§ 103. Interest on State and local bonds

Legislative history

Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.

1. 1954

   Aug. 16, 1954, ch. 736, 68A Stat. 29 · 68A Stat. 29

   Enacted · 26 U.S.C. § 103

   Aug. 16, 1954, ch. 736, 68A Stat. 29

   Source evidence

   Code source credit
   Aug. 16, 1954, ch. 736, 68A Stat. 29

2. 1968

   Revenue and Expenditure Control Act of 1968

   Pub. L. 90–364 title I § 107(a) · 82 Stat. 251

   Redesignated · 26 U.S.C. § 103(c)

   Pub. L. 90–364 added subsec. (c). Former subsec. (c) redesignated (d)

   Source evidence

   Code amendment note
   Subsec. (c). Pub. L. 90–364 added subsec. (c). Former subsec. (c) redesignated (d).

   Enacted provision · exact public law section
   (a) Amendment of Section 103.— Section 103 (relating to interest on certain governmental obligations) is amended by relettering subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: “(c) Industrial Development Bonds.— “(1) Subsection (a)(1) not to apply.— Except as otherwise provided in this subsection, any industrial development bond shall be treated as an obligation not described in subsection (a)(1). “(2) Industrial development bond.— For purposes of this subsection, the term ‘industrial development bond’ means any obligation— “(A) which is issued as part of an issue all or a major portion of the proceeds of which are to be used directly or indirectly in any trade or business carried on by any person who is not mi exempt person (within the meaning of paragraph (3)), and “(B) the payment of the principal or interest on which (under the terms of such obligation or any underlying arrangement) is, in whole or in major part— “(i) secured by any interest in property used or to be used in a trade or business or in payments in respect of such property, or “(ii) to be derived from payments in respect of property, or borrowed money, used or to be used in a trade or business. “(3) Exempt person.— For purposes of paragraph (2)(A), the term ‘exempt person’ means— “(A) a governmental unit, or “(B) an organization described in section 501(c)(3) and 68A stat 163. 26 USC 501. exempt from tax under section 501(a)(but only with respect to a trade or business carried on by such organization which is not an unrelated trade or business, determined by applying sect ion 513(a) to such organization). “(4) Certain exempt activities.— Paragraph (1) shall not apply 1° any obligation which is issued as part of an issue substantially all of the proceeds of which are to be used to provide— “(A) residential real property for family units, “(B) sports facilities, “(C) convention or trade show facilities, “(D) airports, docks, wharves, mass commuting facilities, parking facilities, or storage or training facilities directly related to any of the foregoing, “(E) sewage or solid waste disposal facilities or facilities for the local furnishing of electric energy, gas, or water, or “(F) air or water pollution control facilities. “(5) Industrial parks.— Paragraph (1) shall not apply to any obligation issued as part of an issue substantially all of the proceeds of which are to be used for the acquisition or development of land as the site for an industrial park. For purposes of the “Development of land.” preceding sentence, the term ‘development of land’ includes the provision of water, sewage, drainage, or similar facilities, or of transportation, power, or communication facilities, which are incidental to use of the site as an industrial park, but, except with respect to such facilities, does not include the provision of structures or buildings. “(6) Exemption for certain small issues.— “(A) In general.— Paragraph (1) shall not apply to any obligation issued as part of an issue the aggregate authorized face amount of which is $1,000,000 or less and substantially all of the proceeds of which are to be used (i) for the acquisition, construction, reconstruction, or improvement, of land or property of a character subject to the allowance for depreciation, or (ii) to redeem part or all of a prior issue which was issued for purposes described in clause (i) or this clause. “(B) Certain prior issues taken into account.— If— “(i) the proceeds of two or more issues of obligations (whether or not the issuer of each such issue is the same) are or will be used primarily with respect to facilities located in the same incorporated municipality or located in the same county (but not in any incorporated municipality), “(ii) the principal user of such facilities is or will be the same person or two or more related persons, and “(iii) but for this subparagraph, subparagraph (A) would apply to each such issue, then, for purposes of subparagraph (A), in determining the aggregate face amount of any later issue there shall be taken into account the face amount, of obligations issued under all prior such issues and outstanding at the time of such later issue (not including as outstanding any obligation which is to be redeemed from the proceeds of the later issue). “(C) Related persons.— For purposes of this paragraph and paragraph (7), a person is a related person to another person if— “(i) the relationship between such persons would result 68A Stat. 78. 26 USC 267. in a disallowance of losses under section 267 or 707(b), or “(ii) such persons are members of the same controlled 78 Stat. 120. group of corporations (as defined in section 1563(a), except that ‘more than 50 percent’ shall be substituted for ‘at least 80 percent’ each place it appears therein). “(7) Exception.— Paragraphs (4), (5), and (6) shall not apply with respect to any obligation for any period during which it is held by a person who is a substantial user of the facilities or a related person.”

3. 1968

   Revenue and Expenditure Control Act of 1968

   Pub. L. 90–364 title I § 107(a) · 82 Stat. 251

   Redesignated · 26 U.S.C. § 103(d)

   Pub. L. 90–364 redesignated former subsec. (c) as (d)

   Source evidence

   Code amendment note
   Subsec. (d). Pub. L. 90–364 redesignated former subsec. (c) as (d).

   Enacted provision · exact public law section
   (a) Amendment of Section 103.— Section 103 (relating to interest on certain governmental obligations) is amended by relettering subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: “(c) Industrial Development Bonds.— “(1) Subsection (a)(1) not to apply.— Except as otherwise provided in this subsection, any industrial development bond shall be treated as an obligation not described in subsection (a)(1). “(2) Industrial development bond.— For purposes of this subsection, the term ‘industrial development bond’ means any obligation— “(A) which is issued as part of an issue all or a major portion of the proceeds of which are to be used directly or indirectly in any trade or business carried on by any person who is not mi exempt person (within the meaning of paragraph (3)), and “(B) the payment of the principal or interest on which (under the terms of such obligation or any underlying arrangement) is, in whole or in major part— “(i) secured by any interest in property used or to be used in a trade or business or in payments in respect of such property, or “(ii) to be derived from payments in respect of property, or borrowed money, used or to be used in a trade or business. “(3) Exempt person.— For purposes of paragraph (2)(A), the term ‘exempt person’ means— “(A) a governmental unit, or “(B) an organization described in section 501(c)(3) and 68A stat 163. 26 USC 501. exempt from tax under section 501(a)(but only with respect to a trade or business carried on by such organization which is not an unrelated trade or business, determined by applying sect ion 513(a) to such organization). “(4) Certain exempt activities.— Paragraph (1) shall not apply 1° any obligation which is issued as part of an issue substantially all of the proceeds of which are to be used to provide— “(A) residential real property for family units, “(B) sports facilities, “(C) convention or trade show facilities, “(D) airports, docks, wharves, mass commuting facilities, parking facilities, or storage or training facilities directly related to any of the foregoing, “(E) sewage or solid waste disposal facilities or facilities for the local furnishing of electric energy, gas, or water, or “(F) air or water pollution control facilities. “(5) Industrial parks.— Paragraph (1) shall not apply to any obligation issued as part of an issue substantially all of the proceeds of which are to be used for the acquisition or development of land as the site for an industrial park. For purposes of the “Development of land.” preceding sentence, the term ‘development of land’ includes the provision of water, sewage, drainage, or similar facilities, or of transportation, power, or communication facilities, which are incidental to use of the site as an industrial park, but, except with respect to such facilities, does not include the provision of structures or buildings. “(6) Exemption for certain small issues.— “(A) In general.— Paragraph (1) shall not apply to any obligation issued as part of an issue the aggregate authorized face amount of which is $1,000,000 or less and substantially all of the proceeds of which are to be used (i) for the acquisition, construction, reconstruction, or improvement, of land or property of a character subject to the allowance for depreciation, or (ii) to redeem part or all of a prior issue which was issued for purposes described in clause (i) or this clause. “(B) Certain prior issues taken into account.— If— “(i) the proceeds of two or more issues of obligations (whether or not the issuer of each such issue is the same) are or will be used primarily with respect to facilities located in the same incorporated municipality or located in the same county (but not in any incorporated municipality), “(ii) the principal user of such facilities is or will be the same person or two or more related persons, and “(iii) but for this subparagraph, subparagraph (A) would apply to each such issue, then, for purposes of subparagraph (A), in determining the aggregate face amount of any later issue there shall be taken into account the face amount, of obligations issued under all prior such issues and outstanding at the time of such later issue (not including as outstanding any obligation which is to be redeemed from the proceeds of the later issue). “(C) Related persons.— For purposes of this paragraph and paragraph (7), a person is a related person to another person if— “(i) the relationship between such persons would result 68A Stat. 78. 26 USC 267. in a disallowance of losses under section 267 or 707(b), or “(ii) such persons are members of the same controlled 78 Stat. 120. group of corporations (as defined in section 1563(a), except that ‘more than 50 percent’ shall be substituted for ‘at least 80 percent’ each place it appears therein). “(7) Exception.— Paragraphs (4), (5), and (6) shall not apply with respect to any obligation for any period during which it is held by a person who is a substantial user of the facilities or a related person.”

4. 1968

   Pub. L. 90–634 title IV § 401(a) · 82 Stat. 1345

   Added · 26 U.S.C. § 103(c)(6)(D)(H)

   Pub. L. 90–634 added subpars. (D) to (H)

   Source evidence

   Code amendment note
   Subsec. (c)(6)(D) to (H). Pub. L. 90–634 added subpars. (D) to (H).

   Enacted provision · exact public law section
   (a) Section 103(c)(6) of the Internal Revenue Code of Industrial development bonds, exemption. Ante, p, 267. 1954 (relating to exemption for certain small issues in the case of industrial development bonds) is amended by adding at the end thereof the following new subparagraphs: “(D) $5,000,000 limit in certain cases.— At the election of the issuer, made at such time and in such manner as the Secretary or his delegate shall by regulations prescribe, with respect to any issue this paragraph shall be applied— “(i) by substituting ‘$5,000,000’ for ‘$1,000,000’ in subparagraph (A), and “(ii) in determining the aggregate face amount of such issue, by taking into account, not only the amount described in subparagraph (B), but also the aggregate amount, of capital expenditures with respect to facilities described in subparagraph (E) paid or incurred during the 6-year period beginning 3 years before the date of such issue and ending 3 years after such date (and financed otherwise than out. of the proceeds of outstanding issues to which subparagraph (A) applied), as if the aggregate amount of such capital expenditures constituted the face amount of a prior outstanding issue described in subparagraph (B). “(E) Facilities taken into account.— For purposes of subparagraph (D)(ii), the facilities described in this subparagraph are facilities— “(i) located in the same incorporated municipality or located in the same county (but not in any incorporated municipality), and “(ii) the principal user of which is or will be the same person or two or more related persons. For purposes of clause (i), the determination of whether or not facilities are located in the same governmental unit shall be made as of the date of issue of the issue in question. For purposes of subparagraph (D)(ii), any capital expenditure— “(i) to replace property destroyed or damaged by fire, storm, or other casualty, to the extent of the fair market value of the property replaced, “(ii) required by a change made after the date of issue of the issue in question in a Federal or State law or local ordinance of general application or required by a change made after such date in rules and regulations of general application issued under such a law or ordinance, or “(iii) required by circumstances which could not be reasonably foreseen on such date of issue or arising out of a mistake of law’ or fact (but the aggregate amount of expenditures not taken into account under this clause with respect to any issue shall not exceed $250,000), shall not lie taken into account. “(G) Limitation on loss of tax exemption.— In applying subparagraph (D)(ii) with respect to capital expenditures made after the date of any issue, no obligation issued as a part of such issue shall be treated as an obligation not. described in subsection (a)(1) by reason of any such expenditure for any period before the date on which such expenditure is paid or incurred. “(H) Certain refinancing issues.— In the case of any issue described in subparagraph (A)(ii), an election may be made under subparagraph (D) only if all of the prior issues being redeemed are issues to which subparagraph (A) applies. In applying subparagraph (D)(ii) with respect to such a refinancing issue, capital expenditures shall be taken into account only for purposes of determining whether the prior issues being redeemed qualified (and would have continued to qualify) under subparagraph (A).”

5. 1969

   Tax Reform Act of 1969

   Pub. L. 91–172 title VI § 601(a) · 83 Stat. 487

   1. Added · 26 U.S.C. § 103(d); 26 U.S.C. § 103(e)

      Pub. L. 91–172 added subsec. (d)

   2. Redesignated · 26 U.S.C. § 103(d); 26 U.S.C. § 103(e)

      Pub. L. 91–172 redesignated former subsec. (d) as (e)

   Source evidence

   Code amendment note
   Subsecs. (d), (e). Pub. L. 91–172 added subsec. (d) and redesignated former subsec. (d) as (e).

   Enacted provision · exact public law section
   (a) Not To Be Treated as Tax-Exempt Obligations.— Section 103 (relating to interest on certain governmental obligations) is amended by redesignating subsection (d) as (e), and by inserting after subsection (c) the following new subsection: “(d) Arbitrage Bonds.— “(1) Subsection (a)(1) not to apply.— Except as provided in this subsection, any arbitrage bond shall be treated as an obligation not described in subsection (a)(1). “(2) Arbitrage bond.— For purposes of this subsection, the term ‘arbitrage bond’ means any obligation which is issued as part of an issue all or a major portion of the proceeds of which are reasonably expected to be used directly or indirectly— “(A) to acquire securities (within the meaning of section 26 USC 165. 165(g)(2)(A) or (B)) or obligations (other than obligations described in subsection (a)(1)) which may be reasonably expected at the time of issuance of such issue, to produce a yield over the term of the issue which is materially higher (taking into account any discount or premium) than the yield on obligations of such issue, or “(B) to replace funds which were used directly or indirectly to acquire securities or obligations described in subparagraph (A). “(3) Exception.— Paragraph (1) shall not apply to any obligation— “(A) which is issued as part of an issue substantially all of the proceeds of which are reasonably expected to be used to provide permanent financing for real property used or to be used for residential purposes for the personnel of an educational institution (within the meaning of section 66A Stat. 42. 151(e)(4)) which grants baccalaureate or higher degrees, or to replace funds which were so used, and “(B) the yield on which over the term of the issue is not reasonably expected, at the time of issuance of such issue, to be substantially lower than the yield on obligations acquired or to be acquired in providing such financing. This paragraph shall not apply with respect to any obligation for any period during which it is held by a person who is a substantial user of property financed by the proceeds of the issue of which such obligation is a part, or by a member of the family 26 USC 318. (within the meaning of section 318(a)(1)) of any such person. “(4) Special rules.— For purposes of paragraph (1), an obligation shall not be treated as an arbitrage bond solely by reason of the fact that— “(A) the proceeds of the issue of which such obligation is a part may be invested for a temporary period in securities or other obligations until such proceeds are needed for the purpose for which such issue was issued, or “(B) an amount of the proceeds of the issue of which such obligation is a part may be invested in securities or other obligations which are part of a reasonably required reserve or replacement fund. The amount referred to in subparagraph (B) shall not exceed 15 percent of the proceeds of the issue of which such obligation is a part unless the issuer establishes that a higher amount is necessary. “(5) Regulations.— The Secretary or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this subsection.”

6. 1971

   Revenue Act of 1971

   Pub. L. 92–178 § 315(a)(1) · 85 Stat. 494

   Substituted · 26 U.S.C. § 103(c)(4)(E)

   Pub. L. 92–178, § 315(a)(1), substituted “energy or gas,” for “energy, gas, or water or”

   Source evidence

   Code amendment note
   Subsec. (c)(4)(E). Pub. L. 92–178, § 315(a)(1), substituted “energy or gas,” for “energy, gas, or water or”.

   Enacted provision · exact public law section
   (1) by striking out in subparagraph (E) “energy, gas, or water, or” and by inserting in lieu thereof “energy or gas,”;

7. 1971

   Revenue Act of 1971

   Pub. L. 92–178 § 315(a)(2) · 85 Stat. 494

   Substituted · 26 U.S.C. § 103(c)(4)(F)

   Pub. L. 92–178, § 315(a)(2), substituted “, or” for a period

   Source evidence

   Code amendment note
   Subsec. (c)(4)(F). Pub. L. 92–178, § 315(a)(2), substituted “, or” for a period.

   Enacted provision · exact public law section
   (2) by striking out the period at the end of subparagraph (F) and inserting in lieu thereof “, or”; and

8. 1971

   Revenue Act of 1971

   Pub. L. 92–178 § 315(a)(3) · 85 Stat. 494

   Added · 26 U.S.C. § 103(c)(4)(G)

   Pub. L. 92–178, § 315(a)(3), added subpar. (G)

   Source evidence

   Code amendment note
   Subsec. (c)(4)(G). Pub. L. 92–178, § 315(a)(3), added subpar. (G).

   Enacted provision · exact public law section
   (3) by adding at the end thereof the following: “(G) facilities for the furnishing of water, if available on reasonable demand to members of the general public.”

9. 1971

   Revenue Act of 1971

   Pub. L. 92–178 § 315(b) · 85 Stat. 494

   Substituted · 26 U.S.C. § 103(c)(6)(F)(iii)

   Pub. L. 92–178, § 315(b), substituted “$1,000,000” for “$250,000”

   Source evidence

   Code amendment note
   Subsec. (c)(6)(F)(iii). Pub. L. 92–178, § 315(b), substituted “$1,000,000” for “$250,000”.

   Enacted provision · exact public law section
   (b) Certain Capital Expenditures— Section 103(c) (6) (F) (iii) 82 Stat. 1349. (relating to exception of certain capital expenditures for purposes of the $5,000,000 limit) is amended by striking out “$250,000” and inserting in lieu thereof “$1,000,000”.

10. 1975

    Pub. L. 94–182 title III § 301(a) · 89 Stat. 1051

    1. Added · 26 U.S.C. § 103(e); 26 U.S.C. § 103(f)

       Pub. L. 94–182 and Pub. L. 94–164 made identical amendments, adding subsec. (e)

    2. Redesignated · 26 U.S.C. § 103(e); 26 U.S.C. § 103(f)

       Pub. L. 94–182 and Pub. L. 94–164 made identical amendments, redesignating former subsec. (e) as (f)

    Source evidence

    Code amendment note
    Subsecs. (e), (f). Pub. L. 94–182 and Pub. L. 94–164 made identical amendments, adding subsec. (e) and redesignating former subsec. (e) as (f).

    Enacted provision · exact public law section
    (a) Section 103 of the Internal Revenue Code of 1954 (relating to interest on certain governmental obligations) is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection: “(e) Certain Irrigation Dams.— A dam for the furnishing of water for irrigation purposes which has a subordinate use in connection with the generation of electric energy by water shall be treated as meeting the requirements of subsection (c)(4)(G) if— “(1) substantially all of the stored water is contractually available for release from such dam for irrigation purposes, and “(2) the water so released is available on reasonable demand to members of the general public.”.

11. 1976

    Pub. L. 94–455 title XIX · 90 Stat. 1520

    Struck · 26 U.S.C. § 103(a)

    Pub. L. 94–455, §§ 1901(a)(17)(A), 2105(a), added par. (2) relating to qualified scholarship funding bonds. Former pars. (2) and (3), relating to obligations of the United States and to the obligations of corporations organized under an Act of Congress, were struck out

    Source evidence

    Code amendment note
    Subsec. (a). Pub. L. 94–455, §§ 1901(a)(17)(A), 2105(a), added par. (2) relating to qualified scholarship funding bonds. Former pars. (2) and (3), relating to obligations of the United States and to the obligations of corporations organized under an Act of Congress, were struck out.

