p. 57.
and
-
10 -
probably now reported on the corporate tax returns.
For example,
such a definition would include depreciation of capital goods
used in advertising campaigns (depreciation of capital goods used
to develop technology is a qualified R&E expenditure under
section 174).
It is not clear, however, whether such a
definition would include any charitable contributions or any
portion of the compensation of sales representative or sales
workers, because there is no clear parallel to any qualified R&E
expenditures.
3.3
Gauging the Importance of Assets Created b y Marketing
Expenditures in Total Assets of Firms
Table 1 presents data, for selected industries, on total
assets, labor costs, advertising expenditures, and R&E
expenditures as reported by U.S. corporations on their corporate
tax returns (Form 1120) for 1990.
These data are useful in
gauging the importance of marketing assets in relation to total
assets of firms in various industries.
Data on domestic
operations are presented because data on advertising expenditures
for CFCs are not available.
It should be noted that the data on
labor costs, R&E expenditures and advertising expenditures refer
only to domestic operations of the U.S. companies, whereas the
tangible assets include their holdings in foreign companies.
Specifically, the equity in foreign subsidiaries6 and loans to
CFCs are included among the active tangible assets of the U.S.
companies.
It is assumed that CFCs use intangible assets in the
same proportion to active tangible assets as the U.S. companies.
Hence, if the CFCs own less in the way of assets in lower-tier
companies, the data for the U.S. companies (after excluding
passive assets) may understate slightly the importance of
marketing assets in total active assets of the CFCs, but the
tendency is probably slight.
Treasury lacks data on many of the types of marketing
expenditures besides advertising (as reported on the Form 1120)
that could be included in an adjustment to the asset tests for
CFC-PFICs and for the excess passive assets rules.
Nevertheless,
the likely realm of possibilities can be bracketed.
Thus, two
measures of asset-creating marketing expenditures are presented.
The first measure only includes advertising expenditures as
currently reported on Form 1120.
The second measure uses a
broader definition of marketing expenditures that includes other
expenses not traditionally included in advertising expenditures.
For this measure, a portion of labor expenses is treated as
advertising expenditures, because labor expenses are probably the
main source of expenses that could be reclassified as asset-
6
A foreign subsidiary is a foreign company 10 percent or more
of which is owned by a U.S. company.
-
11 -
creating marketing expenditures.
There is little information
from which to predict how extensive such reclassification might
be, but the effects are potentially important.
Data from the
Bureau of Labor Statistics suggest that about 10 percent of total
labor costs represent compensation of sales representatives and
sales workers.
According to the data in Table 1, if 10 percent
of labor costs were re-classified as asset-creating marketing
expenditures, the resulting amount would be almost four-fifths as
great as reported advertising expenditures.
Of course, even a
very generous definition of marketing expenditures would include
only a portion of the compensation of sales representatives and
sales workers, so the increase in asset-creating marketing
expenditures caused by reclassification of labor costs would be
substantially smaller than this amount.
The R&E expenditures reported on the tax forms are those for
which a credit may be claimed under section 41 of the IRC.
The
difference between R&E expenditures as reported on tax forms and
those that may be included under the definition in section 174
(and that thus may be included in the asset tests of section 956A
and 1296) is often substantial.8 Data on R&E expenditures for
manufacturing corporations are also reported by the National
Science Foundation (NSF), and their definition of R&E
expenditures appears to be similar to that in section 174.9
Therefore, a separate set of the expenditures are presented based
7 This calculation is based on data for total employment and
median hourly earnings in the various occupations. See U.S. Bureau
of Labor Statistics, Employment and Earnings.
Washington, D.C.
(January 1993) .
8 R&E expenditures eligible for the credit under section 41
do not include all expenses that qualify as R&E expenditures under
the definition given under section 174.
One important difference
between the two definitions is that the depreciation expenses on
equipment used for research or experimentation, which are included
under the definition of R&E expenditures under section 174, are not
eligible for the R&E credit.
The definition of eligible research
or experimental activities is also more restrictive under section
41 than under section 174. Furthermore, some corporations may not
report R&E expenditures separately on the tax form if they cannot
use the R&E credit (for example, if they have a net operating
loss).
The National Science Foundation (NSF) data are based on
annual surveys conducted by the Bureau of the Census, Department of
Commerce for industrial research and development performed within
the United States. See National Science Foundation, Selected Data
on Research and Development in Industry:
1990. Washington, D.C.
(1992).
-
12 -
on the NSF data.
For purposes of the asset tests, R&E assets are
measured as the last three years of R&E expenditures plus three
times the annual R&E licensing payments.
Thus, one can obtain a
rough idea of the importance of R&E assets in the asset tests by
multiplying the R&E expenditures in Table 1 (as reported by the
NSF) times three and comparing the result with the corresponding
figure for tangible assets.
Before we can determine the effect of including an
adjustment for asset-creating marketing expenditures, we must
first determine the economic lifetime that will be used to
amortize these expenditures.
This is the topic of the next
chapter.
-13-
CHAPTER 4
THE ECONOMIC LIFETIMES OF ASSETS
CREATED WITH MARKETING EXPENDITURES
4.1
Evidence from Economic Studies
There has been considerable debate over the economic
lifetime of assets created through marketing expenditures.
Early
economic studies suggested a fairly long life for the effects of
advertising.
For example, Kristian Palda estimated that the
annual depreciation rate for advertising ranged from 31 percent
to 47 percent.10 Later studies, however, have concluded that the
duration of advertising effects is much shorter.
Darral Clarke
estimated that advertising effects last only between 3 months and
15 months.11 From an analysis of demand for various consumer
goods, William Comanor and Thomas Wilson concluded that in many
industries a large portion of advertising expenditures creates
assets with lifetimes shorter than one year and that in many
durable and semi-durable goods industries, virtually all assets
created by such expenditures have lifetimes shorter than one
year.12 Representatives of the advertising industry, testifying
on the question of whether advertising expenditures should be
expensed or capitalized, have argued that the effects of
advertising are largely exhausted within one year of the
expenditures.13
Though the average economic lifetime of many assets created
with marketing expenditures is probably fairly short (a year or
less), this lifetime appears to vary greatly among industries.
For example, in a recent study of four disaggregate industries,
Pamela Megna and Dennis Mueller found that whereas the lifetime
of advertising assets was less than one year in the toys and
distilled beverages industries, the advertising expenditures for
10 Kristian S. Palda, The Measurement of Cumulative Advertising
Effects. Englewood Cliffs, New Jersey:
Prentice-Hall (1964).
11 Darral G. Clarke, "Econometric measurement of the duration
of advertising effects on sales," Journal of M a r k e t i n g Research
(November 1976).
p. 345.
12 William S. Comanor and Thomas A. Wilson, Advertising and
Market Power. Cambridge:
Harvard University Press (1974).
13
issues
Council
Revenue
1993.
See, for example, the testimony on miscellaneous revenue
delivered by Sheldon Cohen on behalf of the Leadership
on Advertising Issues, before the Subcommittee on Select
Measures, Committee on Ways and Means, on September 8,
-14-
some firms in the cosmetics industry have their greatest effect
two, or even three years after the advertising takes place.14
The effects of advertising are also believed to be long lived in
the pharmaceutical industry.
For example, in his study of rates
of return in the industry, Kenneth Clarkson argues that the
effects of pharmaceutical advertising and promotion activities
last at least three years.15 Others have shown that in durable
goods industries, advertising in one period can have adverse
effects on sales in subsequent periods owing to stock adjustment
effects:
for example, if advertising induces consumers to buy
more new cars this year, there will be a smaller demand for new
cars next year.16
Expenditures on newspaper advertisements, or on radio or
television broadcasting advertisements, create assets, though
usually short-lived, that help the firm generate income.
Such
assets are unlikely to be fully exhausted at the end of any
accounting period, even if their lifespan is shorter than the
accounting period.
For example, suppose the firm's marketing
expenditures consist entirely of buying daily newspaper
advertisements that announce its prices, which change bi-weekly.
Unless the end of the accounting period coincides exactly with
the end of a two-week pricing cycle, the firm will have an asset
created by its advertising expenditures at the end of the
accounting period.
Advertisements for two-week pricing cycles
ending within the accounting period would be completely
amortized.
If we were to construct basis for purposes of the
asset test in this case, only a small part of the annual
expenditures for such advertisements (the portion of the two-week
cycle that was unexpired at the end of the accounting period)
would be added to the firm's total assets.
The economic lifetime of advertising assets can also depend
on their purpose, and some types of advertising expenditures do
not create assets.
In particular, defensive advertising
undertaken to cancel out the effects of advertising by
competitors might more appropriately be characterized as
maintenance costs than as asset-creating expenditures.
14 Pamela Megna and Dennis C. Mueller, "Profit rates and
intangible capital," Review of Economics and Statistics, (November
1992). p. 632.
15 Kenneth W. Clarkson, Intangible Capital and Rates of
Returns. Washington, D.C.: American Enterprise Institute (1977).
16 See, for example, the study by Yoram Peles, "Rates of
amortization of advertising expenditures," Journal of Political
Economy (September/October 1971).
p. 1032.
-15-
4.2
Adj u s t i n g the Asset Test to Account for Asset-Creating
Mark e t i n g Expenditures
From the evidence reviewed above, it is clear that no single
lifetime will provide accurate results if used to construct a
hypothetical basis for marketing assets for all industries and
all types of advertising.
Yet, it would be administratively
burdensome to attempt to use more accurate lifetimes of marketing
assets by industry or type of marketing expenditure, and the
available evidence is not sufficiently robust to justify such an
effort.
Thus, despite the inaccuracies, if one were to construct
a hypothetical basis for marketing assets, the best approach
appears to be the use of a single average lifetime.
This is the
approach that was used to construct a hypothetical basis for R&E
assets.
There is no consensus as to the appropriate length for the
single lifetime that would best represent the average for all
marketing assets.
For example, Don Fullerton and Andrew Lyon
(1987) assumed advertising assets depreciate at a uniform rate in
all industries in order to derive estimates for the total U.S.
capital stock (tangible assets and intangible assets). They
could not determine accurately the appropriate uniform
depreciation rate, however, so they performed calculations using
uniform rates of 16.7 percent, 33.3 percent, and 50 percent.
Similarly, to measure R&E assets they used uniform rates of 10
percent, 15 percent, and 20 percent.
The depreciation rates they
use were obtained from a survey of the economics literature.
The
rates they chose imply a wide range of possible lifetimes for
both types of intangible assets and also a wide range in their
relative lifetimes (the ratio of the average lifetimes of the two
types of intangible property), though they imply that R&E assets
are considerably longer-lived than marketing assets.
In a more
recent study of fourteen manufacturing industries, Kenneth
Clarkson assumes an annual depreciation rate of 70 percent for
advertising and promotion expenses, though he includes a
sensitivity analysis in which he considers the effects on his
calculations of assuming alternative depreciation rates ranging
from 50 percent to 100 percent.17
The evidence from the economic studies on the appropriate
average lifetime for all marketing assets appears to be weak.
Industry representatives have testified that the effects of
advertising are largely exhausted within one year of the
17
Kenneth W. Clarkson, "Intangible Capital and Profitability
Measures:
Effects of Research and Promotion on Rates of Return,"
in Competitive Strategies in the Pharmaceutical Industry. Robert B.
