Washington Report: Credit Disclosure Effort, Estate Tax Phase-out Veto, and Entertainment Allowance Clarification

October 1, 2000

NAR credit disclosure effort falls into place
Borrowers are now closer to gaining access to important credit score information.

Building off the success of the state credit scoring bill developed by the California Association of REALTORS®, U.S. lawmakers in both the House and the Senate have come forward with NAR-backed credit-score disclosure bills.

Telling borrowers what their credit scores mean is now left to lenders to do voluntarily. But NAR leaders say that without the law, borrowers won’t necessarily get information they need to improve their scores and get the best financing terms available.

Credit-reporting agencies are obliged to give borrowers their reports. But that obligation doesn’t extend to the companies that create the scores. Credit scores are now used widely in computer-based processing of loan applications.

Under H.R. 2856, a bill introduced by Rep. Chris Cannon, R-Utah, all information in a borrower’s credit file, including information used in the credit score, must be disclosed to the borrower on request.

Sen. Charles Schumer, D-N.Y., was preparing to introduce a Senate bill in early September. His bill is based on the California bill, which requires lenders to disclose borrowers’ credit scores and to explain what those scores mean. The Senate bill also requires that borrowers be given information on how to improve their scores.

“The support of the National Association of REALTORS® and the Consumers Union, the two leading groups in their areas, coupled with the success of the California bill, means that our legislation has an excellent chance of passing next year,” Sen. Schumer told a press conference in late August.

Clinton vetoes estate tax phase-out

President Clinton in late August vetoed an NAR-backed bill that would phase out the estate tax over ten years. Clinton had been threatening a veto, so it came as no surprise, say NAR analysts.

Clinton charged that the bill would squander the federal government’s budget surplus, mainly for the benefit of wealthy households. Estate taxes are paid by heirs upon transfer of the proceeds of their family estate.

Clinton argued that more than half of the estate tax savings, estimated at $105 billion over 10 years and more in subsequent years, would benefit less than one-tenth of 1 percent of households, including about 3,000 of the country’s wealthiest families. House Speaker Dennis Hastert, R-Ill., said Clinton missed the point, which is that Americans don’t want the lion’s share of their reward for a lifetime of work to go to the federal government.

In 2001 NAR will focus on a small business tax package that passed the House in March, NAR analysts say. That bill contains key NAR provisions, including 100-percent health insurance deduction, mortgage cancellation relief, and increases in the low-income housing tax credit and private-activity tax-exempt bond programs.

IRS clarifies entertainment allowance

Brokers providing food and beverages to their sales associates can deduct only 50 percent of the costs, the IRS says. This 50-percent limit applies to entertainment expenses paid for independent contractors; if they’re employees, the broker can deduct 100 percent of the costs.

“The IRS is saying that the broker-agent relationship doesn’t qualify for the employer-employee exception that has allowed employers to deduct all their food and beverage costs for their employees,” says an NAR analyst. “Brokers need to be aware of the distinction.”

The ruling applies only to the case for which an opinion was requested. However, it helps set a precedent for other, similar cases.

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