    Enacted provision · exact public law
    TITLE XIX— REPEAL AND REVISION OF OBSOLETE, RARELY USED, ETC., PROVISIONS OF INTERNAL REVENUE CODE OF 1954 SUBTITLE A— AMENDMENTS OF INTERNAL REVENUE CODE GENERALLY SEC. 1901. AMENDMENTS OF SUBTITLE A; INCOME TAXES. (a) In General.— (1) Amendment of section 2.— Subsection (c) of section 2 (relating to certain married individuals living apart) is amended to read as follows: “(c) Certain Married Individuals Living Apart.— For purposes of this part, an individual shall be treated as not married at the close of the taxable year if such individual is so treated under the provisions of section 143 (b).” (2) Repeal of section 36.— Section 35 (relating to partially tax-exempt interest received by individuals) is repealed. (3) Amendment of section 39.— Section 39 (relating to certain uses of gasoline, special fuels, and lubricating oil) is amended by striking out subsections (b) and (c) and inserting after subsection (a) the following new subsection: “(b) Exception.— Credit shall not be allowed under subsection (a) for any amount payable under section 6421, 6424, or 6427, if a claim for such amount is timely filed and, under section 6421 (i), 6424 (f), or 6427(f), is payable under such section.” (4) Amendments of section 46.— (A) The second sentence of section 46(a)(4), as redesignated by this Act, is amended by striking out “section 408(e)” and inserting in lieu thereof “section 408(f)”. (B) Clause (iii) of section 46(c)(3)(B) (relating to public utility property) is amended by striking out “47 U.S.C., sec. 222(a)(5)” and inserting in lieu thereof “47 U.S.C. 222(a)(5)”. (5) Amendments or section 48.— (A) Section 48(a)(2)(B)(vi) (relating to section 38 property used outside the United States) is amended by striking out “; 43 U.S.C., sec. 1331)” and inserting in lieu thereof “(43 U.S.C. 1331))”. (B) Section 48(a)(2)(B)(viii) is amended by striking out “47 U.S.C., sec. 702” and inserting in lieu thereof “47 U.S.C. 702”. (6) Amendment of section 50a.— The second sentence of section 50A (a)(3) (relating to liability for tax) is amended by 26 USC 50A. striking out “section 408 (e)” and inserting in lieu thereof “section 408(f)”. (7) Repeal of section 51.— Subchapter A of chapter 1 is 26 USC 51. amended by striking out part V (relating to tax surcharge). (8) Amendments op section 62.— Section 62 (relating to definition 26 USC 62. of adjusted gross income) is amended by redesignating paragraph (11), as added by the Act of October 26, 1974 (Public Law 93–483), as paragraph (12). (9) Additional amendment of section 62.— Section 62(12), as redesignated by subparagraph (A) of this paragraph, is amended by striking out “trade or business to the extent” and inserting in lieu thereof “trade or business, to the extent”. (10) Definition of ordinary income.— Part I of subchapter B of chapter 1 (relating to definitions of gross income, adjusted 26 USC 61. gross income, and taxable income) is amended by adding at the end thereof the following new section: “SEC. 64. ORDINARY INCOME DEFINED. “For purposes of this subtitle, the term ‘ordinary income’ includes any gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231(b). Any gain from the sale or exchange of property which is treated or considered, under other provisions of this subtitle, as ‘ordinary income’ shall be treated as gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231(b).” (11) Definition of ordinary loss.— Part I of subchapter B of chapter 1 (relating to definitions of gross 26 USC 61. income, adjusted gross income, and taxable income) is amended by adding at the end thereof the following new section: “SEC. 65. ORDINARY LOSS DEFINED. “For purposes of this subtitle, the term ‘ordinary loss’ includes any loss from the sale or exchange of property which is not a capital asset. Any loss from the sale or exchange of property which is treated or considered, under other provisions of this subtitle, as ‘ordinary loss’ shall be treated as loss from the sale or exchange of property which is not a capital asset.” (12) Amendment of section 72.— Section 72(d)(1) (relating 26 USC 72. to employees’ annuities) is amended by striking out “(whether or not before January 1, 1954)” and by striking out “(under this paragraph and prior income tax laws)”. (13) Additional amendment of section 72.— Section 72(m)(4)(A) (relating to assignments or pledges) is amended by striking out “an individual retirement amount” and inserting in lieu thereof “an individual retirement account”. (14) Repeal of section 76.— Section 76 (relating to mortgages 26 USC 76. made or obligations issued by joint stock land banks) is repealed. (15) Amendment of section 83.— Section 83(b)(2) (relating 26 USC 83. to election to include the value of restricted property in gross income) is amended by striking out “(or, if later, 30 days after 26 USC 1 note. the date of the enactment of the Tax Reform Act of 1969)”. (16) Amendment of section 101.— Section 101 is amended by 26 USC 101. striking out subsection (f) (relating to effective date of section). (17) Amendments of section 103.— (A) Section 103(a) (relating to tax-exempt interest), as 26 USC 103. amended by this Act, is amended by inserting “and” at the end of paragraph (1), by striking out paragraphs (2) and (3), and by redesignating paragraph (4) as paragraph (2). (B) Section 103 is amended by striking out subsection (b) (relating to certain exceptions) and by redesignating subsections (c), (d), (e) (f), and (g)(as added by this Act) as subsections (b), (c), (d), (e), and (f) respectively. (C) Section 103(b)(1) (relating to industrial development bonds), as redesignated by subparagraph (B) of this paragraph, is amended by inserting “or (2)” after “(a)(1)”. (D) Section 103(c)(2)(A) (relating to definition of arbitrage bonds), as redesignated by subparagraph (B) of this paragraph, is amended by inserting “or (2)” after “(a)(1)”. (E) Section 103(e) (relating to certain cross references) as redesignated by subparagraph (B) of this paragraph, is amended to read as follows: “(e) Cross References.— “For provisions relating to the taxable status of— “(1) Puerto Rican bonds, see section 3 of the Act of March 2, 1917, as amended (48 U.S.C. 745). “(2) Virgin Islands insular and municipal bonds, see section 1 of the Act of October 27, 1919 (48 U.S.C. 1403). “(3) Certain obligations issued under title I of the Housing Act of 1949, see section 102(g) of title I of such Act (42 U.S.C. 1452(g)).” (18) Amendments of section 104.— (A) Section 104(a)(4) (relating to exclusion of compensation for injuries or sickness) is amended by striking out “;60 Stat. 1021” (B) Section 104(c)(2) as redesignated by section 505 of this Act, is amended to read as follows: “(2) For exclusion of part of disability retirement pay from the application of subsection (a)(4) of this section, see section 1403 of title 10, United States Code (relating to career compensation laws).” (19) Amendment of section 115.— Section 115 (relating to income of States, municipalities, etc.) is amended to read as follows: “SEC. 115. INCOME OF STATES, MUNICIPALITIES, ETC. “Gross income does not include— “(1) income derived from any public utility or the exercise of any essential governmental function and accruing to a State or any political subdivision thereof, or the District of Columbia; or “(2) income accruing to the government of any possession of the United States, or any political subdivision thereof.” (20) Amendment of section 116.— Subsection (a) of section 116 (relating to partial exclusion of dividends received by individuals) is amended by striking out “Effective with respect to any taxable year ending after July 31, 1954, gross income” and inserting in lieu thereof “Gross income”. (21) Amendment of section 124.— Section 124 (relating to cross references to other Acts) is amended to read as follows: “SEC. 124. CROSS REFERENCES TO OTHER ACTS. “(a) For exemption of— “(1) Adjustments of indebtedness under wage earners’ plans, see section 679 of the Bankruptcy Act (11 U.S.C. 1079). “(2) Allowances and expenditures to meet losses sustained by persons serving the United States abroad, due to appreciation of foreign currencies, see section 5943 of title 5, United States Code. “(3) Amounts credited to the Maritime Administration under section 9(b)(6) of the Merchant Ship Sales Act of 1946, see section 9(c)(1) of that Act (50 U.S.C. App. 1742). “(4) Benefits under laws administered by the Veterans’ Administration, see section 3101 of title 38, United States Code. “(5) Earning of ship contractors deposited in special reserve funds, see section 607(d) of the Merchant Marine Act, 1936 (46 U.S.C. 1177). “(6) Income derived from Federal Reserve banks, including capital stock and surplus, see section 7 of the Federal Reserve Act (12 U.S.C. 531). “(7) Railroad retirement annuities and pensions, see section 12 of the Railroad Retirement Act of 1935 (45 U.S.C. 2281). “(8) Railroad unemployment benefits, see section 2(e) of the Railroad Unemployment Insurance Act (45 U.S.C. 352). “(9) Special pensions of persons on Army and Navy medal of honor roll, see 38 U.S.C. 562(a)–(c). “(b) For extension of military income-tax-exemption benefits to commissioned officers of Public Health Service in certain circumstances, see section 212 of the Public Health Service Act (42 U.S.C. 213).” (22) Amendment of section 143.— Section 143 (relating to 26 USC 143. determination of marital status) is amended by striking out “this part” each place it appears and inserting in lieu thereof “this part and part V”. (23) Amendment of section 151.— Section 151 (e)(4)(defining 26 USC 151. student and educational institution) is amended to read as follows: “(4) Student defined.— For purposes of paragraph (1)(B)(ii), the term ‘student’ means an individual who during each of 5 calendar months during the calendar year in which the taxable year of the taxpayer begins— “(A) is a full-time student at an educational organization described in section 170(b)(1)(A)(ii); or “(B) is pursuing a full-time course of institutional on-farm training under the supervision of an accredited agent of an educational organization described in section 170(b)(1)(A)(ii) or of a State or political subdivision of a State.” (24) Amendments or section 152.— (A) Section 152(a)(defining dependent) is amended— 26 USC 152. (i) by inserting “or” at the end of paragraph (8), (ii) by striking out “, or” at the end of paragraph (9) and inserting in lieu thereof a period, and (iii) by striking out paragraph (10). (B) Section 152(b)(3) (relating to rules concerning the definition of dependent) is amended to read as follows: “(3) The term ‘dependent’ does not include any individual who “Dependent.” is not a citizen or national of the United States unless such individual is a resident of the United States or of a country contiguous to the United States. The preceding sentence shall not exclude from the definition of ‘dependent’ any child of the tax-payer legally adopted by him, if, for the taxable year of the tax-payer, the child has as his principal place of abode the home of the taxpayer and is a member of the taxpayer’s household, and if the taxpayer is a citizen or national of the United States.” (25) Amendments of section 164.— Section 164(d)(2) (relating 26 USC 164. to apportionment of taxes on real property between the seller and purchaser) is amended by striking out subparagraphs (B) and (C), and by redesignating subparagraph (D) as subparagraph (B). (26) Amendments of section 165.— Section 165 (relating 26 USC 165. to deduction of losses) is amended by striking out subsection (i) (relating to property confiscated by Cuba), and by redesignating subsection (j) as subsection (i). (27) Amendments or section 167.— (A) Section 167 (d) (relating to agreement as to useful life for depreciation) is amended by striking out “after the date of enactment of this title” and inserting in lieu thereof “after August 16, 1954”. (B) Section 167(f)(2)(defining personal property) is amended by striking out “the date of the enactment of the Revenue Act of 1962” and inserting in lieu thereof “October 16, 1962”. (C) Section 167(1)(4)(A) (relating to election as to increased-capacity property) is amended by striking out “within 180 days after the date of the enactment of this subparagraph” and inserting in lieu thereof “before June 29, 1970,”. (28) Amendments of section 170.— (A) (i) Section 170 (relating to charitable deductions) is amended by striking out subsections (f)(6) and (g) (relating to unlimited charitable deductions allowed for taxable years beginning before January 1, 1975), and by redesignating subsections (h), (i), and (j) as subsections (g), (h), and (i), respectively. (ii) Section 170(b)(1) (relating to percentage limitations on deductions for individuals) is amended by striking out subparagraph (C) (relating to unlimited deductions), and by redesignating subparagraphs (D), (E), and (F) as subparagraphs (C), (D), and (E), respectively. (iii) Section 170(b)(1)(A)(vii) is amended by striking out “subparagraph (E)” and inserting in lieu thereof “subparagraph (D)”. (iv) Section 170(b)(1)(B)(ii) is amended by striking out “subparagraph (D)” and inserting in lieu thereof “subparagraph (C)”. (v) Section 170(c) (relating to definition of charitable contribution) is amended by striking out in the last sentence “subsection (h)” and inserting in lieu thereof “subsection (g)”. (vi) Section 170(e)(1)(B)(ii) (relating to certain contributions of ordinary income and capital gain property) is amended by striking out “subsection (b)(1)(E)” and inserting in lieu thereof “subsection (b)(1)(D)”. (B) Section 170(d)(1)(A) (relating to carryover of excess charitable contributions) is amended by striking out “(30 percent, in the case of a contribution year beginning before January 1, 1970)”. (C) Section 170(h) (relating to disallowance of deductions in certain cases), as redesignated by subparagraph (A)(i) of this paragraph, is amended by striking out “64 Stat. 996;”. (D) Section 170(i) (relating to cross references), as redesignated by subparagraph (A)(i) of this paragraph, is amended to read as follows: “(i) Other Cross References.— “(1) Fer charitable contributions of estates and trusts, see section 642(c). “(2) For nondeductibilit; of contributions by common trust funds, see section 584. “(3) For charitable contributions of partners, see section 702. “(4) For charitable contributions of nonresident aliens, see section 873. “(5) For treatment of gifts for benefit of or use in connection with the Naval Academy as gifts to or for use of the United States, see section 6973 of title 10, United States Code. “(6) For treatment of gifts accepted by the Secretary of State under the Foreign Service Act of 1946 as gifts to or for the use of the United States, see section 1021(e) of that Act (22 U.S.C. 809(e)). “(7) For treatment of gifts of money accepted by the Attorney General for credit to the ‘Commissary Funds, Federal Prisons’ as gifts to or for the use of the United States, see section 2 of the Act of May 15, 1952. as amended by the Act of July 9, 1952 (31 U.S.C. 7 25s–4).” (29) Amendments of section 172.— (A) (i) Section 172(b)(1) (relating to years to which loss Ante, p. 1755. may be carried) is amended by striking out subparagraph (E). (ii) Section 172(b)(3) is amended by striking out subparagraphs 26 USC 172. (E) and (F). (B) Section 172(c) (relating to definition of net operating loss) is amended by striking out “(for any taxable year ending after December 31, 1953)”. (C) (i) Section 172 (relating to net operating loss deduction) is amended by striking out subsections (f), (g), and (i), and by redesignating subsections (h), (j), (k), and (1) as subsections (f) , (g). (h), and (i), respectively. (ii) Section 172(b)(1)(C) (relating to regulated transportation corporations) is amended by striking out “subsection (j)(1)” and “subsection (j)”, and inserting in lieu thereof “subsection (g)(1)” and “subsection (g)”, respectively. (iii) Paragraphs (1)(D) and (3)(C)(i) of section 172 Post, p. 1920. (b) (relating to net operating loss carryovers and carry-backs) are each amended by striking out “subsection (k)” and inserting in lieu thereof “subsection (h)”. (iv) Section 172(b)(2) (relating to amount of carrybacks and carryovers) is amended by striking out “subsections (i) and (j)” and inserting in lieu thereof Subsection (g)”. (D) Section 172(e) (relating to law applicable to computations) is amended by striking out the last sentence. (E) Section 172(g)(2) (relating to certain regulated transportation corporations), as redesignated by subparagraph (C) of this paragraph, is amended by striking out paragraph (4). (30) Amendments of sections 174 and 175.— Section 174(a)(2) 26 USC 174, 175. (A)(1) (relating to research and development expenditures) and section 175(d)(1)(A) (relating to soil and water conservation expenditures) are each amended by striking out “the date on which this title is enacted,” and inserting in lieu thereof “August. 16, 1954,”. (31) Repeal of section 187.— Section 187 (relating to rapid 26 USC 187. amortization for certain coal mine safety equipment) is repealed. (32) Amendment of section 219.— Section 219(b)(2)(A)(iv) 26 USC 219. (disqualifying governmental plan participants from contributing to individual retirement accounts, etc.) is amended by striking out “division” and inserting in lieu thereof “subdivision”. (33) Repeat of section 242.— Section 242 (relating to partially 26 USC 242. tax-exempt interest received by corporations) is repealed. (34) Amendments of section 243.— (A) Section 243(a)(2) (relating to the dividends received deduction) is amended by inserting after “Small Business Investment Act of 1958” the following: “(15 U.S.C. 661 and following)”. (B) Section 243(b)(2)(A) (relating to dividends received by a member of an affiliated group) is amended by striking out “(except that in the case of a taxable year of a member beginning in 1963 and ending in 1964, if the election is effective for the taxable year of the common parent corporation which includes the last day of such taxable year of such member, such election shall be effective for such taxable year of such member, if such member consents to such election with respect to such taxable year)”. (35) Amendment of section 247.— Section 247(b)(2) (relating to preferred stock) is amended to read as follows: “(2) Preferred stock.— “(A) In general.— The term ‘preferred stock’ means stock issued before October 1, 1942, which during the whole of the taxable year (or the part of the taxable year after its issue) was stock the dividends in respect of which were cumulative, limited to the same amount, and payable in preference to the payment of dividends on other stock. “(B) Certain stock issued on or after October 1, 1942.— Stock issued on or after October 1, 1942, shall be deemed for purposes of this paragraph to have been issued before October 1, 1942, if it was issued to refund or replace bonds or debentures issued before October 1, 1942, or to refund or replace other preferred stock (including stock which is preferred stock by reason of this subparagraph or subparagraph (D)), but only to the extent that the par or stated value of the new stock does not exceed the par, stated, or face value of the bonds or debentures issued before October 1, 1942, or the other preferred stock, which such new stock is issued to refund or replace. “(C) Determination under regulations.— The determination of whether stock was issued to refund or replace bonds or debentures issued before October 1, 1942, or to refund or replace other preferred stock, shall be made under regulations prescribed by the Secretary. “(D) Issuance of stock.— For purposes of subparagraph (B), issuance of stock includes issuance either by the same or another corporation in a transaction which is a reorganization (as defined in section 368(a)), a transaction to which section 371 (relating to insolvency reorganizations) applies, 26 USC 1081. or a transaction subject to part VI of subchapter 0 (relating to exchanges in SEC. obedience orders), or the respectively corresponding provisions of the Internal Revenue Code of 1939.” (36) Amendment of section 248.— Section 248(c) (relating to organizational expenditures) is amended by striking out “the date of enactment of this title” and inserting in lieu thereof “August 16, 1954”, (37) Amendment of section 265.— Section 265(2) (relating to tax-exempt interest) is amended by striking out “(other than obligations of the United States issued after September 24, 1917, and originally subscribed for by the taxpayer)”, (38) Amendment of section 269.— Section 269 (relating to 26 USC 269. acquisitions made to evade or avoid income tax) is amended by striking out subsection (c) (relating to presumption in the ease of disproportionate purchase price). (39) Amendment of section 275.— Section 275(a)(1)(C) 26 USC 275. relating to nondeductible taxes) is amended by striking out (“, and corresponding provisions of prior revenue laws”. (40) Amendments of section 281.— (A) Section 281(d)(1)(A) (relating to definition of terminal 26 USC 281. railroad corporation) is amended by inserting after “Interstate Commerce Act” the following: “(49 U.S.C. 1 and following) (B) Section 281 (relating to terminal railroad corporations and their shareholders) is amended by striking out subsection (e) (relating to taxable years ending before October 23, 1962) and by redesignating subsection (f) as subsection (e). (41) Amendment of section 301.— Section 301 (relating to distributions 26 USC 301. of property) is amended by striking out subsection (e) (relating to certain distributions by personal service corporations). (42) Amendments of section 311.— (A) Section 311(d)(1) (relating to appreciated property 26 USC 311. used to redeem stock) is amended by striking out “then again shall be recognized” and inserting in lieu thereof “then a gain shall be recognized”. (B) (i) Section 311(d)(2) (relating to exceptions and limitations) is amended by striking out subparagraph (C) (relating to certain distributions before December 1, 1974) and by redesignating subparagraphs (D), (E), (F), and (G) as subparagraphs (C), (D). (E), and (F), respectively. (ii) The amendments made by clause (i) shall apply only 26 USC 311 note. with respect to distributions after November 30, 1974. (C) Section 311(d)(2)(C), as redesignated by subparagraph (B) of this paragraph, is amended by striking out “26 Stat. 209;” and “38 Stat. 730;”. (43) Amendments of section 312.— (A) Section 312(d)(1) (relating to certain distributions 26 USC 312. of stock and securities) is amended by striking out “this Code” each place it appears and inserting in lieu thereof “this title”. (B) Section 312 (relating to earnings and profits) is amended by striking out subsection (h) (relating to personal service corporations) and by redesignating subsections (i) and (j) as subsections (h) and (i), respectively. (C) Subsection (i) of section 312 (relating to distribution of proceeds of certain loans), as redesignated by subparagraph (B) of this paragraph, is amended to read as follows: “(i) Distribution of Proceeds of Loan Insured by the United States.— If a corporation distributes property with respect to its stock and if, at the time of distribution— “(1) there, is outstanding a loan to such corporation which was made, guaranteed, or insured by the United States (or by any agency or instrumentality thereof), and “(2) the amount of such loan so outstanding exceeds the adjusted basis of the property constituting security for such loan, then the earnings and profits of the corporation shall be increased by the amount of such excess, and (immediately after the distribution) shall be decreased by the amount of such excess. For purposes of paragraph (2), the adjusted basis of the property at the time of distribution shall be determined without regard to any adjustment under section 1016(a)(2) (relating to adjustment for depreciation, etc.). For purposes of this subsection, a commitment to make, guarantee, or insure a loan shall be treated as the making, guaranteeing, or insuring of a loan.” (D) Section 312(j)(3) (relating to foreign investment companies), as redesignated by subsection (b)(32)(B)(i), is amended to read as follows: “(3) Partial liquidations and redemptions.— If a foreign investment company (as defined in section 1246) distributes amounts in partial liquidation or in a redemption to which section 302(a) or 303 applies, the part of such distribution which is properly chargeable to earnings and profits shall be an amount which is not in excess of the ratable share of the earnings and profits of the company accumulated after February 28, 1913, attributable to the stock so redeemed.” (44) Amendment of section 333.— Section 333(a)(1) (relating to election as to recognition of gain in certain liquidations) is amended by striking out “on or after June 22, 1954”. (45) Amendment of section 334.— Section 334(b)(2)(A) (relating to liquidation of subsidiary) is amended to read as follows: “(A) the distribution is pursuant to a plan of liquidation adopted not more than 2 years after the date of the transaction described in subparagraph (B) (or, in the case of a series of transactions, the date of the last such transaction); and”. (46) Amendments of section 337.— (A) Section 337(a) (relating to nonrecognition of gain or loss on certain liquidations) is amended to read as follows: “(a) General Rule.— If, within the 12month period beginning on the date on which a corporation adopts a plan of complete liquidation, all of the assets of the corporation are distributed in complete liquidation, less assets retained to meet claims, then no gain or loss shall be recognized to such corporation from the sale or exchange by it of property within such 12month period.” (B) The first sentence, of section 337(d) (relating to certain minority stockholders) is amended by striking out “on or after January 1, 1958”. (47) Repeal of section 342.— Section 342 (relating to the liquidation of certain foreign personal holding companies) is repealed. (48) Amendments of section 351.— (A) Section 351(a) (relating to transfer to corporation controlled by transferor) is amended by striking out “(including, in the case of transfers made on or before June 30, 1967, an investment company)”. (B) Section 351(d) (relating to application of June 30, 1967, date) is amended to read as follows: “(d) Exception.— This section shall not apply to a transfer of property to an investment company.” (C) The amendments made by this paragraph shall take effect with respect to transfers of property occurring after the date of the enactment of this Act. (49) Repeal of section 363.— Section 363 (a cross reference to 26 USC 363. other sections) is repealed. (50) Amendments of section 371.— Section 371 (a)(1) (relating 26 USC 371. to certain reorganization exchanges by corporations) is amended— (A) by striking out “49 Stat. 922;” and (B) by striking out “(52 Stat. 883–905; 11 U.S.C., chapter 10) or the corresponding provisions of prior law” and inserting in lieu thereof “(11 U.S.C. 501 and following)”. (51) Amendment of section 372.— Section 372(a) (relating 26 USC 372. to basis in connection with bankruptcy proceedings) is amended by striking out “54 Stat. 709;”. (52) Repeal of section 373.— Section 373 (relating to nonrecognition 26 USC 373. of loss in certain railroad reorganizations) is repealed. (53) Amendment of section 374 .— Section 374(a)(1) (relating 26 USC 374. to non recognition of gain or loss in certain railroad reorganizations) is amended by striking out “49 Stat. 922;”. (54) Amendment of section 381.— Section 381 (c) (relating to 26 USC 381. items carried over in certain corporate acquisitions) is amended by striking out paragraph (20). (55) Repeal of sections 391 through 395.— Subchapter C of 26 USC 391–395. chapter 1 (relating to corporate distributions and adjustments) is amended by striking out part VII (relating to effective dates of subchapter C). (56) Amendments of section 401.— (A) Paragraphs (12) and (13) of section 401(a) (relating 26 USC 401. to requirements for qualification) are each amended by striking out “the date of the enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu thereof “September 2, 1974”. (B) Paragraph (15) of section 401(a) is amended by striking out “the date of the enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu 29 USC 1001 note. thereof “September 2, 1974,”. (C) Paragraph (19) of section 401(a) is amended by striking out “enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu thereof “September 2, 1974”. (D) The last sentence of section 401(a) is amended to read as follows: “Paragraphs (11), (12), (13), (14), (15), (19), and (20) shall apply only in the case of a plan to which section 411 (relating to minimum vesting standards) applies without regard to subsection (e)(2) of such section.” (57) Amendments of section 402.— (A) Section 402(a)(4) (relating to distributions made to 26 USC 402. nonresident alien individuals) is amended by striking out “basic salary” each place it appears therein and inserting in lieu thereof “basic pay”, and by amending the last sentence in such paragraph to read as follows: “In the case of distributions under the civil service retirement laws, the term ‘basic pay’ shall have the meaning provided in section 8331(3) of title 5, United States Code.” (B) Section 402 (relating to taxability of beneficiary of employees’ trusts) is amended by striking out subsection (d) (relating to certain trust agreements made before October 21, 1942), (C) (i) So much of the third sentence of section 402(e)(4) 26 USC 402. (A) (relating to definition of lump sum distributions) as precedes “a distribution of an annuity contract” is amended to read as follows: “Except for purposes of subsection (a)(2) and section 403(a)(2),”. (ii) The amendment made by clause (i) shall apply with respect to distributions or payments made after December 31, 1973, in taxable years beginning after such date. (58) Amendment of section 403.— The last two sentences of section 403(a)(4) (relating to taxation of employee annuities) are amended to read as follows: “For purposes of this title, a transfer described in subparagraph (B)(1) shall be treated as a rollover contribution described in section 408(d)(3). Subparagraph (B)(ii) does not apply in the case of a transfer to an employees’ trust, or annuity plan if any part of a payment described in subparagraph (A) is attributable to an annuity plan under which the employee was an employee within the meaning of section 401(c)(1) at the time contributions were made on his behalf under the plan.” (59) Amendment of section 404.— Section 404 (relating to deduction for contributions to pension plans, etc.) is amended by striking out subsection (d) (relating to carryover of pre–1954 unused deductions). (60) Amendment of section 409.— Section 409(b)(3)(C) (relating to tax-free rollovers of individual retirement bonds) is amended by striking out “section 403(d)(3).” and inserting in lieu thereof “section 408 (d)(3).” (61) Amendments of section 410.— (A) Subparagraphs (C) and (D) of section 410(a)(5) (relating to breaks in service) are each amended by striking out “purposes of subsection (a)(1)” and inserting in lieu thereof “purposes of paragraph (1)”. (B) Paragraph (1)(C) of section 410(c) (relating to application of minimum participation standards) is amended by striking out “the date of the enactment of the Employee 29 USC 1001 note. Retirement Income Security Act of 1974” and inserting in lieu thereof “September 2, 1974,”. (C) Paragraph (2) of section 410(c) is amended by striking out “the day before the date of the enactment of this section” and inserting in lieu thereof “September 1, 1974”. (62) Amendments of section 411.— (A) Subsection (a) of section 411 (relating to minimum vesting standards) is amended by striking out “subsection (a)(8)” and inserting in lieu thereof “paragraph (8)”. (B) Subsection (a)(3)(D)(iii) of section 411 is amended— (i) by striking out “the date of the enactment of the Employee Retirement Income Security Act of 1974” and “the date of the enactment of such Act” and inserting in lieu thereof in both such places “September 2, 1974”, and (ii) by striking out “the date of the enactment of the Act” and inserting in lieu thereof “September 2, 1974,”. (C) The heading for subparagraph (C) of section 411 (a)(7) is amended to read as follows: “(C) Repayment of subparagraph (b) distributions.—” (D) Subsection (b)(1)(D)(i) and (e)(1)(C) of section 411 are each amended by striking out “the date of the enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu thereof “September 2, 1974”. 29 USC 1001 note. (E) Subsection (e)(2) of section 411 is amended by striking out “the date before the date of the enactment of the Employee Retirement Income Security Act of 1974” and 26 USC 411. inserting in lieu thereof “September 1, 1974”. (63) Amendments of section 412.— (A) Subsection (h) of section 412 (relating to minimum 26 USC 412. funding standards) is amended by striking out “the day before the date of the enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu thereof “September 1, 1974”. (B) Subsection (h)(5) of section 412 is amended by striking out “the date of the enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu thereof “September 2, 1974”. (64) Amendments of section 414.— (A) The heading for section 414(f) (relating to multi-employer 26 USC 414. plans) is amended to read as follows: ‘(f) Multiemployer Plan.—” (B) Section 414(1) (relating to mergers and consolidations of plans or transfers of plan assets) is amended by striking out “the date of the enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu thereof “September 2, 1974”. (65) Amendments of section 415.— (A) Section 415(b)(2)(A) (relating to adjustments for 26 USC 415. certain forms of benefits) is amended by striking out “and 409(b)(3)(C)” and inserting in lieu thereof “and 409(b)(3)(C))”. (B) Section 415(b)(2)(B) is amended by striking out “(as defined in section 401(a)(11)(II)(iii))” and inserting in lieu thereof “(as defined in section 401 (a)(11)(G)(iii))”. (66) Amendments of section 453.— (A) Section 453(c)(3) (relating to adjustment in tax for 26 USC 453. amounts previously taxed) is amended by striking out “corresponding provisions of the Internal Revenue Code, of 1939” and inserting in lieu thereof “corresponding provisions of the Internal Revenue Code of 1954”. (B) Section 453(d)(4)(B) (relating to liquidations to which section 337 applies) is amended by striking out “or section 617(d)(1)” and inserting in lieu thereof “, 617(d)” (67) Amendment of section 455.— Section 455(c)(3)(B) 26 USC 455. (relating to prepaid subscription income) is amended by striking out “for his first taxable year (i) which begins after December 31, 1957, and (ii) in which he receives prepaid subscription income in the trade or business” and inserting in lieu thereof “for his first taxable year in which he receives prepaid subscription income in the trade or business”. (68) Amendment of section 458.— Section 456(c)(3)(B) 26 USC 456. (relating to election without consent with respect to treatment of prepaid dues) is amended by striking out “for its first taxable year (i) which begins after December 31, 1960, and (ii)” and inserting in lieu thereof “for its first taxable year”. (69) Amendments of section 461.— (A) Section 461(c) (relating to accrual of real property taxes) is amended by striking out paragraph (2) and by redesignating paragraph (3) as paragraph (2). (B) Section 461(c)(2) (relating to elections without consent), as redesignated by subparagraph (A), is amended by striking out “his first taxable year which begins after December 31, 1953, and ends after the date of enactment of this title in which the taxpayer” and inserting in lieu thereof “his first taxable year in which he”. (70) Amendments of section 481.— (A) Section 481(b) (relating to limitation on tax where substantial adjustments are required by a change in accounting method) is amended by striking out paragraphs (4), (5), and (6) (relating to pre–1954 adjustments). (B) Section 481(b)(1) and (2) are each amended by striking out “, other than the amount of such adjustments to which paragraph (4) or (5) applies,” each place it appears. (71) Amendments of section 508.— (A) Subsections (a) and (b) of section 508 (relating to special rules relating to 501(c)(3) organizations) are each amended by striking out the hist sentence therein. (B) Section 508(e)(2) (relating to special rules for existing private foundations) is amended by striking out subparagraph (A) (relating to taxable years beginning before 1972), by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively, and by striking out “(B)” in subparagraph (B)(as so redesignated) and inserting in lieu thereof “(A)”. (C) Section 508(d)(2)(A) (relating to disallowance of deductions for certain charitable gifts or bequests) is amended by striking out “(e)(2)(B) and (C)” and inserting in lieu thereof “(e)(2)”. (72) Amendments of section 514.— (A) Section 514(c)(1) (relating to definition of acquisition indebtedness) is amended by striking out the comma at the end of subparagraph (C) and all that follows, and inserting in lieu thereof a period. (B) Section 514 (relating to unrelated debt-financed income) is amended by striking out subsection (f) (relating to definition of business lease), by striking out subsection (g) (relating to definition of business lease indebtedness), and by redesignating subsection (h) as subsection (f). (C) Section 514(b)(3)(C)(iii) (relating to definition of debt-financed property) is amended to read as follows: “(iii) shall not apply to property subject to a lease which is a business lease (as defined in this section immediately before the enactment of the Tax Reform Act of 1976).” (D) Section 514(f) (relating to personal property leased with real property), as redesignated by subparagraph (B) of this paragraph, is amended by striking out “and the term ‘premises’ include” and inserting in lieu thereof “includes”. (73) Amendments of section 534.— (A) Section 534(b) (relating to mailing notices of deficiency) is amended by striking out the last sentence, (B) Subsection (e) of section 534 (relating to effective date of section) is repealed. (74) Amendment of section 533.— Section 535(b)(1) (relating 26 USC 535. to adjustments in computing accumulated taxable income) is amended by striking out “(other than the excess profits tax imposed by subchapter E of chapter 2 of the Internal Revenue Code of 1939 for taxable years beginning after December 31, 1940)”. (75) Amendments of section 537.— (A) Section 537(b)(2) (relating to definition of excess 26 USC 537. business holdings redemption needs) is amended by striking out “, with respect to taxable years of the corporation ending after May 26, 1969,”. (B) Section 537(b)(4) (relating to inferences as to prior years) is amended by striking out “or (2)”. (76) Amendments of section 542.— (A) Section 542(a)(2) (relating to definition of personal 26 USC 542. holding company) is amended by striking out the last sentence. (B) Section 542(b)(2) (relating to ineligible affiliated group) is amended by striking out “, other than an affiliated group of railroad corporations the common parent of which would be eligible to file a consolidated return under section 141 of the Internal Revenue Code of 1939 prior to its amendment by the Revenue Act of 1942,”. (C) Section 542(c)(2) (relating to financial institutions) is amended by striking out “without regard to subparagraphs (D) and (E) thereof”, (D) Section 542(c)(8) (relating to small business investment companies) is amended by inserting after “Small Business Investment Act of 1958” the following: “(15 U.S.C. 661 and following)”. (77) Amendments of section 545.— (A) Section 545(b)(1) (relating to deduction of taxes in 26 USC 545. computing undistributed personal holding company income) is amended— (i) in the first sentence, by striking out “(other than the excess profits tax imposed by subchapter E of chapter 2 of the Internal Revenue Code of 1939 for taxable years beginning after December 31, 1940)”; and (ii) by striking out the last two sentences (relating to deduction of taxes). (B) Section 545(b) (relating to adjustments in computing undistributed personal holding company income) is amended by striking out paragraph (7) (relating to payment of indebtedness incurred before 1934). (C) Section 545(c)(2)(A) (relating to corporations to which special adjustment applies) is amended by striking out “the date of enactment of this subsection” and inserting in lieu thereof “February 26, 1964”. (78) Amendment of section 547.— Section 547 (relating to the 26 USC 547. deduction of deficiency dividends) is amended by striking out subsection (h) (relating to the effective date). ‘ (79) Amendment of section 551.— Section 551(c) (relating to 26 USC 551. foreign personal holding company income tax returns), as redesignated by subsection (b)(1)(F) of this section, is amended by striking out “taxable income, foreign personal holding com-pany,” and inserting in lieu thereof “taxable income, foreign personal holding company income,”. (80) Amendment of section 554.— The first sentence of section 556(b)(1) (relating to deduction of taxes in computing undistributed foreign personal holding company income) is amended by striking out “(other than the excess profits tax imposed by subchapter E of chapter 2 of the Internal Revenue Code of 1939 for taxable years beginning after December 1, 1940)”. (81) Amendment of section 584.— Section 564 (relating to dividend carryovers) is amended by striking out subsection (c) (relating to carryovers from pre–1954 years). (82) Repeal of section 583.— Section 583 (relating to deduction of dividends paid on certain preferred stock by banks or trust companies) is repealed. (83) Repeal of section 592.— Section 592 (relating to the deduction by mutual savings banks for repayment of certain loans) is repealed. (84) Amendments of section 593.— (A) Section 593(b)(2) (relating to additions to bad debt reserves for mutual savings banks, etc.) is amended by striking out, in the table in subparagraph (A), the following: “1969 60 percent 1970 57 percent 1971 54 percent 1972 51 percent 1973 49 percent 1974 47 percent 1975 45 percent” (B) Section 593(c) (relating to reserves for mutual savings banks) is amended by striking out paragraphs (2), (3), (4), and (5), by redesignating paragraph (6) as paragraph (3), and by inserting immediately after paragraph (1) the following: “(2) Certain pre-1963 reserves.— Notwithstanding the second sentence of paragraph (1), any amount allocated pursuant to paragraph (5)(as in effect immediately before the enactment of the Tax Reform Act of 1976) during a taxable year beginning before January 1, 1977, to the reserve for losses on qualifying real property loans out of the surplus, undivided profits, and bad debt reserves (determined as of December 31, 1962) attributable to the period before the first taxable year beginning after December 31, 1951, shall not be treated as a reserve for bad debts for any purpose other than determining the amount referred to in subsection (b)(1)(B), and for such purpose such amount shall be treated as remaining in such reserve.” (C) Section 593 is amended by striking out subsection (d) (relating to taxable years beginning in 1962 and ending in 1963), and by redesignating subsections (e) and (f) as subsections (d) and (e),respectively. (D) Section 593(b)(2)(E)(1) is amended by striking out “subsection (f)” and inserting in lien thereof “subsection (e)”- (85) Repeal of section 601.— Subchapter H of chapter 1 relating to 26 USC 601. banking institutions) is amended by striking out part III (relating to special deduction for bank affiliates). (86) Amendments of section 613a.— (A) Section 613A(b)(1)(C) (relating to exemption for 26 USC 613A. certain domestic gas wells) is amended by striking out “within the meaning of section 613(b)(1)(A)”. (B) Section 613A(c)(6)(i) (relating to limitations on percentage depletion in case of oil and gas wells) is amended by striking out “determined with” and inserting in lieu thereof “determined without”. (87) Amendments of section 614.— (A) (i) Section 614(c) (relating to aggregation of mineral 26 USC 614. interests in mines) is amended by striking out paragraph (4) (relating to special rule as to exploration deductions prior to aggregation). (ii) The amendment made by clause (i) shall apply with 26 USC 614 note. respect to elections to form aggregations of operating mineral interests made under section 614(c)(1) of the Internal Revenue Code of 1954 for taxable years beginning after December 31, 1976. (B) The third sentence of section 614(c)(2) (relating to election to treat a single interest as more than one property) is amended to read as follows: “A separate property so formed may, under regulations prescribed by the Secretary, be included as a part of an aggregation in accordance with paragraphs (1) and (3).” (C) Section 614(c)(3) (relating to manner and scope of election) is amended to read as follows: “(3) Manner and scope of election.— The elections provided by paragraphs (1) and (2) shall be made, in accordance with regulations prescribed by the Secretary, not later than the time prescribed for filing the return (including extensions thereof) for the first taxable year— “(A) in which, in the ease of an election under paragraph (1), any expenditure for development or operation in respect of the separate operating mineral interest is made by the taxpayer after the acquisition of such interest, or “(B) in which, in the case of an election under paragraph (2), expenditures for development or operation of more than one mine in respect of a property are made by the taxpayer after the acquisition of the property. An election made under paragraph (1) or (2) for a taxable year shall be binding upon the taxpayer for such year and all subsequent taxable years, except that the Secretary may consent to a different treatment of any interest with respect to which an election has been made.” (88) Repeal or section 615.— Section 615 (relating to deduction 26 USC 615. of pre–1970 exploration expenses) is repealed. (89) Amendment of section 617.— Section 617(a)(2)(B) 26 USC 617. (relating to time and scope of election to deduct certain mining exploration expenditures) is amended by striking out. “may not be revoked after the last day of the third month following the month in which the final regulations issued under the authority of this subsection are published in the Federal Register“, unless” and inserting in lieu thereof “may not be revoked unless”. (90) Repeal of section 632.— Section 632 (relating to tax in 26 USC 632. case of sale of oil and gas properties) is repealed. (91) Amendment of section 691.— Section 691(c)(1)(B) 26 USC 691. (relating to deduction for estate tax) is amended by striking out the last sentence. (92) Amendment of section 692.— The heading of section 692 (relating to income taxes of members of Armed Forces who die in a combat zone) is amended by striking out “ON” the first time it appeals in the section heading and inserting in lieu thereof “OF”. (93) Amendment of section 751.— Section 751(c) (relating to unrealized receivables) is amended by striking out “1254(a), or 1250(a),” and inserting in lieu thereof “1245(a), 1250(a),”. (94) Repeal of section 771.— Part IV of subchapter K of chapter 1 (relating to effective date of subchapter K) is repealed. (95) Amendments of section 802.— (A) Section 802(a)(1) (relating to tax imposed on life insurance companies) is amended by striking out “beginning after December 31, 1957,”. (B) Section 802(a)(2) (relating to alternative tax in case of capital gains) is amended by striking out “beginning after December 31, 1961,”. (C) Section 802(a) is amended by striking out paragraph (3) (relating to special rules for 1959 and 1960). (96) Amendments of section 804.— (A) Section 804(a) is amended by sticking out paragraph (6) (relating to certain exceptions). (B) Section 804(b)(2) (relating to short-term capital gains) is amended by striking out “In the case of a taxable year beginning after December 31, 1958, the” and inserting in lieu thereof “The”. (97) Amendments of section 805.