Helms, editor, American Enterprise Institute for Public Policy
Research:
Washington, D.C. (forthcoming).
-16expenditures.18 An average lifetime of one year or less for
advertising assets would be consistent with this view and with
the current practice of allowing all marketing expenditures to be
fully expensed.
If such a short average lifetime is used for the
eligible marketing assets, however, it is difficult to justify
the administrative costs of accounting for these assets in the
asset tests for PFICs and for the excess passive assets rules.
18
See note 14.
-17-
CHAPTER 5
THE REVENUE COST OF PROVIDING
ADJUSTED BASIS FOR MARKETING EXPENDITURES
As discussed above, data are not available for advertising
expenditures or for passive assets of CFCs.
Thus, any estimate
of the revenue cost of providing adjusted basis for assetcreating marketing expenditures in the asset tests for CFC-PFICs
and for the excess passive assets rules is tenuous.
The approach
adopted here is to estimate the proportion by which such an
adjustment would reduce the total revenue pick-up resulting from
the new excess passive assets rules and from the change that the
OBRA 1993 made in the asset test for CFC-PFICs (referred to
hereafter as the "OBRA 1993 changes"). The revenue consequences
of the adjustment for marketing expenditures are estimated by
assuming that they will cause the total revenue pick-up from the
OBRA 1993 changes to decline by the same proportion as the
decline in excess passive assets for CFCs.
With this approach, the estimate for the revenue cost of
providing adjusted basis for marketing expenditures varies
roughly in proportion to the average lifetime used to amortize
these expenditures, as long as the estimate is small relative to
the total revenue pick-up provided by the OBRA 1993 changes.
For
example, if an average lifetime of two years is used to amortize
the marketing expenditures, the estimate will be about twice as
great as if an average lifetime of one year is used.
The OBRA 1993 changes should not increase the residual U.S.
tax on earnings of CFCs that were PFICs under prior law, and an
adjustment for marketing expenditures is unlikely to change the
PFIC status of these firms, because OBRA 1993 tightened the asset
test considerably by eliminating the option to value active
assets at fair market value.
Even if the CFC is a PFIC under
current law and the more lenient asset test (one that allows an
adjustment for marketing expenditures) would allow it to escape
PFIC status, its accumulation of excess passive assets would
probably still be sufficiently large that it would lose deferral
on current earnings for most of the five-year revenue estimating
window (just as it would if it had remained a PFIC), so again the
adjustment for marketing expenditures would probably have little
effect on the total revenue pick-up from the OBRA 1993 changes.
CFCs that are PFICs under current law (as revised by OBRA
1993) account for a large portion (probably about 85 percent) of
total excess passive asset accumulations.
As a result of the
above considerations, two sets of calculations were performed to
measure the proportional decline in excess passive assets.
In
the first set, CFCs that are likely to be PFICs under current law
-18(those with passive assets at least 50 percent as great as total
assets) were removed from the sample.
A second set of
calculations was performed in which only CFCs with passive assets
at least 75 percent as great as total assets were removed from
the sample.
These CFCs are unlikely to escape PFIC status even
under the more lenient asset test.
These CFCs accounted for
about 62 percent of the total excess passive asset balances as
measured under current law.
Note that the proportional change in
excess passive assets will tend to be smaller for the second
group of CFCs than for the first group:
because the second group
has larger average passive asset balances, their marketing assets
will tend to be less important relative to their passive assets.
The absolute (as opposed to the proportional) reduction in
excess passive assets for a CFC that results from moving to the
more lenient asset test is equal to one-fourth of its marketing
assets.
Treasury does not have data on advertising expenditures
of CFCs from which to construct estimates of marketing assets.
We do, however, have data on the advertising expenditures for the
domestic operations of U.S. companies.
Therefore, to estimate
the marketing assets of the CFCs, it is assumed that the ratio of
such assets to active tangible assets is the same for them as it
is for the domestic operations of U.S. companies in a similar
industry.
Even with data on advertising expenditures it is
difficult to determine a hypothetical basis for marketing assets
of the domestic operations, so two methods were used.
One method
was simply to use one-half of the annual advertising expenditures
as reported on corporate tax returns.
The second method was to
use one-half of the annual advertising expenditures plus 5
percent of the annual total labor compensation.
Both methods are
based on the assumption that, if permitted, constructed basis for
marketing assets will be set at one-half of annual eligible
marketing expenditures.
This assumption is consistent with an
economic lifetime of one year for these assets.
The second
method accounts for the possibility that firms may be able to
classify as eligible marketing expenditures an amount equal to 10
percent of their total labor costs.
To separate active tangible
assets used in the domestic operations from the total tangible
assets (which include passive assets), a passive asset share of
12 percent was assumed.19
Treasury does not have data on actual accumulations of
passive assets by CFCs in low-tax jurisdictions, but their size
can be estimated by looking at subpart F income in these
jurisdictions, because the bulk of such income represents income
19
This
is
an
average
passive
asset
ratio
for
U.S.
manufacturing corporations as calculated using Standard and Poor's
Compustat data base.
-19from passive assets.20 Thus, dividing the subpart F income by an
average rate of return on passive assets yields a rough estimate
of the size of the stock of passive assets.
The average rate of
return chosen for the calculations was 10 percent, which is the
average rate of return on corporate bonds in 1990.
To obtain an estimate of the excess passive assets of a CFC,
25 percent of its total assets are subtracted from the estimate
of its passive assets.
Under current law, adjusted basis of
total assets is the sum of adjusted basis for tangible assets
owned by the CFC-PFIC plus an adjustment for intangible assets of
the type created by research or experimental expenditures and an
adjustment for certain leased assets.
If an adjustment for
marketing assets is allowed, these assets must also be included
in the total.
The proportional reduction in excess passive
assets caused by moving to the more lenient asset test is
calculated by dividing one-fourth of the CFC's imputed marketing
assets by the estimate of its excess passive assets.
The estimates for the proportional changes in excess passive
assets of non-PFIC-CFCs in low-tax countries, by major industry
group, are shown in Table 2. The industry sectors for mining;
transportation and utilities; wholesale and retail trade; and
finance, insurance, and real estate are excluded, because
important parts of the active income of CFCs in these sectors may
be included in subpart F income.
Hence, for these sectors our
imputation method would tend to overstate substantially the
passive assets (and hence the excess passive assets) of the
CFCs.21
The results indicate that the adjustment for advertising
assets would reduce the revenue pick-up from the 1993 OBRA
changes by a modest amount.
Assuming that the revenue pick-up
declines by the same proportion as the decline in excess passive
assets, it is estimated that the overall reduction is less than 3
percent, and perhaps less than 1 percent.
The Joint Committee on
Taxation estimated that the revenue pick-up from the OBRA 1993
changes would be $250 million over the five-year window from
fiscal year 1993 through fiscal year 1998.
The Department of
Treasury estimated that the revenue pick-up would be $350 million
over this five-year window.
Hence, in absolute amounts, the
above percentage estimates translate into revenue losses over the
20
Important exceptions to this rule can
industries.
The exceptions are discussed below.
occur
in
some
21
These exclusions are equivalent to assuming that the
adjustment for marketing assets reduces excess passive assets in
these industries by the same proportion as it reduces excessive
passive assets in the included industries.
-
21 -
CHAPTER 6
CONCLUSIONS AND RECOMMENDATIONS
Treasury recommends strongly that no adjustment for
marketing intangibles be made in the asset tests for CFC-PFICs
and for the new rules for taxing CFC earnings invested in excess
passive assets.
These asset tests use adjusted basis to measure
assets.
Prior to OBRA 1993, a CFC could use the fair market
value method of measuring assets for purposes of the PFIC asset
test.
In OBRA 1993, Congress rejected the fair market value
method of measuring assets and replaced it with an adjusted basis
standard.
In this context, attaching basis to R&E assets should
be perceived as a narrow exception to the general rule of using
adjusted basis to measure the active or passive nature of a
taxpayer's business or to determine whether a CFC has invested
its earnings in excess passive assets.
Treasury believes that
the justifications for this exception cannot be extended to
include an exception for assets of the type created by marketing
expenditures.
As explained in this report, there are important
difficulties in identifying and measuring intangible assets of
the type created by marketing expenditures. «Given the
difficulties, the most practical way to include these assets in
the asset tests for CFC-PFICs and for the excess passive assets
rules would be to use a uniform lifetime to capitalize the
eligible marketing expenditures and to limit the eligible
marketing expenditures to what are traditionally regarded as
advertising expenditures.
However, even if a uniform lifetime
were chosen, one would still be faced with the serious problem of
segregating the eligible expenditures.
Because the bulk of
advertising expenditures produce assets with short economic
lifetimes (often less than a year), the uniform lifetime used to
capitalize these assets would be substantially shorter than that
used to capitalize the R&E expenditures.
Thus, there is less
justification for incurring the administrative costs of providing
an adjustment to the asset test for marketing assets than for R&E
assets.
An adjustment for marketing assets would require
developing a definition of marketing expenditures in order to
isolate these expenditures from other expenses, adding
significantly to the complexity of our tax laws as well as
reducing the administrative convenience associated with expensing
marketing costs.
-
22 -
Table 1
Assets and Selected Expenses of U.S. Corporations in 1990
(in millions of dollars)
Total
Tangible
Industry________________ Assets
: Labor
:
:
: Compen- ïAdvertising : R&E
: ation1 :Expenditures : Expenditures
:Tax Form:
NSF
J
47,257 :
:
5,862 !
238
84 •
Agriculture..........................................
Mining..............
208,052
:
Construction........
173,581
:
3,783,225
:
Manufacturing.......
Food and tobacco.. . .
Indust, chemicals...
Drugs & medicines...
Other chemicals...................
Nonelectrical
machinery..........................................
Electrical & electronic equipment...
Motor vehicles ........................
Other
manufacturing........................
.
.
6,146
•
29,380 î
235,589
•
112
1,044
:
•
:
33,520
:
2
67,249
2,882
:
7,225
3,421
2,963
:
*
5,152 . 11,768
5,025 : 8,550
:
7,680
293,947 •
33,315 2
373,591
402,955
2
31,254 2
12,497 •
1,718,197
:
Transportation
& utilities........ . 1,488,923 :
56
2
*
20,147
1,634
4,160
4,891
:
232 :
538 #
3,319 .
3,706 .
875 :
24,387 .
9,984 :
11,429 2
7,693 2
105,030
:
54,347
503,406 .
235,679 :
126,233 2
129,217 2
:
:
14,249 '
;
:
:
88,294 :
5,000
•
2,548 •
Wholesale and
retail trade....... . 1,216,637 : 222,982 :
32,454
•
630 s
Finance, insurance
& real estate......
10,098,984 : 153,541 :
8,860
:
358 •
Other industries....
429,084 : 122,618 :
7,341
:
1,706 :
1,376
4,280
5,651
2,567
13,804
19,253
2
*7
•y
•y
• 39.134 # 13.764
Total............... 17.445.743 ; 864.412 . 109.396
Wages, salaries and compensation of corporate officers.
2 Not available.
Sources: The data in the first four columns of the table are from corporate
tax returns (Forms 1120) filed for 1990. The data in the last column (labeled
"NSF") are from National Science Foundation (1992).
