House and Senate Republican negotiators have put the finishing touches on IRS reform legislation, deciding to forego a series of unrelated tax add-ons that had threatened the bill's progress at the last moment.
The measure, lauded by GOP leaders as "a landmark" and "historic," will be taken up by the House Thursday, Majority Leader Dick Armey, R-Texas, said Tuesday.
At a photo opportunity with his GOP colleagues, Senate Majority Leader Trent Lott, R-Miss., expressed doubt that the Senate would take up the bill before the July 4th recess, but assured it would be taken up as soon as the Senate returns.
What House Speaker Newt Gingrich, R-Ga., called "a landmark in the protection of taxpayers and a return to a sense of fairness in the system," stalled very briefly at the last minute as conferees considered the possibility of adding a host of unrelated tax provisions.
In the end, they decided to keep it free from all but a handful of such items and chose not to use surplus money in the budget to pay for the package.
But congressional aides said the bill will include a reduction of the holding period for capital gains from 18 months to 12 months.
Included as part of last year's Balanced Budget Act, taxpayers have complained about the complexity of the holding period rules.
It has been one of the top priorities of Ways and Means Chairman Bill Archer, R-Texas, and has the support of Senate Finance Chairman William Roth, R-Del., providing it does not unduly delay the bill.
It is estimated that the change in the capital gains holding period would cost roughly $2 billion over 10 years.
That provision became a possibility when conferees late last week agreed to scale back a few of the bill's more costly provisions and to reach compromises on how to pay for the measure.
The final conference report is estimated to cost $13 billion, more than $6 billion less than the Senate bill.
In addition to expanding tax free Roth individual retirement accounts, the bill would restrict employee deductions for accrued vacation pay.
Also, conferees adopted a bill introduced by Archer and Roth earlier this year that would limit the use of Real Estate Investment Trusts.
Dropped from the package of offsets was a limitation on foreign tax credits that Roth had proposed, which drew a strong objection from Archer.
But added was tax relief for some business meals, which had been part of a bill pushed by Rep. John Ensign, R-Nev.
Conferees opted not to include a package of expiring provisions sought by the business community.
A few of the so-called extenders expire at the end of this month.
The tax credits for research and development, education and other activities enjoy widespread support and will likely be taken up in another tax measure later in the year, aides said.
Conferees also abandoned the opportunity to attach technical corrections related to the Intermodal Surface Transportation Efficiency Act since they included some modest costs.
Among the key provisions on which compromises were reached was so-called innocent spouse relief and interest and penalty reform.
Under the agreement, only people who were divorced, separated or living apart for a full year could seek shelter from their former partner's tax woes.
Sources said conferees recognized the limitation was needed to prevent potentially widespread and expensive tax cheating.
Conferees also agreed to phase in interest and penalty reform more slowly, partially in response to IRS Commissioner Charles Rossotti's plea for more time to adjust the agency's computers.
One of the last items that was ironed out concerned the establishment of an accountant-client privilege.
After working with Judiciary Committee members, conferees worked out a way that the new professional privilege would not interfere with the existing standard of attorney-client confidentiality.
In a surprise move, conferees agreed to change the most favored nation designation of trade status to "normal trade relations."
The Ways and Means Trade Subcommittee approved such a measure Tuesday morning.
Congressional Republicans expressed confidence Tuesday that the Clinton administration would endorse the bill despite concerns about the capital gains change and offsetting the entire package.
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