— (A) Section 805(b)(3)(B) (relating to average earnings rate) is amended to read as follows: “(B) Special rule.— For purposes of subparagraph (A), the current earnings rate for tiny taxable year of any company which, for such year, is an insurance company (but not a life insurance company) shall be determined as if this part applied to such company for such year.” (B) Section 805(b)(4)(B) (relating to basis of assets) is amended by striking out “(determined without regard to fair market value on December 31, 1958)”. (C) Section 805(d) (relating to pension plan reserves) is amended to read as follows: “(d) Pension Plan Reserves.— For purposes of this part, the term ‘pension plan reserves’ means that portion of the life insurance reserves which is allocable to contracts— “(1) purchased under contracts entered into with trusts which (as of the time the contracts were entered into) were deemed to be (A), trusts described in section 401(a) and exempt from tax under section 501(a), or (B) trusts exempt from tax under section 185 of the Internal Revenue Code of 1939 or the corresponding provisions of prior revenue laws; “(2) purchased under contracts entered into under plans which (as of the time the, contracts were entered into) were deemed to be plans described in section 403(a), or plans meeting the requirements of paragraphs (3), (4), (5), and (6) of section 165(a) of the Internal Revenue Code of 1939; “(3) provided for employees of the life insurance company under a plan which, for the taxable year, meets the requirements of paragraphs (3), (4), (5), (6), (7), (8), (11), (12), (13), (14), (15), (16), (19), and (20) of section 401(a); “(4) purchased to provide retirement annuities for its employees by an organization which (as of the time the contracts were purchased) was an organization described in section 501(c)(3) which was exempt from tax under section 501(a) or was an organization exempt from tax under section 101(6) of the Internal Revenue Code of 1939 or the corresponding provisions of prior revenue laws, or purchased to provide retirement annuities for employees described in section 403(b)(1)(A)(ii) by an employer which is a State, a political subdivision of a state, or an agency or instrumentality of any one or more of the foregoing; or “(5) purchased under contracts entered into with trusts which (at the time the contracts were entered into) were individual retirement accounts described in section 408(a) or under contracts entered into with individual retirement annuities described in section 408(b).” (98) Amendments of section 809.— (A) Section 809(b) (relating to definition of gain and loss 26 USC 809. from operations) is amended by striking out paragraph (4). (B) (i) Section 809(d) (relating to life insurance company deductions) is amended by striking out paragraph (11) relating to mutualization distributions before 1963), and by redesignating paragraph (12) as paragraph (11). (ii) Section 809(e) is amended by striking out “subsection (d)(12)” and inserting in lieu thereof “subsection (d)(11)”, (C) Section 809 (relating to computation of gain and loss from operations) is amended by striking out subsection (g) (relating to deduction for certain mutualization distributions before 1963). (99) Amendment of section 812.— Section 812(b)(1) (relating 26 USC 812. to years to which operating losses of an insurance company may be carried), other than the last sentence thereof, as added by section 806(d)(1)(A) of this Act, is amended to read as follows: “(1) Years to which loss may be carried.— The loss from operations for any taxable year (hereinafter in this section referred to as the ‘loss year’) shall be— “(A) an operations loss carryback to each of the 3 taxable years preceding the loss year, “(B) an operations loss carryover to each of the 5 taxable years following the loss year, and “(C) subject to subsection (e), if the life insurance company is a new company for the loss year, an operations loss carryover to each of the 3 taxable years following the 5 taxable years described in subparagraph (B).” (100) Amendments of section 817.— Section 817 (relating to 26 USC 817. rules applicable to certain gains and losses) is amended by striking out subsection (c) (relating to treatment of pre–1959 capital losses) and subsection (e) (relating to certain 1958 reinsurance transactions). (101) Amendment of section 818.— Section 818 (relating to 26 USC 818. life insurance accounting provisions) is amended by striking out subsection (e) (relating to certain rules applicable to taxable years 1957, 1958, and 1959). and by redesignating subsections (f) and (g) as subsections (e) and (f), respectively. (102) Amendments of section 819.— (A) The first sentence of section 819(a)(2)(A) (relating 26 USC 819. to definition of minimum figure for foreign life insurance companies) is amended to read as follows: “The minimum figure is the amount determined by multiplying the tax-payer’s total insurance liabilities on United States business by a percentage for the taxable year to be determined and proclaimed by the Secretary.” (B) The second sentence of section 819(a)(2)(A) is amended by striking out “under clause (ii)” and inserting in lieu thereof “under the preceding sentence”. (C) Clause (i) of section 819(b)(2)(B) (relating to distributions pursuant to certain mutualizations) is amended to read as follows: “(i) the minimum figure for 1958 determined under subsection (a)(2)(A) computed by using a percentage of 9 percent in lieu of the percentage determined and proclaimed by the Secretary, or”. (103) Amendments of section 820.— (A) Section 820(c) (relating to optional treatment of certain reinsured policies) is amended by striking out paragraph (6) (relating to reimbursement for 1957 income taxes), and by redesignating paragraph (7) as paragraph (6). (B) The last sentence of section 820(c) is amended by striking out “(5). and (6) and the rules prescribed under paragraph (7)” and inserting in lieu thereof “and (5) and the rules prescribed under paragraph (6)”. (104) Amendments of section 821.— (A) Section 821(a) (relating to imposition of tax on certain mutual insurance companies) is amended by striking out “beginning after December 31, 1963,”. (B) Section 821(c)(1) (relating to alternative tax for certain small insurance companies) is amended by striking out “In the ease of taxable years beginning after December 31, 1963. there is” and inserting in lieu thereof “There is”. (C) Section 821 (relating to tax on certain mutual insurance companies) is amended by striking out subsection (e) (relating to 1962 transitional rules) and by redesignating subsection (f) as subsection (e). (105) Amendments of section 822.— (A) Section 822(c)(5) (relating to deduction of interest) is amended by striking out “(other than obligations of the United States issued after September 24, 1917, and originally subscribed for by the taxpayer)”. (B) The last sentence of section 822(d)(2) (relating to amortization of premium and accrual of discount) is amended by striking out “For taxable years beginning after December 31, 1962. no accrual” and inserting in lieu thereof “No accrual”. (106) Amendments of section 825.— Section 825(g) (relating to unused loss deduction of certain insurance companies) is amended by striking out paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively. (107) Amendment of section 831.— Section 831(a) (relating to tax on certain insurance companies) is amended by striking out “or the taxable income” and inserting in lieu thereof “on the taxable income.” (108) Amendments of section 832.— Paragraphs (1) and (6) of section 832(b)(definitions relating to insurance company taxable income) are each amended by striking out “Convention” and inserting in lieu thereof “Association”. (109) Amendments of section 851.— (A) Section 851(a)(1) (relating 26 USC 851. to definition of regulated investment company) is amended by striking out “54 Stat. 789;”. (B) Section 851(b)(1) (relating to regulated investment companies) is amended by stinking out “which began after December 31, 1941”, (110) Amendments of section 852.— (A) Subparagraph (C) of section 852(b)(3) (relating to 26 USC 852. method of taxation of regulated investment companies and their shareholders) is amended by striking out the third sentence. (B) (i) Section 852(b)(3)(D)(iii) is amended by striking out “by 75 percent of so much of such amounts as equals the amount subject to tax in accordance with section 1201 (a)(1)(A) and by 70 percent (72 percent in the case of a Post, p, 1786. taxable year beginning after December 31, 1969, and before January 1, 1971) of so much of such amounts as equals the amount subject to tax in accordance with section 1201(a)(1)(B) or (2)” and inserting in lieu thereof “by 70 percent of so much of such amounts as equals the amount subject to tax in accordance with section 1201(a)”. (ii) The amendment made by clause (i) shall not be considered 26 USC 852 note. to affect the amount of any increase in the basis of stock under the provisions of section 852(b)(3)(D)(iii) of the Internal Revenue Code of 1954 which is based upon amounts subject to tax under section 1201 of such Code in taxable years beginning before January 1, 1975. (C) Section 852(d) is amended by inserting after “Investment Company Act of 1940” the following: “(15 U.S.C. 80a–l and following)”. (111) Amendments of section 856.— (A) Section 856(c)(1) (relating to real estate investment 26 USC 856. trusts) is amended by striking out “which began after December 31, 1960”. (B) Section 856(c)(6)(D) (relating to definition of other terms) is amended by inserting after “Investment Company Act of 1940, as amended” the following: “(15 U.S.C. 80a–1 and following)”. (112) Amendment of section 857.— Section 857(b)(3)(C) 26 USC 857. (relating to the taxation of capital gains in the case of real estate investment trusts) is amended by striking out the last sentence. (113) Amendments of section 864.— (A) Subsection (a) of section 864 (definitions relating to 26 USC 864. determinations of sources of income) is amended to read as follows: “(a) Produced.— For purposes of this part, the term ‘produced’ “Produced.” includes created, fabricated, manufactured, extracted, processed, cured, or aged.” (B) Clauses (i) and (iii) of section 864(c)(4)(B) and subparagraph (C) of section 864(c)(5) (relating to effectively connected income) are each amended by striking out “sale” each place it appears and inserting in lieu thereof “sale or exchange”. (C) Section 864(c)(4)(B)(iii) (relating to effectively connected income) is amended by striking out “sold” and inserting in lieu thereof “sold or exchanged”. (114) Amendment of section 905.— Section 905(b) (relating to proof of foreign tax credits) is amended by striking out the last sentence (relating to the treatment of certain royalty payments). (115) Amendment of section 911.— Section 911(c) (relating to earned income from sources without the United States) is amended by striking out paragraph (7) (relating to taxable years ending in 1963, 1964, or 1965). (116) Amendment of section 921.— Section 921 (relating to definition of Western Hemisphere Trade Corporation) is amended by striking out the last sentence, (relating to taxable years before 1954). (117) Amendments of section 931.— Section 931 (relating to income from sources within possession) is amended by striking out subsection (h) (relating to certain persons taken as prisoners of war while working in a possession), and by redesignating subsection (i) as subsection (h). (118) Amendment of section 934.— Section 934(b) (relating to gross income received by a corporation from the Virgin Islands) is amended by striking out the last sentence. (119) Amendment of section 951.— Section 951 (a)(1) (relating to treatment, of subpart F income) is amended by striking out “beginning after December 31, 1962”. (120) Repeal of section 972.— Section 972 (relating to consolidation of export trade corporations) is repealed. (121) Amendment of section 1001.— Section 1001(c) (relating to recognition of gain or loss) is amended to read as follows: “(c) Recognition of Gain or Loss.— Except as otherwise provided in this subtitle, the entire amount of the gain or loss, determined under this section, on the sale or exchange of property shall be recognized.” (122) Amendments of section 1015.— (A) Subparagraph (A) of section 1015(d)(1) (relating to increased ‘basis for gift tax paid) is amended by striking out “the date of the enactment of the Technical Amendments Act of 1958” and inserting in lieu thereof “September 2, 1958”. (B) Subparagraph (B) of section 1015(d)(1) is amended by striking out “the date of the enactment of the Technical Amendments Act of 1958” and inserting in lieu thereof “September 2, 1958,”. (123) Amendment of section 1016.— Section 1016(a) (relating to adjustments to basis) is amended by striking out paragraph (19). (124) Amendment of section 1018.— Section 1018 (relating to adjustment of capital structure before September 22, 1938) is amended by striking out “54 Stat. 709;”. (125) Repeal of section 1020.— Section 1020 (relating to election in respect of depreciation allowed before 1952) is repealed. (126) Repeal of section 1022.— (A) Section 1022 (relating to the basis of certain foreign personal holding company stock) is repealed. (B) The repeal made by subparagraph (A) shall apply with respect to stock or securities acquired from a decedent dying after the date of the enactment of this Act. (127) Amendment of section 1024.— Section 1024 (containing cross references) is amended by striking out paragraph (4). (128) Amendments of section 1033.— (A) Section 1033(a) (relating to involuntary conversions) 26 USC 1033. is amended by striking out paragraph (2) and by redesignating paragraph (3) as paragraph (2). (B) Section 1033(a)(2) (relating to conversion into money), as redesignated by subparagraph (A) of this paragraph and as amended by this Act, is amended— (i) by striking out “where disposition occurred after 1950” in the paragraph heading; (ii) by striking out “(g)” each place it appears and inserting in lieu thereof “(h)”; (iii) by striking out “and the disposition of the converted property (as defined in paragraph (2)) occurred after December 31, 1950,” in the text; and (iv) by adding at the end thereof the following new subparagraph: “(E) Definitions.— For purposes of this paragraph— “(i) Control.— The term ‘control’ means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation. “(ii) Disposition of the converted property.— The term ‘disposition of the converted property’ means the destruction, theft, seizure, requisition, or condemnation of the converted property, or the sale or exchange of such property under threat or imminence of requisition or condemnation.” (C) Section 1033 (relating to involuntary conversions) is amended by striking out subsection (b) (relating to certain conversions occurring before 1954) and by redesignating subsections (c), (d), (e), (f), (g), and (h), as subsections (b), (c), (d), (e), (f), and (g), respectively. (D) The first sentence of section 1033(b) (relating to basis of a property acquired through involuntary conversions), as redesignated by subparagraph (G) of this paragraph, is amended by striking out “or (2)” and inserting in lieu thereof “or section 112(f)(2) of the Internal Revenue Code of 1939”. (E) Section 1033(f)(2) (relating to condemnation of real property), as redesignated by subparagraph (C) of this paragraph, is amended to read as follows: “(2) Limitation.— Paragraph (1) shall not apply to the purchase of stock in the acquisition of control of a corporation described in subsection (a)(2)(A).” (F) Section 1033(g)(4) (relating to condemnation of real property), as amended by section 2140(a) of this Act, is amended by striking out “(a)(3)(B)(i)” and inserting in lieu thereof“(a)(2)(B)(i)”. (129) Amendments of section 1034.— (A) Section 1034(a) (relating to gain on sale of residence) 26 USC 1034. is amended by striking out “after December 31, 1953,”. (B) Section 1034(b)(defining adjusted sales price) is amended by striking out paragraph (3) (relating to effective date of subsection (b)). (C) Section 1034(d) (relating to certain limitations) is amended by striking out “or section 112 (n) of the Internal Revenue Code of 1939”. (D) Section 1034(i) (relating to involuntary conversions) is amended to read as follows: “(ii) Special Rule for Condemnation.— In the case of the seizure, requisition, or condemnation of a residence, or the sale or exchange of a residence under threat or imminence thereof, the provisions of this section, in lieu of section 1033 (relating to involuntary conversions), shall be applicable if the taxpayer so elects. If such election is made, such seizure, requisition, or condemnation shall be treated as the sale of the residence. Such election shall he made at such time and in such manner as the Secretary shall prescribe by regulations.” (E) Section 1034(j) (relating to statute of limitations) is amended by striking out “after December 31, 1950,”. (130) Amendment of section 1037.— Section 1037(b)(1) (relating to certain exchanges of United States obligations) is amended by striking out “section 1232(a)(2)(A)” and inserting in lieu thereof “section 1232 (a)(2) (B)”. (131) Amendment of section 1051.— Section 1051 (relating to property acquired before 1929 during affiliation) is amended by striking out the last two sentences. (132) Amendments of section 1081.— (A) Subsection (e) of section 1081 (relating to distributions required by the SEC) is amended to read as follows: “(c) Distribution of Stock or Securities Only.— If there is distributed, in obedience to an order of the Securities and Exchange Commission, to a shareholder in a corporation which is a registered holding company or a majority-owned subsidiary company, stock or securities (other than stock or securities which are nonexempt property), without the surrender by such shareholder of stock or securities in such corporation, no gain to the distributee from the receipt of the stock or securities so distributed shall be recognized.” (B) Section 1081(f) (relating to conditions for application of section) is amended by striking out “Except in the case of a distribution described in subsection (c)(2), the provisions” and inserting in lien thereof “The provisions”, and by striking out “49 Stat. 820;”. (C) Section 1081(g) (relating to applicability of other provisions) is amended by striking out “If a distribution described in subsection (c)(2). or an” and inserting in lieu thereof “If an”, and by striking out the comma after “Commission”. (133) Amendments of section 1083.— (A) Section 1083(a) is amended by striking out “49 Stat. 820;”. (B) Section 1083(b) is amended by striking out “49 Stat. 804;”. (C) Section 1083(e)(4) is amended by striking out “49 Stat. 820;”. (134) Repeal of section 1111.— Part IX of subchapter O of chapter 1 (relating to distributions pursuant to orders enforcing the antitrust laws) is repealed. (135) Amendments of section 1201.— (A) Section 1201(a) (relating to the alternative tax on capital gain) is amended to read as follows: “(a) Corporations.— If for any taxable year a corporation has a net capital gain, then, in lien of the tax imposed by sections 11. 511, 821 (a) or (c) and 831(a), there is hereby imposed a tax (if such tax is less than the tax imposed by such sections) which shall consist of the sum of— “(1) a tax computed on the taxable income reduced by the amount of the net capital gain, at the rates and in the manner as if this subsection had not been enacted, plus “(2) a tax of 30 percent of the net capital gain.” (B) Section 1201(c) (relating to computation of alternative 26 USC 1201. tax) is amended to read as follows: “(c) Computation of Tax Where Capital Gain Exceeds $50,000.— The tax computed for purposes of subsection (b)(3) shall be the amount by which a tax determined under section 1 or 511 on an amount equal to the taxable income (but not less than 50 percent of the net capital gain) for the taxable year exceeds a tax determined under section 1 or 511 on an amount, equal to the sum of (A) the amount subject to tax under subsection (b)(1) plus (B) an amount equal to 50 percent of the sum referred to in subsection (b)(2)(A).” (C) (i) Section 1201 is amended by striking out subsection (d)(defining subsection (d) gain) and by redesignating subsection (e) as subsection (d). (ii) Section 1201(b)(2)(A) (relating to alternative tax on noncorporate taxpayers) is amended by striking out “the amount of the subsection (d) gain” and inserting in lieu thereof “the sum of the long-term capital gains for the taxable year, but not to exceed $50,000 ($25,000 in the case of a married individual filing a separate return)”. (iii) Section 1201(b)(3) is amended by striking out “the amount of the subsection (d) gain” and inserting in lieu thereof “the sum referred to in subparagraph (A)”. (136) Amendments of section 1222.— (A) Paragraph (9) of section 1222 (relating to definition 26 USC 1222. of terms applicable to capital gains and losses) is amended to read as follows: “(9) Capital gain net income.— The term ‘capital gain net income’ means the excess of the gains from sales or exchanges of capital assets over the losses from such sales or exchanges.” (B) Paragraph (11) of section 1222 (relating to definition of terms applicable to capital gains and losses) is amended to read as follows: “(11) Net capital gain.— The term ‘net capital gain’ means “Net capita] gain.” the excess of the net long-term capital gain for the taxable year over the net short-term capital loss for such year.” (137) Amendment of section 1233.— Section 1283((3) (relating 26 USC 1233. to certain options to sell) is amended by striking out “the date of enactment of this title” and inserting in lieu thereof “August 16, 1954”. (138) Amendment of section 1237.— Section 1237 (relating 26 USC 1237. to real property subdivided for sale) is amended by striking out subsection (d) (relating to effective date). (139) Repeal of section 1240.— Section 1240 (relating to taxability 26 USC 1240. to employee of certain termination payments) is repealed. (140) Amendment of section 1245.— Section 1245(b)(7)(B) 26 USC 1245. (relating to transfers to tax-exempt organization where property will be used in unrelated business) is amended by striking out “such organization acquiring such property,”. (141) Amendment of section 1246.— Section 1246(f) (relating 26 USC 1246. to gain on foreign investment company stock) is amended by striking out “beginning after December 31, 1962”. (142) Amendment of section 1311.— Paragraphs (2)(A), (2)(B), and (3) of section 1311(b) (relating to mitigation of effect of limitations) are each amended by striking out “Tax Court of the United States” and inserting in lieu thereof “Tax Court”. (143) Repeal of section 1315.— Section 1315 (relating to effective date of part II of subchapter Q of chapter 1) is repealed. (144) Repeal of section 1321.— Part III of subchapter Q of chapter 1 (relating to involuntary liquidation of LIFO inventories) is repealed. (145) Repeal of sections 1331 through 1337.— (A) Part IV of subchapter Q of chapter 1 (relating to war loss recoveries) is repealed. (B) The repeal by subparagraph (A) shall apply with respect to war loss recoveries in taxable years beginning after December 31, 1976. (146) Amendment of section 1341.— Section 1341(b)(2) (relating to claim of right) is amended by striking out the last sentence. (147) Repeal of section 1342.— Section 1342 (relating to computation of tax on certain amounts recovered as a result of a patent infringement suit) is repealed. (148) Repeal of section 134A.— Section 1346 (relating to recovery of unconstitutional Federal taxes) is repealed. (149) Amendments of section 1372.— (A) Section 1372(b)(1) (relating to effect of election under subchapter S) is amended by striking out “(other than the tax imposed by section 1378)” and inserting in lieu thereof “(other than as provided by section 58(d)(2) and by section 1378)”. (B) Section 1372(c) (relating to subchapter S elections by small business corporations) is amended to read as follows: “(c) Where and How Made.— An election under subsection (a) may be made by a small business corporation for any taxable year at any time during the first month of such taxable year, or at any time Regulations. during the month preceding such first month. Such election shall be made in such manner as the Secretary shall prescribe by regulations.” (C) Section 1372 is amended by striking out subsection (g) (relating to certain elections for years beginning before 1961). (150) Amendments of section 1374.— (A) Section 1374(b) (relating to net operating losses of subchapter S corporations) is amended by adding at the end thereof the following new sentence: “The deduction allowed by this subsection shall, for purposes of this chapter, be considered as a deduction attributable to a trade or business carried on by the shareholder.” (B) Subsection (d) of section 1374 (relating to treatment of net operating losses of subchapter S corporations) is repealed. (151) Amendments of section 1375.— (A) The heading of subsection (b) of section 1375 is amended by striking out “Received Credit Not Allowed” and inserting in lieu thereof “Not Treated as Such for Certain Purposes”. (B) Section 1375 (f) (relating to elections as to certain distributions) is amended by striking out paragraph (3). (152) Amendment of section 1378.— Section 1378(b) (relating 26 USC 1378. to the taxation of capital gain in the case of electing small business corporations) is amended by striking out the last sentence. (153) Amendments of section 1388.— (A) Section 1388(c)(2)(B)(i) (relating to patronage 26 USC 1388. dividends) is amended by striking out “the date of the enactment of the Revenue Act of 1962” and inserting in lieu thereof “October 16, 1962”. (B) Section 1388(h)(2)(B)(i) (relating to perunit retain certificates) is amended by striking out “the date of the enactment of Ibis subsection” and inserting in lieu thereof “November 13, 1966”. (154) Amendments of section 1401.— (A) Section 1401(a) (relating to rate of tax on self-employment 26 USC 1401. income) is amended to read as follows: “(a) Old-Age, Survivors, and Disability Insurance.— In addition to other taxes, there shall be imposed for each taxable year, on the self-employment income of every individual, a tax equal to 7.0 percent of the amount of the self-employment income for such taxable year.” (B) Section 1401(b) (relating to rate of tax on self-employment income for hospital insurance) is amended by striking out paragraphs (1) and (2) and by redesignating paragraphs (3), (4), (5), and (6), as paragraphs (1), (2), (3) and (4), respectively. (155) Amendments of section 1402.— (A) Paragraph (1) of section 1402(b) (relating to definition 26 USC 1402. of self-employment income) is amended to read as follows: “(1) that part of the net earnings from self-employment which is in excess of (i) an amount equal to the contribution and benefit base (as determined under section 230 of the Social Security Act) 42 USC 430. which is effective for the calendar year in which such taxable year begins, minus (ii) the amount of the wages paid to such individual during such taxable years; or”. (B) Section 1402 amended by striking out subsection (g) 26 USC 1402. (relating to treatment of self-employment income for years prior to 1962). and by redesignating subsections (h) and (i) as subsections (g) and (h). respectively. (C) Section 1402(g)(2) (relating to self-employment income, of members of certain religious faiths), as redesignated by subparagraph (B) of this paragraph, is amended to read as follows: “(2) Time for filing applications.— For purposes of this subsection, an application must be filed on or before the time prescribed for filing the return (including any extension thereof) for the first, taxable year for which the individual has self-employment income (determined without regard to this subsection or subsection (c)(6)), except that an application filed after such date but on or before the last day of the third calendar month following the calendar month in which the taxpayer is first notified in writing by the Secretary that a timely application for an exemption from the tax imposed by this chapter has not been filed by him shall be deemed to be filed timely.” (156) Repeal of section 1465.— Section 1465 (relating to definition 26 USC 1465. of withholding agent) is repealed. (157) Amendments of section 1481.— (A) Section 1481(a)(1)(A) (relating to mitigation of 26 USC 1481. effect of renegotiation of Government contracts) is amended by striking out “within the meaning of the Federal renegotiation act applicable to such transaction” and inserting in lieu thereof “within the meaning of the Renegotiation Act of 1951, as amended (50 U.S.C. App, 1211 and following)”. (B) Section 1481(a)(1) (relating to renegotiation) is amended by striking out subparagraph (D). (C) Subparagraphs (B) and (C) of section 1481(a)(1) are each amended by striking out “applicable Federal renegotiation act” and inserting in lieu thereof “Renegotiation Act of 1951, as amended”. (158) Amendment of section 1551.— Section 1551(a) (relating to disallowance of surtax exemption) is amended by striking out “determined under subjection (d)” and inserting in lieu thereof “determined under subsection (c)”. (159) Amendment of section 1552.— The first sentence of section 1552(a) (relating to earnings and profits of an affiliated group) is amended by striking out “beginning after December 31, 1953, and ending after the date of enactment of this title,”. (b) Conforming and Clerical Amendments.— (1) Amendments conforming to repeal of sections 35 and 242.— (A) Section 36, as amended by this Act, is amended by striking out “sections 32 and 35” and inserting in lieu thereof “section 32”. (B) Section 41(b)(2) is amended by striking out “section 35 (relating to partially tax-exempt interest)”. (C) Section 46(a)(3) is amended by striking out subparagraph (B), by inserting “and” at the end of subparagraph (A), and by redesignating subparagraph (C) as subparagraph (B). (D) Section 50A(a)(3) is amended by striking out subparagraph (B) and redesignating subparagraphs (C), (D), and (E), as subparagraphs (B), (C), and (D), respectively. (E) (i) The heading of paragraph (1) of section 171(a) is amended to read “(1) Taxable bonds.—”. (ii) The heading of paragraph (2) of section 171(a) is amended to read “(2) Tax-exempt bonds.—”, (iii) Section 171(a) is amended by striking out paragraph (3) and by redesignating paragraph (4) as paragraph (3). (iv) Section 171(b)(1)(B)(n) is amended by striking out “subsection (c)(1)(B)” and inserting in lieu thereof “subsection (a)(1)”. (v) So much of section 171(c) as precedes paragraph (2) is amended to read as follows: “(c) Election as to Taxable Bonds.— “(1) Eligibility to elect; bonds with respect to which election permitted.— In the case of bonds the interest on which is not excludable from gross income, this section shall apply only if the taxpayer has so elected.”, (F) (i) Section 551 is amended by striking out subsection (c), and by redesignating subsections (d), (e), (f), and (g), as subsections (c), (d), (e), and (f), respectively. (ii) Section 1016(a)(13) is amended by striking out “section 551(f)” and inserting in lieu thereof “section 551(e)”. (G) Section 584(c)(2) is amended to read as follows: “(2) Dividends received.— The proportionate share of each participant in the amount of dividends received by the common trust fund and to which section 116 applies shall be considered for purposes of such section as having been received by such participant.” (H) (i) Section 642(a) is amended by striking out paragraph 26 USC 642. (1), and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively. (ii) Section 41(d) is amended by striking out “section 26 USC 41. 642(a)(3)” and inserting in lieu thereof “section 642(a)(2)”. (iii) Section 901(g)(3), as amended by this Act, is 26 USC 901. amended by striking out “section 642(a)(2)” and inserting in lieu thereof “section 642(a)(1)”. (I) (i) Section 702(a) is amended by striking out paragraph 26 USC 702. (7) and by redesignating paragraphs (8) and (9) as paragraphs (7) and (8), respectively. (ii) Section 702(b) is amended by striking out “paragraphs (1) through (8)” and inserting in lieu thereof “paragraphs (1) through (7)”. (iii) Section 1402(a) is amended by striking out “702(a) 26 USC 1402. (9)” each place it appears and inserting in lieu thereof “702 (a)(8)”. (J) (i) Section 804(a) is amended by striking out paragraph 26 USC 804. (3), and by redesignating paragraphs (4) and (5) as paragraphs (3) and (4),respectively. (ii) Section 243(b)(3)(C)(iii), as redesignated by paragraph 26 USC 243. (21)(A) of this subsection, is amended by striking out “sections 804(a)(4)” and inserting in lieu thereof “sections 804(a)(3)”. (iii) Section 804(a)(2) is amended by striking out “paragraph (5)” and inserting in lieu thereof “paragraph (4)”, and by striking out “paragraph (4)” and inserting in lieu thereof “paragraph (3)”. (iv) Section 809(d)(10) is amended by striking out “section 26 USC 809. 804(a)(4)”, and inserting in lieu thereof “section 804(a)(3)”. (v) Section 1561(a)(3) is amended by striking out “sections 26 USC 1561. 804(a)(4)” and inserting in lieu thereof “sections 804 (a)(3)”. (vi) Section 1564(a)(1)(C) is amended by striking out 26 USC 1564. “sections 804(a)(4)” inserting in lieu thereof “sections 804 (a)(3)”. (K) Section 804(a)(2)(A) is amended by striking out clause, (ii). by inserting “and” at the end of clause (i), and by redesignating clause (iii) as clause (ii). (L) (i) Section 809(d)(8)(A) is amended by striking out clause (ii), by inserting “and” at the end of clause (i), and by redesignating clause (iii) as clause (ii). (ii) Section 809(d)(8)(B) is amended by striking out “subparagraph (A)(iii)” and inserting in lieu thereof “subparagraph (A)(ii)”. (M) Sections 804(a)(1),804(a)(2), 809(a)(1),809(b)(1)(A) and 809(b)(2)(A) are each amended by striking out “, partially tax-exempt interest,”. (N) Section 809(e) is amended by striking out paragraph (6), and by redesignating paragraph (7) as paragraph (6). (O) Section 815(b)(2)(A)(iii) is amended by striking out 26 USC 815. “the deduction for partially tax-exempt interest provided 26 USC 242. by section 242 (as modified by section 804(a)(3)),” and by striking out the comma after “809(d)(8)(B))”. (P) Section 822(c)(2) is amended by striking out “partially tax-exempt interest and”. (Q) Section 822(c)(6)(A) is amended by striking out “or to the deduction provided in section 242 for partially tax-exempt interest”. (R) Section 822(c)(7) is amended by striking out “partially tax-exempt interest and to”. (S) Section 822(d)(2) is amended by striking out “, the deduction provided in subsection (c)(1), and the deduction allowed by section 242 (relating to partially tax-exempt interest)” and inserting in lieu thereof “and the deduction provided in subsection (c)(1)”. (T) Section 832(c)(5)(A) is amended by striking out “or to the deductions provided in section 242 for partially tax-exempt interest”. (U) Section 832(c)(12) is amended by striking out “partially tax-exempt interest and to”. (V) Sections 852(b)(1) and 857(b)(1) are each amended by striking out the last sentence. (W) Section 1244(c)(1)(E) is amended by striking out “sections 172,242,243” and inserting in lieu thereof “sections 172, 243”. (X) Section 1402 (a)(2) is amended by striking out “(other than interest described in section 35)”. (Y) Section 1503(b)(3) is amended by striking out subparagraph (C). (Z) The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by striking out the item relating to section 35. (AA) The table of sections for part VIII of subchapter B of chapter 1 is amended by striking out the item relating to section 242. (2) Amendment conforming to repeal of section 51.— The table of parts for subchapter A of chapter 1 is amended by striking out the item relating to part V. (3) Amendments conforming to auditions of sections 84 and 65.— (A) Paragraphs (1)(C), (5HA), (6)(D), and (12) of section 341(e) are each amended by striking out “gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231(b)” each place it appears and inserting in lieu thereof “ordinary income”. (B) Section 483(f)(3) is amended by striking out “no part of any gain on such” and inserting in lieu thereof “all of the gain, if any, on such” and by striking out “gain from the sale or exchange of a capital asset or property described in section 1231” and inserting in lieu thereof “ordinary income”. (C) Section 707(b)(2) is amended by striking out “as gain from the sale or exchange of property other than a capital asset” and inserting in lieu thereof “as ordinary income”. (D) Paragraphs (1) and (2) of section 735(a) are each amended by striking out “gain or loss from the sale or exchange of property other than a capital asset” and inserting in lieu thereof “as ordinary income or as ordinary loss, as the case may be”. (E) Section 1236 (b) is amended by striking out “loss from 26 USC 1236. the sale or exchange of property which is not a capital asset” and inserting in lieu thereof “ordinary loss”. (F) Sections 1242 and 1243 are each amended by striking 26 USC 1242, 1243. out “a loss from the sale or exchange of property which is not a capital asset” each place it appears and inserting in lieu thereof “an ordinary loss”. (G) Section 1244 is amended by striking out “a loss from 26 USC 1244. the sale or exchange of an asset which is not a capital asset” each place it appears and inserting in lieu thereof “an ordinary loss”. (H) Section 1248(g)(3)(B), as redesignated by this Act, 26 USC 1248. is amended by striking out “gain from the sale of an asset which is not a capital asset” and inserting “ordinary income”. (I) The following provisions are each amended by striking out “gain from the sale or exchange of property which is not a capital asset” each place it appears and inserting in lieu thereof “ordinary income”: sections 341(a). 871(a)(1)(C)(i) and (ii), 881(a)(3)(A) and (B), 996(d)(1) and (2), 1037(b)(1)(A), 1232(a)(2)(A) and (B), 1232(c), 1246(a), and 1385(c)(2)(C). (J) The following provisions are each amended by striking out “gain from the sale of property which is not a capital asset” and inserting in lieu thereof “ordinary income”: sections 306(a)(1)(A),306(a)(1)(B), and 306(f). (K) The following provisions are each amended by striking out “gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231” each place it appears and inserting in lieu thereof “ordinary income”: sections 80(c)(1), 163(d)(3) and (5), 613(a), 617 (d)(1). 995(b)(1)(C). 1238, 1245(a)(1), 1249(a), 1250 (f) and (g), 1251 (b)(3)(B), (c)(1), and (c)(2), and 1252(a)(1). (4) Clerical amendments conforming to additions of sections 64 and 65.— (A) The table of sections for part I of subchapter B of chapter 1 is amended by adding at the end thereof the following new items: “Sec. 64. Ordinary income defined. “Sec. 65. Ordinary loss defined.” (B) The heading for part I of subchapter B of chapter 1 is amended by striking out “AND TAXABLE INCOME” and inserting in lieu thereof “TAXABLE INCOME, ETC.” ETC.” (C) The table of parts for subchapter B of chapter 1 is amended by striking out “and taxable income.” in the item relating to part. I and inserting in lieu thereof “taxable income, etc.” (5) Amendment conforming to repeat, of section 70.— The table of sections for part II of subchapter B of chapter 1 is amended by striking out the item relating to section 76. (6) Amendments conforming to amendment of section 103.— (A) Section 6049(b)(2)(A) is amended by striking out 26 USC 6049. “section 103(a)(1) or (3)” and inserting in lieu thereof “section 103(a)”. (B) Section 852(a)(1)(B), as added by this Act, is amended by striking out “section 103(a)(1)” and inserting in lieu thereof “section 103 (a)”. (7) Amendments conforming to amendment of section 143.— (A) (i) Part V of subchapter B of chapter 1 is amended by striking out section 153 (relating to determination of marital status) and by redesignating section 154 as section 153. (ii) The table of sections for part V of subchapter B of chapter 1 is amended by striking out the items relating to sections 153 and 154 and inserting in lieu thereof the following: “Sec. 153. Cross references.”. (B) Section 152(a)(9) is amended by striking out “section 153” and inserting in lieu thereof “section 143”. (C) Section 153, as redesignated by subparagraph (A) of this paragraph, is amended by adding at the end thereof the following new paragraph: “(5) For determination of marital status, see section 143.” (8) Amendments conforming to amendment of section 151.— (A) The following provisions are each amended by striking out “educational institution (as defined in section 151 Q(4))” each place it appears and inserting in lieu thereof educational organization described in section 170(b)(1)(A)(ii)”: sections 117(a)(1)(A), 117(b)(1), 117(b)(2), 152(d), 170(g)(1)(B)(as redesignated by subsection (a)(28) 26 USC 117, 152, 170, 403. (A)(i) of this section!, and 403(b)(1)(A)(ii). (B) Section 103(c)(3)(A), as redesignated by subsection (a)(17) of this section, is amended by striking out “educational institution (within the meaning of section 151(e)(4))” and inserting in lieu thereof “educational organization described in section 170(b)(1)(A)(ii)”, (C) Section 163(b)(1) is amended by striking out “educational institution (as defined in section 151(e)(4)) and which is provided for a student of such institution” and inserting in lieu thereof “educational organization described in section 170(b)(1)(A)(ii) and which is provided for a student of such organization”. (D) (i) Subparagraphs (A), (B), and (C) of section 415 (c)(4) are each amended by striking out “educational institution” each place it appears and inserting in lieu thereof “educational organization”. (ii) Subparagraph (D)(ii) of section 415(c)(4) is amended to read as follows: “(ii) For purposes of this paragraph the term ‘educational organization’ means an educational organization described in section 170(b)(1)(A)(ii).” (iii) Section 415(c)(4) is amended by striking out “educational institutions” from the paragraph heading and inserting in lieu thereof “educational organizations”. (E) Section 508(c)(2)(A) is amended to read as follows: “(A) educational organizations described in section 170 (b)(1)(A)(u),and”. (F) Section 512(b)(15)(B), as redesignated by section 1951(b)(8)(A) of this Act, is amended by striking out “edu-cational institution (as defined in section 151(e)(4))” and inserting in lieu thereof “educational organization described in section 170(b)(1)(A)(ii)”. (G) Section 1303(d) is amended by striking out “educational 26 USC 1303. institution (as defined in section 151(e)(4))” each place it appears and inserting in lieu thereof “educational organization described in section 170(b)(1)(A)(ii)”. (H) Sections 4941(d)(2)(G)(ii) and 4945(g)(1) each 26 USC 4941, 4945. are amended by striking out “educational institution described in section 151(e)(4)” and inserting in lieu thereof “educational organization described in section 170(b)(1)(AHii)”. (9) Amendments conforming to the amendments of section 152.— Section 2(b)(3)(B) is amended by striking out clause (ii), 26 USC 2. by adding “or” at the end of clause (i), and by redesignating clause (ii) as clause (ii). (10) Amendment conforming to the amendment of section 112.— (A) Section 374(e)(2) is amended by striking out “section Ante, p. 296. 172(j)” and inserting in lieu thereof “172(g)”. (B) Section 904(f)(2)(B)(i) and 904(f)(4)(B)(i), as Ante, p. 1624. amended by this Act, are each amended by striking out “section 172(k)(1)” and inserting in lieu thereof “section 172(h)”. (11) Amendments conforming to repeal of section 187.— (A) Section 48(a)(8) (relating to section 38 property) is 26 USC 48. amended by striking out “187,”. (B) The table of sections for part VI of subchapter B of chapter 1 is amended by striking out the item relating to section 187. (C) Section 1082(a)(2)(B) (relating to basis for determining gain 26 USC 1082. or loss) is amemled by striking out “187,”. (D) Section 1245(a)(2) (relating to gain from dispositions 26 USC 1245. of certain depreciable property) is amended by striking out “187,” each place it appears. (12) Amendments conforming to the repeal of section 342.— (A) Section 551(f), as redesignated by paragraph (1)(F) 26 USC 551. of this subsection, is amended by striking out paragraph (3). (B) The table of subparts for part II of subchapter C of chapter 1 is amended by striking out the item relating to subpart C and inserting in lieu thereof: “Subpart C. Collapsible corporations,” (C) The table of sections for subpart C of part II of subchapter C of chapter 1 is amended by striking out the item relating to section 342. (D) The heading of subpart C of part II of subchapter C of chapter 1 is amended to read as follows: “Subpart C— Collapsible Corporations”. (13) Amendments conforming to the repeal of section 303.— The table of sections for subpart C of part III of subchapter C of chapter 1 is amended by striking out the item relating to section 363. (14) Amendments conforming to the repeal of section 373.— (A) Section 372(b)(1) is amended by striking out “373 26 USC 372. (b) or”. (B) Section 374(b) is amended to read as follows: “(b) Basis.— “(1) Railroad corporations.— If the property of a railroad corporation, as defined in section 77(m) of the Bankruptcy Act (11 U.S.C. 205 (m)), was acquired after December 31, 1938, in pursuance of an order of the court having jurisdiction of such corporation— “(A) in a receivership proceeding, or “(B) in a proceeding under section 77 of the Bankruptcy Act, and the acquiring corporation is a railroad corporation (as defined in section 77(m) of the Bankruptcy Act) organized or made use of to effectuate a plan of reorganization approved by the court, in such proceeding, the basis shall be the same as it would be in the hands of the railroad corporation whose property was so acquired, increased in the amount of gain recognized under subsection (a)(2) to the transferor on such transfer. “(2) Property acquired by street, suburban, or interurban electric railway corporation.— If the property of any street, suburban, or interurban electric railway corporation engaged as a common carrier in the transportation of persons or property in interstate commerce was acquired after December 31, 1934, in pursuance of an order of the court having jurisdiction of such corporation in a proceeding under section 77 of the Bankruptcy Act (11 U.S.C. 501 and following), and the acquiring corporation is a street, suburban, or interurban electric railway engaged as a common carrier in the transportation of persons or property in interstate commerce, organized or made use of to effectuate a plan of reorganization approved by the court in such proceeding, then, notwithstanding the provisions of section 270 of the Bankruptcy Act (11 U.S.C. (570), the basis shall be the same as it would be in the hands of the corporation whose property was so acquired.” (C) Section 374(c)(8) is amended by striking out “subsection (b)” and inserting in lieu thereof “subsection (b)(1)”. . .. (D) Section 1232(b)(2) is amended by striking out “section 371, 373, or 374” and inserting in lieu thereof “section 371 or 374”. (E) The table of sections for part IV of subchapter C of chapter 1 is amended by striking out the item relating to section 373. (15) Amendment conforming to repeal of sections 391 through 395.— The table of parts for subchapter C of chapter 1 is amended by striking out the item relating to part VII. (16) Amendment conforming to the amendments of section 481.— Section 381 (c) is amended by striking out paragraph (21). (17) Amendment conforming to the amendments of section 545.— Section 381(c)(15) is amended by striking out “subsections (b)(7) and (c)” and inserting in lieu thereof “subsection (c)”. (18) Amendment conforming to the repeal of section 583.