-23Table 2
Proportional Reductions in Excess Passive Assets
Caused by Including an Adjustment for Marketing Assets
in the PFIC Asset Test for CFCs
(Based on data for 1990)
(in percents)
Including an
Including an
Adjustment for
Share of All
Adjustment for
Advertising
Excess Passive
Advertising
Expenditures
Asset Holdings of
Expenditures
and Some Labor
CFCs in Low-Tax
Onlv
Costs
Jurisdictions'
Set I2 : Set II3 : Set I : Set II
: Set I : Set II
Industry
Agriculture..........
-
-
-
-
0.0
0.0
Construction.........
-
- .
-
-
0.0
0.0
Manufacturing........
1.53
.71
2.60
1.19
76.3
84.1
Food and tobacco....
Indust, chemicals....
Drugs & medicines....
Other chemicals.....
Nonelectrical
machinery..........
Electrical & electronic equipment....
Motor vehicles......
Other
manufacturing......
4.00
.33
2.21
2.13
4.00
.33
2.21
.46
4.50
.53
2.82
2.48
4.50
.53
2.82
.53
1.5
1.2
11.4
1.2
.6
.5
4.6
13.3
.78
.19
1.67
.40
4.8
16.2
1.15
-
.64
2.22
-
1.23
—
42.5
0.0
39.6
0.0
2.11
1.31
3.84
2.38
13.7
9.3
Other industries.....
1.47
.97
3.94
2.61
23.7
15.9
-
Weighted average4.... 1.51____
.75
2.92
1.42
1 The total excludes passive assets in "Mining,” "Transportation and
utilities," "Wholesale and retail trade," and "Finance, insurance and real
estate."
Set I excludes CFCs with passive assets that exceed 50 percent of total
assets.
3 Set II excludes CFCs with passive assets that exceed 75 percent of total
assets.
4 Averages of the industries listed in the table (which exclude the
industries listed in note 1) weighted by the share of excess passive asset
holdings of CFCs in low-tax jurisdictions.
(The weights are shown in the last
two columns of the table).
Source:
Department of the Treasury
Office of Tax Analysis
Î
[4830-01-u]
D E P A R T M E N T OF T HE T R E A S U R Y
In t e r n a l R e v e n u e S e r v i c e
26 C F R Par t
1
[TD 8588]
RIN
1545-AS70
S u b c h a p t e r K A n t i - A b u s e R ule
AGENCY:
Int e r n a l R e v e n u e S e r v i c e
ACTION:
F i n a l Regu l a t i o n .
SUMMARY:
(IRS), Treasury.
T his d o c u m e n t c o n t a i n s a final r e g u l a t i o n p r o v i d i n g an
a n t i - a b u s e rule u n d e r s u b c h a p t e r K of th e I n t e r n a l R e v e n u e C o d e
of
1986
Revenue,
(Code).
The rul e a u t h o r i z e s t he C o m m i s s i o n e r of I n t e r n a l
in c e r t a i n ci r c u m s t a n c e s ,
to r e c a s t a t r a n s a c t i o n
i n v o l v i n g t he u s e of a p a r t n e r s h i p .
T h e final r e g u l a t i o n a f f e c t s
p a r t n e r s h i p s a n d th e p a r t n e r s of t h o s e p a r t n e r s h i p s a n d is
n e c e s s a r y to p r o v i d e g u i d a n c e n e e d e d t o c o m p l y w i t h the
a p p l i c a b l e t a x law.
E F F E C T I V E DATES:
T h i s r e g u l a t i o n is e f f e c t i v e M a y
e x c e p t t h a t § 1 . 7 0 1 - 2 (e) a n d
D O C U M E N T IS F I L E D W I T H THE
(f) are e f f e c t i v e
(202)
622-3050
1994,
rI N S E R T DATE THI S
FEDERAL REGISTER1.
F O R F U R T H E R I N F O R M A T I O N CONTACT:
Russell,
12,
M a r y A. B e r m a n or D. L i n d s a y
(not a t o l l - f r e e number).
S U P P L E M E N T A R Y INFORMATION:
Introduction
T h i s d o c u m e n t adds § 1 . 7 0 1 - 2 t o t h e I n c o m e T a x R e g u l a t i o n s
(26 C F R p a r t
1) u n d e r s e c t i o n 701 of t h e Code.
2
Background
S u b c h a p t e r K w a s e n a c t e d to p e r m i t b u s i n e s s e s o r g a n i z e d for
joint p r o f i t to be c o n d u c t e d w i t h "simplicity,
e q u i t y as b e t w e e n t he p a r t n e r s . "
Sess.
89
(1954).
(1954);
H.R.
Rep.
No.
It w a s not intended,
S. Rep. No.
1337,
f lexibility,
1622,
83d Cong.,
however,
83d Cong.,
2d Sess.
65
F o r example,
e n a c t i n g s u b c h a p t e r K, C o n g r e s s i n d i c a t e d t hat aggregate,
concepts
No.
2543,
in
rather
s h o u l d be a p p l i e d if s uch c o n c e p t s are m o r e
a p p r o p r i a t e in a p p l y i n g o t h e r p r o v i s i o n s of t h e Code.
Rep.
2d
that t he p r o v i s i o n s of
s u b c h a p t e r K be u s e d for t a x a v o i d a n c e purposes.
t h a n entity,
an d
83d Cong.,
2d Sess.
59
(1954).
H.R.
Sim i l a r l y ,
Conf.
in
l a t e r a m e n d i n g th e rules r e l a t i n g to special a l l o c a t i o n s ,
Congress
s o ught to
"prevent t h e use of sp e c i a l a l l o c a t i o n s
t a x a v o i d a n c e purposes,
business purposes."
for
w h i l e a l l o w i n g t h e i r u s e for b o n a fide
S. Rep.
No.
938,
94th Cong.,
2d Sess.
100
(1976).
On M a y
12,
1994,
proposed rulemaking
t h e IRS a n d T r e a s u r y i s s u e d a n o t i c e of
(59 F R 25581)
u n d e r s e c t i o n 701 of t h e Code.
T h a t d o c u m e n t p r o p o s e d to a d d an a n t i - a b u s e rul e u n d e r s u b c h a p t e r
K.
C o m m e n t s r e s p o n d i n g to the n o t i c e w e r e received,
h e a r i n g w a s h e l d on J u l y 25,
1994.
and a public
A f t e r c o n s i d e r i n g th e
c o m m e n t s t h a t w e r e r e c e i v e d in r e s p o n s e t o t h e n o t i c e of p r o p o s e d
r u l e m a k i n g a n d the s t a t e m e n t s m a d e at t he hearing,
the
IRS and
T r e a s u r y a d o p t the p r o p o s e d r e g u l a t i o n as r e v i s e d b y t h i s
T r e a s u r y decision.
T he a n t i - a b u s e rul e in t h i s
f i nal r e g u l a t i o n
a p p l i e s t o the o p e r a t i o n a nd i n t e r p r e t a t i o n of a n y p r o v i s i o n of
3
t h e Cod e a n d the r e g u l a t i o n s t h e r e u n d e r tha t m a y be r e l e v a n t to a
particular partnership transaction
gift,
generation-skipping,
(including income,
an d exci s e t a x ) •
estate,
T h e a n t i - a b u s e rule
in t he final r e g u l a t i o n is e x p e c t e d p r i m a r i l y t o a f f e c t a
r e l a t i v e l y small n u m b e r of p a r t n e r s h i p t r a n s a c t i o n s t h a t m a k e
i n a p p r o p r i a t e u se of th e rules of s u b c h a p t e r K.
The regulation
is not i n t e n d e d to i n t e r f e r e w i t h b o n a fide joint b u s i n e s s
a r r a n g e m e n t s c o n d u c t e d t h r o u g h partn e r s h i p s .
E x p l a n a t i o n of P r o v i s i o n s
A.
O v e r v i e w of P r o v i s i o n s
As n o t e d above,
to c o n d u c t
s u b c h a p t e r K is i n t e n d e d to p e r m i t t a x p a y e r s
joint b u s i n e s s
( including i nvestment)
activities
t h r o u g h a f l e x i b l e e c o n o m i c a r r a n g e m e n t w i t h o u t i n c u r r i n g an
e n t i t y - l e v e l tax.
I m p l i c i t in the i n t e n t of s u b c h a p t e r K are
three requirements.
First,
each partnership transaction
t he p a r t n e r s h i p m u s t be b o n a fide and
(or series of r e l a t e d t r a n s a c t i o n s )
m u s t be e n t e r e d i n t o for a s u b s t a n t i a l b u s i n e s s purpose.
t he
Second,
f o r m of e a c h p a r t n e r s h i p t r a n s a c t i o n m u s t be r e s p e c t e d u n d e r
substance over form principles.
Third,
t h e t ax c o n s e q u e n c e s
u n d e r s u b c h a p t e r K to e a c h p a r t n e r of p a r t n e r s h i p o p e r a t i o n s a n d
of t r a n s a c t i o n s b e t w e e n t he p a r t n e r a nd t he p a r t n e r s h i p m u s t
a c c u r a t e l y r e f l e c t t h e partners'
r e f l e c t t he p a r t n e r ' s
income
economic agreement and clearly
(referred to in t h e f i nal r e g u l a t i o n
as p r o p e r r e f l e c t i o n of income),
except to the extent that a
p r o v i s i o n of s u b c h a p t e r K t h a t is i n t e n d e d to p r o m o t e
a d m i n i s t r a t i v e c o n v e n i e n c e or o t h e r p o l i c y o b j e c t i v e s c a u s e s t a x
4
r e s u l t s t h a t d e v i a t e f r o m tha t requirement.
In t h o s e cases,
if
the a p p l i c a t i o n of t h a t p r o v i s i o n of s u b c h a p t e r K a n d the
u l t i m a t e t a x r e s u l t s to t he p a r t n e r s a nd t he p a r t n e r s h i p ,
i n t o a c c o u n t all the r e l e v a n t facts a nd c i r c u m s t a n c e s ,
c l e a r l y c o n t e m p l a t e d by tha t provision,
taking
are
t he t r a n s a c t i o n is
t r e a t e d as p r o p e r l y r e f l e c t i n g t he partners'
income.
In
d e t e r m i n i n g w h e t h e r a t r a n s a c t i o n c l e a r l y r e f l e c t s t he partners'
income,
t he p r i n c i p l e s of sections 446(b)
a n d 482 apply.
T h e p r o v i s i o n s of s u b c h a p t e r K m u s t be a p p l i e d to
p a r t n e r s h i p t r a n s a c t i o n s in a m a n n e r c o n s i s t e n t w i t h t he intent
of s u b c h a p t e r K.
The final r e g u l a t i o n c l a r i f i e s t he a u t h o r i t y of
the C o m m i s s i o n e r to r e c a s t t r a n s a c t i o n s t h a t a t t e m p t t o us e
partnerships
in a m a n n e r i n c o n s i s t e n t w i t h t h e i n t e n t of
s u b c h a p t e r K as a p p r o p r i a t e to a c h i e v e t a x r e s u l t s t h a t are
c o n s i s t e n t w i t h this intent,
t a k i n g i nto a c c o u n t all t h e facts
a nd c i r c u m s t a n c e s .
In addition,
th e final r e g u l a t i o n p r o v i d e s t h a t the
C o m m i s s i o n e r c a n t r e a t a p a r t n e r s h i p as an a g g r e g a t e of its
partners
in w h o l e or in par t as a p p r o p r i a t e to c a r r y out the
p u r p o s e of a n y p r o v i s i o n of the Cod e or r e g u l a t i o n s ,
the extent that
e x c e p t to
(1) a p r o v i s i o n of the C o d e or r e g u l a t i o n s
p r e s c r i b e s t h e t r e a t m e n t of t he p a r t n e r s h i p as an entity,
t h a t t r e a t m e n t a n d t h e u l t i m a t e t ax results,
all of t he facts a n d c i r c u m s t a n c e s ,
tha t pro v i s i o n .
and
(2)
taking into account
are c l e a r l y c o n t e m p l a t e d by
5
B.
D i s c u s s i o n of C o m m e n t s R e l a t i n g to P r o v i s i o n s in the
Regulation
C o m m e n t s t h a t r e l a t e to the a p p l i c a t i o n of th e p r o p o s e d
r e g u l a t i o n a n d the r e s ponses to them,
i n c l u d i n g an e x p l a n a t i o n of
the r e v i s i o n s m a d e to the final regulation,
1•
are s u m m a r i z e d below.
S c o p e of the R e g u l a t i o n
S e v e r a l c o m m e n t s s t a t e d that,
as drafted,
t h e l a n g u a g e in
th e p r o p o s e d r e g u l a t i o n w as t o o b r o a d a n d t o o v a g u e to p r o v i d e
a d e q u a t e gu i d a n c e to t a x p a y e r s as to w h i c h t r a n s a c t i o n s are
a f f e c t e d by the regul ation.
Similarly,
some c o m m e n t s s u g g e s t e d
t h a t t he inte n t of s u b c h a p t e r K as s t a t e d in t h e p r o p o s e d
regulation
(upon w h i c h t he r e g u l a t i o n operates)
w a s o v e r b r o a d and
p o t e n t i a l l y c o n f l i c t e d w i t h e x p l i c i t s t a t u t o r y or r e g u l a t o r y
p r o v isions.
regulation,
S e v e r a l c o m m e n t s e x p r e s s e d c o n c e r n t h a t the
if f i n a l i z e d as proposed,
l e g i t i m a t e use of p a r t n e r s h i p s .
additional examples
regulation,
w o u l d a d v e r s e l y a f f e c t the
Other comments
s u g g e s t e d that
s h o u l d be a d d e d to c l a r i f y t he scope of the
w h i c h w o u l d p r o v i d e t he n e c e s s a r y guidance.
th e c o m m e n t s r e q u e s t e d t h a t t he r e g u l a t i o n be w i t h d r a w n ,
Som e of
or
r e v i s e d a nd r eproposed.
O n the o t h e r hand,
t h e p r o p o s e d regulation,
other comments
s u p p o r t e d t he a p p r o a c h in
n o t i n g t hat it w a s w e l l e s t a b l i s h e d t hat
t h e p r o v i s i o n s of t he C o d e m u s t be i n t e r p r e t e d c o n s i s t e n t w i t h
t h e i r purpose.
Some of t h e s e c o m m e n t s n o t e d t h a t t he r e g u l a t i o n
w o u l d in large par t s i m p l y be c o d i f y i n g a s p e c t s of e x i s t i n g
j u d i c i a l doctrines,
such as s u b s t a n c e o v e r f o r m a n d b u s i n e s s
6
purpose,
as t h e y r e l a t e to p a r t n e r s h i p t r a n s a c t i o n s .
Finally,
some of t h e s e c o m m e n t s s u g g e s t e d tha t t he r e g u l a t i o n be m o d i f i e d
in v a r i o u s respects,
i n c l u d i n g by a d d i n g a d d i t i o n a l e x a m p l e s of
its a pplication.
In r e s p o n s e to t h e s e comments,
the 1RS a n d T r e a s u r y h ave
r e v i s e d th e final r e g u l a t i o n in t h r e e p r i n c i p a l r e s pects.
First,
t h e scope of the r e g u l a t i o n has b e e n c l a r i f i e d s u b s t a n t i a l l y by
r e v i s i n g the p o r t i o n c a p t i o n e d Intent of S u b c h a p t e r K . in
paragraph
(a) of t he p r o p o s e d r egulation.
Paragraph
final r e g u l a t i o n n o w s p e c i f i c a l l y r e q u i r e s t h a t
(a) of the
(1) t he
p a r t n e r s h i p m u s t be b o n a fide a n d e a c h p a r t n e r s h i p t r a n s a c t i o n or
series of r e l a t e d t r a n s a c t i o n s
t r a n s action)
purpose,
(i n d i v i d u a l l y or c o l l e c t i v e l y ,
the
m u s t be e n t e r e d i n t o for a s u b s t a n t i a l b u s i n e s s
(2) th e f o r m of e a c h p a r t n e r s h i p t r a n s a c t i o n m u s t be
respected under substance over form principles,
and
(3) t he tax
c o n s e q u e n c e s u n d e r s u b c h a p t e r K to e a c h p a r t n e r of p a r t n e r s h i p
o p e r a t i o n s a nd of t r a n s a c t i o n s b e t w e e n the p a r t n e r and the
p a r t n e r s h i p must,
s u b j e c t to c e r t a i n e xceptions,
r e f l e c t the partners'
partner's
income
accurately
e c o n o m i c a g r e e m e n t a nd c l e a r l y r e f l e c t the
(p r o p e r r e f l e c t i o n of i n c o m e ).
However,
certain
p r o v i s i o n s of s u b c h a p t e r K t h a t w e r e a d o p t e d to p r o m o t e
a d m i n i s t r a t i v e c o n v e n i e n c e or o t h e r p o l i c y o b j e c t i v e s may,
certain circumstances,
r e f l e c t income.
under
p r o d u c e t a x r e s u l t s t h a t d o not p r o p e r l y
T o r e f l e c t t h e c o n s c i o u s c h o i c e in t h e s e
i n s t a n c e s to f a vor a d m i n i s t r a t i v e c o n v e n i e n c e or suc h o t h e r
o b j e c t i v e s o v e r t he a c c u r a t e m e a s u r e m e n t of income,
t h e final
7
r e g u l a t i o n p r o v i d e s t hat p r o p e r r e f l e c t i o n of i n c o m e w i l l be
t r e a t e d as s a t i s f i e d w i t h r e s p e c t to t he t ax c o n s e q u e n c e s of a
partnership transaction that satisfies paragraphs
(a)(1)
and
(2)
of the final r e g u l a t i o n to t he e x t e n t the a p p l i c a t i o n of suc h a
p r o v i s i o n to t he t r a n s a c t i o n a nd t he u l t i m a t e t a x r e s u l t s , t a k i n g
into a c c o u n t all t he r e l e v a n t facts an d c i r c u m s t a n c e s /
c l e a r l y c o n t e m p l a t e d by t hat provision*
p r o v i s i o n s i n c l u d e s e c t i o n 732,
754,
are
E x a m p l e s of such
the e l e c t i v e f e a t u r e of s e c t i o n
and the v a l u e - e q u a l s - b a s i s rule in § 1 . 7 0 4 - 1 ( b ) ( 2 ) ( i i i ) ( c ),
as w e l l as r e g u l a t o r y de m i n i m i s rules suc h as t h o s e r e f l e c t e d in
§ § 1 . 7 0 4 - 3 ( e ) (1) a nd 1 * 7 5 2 - 2 ( e ) (4).
A n u m b e r of e x a m p l e s in t he
final r e g u l a t i o n d e m o n s t r a t e the p r o p e r a p p l i c a t i o n of t h e s e
rules.
In addition,
paragraph
the r e v i s e d Intent of S u b c h a p t e r K set f o r t h in
(a) no l o n g e r p r o v i d e s tha t t h e p r o v i s i o n s of
s u b c h a p t e r K are not i n t e n d e d to p e r m i t t a x p a y e r s
"to u s e the
e x i s t e n c e of th e p a r t n e r s h i p s to a v o i d t he p u r p o s e s of o t h e r
p r o v i s i o n s of the In t e r n a l R e v e n u e Code."
Many comments
e x p r e s s e d c o n f u s i o n r e g a r d i n g t he scope of thi s clause.
comments
Other
s u g g e s t e d t h a t t h i s c l a u s e s h o u l d be l i m i t e d t o
q u e s t i o n s of t he a p p r o p r i a t e t r e a t m e n t of a p a r t n e r s h i p as an
e n t i t y or as an a g g r e g a t e of its p a r t n e r s
a p p l y i n g a n o t h e r p r o v i s i o n of th e Code.
for p u r p o s e s of
Some comments
further
s u g g e s t e d t h a t the c o r r e c t a p p l i c a t i o n of t he a g g r e g a t e / e n t i t y
c o n c e p t d o e s not d e p e n d on t he i n t e n t of t he t a x p a y e r in
s t r u c t u r i n g t he t r a n s action.
8
Thi s c l a u s e w a s p r i n c i p a l l y i n t e n d e d to a d d r e s s
a g g r e g a t e / e n t i t y issues that exist u n d e r c u r r e n t law.
T he final
r e g u l a t i o n c l a r i f i e s this aspect of t he r e g u l a t i o n by r e m o v i n g
the c l a u s e f r o m p a r a g r a p h
(a) a nd a d d i n g a n e w p a r a g r a p h
(e) to
a<^ ress i n a p p r o p r i a t e t r e a t m e n t of a p a r t n e r s h i p as an entity.
Paragraph
(e) c o n f i r m s the C o m m i s s i o n e r ' s a u t h o r i t y to t r e a t a
p a r t n e r s h i p as an a g g r e g a t e of its p a r t n e r s in w h o l e or in p art
as a p p r o p r i a t e to c a r r y out t he p u r p o s e of a ny p r o v i s i o n of the
C o d e or th e r e g u l a t i o n s t h e r eunder.
as w e l l as u n d e r c u r r e n t law,
As s t a t e d in some comments,
the C o m m i s s i o n e r ' s a u t h o r i t y to
t r e a t a p a r t n e r s h i p as an a g g r e g a t e of its p a r t n e r s is not
d e p e n d e n t on the t a x p a y e r ’s i n t e n t in s t r u c t u r i n g the
tran s a c t i o n .
However,
t he C o m m i s s i o n e r m a y not t r e a t the
p a r t n e r s h i p as an a g g r e g a t e of its p a r t n e r s u n d e r p a r a g r a p h
(e)
to the e x t e n t t h a t a p r o v i s i o n of t he C o d e or th e r e g u l a t i o n s
t h e r e u n d e r p r e s c r i b e s t he t r e a t m e n t of a p a r t n e r s h i p as an
entity,
in w h o l e or in part,
t a x results,
a n d tha t t r e a t m e n t a n d t he u l t i m a t e
t a k i n g i n t o a c c o u n t all the r e l e v a n t facts and
circumstances,
are c l e a r l y c o n t e m p l a t e d by t hat prov i s i o n .
U n d e r l y i n g t h e p r o m u l g a t i o n of p a r a g r a p h
(e) is t he b e l i e f t h a t
s i g n i f i c a n t p o t e n t i a l for a b u s e exis t s in th e i n a p p r o p r i a t e
t r e a t m e n t of a p a r t n e r s h i p as an e n t i t y in a p p l y i n g r u l e s o u t s i d e
of s u b c h a p t e r K to t r a n s a c t i o n s i n v o l v i n g p a r t n e r s h i p s .
in n e w p a r a g r a p h
Paragraph
Examples
(f) i l l u s t r a t e the a p p l i c a t i o n of p a r a g r a p h
(e).