— The table of sections for part I of subchapter H of chapter 1 is amended by striking out the item relating to section 583. (19) Amendment conforming to the repeal of section 592.— The table of sections for part II of subchapter H of chapter 1 is amended by striking out the item relating to section 592. (20) Amendments conforming to the repeal of section 601.— (A) Section 535(b) is amended by striking out paragraph 26 USC 535. (8). (B) (i) Section 545(b) is amended by striking out paragraph 26 USC 545. (6), and by redesignating paragraph (8) as paragraph (6). (ii) Section 545(b)(2) is amended by striking out “paragraph (8)” and inserting in lieu thereof “paragraph (6)”. (iii) Section 545(c)(5) is amended by striking out “subsection (b)(8)” and inserting in lieu thereof “subsection (b)(6)”. (C) The table of parts for subchapter H of chapter 1 is amended by striking out the item relating to part III. (21) Amendments conforming to the repeal of section 615.— (A) (i) Section 243(b)(3)(C) is amended— 26 USC 243. (I) by striking out clauses (ii) and (iii) and inserting in lieu thereof the following; “(ii) $400,000 limitation for certain exploration expenditures under section 617(h)(1),”, and (II) by redesignating clauses (iv) and (v) as clauses (iii) and (iv), respectively. (ii) Section 1564(h)(2)(C) is amended by striking out 26 USC 1564. “section 243(b)(3)(C)(v)” and inserting in lieu thereof “243(b)(3)(C)(iv)”. (B) Section 381(c)(10) is amended to read us follows: 26 USC 381. “(10) Treatment of certain mining develops cent and exploration expenses of distributor or transfer or corporation.— The acquiring corporation shall be entitled to deduct, as if it were the distributor or transferor corporation, expenses deferred under section 616 (relating to certain development expenditures) if the distributor or transferor corporation has so elected. For the purpose of applying the limitation provided in section 617(h), if, for any taxable year, the distributor or transferor corporation was allowed a deduction under section 617(a), the acquiring corporation shall be deemed to have been allowed such deduction.” (C) Section 617(h)(1) is amended by striking out “and 26 USC 617. section 615(a) and the amounts which are or have been treated as deferred expenses under section 615(b)” and inserting in lieu thereof “and subsection (a) of section 615 (as in effect before the enactment of the Tax Reform Act of 1976)”. (D) Section 617(h)(3) is amended to read as follows: “(3) Application of paragraph (2)(b).— Paragraph (2) (B) shall apply with respect to nil amounts deducted before the latest such transfer from the individual or corporation to the taxpayer. Paragraph (2)(B) shall apply only if— “(A) the taxpayer acquired any mineral property from the individual or corporation under circumstances which make paragraph (7), (8), (11), (15), (17), (20), or (22) of section 113(a) of the Internal Revenue Code of 1939 apply to such transfer; or “(B) the taxpayer acquired any mineral property from the individual or corporation under circumstances which make section 334(b), 362 (a) and (b), 372(a), 374(b)(1), 1051, or 1082 apply to such transfer.” (E) Section 617 is amended by adding at the end thereof the following new subsection: “(i) Certain Pre-1970 Exploration Expenditures.— If— “(1) the taxpayer receives mineral property in a transaction as a result of which the basis of such property in the hands of the transferee is determined by reference to the basis in the hands of the transferor, “(2) an election made by the transferor under subsection (e) of section 615(e)(as in effect before the enactment of the Tax Reform Act of 1976) applied with respect to expenditures which were made by him and which were properly chargeable to such property, and “(3) the taxpayer has made or makes an election under subsection (a), then in the application of this section with respect to the transferee, the amounts allowed as deductions under such section 615 to the transferor, which (but for the transferor’s election) would be reflected in the adjusted basis of such property in the hands of the transferee, shall be treated as expenditures allowed as deductions under subsection (a) to the transferor.” (F) Section 703 (b) is amended by striking out “under section 615 (relating to pre–1970 exploration expenditures),”. (G) Section 1016 (a) is amended by striking out paragraph (I?)-. (H) The table of sections for part. I of subchapter I of chapter 1 is amended by striking out the item relating to section 615. (22) Amendments conforming to the repeal of section 632.— (A) The table of sections for part III of subchapter I of chapter 1 is amended by striking out the item relating to section 632. (B) Section 5(b) is amended by striking out paragraph (1). (23) Amendment conforming to the repeal of section 771.— The table of parts for’ subchapter K of chapter 1 is amended by striking out the item relating to part IV. (24) Amendment conforming to the amendment of section 802.— Section 815(c)(3)(B) is amended by striking out “(determined without regard to section 802(a)(3))”. (25) Amendment conforming to the amendment of section 812.— Section 844(b)(2) is amended by striking out “section 812(b)(1)(A)(iii)” and inserting in lieu thereof “section 812 (b)(1)(C)”. (26) Amendments conforming to the amendments of section 804.— (A) Paragraphs (5) and (6) of section 861(a) (relating to items treated as income from within United States) are each amended by striking out in the heading “sale” and inserting in lieu thereof “sale or exchange”, and by striking out “sale” in the text and inserting in lieu thereof “sale or exchange”. (B) section 861(e)(1) (relating to income from certain aircraft and vessels) is amended by striking out “sale or other disposition” and inserting in lieu thereof “sale, exchange, or other disposition”. (C) Paragraphs (5) and (6) of section 862(a) (relating to items treated as income from without the United States) 26 USC 863. and paragraphs (2) and (3) of section 863(b) (relating to sources of income) are each amended by striking out “sale” and inserting in lieu thereof “sale or exchange”. (D) Paragraph (2) of section 863(b) (relating to sources 26 USC 863. of income) is amended by striking out “sold” each place it appears and inserting in lieu thereof “sold or exchanged”. (27) Amendments conforming to the repeal of section 972.— (A) Section 970(b)(1) (relating to inclusion of certain 26 USC 970. previously excluded amounts of sub part F income) is amended by striking out “application of section 972” and inserting in lieu thereof “treatment (under section 972 as in effect before the date of the enactment of the Tax Reform Act of 1976) of two or more controlled foreign corporations which are export trade corporations as a single controlled foreign corporation ”. (B) The table of sections for subpart G of part III of subchapter N of chapter 1 is amended by striking out the item relating to section 972. (28) Amendments conforming to the amendment of section 1001.— (A) Subsection (c) of section 331 is amended to read as 26 USC 331. follows: “(c) Cross Reference.— “For general rule for determination of the amount of gain or loss recognized, see section 1001.” (B) (i) Section 1002 (relating to recognition of gain or 26 USC 1002. loss) is repealed. (ii) The table of sections for part I of subchapter 0 of chapter 1 is amended by striking out the item relating to section 1002. (29) Amendments conforming to the repeal of section 1920.— (A) The third sentence of subsection (a) of section 1016 is 26 USC 1016. amended by striking out “under section 1020” and inserting in lieu thereof “under section 1020 (as in effect before the date of the enactment of the Tax Reform Act of 1976)”, Ante, p. 1520; (B) The table of sections for part II of subchapter O of chapter 1 is amended by striking out the item relating to section 1020. (30) Amendments conforming to the repeal of section 1022.— (A) Section 1016(a) is amended— 26 USC 1016. (i) by striking out paragraph (21), and (ii) by redesignating paragraphs (20) and (22) as paragraphs (19) and (20), respectively. (B) The amendment made by subparagraph (A)(i) shall 26 USC 1016 note. apply with respect to stock or securities acquired from a decedent dying after the date of the enactment of this Act. (C) Tho table of sections for part II of subchapter O of chapter 1 is amended by striking out the item relating to section 1022, ~ (31) Amendments conforming to amendments of section 1033.— (A) Section 1250(d)(4)(B) is amended by striking out 26 USC 1250. “1033(a)(3)(A)” and inserting in lieu thereof “1033(a)(2)(A)” (B) Section 1250(d)(4)(C) and (D) are each amended by striking out “1033(a)(3)” and inserting in lieu thereof “1033(a)(2)”. (C) Section 6212(c)(2)(B) is amended by striking out “1033(a)(3)(C) and (D)” and inserting in lieu thereof “1033 (aj (2)(C) and (D)”. (D) Section 6504(4) is amended by Striking out “1033(a)(3)(C) and (D)” and inserting in lieu thereof “1033(a)(2)(C) and (D)”. (E) Sections 1071(b) and 1250(d)(4)(D) are each amended by striking out “1033(c)” and inserting in lieu thereof “1033(b)”. (32) Amendments conforming to the repeal of section 1111.— (A) Section 301 is amended by striking out subsection (f), and by redesignating subsection (g) as subsection (e). (B) (i) Section 312 is amended by striking out subsection (k), and by redesignating subsections (1) and (m) as subsections (j) and (k), respectively, (ii) Section 1246(g) is amended by striking out “312(1)” and inserting in lieu thereof “312 (j)”. (iii) Sections 964(a) and 1248(c)(1) are each amended by striking out “312 (m)(3)” and inserting in lieu thereof “312 (k)” (iv) Subsection (d) of section 1377, as added by this Act, is amended by striking out “312(m)” and inserting in lieu thereof “312(k)”. (C) Section 535(b) is amended by striking out paragraphs (9) and (10). (D) Section 543(a)(1) is amended by inserting “and” at the end of subparagraph (A), and by striking out subparagraphs (B) and (C) and inserting in lieu thereof the following: “(B) interest on amounts set aside in a reserve fund under section 511 or 607 of the Merchant Marine Act, 1936 (46 U.S.C. 1161 or 1177).” (E) Section 545(b) is amended by striking out paragraphs (10) and (11). (F) Section 553(a)(1) is amended to read as follows: “(1) Dividends, etc.— Dividends, interest, royalties, and annuities.” (G) Section 556(b) is amended by striking out paragraphs (7) and (8). (H) Section 561(b) is amended to read as follows: “(b) Special Rules Applicable.— In determining the deduction for dividends paid, the rules provided in section 562 (relating to rules applicable in determining dividends eligible for dividends paid deduction) and section 563 (relating to dividends paid after the close of the taxable year) shall be applicable.” (I) The table of parts for subchapter O of chapter 1 is amended by striking out the item relating to part IX. (33) Amendments conforming to amendment of section 1222.— (A) Section 57(a)(9)(A) is amended by striking out “the amount by which the net long-term capital gain exceeds the net short-term capital loss” and inserting in lieu thereof “the net capital gain”. (B) So much of the first sentence of section 57(a)(9)(B) as precedes “by a fraction” is amended to read as follows: “In the case of a corporation having a net capital gain for the taxable year, an amount equal to the product obtained by multiplying the net capital gain”. (C) Section 527(b)(2) is amended by striking out “net 26 USC 527. section 1201 gain” and inserting in lieu thereof “net capital gain”. (D) Sections 535(b)(6) and 545(b)(5) are each amended— 26 USC 535, 545. (1) by striking out from the paragraph heading “Long-term” and inserting in lieu thereof “Net”, (2) by striking out from the text “the excess of the net long-term capital gain for the taxable year over the net short-term capital loss for such year” each place it appears and inserting in lieu thereof’ “the net capital gain for the taxable year”, and (3) by striking out from the text “such excess” each place it appears and inserting in lieu thereof “such net capital gain”. (E) Section 802(a)(2) is amended— 26 USC 802. (i) by striking out “the net long-term capital gain of any life insurance company exceeds the net short-term capital loss” and inserting in lieu thereof “any life insurance company has a net capital gain”, and (ii) by striking out “such excess” each place it appears and inserting in lieu thereof “such net capital gain”. (F) Section 804(a)(2) is amended by 26 USC 804. striking out “by which the net long-term capital gain exceeds the net short-term capital loss” and inserting in lieu thereof “of the net capital gain”. (G) Sections 809(b)(1)(B) and 809(b)(2)(B) are each 26 USC 809. amended by striking out “by which the net long-term capital gain exceeds the net short-term capital loss” and inserting in lieu thereof “of the net capital gain”. (H) Section 815(b)(2)(A)(ii) is amended by striking out 26 USC 815. “by which the net long-term capital gain exceeds the net short-term capital loss” and inserting in lieu thereof “of the net capital gain”. (I) Section 852(b)(2)(A) is amended by striking out 26 USC 852. “the excess, if any, of the net long-term capital gain over the net short-term capital loss” and inserting in lieu thereof “the amount of the net capital gain, if any”. (J) (i) Section 852(b)(3)(A) is amended to read as follows: “(A) Imposition of tax.— There is hereby imposed for each taxable year in the case of every regulated investment company a tax, determined as provided in section 1201 (a), on the excess, if any, of the net capital gain over the deduction for dividends paid (as defined in section 561) determined with reference to capital gain dividends only.” (ii) The second sentence of section 852(b)(3)(C) is amended by striking out “excess of the net long-term capital gain over the net short-term capital loss” each place it appears and inserting in lien thereof “net capital gain”. (K) The second sentence of section 857(b)(3)(C) is 26 USC 857. amended by striking out “excess of the net long-term capital gain over the net short-term capital loss” each place it appears and inserting in lieu thereof “net capital gain”. (L) Section 1201(b) is amended by striking out “net section 26 USC 1201. 1201 gain” each place it appears and inserting in lieu thereof “net capital gain”. (M) The first sentence of section 1202 is amended to read as follows: “If for any taxable year, a taxpayer other than a corporation has a net capital gain, 50 percent of the amount of the net capital gain shall be a deduction from gross income.” (N) Sections 381(e)(3)(B), 381(c)(3)(C), 852(d), 4940 (c)(1), and 4940(c)(4) are each amended by striking out “net capital gain” and inserting in lieu thereof “capital gain net income”. (O) Section 1212(a)(1) is amended by striking out “net capital gain” each place it appears and inserting in lieu thereof “capital gain net income”, and by striking out “net capital gains” and inserting in lieu thereof “capital gain net income”. (P) Section 1247(a)(1)(B) is amended by striking out “the excess (determined as if such corporation were a domestic corporation) of the net long-term capital gain over the net short-term capital loss” and inserting in lieu thereof “the amount (determined as if such corporation were a domestic corporation) of the net capital gain”. (Q) (i) Section 1375(a)(1) is amended by striking out “the excess of the corporation’s net long-term capital gain over its short-term capital loss” and inserting in lieu thereof “the corporation’s net capital gain”. (ii) The second sentence of section 1375(a)(1) is amended by striking out “such excess” and inserting in lieu thereof “such net capital gain”. (iii) Section 1375(a)(3) is amended by striking out “the excess of an electing small business corporation’s net long-term capita] gain over its net short-term capital loss” and inserting in lieu thereof “an electing small business corporation’s net capital gain”. (R) The following provisions are each amended by striking out “the excess of the net long-term capital gain over the net short-term capital loss,” and inserting in lieu thereof “the net capital gain”: Sections 1247(a)(2)(A)(i), 1247(a)(2) 26 USC 1247, 1378. (C), 1247(d)(1) and (2). 1378(a)(1), 1378(b)(1), and 1378 (c)(8). (34) Amendment conforming to the repeal of section 1240.— The table of sections of part IV of subchapter P of chapter 1 is amended by striking out the item relating to section 1240. (35) Amendment conforming to the repeal of section 1315.— The table of sections for part II of subchapter Q of chapter 1 is amended by striking out the item relating to section 1315. (36) Amendments conforming to the repeal of section 1321.— (A) Section 472 is amended by striking out subsection (f). (B) Section 6422, as amended by this Act, is amended by striking out paragraph (2), and by redesignating paragraphs (3) through (13) as paragraphs (2) through (12), respectively. (C) Section 6504 is amended by striking out paragraph (1). (D) Section 6515 is amended by striking out paragraph (1). (E) The table of parts for subchapter Q of chapter 1 is amended by striking out the item relating to part III. (37) Amendments conforming to the repeal of sections 1331 through 1337.— (A) The third sentence of section 901(a) is amended by 26 USC 901. striking out “under section 1333 (relating to war loss recoveries) or”. _ . (B) Section 936(a)(2), as added by this Act, is 26 USC 936. amended— (i) by inserting “or” at the end of subparagraph (C), and (ii) by striking out subparagraph (D). (C) Section 6212(c),(2) is amended by striking out subparagraph 26 USC 6212. (D). (D) Section 6515 is amended by striking out paragraph 26 USC 6515. (6). (E) Section 6515, as amended by this Act, is amended by striking out paragraph (2), and by redesignating paragraphs (3), (4), (5), (6), (7), and (8) as paragraphs (1), (2), (3), (4). (5),and (6) respectively. (F) The table of parts tor subchapter Q of chapter 1 is amended by striking out the item relating to part IV. (38) Amendment conforming to the repeal of section 1342.— The table of sections for part V of subchapter Q of chapter 1 is amended by striking out the item relating to section 1342. (39) Amendments conforming to the repeal of section 1340.— (A) The table of sections for part VI of subchapter Q of chapter 1 is amended by striking out the item relating to section 1346. (B) Section 6504 is amended by striking out paragraph Post, p. 1829. (7). (40) Amendment conforming to amendment of section 1372.— Section 58(d)(2) is amended by striking out “, notwithstanding 26 USC 58. the provisions of section 1371(b)(1),” (41) Amendment conforming to the repeal of section 1465.— The table of sections for subchapter C of chapter 3 is amended by striking out the item relating to section 1465. (c) Amendments to Provisions Referring to Territories.— (1) Section 37(f) is amended by striking out “a Territory,”. Ante, p. 1559. 26 USC 105, 273, 454. 26 USC 117. (2) Sections 105(e)(2), 273, and 454(b)(2) are each amended by striking out a Territory.”. (3) Section 117(b)(2)(A)(iv) is amended by striking out “a territory,”. (4) Section 162(a) is amended by striking out “territory”. 26 USC 162. 26 USC 581. (5) Section 581 is amended by striking out “, of any State, or of any Territory” and inserting m lieu thereof “or of any State”, and by striking out “, Territorial,”. (6) Section 801(b)(3) is amended by striking out “or 26 USC 801. Territorial”. (7) Section 861(a)(1) is amended by striking out “, any Territory, 26 USC 861. any political subdivision of a Territory.”. (8) Paragraphs (6) and (7) of section 1014(b) are each 26 USC 1014. amended by striking out “Territory.”. (9) Section 1221 (5) is amended by striking out “or Territory,”. 26 USC 1221. 26 USC 2 note. (d) Effective Date.— Except as otherwise expressly provided in this section, the amendments made by this section shall apply with respect to taxable years beginning after December 31, 1976. The amendments made by subsections (a)(29) and (b)(10) shall apply with respect to taxable years ending after the date of the enactment of this Act. SEC. 1902. AMENDMENTS OF SUBTITLE B; ESTATE AND GIFT TAXES. (a) In General.— (1) Amendments of section 2012.— (A) Section 2012(b) (relating to credit for gift tax) is amended— (i) by Striking out “(b) in applying,” and inserting in lieu thereof “(b) Valuation Reductions.—In applying,”, and (ii) by striking out in paragraphs (2) and (3) “ deduction)—then” and inserting in lieu thereof “deduction), then”. (B) Section 2012(c) (relating to gift by spouse or third party) is amended by striking out “(c) Where the decedent” and inserting in lieu thereof “(c) Where Gift Considered Made One-Half by Spouse.—Where the decedent”. (C) Section 2012(d)(1) (relating to computation of amount of gift tax) is amended by striking out “(d)(1) For purposes of” and inserting in lieu thereof the following: “(d) Computation of Amount of Gift Tax Paid.— “(1) Amount of tax.— For purposes of”. (D) Section 2012(d)(2) (relating to credit for gift tax) is amended by striking out “(2) For purposes” and inserting in lieu thereof: “(2) Amount of gift.—For purposes”., (2) Amendments of section 2013.— Section 2013(d)(3) is amended by striking out “, or the corresponding provision of prior law,”. (3) Amendment of section 2038.— Section 2038 (relating to revocable transfers) is amended by striking out subsection (c) (relating to effect of disability in certain cases). (4) Amendments of section 2055.— (A) Section 2055(b) (relating to powers of appointment) is amended to read as follows: “(b) Powers of Appointment.— Property includible in the decedent’s gross estate under section 2041 (relating to powers of appointment) received by a donee described in this section shall, for purposes of this section, be considered a bequest of such decedent.” (B) Section 2055(f) (relating to cross references) is amended to read as follows: (f) Cross References.— “(1) For option as to time for valuation for purpose of deduction under this section, see section 2032. “(2) For exemption of gifts and bequests to or for the benefit of Library of Congress, see section 5 of the Act of March 3, 1925, as amended (2 U.S.C. 161). “(3) For treatment of gifts and bequests for the benefit of the Office of Naval Records and History as gifts or bequests to or for the use of the United States, see section 7222 of title 10, United States Code. “(4) For treatment of gifts and bequests to or for the benefit of National Park Foundation as gifts or bequests to or for the use of the United States, see section 8 of the Act of December 18, 1967 (16 U.S.C. 191). “(5) For treatment of gifts, devises, or bequests accepted by the Secretary of State under the Foreign Service Act of 1946 as gifts, devices, or bequests to or for the use of the United States, see section 1021(e) of that Act (22 U.S.C. 869(e)) . “(6) For treatment of gifts or bequests of money accepted by the Attorney General for credit to ‘Commissary Funds, Federal Prisons/ as gifts or bequests to or for the use of the United States, see section 2 of the Act of May 15, 1952, as amended by the Act of July 9, 1952 (31 U.S.C. 725s–4). “(7) For payment of tax on gifts and bequests of United States obligations to the United States, see section 24 of the Second Liberty Bond Act (31 U.S.C. 757e), “(8) For treatment of gifts and bequests for benefit of the Naval Academy as gifts or bequests to or for the use of the United States, see section 6973 of title 10, United States Code. _ “(9) For treatment of gifts and bequests for benefit of the Naval Academy Museum as gifts or bequests to or for the use of the United States, see section 6974 of title 10, United States Code. “(10) For exemption of gifts and bequests received by National Archives Trust Fund Board, see section 2308 of title 44, United States Code.” (5) Amendments of section 2100.— (A) Section 2106(a)(2)(F) (relating to cross references 26 USC 2106. concerning the charitable deduction for estate tax purposes) is amended to read as follows: “(F) Cross References.— “(1) For option as to time for valuation for purposes of deduction under this section, see section 2032. “(2) For exemption of certain bequests for the benefit of the United States and for rules of construction for certain bequests, see section 2C55(O.” (B) Section 2106 (relating to taxable estate of nonresidents) is amended by striking out subsection (c) (relating to treatment of United States bonds). (6) Amendment of sections 2107 and 2108.— Section 2107(a) (relating 26 USC 2107, 2108. to estate tax on expatriates) and section 2108(a) (relating to application of pre–1967 estate tax provisions) are each amended by striking out “the date, of enactment of this section” and inserting in lieu thereof “November 13, 1966”. (7) Amendment relating to section 2201.— (A) Section 6(b)(1) of the Act of January 2, 1975 (Public Law 93–597; 88 Stat. 1950) is amended by striking out 26 USC 2201. “Section 2210” and inserting in lieu thereof “Section 2201”. (B) The amendment made by subsection (A) is effective 26 USC 2201 note. 26 USC 2202. July 1, 1973. (8) Repeal of section 2202.— Section 2202 (relating to missionaries in foreign service) is repealed. (9) Amendment of section 2204.— The last sentence of section 2204(b) (relating to the discharge from personal liability of a fiduciary other than the executor) is amended by striking out “has not been” and inserting in lieu thereof 26 USC 2204. “has been”. (10) Amendment of section 2501.— Section 2501(a)(1) (relating 26 USC 2501. to imposition of gift tax) is amended to read as follows: “(1) General rule.— A tax, computed as provided in section 2502, is hereby imposed for each calendar quarter on the transfer of property by gift during such calendar quarter by any individual, resident or nonresident.” (11) Amendment of section 2522.— Subsection (d) of section 26 USC 2522. 2522 (relating to cross references) is amended to read as follows: “(d) Cross Reference.— “For exemption of certain gifts to or for the benefit of the United States and for rules of construction with respect to certain gifts, see section 2055(f).” (12) Amendments to sections referring to territories.— (A) The following provisions are each amended by striking out “Territory,”: sections 2055(a)(1), 2056(c)(2)(B), 26 USC 2055, 2056, 2106. and 2106(a)(2)(A)(i). (B) The following provisions are each amended by striking out “or Territory”: sections 2011(a), 2011(e), and 2053 (C) Section 2016 is amended by striking out “Territory or”. (D) Sections 2522(a)(1) and 2522(b)(1) are. each amended by striking out “Territory,”. (E) Section 2523(f)(1) is amended by striking out “Territory, or”. (b) Conforming and Clerical Amendments.— (1) Amendment conforming to repeal of section 2202.— The table of sections for subchapter C of chapter 11 is amended by striking out the item relating to section 2202. (2) Amendments conforming to amendment of section 2055.— (A) Section 6503, as amended by this Act, is amended by striking out subsection (e), and by redesignating subsections (f), (g) (h), and (i) as subsections (e), (f), (g), and (h), respectively. (B) Section 6167(h)(2) is amended by striking out “section 6503(f)” and inserting in lieu thereof “section 6503(e)”. (c) Effective Dates.— (1) Estate tax amendments.— The amendments made by paragraphs (1) through (10), and paragraphs (14)(A), (B),and (C), of subsection (a), and by subsection (b) shall apply in the case of estates of decedents dying after the date of the enactment of this Act, and the amendment made by paragraph (11) of subsection (a) shall apply in the case of estates of decedents dying after December 31, 1970. (2) Gift tax amendments.— The amendments made by paragraphs (12), (13), and (14)(D) and (E) of subsection (a) shall apply with respect to gifts made after December 31, 1976. SEC. 1903. AMENDMENTS OF SUBTITLE C; EMPLOYMENT TAXES. (a) In General.— (1) Amendments of sections 3101 and 3111.— (A) Section 3101(a) (relating to rate of tax on employees for old-age, survivors, and disability insurance) and section 26 USC 3111. 3111(a) (relating to rate of tax on employers for such insurance) are each amended by striking out paragraphs (1), (2), (3), and (4), and by redesignating paragraphs (5) and (6) as paragraphs (1) and (2), respectively. (B) Section 3101(b) (relating to rate of tax on employees for hospital insurance) and section 3111(b) (relating to rate of tax on employers for such insurance) are each amended by striking out paragraphs (1) and (2), and by redesignating paragraphs (3), (4), (5), and (6) as paragraphs (1), (2), (3), and (4), respectively. (2) Repeal of section 3113.— Section 3113 (relating to application of social security tax on District of Columbia credit unions) is repealed. (3) Amendments of section 3121.— (A) Section 3121(b) (relating to employment) is amended— (i) by striking out “performed after 1936 and prior to 1955 which was employment for purposes of subchapter A of chapter 9 of the Internal Revenue Code of 1939 under the law applicable to the period in which such service was performed, and any service, of whatever nature, performed after 1954” and inserting in lieu thereof “, of whatever nature, performed”, and (ii) by striking out “, in the case of service performed after 1954,”. (B) Section 3121(b)(1) is amended by striking out “65 26 USC 3121. Stat. 119;”. (C) Section 3121(b)(6)(B)(v) is amended by striking out “Secretary of the Treasury” and inserting in lieu thereof “Secretary of Transportation”. (D) Section 3121(g)(3) (relating to agricultural labor) is amended by striking out “46 Stat. 1550, § 3;”. (E) Section 3121(k)(1) (relating to exemption of certain organizations) is amended by striking out subparagraphs (F) and (H) and by redesignating subparagraph (G) as subparagraph (F). (F) Section 3121 (1)(2) (relating to employees of foreign subsidiaries) is amended by striking out “, but in no case prior to January 1, 1955”. (G) Section 3121 (m)(1) (relating to service in the uniformed services) is amended by striking out “after December 1956”. (4) Amendments of section 3122.— The last sentence of section 3122 (relating to Federal service) is amended by striking out 26 USC 3122. “Secretary” each place it appears and inserting in lieu thereof “Secretary of Transportation”. (5) Amendment of section 3123.— Section 3125(c) (relating 26 USC 3125. to returns in the case of Governmental employees in the District of Columbia) is amended by striking out “Commissioners of the District of Columbia or such agents as they may designate” and by inserting in lieu thereof “Mayor of the District of Columbia of such agents as he may designate”. (6) Amendment of section 3201.— Section 3201 (relating to 26 USC 3201. rate of tax on railroad employees) is amended— (A) by striking out “oi the Internal Revenue Code of 1954” each place it appears; (B) by striking out “of such Code”; (C) by striking out “after September 30, 1973, as is” and inserting in lieu thereof “as is”; and (D) by striking out “any month after September 30, 1973” and inserting in lieu thereof “any month”. (7) Amendments of section 3202.— (A) The second sentence of section 3202(a) (relating to 26 USC 3202. reduction of tax by railroad employer) is amended— (i) by striking out “after September 30, 1973,” each place it appears; (ii) by striking out “after September 30, 1973 and the aggregate” and inserting in lieu thereof “and the aggregate” (iii) by striking out “of the Internal Revenue Code of 1954” each place it appears; and (iv) by inserting a comma immediately after “for any month” each place it appears. (B) Section 3202(b) (relating to indemnification of employer) is amended by striking out “made”. (8) Amendments of section 3211.— Section 3211(a) (relating 26 USC 3211. to rate of tax on railroad employee representatives) is amended— (A) by striking out “3111(a), 3111(b)” and inserting in lieu thereof “3111(a), and 3111(b)”; (B) by striking out “of the Internal Revenue Code of 1954” each place it appears; (C) by striking out “rendered by him after September 30, 1973,” and inserting in lieu thereof “rendered by him”; and (D) by striking out “after September 30, 1973”. (9) Amendments of section 3221.— (A) The first sentence of section 3221(a) (relating to rate of tax on railroad employers) is amended— (i) by striking out “after September 30, 1973,” each place it appears; (ii) by striking out “after September 30, 1973: except that” and inserting in lieu thereof “, except that”; (iii) by striking out “after September 30, 1973 of the aggregate” and inserting in lieu thereof “of the aggregate”; (iv) by striking out “of the Internal Revenue Code of 1954” each place it appears; and (v) by inserting a comma before “the tax imposed”. (B) Section 3221(b) (relating to rate of tax on railroad employers) is amended to read as follows: “(b) The rate of tax imposed by subsection (a) shall be increased by the rate of tax imposed with respect to wages by section 3111(a) plus the rate imposed by section 3111(b).” (C) Section 3221(c) (relating to additional railroad retirement tax) is amended— (i) by striking out “(1) at the rate of 2 cents for the period beginning November 1, 1966, and ending March 31, 1970, and (2) commencing April 1, 1970,” and (ii) by striking out “commencing with the quarter beginning April 1, 1970”. (10) Amendments of section 3231.— (A) Section 3231(a)(defining employer) is amended by striking out “44 Stat. 577;”. (B) Section 3231(b)(defining employee) is amended by striking out. “50 Stat. 312;”. (C) Section 3231(e)(defining employee representative) is amended by striking out “44 Stat. 577;”. (D) Section 3231(d)(7)(defining service) is amended by striking out “50 Stat, 308;”. (11) Amendments of section 3301.— Section 3301 (relating to Federal unemployment tax rate) is amended— (A) by striking out “the calendar year 1970 and each calendar year thereafter” and inserting in lieu thereof “each calendar year”, and (B) by striking out the last sentence. (12) Amendments of section 3302.— (A) Section 3302(a) (relating to credits against tax) is amended by striking out “(10month period in the case of October 31, 1972)”. (B) Section 3302(b) (relating to additional credit) is amended— (i) by striking out “(10month period in the case of October 31, 1972)”, and (ii) by striking out “12 or 10month period, as the case may be,” and inserting in lieu thereof “12month period”. (C) (i) Section 3302(c) (relating to limitation on credits 26 USC 3302. against unemployment tax) is amended by striking out paragraph (2) and the unnumbered paragraph immediately following such paragraph (2) (relating to advances made to a State unemployment account before September 13, 1960), and by redesignating paragraphs (3) and (4) as paragraphs (2) and (3),respectively. (ii) Section 3302(c)(2) (relating to advances made to a State unemployment account after September 12, 1960), as redesignated by clause (i) of this subparagraph, is amended by striking out “on or after the date of the enactment of the Employment Security Act of 1960”, and by striking out “paragraphs (1) and (2)” and inserting in lieu thereof “paragraph (1)”. (iii) Section 3302(c)(3) (relating to reductions with respect to certain agreements under the Trade Act of 1974),as redesignated by clause (i) of this subparagraph, is amended by striking out “paragraphs (1), (2), and (3)” and inserting in lieu thereof “paragraphs (1) and (2)”. (iv) Section 3302 (d)(3) (relating to effect of repayment of advances) is amended by striking out “or (3)”. (v) Section 3302(d)(4), (5), and (6) (relating to special rules) are each amended by striking out “subsection (c)(3)” each place it appears and inserting in lieu thereof “subsection (c)(2)”. (vi) Section 3302(d)(7) (relating to determination and certification of percentages) is amended by striking out “subsection (c)(3)(B) or (C)” and inserting in lieu thereof “subsection (c)(2)(B) or (C)”. (D) Section 3302(d) (relating to special rules for credits against the unemployment tax) is amended by striking out paragraph (8)(a cross reference). (13) Amendments to section 3303.— Section 3303 (b) (relating 26 USC 3303. to certification with respect to additional credit allowance) is amended— (A) by striking out “(10month period in the case of October 31, 1972) ” each place it appears, (B) by striking out “12 or 10month period, as the case may be,” each place it appears in paragraphs (1) and (2), and inserting in lieu thereof “12month period”, and (C) by striking out “12 or 10month period, as the case may be,” in paragraph (3) and inserting in lieu thereof “12month period,”. (14) Amendments to section 3304.— (A) Section 3304(a)(3) (relating to requirements) is 26 USC 3304. amended by striking out “49 Stat, 640; 52 Stat. 1104, 1105;”. (B) Section 3304(c) (relating to certification) is amended by striking out “(10month period in the case of October 31, 1972)”. (15) Amendments of section 3305.— (A) Section 3305(g) (relating to vessels operated by 26 USC 3305. general agents of the United States) is amended by striking out “on or after July 1, 1953,”. (B) Section 3305 (h) (relating to certain contributions to States) is amended by striking out “on or after July 1, 1953, and”. (C) Section 3305(j) (relating to denial of credits in certain cases) is amended by striking out “after December 31, 1971,”. (16) Amendments of section 3300.— (A) Section 3306(c)(9) (relating to the exclusion of service performed by certain employees and employee representatives from the definition of employment) is amended by striking out “52 Stat. 1094, 1095;”. (B) Section 3306(c)(18) (relating to the exclusion of certain service performed by nonresident aliens from the definition of employment) is amended by inserting after the “Immigration and Nationality Act, as amended” the following: “(8U.S.C. 1101(a)(15)(F) or (J))”. (C) Section 3306(f) (relating to the definition of an unemployment fund) is amended by striking out “49 Stat. 640; 52 Stat. 1104, 1105;”. . (D) Section 3306(n) (relating to vessels operated by general agents of the United States) is amended by striking out “on or after July 1, 1953,”. (17) Amendment of section 3402.— Section 3402(1)(3)(B) (relating to marital status) is amended by striking out “section 2(b)” and inserting in lieu thereof “section 2 (a)”. (b) Amendment Conforming to the Repeal of Section 3113.— The table of sections for subchapter B of chapter 21 is amended by striking out the item relating to section 3113. (c) Amendments to Profusions Referring to Territories.— Sections 3401(c) and 3404 are each amended by striking out “Territory,” each place it appears. (d) Effective Dates.— The amendments made by this section shall apply with respect to wages paid after December 31, 1976, except that the amendments made to chapter 22 of the Internal Revenue Code of 26 USC 3201. 1954 shall apply with respect to compensation paid for services rendered after December 31, 1976. SEC. 1904. AMENDMENTS OF SUBTITLE D; MISCELLANEOUS EXCISE TAXES. (a) In General.— (1) Amendments of chapter 31.— (A) So much of chapter 31 (relating to retailers excise taxes) as precedes section 4041 is amended to read as follows: “Sec. 4041. Imposition of tax.” (B) Section 4041(g) (relating to exemptions from fuel taxes) is amended to read as follows: “(g) Other Exemptions.— Under regulations prescribed by the Secretary, no tax shall be imposed under this section— “(1) on any liquid sold for use or used as supplies for vessels or aircraft (within the meaning of section 4221(d)(3)); “(2) with respect to the sale of any liquid for the exclusive use of any State, any political subdivision of a State, or the District of Columbia, or with respect to the use by any of the foregoing of any liquid as a fuel; “(3) upon the sale of any liquid for export, or for shipment to a possession of the United States, and in due course so exported or shipped; and “(4) with respect to the sale of any liquid to a nonprofit educational organization for its exclusive use, or with respect to the use by a nonprofit educational organization of any liquid as a fuel. For purposes of paragraph (4), the term ‘nonprofit educational organization’ “Nonprofit educational organization.” means an educational organization described in section 170(h)(1)(A)(ii) which is exempt from income tax under section 501(a). The term also includes a school operated as an activity of an organization described in section 501(c)(3) which is exempt from income tax under section 501(a), if such school normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.” (C) Section 4041 (relating to tax on fuels) is amended by 26 USC 4041. adding at the end thereof the following new subsection: “(i) Sales by United States, Etc.— The taxes imposed by this section shall apply with respect to liquids sold at retail by the United States, or by any agency or instrumentality of the United States, unless sales by such agency or instrumentality are by statute specifically exempted from such taxes.” (D) Chapter 31 is amended by striking out section 4042 (a cross reference) and subchapter F (special provisions 26 USC 4042, 4054–4058. applicable to retailers taxes). (2) Amendments of section 421a.— (A) Section 4216 (relating to definition of price) is 26 USC 4216. amended by redesignating subsections (e), (f), and (g) as subsections (d), (e).and (f), respectively. (B) Paragraphs (3), (4). and (5) of section 4216(b) (relating to constructive sales price) are each amended by striking out “subsections (a) and (f)” each place it appears and inserting in lieu thereof “subsections (a) and (e)”. (3) Amendment of section 4217.— Section 4217(d) (relating 26 USC 4217. to lease treated as sale) is amended by striking out paragraph (4) (relating to certain 1958 transitional rules). (4) Repeal of section 4223.— Section 4223 (relating to floor-stock 26 USC 4226. taxes imposed before 1967) is repealed. (5) Amendment of section 4227.— Section 4227 (relating to 26 USC 4227. cross references) is amended to read as follows: “SEC. 4227. CROSS REFERENCE. “For credit for taxes on tires and inner tubes, see section 6416(c).” (6) Amendment of section 4263.— Section 4253 (relating to 26 USC 4253. exemptions from the tax on communications services) is amended by adding at the end thereof the following new subsections: “(i) State and Local Governmental Exemption.— Under regulations prescribed by the Secretary, no tax shall be imposed under section 4251 upon any payment received for services or facilities furnished to the government of any State, or any political subdivision thereof, or the District of Columbia. “(j) Exemption foe Nonprofit Educational Organizations.— Under regulations prescribed by the Secretary, no tax shall be imposed under section 4251 on any amount paid by a nonprofit educational organization for services or facilities furnished to such organization. For purposes of this subsection, the term ‘nonprofit educational organization’ means an educational “Nonprofit educational organization.” organization described in section 170(b)(1)(A)(ii) which is exempt from income tax under section 501(a). The term also includes a school operated as an activity of an organization described in section 501(c)(3) which is exempt from income tax under section 501(a), if such school normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.” (7) Amendments of section 4201.— (A) Subsections (a) and (b) of section 4261 (relating to tax on transportation of persons by air) are each amended by striking out “which begins after June 30, 1970,”. (B) Section 4261(c) is amended by striking out “and begins after June 30, 1970”. (8) Amendment of section 4271.— Section 4271 (a) (relating to tax on transportation of property by air) is amended by striking out “which begins after June 30, 1970,”. (9) Repeal of section 4292.— Section 4292 (relating to State and local governmental exemption from the tax on communications services) is repealed. (10) Repeal of section 4284.— Section 4294 (relating to exemption of nonprofit educational organizations from the tax on communications services) is repealed. (11) Repeal of section 4295.— Section 4295 (across reference) is repealed. (12) Amendment of of after 34.— Chapter 34 (relating to documentary stamp taxes) is amended to read as follows: “CHAPTER 34— POLICIES ISSUED BY FOREIGN INSURERS “Sec. 4371. Imposition of tax. “Sec. 4372. Definitions. “Sec. 4373. Exemptions. “Sec. 4374. Liability for tax. “SEC. 4371. IMPOSITION OF TAX. “There is hereby imposed, on each policy of insurance, indemnity bond, annuity contract, or policy of reinsurance issued by any foreign insurer or reinsurer, a tax at the following rates: “(1) Casualty insurance and indemnity bonds.— 4 cents on each dollar, or fractional part thereof, of the premium paid on the policy of casualty insurance or the indemnity bond, if issued to or for, or in the name of, an insured as defined in section 4372(d); “(2) Life insurance, sickness and accident policies, and annuity contracts.— 1 cent on each dollar, or fractional part thereof, of the premium paid on the policy of life, sickness, or accident insurance, or annuity contract, unless the insurer is subject to tax under section 819; and “(3) Reinsurance.— 1 cent on each dollar, or fractional part thereof, of the premium paid on the policy of reinsurance covering any of the contracts taxable under paragraph (1) or (2). “SEC. 4372. DEFINITIONS. “(a) Foreign Insurer or Reinsurer.— For purposes of section 4371, the term ‘foreign insurer or reinsurer’ means an insurer or reinsurer who is a nonresident alien individual, or a foreign partnership, or a foreign corporation. The term includes a nonresident alien individual, foreign partnership, or foreign corporation which shall become bound by an obligation of the nature of an indemnity bond. The term does not include a foreign government, or municipal or other corporation exercising the taxing power. “(b) Policy of Casualty Insurance.— For purposes of section 4371(1), the term ‘policy of casualty insurance’ means any policy Ante, p. 1812. (other than li fe) or other instrument by whatever name called whereby a contract of insurance is made, continued, or renewed. “(c) Indemnity Bond.— For purposes of this chapter, the term ‘indemnity bond’ means any instrument by whatever name called whereby an obligation of the nature of an indemnity, fidelity, or surety bond is made, continued, or renewed. The term includes any bond for indemnifying any person who shall have become bound or engaged as surety, and any bond for the due execution or performance of any contract, obligation, or requirement, or the duties of any office or position, and to account for money received by virtue thereof, where a premium is charged for the execution of such bond. “(d) Insured.— For purposes of section 4371 (1), the term ‘insured’ means— “(1) a domestic corporation or partnership, or an individual resident of the United States, against, or with respect to, hazards, risks, losses, or liabilities wholly or partly within the United States, or “(2) a foreign corporation, foreign partnership, or nonresident individual, engaged in a trade or business within the United States, against, or with respect to, hazards, risks, losses, or liabilities within the United States. “(e) Policy of Life, Sickness, or Accident Insurance, or Annuity Contract.— For purposes of section 4371(2), the term ‘policy of life, sickness, or accident insurance, or annuity contract’ means any policy or other instrument by whatever name called whereby a contract of insurance Or an annuity contract is made, continued, or renewed with respect to the life or hazards to the person of a citizen or resident of the United States. “(f) Policy of Reinsurance.— For purposes of section 4371(3), the term ‘policy of reinsurance’ means any policy or other instrument by whatever name called whereby a contract or reinsurance is made, continued, or renewed against, or with respect to, any of the hazards, risks, losses, or liabilities covered by contracts taxable under paragraph (1) or (2) of section 4371. “SEC. 4373. EXEMPTIONS. “The tax imposed by section 4371 shall not apply to— “(1) Domestic agent.