(c) c o n t a i n s t he seco n d p r i n c i p a l r e v i s i o n
r e f l e c t e d in this
final r e g u lation.
T he c o r r e s p o n d i n g p a r a g r a p h
9
in the p r o p o s e d r e g u l a t i o n pr o v i d e s tha t the p u r p o s e s for
s t r u c t u r i n g a t r a n s a c t i o n i n v o l v i n g a p a r t n e r s h i p w i l l be
d e t e r m i n e d b a s e d on all of the facts and c i r c u m s t a n c e s .
In
r e s p o n s e to c o m m e n t s r e q u e s t i n g g u i d a n c e c o n c e r n i n g t he factors
t h a t w i l l i n d i c a t e tha t the t a x p a y e r s h a d a p r i n c i p a l p u r p o s e to
r e d u c e s u b s t a n t i a l l y t h e i r a g g r e g a t e federal t a x l i a b i l i t y in a
m a n n e r i n c o n s i s t e n t w i t h the intent of s u b c h a p t e r K, p a r a g r a p h
(c)
of the final r e g u l a t i o n sets f o rth several of t h o s e factors.
Finally,
in r e s p o n s e to c o m m e n t s t h a t t he e x a m p l e s in the
p r o p o s e d r e g u l a t i o n do not p r o v i d e a d e q u a t e g u i d a n c e r e g a r d i n g
t he a p p l i c a t i o n of t he regulation,
as w e l l as to s u g g e s t i o n s that
a d d i t i o n a l e x a m p l e s w o u l d h e l p c l a r i f y the scope of the
r e g u lation,
t he final r e g u l a t i o n c o n t a i n s n u m e r o u s e x a m p l e s tha t
i l l u s t r a t e the a p p l i c a t i o n of the r e g u l a t i o n t o s p e c i f i c a l l y
described transactions,
relevant
i n c l u d i n g t he w e i g h t t o be g i v e n to
f a c tors l i s t e d in p a r a g r a p h
situations
involved.
(c) in t he p a r t i c u l a r
Th e e x a m p l e s i n c l u d e t r a n s a c t i o n s tha t are
c o n s i s t e n t w i t h the i n t e n t of s u b c h a p t e r K as w e l l as
t r a n s a c t i o n s tha t are i n c o n s i s t e n t w i t h th e i n t e n t of s u b c h a p t e r
K.
2.
A Principal Purpose
The p r o p o s e d r e g u l a t i o n p r o v i d e s t h a t if a p a r t n e r s h i p is
f o r m e d or a v a i l e d of in c o n n e c t i o n w i t h a t r a n s a c t i o n or s e r i e s
of r e l a t e d t r a n s a c t i o n s w i t h a p r i n c i p a l p u r p o s e of s u b s t a n t i a l l y
r e d u c i n g the p r e s e n t v a l u e of t he p a r t n e r s 1 a g g r e g a t e f e d e r a l t ax
l i a b i l i t y in a m a n n e r i n c o n s i s t e n t w i t h t he i n t e n t of s u b c h a p t e r
10
K, the C o m m i s s i o n e r c a n d i s r e g a r d t he f o r m of t he t ransaction.
Som e c o m m e n t s s t a t e d tha t all p a r t n e r s h i p t r a n s a c t i o n s hav e a
p r i n c i p a l p u r p o s e of r e d u c i n g federal taxes,
a n d therefore,
the
s t a n d a r d s h o u l d be c h a n g e d f r o m a p r i n c i p a l p u r p o s e to the
p r i n c i p a l purpose.
purpose"
standard,
O t h e r co m m e n t s s u p p o r t e d an
"a p r i n c i p a l
b e c a u s e the C o m m i s s i o n e r c a n r e c a s t the
i r a n s a c ^-i°n o n l y if t he t ax results are a l s o f o u n d to be
i n c o n s i s t e n t w i t h the intent of s u b c h a p t e r K.
Other comments
s t a t e d t h a t the t a x p a y e r ' s intent s h o u l d be i r r e l e v a n t in all
cases;
rather,
the i n q u i r y shou l d o n l y be w h e t h e r t he r e s u l t s are
i n c o n s i s t e n t w i t h the i n t e n t of s u b c h a p t e r K.
comments
S t ill o t h e r
s u g g e s t e d tha t the t a x p a y e r ' s i n tent s h o u l d be
i r r e l e v a n t o n l y in t he c a s e of a g g r e g a t e / e n t i t y d e t e r m i n a t i o n s .
The IRS a nd T r e a s u r y c o n t i n u e to b e l i e v e t h a t an i n q u i r y
into the t a x p a y e r 's inte n t g e n e r a l l y is a p p r o p r i a t e for an a n t i
a b u s e r ule of this nature.
a p p l i e s o n l y if b o t h
achieve substantial
As n o t e d above,
the r e g u l a t i o n
(1) the t a x p a y e r has a p r i n c i p a l p u r p o s e to
f e d eral t ax reduction,
and
(2) t hat t ax
r e d u c t i o n is i n c o n s i s t e n t w i t h the i n t e n t of s u b c h a p t e r K.
H a v i n g a p r i n c i p a l p u r p o s e to us e a b o n a fide p a r t n e r s h i p to
c o n d u c t b u s i n e s s a c t i v i t i e s in a m a n n e r tha t is m o r e t a x
e f f i c i e n t t h a n a ny a l t e r n a t i v e m e a n s a v a i l a b l e d o e s no t e s t a b l i s h
t h a t the r e s u l t i n g t a x r e d u c t i o n is i n c o n s i s t e n t w i t h t h e i n t e n t
of s u b c h a p t e r K.
In t h o s e cases,
the C o m m i s s i o n e r c a n n o t r e c a s t
t h e t r a n s a c t i o n u n d e r t his regulation.
th e
A n u m b e r of e x a m p l e s in
final r e g u l a t i o n d e m o n s t r a t e this point.
Thus,
the
11
a d d i t i o n a l r e q u i r e m e n t in the r e g u l a t i o n t hat the t a x re s u l t s be
i n c o n s i s t e n t w i t h the intent of s u b c h a p t e r K s u f f i c i e n t l y
r e s t r i c t s t he p o t e n t i a l a p p l i c a t i o n of t h e r egulation,
so t h a t
the r e q u i r e m e n t of a p r i n c i p a l p u r p o s e of f e d e r a l t a x r e d u c t i o n
is a p p r o p r i a t e .
By contrast,
as n o t e d above,
determination under paragraph
the e n t i t y / a g g r e g a t e
(e) of t he final r e g u l a t i o n does
not r e q u i r e the t a x p a y e r to h ave a p r i n c i p a l p u r p o s e of
s u b s t a n t i a l l y r e d u c i n g t a xes t h r o u g h m i s a p p l i c a t i o n of t h a t
principle.
In this context,
t he 1RS a n d T r e a s u r y a g r e e w i t h
t h o s e c o m m e n t s t h a t s u g g e s t e d t hat t he e n t i t y / a g g r e g a t e p r i n c i p l e
is p r o p e r l y applied,
as u n d e r c u r r e n t law,
s o l e l y on t he b a s i s of
c a r r y i n g out t he p u r p o s e of t h e p a r t i c u l a r p r o v i s i o n t o be
applied.
3.
S c o p e of C o m m i s s i o n e r ^ A b i l i t y to R e c a s t T r a n s a c t i o n s
T h e p r o p o s e d r e g u l a t i o n p r o v i d e s t h a t if a t r a n s a c t i o n is
d e t e r m i n e d to be i n c o n s i s t e n t w i t h th e i n t e n t of s u b c h a p t e r K and
t he t a x p a y e r a c t e d w i t h t he r e q u i s i t e p r i n c i p a l p u r p o s e of
f e d e r a l t a x reduction,
the transaction.
t he C o m m i s s i o n e r c a n d i s r e g a r d t he f o r m of
The proposed regulation describes
several ways
in w h i c h a t r a n s a c t i o n c o u l d a p p r o p r i a t e l y be recast.
comments
S ome
i n t e r p r e t e d t h i s l a n g u a g e as a t t e m p t i n g t o p r o v i d e the
Commissioner with unlimited discretionary recharacterization
powers,
w i t h o u t g u i d a n c e as to w h i c h r e c h a r a c t e r i z a t i o n a p p l i e s
to a p a r t i c u l a r t r a n s a c t i o n .
paragraph
To a d d r e s s t h e s e concerns,
(b) of the final r e g u l a t i o n has b e e n r e v i s e d to c l a r i f y
12
t h a t the C o m m i s s i o n e r m a y r e cast t r a n s a c t i o n s o n l y as a p p r o p r i a t e
to e n s u r e t h a t the t a x t r e a t m e n t of eac h t r a n s a c t i o n is
c o n s i s t e n t w i t h t he inte n t of s u b c h a p t e r K.
4.
E f f e c t i v e D ate of the R e g u l a t i o n
T he r e g u l a t i o n w a s p r o p o s e d to be e f f e c t i v e for all
t r a n s a c t i o n s r e l a t i n g to a p a r t n e r s h i p o c c u r r i n g on or a f t e r M a y
12,
1994,
t he d a t e the p r o p o s e d r e g u l a t i o n w a s issued.
c o m m e n t s r e q u e s t e d that,
Som e
in o r d e r to a d d r e s s the r e g u l a t i o n ' s
e f f e c t on b o n a fide p a r t n e r s h i p trans a c t i o n s ,
it a p p l y
p r o s p e c t i v e l y o n l y f r o m t he d a t e the final r e g u l a t i o n is issued.
In light of t he s i g n i f i c a n t r e v i s i o n s m a d e in t h e final
r e g u l a t i o n t h a t c l a r i f y a nd n a r r o w its p o t e n t i a l
application,
scope and
t he final r e g u l a t i o n g e n e r a l l y c o n t i n u e s to be
e f f e c t i v e as of M a y
12,
1994.
However,
to p r e c l u d e t h e
p o s s i b i l i t y t hat th e r e g u l a t i o n c o u l d be i n t e r p r e t e d to apply,
for example,
w h e n a p a r t n e r w h o r e c e i v e d an a s s e t f r o m a
p a r t n e r s h i p b e f o r e t he e f f e c t i v e d ate d i s p o s e s of t he a s s e t a f t e r
t he e f f e c t i v e date,
t he final r e g u l a t i o n has b e e n r e v i s e d to
c l a r i f y t h a t it a p p l i e s o n l y t o t r a n s a c t i o n s i n v o l v i n g a
p a r t n e r s h i p a f t e r t h e e f f e c t i v e date.
Also,
in l i g h t of the
e l i m i n a t i o n of t he p r o p o s e d r e q u i r e m e n t t h a t t h e t a x p a y e r m u s t
h a v e a p r i n c i p a l p u r p o s e to a c h i e v e s u b s t a n t i a l t a x r e d u c t i o n in
t he c a s e of a g g r e g a t e / e n t i t y d e t e r m i n a t i o n s u n d e r p a r a g r a p h
paragraphs
(e) a n d
(f) ar e e f f e c t i v e for all t r a n s a c t i o n s
i n v o l v i n g a p a r t n e r s h i p on or a f t e r
F I L E D W I T H T HE
(e),
FEDERAL REGISTER 1 .
rI N S E R T DATE T H I S D O C U M E N T IS
N o i n f e r e n c e is i n t e n d e d as to
13
t he t r e a t m e n t of p a r t n e r s h i p t r a n s a c t i o n s p r i o r to th e a p p l i c a b l e
e f f e c t i v e d a t e of t he regulation.
5.
R e l a t i o n s h i p of t he R e g u l a t i o n to E s t a b l i s h e d L e g a l D o c t r i n e s
S e v e r a l c o m m e n t s q u e s t i o n e d the r e l a t i o n s h i p b e t w e e n t he
r e g u l a t i o n a n d e s t a b l i s h e d legal doctrines,
p u r p o s e a nd s u b s t a n c e o v e r f o r m d o c t r i n e s
such as t h e b u s i n e s s
(including t h e step
t r a n s a c t i o n a n d s h a m t r a n s a c t i o n d octrines),
w h i c h are d e s i g n e d
to a s s u r e t h a t t he t a x c o n s e q u e n c e s of t r a n s a c t i o n s u n d e r the
C ode are g o v e r n e d by t h e i r s u b s t a n c e a n d t h a t st a t u t e s and
r e g u l a t i o n s are i n t e r p r e t e d c o n s i s t e n t w i t h t h e i r purposes.
Partnerships,
to t h o s e d o c t rines.
like o t h e r b u s i n e s s a r r a n g e m e n t s ,
T he a p p l i c a t i o n of t h o s e d o c t r i n e s to
partnership transactions
(i)
are s u b j e c t
is p a r t i c u l a r l y i m p o r t a n t in light of
the f l e x i b i l i t y of p a r t n e r s h i p a r r a n g e m e n t s ,
which can take
m y r i a d forms t h a t are o f t e n of s u b s t a n t i a l comp l e x i t y ,
the ta x r u les
in m a n y cases,
for p a r t n e r s h i p s ,
a nd
(ii)
w h i c h are a l s o o f t e n c o m p l e x and,
appear purely mechanical.
A l i t eral a p p l i c a t i o n
of t h e s e p a r t n e r s h i p t ax rules in c o n t e x t s not c o n t e m p l a t e d by
C o n g r e s s has,
in c e r t a i n ci r c u m s t a n c e s ,
r e s u l t e d in t a x p a y e r s
c l a i m i n g t a x r e s u l t s t h a t are c o n t r a r y to t h o s e doc t r i n e s .
T he final r e g u l a t i o n c o n f i r m s c e r t a i n f u n d a m e n t a l p r i n c i p l e s
t h a t must,
in all cases,
be s a t i s f i e d in a p p l y i n g t he p r o v i s i o n s
of s u b c h a p t e r K t o p a r t n e r s h i p t r a n s a c t i o n s ,
t o a s s u r e t hat t h o s e
p r o v i s i o n s are not u s e d to a c h i e v e i n a p p r o p r i a t e t a x results.
W h i l e the f u n d a m e n t a l p r i n c i p l e s r e f l e c t e d in th e r e g u l a t i o n are
14
c o n s i s t e n t w i t h t he e s t a b l i s h e d legal doctrines,
those doctrines
w i l l a l s o c o n t i n u e to apply.
So viewed,
t h e u n c e r t a i n t y r e g a r d i n g the a p p l i c a t i o n of the
r e g u l a t i o n r e f l e c t s th e u n c e r t a i n t y t h a t a l r e a d y exis t s in
p r o p e r l y e v a l u a t i n g t r a n s a c t i o n s u n d e r c u r r e n t law,
p r o p e r a p p l i c a t i o n of e x i s t i n g legal d o c t rines.
i n c l u d i n g the
As a result,
the
r e g u l a t i o n s h o u l d not i m p o s e any u n d u e a d m i n i s t r a t i v e b u r d e n s on
e i t h e r t a x p a y e r s or t he 1RS.
C.
Other Comments
1.
S u g g e s t e d A l t e r n a t i v e s to the R e g u l a t i o n
While
some c o m m e n t s
s t ated tha t it is a p p r o p r i a t e to i n c l u d e
a ge n e r a l a n t i - a b u s e rul e in t he r e g u l a t i o n s t o limit t he m i s u s e
of the p r o v i s i o n s of s u b c h a p t e r K, o t h e r s c l a i m e d t h a t w a s not
necessary.
T h e s e c o m m e n t s s t a t e d tha t the 1RS a nd T r e a s u r y
a l r e a d y hav e s u f f i c i e n t m e a n s to c h a l l e n g e a b u s i v e p a r t n e r s h i p
t r a n s a c t i o n s a n d t h a t e x i s t i n g a u t h o r i t y s h o u l d be u s e d to
ad d r e s s
comments
sp e c i f i c t r a n s a c t i o n s as t h e y are d i s c overed.
s u g g e s t e d u s i n g the e s t a b l i s h e d legal doctrines,
a m e n d i n g t he s e c t i o n 704(b)
p a r t n e r s h i p audits.
In t he past,
r egulations,
a nd i n c r e a s i n g
T h e s e c o m m e n t s are d i s c u s s e d below.
t he 1RS a nd T r e a s u r y h ave a t t e m p t e d t o address
p a r t n e r s h i p t r a n s a c t i o n s on a c a s e - b y - c a s e basis.
r e c o g n i z e d in t h o s e c o m m e n t s
rule,
These
However,
as
supporting a regulatory anti-abuse
e x p e r i e n c e has d e m o n s t r a t e d t h a t the c a s e - b y - c a s e a p p r o a c h
has b e e n inadequate.
non-economic,
A case-by-case approach arguably encourages
t a x - m o t i v a t e d b e h a v i o r by i n a p p r o p r i a t e l y p u t t i n g a
15
p r e m i u m on b e i n g t he first to e n gage in a t r a n s a c t i o n t h a t w o u l d
v i o l a t e the p r i n c i p l e s of this regulation.
The IRS a n d T r e a s u r y
b e l i e v e that the final r e g u l a t i o n is a r e a s o n a b l e a n d e f f e c t i v e
w a y to r e d u c e t he n u m b e r a nd m a g n i t u d e of t h e s e a b u s i v e
t r a n s actions.
Moreover,
t he IRS and T r e a s u r y b e l i e v e t h a t p r o p e r
a p p l i c a t i o n of t he p r i n c i p l e s e m b o d i e d in t h e r e g u l a t i o n w i l l
for e s t a l l a d d i t i o n a l c o m p l e x i t y in the C o d e a n d t h e r e g u lations,
b y r e d u c i n g the p r e s s u r e for c a s e - b y - c a s e l e g i s l a t i v e or
r e g u l a t o r y r e v i s i o n s to p r e v e n t i n a p p r o p r i a t e u s e of the
p r o v i s i o n s of s u b c h a p t e r K.
A l t h o u g h the se c t i o n 704(b)
r e g u l a t i o n s are o ne e x a m p l e of
the p r o v i s i o n s of s u b c h a p t e r K t hat m a y be u s e d i n a p p r o p r i a t e l y
to r e ach re s u l t s tha t are i n c o n s i s t e n t w i t h t he i n t e n t of
s u b c h a p t e r K, t h e r e are m a n y o t her p r o v i s i o n s of s u b c h a p t e r K
tha t are b e i n g i n a p p r o p r i a t e l y a p p l i e d to p a r t n e r s h i p
t r a n s a c t i o n s in a m a n n e r i n c o n s i s t e n t w i t h t h e i n t e n t of
s u b c h a p t e r K.
regul a t i o n s ,
Therefore,
by itself,
an a m e n d m e n t to t he s e c t i o n 704(b)
is not sufficient.
S i g n i f i c a n t e f f o r t s are a l r e a d y u n d e r w a y t o r e d u c e the
i n a p p r o p r i a t e us e of s u b c h a p t e r K t h r o u g h i n c r e a s e d r e s o u r c e
a l l o c a t i o n to p a r t n e r s h i p audits.
This r e g u l a t i o n is p a r t of
t h a t focus on p a r t n e r s h i p transactions,
a n d s h o u l d n ot be v i e w e d
as an a l t e r n a t i v e to i n c r e a s e d audits of p a r t n e r s h i p s .
of thi s o v e r a l l focus,
As part
a n e w t e a m u n d e r t he I n d u s t r y
S p e c i a l i z a t i o n P r o g r a m has b e e n e s t a b l i s h e d t h a t w i l l c o o r d i n a t e
p a r t n e r s h i p a u d i t s a nd
(together w i t h t he IRS N a t i o n a l Office)
16
the a p p l i c a t i o n of this r e g u l a t i o n to p a r t n e r s h i p t r a n s a c t i o n s .
Thus,
t he 1RS an d T r e a s u r y be l i e v e that the r e g u l a t i o n
c o m p l e m e n t s t he i n c r e a s e d e n f o r c e m e n t of p a r t n e r s h i p t r a n s a c t i o n s
t h r o u g h e n h a n c e d a u dit activity.
2.
Application bv Revenue Agents
M a n y c o m m e n t s e x p r e s s e d c o n c e r n t hat the regu l a t i o n ,
f i n a l i z e d as proposed,
R e v e n u e Agents.
if
w ill not be a p p l i e d a p p r o p r i a t e l y by
As stated in A n n o u n c e m e n t 94-87,
1994-27
I.R.B.
124, w h e n an issue that m a y be a f f e c t e d by t he r e g u l a t i o n is
c o n s i d e r e d on examination,
an y a p p l i c a t i o n of t he r e g u l a t i o n m u s t
be c o o r d i n a t e d w i t h bot h the Issue S p e c i a l i s t on the P a r t n e r s h i p
I n d u s t r y S p e c i a l i z a t i o n P r o g r a m t e a m a nd t he 1RS N a t i o n a l Office.
The 1RS a nd T r e a s u r y b e l i e v e t h a t this c o o r d i n a t i o n ,
together
w i t h the m a n y c l a r i f y i n g c h a n g e s m a d e in t he final regulation,
w i l l r e s u l t in fair a nd c o n s i s t e n t t r e a t m e n t of t a x p a y e r s
in the
a p p l i c a t i o n of t he final r e g u l a t i o n t o p a r t n e r s h i p tr a n s a c t i o n s .
3.
S p e cial A n a l y s e s a nd the S e c r e t a r y ' s A u t h o r i t y
Some c o m m e n t s q u e s t i o n e d the d e t e r m i n a t i o n t h a t t he noti c e
of p r o p o s e d r u l e m a k i n g w a s not a s i g n i f i c a n t r e g u l a t o r y a c t i o n as
d e f i n e d in EO
553(b)
12866,
as w e l l as th e d e t e r m i n a t i o n t h a t s e c t i o n
of t he A d m i n i s t r a t i v e P r o c e d u r e A c t
a n d the R e g u l a t o r y F l e x i b i l i t y A c t
apply.
(5 Ü.S.C.
(5 U.S.C.
c h a p t e r 5)
c h a p t e r 6) do not
Some c o m m e n t s a l s o q u e s t i o n e d the S e c r e t a r y ' s a u t h o r i t y
to i s s u e t he r e g u l a t i o n as proposed.