— Any policy, indemnity bond, or annuity contract signed or countersigned by an officer or agent of the insurer in a State, or in the District of Columbia, within which such insurer is authorized to do business; or “(2) Indemnity bond.— Any indemnity bond required to be filed by any person to secure payment of any pension, allowance, allotment, relief, or insurance by the United States, or to secure a duplicate for, or the payment of, any bond, note, certificate of indebtedness, war-saving certificate, warrant, or check, issued by the United States. “SEC. 4374. LIABILITY FOR TAX. “The tax imposed by this chapter shall be paid, on the basis of a return, by any person who makes, signs, issues, or sells any of the documents and instruments subject to the tax, or for whose use or benefit the same are made, signed, issued, or sold. The United States or any agency or instrumentality thereof shall not be liable for the tax,” (13) Amendment of section 4493.— (A) Section 4493(b)(1) (relating to certain persons engaged in foreign air commerce) is amended by striking out “beginning on or after July 1, 1970”. (B) Section 4493(b)(2) is amended by striking out the last sentence. (14) Amendment of chapter 37.— So much of chapter 37 as precedes section 4501 (relating to tax on sugar) is amended to read as follows: “CHAPTER 37— SUGAR “Sec. 4501. Imposition of tax. “Sec. 4502. Definitions, “Sec. 4503. Exemptions for sugar manufactured for home consumption.” (15) Repeal of sections 4591 through 4597.— Chapter 38 (relating to import taxes on oleomargarine) is repealed. (16) Repeal of sections 4801 through 4806.— Subchapter B of chapter 39 (relating to tax on white phosphorus matches) is repealed. (17) Repeal of sections 4811 through 4826.— Subchapter C of chapter 39 (relating to tax on unadulterated butter) is repealed. (18) Repeal of sections 4881 through 4886.— Subchapter E of chapter 39 (relating to tax on circulation other than of national banks) is repealed. (19) Amendment of section 4901.— Section 4901 (relating to payment of occupational taxes) is amended by striking out subsection (c). (20) Amendment of section 4905.— Section 4905(a) (relating to liability for occupational taxes in case of death or change of location) is amended by striking out “wife” and inserting in lieu thereof “spouse”. (21) Repeal of section 4911 through 4931.— (A) Chapter 41 (relating to interest equalization tax) is repealed. (B) The repeal made by subparagraph (A) shall apply with respect to acquisitions of stock and debt obligations made after June 30, 1974. (22) Amendments of section 4973.— (A) So much of section 4973(a) (relating to tax on excess contributions) as follows “of any individual,” in paragraph (3) thereof is amended to read as follows: “there is imposed for each taxable year a tax in an amount equal to 6 percent of the amount of the excess contributions to such individual’s accounts, annuities, or bonds (determined as of the close of the taxable year). The amount of such tax for any taxable year shall not exceed 6 percent of the value of the account, annuity, or bond (determined as of the close of the taxable year). in the case of an endowment contract described in section 408(b), the tax imposed by this section does not apply to any amount allocable to life, health, accident, or other insurance under such contract. The tax imposed by this subsection shall be paid by such individual.” (B) Section 4973(c) is amended by striking out “subsection 26 USC 4973. (a)(3)” and inserting in lieu thereof “subsection (a)(2)”. (b) Conforming and Clerical Amendments.— (1) Amendments conforming to amendment of chapter 31.— (A) Section 6416(a)(1) is amended by striking out 26 USC 6416. “(retailers taxes)” and inserting in lieu thereof “(special fuels)”, (B) Section 6416 (e) is amended by striking out “subchapter E of”. (2) Amendment conforming to amendment of section 4216.— Section 6416(b)(1) is amended by striking out “section 4216(f)(2) and (3)” and inserting in lieu thereof “section 4216 (e)(2) and (3)” (3) Amendment conforming to the repeal of section 4226.— The table of sections for subchapter G of chapter 32 is amended by striking out the item relating to section 4226. (4) Amendment conforming to the repeal of sections 4292, 4294, and 4295.— The table of sections for subchaptet E of chapter 33 is amended by striking out the items relating to sections 4292, 4294, and 4295. (5) Amendments conforming to the amendment of chapter 34.— (A) Section 7270 is amended by striking out “the affixing 26 USC 7270. of stamps on insurance policies, etc.” and inserting in lieu thereof “liability for tax on policies issued by foreign insurers”. (B) Section 6808 is amended by striking out paragraph 26 USC 6808. (4). (6) Amendments conforming to the amendment of chapter 37.— (A) Section 7240 is amended by striking out “subchapter 26 USC 7240. A of”. (B) Section 7655(a) is amended— 26 USC 7655. (i) by striking out “Subchapter A of chapter 37” in paragraph (5) and inserting in lieu thereof “Chapter 37”, and (ii) by redesignating paragraph (5) as paragraph (3). (7) Amendments conforming to repeal of sections 4591 through 4597.— (A) Section 6808 is amended by striking out paragraph 26 USC 6808. (7). (B) (i) Section 7234 (relating to violations of laws concerning 26 USC 7234. oleomargarine or adulterated butter operations) is repealed. (ii) The table of sections for part II of subchapter A of chapter 75 is amended by striking out the item relating to section 7234. (C) (i) Section 7265 (relating to other offenses concerning 26 USC 7265. oleomargarine or adulterated butter operations) is repealed. (ii) The table of sections for subchapter B of chapter 75 is amended by striking out the item relating to section 7265. (D) Section 7611(a), as redesignated by this Act, is Ante, p. 1699. amended by striking out paragraph (1). (E) The table of chapters for subtitle D is amended by striking out the item relating to chapter 38, (8) Amendments conforming to repeal of sections 4801 through 4806.— (A) Section 4905(b) is amended to rend as follows: “(b) Registration.— “For registration in case of wagering, see section 1412.” (B) Section 6808 is amended by striking out paragraph (12). (C) Section 7012 is amended by striking out subsection (D) (i) Section 7239 (relating to violations of laws concerning white phosphorus matches) is repealed. (ii) The table of sections for part II of subchapter A of chapter 75 is amended by striking out the item relating to section 7239. (E) (i) Sections 7267 and 7274 (relating to offenses and penalties concerning white phosphorus matches) are each repealed. (ii) The table of sections for subchapter B of chapter 75 is amended by striking out the items relating to sections 7267 and 7274. (F) Section 7272(b) is amended by striking out “4804” (G) Section 7303 is amended by striking out paragraph (6) (H) (i) Part II of subchapter C of chapter 75 (relating to provisions common to forfeitures) is amended by striking out section 7328 (relating to confiscation of white phosphorus 26 USC 7328, 7329. matches), and by redesignating section 7329 (relating to cross references) as section 7328. (ii) The table of sections for part II of subchapter C of chapter 75 is amended by striking out the last two items and inserting in lieu thereof the following: “Sec. 7328. Cross references.” (9) Amendments conforming to repeat, of sections 4811 through 4826.— (A) Section 6808 (relating to cross references) is amended by striking out paragraph (10). (B) (i) Section 7235 (relating to violations of laws concerning adulterated butter and process or renovated butter) is repealed. (ii) The table of sections for part II of subchapter A of chapter 75 is amended by striking out the item relating to section 7235. (C) (i) Section 7264 (relating to offenses concerning renovated or adulterated butter) is repealed. (ii) The table of sections for subchapter B of chapter 75 is amended by striking out the item relating to section 7264. (D) Section 7303 is amended by striking out paragraphs (3), (4), and (5), and by redesignating paragrapns (7) and (8) as paragraphs (2) and (3), respectively. (E) Section 7611(a), as redesignated by this Act, is amended by striking out paragraph (2) , and by redesignating paragraphs (5) and (6) as paragraphs (1) and (2), respectively. (10) Amendments conforming to the repeal of sections 4911 through 4931.— (A) (i) (I) Section 263, as amended by this Act, is amended 26 USC 263. by striking out subsections (a)(3) and (d) (relating to the allowance of deductions for payment of interest equalization tax), and by redesignating subsections (e), (f), and (g) as subsections (d), (c),and (f), respectively. (II) Section 263(d), as redesignated by clause (i)(I) of this subparagraph, is amended by striking out “subsection (f)” and inserting in lieu thereof “subsection (e)”, (ii) Section 6011 (relating to requirement of return, statement, or 26 USC 6011. list) is amended by striking out subsection (d) (relating to interest equalization tax returns, etc.), and by redesignating subsections (e) and (f) as subsections (c) and (d), respectively. (iii) (I) Section 6076 (relating to time for filing interest 26 USC 6076. equalization tax returns) is repealed. (II) The table of sections for part V of subchapter A of chapter 61 is amended by sticking out the item relating to section 6076. (iv) Section 6611 (relating to interest on overpayments) 26 USC 6611. is amended by striking out subsection (h) (relating to over-payments of interest equalization tax) and by redesignating subsection (i) as subsection (h). (v) Section 6651 (relating to failure to file tax return 26 USC 6651. or to pay tax) is amended by striking out subsection (e) (relating to certain interest equalization tax returns). (vi) (I) Section 6680 (relating to failure to file interest 26 USC 6680. equalization tax returns) is repealed. (II) The table of sections for subchapter B of chapter 68 is amended by striking out the item relating to section 6680. (vii) The amendments made by this subparagraph shall 26 USC 263 note. apply with respect to acquisitions of stock or debt obligations made after June 30, 1974, except that the repeal of paragraph (2) of section 6011(d) under clause (ii) shall apply with respect to loans and commitments made after such date. (B) Section 861(a)(1)(G) (relating to income from 26 USC 861. sources within the United States) is amended— (i) by striking out “section 4912(c)” and inserting in lieu thereof “subsection (c) of section 4912 (as in effect before July 1, 1974)”; and (ii) by striking out “section 4912(c)(2)” and inserting in lieu thereof “subsection (c)(2) of such section”. (C) The second sentence of section 1232(b)(2) (relating 26 USC 1232. to the definition of the issue price of bonds and other evidences of indebtedness) is amended by striking out “section 4911” anrl inserting in lieu thereof “section 4911, as in effect before July 1, 1974”. (D) (i) Section 6681 (relating to false equalization tax 26 USC 6681. certificates) is repealed. (ii) The table of sections for subchapter B of chapter 68 is amended by striking out the item relating to section 6681. (iii) The amendments made by this subparagraph shall 26 USC 6681 note. apply with respect to actions occurring after June 30, 1974. (E) (i) Section. 6689 (relating to failure by certain foreign 26 USC 6689. issuers and obligors to comply with United States investment equalization tax requirements) is repealed. (ii) The table of sections for subchapter B of chapter 68 is amended by striking out the item relating to section 6689. (iii) The amendments made by this subparagraph shall apply with respect to stock or debt obligations issued after June 30, 1974. (F) (i) Section 7241 (relating to penalty for fraudulent equalization tax certificates) is repealed. (ii) The table of sections for part II of subchapter A of chapter 75 is amended by striking out the item relating to section 7241. (iii) The amendments made by this subparagraph shall apply with respect to statements and certificates executed after June 30, 1974. (G) The table of chapters for subtitle D is amended by striking out the item relating to chapter 41. (c) Amendment to Provision Referring to Territories.— Section 4482 (c)(1) is amended by striking out “, a Territory of the United States,”. (d) Effective Date.— Except as otherwise provided in this section, the amendments made by this section shall take effect on the first day of the first month which begins more than 90 days after the date of the enactment of this Act. SEC. 1905. AMENDMENTS OF SUBTITLE E; ALCOHOL, TOBACCO, AND CERTAIN OTHER EXCISE TAXES. (a) In General.— (1) Amendment of section 5005.— Section 5005(c)(2) (relating to transfers in bond of distilled spirits) is amended by striking out the last two sentences and inserting in lieu thereof the following: “Such relief from liability shall be effective from the time of removal from the transferor’s bonded premises, or from the time of divestment of interest, whichever is later.” (2) Amendments of section 5008.— (A) Section 5008(b)(1) (relating to abatement, remission, refund, and allowance for loss of destruction of distilled spirits) is amended by inserting immediately after “the tax imposed by this chapter” the following: “or by section 7652”. (B) Section 5008(b)(2) is amended by striking out “the taxes imposed under section 5001(a)(1)” and all that follows and inserting in lieu thereof the following: “the taxes imposed under section 5001(a)(1), under subpart B of this part, or under section 7652 on the spirits so destroyed, to the proprietor of the distilled spirits plant who withdrew the distilled spirits on payment or determination of tax.” (C) Subsections (c)(1) and (d)(1) of section 5008 are each amended by inserting immediately after “under section 5001(a)(1)” the following: “or under section 7652”. (D) Section 5008(d)(1) is amended by striking out “, on or after July 1, 1959,”. (3) Amendment of section 5009.— Section 5009(b)(3) is amended by striking out “46 Stat. 694;”. (4) Amendment of section 5025.— Section 5025 (j) (relating to stabilization of distilled spirits) is amended by striking out “the bottling of distilled spirits,” and inserting in lieu thereof “the bottling of distilled spirits, or preparatory to exportation,”. (5) Amendment of section 5054.— Section 5054 (relating to determination and collection of tax on beer) is amended by striking out subsection (c) (relating to stamps or other devices as evidence of payment of tax) and by redesignating subsection (d) as subsection (c). (6) Amendments of section 5061.— (A) Section 5061(a) (relating to collections of alcohol 26 USC 5061. taxes) is amended by striking out the last sentence. (B) Section 5061(b) (relating to methods of collection) is amended to read as follows: “(b) Exceptions.— Notwithstanding the provisions of subsection (a), any taxes imposed on, or amounts to be paid or collected in respect of, distilled spirits, wines, rectified distilled spirits and wines, and beer under— “(1) section 5001(a)(5), (6),or (7), “(2) section 5006(c) or (d), “(3) section 5026(a)(2), “(4) section 5041 (d), “(5) section5043(a)(3), “(6) section5054(a)(3) or (4),or “(7) section5505(a), shall be immediately due and payable at the time provided by such provisions (or if no specific time for payment is provided, at the time the event referred to in such provision occurs). Such taxes and amounts shall be assessed and collected by the Secretary on the basis of the information available to him in the same manner as taxes payable by return but with respect to which no return has been filed.” (C) Section 5061(c) (relating to applicability of other provisions of law) is amended to read as follows: “(c) Import Duties.— The internal revenue taxes imposed by this part shall be in addition to any import duties unless such duties are specifically designated as being in lieu of internal revenue tax.” (7) Amendment of section 5113.— Section 5113(f)(1) (relating 26 USC 5113. to retail dealers in liquors) is amended by striking out “wines or beer” and inserting in lieu thereof “distilled spirits, wines, or beer”. (8) Amendments of section 5117.— Section 5117 (relating 26 USC 5117. to prohibited purchases by dealers) is amended by redesignating subsection (b) as subsection (c) and by inserting after subsection (a) the fol lowing new subsection: “(b) Limited Retail Dealers.— A limited retail dealer may lawfully purchase distilled spirits for resale from a retail dealer in liquors.” (9) Amendment of section 5121.— Section 5121(c) (relating 26 USC 5121. to limited retail dealers) is amended to read as follows: “(c) Limited Retail Dealers.— Every limited retail dealer shall pay a special tax of $4.50 for each calendar month in which sales are made as such dealer; except that the special tax shall be $2.20 for each calendar month in which only sales of beer or wine are made.” (10) Amendment of section 3122.— Section 5122(c) (relating 26 USC 5122. to definition of limited retail dealer) is amended by striking out “beer or wine” each place it appears and inserting in lieu thereof “distilled spirits, wine, or beer”. (11) Amendment of section 5131.— Section 5131(a) (relating 26 USC 5131. to eligibility for drawback) is amended by striking out “produced in a domestic registered distillery or industrial alcohol plant and withdrawn from bond, or using distilled spirits withdrawn from the bonded premises of a distilled spirits plant,”. (12) Amendment of section 5142.— Section 5142(c) (relating to payment of occupational taxes) is amended to read as follows: “(c) How Paid.— “(1) Payment by return.— The special taxes imposed by this part shall he paid on the basis of a return under such regulations as the Secretary shall prescribe. “(2) Stamp denoting payment of tax.— After receiving a properly executed return and remittance of any special tax imposed by this subpart, the Secretary shall issue to the taxpayer an appropriate stamp as a receipt denoting payment of the tax. This paragraph shall not apply in the case of a return covering liability for a past period.” (13) Amendments of section 5171.— Section 5171(b) (relating to permits for operation of business as distillers, etc.) is amended— (A) in paragraph (1), by striking out “49 Stat. 978;”, and (B) by striking out paragraph (3) (relating to continuance of business after June 30, 1959, pending application for permit). (14) Amendment of section 5174.— Section 5174(a)(2)(A) (relating to withdrawal bonds for distilled spirits) is amended by striking out “such spirits” and inserting in lieu thereof “distilled spirits from bond”. (15) Amendment of section 5232.— Section 5232(a) (relating to transfer of imported distilled spirits) is amended by striking out “and the importer” and inserting in lieu thereof “and the importer, or the person bringing such distilled spirits into the United States,”. (16) Amendment of section 5233.— Section 5233(b)(4) (relating to bottling requirements) is amended by striking out “49 Stat. 977;”. (17) Amendment of section 5234.— The first sentence of section 5234(a)(2) (relating to the mingling of distilled spirits) is amended by striking out “8 years” and inserting in lieu thereof “20 years”. (18) Amendment of section 5314.— Section 5314(a)(2) (relating to application of certain provisions to Puerto Rico) is amended by striking out “section 5001(a)(4)” and inserting in lieu thereof “section 5001(a)(10)”. _ (19) Repeal of section 5315.— Section 5315 (relating to the status of certain distilled spirits on July 1, 1959) is repealed. (20) Amendments of section 5368.— (A) The heading of section 5368 is amended to read as follows: “SEC. 5368. GAUGING AND MARKING.” (B) Section 5368(b) (relating to removal of wines) is amended to read as follows: “(b) Marking.— Wines shall be removed in such containers (including vessels, vehicles, and pipelines) bearing such marks and labels, evidencing compliance with this chapter, as the Secretary may by regulations prescribe.” (21) Amendment of section 5392.— Section 5392(f)(defining own production) is amended by striking out “49 Stat. 990;”. (22) Amendments of section 5601.— Section 5601(b) (relating to presumptions in the case of criminal penalties) is amended to read as follows: “(b) Presumption.— Whenever on trial for violation of subsection (a)(4) the defendant is shown to have been at the site or place where, and at the time when, the business of a distiller or rectifier was so engaged in or carried on, such presence of the defendant shall be deemed sufficient, evidence to authorize conviction, unless the defendant explains such presence, to the satisfaction of the jury (or of the court when tried without jury).” (23) Amendments of section 5685.— (A) Section 5685(a) (relating to penalty for possession 26 USC 5685. of devices for emitting gas, smoke, etc.) is amended by striking out “section 5848” and inserting in lieu thereof “section 5845”. (B) Section 5685(c) (relating to forfeiture of firearms, devices, etc.) is amended by striking out “section 5862” and inserting in lieu thereof “section 5872”. (C) Section 5685(d) (relating to the definition of machine gun) is amended to read as follows: “(d) Definition of Machine Gun.— As used in this section, the term ‘machine gun’ means a machine gun as defined in section 5845(b).” (24) Amendment of section 5701.— Section 5701(e) (relating 26 USC 5701. to imported tobacco products, etc.) is amended by striking out “such articles” and inserting in lieu thereof “such articles, unless such import duties are imposed in lieu of internal revenue tax”. (25) Amendments of section 5703.— (A) Section 5703(a)(2) (relating to transfer of liability 26 USC 5703. for tobacco taxes) is amended by adding at the end thereof the following new sentence: “All provisions of this chapter applicable to tobacco products and cigarette, papers and tubes in bond shall be applicable to such articles returned to bond upon withdrawal from the market or returned to bond after previous removal for a tax-exempt purpose.” (B) The second sentence of section 5703(b) (relating to method of payment of tobacco taxes) is amended by striking out “, except that the taxes shall continue to be paid by stamp until the Secretary or his delegate provides, by regulations, for the payment, of the taxes on the basis of a return”. (C) Section 5703 is amended by striking out subsection (c) (relating to stamps to evidence tobacco taxes) and by redesignating subsections (d) and (e) as subsections (c) and (d), respectively. (26) Amendments of section 3704.— Subsections (c) and (d) of section 5704 (relating to exemptions from tobacco taxes) are 26 USC 5704. each amended by inserting after “to a manufacturer of tobacco products or cigarette papers and tubes” the following: “or to the proprietor of an export warehouse”. (27) Amendment of section 5712.— Section 5712 (relating to 26 USC 5712. application for permit) is amended by striking out the last sentence. (28) Amendments of section 572a.— (A) The heading of section 5723 is amended by striking 26 USC 5723. out “NOTICES, AND STAMPS” and inserting in lieu thereof “AND NOTICES”. (B) Section 5723(b) (relating to marks, and so forth, on packages) is amended to rend as follows: “(b) Marks, Labels, and Notices.— Every package of tobacco products Regulation. or cigarette papers or tubes shall, before removal, bear the marks, labels, and notices, if any, that the Secretary by regulation prescribes.” (b) Conforming and Clerical Amendments.— (1) Amendments conforming to amendment of section 5054.— (A) Section 5676 (relating to beer stamp penalties) is repealed. (B) The table of sections for part III of subchapter J of chapter 51 is amended by striking out the item relating to section 5676. (2) Amendments conforming to amendments of section 5081.— (A) Section 5007(b)(1) is amended by striking out the second sentence. (B) Section 5026(b) is amended by striking out “Except as provided in subsection (a)(2), the taxes” and inserting in lieu thereof “The taxes”. (C) Section 5043(b) is amended by striking out “Except as provided in subsection (a)(3), the taxes” and inserting in lieu thereof “The taxes”. (D) Section 5662 is amended by striking out “stamp,” each place it appears. (E) (i) Section 5689 (relating to penalty and forfeiture for tampering with a stamp machine) is repealed. (ii) The table of sections for part IV of subchapter J of chapter 51 is amended by striking out the item relating to section 5689. (iii) Section 5061 is amended by striking out subsection (d). (3) Amendments conforming to amendment of section 5142.— (A) (i) Section 5104 (relating to method of payment of tax on stills) is repealed. (ii) The table of sections for subpart C of part II of subchapter A of chapter 51 is amended by striking out the item relating to section 5104. (B) Section 5111(a) is amended by striking out the second sentence. (C) Section 5121(a) is amended by striking out the second sentence. (D) (i) Section 5144 (relating to supply of stamps) is repealed. (ii) The table of sections for subpart G of part II of subchapter A of chapter 51 is amended by striking out the item relating to section 5144. (E) Section 5148(3) is amended by striking out “penalties” and inserting in lieu thereof “penalties, authority for assessments,”. (4) Amendment conforming to the repeal of section 5315.— The table of sections for part III of subchapter E of chapter 51 is amended by striking out the item relating to section 5315. (5) Amendment conforming to the amendment of section 5358.— The item relating to section 5368 in the table of sections for part II of subchapter E of chapter 51 is amended to read as follows: “Sec. 5368. Gauging and marking.” (6) Amendments conforming to the amendment of section 5001.— (A) Section 5105 (b)(2) is amended by striking out “, 5601 26 USC 5105. (b)(1),”. (B) Section 5177(b)(2) is amended by striking out “5601 26 USC 5177. (b)(2),” and inserting in lieu thereof “5601 (b),”. (C) Section 5179(b)(1) is amended by striking out “, 5601 26 USC 5179. (b)(1)”. (D) Section 5222(d) is amended by striking out “5601(b) 26 USC 5222. (3), 5601(b)(4)”. (E) Section 5505(i) is amended by striking out “5601(b) 26 USC 5505. (1),”. (7) Amendments conforming to the amendment of section 5723.— (A) Paragraphs (2) and (3) of section 5751(a) are each 26 USC 5751. amended by striking out “notices, and stamps” and inserting in lieu thereof “and notices”. (B) (i) Section 5752 is amended to read as follows: “SEC. 5752. RESTRICTIONS RELATING TO MARKS, LABELS, NOTICES, AND PACKAGES. “No person shall, with intent to defraud the United States, destroy, obliterate, or detach any mark, label, or notice prescribed or authorized, by this chapter or regulations thereunder, to appear on, or be affixed to, any package of tobacco products or cigarette papers or tubes, before such package is emptied.” (ii) Section 5762(a) is amended by striking out paragraphs 26 USC 5762. (8), (7), (8), (9), (10), and (11) and inserting in lieu thereof the following: “(6) Destroying, obliterating, or detaching marks, labels, or notices before packages are emptied.— Violates any provision of section 5752;”. (iii) The item relating to section 5752 in the table of sections for subchapter E of chapter 52 is amended to read as follows: “Sec. 5752. Restrictions relating to marks, labels, notices, and packages.” (C) (i) Section 5763(a)(2) is amended by striking out 26 USC 5763. “notices, and stamps” and inserting in lieu thereof “and notices”. (ii) Section 5763(b) is amended by striking out “internal revenue stamps,”. (D) The item relating to section 5723 in the table of sections for subchapter C of chapter 52 is amended to read as follows: “Sec. 5723. Packages, marks, labels, and notices.” (c) Amendments to Provisions Referring to Territories.— (1) Section 5114(b) is amended by striking out “or Territory” 26 USC 5114. each place it appears and by striking out “Territories,”. (2) Section 5214(a)(2) is amended by striking out “or Territory 26 USC 5214. ” each place it appears. (3) Section 5272(b) is amended by striking out “and 26 USC 5272. Territories”. (4) Section 5362(c)(9) is amended by striking out “and 26 USC 5362. Territories”. (5) Section 5551(b)(2) is amended by striking out “Territory, 26 USC 5551. or”. (6) Section 5685(a) is amended by striking out “Territory 26 USC 5685. or”. (d) Effective Date.— The amendments made by this section shall take effect on the first day of the first month which begins more than 90 days after the date of the enactment of this Act. SEC. 1906. AMENDMENTS OF SUBTITLE F; PROCEDURE AND ADMINISTRATION. (a) In General.— (1) Amendments of section 6013.— (A) Section 6013(b)(2)(C) (relating to petition to the Tax Court) is amended by striking out “of the United States”. (B) The heading of section 6013(d) is amended to read as follows: “(d) Special Rules.—”. (C) Section 6013(d)(1) (relating to joint return after death of one spouse) is amended by striking out “and” at the end of subparagraph (A) and inserting in lieu thereof “or”, and by striking out “and” at the end of the subparagraph (B). (2) Amendment of section 6015.— Section 6015 (relating to declaration of estimated tax by individuals) is amended by striking out subsection (j) (relating to an effective date provision). (3) Amendment of section 6037.— Section 6037 (relating to returns of subchapter S corporations) is amended by striking out “section 1371(a)(2)” and inserting in lieu thereof “section 1371 (b)” (4) Amendment of section 6046.— Section 6046(e) (relating to information as to organization of foreign corporation) is amended to read as follows: “(e) Limitation.— No information shall be required to be furnished under this section with respect to any foreign corporation unless such information was required to be furnished under regulations which have been in effect for at least 90 days before the date on which the United States citizen, resident, or person becomes liable to file a return required under subsection (a).” (5) Amendment of section 6051.— Section 6051(a) (relating to information required to be furnished to employees) is amended by striking out “and” where it appears at the end of paragraph (6). (6) Amendments of section 6065.— Section 6065 (relating to verification of returns) is amended by striking out subsection (b) (relating to verification by oath), and by striking out in subsection (a) the following: “(a) Penalties of Perjury.—”. (7) Repeat, of section 6105.— Section 6105 (relating to compilation of data for certain excess profits tax cases) is repealed. (8) Amendment of section 6111.— Section 6111 (relating to cross references), as redesignated by this Act, is amended to read as follows: “SEC. 6111. CROSS REFERENCE. “For inspection of records, returns, etc., concerning gasoline or lubricating oils, see section 4102.” (9) Amendment of section 6152.— Section 6152(a)(1) (relating to installment payments by corporations) is amended to read as follows: “(1) Corporations.— A corporation subject to the taxes imposed 26 USC 1. by chapter 1 may elect to pay the unpaid amount of such taxes in two equal installments.” (10) Amendments of section bib4.— (A) Section 6154(c)(1)(B) (relating to definition of estimated 26 USC 6154. tax) is amended— (i) by adding “and” after the comma at the end of clause (i), and (ii) by striking out clauses (ii) and (iii) and inserting in lieu thereof the following: “(ii) in the case of a taxable year beginning before January 1, 1977, the amount of the corporation’s temporary estimated tax exemption for such year.” (B) Section 6154(c)(2)(A)(ii) (relating to temporary estimated tax payments) is amended by striking out “clauses (ii) and (iii)” and inserting in lieu thereof “clause (ii)”. (C) Section 6154(c)(2)(B) (relating to estimated tax) is amended by striking out the following: “1968, 1969, 1970, 1971, and 1972 100 percent   1973 80 percent   1974 60 percent”. (D) Section 6154(c) (relating to estimated tax) is amended by striking out paragraph (3) (relating to transitional exemption for taxable years beginning before 1972). (11) Amendments of section 6157.— (A) Section 6157 (relating to payment of Federal unemployment 26 USC 6157. tax) is amended by striking out subsection (c) (relating to special rides for 1970 and 1971), and by redesignating subsection (d) as subsection (c). (B) Section 6157(a) is amended by striking out “subsections (c) and (d)” and inserting in lieu thereof “subsection (c)” (12) Repeal of section 6162.— Section 6162 (relating to payment 26 USC 6162. of tax on gain on liquidation of certain personal holding companies) is repealed. (13) Amendment of section 6205.— Section 6205 (a)(4) (relating 26 USC 6205. to District of Columbia as employer) is amended by striking out “Commissioners of the District of Columbia and each agent designated by them” and inserting in lieu thereof “Mayor of the District of Columbia and each agent designated by him”. (14) Amendment of section 6207.— Section 6207 (relating to 26 USC 6207. cross references) is amended by striking out paragraph (7). (15) Amendment of section 6213.— Section 6213(a) (relating Ante, p. 1698. to time for filing petition with the Tax Court) is amended by striking out “States of the Union and the District of Columbia” and inserting in lieu thereof “United States”. (16) Amendment of section 6215.— Section 6215(b)(5)(a 26 USC 6215. cross reference) is amended by striking out “60 Stat. 48;”. (17) Amendment of section 6302.— Section 6302(b) (relating 26 USC 6302. to collection of certain excise taxes) is amended by striking out “sections 4501 (a) or 4511 of chapter 37, or section 4701 or 4721 of chapter 39” and inserting in lien thereof “section 4501(a) of chapter 37”. (18) Repeal of section 6304.— Section 6304 (relating to a cross 26 USC 6304. reference) is repealed. (19) Amendment of section 6313.— Section 6313 (relating to 26 USC 6313. fractional parts of a cent) is amended by striking out “not payable by stamp”. (20) Amendments of section 6326.— (A) Paragraph (2) of section 6326 (cross references) is amended by striking out “52 Stat. 851;”. (B) Paragraph (3) of section 6326 is amended by striking out “52 Stat. 867” (C) Paragraph (4) of section 6326 is amended by striking out “52 Stat. 867–877;”. (D) Paragraph (5) of section 6326 is amended by striking out “52 Stat. 938;”. (21) Amendment of section 6365.— Section 6365 (b) (relating to definition of governor) is amended by striking out “Commissioner of the District of Columbia” and inserting in lieu thereof “Mayor of the District of Columbia”. (22) Amendment of section 6412.— Section 6412(a) (relating to floor stock refunds) is amended by redesignating paragraphs (2) and (4) as paragraphs (1) and (2), respectively. (23) Amendments of section 6413.— (A) Section 6413(a)(4) (relating to District of Columbia as employer) is amended by striking out “Commissioners of the District of Columbia and each agent designated by them” and inserting in lieu thereof “Mayor of the District of Columbia and each agent designated by him”. (B) (i) Section 6413 (c)(1) (relating to refunds of certain employment taxes) is amended to read as follows: “(1) In General.— If by reason of an employee receiving wages from more than one employer during a calendar year the wages received by him during such year exceed the contribution and benefit base (as determined under section 230 of the Social 42 USC 430. Security Act) which is effective with respect to such year, the employee shall be entitled (subject to the provisions of section 31 (b)) to a credit or refund of any amount of tax, with respect to such wages, imposed by section 3101 or section 3201, or by both such sections, and deducted from the employee’s wages (whether or not paid to the Secretary), which exceeds the tax with respect to the amount of such wages received in such year which is equal “Wages.” to such contribution and benefit base. The term ‘wages’ as used in this paragraph shall, for purposes of this paragraph, include ‘compensation’ as defined in section 3231(e).” (ii) So much of section 6413(c)(2)(A) (relating to Federal employees) as follows “and the term ‘wages’ includes” is amended to read as follows: “for purposes of this subsection the amount, not to exceed an amount equal to the contribution and benefit base (as determined under section 230 of the Social Security Act) for any calendar year with respect to which such contribution and benefit base is effective, determined by each such head or agent as constituting wages paid to an employee.” (iii) The amendments made by clauses (i) and (ii) shall apply with respect to remuneration paid after December 31, 1976. (C) Section 6413(c)(2)(F) (relating to government employees in the District of Columbia) is amended by striking out “Commissioners of the District of Columbia and each agent designated by them” and inserting in lieu thereof “Mayor of the District of Columbia and each agent designated by him”. (D) Section 6418(c)(3) (relating to special refunds) is 26 USC 6413. amended by striking out “after 1967”. (24) Amendments of section 6416.— (A) Section 6416(a)(3) (relating to special rules for 26 USC 6416. refund of overpayment of tax) is amended by redesignating subparagraphs (C) and (D) as subparagraphs (A) and (B), respectively, (B) (i) Section 6416(b)(2) (relating to overpayments of certain excise taxes), as amended by section 2108 of this Act, Post, p. 1904. is amended by striking out subparagraphs (G), (H), (I), and (J), and by redesignating subparagraphs (F), (K), (L), (M), (R), (8), and (T) as subparagraphs (E), (F), (G), (H), (I), (J),and (K),respectively. (ii) The repeals made by clause (i) shall apply with 26 USC 6416 note. respect to the use or resale for use of liquids after December 31, 1976. (25) Repeal of section 6417.— Section 6417 (relating to coconut 26 USC 6417. and palm oil) is repealed. (26) Amendments of section 6420.— (A) Section 6420(b) (relating to time for filing refund 26 USC 6420. claims on gasoline) is amended to read as follows: “(b) Time fob Filing Claims; Period Covered.— Not more than one claim may be filed under this section by any person with respect to gasoline used during his taxable year, and no claim shall be allowed under this section with respect to gasoline used during any taxable year unless filed by such person not later than the time prescribed by law for filing a claim for credit or refund of overpayment of income tax for such taxable year. For purposes of this subsection, a person’s taxable year shall be his taxable year for purposes of subtitle A.” 26 USC 1. (B) Section 6420(e)(1) (relating to application of other laws) is amended by striking out “apply in in respect” and inserting in lieu thereof “apply in respect’”. (C) (i) Section 6420 is amended by striking out subsection (g) (relating to effective date) and by redesignating subsections (h) and (i) as subsections (g) and (h), respectively. (ii) Section 6420(a) is amended by striking out “subsection (h)” and inserting in lieu thereof “subsection (g)”. (D) Section 6420(g) (relating to income tax credit in lieu of gas tax refund), as redesignated by subparagraph (C)(i) of this paragraph, is amended by strikingout “with respect to gasoline used after June 30, 1965,” and “for gasoline used after June 30, 1965”. (27) Amendments of section 6421.— (A) (i) Subsections (a) and (e)(3) of section 6421 (relating 26 USC 6421. to nonhighway use of gasoline) are each amended by striking out “after June 30, 1970,”. (ii) The amendments made by clause (i) shall only 26 USC 6421 note. apply with respect, to gasoline used as a fuel after June 30, 1970. (B) Section 6421(c) (relating to nonhighway use of gasoline) is amended to read as follows: “(c) Time for Filing Claims; Period Covered.— “(1) In general.— Except as provided in paragraph (2), not more than one claim may be filed under subsection (a), and not more than one. claim may be filed under subsection (b), by any person with respect to gasoline used during his taxable year; and no claim shall be allowed under this paragraph with respect to gasoline used during any taxable year unless filed by such person not later than the time prescribed by law for filing a claim for credit or refund of overpayment of income tax for such taxable year. For purposes of this subsection, a person’s taxable year shall be his taxable year for purposes of subtitle A. “(2) Exception.— If $1,000 or more is payable under this section to any person with respect to gasoline used during any of the first three Quarters of his taxable year, a claim may be filed under this section by such person with respect to gasoline used during such quarter. No claim filed under this paragraph shall be allowed unless filed on or before the last day of the first quarter following the quarter for which the claim is filed.” (C) Section 6421(h) (relating to effective dates) is amended by striking out “after June 30, 1956, and”. (D) Section 6421 (i) (relating to income tax credit in lieu of refund) is amended— (i) by striking out, in paragraph (1), “with respect to gasoline used after June 30, 1965,”, (ii) by striking out, in paragraph (2), “subsection (c)(3)(B)” and inserting in lieu thereof “subsection (c)(2)”, and (iii) by striking out, in paragraph (3), “for gasoline used after June 30, 1965.” (28) Amendments of Section 6422.— (A) Paragraph (9) of section 6422 (relating to cross references), as redesignated by section 1901(b)(36)(B), is amended by striking out “60 Stat. 48;”. (B) Paragraph (11) of section 6422, as so redesignated, is amended by striking out “47 Stat. 1516;”. (29) Amendments of section 6423.— (A) Section 6423(b) (relating to filing of refund claim in case of alcohol and tobacco taxes) is amended to read as follows: “(b) Filing of claims.— No credit or refund of any amount to which subsection (a) applies shall be allowed or made unless a claim therefor has been filed by the person who paid the a mount claimed, and unless such claim is filed within the time prescribed by law and in accordance with regulations prescribed by the Secretary. Al] evidence relied upon in support of such claim shall be clearly set forth and submitted with the claim.” (B) Section 6123 is amended by striking out subsection (c) (relating to suits barred on April 30, 1958) and by redesignating subsections (d) and (e) as subsections (c) and (d), respectively. (C) Section 6423 (c) (relating to application of section), as redesignated by subparagraph (B) of this paragraph, is amended by adding “and” at the end of paragraph (1), by striking out “, and” at the end of paragraph (2) and inserting in lieu thereof a period, and by striking out paragraph (3). (30) Amendments of section 6424.— (A) The last sentence of section 6424(b)(1) (relating to refund claims with respect to lubricating oil) is amended by striking out “, except that a person’s first taxable year beginning after December 31, 1965, shall include the period after December 31, 1965, and before tile beginning of such first taxable year”. (B) Section 6424 (relating to lubricating oil not used in highway motor vehicles) is amended by striking out subsection (f) (relating to effective date of section), and by redesignating subsections (g) and (h) as subsections (f) and (g), respectively. (31) Amendments of section 6427.— (A) Subsections (a), (b), and (c) of section 6427 (relating 26 USC 6427. to fuels not used for taxable purposes) are each amended by striking out “, after June 30, 1970,” (B) The amendments made by subparagraph (A) shall 26 USC 6427 note. apply only with respect to fuel used or resold after June 30, 1970. (32) Amendments of section 6504.— (A) Section 6504 (relating to cross references) is amended 26 USC 6504. by striking out paragraphs (13) and (14) and inserting in lieu thereof: “(13) Assessments to recover excessive amounts paid under section 6420 (relating to gasoline used on farms), 6421 (relating to gasoline used for certain nonhighway purposes or by local transit systems), 6424 (relating to lubricating oil not used in highway motor vehicles), or 6427 (relating to fuels not used for taxable purposes) and assessments of civil penalties under section 6675 for excessive claims under section 6420, 6421, 6424, or 6427, see section 6206.” (B) Section 6504, as amended by this Act, Is further amended by redesignating paragraphs (2), (3), (4), (5), (9), (19), (11), (12), (13), and (15) as paragraphs (1), (2), (3), (4), (5), (6), (7), (8), (9), and (10), respectively. (33) Amendments of section 6511.— (A) Section 6511(d)(2)(A)(ii) (relating to net operating 26 USC 6511. loss carryback) is amended by striking out “September 1, 1959, or” and by striking out “, whichever is the later”. (B) Section 6511(d)(5) is amended by striking out “the later of the following dates: (A)”, and by striking out “, or (B) December 31, 1965”. (34) Amendment of section 6601.— Section 6601(h) (relating 26 USC 6601. to interest on estimated tax payments) is amended by striking out “(or section 59 of the Internal Revenue Code of 1939)”. 53 Stat. 32. 26 USC 6654. (35) Amendment of section 6654.— Section 6654 (relating to payment of estimated income tax) is amended by striking out subsection (h) (relating to applicability of section). (36) Amendment of section 6802.— Section 6802(2) (relating 26 USC 6802. to supply and distribution of stamps) is amended by striking out the semicolon at the end and inserting in lieu thereof a period. (37) Amendment of section 6803.— Section 6803 (relating to 26 USC 6803. accounting and safeguarding is amended to read as follows: “SEC. 6803. ACCOUNTING AND SAFEGUARDING. “(a) Bond.— In cases coining within the provisions of paragraph (2) of section 6802, the Secretary may require a bond, with sufficient sureties, in a sum to be fixed by the Secretary, conditioned for the faithful return, whenever so required, of all quantities or amounts undisposed of and for the payment monthly for all quantities or amounts sold or not remaining on hand. “(b) Regulations.— The Secretary may from time to time make such regulations as he may find necessary to insure the safekeeping or prevent the illegal use of all adhesive stamps referred to in paragraph (2) of section 6802.” (38) Amendment of section 6863.— Section 6863(b)(3) (relating to stay of sale of seized property pending Tax Court decision) is amended by striking out subparagraph (C) (relating to effective date). (39) Amendment of section 7012.— Section 7012 (relating to cross references), as amended by section 1904(b)(8)(C) of this Act, is amended to read as follows: “SEC. 7012. CROSS REFERENCES. “(1) For provisions relating to registration in connection with firearms, see sections 5802, 5841, and 5861. “(2) For special rules with respect to registration by persons engaged in receiving wagers, see section 4412. “(3) For provisions relating to registration in relation to the production or importation of gasoline, see section 4101. “(4) For provisions relating to registration in relation to the manufacture or production of lubricating oils, see section 4101. “(5) For penalty for failure to register, see section 7272. “(6) For other penalties for failure to register with respect to wagering, see section 7262.” (40) Amendment of section 7103.— Section 7103 (relating to cross references regarding bonds) is amended by striking out subsection (d). ‘ (41) Amendments of section 7271.— Section 7271 (relating to penalties for offenses concerning stamps) is amended by striking out paragraph (2), and by redesignating paragraphs’ (3) and (4) as paragraphs (2) and (3), respectively. (42) Amendment of section 7272.— Section 7272(b) (relating to cross references) is amended by striking out “4722, 4753,”. (43) Amendments of section 7326.— Section 7326 (relating to disposal of forfeited property) is amended— (A) by striking out “section 5862(b)” and inserting in lieu thereof “section 5872(b)”, and (B) by redesignating subsection (c) as subsection (b). (44) Amendments of section 7422.— Section 7422(c) (relating to suits against collection officers) is amended by striking out “instituted after June 15, 1942,”, and by striking out “where the petition to the Tax Court was filed after such date”. (45) Amendments of section 7428.— (A) Paragraph (1) of section 7428 (cross references), as redesignated by this Act, is amended by striking out “52 Stat, 851;”. (B) Paragraph (2) of such section 7428 is amended by striking out “52 Stat. 867;”. (C) Paragraph (3) of such section 7428 is amended by Striking out “52 Stat. 876–877;”. (D) Paragraph (4) of such section 7428 is amended by striking out “52 Stat. 938;”. (46) Amendments of section 7448.— (A) Subsection (a)(6) of section 7448 (relating to annuities to widows and dependent children of Tax Court judges) is amended— (i) by striking out “The term ‘widow’ means a surviving wife of,” and inserting in lieu thereof “The term ‘surviving spouse’ means a surviving spouse of”; and (ii) by striking out “the mother of issue” and inserting in lieu thereof “a parent of issue”. (B) Section 7448(h) is amended— (i) by striking out “surviving widow or widower” and inserting in lieu thereof “surviving spouse”; (ii) by striking out “such widow” each place it appears and inserting in lieu thereof “such surviving spouse”; (iii) by striking out “a widow” each place it appeal’s and inserting in lieu thereof “a surviving spouse”; (iv) by striking out “widow’s” each place it appears and inserting in lieu thereof “surviving spouse’s”; and (v) by striking out “surviving her” and inserting hi lieu thereof “surviving such spouse”. (C) Sections 7448 (h) and (o) are each amended by striking 26 USC 7448. out “she” and inserting in lieu thereof “such spouse”. (D) Section 7448 (o) is amended by striking out “her” and inserting in lieu thereof “such spouse’s”. (E) Sections 7448 (d), (j), (m), (n), (o), and (q) are each amended by striking out “widow” each place it appears and inserting in lieu thereof “surviving spouse”. (F) The section heading for section 7448 is amended by striking out “WIDOWS” and inserting in lieu thereof “SURVIVING SPOUSES”. (47) Amendments of section 7471.— (A) Subsection (a) of section 7471 (relating to Tax Court 26 USC 7471. employees) is amended by striking out “is authorized in accordance with the civil service laws to appoint, and in accordance with the Classification Act of 1949 (63 Stat. 954; 5 U.S.C. chapter 21), as amended, to fix the compensation of,” and inserting in lieu thereof “is authorized to appoint, in accordance with the provisions of title 5, United States Code, governing appointment in the competitive service, and 5 USC 101 et seq. 5 USC 5101, 5331. to fix the basic pay of, in accordance with chapter 51 and subchapter III of chapter 53 of such title,”. (B) Subsection (b) of section 7471 is amended by striking out “as provided in the Travel Expense Act of 1949 (63 Stat. 166; 5 U.S.C. chapter 16).” and inserting in lieu thereof “as provided in chapter 57 of title 5, United States Code.” 5 USC 5701. 26 USC 7476. (48) Amendment of section 7476.— Section 7476(a) (relating to declaratory judgments) is amended by striking out so much thereof as follows paragraph (2)(B) and inserting in lieu thereof the following: “upon the filing of an appropriate pleading, the Tax Court may make a declaration with respect to such initial qualification or continuing qualification. Any such declaration shall have the force and effect of a decision of the Tax Court, and shall be reviewable, as such.” (49) Amendment of section 7502.— Section 7502(b) (relating 26 USC 7502. to timely mailing treated as timely filing and paying) is amended by striking out “United State Post Office” and inserting in lieu thereof “United States Postal Service”. (50) Amendments of section 7507.— Paragraphs (2) and (3) of section 7507(c) (relating to insolvent hanks) are each amended 26 USC 7507. by striking out “after May 28, 1938,”. (51) Amendments of section 7508.— (A) The heading of section 7508 (relating to time for 26 USC 7508. performing certain acts) is amended by striking out “BY REASON OF WAR” and inserting in lieu thereof “BY REASON OF SERVICE IN COMBAT ZONE”. (B) Section 7508(a) (relating to time to be disregarded) is amended by striking out “States of the Union and the District of Columbia” each place it appears and inserting in lieu thereof “United States”. (52) Amendments of section 7509.— Section 7509 (relating to expenditures incurred by the Post Office Department) is amended— (A) in the section heading, by striking out “POST OFFICE DEPARTMENT” and inserting in lieu thereof “UNITED STATES POSTAL SERVICE”; (B) by striking out “Post Office Department” each place it appears and inserting in lieu thereof “United States Postal Service”; (C) by striking out “such Department” and inserting in lieu thereof “such Service”; and (D) by striking out “, together with the receipts required to be deposited under section 6803(a),”, (53) Amendment or section Tear.— Section 7621 (b) (relating to boundaries of internal revenue districts) is amended to read as follows: “(b) Boundaries.— For the purpose mentioned in subsection (a), the President may subdivide any State or the District of Columbia, or may unite into one district two or more States.” (54) Repeal of section 7G4t.— Subchapter C of chapter 78 (relating to supervision of operations of certain manufacturers) is repealed. (55) Amendments of section 7052.— Section 7652(b)(3) (relating to disposition of internal revenue collections) is amended— (A) by striking out subparagraph (B) and by redesignating subparagraph (C) as subparagraph (B). (B) by striking out “approved emergency relief purposes and essential public projects as provided in subparagraph (B)” and inserting in lieu thereof “emergency relief purposes and essential public projects, with the prior approval of the President or his designated representative”, and (C) by striking out “, including payments under subparagraph (B),”. (56) Amendment of section 7653.— Section 7653(d)(a cross reference) is amended by striking out “c. 512, 64 Stat. 392, section 30;”. (57) Amendments of section 7701.— (A) Section 7701(a)(11) (relating to definitions of Secretary) is amended to read as follows: “(11) Secretary of the treasury and secretary.— “(A) Secretary of the treasury.— The term ‘Secretary of the Treasury’ means the Secretary of the Treasury, personally, and shall not include any delegate of his. “(B) Secretary.— The term ‘Secretary’ means the Secretary or the Treasury or his delegate.”. (B) Section 7701(a)(12)(A) (relating to definition of Secretary or his delegate) is amended to read as follows: “(A) In general.— The term ‘or his delegate’— “(i) when used with reference to the Secretary of the Treasury, means any officer, employee, or agency of the Treasury Department duly authorized by the Secretary of the Treasury directly, or indirectly by one or more redelegations of authority, to perform the function mentioned or described in the context; and “(ii) when used with reference to any other official of the United States, shall be similarly construed.” (58) Amendment of section 7803.— Section 7803 (relating 26 USC 7803. to other personnel) is amended by redesignating subsection (d) as subsection (c). (59) Amendment of section 7809.— Section 7809(a) (relating 26 USC 7809. to deposit of collections) is amended by striking out “4735, 4762,”. (b) Conforming and Clerical Amendments.— (1) Amendment conforming to the repeal of section 6105.— The table of sections for subchapter B of chapter 61 is amended by striking out the item relating to section 6105. (2) Amendment conforming to amendment of section 6111.— The item relating to section 6111 in the table of sections for subchapter B of chapter 61 is amended to read as follows: “Sec. 6111. Cross reference.” (3) Amendments conforming to amendments of section 6154.— (A) Paragraph (1)(B) of section 6655(e) is amended: 26 USC 6655. (i) by adding “and” at the end of clause (i), and (ii) by striking out clauses (ii) and (iii) and inserting in lieu thereof the following: “(ii) in the case of a taxable year beginning before January 1, 1977, the amount of the corporation’s temporary estimated tax exemption for such year.” (B) Paragraph (2)(B) of section 6655(e) is amended by striking out “clauses (ii) and (iii)” and inserting in lieu thereof “clause (ii)”. (C) (i) Section 6655(e) is amended by striking out paragraph (3) and by redesignating paragraph (4) as paragraph (3). (ii) Section 243(b)(3)(C)(iv), as redesignated by section Ante, p. 1797. 1901 (b)(20)(A) of this Act, is amended by striking out “sections 6154(c)(2) and (3)” and inserting in lieu thereof “section 6154(c)(2)”, and by striking out. “sections 6655(e)(2) and (3)” and inserting in lieu thereof “section 6655(e)(2)”. (4) Amendment conforming to the re feat, of section 6162.— The table of sections for subchapter B of chapter 62 is amended by striking out the item relating to section 6162. (5) Amendment conforming to the repeal of section 6304.— The table of sections for subchapter A of chapter 64 is amended by striking out the item relating to section 6304. (6) Amendments conforming to the amendment of section 6416.— (A) Subparagraph (A) of section 6420(c)(3) is amended 26 USC 6420. to read as follows: “(A) by the owner, tenant, or operator of a farm, in connection with cultivating the soil, or in connection with raising or harvesting any agricultural or horticultural commodity, including the raising, shearing, feeding, caring for, training, and management of livestock, bees, poultry, and fur-bearing animals and wildlife, on a farm of which he is the owner, tenant, or operator; except that, if such use is by any person other than the owner, tenant, or operator of such farm, then for purposes of this subparagraph, in applying subsection (a) to this subparagraph, the owner, tenant, or operator of the farm on which gasoline or a liquid taxable under section 26 USC 4041. 4041 issued shall be treated as the user and the ultimate purchaser of such gasoline or liquid;”. (B) The amendments made by subparagraph (A) shall apply with respect to the use of liquids after December 31, 1970. (7) Amendment conforming to the repeal of section 6417.— The table of sections for subchapter B of chapter 65 is amended Ante, p. 1827. by striking out the item relating to section 6417. (8) Amendment conforming to amendment of section 6420.— Section 39(a)(1) is amended by striking out “section 6420(h)” and inserting in lieu thereof “section 6420(g)”. (9) Amendment conforming to amendment of section 6424.— Section 39(a)(3) is amended by striking out “section 6424(g)” Ante, p, 1829. and inserting in lieu thereof “section 6424(f)”. (10) Amendment conforming to amendment of section 7448.— The item relating to section 7448 in the table of sections for part I of subchapter C of chapter 76 is amended to read as follows: “Sec. 7448. Annuities of surviving spouses and dependent children.”. (11) Amendment conforming to amendment of section 7508.— The item relating to section 7508 in the table of sections for chapter 77 is amended to read as follows: “Sec. 7508. Time for performing certain acts postponed by reason of service in combat gone.”. (12) Amendment conforming to amendment of section 7500.— The item relating to section 7509 in the table of sections for chapter 77 is amended to read as follows: “Sec. 7509. Expenditures incurred by the United States Postal Service,”. (13) Amendment conforming to repeal of section 7641.— The table of subchapters for chapter 78 is amended by striking Ante, p. 1832. 26 USC 1 el seq. out the item relating to subchapter C. (A) The Internal Revenue Code of 1954, as amended by this Act, is amended by striking out “Secretary or his delegate” each place it appears and inserting in lieu thereof “Secretary”. (B) The following provisions are each amended by striking 26 USC 4293, 4483, 5551, 7801, 7802, 9006, 9007. 26 USC 3121, 3303, 3304, 3305, 3306, 9005, 9007, 9010, 9012. 26 USC 31. 26 USC 3304. out “Secretary” each place it appears and inserting in lieu thereof “Secretary of the Treasury”: sections 4293, 4483 (b), 5551, 7801(b). 7802(a), 9006(a), 9006(b), and 9007(d). (C) The following provisions are each amended by striking out “to the Secretary” each place it appears and inserting in lieu thereof “to the Secretary of the Treasury”: sections 3121 (b)(12)(B). 3303(b), 3304(a)(3). 3304(c), 3305(j), 3306(c)(12)(B), 9005(a), 9007(b), 9010(b), and 9012(e)(3). (D) Section 31(b)(1) is amended by striking out “(or his delegate)”. (E) The last sentence of section 3304(c) is amended by striking out “the Secretary shall” and inserting in lieu thereof “the Secretary of Labor shall”. (F) Section 3310(d)(2) is amended by striking out “the 26 USC 3310. Secretary’s action” each place it appears and inserting in lieu thereof “the Secretary of Labor’s action”. (G) Section 3221(a) and 3221(c) are each amended by 26 USC 3221. striking out “of the Treasury” each place it appears. (H) Section 3310(e) is amended by striking out “of 26 USC 3310. the Secretary” and inserting in lieu thereof “of the Secretary of Labor”. (I) Section 4412(c) is amended by striking out “he or his 26 USC 4412. delegate” and inserting in lieu thereof “the Secretary”. (J) Section 5845(f) is amended by striking out “of the 26 USC 5845. Treasury or his delegate”. (K) Section 6402(b) is amended by striking out “(or his 26 USC 6402. delegate)”. (L) Section 7458 is amended by striking out “nor his 26 USC 7458. delegate”. (M) Section 7514 is amended by striking out “functions of 26 USC 7514. the Secretary” and inserting in lieu thereof “functions of the Secretary of the Treasury”. (c) Amendments to Sections Referring to Territories.— (1) Section 6871(a) is amended by striking out “or Territory”. 26 USC 6871. 26 USC 7622. 26 USC 7701. (2) Section 7622(b) is amended by striking out “, Territory,”. (3) Section 7701(a)(4) is amended by striking out “or Territory”. (d) Effective Date.— (1) General rule.— Except as otherwise expressly provided in this section, the amendments made by this section shall take effect on the first day of the first month which begins more than 90 days after the date of the enactment of this Act. (2) Amendments relating to income tax.— The amendments made by this section, when relating to a tax imposed by chapter 26 USC 1, 1401. 1 or chapter 2 of the Internal Revenue Code of 1954, shall take effect with respect to taxable years beginning after December 31, 1976. SEC. 1907. AMENDMENTS OF SUBTITLE G; THE JOINT COMMITTEE ON INTERNAL REVENUE TAXATION. (a) In General.— (1) Amendment of section 8001.— Section 8001 (relating to 26 USC 8001. creation of the Joint Committee) is amended by striking out “Joint Committee on Internal Revenue Taxation” and inserting in lieu thereof “Joint Committee on Taxation”. (2) Amendment of section 8004.— Section 8004 (relating to 26 USC 8004. compensation of staff) is amended by striking out “compensation of a clerk” and inserting in lieu thereof “compensation of the Chief of Staff of the Joint Committee”. (3) Amendment of section 8021.— Section 8021(d) (relating 26 USC 8021. to authority to make expenditures) is amended to read as follows: “(d) To Make Expenditures.— The Joint Committee, or any subcommittee thereof, is authorized to make such expenditures as it deems advisable.”. (4) Amendment of section 8023.— Section 8023(c) (relating 26 USC 8023. to reorganization plans) is amended to read as follows: “(c) Application of Subsections (a) and(b).— Subsections (a) and (b) shall be applied in accordance with their provisions without regard to any reorganization plan becoming effective on, before, or after the date of the enactment of this subsection.”. (5) All references in any other statute, or in any rule, regulation, or order, to the Joint Committee on Internal be venue Taxation shall be considered to be made to the Joint Committee on Taxation. (b) Amendments Conforming to the Amendment of Section 8001.— (1) The heading of subtitle G is amended by striking out “Internal Revenue”, (2) The table of subtitles for the Internal Revenue Code of 1954 is amended by striking out the item relating to subtitle G and inserting in lieu thereof the following: “Subtitle G. The Joint Committee on Taxation.”. (c) Effective Date.— The amendments made by this section shall take effect on the first day of the first month which begins more than 90 days after the date of the enactment of this Act. SEC. 1908. EFFECTIVE DATE OF CERTAIN DEFINITIONS AND DESIGNATIONS For purposes of any amendment made by any provision of this Act (other than this title)— (1) which contains a term the meaning of which is defined in or modified by any provision of this title, and (2) which has an effective date earlier than the effective date of the provision of this title defining or modifying such term, that definition or modification shall be considered to take effect as of such earlier effective date. Subtitle B— Amendments of Code Provisions With Limited Current Application; Repeals and Savings Provisions SEC. 1951. PROVISIONS OF SUBTITLE A (a) References to Internal Revenue Code.— Except as otherwise expressly provided, whenever in this section a reference is made to a section or other provision, the reference shall be considered to be made 26 USC 1. to a section or other provision of the Internal Revenue Code of 1954. (b) Amendments.— (1) Amendment of section 72.— (A) Repeal.— Section 72 (relatinfi to annuities) is amended by striking out subsection (i) (relating to joint and survivor annuities where first annuitant died in 1951, 1952, or 1953). (B) Savings provision.— Notwithstanding subparagraph (A), if the provisions of section 72(i) applied to amounts received in taxable years beginning before January 1, 1977, under an annuity contract, then amounts received under such contract on or after such date shall be treated as if such provisions were not repealed. (2) Amendments of section 108.— (A) Repeal.— Section 108 (relating to income from discharge of indebtedness) is amended by striking out subsection (b) (relating to certain railroad corporations) and by striking out of subsection (a) the following: “(a) Special Rule of Exclusion.—”. (B) Savings provision.— If any discharge, cancellation, 26 USC 108 note. or modification of indebtedness of a railroad corporation occurs in a taxable year beginning after December 31, 1976, pursuant to an order of a court in a proceeding referred to in section 108(b)(A) or (13) which commenced before January 1, 1960, then, notwithstanding the amendments made by subparagraph (A), the provisions of subsection (b) of section 108 shall be considered as not repealed with respect to such discharge, cancellation, or modification of indebtedness. (3) Amendments of section 164.— (A) Repeal.— Section 164 (relating to taxes) is amended 26 USC 164. by striking out subsection (f) (relating to payments for municipal services in atomic energy communities) and by redesignating subsection (g) as subsection (f). (B) Savings provision.— Notwithstanding subparagraph 26 USC 164 note. (A), any amount paid or accrued in a taxable year beginning after December 31, 1976, to the Atomic Energy Commission or its successors for municipal-type services shall be allowed as a deduction under section 164 if such amount would have been deductible by reason of section 164(f)(as in effect for a taxable year ending on December 31, 1976) and if the amount is paid or accrued with respect to real property in a community (within the meaning of section 21 b. of the Atomic Energy Community Act of 1955 (42 U.S.C. 2304 (b))) in which the Commission on December 31, 1976, was rendering municipal-type services for which it received compensation from the owners of property within such community. (4) Repeal of section 168.— (A) Repeal.— Section 168 (relating to amortization of 26 USC 168. emergency facilities) is repealed. (B) Savings provision.— Notwithstanding the repeal 26 USC 168 note. made by subparagraph (A), if a certificate was issued before January 1, 1960, with respect to an emergency facility which is or has been placed in service before the date of the enactment of this Act, the provisions of section 168 shall not, with respect to such facility, be considered repealed. The benefit of deductions by reason of the preceding sentence shall be allowed to estates and trusts in the same manner as in the case of an individual. The allowable deduction shall be apportioned between the income beneficiaries and the fiduciary in accordance with regulations prescribed under section 642(f). (5) Amendment of section 171.— (A) Repeal.— (i) Section 171(b)(1)(B) (relating to amount of 26 USC 171. bond premium) is amended by striking out clause (iii) (relating to certain bonds acquired before 1958). (ii) Section 171(b)(1)(B)(i) is amended by striking out “clause (ii) or (iii) applies,” and inserting in lieu thereof “clause (ii) applies, or”, and by inserting “and” at the end thereof. (iii) Section 171 (b)(1)(B)(ii) is amended by striking out “. or” and inserting “, and” in lieu thereof. (iv) The second sentence in section 171 (b)(2) is amended by striking out “or (iii)”. (B) Savings provision.— Notwithstanding the amendments made by subparagraph (A), in the case of a bond the interest on which is not excludable from gross income— (i) which was issued after January 22, 1951, with a call date not more than 3 years after the date of such issue, and (ii) which was acquired by the taxpayer after January 22, 1954, and before January 1, 1958, the bond premium for a taxable year beginning after December 31, 1975, shall not be determined under section 171(b)(1)(B)(i) but shall be determined with reference to the amount payable on maturity, and if the bond is called before its maturity, the bond premium for the year in which the bond is called shall be determined in accordance with the provisions of section 171 (b)(2). (6) Amendment of section 333.— (A) Repeal.— Section 333 (relating to election as to recognition of gain in certain liquidations) is amended by striking out subsection (g) (relating to the liquidation of certain personal holding companies). (B) Savings provision.— Nothwithstanding subparagraph (A), if any corporation meets all the requirements of section 333(g)(2)(B), as in effect before its repeal by this Act, the liquidation of such corporation shall be treated as if paragraphs (2), (3), and (4) of section 333(g) had not been repealed. (C) Phase-in of 12month holding period requirement.— For purposes of subparagraph (B), the period for holding of stock specified in section 333(g)(2)(A)(u), as in effect before such repeal, shall— (i) in the case of taxable years beginning in 1977, be considered to be “9 months”; and (ii) in the case of taxable years beginning after December 31, 1977, be considered to be “1 year”. (7) Amendment of section 453.— (A) Repeal.— Section 453(b)(2) (relating to limitation on use of installment sales method) is amended to read as follows: “(2) Limitation.— Paragraph (1) shall apply only if in the taxable year of the sale or other disposition— “(A) there are no payments, or “(B) the payments (exclusive of evidences of indebtedness or the purchaser) do not exceed 30 percent of the selling price.”. (B) Savings provision.— Notwithstanding subparagraph (A), in the case of installment payments received during taxable years beginning after December 31, 1976, on account of a sale or other disposition made during a taxable year beginning before January 1, 1954, subsection (b)(1) of section 453 (relating to sales of realty and casual sales of personalty) shall apply only if the income was (by reason of section 53 Stat. 24. 44(b) of the Internal Revenue Code of 1939) returnable on the basis and in the manner prescribed in section 44(a) of such Code. (8) Amendments of section 512.— (A) Repeal.— Section 512(b) (relating to unrelated business 26 USC 512. taxable income) is amended by striking out paragraphs (13) and (14) and by redesignating paragraphs (15), (16), and (17) as paragraphs (13), (14), and (15), respectively. (B) Savings provision.— Notwithstanding subparagraph 26 USC 512 note. (A), income received in a taxable year beginning after December 31, 1975, shall be excluded from gross income in determining unrelated business taxable income, if such income would have been excluded by paragraph (13) or (14) of section 512(b) if received in a taxable year beginning before such date. Any deductions directly connected with income excluded under the preceding sentence in determining unrelated business taxable income shall also be excluded for such purpose. (9) Amendment of section 545.— (A) Repeal.— Section 545(b) (relating to adjustments in 26 USC 545. computing undistributed personal holding company income) is amended by striking out paragraph (9) (relating to deductions on account of certain liens in favor of the United States). (B) Savings provision.— Notwithstanding subparagraph 26 USC 545 note. (A), if any amount was deducted under paragraph (9) of section 545(b) in a taxable year beginning before January 1, 1977, on account of a lien which is satisfied or released in a taxable year beginning on or after such date, the amount so deducted shall be included in income, for purposes of section 545, as provided in the second sentence of such paragraph. Shareholders of any corporation which has amounts included in its income by reason of the preceding sentence may elect to compute the income tax on dividends attributable to amounts so included as provided in the third sentence of such paragraph. (10) Amendments of section 691.— (A) Repeal.— Section 691 (relating to income in respect 26 USC 691. of decedents) is amended by striking out subsection (e) (relating to certain installment obligations transmitted at death) and by redesignating subsection (f) as subsection (e). (B) Savings provision.— Notwithstanding subparagraph 26 USC 691 note. (A), any election made under section 691(e) to have subsection (a)(4) of such section apply in the case of an installment obligation shall continue to be effective with respect to taxable years beginning after December 31, 1976. Section 691(c) shall not apply in respect of any amount included in gross income by reason of the preceding sentence. The liability under bond filed under section 44(d) of the Internal Revenue Code of 1939 (or corresponding provisions of prior law) in 53 Stat. 24. respect of which such an election applies is hereby released with respect to taxable years to which such election applies. (11) Amendments of section 817.— (A) Repeal.— Section 817 is amended by striking out 26 USC 817. subsection (d) (relating to certain gains occurring before 1959). (B) Savings provision.— Notwithstanding subparagraph 26 USC 817 note. (A), any gain in a taxable year beginning after December 31, 1976, from any sale or other disposition of property prior to January 1, 1959, would be excluded or not taken into account for purposes of part 1 of subchapter L of chapter Ante, p. 1839. 1 if subsection (d) of section 817 of such Code were still in effect for such taxable year, such gain shall be excluded for purposes of such part. (12) Repeal of section 1347.— (A) Repeal.— Section 1347 (relating to certain claims filed against the United States before January 1, 1958) is repealed. (B) Savings provision.— Notwithstanding subparagraph (A), if amounts received in a taxable year beginning after December 31, 1976, would have been subject to the provisions of section 1347 if received in a taxable year beginning before such date, the tax imposed by section 1 attributable to such receipt shall be computed as if section 1347 had not been repealed. (13) Repeal of section 1471.— (A) Repeal.— Subchapter A of chapter 4 (relating to recovery of excessive profits on certain Government contracts) is repealed. (B) Savings provision.— If the amount of profit required to be paid into the Treasury under section 2382 or 7300 of title 10, United States Code, is not voluntarily paid, the Secretary of the Treasury or his delegate shall collect the same under the methods employed to collect taxes under subtitle A. All provisions of law (including penalties) applicable with respect to such taxes and not inconsistent with section 2382 or 7300 of title 10 of such Code, shall apply with respect to the assessment, collection, or payment of excess profits to the Treasury as provided in the preceding sentence, and to refunds by the Treasury of overpayments of excess profits into the Treasury. (14) Amendment of section 1481.— (A) Repeal.— Section 1481 (relating to mitigation of effect of renegotiation of Government contracts) is amended by striking out subsection (d) (relating to renegotiation for years prior to 1954). (B) Savings provision.— If, during a taxable year beginning after December 31, 1976, a recovery of excessive profits through renegotiation which relates to profits of a taxable 53 Stat. 1. year subject to the Internal Revenue Code of 1939, the adjustments in respect to such renegotiation shall be made under section 3806 of such Code. (c) Conforming and Clerical Amendments.— (1) Amendment conforming to the amendment of section 1017.— Section 1017 is amended by striking out “section 108(a)” each time it appears therein and inserting in lieu thereof “section 108”. (2) Amendments conforming to repeal of section 168.— (A) Section 1238 is amended by striking out “(relating to amortization deduction of emergency facilities)” and inserting in lieu thereof “(as in effect before its repeal by the Tax Ante, p. 1520. 26 USC 642, 1082. Ante, p. 1837. 26 USC 1245, 1250. Reform Act. of 1976)”. (B) Sections 642(f) and 1082(a)(2)(B) are each amended by striking out “168,”. (C) Sections 1245(a)(2) and 1250(b)(3) are each amended by striking out “168,” each place it appears and inserting in lieu thereof “168 (as in effect before its repeal by the Tax Reform Act of 1976),”. (D) The table of sections for part VI of subchapter B of chapter 1 is amended by striking out the item relating to section 168. Ante, p. 1837. (3) Amendments conforming to the repeal of section 1347.— (A) Section 5(b) is amended by striking out paragraph 26 USC 5. (5) and by redesignating paragraphs (2), (3), and (4), as paragraphs (1), (2), and (3), respectively. (B) The table of sections for part VI of subchapter Q of chapter 1 is amended by striking out the item relating to section 1347. Ante, p. 1840. (C) The heading of part VI of subchapter Q of chapter 1 is amended to read as follows: “PART VI— MAXIMUM RATE ON PERSONAL SERVICE INCOME.” (D) The table of parts for subchapter Q of chapter 1 is amended by striking out the item relating to part VI and inserting in lieu thereof the following: “Part VI. Maximum rate on personal service income.” (4) Amendment conforming to the repeal of section 1471.— The table of subchapters for chapter 4 is amended by striking out the item relating to subchapter A. (d) Effective Date.— Except as otherwise expressly provided, the 26 USC 72 note. amendments made by this section shall apply with respect to taxable years beginning after December 31, 1976. SEC. 1952. PROVISIONS OF SUBCHAPTER D OF CHAPTER 39; COTTON FUTURES. (a) Short Title.— This section may be cited as the “United States Cotton Futures Act”. (b) Repeal of Tax on Cotton Futures.— Subchapter D of chapter 39 (relating to tax on cotton futures) is repealed. 26 USC 4851. (c) Definitions.— For purposes of this section— (1) Cotton futures contract.— The term “cotton futures contract” means any contract of sale of cotton for future delivery made at, on, or in any exchange, board of trade, or similar institution or place of bus mess which has been designated a “contract market” by the Commodity Futures Trading Commission pursuant to the Commodity Exchange Act and the term “contract of 7 USC 1. sale” as so used shall be held to include sales, agreements of sale, and agreements to sell. (2) Future delivery.— The term “future delivery” shall not include any cash sale of cotton for deferred shipment or delivery. (3) Person.— The term “person” includes an individual, trust, estate, partnership, association, company, or corporation. (4) Secretary.— The term “Secretary” means the Secretary of Agriculture of the United States. (5) Standards.— The term “standards” means the official cotton standards of the United States established by the Secretary pursuant to the United States Cotton Standards Act, as emended. (d) Bona Fide Spot Markets and Commercial Differences.— (1) Definition.— For purposes of this section, the only markets which shall be considered bona fide spot markets shall be those which the Secretary shall, from time to time, after investigation, determine and designate to be such, and which we shall give public notice. (2) Determination.— In determining, pursuant to the provisions of this section, what markets are bona fide spot markets, the Secretary is directed to consider only markets in “which spot cotton is sold in such volume and under such conditions as customarily to reflect accurately the value of middling cotton and the differences between the prices or values of middling cotton and of other grades of cotton for which standards shall have been established by the Secretary; except that if there are not sufficient places, in the markets of which are made bona fide sales of spot cotton of grades for which standards are established by the Secretary, to enable him to designate at least five spot markets in accordance with subsection (f)(3), he shall, from data as to spot sales collected by him, make rules and regulations for determining the actual commercial differences in the value of spot cotton of the grades established by him as reflected by bona fide sales of spot cotton, of the same or different, grades, in the market selected and designated by him, from time to time, for that purpose, and in that event differences in value of cotton of various grades involved in contracts made pursuant to subsection (f)(1) and (2) shall be determined in compliance with such rules and regulations. It shall be the duty of any person engaged in the business of dealing in cotton, when requested by the Secretary or any agent acting under his instructions, to answer correctly to the best of his knowledge, under oath or otherwise, all questions touching his knowledge of the number of bales, the classification, the price or bona fide price offered, and other trims of purchase or sale, of any cotton involved in any transaction participated in by him, or to produce all books, letters, papers, or documents in his possession or under his control relating to such matter. (3) Withholding information.— Any person engaged in the business of dealing in cotton who shall, within a reasonable time prescribed by the Secretary or any agent acting under his instructions, willfully fail or refuse to answer questions or to produce books, letters, papers, or documents, as required under paragraph (2) of this subsection, or who shall willfully give any answer that is false or misleading, shall, upon conviction thereof, be fined not more than $500. (e) Form and Validity of Cotton Futures Contracts.— Each cotton futures contract shall be a basis grade contract, or a tendered grade contract, or a specific grade contract as specified in subsections (f), (g), or (h) and shall be in writing plainly stating, or evidenced by written memorandum showing, the terms of such contract, including the quantity of the cotton involved and the names and addresses of the seller and buyer in such contract, and shall be signed by the party to be charged, or by his agent in his behalf. No cotton futures contracts which does not conform to such requirements shall be enforceable by, or on behalf of, any party to such contract or his privies. (f) Basis Grade Contracts.— (1) Conditions.— Each basis grade cotton futures contract shall comply with each of the following conditions: (A) Conformity with regulations.— Conform to the regulations made pursuant to this section. (B) Specification of grade, price, and dates of sale and settlement.— Specify the basis grade for the cotton involved in the contract, which shall be one of the grades for which standards are established by the Secretary, except grades prohibited from being delivered on a contract made under this subsection by subparagraph (E), the price per pound at which the cotton of such basis grade is contracted to be bought or sold, the date when the purchase or sale was made, and the month or months in which the contract is to be fulfilled or settled; except that middling shall be deemed the basis £ade incorporated into the contract if no other basis grade specified either in the contract or in the memorandum evidencing the same. (C) Provision for delivery of standard grades only.— Provide that the cotton dealt with therein or delivered thereunder shall be of or within the grades for which standards are established by the Secretary except grades prohibited from being delivered on a contract made under this subsection by subparagraph (E) and no other grade or grades. (D) Provision for settlement on basis of actual commercial differences.— Provide that in case cotton of grade other than the basis grade be tendered or delivered in settlement of such contract, the differences above or below the contract price which the receiver shall pay for such grades other than the basis grade shall be the actual commercial differences, determined as hereinafter provided, (E) Prohibition of delivery of inferior cotton.— Provide that cotton that, because of the presence of extraneous matter of any character, or irregularities or defects, is reduced in value below that of low middling, or cotton that is below the grade of low middling, or, if tinged, cotton that is below the grade of strict middling, or, if yellow stained, cotton that is below the grade of good middling, the grades mentioned being of the official cotton standards of the United States, or cotton that is less than seven-eighths of an inch in length of staple, or cotton of perished staple, or of immature staple, or cotton that is “gin cut” or reginned, or cotton that is “repacked” or “false packed” or “mixed packed” or “water packed”, shall not be delivered on, under, or in settlement of such contract. (F) Provisions for tender in full, notice of delivery date, and certificate of grade.— Provide that all tenders of cotton under such contract shall be the full number of bales involved therein, except that such variations of the number of bales may be permitted as is necessary to bring the total weight of the cotton tendered within the provisions of the contract as to weight; that, on the fifth business day prior to delivery, the person making the tender shall give to the person receiving the same written notice of the date of delivery, and that, on or prior to the date so fixed for delivery, and in advance of final settlement of the contract, the person making the tender shall furnish to the person receiving the same a written notice or certificate stating the grade of each individual bale to be delivered and, by means of marks or numbers, identifying each bale with its grade. (G) Provision for tender and settlement in accordance with government classification.— Provide that all tenders of cotton and settlements therefor under such contract shall be in accordance with the classification thereof made under the regulations of the Secretary by such officer or officers of the Government as shall be designated for the purpose, and the costs of such classification shall be fixed, assessed, col- Regulations. lected, and paid as provided in such regulations. The Secretary is authorized to prescribe regulations for carrying out the purposes of this subparagraph and the certificates of the officers of the Government, as to the classification of any cotton for the purposes of this subparagraph shall be accepted in the courts of the United States in all suits between the parties to such contract, or their privies, as prima facie evidence of the true classification of the cotton involved. (2) Incorporation of conditions in contracts.— The provisions of paragraphs (1)(C), (D), (E), (F), and (G) shall be deemed fully incorporated into any such contract if there be written or printed thereon, or on the memorandums evidencing the same, at or prior to the time the same is signed, the phrase “Subject to United States Cotton Futures Act, subsection (f).” (3) Delivery allowances.— For the purpose of this subsection, the differences above or below the contract price which the receiver shall pay for cotton of grades above or below the basic grade in the settlement of a contract of sale for the future delivery of cotton shall be determined by the actual commercial differences in value thereof upon the sixth business day prior to the day fixed, in accordance with paragraph (1)(F), for the delivery of cotton on the contract, established by the sale of spot cotton in the spot markets of not less than five places designated for the purpose from time to time by the Secretary, as such values were established by the sales of spot cotton, in such designated five or more markets. For purposes of this paragraph, such values in the such spot markets shall be based upon the standards for grades of cotton established by the Secretary. Whenever the value Rules and regulations. of one grade is to be determined from the sale or sales of spot cotton of another grade or grades, such value shall be fixed in accordance with rules and regulations which shall be prescribed for the purpose by the Secretary. (g) Tendered Grade Contracts.— (1) Conditions.— Each tendered grade cotton future contract shall comply with each of the following conditions: (A) Compliance with subsection (f).— Comply with all the terms and conditions of subsection (f) not inconsistent with this subsection; and (B) Provision for contingent specific performance.— Provide that, in case cotton of grade or grades other than the basis grade specified in the contract shall be tendered in performance of the contract, the parties to such contract may agree, at the time of the tender, as to the price of the grade or grades so tendered, and that if they shall not then agree as to such price, then, and in that event, the buyer of said contract shall have the right to demand the specific fulfillment of such contract by the actual delivery of cotton of the basis grade named therein and at the price specified for such basis grade in said contract. (2) Incorporation of conditions in contract.— Contracts made in compliance, with this subsection shall be known as “subsection (g) Contracts”. The provisions of this subsection shall be deemed fully incorporated into any such contract if there be written or printed thereon, or on the memorandum evidencing the same, at or prior to the time the same is signed, the phrase “Subject to United States Cotton Futures Act, subsection (g)”. (3) Application of subsection.— Nothing in this subsection shall be so construed as to authorize any contract in which, or in the settlement of or in respect to which, any device or arrangement whatever is resorted to, or any agreement is made, for the determination or adjustment of the price of the grade or grades tendered other than the basis grade specified in the contract by any “fixed difference” system, or by arbitration, or by any other method not provided for by this section. (h) Specific Grade Contracts.— (1) Conditions.— Each specific grade cotton futures contract shall comply with each of the following conditions: (A) Conformity with rulesand regulations.— Con form to the rules and regulations made pursuant to this section. (B) Specification of grade, price, dates of sale and delivery.— Specify the grade, type, sample, or description of the cotton involved in the contract, the price per pound at which such cotton is contracted to be bought or sold, the date of the purchase or sale, and the time when shipment or delivery of such cotton is to be made. (C) Prohibition of delivery of other than specified grade.— Provide that cotton of or within the grade or of the type, or according to the sample or description, specified in the contract shall be delivered thereunder, and that no cotton which does not conform to the type, sample, or description, or which is not of or within the grade specified in the contract shall be tendered or delivered thereunder. (D) Provision for specific performance.— Provide that the delivery of cotton under the contract shall not be effected by means of “setoff” or “ring” settlement, but only by the actual transfer of the specified cotton mentioned in the contract. (2) Incorporation of conditions in contract.— The provisions of paragraphs (1)(A), (C). and (D) shall be deemed fully incorporated into any such contract if there be written or printed thereon, or on the document or memorandum evidencing the same, at or prior to the time the same is entered into, the words “Subject to United States Cotton Futures Act, subsection (h)”. Ante, p. 1841. (3) Application of subsection.— This subsection shall not be construed to apply to any contract of sale made in compliance with subsection (f) or (g). (i) Liability of Principal for Acts of Agent.— When construing and enforcing the provisions of this section, the act, omission, or failure of any official, agent, or other person acting for or employed by any association, partnership, or corporation within the scope of his employment or office shall, in every case, also be deemed the act, omission, or failure of such association, partnership, or corporation, as well as that of the person. (j) Regulations.— The Secretary is authorized to make such regulations with the force and effect of law as he determines may be necessary to carry out the provisions of this section and the powers vested in him by this section. (k) Validations.— Any person who knowingly violates any regulation made in pursuance of this section, shall, upon conviction thereof be fined not less than $100 nor more than $500, for each violation thereof, in the discretion of the court, and, in case of natural persons, may, in addition be punished by imprisonment for not less than 30 days nor more than 90 days, for each violation, in the discretion of the court except that this subsection shall not apply to violations subject to subsection (d)(3). (l) Applicability to Contracts Prior to Effective Date.— The provisions of this section shall not apply to any cotton futures contract entered into prior to the effective date of this section or to any act or failure to act by any person prior to such effective date and all such prior contracts, acts or failure to act shall continue to be governed by 26 USC 1. the applicable provisions of the Internal Revenue Code of 1954 as in effect prior to the enactment of this section. All designations of bona fide spot markets and all rules and regulations issued by the Secretary pursuant to the applicable provisions of the Internal Revenue Code of 1954 which were in effect on the effective date of this section, shall remain fully effective as designations and regulations under this section until superseded, amended, or terminated by the Secretary. (m) Authorization.— There are authorized to be appropriated such sums as may be necessary to carry out this section. (n) Conforming and Clerical, Amendments.— (1) Section 6808 (relating to cross references) is amended by striking out paragraph (2), and by redesignating paragraphs (3), (6), and (11) as paragraphs (1), (2), and (3), respectively. (2) (A) Section 7233 (relating to failure to pay tax on cotton futures) is repealed. (B) The table of sections for part II of subchapter A of chapter 75 is amended by striking out the item relating to section 7233. (3) (A) Section 7263 (relating to penalties concerning cotton futures) is repealed. (B) The table of sections for subchapter B of chapter 75 is amended by striking out the item relating to section 7263. (4) (A) Subchapter E of chapter 76 (relating to miscellaneous provisions regarding cotton futures contracts) is repealed. (B) The table of subchapters for chapter 76 is amended by striking out the items relating to subchapter E. (5) Chapter 39 (relating to regulatory taxes) is amended by striking out the chapter heading and the table of subchapters. (6) The table of chapters for subtitle D is amended by striking out the item relating to chapter 39. (o) Effective Date.— The provisions of this section shall take effect on the 90th day after the date of the enactment of this Act.