T he 1RS a n d T r e a s u r y
b e l i e v e tha t the r e g u l a t i o n c o m p l i e s w i t h all s t a t u t o r y a nd
r e g u l a t o r y r e q u i r e m e n t s r e l a t i n g to th e i s s u a n c e of the n o t i c e of
17
p r o p o s e d rulemaking/
a n d t h a t it is c l e a r l y w i t h i n the
S e c r e t a r y ' s a u t h o r i t y t o issue the final regulation.
T h e final
r e g u l a t i o n c l a r i f i e s t h a t the a u t h o r i t y for th e r e g u l a t i o n
in c l u d e s
4.
sections
701 t h r o u g h 761.
De M i n i m i s R u l e
In the p r e a m b l e a c c o m p a n y i n g the p r o p o s e d regu l a t i o n ,
the
IRS a nd T r e a s u r y s o l i c i t e d c o m m e n t s on t he a p p r o p r i a t e n e s s of a
safe h a r b o r or de m i n i m i s rule.
Some c o m m e n t s r e s p o n d e d t hat a
de m i n i m i s rul e w o u l d be a ppropriate,
a nd s u g g e s t e d d e l i n e a t i n g
th e rul e on the basis of th e n u m b e r of partners,
p a r t n e r s h i p assets,
t h e v a l u e of the
or the a m o u n t of the r e d u c t i o n in th e p r e s e n t
v a l u e of the partners'
a g g r e g a t e federal t ax l i a b i l i t y r e s u l t i n g
f r o m the t r a n s action.
Th e r e q u i r e m e n t in t he r e g u l a t i o n t hat t h e p r e s e n t v a l u e of
t he p a r t n e r s ' a g g r e g a t e f e d eral t a x r e d u c t i o n m u s t be s u b s t a n t i a l
a s s u r e s that the r e g u l a t i o n w i l l not be a p p l i e d w h e r e t he a m o unts
i n v o l v e d are not s ignificant.
In addition,
t he IRS a nd T r e a s u r y
b e l i e v e tha t t he c l a r i f i c a t i o n s m a d e in the final r e g u l a t i o n
P r o v ide s u f f i c i e n t s a f e g u a r d s for b o n a fide joint b u s i n e s s
arrangements involving partnerships.
F o r example,
t he e x c e p t i o n
f r o m the p r o p e r r e f l e c t i o n of i n come s t a n d a r d set f o r t h in
paragraph
(a)(3)
for t r a n s a c t i o n s t hat are c l e a r l y c o n t e m p l a t e d
by a p a r t i c u l a r p r o v i s i o n of s u b c h a p t e r K p r o v i d e s a p p r o p r i a t e
s a f e g u a r d s for t h e s e b u s i n e s s arran g e m e n t s .
Finally,
t h e final
r e g u l a t i o n e x p l i c i t l y r e c o g n i z e s the a p p l i c a t i o n of s p e c i f i c
s t a t u t o r y a n d r e g u l a t o r y de m i n i m i s rules in s u b c h a p t e r K.
In
18
light of t h e s e s a f e g u a r d s , the IRS an d T r e a s u r y b e l i e v e no
a d d i t i o n a l s p e c i f i c safe h a r b o r rules are needed.
Sp e c i a l A n a l y s e s
It has b e e n d e t e r m i n e d t hat this T r e a s u r y d e c i s i o n is not a
s i g n i f i c a n t r e g u l a t o r y a c t i o n as d e f i n e d in E O 12866.
a r e g u l a t o r y a s s e s s m e n t is not required.
d e t e r m i n e d t h a t s e c t i o n 553(b)
Act
(5 U.S.C.
U.S.C.
It has a l s o b e e n
of t he A d m i n i s t r a t i v e P r o c e d u r e
c h a p t e r 5) and the R e g u l a t o r y F l e x i b i l i t y A c t
c h a p t e r 6) do not a p p l y to this r e g u lation,
therefore,
Therefore,
a Regulatory Flexibility Analysis
P u r s u a n t to s e c t i o n 7805(f)
(5
and,
is not required.
of the I n t ernal R e v e n u e Code,
the
n o t i c e of p r o p o s e d r u l e m a k i n g w a s s u b m i t t e d t o t h e C h i e f C o u n s e l
A d v o c a c y of th e S m all B u s i n e s s A d m i n i s t r a t i o n for c o m m e n t on
its impact on small business.
C o m m e n t s w e r e s u b m i t t e d a n d are
a d d r e s s e d in the S u p p l e m e n t a r y I n f o r m a t i o n s e c t i o n of thi s
document.
L i s t of S u b j e c t s
in 26 C F R Par t
Income taxes,
1
R e p o r t i n g an d r e c o r d k e e p i n g r e q u i r e m e n t s .
A m e n d m e n t s to th e R e g u l a t i o n s
Accordingly,
PART
26 C F R p a r t
1 is a m e n d e d as follows:
1— INCOME T A X E S
Paragraph
1.
T he a u t h o r i t y c i t a t i o n for p a r t
1 is a m e n d e d
by a d d i n g an e n t r y in n u m e r i c a l o r d e r t o r e a d as follows:
Authority:
Section
★
*
*
26 U.S.C.
7805 * * *
1.701-2 a l s o i s s u e d u n d e r 26 U.S.C.
701 t h r o u g h 761
19
Par.
2.
Section
1.701-2 is a d d e d u n d e r t he h e a d i n g
" D e t e r m i n a t i o n of T a x L i a b i l i t y " to r ead as follows:
S I . 701-2 A n t i - a b u s e r u l e .
(a)
Intent of s u b c h a p t e r K .
S u b c h a p t e r K is i n t e n d e d to
p e r m i t t a x p a y e r s to c o n d u c t joint b u s i n e s s
(including investment)
activities through a flexible economic arrangement without
i n c u r r i n g an e n t i t y - l e v e l tax.
Im p l i c i t in t he i n t e n t of
s u b c h a p t e r K are the f o l l o w i n g r e q u i r e m e n t s —
(1)
T h e p a r t n e r s h i p m u s t be b o n a fide a n d e a c h p a r t n e r s h i p
t r a n s a c t i o n or series of r e l a t e d t r a n s a c t i o n s
c o l l e ctively,
t he t r a n s action)
( i n d i v i d u a l l y or
m u s t be e n t e r e d int o for a
s u b s t a n t i a l b u s i n e s s purpose.
(2)
T h e f o r m of e a c h p a r t n e r s h i p t r a n s a c t i o n m u s t be
r e s p e c t e d u n d e r s u b s t a n c e o v e r f o r m p rinciples.
(3)
E x c e p t as o t h e r w i s e p r o v i d e d in this p a r a g r a p h
(a)(3),
t he t ax c o n s e q u e n c e s u n d e r s u b c h a p t e r K to e a c h p a r t n e r of
p a r t n e r s h i p o p e r a t i o n s a n d of t r a n s a c t i o n s b e t w e e n t he p a r t n e r
a nd the p a r t n e r s h i p m u s t a c c u r a t e l y r e f l e c t t h e p a r t n e r s '
e c o n o m i c a g r e e m e n t a n d c l e a r l y r e f l e c t the p a r t n e r ' s
(collectively,
p r o p e r r e f l e c t i o n of i n c o m e ).
i n come
However,
certain
p r o v i s i o n s of s u b c h a p t e r K a nd the r e g u l a t i o n s t h e r e u n d e r w e r e
a d o p t e d to p r o m o t e a d m i n i s t r a t i v e c o n v e n i e n c e a n d o t h e r p o l i c y
o b j e ctives,
w i t h the r e c o g n i t i o n tha t the a p p l i c a t i o n of t h o s e
p r o v i s i o n s to a t r a n s a c t i o n could,
in some c i r c u m s t a n c e s ,
t a x r e s u l t s tha t do not p r o p e r l y r e f l e c t income.
Thus,
produce
t he
p r o p e r r e f l e c t i o n of i n c o m e r e q u i r e m e n t of thi s p a r a g r a p h
(a)(3)
20
is t r e a t e d as s a t i s f i e d w i t h r e s pect to a t r a n s a c t i o n that
satisfies p a r a g r a p h s
(a)(1)
an d
(2) of this
s e c t i o n to the extent
that the a p p l i c a t i o n of such a p r o v i s i o n to t he t r a n s a c t i o n and
t he u l t i m a t e t a x results,
facts an d c i r c u m s t a n c e s ,
provision.
section
See,
t a k i n g into a c c o u n t all the r e l e v a n t
are c l e a r l y c o n t e m p l a t e d b y that
for example,
paragraph
(d) E x a m p l e
8 of this
(relating t o t he v a l u e - e q u a l s - b a s i s r u l e in
§ 1 . 7 0 4 - l ( b ) ( 2 ) (iii)(c) ), p a r a g r a p h
(d) E x a m p l e
11 of t h i s
se c t i o n
(relating to the e l e c t i o n u n d e r se c t i o n 754 t o a d j u s t b a s i s in
p a r t n e r s h i p p r o p erty),
this
se c t i o n
and paragraph
(d) E x a m p l e s
12 a nd
13 of
(relating to the b a sis in p r o p e r t y d i s t r i b u t e d by a
p a r t n e r s h i p u n d e r s e c t i o n 732).
§ § 1 .704-3(e )(1)
a n d 1 . 7 5 2 - 2 ( e )(4)
See also,
for example,
(providing c e r t a i n de m i n i m i s
e x c e p t i o n s ).
(b)
A p p l i c a t i o n of s u b c h a p t e r K r u l e s .
T he p r o v i s i o n s of
s u b c h a p t e r K a nd t he r e g u l a t i o n s t h e r e u n d e r m u s t be a p p l i e d in a
m a n n e r t hat is c o n s i s t e n t w i t h the i n t e n t of s u b c h a p t e r K as set
f o r t h in p a r a g r a p h
Accordingly,
(a) of thi s s e c t i o n
(i n t e n t of s u b c h a p t e r K ).
if a p a r t n e r s h i p is f o r m e d or a v a i l e d of in
c o n n e c t i o n w i t h a t r a n s a c t i o n a p r i n c i p a l p u r p o s e of w h i c h is to
r e d u c e s u b s t a n t i a l l y t he p r e s e n t v a l u e of t he p a r t n e r s ' a g g r e g a t e
f e d eral t a x l i a b i l i t y in a m a n n e r t h a t is i n c o n s i s t e n t w i t h the
i n t e n t of s u b c h a p t e r K, the C o m m i s s i o n e r c a n r e c a s t t he
t r a n s a c t i o n for f e deral t ax purposes,
as a p p r o p r i a t e to a c h i e v e
t ax r e s u l t s t h a t are c o n s i s t e n t w i t h the i n tent of s u b c h a p t e r K,
in light of t he a p p l i c a b l e s t a t u t o r y a nd r e g u l a t o r y p r o v i s i o n s
21
a nd the p e r t i n e n t facts an d c i r c u m stances.