12. 1976

    Pub. L. 94–455 § 1901(a)(17)(B) · 90 Stat. 1520

    Redesignated · 26 U.S.C. § 103(b)

    Pub. L. 94–455, § 1901(a)(17)(B), (C), redesignated subsec. (c) as (b) and in par. (1) of subsec. (b) as so redesignated substituted “subsection (a)(1) or (2)” for “subsection (a)(1)”. Former subsec. (b), which created an exception to the rule that gross income did not include interest on obligations of the United States, by providing that the exception did not apply to obligations of the United States (with specified exceptions) unless under the authorizing Acts such interest is wholly exempt from the taxes imposed by this subtitle, was struck out

    Source evidence

    Code amendment note
    Subsec. (b). Pub. L. 94–455, § 1901(a)(17)(B), (C), redesignated subsec. (c) as (b) and in par. (1) of subsec. (b) as so redesignated substituted “subsection (a)(1) or (2)” for “subsection (a)(1)”. Former subsec. (b), which created an exception to the rule that gross income did not include interest on obligations of the United States, by providing that the exception did not apply to obligations of the United States (with specified exceptions) unless under the authorizing Acts such interest is wholly exempt from the taxes imposed by this subtitle, was struck out.

    Enacted provision · exact public law section
    (B) Section 103 is amended by striking out subsection (b) (relating to certain exceptions) and by redesignating subsections (c), (d), (e) (f), and (g)(as added by this Act) as subsections (b), (c), (d), (e), and (f) respectively.

13. 1976

    Pub. L. 94–455 title XIX · 90 Stat. 1520

    1. Redesignated · 26 U.S.C. § 103(c)

       Pub. L. 94–455, §§ 1901(a)(17)(B), (D), (b)(8)(B), 1906(b)(13)(A), 2105(c), redesignated subsec. (d) as (c) and, in subsec. (c) as so redesignated

    2. Substituted · 26 U.S.C. § 103(c)

       Pub. L. 94–455, §§ 1901(a)(17)(B), (D), (b)(8)(B), 1906(b)(13)(A), 2105(c), substituted “(a)(1) or (4)” for “(a)(1)” in par. (2)(A)

    3. Substituted · 26 U.S.C. § 103(c)

       Pub. L. 94–455, §§ 1901(a)(17)(B), (D), (b)(8)(B), 1906(b)(13)(A), 2105(c), substituted “(a)(1) or (2) or (4)” for “(a)(1)” in par. (2)(A)

    4. Substituted · 26 U.S.C. § 103(c)

       Pub. L. 94–455, §§ 1901(a)(17)(B), (D), (b)(8)(B), 1906(b)(13)(A), 2105(c), substituted “educational organization described in section 170(b)(1)(A)(ii)” for “educational institution (within the meaning of section 151(e)(4))” in par. (3)(A)

    5. Added · 26 U.S.C. § 103(c)

       Pub. L. 94–455, §§ 1901(a)(17)(B), (D), (b)(8)(B), 1906(b)(13)(A), 2105(c), added par. (5)

    6. Redesignated · 26 U.S.C. § 103(c)

       Pub. L. 94–455, §§ 1901(a)(17)(B), (D), (b)(8)(B), 1906(b)(13)(A), 2105(c), redesignated former par. (5) as (6), and in par. (6) as so redesignated substituted “Secretary” for “Secretary or his delegate”. Former subsec. (c) redesignated (b)

    Source evidence

    Code amendment note
    Subsec. (c). Pub. L. 94–455, §§ 1901(a)(17)(B), (D), (b)(8)(B), 1906(b)(13)(A), 2105(c), redesignated subsec. (d) as (c) and, in subsec. (c) as so redesignated, substituted “(a)(1) or (4)” for “(a)(1)” in par. (1) and “(a)(1) or (2) or (4)” for “(a)(1)” in par. (2)(A), substituted “educational organization described in section 170(b)(1)(A)(ii)” for “educational institution (within the meaning of section 151(e)(4))” in par. (3)(A), added par. (5), redesignated former par. (5) as (6), and in par. (6) as so redesignated substituted “Secretary” for “Secretary or his delegate”. Former subsec. (c) redesignated (b).