Thus,
e v e n t h o u g h the
t r a n s a c t i o n m a y fall w i t h i n the literal w o r d s of a p a r t i c u l a r
s t a t u t o r y or r e g u l a t o r y provision,
determine,
the C o m m i s s i o n e r c an
b a s e d on the p a r t i c u l a r facts a nd c i r c u m s t a n c e s ,
t hat
to a c h i e v e t a x r e s u l t s tha t are c o n s i s t e n t w i t h t he i n t e n t of
subchapter K —
(1) T he p u r p o r t e d p a r t n e r s h i p s h ould be d i s r e g a r d e d in w h o l e
or in part,
a nd the p a r t n e r s h i p ' s assets an d a c t i v i t i e s
c onsidered,
in w h o l e or in part,
r e s p e ctively,
s h o u l d be
to be o w n e d a n d conducted,
b y one or m o r e of its p u r p o r t e d partners;
(2) O ne or m o r e of t he p u r p o r t e d p a r t n e r s of the p a r t n e r s h i p
s h o u l d not be t r e a t e d as a partner;
(3) T he m e t h o d s of a c c o u n t i n g u s e d by the p a r t n e r s h i p or a
p a r t n e r s h o u l d be a d j u s t e d to r e f l e c t c l e a r l y t he p a r t n e r s h i p ' s
or the p a r t n e r ' s income;
(4) T he p a r t n e r s h i p ' s items of income,
deduction,
or c r e d i t s h o u l d be reall o c a t e d ;
gain,
loss,
or
(5) The c l a i m e d t a x t r e a t m e n t s h o u l d o t h e r w i s e be a d j u s t e d
or m odified.
(c)
F a cts a nd c i r c u m s t a n c e s analysis;
factors.
Whether a
p a r t n e r s h i p w a s f o r m e d or a v a i l e d of w i t h a p r i n c i p a l p u r p o s e to
r e d u c e s u b s t a n t i a l l y the p r e s e n t v a l u e of th e partners'
aggregate
fe d e r a l t ax l i a b i l i t y in a m a n n e r i n c o n s i s t e n t w i t h t he i n t e n t of
s u b c h a p t e r K is d e t e r m i n e d b a s e d on all of th e facts a n d
circumstances,
purpose
i n c l u d i n g a c o m p a r i s o n of t he p u r p o r t e d b u s i n e s s
for a t r a n s a c t i o n a nd t he c l a i m e d ta x b e n e f i t s r e s u l t i n g
22
f r o m the t r a n s action.
indicative,
T he factors set forth b e l o w m a y be
b ut d o not n e c e s s a r i l y establish,
w a s u s e d in such a manner.
that a partnership
T h ese factors ar e i l l u s t r a t i v e only,
a nd t h e r e f o r e m a y not be the only factors t a k e n i n t p a c c o u n t in
m a k i n g the d e t e r m i n a t i o n u n d e r this section.
w e i g h t g i v e n to a ny fact o r
or otherwise)
Mor e o v e r ,
the
(whether s p e c i f i e d in t h i s p a r a g r a p h
d e p e n d s on all the facts a nd c i r c u m s t a n c e s .
The
p r e s e n c e or a b s e n c e of a ny factor d e s c r i b e d in t his p a r a g r a p h
does not c r e a t e a p r e s u m p t i o n tha t a p a r t n e r s h i p w a s
u s e d in such a manner.
(1)
(or w a s not)
Fa c t o r s include:
T h e p r e s e n t v a l u e of t he p a r t n e r s ' a g g r e g a t e f e d eral
t a x l i a b i l i t y is s u b s t a n t i a l l y less t h a n h a d t he p a r t n e r s o w n e d
the p a r t n e r s h i p ' s a s sets an d c o n d u c t e d t he p a r t n e r s h i p ' s
a c t i v i t i e s directly;
(2)
Th e p r e s e n t v a l u e of the partners'
a g g r e g a t e fe deral
t a x l i a b i l i t y is s u b s t a n t i a l l y less t h a n w o u l d be t he c a s e if
p u r p o r t e d l y s e p a r a t e t r a n s a c t i o n s t h a t are d e s i g n e d to a c h i e v e a
p a r t i c u l a r e nd r e s u l t are i n t e g r a t e d a n d t r e a t e d as steps in a
single t r a n s a c t i o n .
F or example,
this a n a l y s i s m a y i n d i c a t e t h a t
it w as c o n t e m p l a t e d t h a t a p a r t n e r w h o w a s n e c e s s a r y to a c h i e v e
t he i n t e n d e d t a x r e s u l t s a nd w h o s e i n t e r e s t in th e p a r t n e r s h i p
w a s l i q u i d a t e d or d i s p o s e d of
(in w h o l e or in part) w o u l d be a
p a r t n e r o nly t e m p o r a r i l y in o r d e r to p r o v i d e t he c l a i m e d t ax
b e n e f i t s to t he r e m a i n i n g partners;
(3)
O ne or m o r e p a r t n e r s w h o are n e c e s s a r y to a c h i e v e t he
c l a i m e d ta x r e s u l t s e i t h e r h a v e a n o m i n a l i n t e r e s t in the
23
partnership,
are s u b s t a n t i a l l y p r o t e c t e d f r o m any r i s k of loss
f r o m the p a r t n e r s h i p ' s a c t i v i t i e s
p references,
(through d i s t r i b u t i o n
i n d e m n i t y or loss g u a r a n t y agreements,
a r r a n gements),
or o t h e r
or hav e l i t t l e or no p a r t i c i p a t i o n in t he p r o f i t s
f r o m the p a r t n e r s h i p ' s a c t i v i t i e s o t h e r t h a n a p r e f e r r e d r e t u r n
t h a t is in the n a t u r e of a p a y m e n t for the u s e of capital;
(4)
S u b s t a n t i a l l y all of t he p a r t n e r s
or i n t erests in the p a r t n e r s h i p )
indirectly)
(5)
are r e l a t e d
(measured by n u m b e r
(directly or
to one another?
P a r t n e r s h i p items are a l l o c a t e d in c o m p l i a n c e w i t h the
literal la n g u a g e of § § 1 . 7 0 4 - 1 a nd 1.704-2 but w i t h r e s u l t s tha t
are i n c o n s i s t e n t w i t h t he p u r p o s e of s e c t i o n 704(b)
regulations.
In thi s regard,
and those
p a r t i c u l a r s c r u t i n y w i l l be p a i d to
p a r t n e r s h i p s in w h i c h i n c o m e or g a i n is s p e c i a l l y a l l o c a t e d to
one or m o r e p a r t n e r s t h a t m a y be l e g a l l y or e f f e c t i v e l y e x e m p t
f r o m federal t a x a t i o n
o r g a n ization,
an i n s o l v e n t taxpayer,
f e d eral t ax a t t r i b u t e s
losses,
(6)
(for example,
a f o r e i g n person,
an e x empt
or a t a x p a y e r w i t h u n u s e d
s uch as net o p e r a t i n g losses,
capital
or f o reign t a x credits);
The b e n e f i t s a n d b u r d e n s of o w n e r s h i p of p r o p e r t y
n o m i n a l l y c o n t r i b u t e d to the p a r t n e r s h i p are in s u b s t a n t i a l p a r t
retained
(directly or indirectly)
a r e l a t e d party);
(7)
by t he c o n t r i b u t i n g p a r t n e r
(or
or
T he b e n e f i t s a n d b u r d e n s of o w n e r s h i p of p a r t n e r s h i p
p r o p e r t y are in s u b s t a n t i a l p a r t s h i f t e d
(directly or indirectly)
to t he d i s t r i b u t e e p a r t n e r b e f o r e or a f t e r t he p r o p e r t y is
24
a c t u a l l y d i s t r i b u t e d to the d i s t r i b u t e e p a r t n e r
(or a r e l a t e d
p a r t y ).
(d)
Examples.
p r i n c i p l e s of p a r a g r a p h s
T he f o l l o w i n g ex a m p l e s i l l u s t r a t e t h e
(a),
(b), a nd
(c) of thi s
section.
e x a m p l e s set f o rth b e l o w d o not d e l i n e a t e the b o u n d a r i e s
The
of
e i t h e r p e r m i s s i b l e or i m p e r m i s s i b l e t y pes of t r a n s a c t i o n s .
Further,
t he a d d i t i o n of a n y facts or c i r c u m s t a n c e s t h a t are not
s p e c i f i c a l l y set f o r t h in an e x a m p l e
facts or c i r c u m s t a n c e s )
(or the d e l e t i o n of a n y
m a y a l t e r the ou t c o m e of t he t r a n s a c t i o n
d e s c r i b e d in t he example.
U n l e s s o t h e r w i s e indicated,
p a r t i e s to
the t r a n s a c t i o n s are not r e l a t e d to one another.
E x a m p l e 1.
C h o i c e of entity; a v o i d a n c e of e n t i t y - l e v e l tax;
use of p a r t n e r s h i p c o n s i s t e n t w i t h t he i n t e n t of s u b c h a p t e r K .
(i)
A a nd B f o r m l i m i t e d p a r t n e r s h i p PRS to c o n d u c t a b o n a fide
business.
A, t he c o r p o r a t e g e n e r a l partner, has a 1% p a r t n e r s h i p
interest.
B, t he i n d i v i d u a l l i m i t e d partner, has a 99% interest.
PRS is p r o p e r l y c l a s s i f i e d as a p a r t n e r s h i p u n d e r § § 3 0 1 . 7 7 0 1 - 2
a nd 301.7701-3.
A a nd B c h o s e l i m i t e d p a r t n e r s h i p f o r m as a
m e a n s to p r o v i d e B w i t h l i m i t e d l i a b i l i t y w i t h o u t s u b j e c t i n g the
i n c o m e f r o m t he b u s i n e s s o p e r a t i o n s to an e n t i t y - l e v e l tax.
(ii)
S u b c h a p t e r K is i n t e n d e d to p e r m i t t a x p a y e r s to
c o n d u c t joint b u s i n e s s a c t i v i t y t h r o u g h a f l e x i b l e e c o n o m i c
a r r a n g e m e n t w i t h o u t i n c u r r i n g an e n t i t y - l e v e l tax.
See p a r a g r a p h
(a) of t h i s section.
A l t h o u g h B has retained, i n d i rectly,
s u b s t a n t i a l l y all of t h e b e n e f i t s a nd b u r d e n s of o w n e r s h i p of the
m o n e y or p r o p e r t y B c o n t r i b u t e d to PRS (see p a r a g r a p h (c)(6) of
t his section), th e d e c i s i o n to o r g a n i z e a n d c o n d u c t b u s i n e s s
t h r o u g h PRS u n d e r t h e s e c i r c u m s t a n c e s is c o n s i s t e n t w i t h this
intent.
In addition, on t h e s e facts, the r e q u i r e m e n t s of
p a r a g r a p h s (a)(1), (2), a n d (3) of t his s e c t i o n h a v e b e e n
satisfied.
The Commissioner therefore cannot invoke paragraph
(b) of t h i s s e c t i o n to r e c a s t t he t r a n s a c t i o n .
E x a m p l e 2.
C h o i c e of entity; a v o i d a n c e of s u b c h a p t e r S
s h a r e h o l d e r re q u i r e m e n t s ; us e of p a r t n e r s h i p c o n s i s t e n t w i t h th e
i n t e n t of s u b c h a p t e r K .
(i)
A a n d B f o r m p a r t n e r s h i p PRS to
c o n d u c t a b o n a fide b u s i ness.
A is a c o r p o r a t i o n tha t has
e l e c t e d t o be t r e a t e d as an S c o r p o r a t i o n u n d e r
@FedFRASER