    Enacted provision · exact public law
    TITLE XIX— REPEAL AND REVISION OF OBSOLETE, RARELY USED, ETC., PROVISIONS OF INTERNAL REVENUE CODE OF 1954 SUBTITLE A— AMENDMENTS OF INTERNAL REVENUE CODE GENERALLY SEC. 1901. AMENDMENTS OF SUBTITLE A; INCOME TAXES. (a) In General.— (1) Amendment of section 2.— Subsection (c) of section 2 (relating to certain married individuals living apart) is amended to read as follows: “(c) Certain Married Individuals Living Apart.— For purposes of this part, an individual shall be treated as not married at the close of the taxable year if such individual is so treated under the provisions of section 143 (b).” (2) Repeal of section 36.— Section 35 (relating to partially tax-exempt interest received by individuals) is repealed. (3) Amendment of section 39.— Section 39 (relating to certain uses of gasoline, special fuels, and lubricating oil) is amended by striking out subsections (b) and (c) and inserting after subsection (a) the following new subsection: “(b) Exception.— Credit shall not be allowed under subsection (a) for any amount payable under section 6421, 6424, or 6427, if a claim for such amount is timely filed and, under section 6421 (i), 6424 (f), or 6427(f), is payable under such section.” (4) Amendments of section 46.— (A) The second sentence of section 46(a)(4), as redesignated by this Act, is amended by striking out “section 408(e)” and inserting in lieu thereof “section 408(f)”. (B) Clause (iii) of section 46(c)(3)(B) (relating to public utility property) is amended by striking out “47 U.S.C., sec. 222(a)(5)” and inserting in lieu thereof “47 U.S.C. 222(a)(5)”. (5) Amendments or section 48.— (A) Section 48(a)(2)(B)(vi) (relating to section 38 property used outside the United States) is amended by striking out “; 43 U.S.C., sec. 1331)” and inserting in lieu thereof “(43 U.S.C. 1331))”. (B) Section 48(a)(2)(B)(viii) is amended by striking out “47 U.S.C., sec. 702” and inserting in lieu thereof “47 U.S.C. 702”. (6) Amendment of section 50a.— The second sentence of section 50A (a)(3) (relating to liability for tax) is amended by 26 USC 50A. striking out “section 408 (e)” and inserting in lieu thereof “section 408(f)”. (7) Repeal of section 51.— Subchapter A of chapter 1 is 26 USC 51. amended by striking out part V (relating to tax surcharge). (8) Amendments op section 62.— Section 62 (relating to definition 26 USC 62. of adjusted gross income) is amended by redesignating paragraph (11), as added by the Act of October 26, 1974 (Public Law 93–483), as paragraph (12). (9) Additional amendment of section 62.— Section 62(12), as redesignated by subparagraph (A) of this paragraph, is amended by striking out “trade or business to the extent” and inserting in lieu thereof “trade or business, to the extent”. (10) Definition of ordinary income.— Part I of subchapter B of chapter 1 (relating to definitions of gross income, adjusted 26 USC 61. gross income, and taxable income) is amended by adding at the end thereof the following new section: “SEC. 64. ORDINARY INCOME DEFINED. “For purposes of this subtitle, the term ‘ordinary income’ includes any gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231(b). Any gain from the sale or exchange of property which is treated or considered, under other provisions of this subtitle, as ‘ordinary income’ shall be treated as gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231(b).” (11) Definition of ordinary loss.— Part I of subchapter B of chapter 1 (relating to definitions of gross 26 USC 61. income, adjusted gross income, and taxable income) is amended by adding at the end thereof the following new section: “SEC. 65. ORDINARY LOSS DEFINED. “For purposes of this subtitle, the term ‘ordinary loss’ includes any loss from the sale or exchange of property which is not a capital asset. Any loss from the sale or exchange of property which is treated or considered, under other provisions of this subtitle, as ‘ordinary loss’ shall be treated as loss from the sale or exchange of property which is not a capital asset.” (12) Amendment of section 72.— Section 72(d)(1) (relating 26 USC 72. to employees’ annuities) is amended by striking out “(whether or not before January 1, 1954)” and by striking out “(under this paragraph and prior income tax laws)”. (13) Additional amendment of section 72.— Section 72(m)(4)(A) (relating to assignments or pledges) is amended by striking out “an individual retirement amount” and inserting in lieu thereof “an individual retirement account”. (14) Repeal of section 76.— Section 76 (relating to mortgages 26 USC 76. made or obligations issued by joint stock land banks) is repealed. (15) Amendment of section 83.— Section 83(b)(2) (relating 26 USC 83. to election to include the value of restricted property in gross income) is amended by striking out “(or, if later, 30 days after 26 USC 1 note. the date of the enactment of the Tax Reform Act of 1969)”. (16) Amendment of section 101.— Section 101 is amended by 26 USC 101. striking out subsection (f) (relating to effective date of section). (17) Amendments of section 103.— (A) Section 103(a) (relating to tax-exempt interest), as 26 USC 103. amended by this Act, is amended by inserting “and” at the end of paragraph (1), by striking out paragraphs (2) and (3), and by redesignating paragraph (4) as paragraph (2). (B) Section 103 is amended by striking out subsection (b) (relating to certain exceptions) and by redesignating subsections (c), (d), (e) (f), and (g)(as added by this Act) as subsections (b), (c), (d), (e), and (f) respectively. (C) Section 103(b)(1) (relating to industrial development bonds), as redesignated by subparagraph (B) of this paragraph, is amended by inserting “or (2)” after “(a)(1)”. (D) Section 103(c)(2)(A) (relating to definition of arbitrage bonds), as redesignated by subparagraph (B) of this paragraph, is amended by inserting “or (2)” after “(a)(1)”. (E) Section 103(e) (relating to certain cross references) as redesignated by subparagraph (B) of this paragraph, is amended to read as follows: “(e) Cross References.— “For provisions relating to the taxable status of— “(1) Puerto Rican bonds, see section 3 of the Act of March 2, 1917, as amended (48 U.S.C. 745). “(2) Virgin Islands insular and municipal bonds, see section 1 of the Act of October 27, 1919 (48 U.S.C. 1403). “(3) Certain obligations issued under title I of the Housing Act of 1949, see section 102(g) of title I of such Act (42 U.S.C. 1452(g)).” (18) Amendments of section 104.— (A) Section 104(a)(4) (relating to exclusion of compensation for injuries or sickness) is amended by striking out “;60 Stat. 1021” (B) Section 104(c)(2) as redesignated by section 505 of this Act, is amended to read as follows: “(2) For exclusion of part of disability retirement pay from the application of subsection (a)(4) of this section, see section 1403 of title 10, United States Code (relating to career compensation laws).” (19) Amendment of section 115.— Section 115 (relating to income of States, municipalities, etc.) is amended to read as follows: “SEC. 115. INCOME OF STATES, MUNICIPALITIES, ETC. “Gross income does not include— “(1) income derived from any public utility or the exercise of any essential governmental function and accruing to a State or any political subdivision thereof, or the District of Columbia; or “(2) income accruing to the government of any possession of the United States, or any political subdivision thereof.” (20) Amendment of section 116.— Subsection (a) of section 116 (relating to partial exclusion of dividends received by individuals) is amended by striking out “Effective with respect to any taxable year ending after July 31, 1954, gross income” and inserting in lieu thereof “Gross income”. (21) Amendment of section 124.— Section 124 (relating to cross references to other Acts) is amended to read as follows: “SEC. 124. CROSS REFERENCES TO OTHER ACTS. “(a) For exemption of— “(1) Adjustments of indebtedness under wage earners’ plans, see section 679 of the Bankruptcy Act (11 U.S.C. 1079). “(2) Allowances and expenditures to meet losses sustained by persons serving the United States abroad, due to appreciation of foreign currencies, see section 5943 of title 5, United States Code. “(3) Amounts credited to the Maritime Administration under section 9(b)(6) of the Merchant Ship Sales Act of 1946, see section 9(c)(1) of that Act (50 U.S.C. App. 1742). “(4) Benefits under laws administered by the Veterans’ Administration, see section 3101 of title 38, United States Code. “(5) Earning of ship contractors deposited in special reserve funds, see section 607(d) of the Merchant Marine Act, 1936 (46 U.S.C. 1177). “(6) Income derived from Federal Reserve banks, including capital stock and surplus, see section 7 of the Federal Reserve Act (12 U.S.C. 531). “(7) Railroad retirement annuities and pensions, see section 12 of the Railroad Retirement Act of 1935 (45 U.S.C. 2281). “(8) Railroad unemployment benefits, see section 2(e) of the Railroad Unemployment Insurance Act (45 U.S.C. 352). “(9) Special pensions of persons on Army and Navy medal of honor roll, see 38 U.S.C. 562(a)–(c). “(b) For extension of military income-tax-exemption benefits to commissioned officers of Public Health Service in certain circumstances, see section 212 of the Public Health Service Act (42 U.S.C. 213).” (22) Amendment of section 143.— Section 143 (relating to 26 USC 143. determination of marital status) is amended by striking out “this part” each place it appears and inserting in lieu thereof “this part and part V”. (23) Amendment of section 151.— Section 151 (e)(4)(defining 26 USC 151. student and educational institution) is amended to read as follows: “(4) Student defined.— For purposes of paragraph (1)(B)(ii), the term ‘student’ means an individual who during each of 5 calendar months during the calendar year in which the taxable year of the taxpayer begins— “(A) is a full-time student at an educational organization described in section 170(b)(1)(A)(ii); or “(B) is pursuing a full-time course of institutional on-farm training under the supervision of an accredited agent of an educational organization described in section 170(b)(1)(A)(ii) or of a State or political subdivision of a State.” (24) Amendments or section 152.— (A) Section 152(a)(defining dependent) is amended— 26 USC 152. (i) by inserting “or” at the end of paragraph (8), (ii) by striking out “, or” at the end of paragraph (9) and inserting in lieu thereof a period, and (iii) by striking out paragraph (10). (B) Section 152(b)(3) (relating to rules concerning the definition of dependent) is amended to read as follows: “(3) The term ‘dependent’ does not include any individual who “Dependent.” is not a citizen or national of the United States unless such individual is a resident of the United States or of a country contiguous to the United States. The preceding sentence shall not exclude from the definition of ‘dependent’ any child of the tax-payer legally adopted by him, if, for the taxable year of the tax-payer, the child has as his principal place of abode the home of the taxpayer and is a member of the taxpayer’s household, and if the taxpayer is a citizen or national of the United States.” (25) Amendments of section 164.— Section 164(d)(2) (relating 26 USC 164. to apportionment of taxes on real property between the seller and purchaser) is amended by striking out subparagraphs (B) and (C), and by redesignating subparagraph (D) as subparagraph (B). (26) Amendments of section 165.— Section 165 (relating 26 USC 165. to deduction of losses) is amended by striking out subsection (i) (relating to property confiscated by Cuba), and by redesignating subsection (j) as subsection (i). (27) Amendments or section 167.— (A) Section 167 (d) (relating to agreement as to useful life for depreciation) is amended by striking out “after the date of enactment of this title” and inserting in lieu thereof “after August 16, 1954”. (B) Section 167(f)(2)(defining personal property) is amended by striking out “the date of the enactment of the Revenue Act of 1962” and inserting in lieu thereof “October 16, 1962”. (C) Section 167(1)(4)(A) (relating to election as to increased-capacity property) is amended by striking out “within 180 days after the date of the enactment of this subparagraph” and inserting in lieu thereof “before June 29, 1970,”. (28) Amendments of section 170.— (A) (i) Section 170 (relating to charitable deductions) is amended by striking out subsections (f)(6) and (g) (relating to unlimited charitable deductions allowed for taxable years beginning before January 1, 1975), and by redesignating subsections (h), (i), and (j) as subsections (g), (h), and (i), respectively. (ii) Section 170(b)(1) (relating to percentage limitations on deductions for individuals) is amended by striking out subparagraph (C) (relating to unlimited deductions), and by redesignating subparagraphs (D), (E), and (F) as subparagraphs (C), (D), and (E), respectively. (iii) Section 170(b)(1)(A)(vii) is amended by striking out “subparagraph (E)” and inserting in lieu thereof “subparagraph (D)”. (iv) Section 170(b)(1)(B)(ii) is amended by striking out “subparagraph (D)” and inserting in lieu thereof “subparagraph (C)”. (v) Section 170(c) (relating to definition of charitable contribution) is amended by striking out in the last sentence “subsection (h)” and inserting in lieu thereof “subsection (g)”. (vi) Section 170(e)(1)(B)(ii) (relating to certain contributions of ordinary income and capital gain property) is amended by striking out “subsection (b)(1)(E)” and inserting in lieu thereof “subsection (b)(1)(D)”. (B) Section 170(d)(1)(A) (relating to carryover of excess charitable contributions) is amended by striking out “(30 percent, in the case of a contribution year beginning before January 1, 1970)”. (C) Section 170(h) (relating to disallowance of deductions in certain cases), as redesignated by subparagraph (A)(i) of this paragraph, is amended by striking out “64 Stat. 996;”. (D) Section 170(i) (relating to cross references), as redesignated by subparagraph (A)(i) of this paragraph, is amended to read as follows: “(i) Other Cross References.— “(1) Fer charitable contributions of estates and trusts, see section 642(c). “(2) For nondeductibilit; of contributions by common trust funds, see section 584. “(3) For charitable contributions of partners, see section 702. “(4) For charitable contributions of nonresident aliens, see section 873. “(5) For treatment of gifts for benefit of or use in connection with the Naval Academy as gifts to or for use of the United States, see section 6973 of title 10, United States Code. “(6) For treatment of gifts accepted by the Secretary of State under the Foreign Service Act of 1946 as gifts to or for the use of the United States, see section 1021(e) of that Act (22 U.S.C. 809(e)). “(7) For treatment of gifts of money accepted by the Attorney General for credit to the ‘Commissary Funds, Federal Prisons’ as gifts to or for the use of the United States, see section 2 of the Act of May 15, 1952. as amended by the Act of July 9, 1952 (31 U.S.C. 7 25s–4).” (29) Amendments of section 172.— (A) (i) Section 172(b)(1) (relating to years to which loss Ante, p. 1755. may be carried) is amended by striking out subparagraph (E). (ii) Section 172(b)(3) is amended by striking out subparagraphs 26 USC 172. (E) and (F). (B) Section 172(c) (relating to definition of net operating loss) is amended by striking out “(for any taxable year ending after December 31, 1953)”. (C) (i) Section 172 (relating to net operating loss deduction) is amended by striking out subsections (f), (g), and (i), and by redesignating subsections (h), (j), (k), and (1) as subsections (f) , (g). (h), and (i), respectively. (ii) Section 172(b)(1)(C) (relating to regulated transportation corporations) is amended by striking out “subsection (j)(1)” and “subsection (j)”, and inserting in lieu thereof “subsection (g)(1)” and “subsection (g)”, respectively. (iii) Paragraphs (1)(D) and (3)(C)(i) of section 172 Post, p. 1920. (b) (relating to net operating loss carryovers and carry-backs) are each amended by striking out “subsection (k)” and inserting in lieu thereof “subsection (h)”. (iv) Section 172(b)(2) (relating to amount of carrybacks and carryovers) is amended by striking out “subsections (i) and (j)” and inserting in lieu thereof Subsection (g)”. (D) Section 172(e) (relating to law applicable to computations) is amended by striking out the last sentence. (E) Section 172(g)(2) (relating to certain regulated transportation corporations), as redesignated by subparagraph (C) of this paragraph, is amended by striking out paragraph (4). (30) Amendments of sections 174 and 175.— Section 174(a)(2) 26 USC 174, 175. (A)(1) (relating to research and development expenditures) and section 175(d)(1)(A) (relating to soil and water conservation expenditures) are each amended by striking out “the date on which this title is enacted,” and inserting in lieu thereof “August. 16, 1954,”. (31) Repeal of section 187.— Section 187 (relating to rapid 26 USC 187. amortization for certain coal mine safety equipment) is repealed. (32) Amendment of section 219.— Section 219(b)(2)(A)(iv) 26 USC 219. (disqualifying governmental plan participants from contributing to individual retirement accounts, etc.) is amended by striking out “division” and inserting in lieu thereof “subdivision”. (33) Repeat of section 242.— Section 242 (relating to partially 26 USC 242. tax-exempt interest received by corporations) is repealed. (34) Amendments of section 243.— (A) Section 243(a)(2) (relating to the dividends received deduction) is amended by inserting after “Small Business Investment Act of 1958” the following: “(15 U.S.C. 661 and following)”. (B) Section 243(b)(2)(A) (relating to dividends received by a member of an affiliated group) is amended by striking out “(except that in the case of a taxable year of a member beginning in 1963 and ending in 1964, if the election is effective for the taxable year of the common parent corporation which includes the last day of such taxable year of such member, such election shall be effective for such taxable year of such member, if such member consents to such election with respect to such taxable year)”. (35) Amendment of section 247.— Section 247(b)(2) (relating to preferred stock) is amended to read as follows: “(2) Preferred stock.— “(A) In general.— The term ‘preferred stock’ means stock issued before October 1, 1942, which during the whole of the taxable year (or the part of the taxable year after its issue) was stock the dividends in respect of which were cumulative, limited to the same amount, and payable in preference to the payment of dividends on other stock. “(B) Certain stock issued on or after October 1, 1942.— Stock issued on or after October 1, 1942, shall be deemed for purposes of this paragraph to have been issued before October 1, 1942, if it was issued to refund or replace bonds or debentures issued before October 1, 1942, or to refund or replace other preferred stock (including stock which is preferred stock by reason of this subparagraph or subparagraph (D)), but only to the extent that the par or stated value of the new stock does not exceed the par, stated, or face value of the bonds or debentures issued before October 1, 1942, or the other preferred stock, which such new stock is issued to refund or replace. “(C) Determination under regulations.— The determination of whether stock was issued to refund or replace bonds or debentures issued before October 1, 1942, or to refund or replace other preferred stock, shall be made under regulations prescribed by the Secretary. “(D) Issuance of stock.— For purposes of subparagraph (B), issuance of stock includes issuance either by the same or another corporation in a transaction which is a reorganization (as defined in section 368(a)), a transaction to which section 371 (relating to insolvency reorganizations) applies, 26 USC 1081. or a transaction subject to part VI of subchapter 0 (relating to exchanges in SEC. obedience orders), or the respectively corresponding provisions of the Internal Revenue Code of 1939.” (36) Amendment of section 248.— Section 248(c) (relating to organizational expenditures) is amended by striking out “the date of enactment of this title” and inserting in lieu thereof “August 16, 1954”, (37) Amendment of section 265.— Section 265(2) (relating to tax-exempt interest) is amended by striking out “(other than obligations of the United States issued after September 24, 1917, and originally subscribed for by the taxpayer)”, (38) Amendment of section 269.— Section 269 (relating to 26 USC 269. acquisitions made to evade or avoid income tax) is amended by striking out subsection (c) (relating to presumption in the ease of disproportionate purchase price). (39) Amendment of section 275.— Section 275(a)(1)(C) 26 USC 275. relating to nondeductible taxes) is amended by striking out (“, and corresponding provisions of prior revenue laws”. (40) Amendments of section 281.— (A) Section 281(d)(1)(A) (relating to definition of terminal 26 USC 281. railroad corporation) is amended by inserting after “Interstate Commerce Act” the following: “(49 U.S.C. 1 and following) (B) Section 281 (relating to terminal railroad corporations and their shareholders) is amended by striking out subsection (e) (relating to taxable years ending before October 23, 1962) and by redesignating subsection (f) as subsection (e). (41) Amendment of section 301.— Section 301 (relating to distributions 26 USC 301. of property) is amended by striking out subsection (e) (relating to certain distributions by personal service corporations). (42) Amendments of section 311.— (A) Section 311(d)(1) (relating to appreciated property 26 USC 311. used to redeem stock) is amended by striking out “then again shall be recognized” and inserting in lieu thereof “then a gain shall be recognized”. (B) (i) Section 311(d)(2) (relating to exceptions and limitations) is amended by striking out subparagraph (C) (relating to certain distributions before December 1, 1974) and by redesignating subparagraphs (D), (E), (F), and (G) as subparagraphs (C), (D). (E), and (F), respectively. (ii) The amendments made by clause (i) shall apply only 26 USC 311 note. with respect to distributions after November 30, 1974. (C) Section 311(d)(2)(C), as redesignated by subparagraph (B) of this paragraph, is amended by striking out “26 Stat. 209;” and “38 Stat. 730;”. (43) Amendments of section 312.— (A) Section 312(d)(1) (relating to certain distributions 26 USC 312. of stock and securities) is amended by striking out “this Code” each place it appears and inserting in lieu thereof “this title”. (B) Section 312 (relating to earnings and profits) is amended by striking out subsection (h) (relating to personal service corporations) and by redesignating subsections (i) and (j) as subsections (h) and (i), respectively. (C) Subsection (i) of section 312 (relating to distribution of proceeds of certain loans), as redesignated by subparagraph (B) of this paragraph, is amended to read as follows: “(i) Distribution of Proceeds of Loan Insured by the United States.— If a corporation distributes property with respect to its stock and if, at the time of distribution— “(1) there, is outstanding a loan to such corporation which was made, guaranteed, or insured by the United States (or by any agency or instrumentality thereof), and “(2) the amount of such loan so outstanding exceeds the adjusted basis of the property constituting security for such loan, then the earnings and profits of the corporation shall be increased by the amount of such excess, and (immediately after the distribution) shall be decreased by the amount of such excess. For purposes of paragraph (2), the adjusted basis of the property at the time of distribution shall be determined without regard to any adjustment under section 1016(a)(2) (relating to adjustment for depreciation, etc.). For purposes of this subsection, a commitment to make, guarantee, or insure a loan shall be treated as the making, guaranteeing, or insuring of a loan.” (D) Section 312(j)(3) (relating to foreign investment companies), as redesignated by subsection (b)(32)(B)(i), is amended to read as follows: “(3) Partial liquidations and redemptions.— If a foreign investment company (as defined in section 1246) distributes amounts in partial liquidation or in a redemption to which section 302(a) or 303 applies, the part of such distribution which is properly chargeable to earnings and profits shall be an amount which is not in excess of the ratable share of the earnings and profits of the company accumulated after February 28, 1913, attributable to the stock so redeemed.” (44) Amendment of section 333.— Section 333(a)(1) (relating to election as to recognition of gain in certain liquidations) is amended by striking out “on or after June 22, 1954”. (45) Amendment of section 334.— Section 334(b)(2)(A) (relating to liquidation of subsidiary) is amended to read as follows: “(A) the distribution is pursuant to a plan of liquidation adopted not more than 2 years after the date of the transaction described in subparagraph (B) (or, in the case of a series of transactions, the date of the last such transaction); and”. (46) Amendments of section 337.— (A) Section 337(a) (relating to nonrecognition of gain or loss on certain liquidations) is amended to read as follows: “(a) General Rule.— If, within the 12month period beginning on the date on which a corporation adopts a plan of complete liquidation, all of the assets of the corporation are distributed in complete liquidation, less assets retained to meet claims, then no gain or loss shall be recognized to such corporation from the sale or exchange by it of property within such 12month period.” (B) The first sentence, of section 337(d) (relating to certain minority stockholders) is amended by striking out “on or after January 1, 1958”. (47) Repeal of section 342.— Section 342 (relating to the liquidation of certain foreign personal holding companies) is repealed. (48) Amendments of section 351.— (A) Section 351(a) (relating to transfer to corporation controlled by transferor) is amended by striking out “(including, in the case of transfers made on or before June 30, 1967, an investment company)”. (B) Section 351(d) (relating to application of June 30, 1967, date) is amended to read as follows: “(d) Exception.— This section shall not apply to a transfer of property to an investment company.” (C) The amendments made by this paragraph shall take effect with respect to transfers of property occurring after the date of the enactment of this Act. (49) Repeal of section 363.— Section 363 (a cross reference to 26 USC 363. other sections) is repealed. (50) Amendments of section 371.— Section 371 (a)(1) (relating 26 USC 371. to certain reorganization exchanges by corporations) is amended— (A) by striking out “49 Stat. 922;” and (B) by striking out “(52 Stat. 883–905; 11 U.S.C., chapter 10) or the corresponding provisions of prior law” and inserting in lieu thereof “(11 U.S.C. 501 and following)”. (51) Amendment of section 372.— Section 372(a) (relating 26 USC 372. to basis in connection with bankruptcy proceedings) is amended by striking out “54 Stat. 709;”. (52) Repeal of section 373.— Section 373 (relating to nonrecognition 26 USC 373. of loss in certain railroad reorganizations) is repealed. (53) Amendment of section 374 .— Section 374(a)(1) (relating 26 USC 374. to non recognition of gain or loss in certain railroad reorganizations) is amended by striking out “49 Stat. 922;”. (54) Amendment of section 381.— Section 381 (c) (relating to 26 USC 381. items carried over in certain corporate acquisitions) is amended by striking out paragraph (20). (55) Repeal of sections 391 through 395.— Subchapter C of 26 USC 391–395. chapter 1 (relating to corporate distributions and adjustments) is amended by striking out part VII (relating to effective dates of subchapter C). (56) Amendments of section 401.— (A) Paragraphs (12) and (13) of section 401(a) (relating 26 USC 401. to requirements for qualification) are each amended by striking out “the date of the enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu thereof “September 2, 1974”. (B) Paragraph (15) of section 401(a) is amended by striking out “the date of the enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu 29 USC 1001 note. thereof “September 2, 1974,”. (C) Paragraph (19) of section 401(a) is amended by striking out “enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu thereof “September 2, 1974”. (D) The last sentence of section 401(a) is amended to read as follows: “Paragraphs (11), (12), (13), (14), (15), (19), and (20) shall apply only in the case of a plan to which section 411 (relating to minimum vesting standards) applies without regard to subsection (e)(2) of such section.” (57) Amendments of section 402.— (A) Section 402(a)(4) (relating to distributions made to 26 USC 402. nonresident alien individuals) is amended by striking out “basic salary” each place it appears therein and inserting in lieu thereof “basic pay”, and by amending the last sentence in such paragraph to read as follows: “In the case of distributions under the civil service retirement laws, the term ‘basic pay’ shall have the meaning provided in section 8331(3) of title 5, United States Code.” (B) Section 402 (relating to taxability of beneficiary of employees’ trusts) is amended by striking out subsection (d) (relating to certain trust agreements made before October 21, 1942), (C) (i) So much of the third sentence of section 402(e)(4) 26 USC 402. (A) (relating to definition of lump sum distributions) as precedes “a distribution of an annuity contract” is amended to read as follows: “Except for purposes of subsection (a)(2) and section 403(a)(2),”. (ii) The amendment made by clause (i) shall apply with respect to distributions or payments made after December 31, 1973, in taxable years beginning after such date. (58) Amendment of section 403.— The last two sentences of section 403(a)(4) (relating to taxation of employee annuities) are amended to read as follows: “For purposes of this title, a transfer described in subparagraph (B)(1) shall be treated as a rollover contribution described in section 408(d)(3). Subparagraph (B)(ii) does not apply in the case of a transfer to an employees’ trust, or annuity plan if any part of a payment described in subparagraph (A) is attributable to an annuity plan under which the employee was an employee within the meaning of section 401(c)(1) at the time contributions were made on his behalf under the plan.” (59) Amendment of section 404.— Section 404 (relating to deduction for contributions to pension plans, etc.) is amended by striking out subsection (d) (relating to carryover of pre–1954 unused deductions). (60) Amendment of section 409.— Section 409(b)(3)(C) (relating to tax-free rollovers of individual retirement bonds) is amended by striking out “section 403(d)(3).” and inserting in lieu thereof “section 408 (d)(3).” (61) Amendments of section 410.— (A) Subparagraphs (C) and (D) of section 410(a)(5) (relating to breaks in service) are each amended by striking out “purposes of subsection (a)(1)” and inserting in lieu thereof “purposes of paragraph (1)”. (B) Paragraph (1)(C) of section 410(c) (relating to application of minimum participation standards) is amended by striking out “the date of the enactment of the Employee 29 USC 1001 note. Retirement Income Security Act of 1974” and inserting in lieu thereof “September 2, 1974,”. (C) Paragraph (2) of section 410(c) is amended by striking out “the day before the date of the enactment of this section” and inserting in lieu thereof “September 1, 1974”. (62) Amendments of section 411.— (A) Subsection (a) of section 411 (relating to minimum vesting standards) is amended by striking out “subsection (a)(8)” and inserting in lieu thereof “paragraph (8)”. (B) Subsection (a)(3)(D)(iii) of section 411 is amended— (i) by striking out “the date of the enactment of the Employee Retirement Income Security Act of 1974” and “the date of the enactment of such Act” and inserting in lieu thereof in both such places “September 2, 1974”, and (ii) by striking out “the date of the enactment of the Act” and inserting in lieu thereof “September 2, 1974,”. (C) The heading for subparagraph (C) of section 411 (a)(7) is amended to read as follows: “(C) Repayment of subparagraph (b) distributions.—” (D) Subsection (b)(1)(D)(i) and (e)(1)(C) of section 411 are each amended by striking out “the date of the enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu thereof “September 2, 1974”. 29 USC 1001 note. (E) Subsection (e)(2) of section 411 is amended by striking out “the date before the date of the enactment of the Employee Retirement Income Security Act of 1974” and 26 USC 411. inserting in lieu thereof “September 1, 1974”. (63) Amendments of section 412.— (A) Subsection (h) of section 412 (relating to minimum 26 USC 412. funding standards) is amended by striking out “the day before the date of the enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu thereof “September 1, 1974”. (B) Subsection (h)(5) of section 412 is amended by striking out “the date of the enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu thereof “September 2, 1974”. (64) Amendments of section 414.— (A) The heading for section 414(f) (relating to multi-employer 26 USC 414. plans) is amended to read as follows: ‘(f) Multiemployer Plan.—” (B) Section 414(1) (relating to mergers and consolidations of plans or transfers of plan assets) is amended by striking out “the date of the enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu thereof “September 2, 1974”. (65) Amendments of section 415.— (A) Section 415(b)(2)(A) (relating to adjustments for 26 USC 415. certain forms of benefits) is amended by striking out “and 409(b)(3)(C)” and inserting in lieu thereof “and 409(b)(3)(C))”. (B) Section 415(b)(2)(B) is amended by striking out “(as defined in section 401(a)(11)(II)(iii))” and inserting in lieu thereof “(as defined in section 401 (a)(11)(G)(iii))”. (66) Amendments of section 453.— (A) Section 453(c)(3) (relating to adjustment in tax for 26 USC 453. amounts previously taxed) is amended by striking out “corresponding provisions of the Internal Revenue Code, of 1939” and inserting in lieu thereof “corresponding provisions of the Internal Revenue Code of 1954”. (B) Section 453(d)(4)(B) (relating to liquidations to which section 337 applies) is amended by striking out “or section 617(d)(1)” and inserting in lieu thereof “, 617(d)” (67) Amendment of section 455.— Section 455(c)(3)(B) 26 USC 455. (relating to prepaid subscription income) is amended by striking out “for his first taxable year (i) which begins after December 31, 1957, and (ii) in which he receives prepaid subscription income in the trade or business” and inserting in lieu thereof “for his first taxable year in which he receives prepaid subscription income in the trade or business”. (68) Amendment of section 458.— Section 456(c)(3)(B) 26 USC 456. (relating to election without consent with respect to treatment of prepaid dues) is amended by striking out “for its first taxable year (i) which begins after December 31, 1960, and (ii)” and inserting in lieu thereof “for its first taxable year”. (69) Amendments of section 461.— (A) Section 461(c) (relating to accrual of real property taxes) is amended by striking out paragraph (2) and by redesignating paragraph (3) as paragraph (2). (B) Section 461(c)(2) (relating to elections without consent), as redesignated by subparagraph (A), is amended by striking out “his first taxable year which begins after December 31, 1953, and ends after the date of enactment of this title in which the taxpayer” and inserting in lieu thereof “his first taxable year in which he”. (70) Amendments of section 481.— (A) Section 481(b) (relating to limitation on tax where substantial adjustments are required by a change in accounting method) is amended by striking out paragraphs (4), (5), and (6) (relating to pre–1954 adjustments). (B) Section 481(b)(1) and (2) are each amended by striking out “, other than the amount of such adjustments to which paragraph (4) or (5) applies,” each place it appears. (71) Amendments of section 508.— (A) Subsections (a) and (b) of section 508 (relating to special rules relating to 501(c)(3) organizations) are each amended by striking out the hist sentence therein. (B) Section 508(e)(2) (relating to special rules for existing private foundations) is amended by striking out subparagraph (A) (relating to taxable years beginning before 1972), by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively, and by striking out “(B)” in subparagraph (B)(as so redesignated) and inserting in lieu thereof “(A)”. (C) Section 508(d)(2)(A) (relating to disallowance of deductions for certain charitable gifts or bequests) is amended by striking out “(e)(2)(B) and (C)” and inserting in lieu thereof “(e)(2)”. (72) Amendments of section 514.— (A) Section 514(c)(1) (relating to definition of acquisition indebtedness) is amended by striking out the comma at the end of subparagraph (C) and all that follows, and inserting in lieu thereof a period. (B) Section 514 (relating to unrelated debt-financed income) is amended by striking out subsection (f) (relating to definition of business lease), by striking out subsection (g) (relating to definition of business lease indebtedness), and by redesignating subsection (h) as subsection (f). (C) Section 514(b)(3)(C)(iii) (relating to definition of debt-financed property) is amended to read as follows: “(iii) shall not apply to property subject to a lease which is a business lease (as defined in this section immediately before the enactment of the Tax Reform Act of 1976).” (D) Section 514(f) (relating to personal property leased with real property), as redesignated by subparagraph (B) of this paragraph, is amended by striking out “and the term ‘premises’ include” and inserting in lieu thereof “includes”. (73) Amendments of section 534.— (A) Section 534(b) (relating to mailing notices of deficiency) is amended by striking out the last sentence, (B) Subsection (e) of section 534 (relating to effective date of section) is repealed. (74) Amendment of section 533.— Section 535(b)(1) (relating 26 USC 535. to adjustments in computing accumulated taxable income) is amended by striking out “(other than the excess profits tax imposed by subchapter E of chapter 2 of the Internal Revenue Code of 1939 for taxable years beginning after December 31, 1940)”. (75) Amendments of section 537.— (A) Section 537(b)(2) (relating to definition of excess 26 USC 537. business holdings redemption needs) is amended by striking out “, with respect to taxable years of the corporation ending after May 26, 1969,”. (B) Section 537(b)(4) (relating to inferences as to prior years) is amended by striking out “or (2)”. (76) Amendments of section 542.— (A) Section 542(a)(2) (relating to definition of personal 26 USC 542. holding company) is amended by striking out the last sentence. (B) Section 542(b)(2) (relating to ineligible affiliated group) is amended by striking out “, other than an affiliated group of railroad corporations the common parent of which would be eligible to file a consolidated return under section 141 of the Internal Revenue Code of 1939 prior to its amendment by the Revenue Act of 1942,”. (C) Section 542(c)(2) (relating to financial institutions) is amended by striking out “without regard to subparagraphs (D) and (E) thereof”, (D) Section 542(c)(8) (relating to small business investment companies) is amended by inserting after “Small Business Investment Act of 1958” the following: “(15 U.S.C. 661 and following)”. (77) Amendments of section 545.— (A) Section 545(b)(1) (relating to deduction of taxes in 26 USC 545. computing undistributed personal holding company income) is amended— (i) in the first sentence, by striking out “(other than the excess profits tax imposed by subchapter E of chapter 2 of the Internal Revenue Code of 1939 for taxable years beginning after December 31, 1940)”; and (ii) by striking out the last two sentences (relating to deduction of taxes). (B) Section 545(b) (relating to adjustments in computing undistributed personal holding company income) is amended by striking out paragraph (7) (relating to payment of indebtedness incurred before 1934). (C) Section 545(c)(2)(A) (relating to corporations to which special adjustment applies) is amended by striking out “the date of enactment of this subsection” and inserting in lieu thereof “February 26, 1964”. (78) Amendment of section 547.— Section 547 (relating to the 26 USC 547. deduction of deficiency dividends) is amended by striking out subsection (h) (relating to the effective date). ‘ (79) Amendment of section 551.— Section 551(c) (relating to 26 USC 551. foreign personal holding company income tax returns), as redesignated by subsection (b)(1)(F) of this section, is amended by striking out “taxable income, foreign personal holding com-pany,” and inserting in lieu thereof “taxable income, foreign personal holding company income,”. (80) Amendment of section 554.— The first sentence of section 556(b)(1) (relating to deduction of taxes in computing undistributed foreign personal holding company income) is amended by striking out “(other than the excess profits tax imposed by subchapter E of chapter 2 of the Internal Revenue Code of 1939 for taxable years beginning after December 1, 1940)”. (81) Amendment of section 584.— Section 564 (relating to dividend carryovers) is amended by striking out subsection (c) (relating to carryovers from pre–1954 years). (82) Repeal of section 583.— Section 583 (relating to deduction of dividends paid on certain preferred stock by banks or trust companies) is repealed. (83) Repeal of section 592.— Section 592 (relating to the deduction by mutual savings banks for repayment of certain loans) is repealed. (84) Amendments of section 593.— (A) Section 593(b)(2) (relating to additions to bad debt reserves for mutual savings banks, etc.) is amended by striking out, in the table in subparagraph (A), the following: “1969 60 percent 1970 57 percent 1971 54 percent 1972 51 percent 1973 49 percent 1974 47 percent 1975 45 percent” (B) Section 593(c) (relating to reserves for mutual savings banks) is amended by striking out paragraphs (2), (3), (4), and (5), by redesignating paragraph (6) as paragraph (3), and by inserting immediately after paragraph (1) the following: “(2) Certain pre-1963 reserves.— Notwithstanding the second sentence of paragraph (1), any amount allocated pursuant to paragraph (5)(as in effect immediately before the enactment of the Tax Reform Act of 1976) during a taxable year beginning before January 1, 1977, to the reserve for losses on qualifying real property loans out of the surplus, undivided profits, and bad debt reserves (determined as of December 31, 1962) attributable to the period before the first taxable year beginning after December 31, 1951, shall not be treated as a reserve for bad debts for any purpose other than determining the amount referred to in subsection (b)(1)(B), and for such purpose such amount shall be treated as remaining in such reserve.” (C) Section 593 is amended by striking out subsection (d) (relating to taxable years beginning in 1962 and ending in 1963), and by redesignating subsections (e) and (f) as subsections (d) and (e),respectively. (D) Section 593(b)(2)(E)(1) is amended by striking out “subsection (f)” and inserting in lien thereof “subsection (e)”- (85) Repeal of section 601.— Subchapter H of chapter 1 relating to 26 USC 601. banking institutions) is amended by striking out part III (relating to special deduction for bank affiliates). (86) Amendments of section 613a.— (A) Section 613A(b)(1)(C) (relating to exemption for 26 USC 613A. certain domestic gas wells) is amended by striking out “within the meaning of section 613(b)(1)(A)”. (B) Section 613A(c)(6)(i) (relating to limitations on percentage depletion in case of oil and gas wells) is amended by striking out “determined with” and inserting in lieu thereof “determined without”. (87) Amendments of section 614.— (A) (i) Section 614(c) (relating to aggregation of mineral 26 USC 614. interests in mines) is amended by striking out paragraph (4) (relating to special rule as to exploration deductions prior to aggregation). (ii) The amendment made by clause (i) shall apply with 26 USC 614 note. respect to elections to form aggregations of operating mineral interests made under section 614(c)(1) of the Internal Revenue Code of 1954 for taxable years beginning after December 31, 1976. (B) The third sentence of section 614(c)(2) (relating to election to treat a single interest as more than one property) is amended to read as follows: “A separate property so formed may, under regulations prescribed by the Secretary, be included as a part of an aggregation in accordance with paragraphs (1) and (3).” (C) Section 614(c)(3) (relating to manner and scope of election) is amended to read as follows: “(3) Manner and scope of election.— The elections provided by paragraphs (1) and (2) shall be made, in accordance with regulations prescribed by the Secretary, not later than the time prescribed for filing the return (including extensions thereof) for the first taxable year— “(A) in which, in the ease of an election under paragraph (1), any expenditure for development or operation in respect of the separate operating mineral interest is made by the taxpayer after the acquisition of such interest, or “(B) in which, in the case of an election under paragraph (2), expenditures for development or operation of more than one mine in respect of a property are made by the taxpayer after the acquisition of the property. An election made under paragraph (1) or (2) for a taxable year shall be binding upon the taxpayer for such year and all subsequent taxable years, except that the Secretary may consent to a different treatment of any interest with respect to which an election has been made.” (88) Repeal or section 615.— Section 615 (relating to deduction 26 USC 615. of pre–1970 exploration expenses) is repealed. (89) Amendment of section 617.— Section 617(a)(2)(B) 26 USC 617. (relating to time and scope of election to deduct certain mining exploration expenditures) is amended by striking out. “may not be revoked after the last day of the third month following the month in which the final regulations issued under the authority of this subsection are published in the Federal Register“, unless” and inserting in lieu thereof “may not be revoked unless”. (90) Repeal of section 632.— Section 632 (relating to tax in 26 USC 632. case of sale of oil and gas properties) is repealed. (91) Amendment of section 691.— Section 691(c)(1)(B) 26 USC 691. (relating to deduction for estate tax) is amended by striking out the last sentence. (92) Amendment of section 692.— The heading of section 692 (relating to income taxes of members of Armed Forces who die in a combat zone) is amended by striking out “ON” the first time it appeals in the section heading and inserting in lieu thereof “OF”. (93) Amendment of section 751.— Section 751(c) (relating to unrealized receivables) is amended by striking out “1254(a), or 1250(a),” and inserting in lieu thereof “1245(a), 1250(a),”. (94) Repeal of section 771.— Part IV of subchapter K of chapter 1 (relating to effective date of subchapter K) is repealed. (95) Amendments of section 802.— (A) Section 802(a)(1) (relating to tax imposed on life insurance companies) is amended by striking out “beginning after December 31, 1957,”. (B) Section 802(a)(2) (relating to alternative tax in case of capital gains) is amended by striking out “beginning after December 31, 1961,”. (C) Section 802(a) is amended by striking out paragraph (3) (relating to special rules for 1959 and 1960). (96) Amendments of section 804.— (A) Section 804(a) is amended by sticking out paragraph (6) (relating to certain exceptions). (B) Section 804(b)(2) (relating to short-term capital gains) is amended by striking out “In the case of a taxable year beginning after December 31, 1958, the” and inserting in lieu thereof “The”. (97) Amendments of section 805.— (A) Section 805(b)(3)(B) (relating to average earnings rate) is amended to read as follows: “(B) Special rule.— For purposes of subparagraph (A), the current earnings rate for tiny taxable year of any company which, for such year, is an insurance company (but not a life insurance company) shall be determined as if this part applied to such company for such year.” (B) Section 805(b)(4)(B) (relating to basis of assets) is amended by striking out “(determined without regard to fair market value on December 31, 1958)”. (C) Section 805(d) (relating to pension plan reserves) is amended to read as follows: “(d) Pension Plan Reserves.— For purposes of this part, the term ‘pension plan reserves’ means that portion of the life insurance reserves which is allocable to contracts— “(1) purchased under contracts entered into with trusts which (as of the time the contracts were entered into) were deemed to be (A), trusts described in section 401(a) and exempt from tax under section 501(a), or (B) trusts exempt from tax under section 185 of the Internal Revenue Code of 1939 or the corresponding provisions of prior revenue laws; “(2) purchased under contracts entered into under plans which (as of the time the, contracts were entered into) were deemed to be plans described in section 403(a), or plans meeting the requirements of paragraphs (3), (4), (5), and (6) of section 165(a) of the Internal Revenue Code of 1939; “(3) provided for employees of the life insurance company under a plan which, for the taxable year, meets the requirements of paragraphs (3), (4), (5), (6), (7), (8), (11), (12), (13), (14), (15), (16), (19), and (20) of section 401(a); “(4) purchased to provide retirement annuities for its employees by an organization which (as of the time the contracts were purchased) was an organization described in section 501(c)(3) which was exempt from tax under section 501(a) or was an organization exempt from tax under section 101(6) of the Internal Revenue Code of 1939 or the corresponding provisions of prior revenue laws, or purchased to provide retirement annuities for employees described in section 403(b)(1)(A)(ii) by an employer which is a State, a political subdivision of a state, or an agency or instrumentality of any one or more of the foregoing; or “(5) purchased under contracts entered into with trusts which (at the time the contracts were entered into) were individual retirement accounts described in section 408(a) or under contracts entered into with individual retirement annuities described in section 408(b).” (98) Amendments of section 809.— (A) Section 809(b) (relating to definition of gain and loss 26 USC 809. from operations) is amended by striking out paragraph (4). (B) (i) Section 809(d) (relating to life insurance company deductions) is amended by striking out paragraph (11) relating to mutualization distributions before 1963), and by redesignating paragraph (12) as paragraph (11). (ii) Section 809(e) is amended by striking out “subsection (d)(12)” and inserting in lieu thereof “subsection (d)(11)”, (C) Section 809 (relating to computation of gain and loss from operations) is amended by striking out subsection (g) (relating to deduction for certain mutualization distributions before 1963). (99) Amendment of section 812.— Section 812(b)(1) (relating 26 USC 812. to years to which operating losses of an insurance company may be carried), other than the last sentence thereof, as added by section 806(d)(1)(A) of this Act, is amended to read as follows: “(1) Years to which loss may be carried.— The loss from operations for any taxable year (hereinafter in this section referred to as the ‘loss year’) shall be— “(A) an operations loss carryback to each of the 3 taxable years preceding the loss year, “(B) an operations loss carryover to each of the 5 taxable years following the loss year, and “(C) subject to subsection (e), if the life insurance company is a new company for the loss year, an operations loss carryover to each of the 3 taxable years following the 5 taxable years described in subparagraph (B).” (100) Amendments of section 817.— Section 817 (relating to 26 USC 817. rules applicable to certain gains and losses) is amended by striking out subsection (c) (relating to treatment of pre–1959 capital losses) and subsection (e) (relating to certain 1958 reinsurance transactions). (101) Amendment of section 818.— Section 818 (relating to 26 USC 818. life insurance accounting provisions) is amended by striking out subsection (e) (relating to certain rules applicable to taxable years 1957, 1958, and 1959). and by redesignating subsections (f) and (g) as subsections (e) and (f), respectively. (102) Amendments of section 819.— (A) The first sentence of section 819(a)(2)(A) (relating 26 USC 819. to definition of minimum figure for foreign life insurance companies) is amended to read as follows: “The minimum figure is the amount determined by multiplying the tax-payer’s total insurance liabilities on United States business by a percentage for the taxable year to be determined and proclaimed by the Secretary.” (B) The second sentence of section 819(a)(2)(A) is amended by striking out “under clause (ii)” and inserting in lieu thereof “under the preceding sentence”. (C) Clause (i) of section 819(b)(2)(B) (relating to distributions pursuant to certain mutualizations) is amended to read as follows: “(i) the minimum figure for 1958 determined under subsection (a)(2)(A) computed by using a percentage of 9 percent in lieu of the percentage determined and proclaimed by the Secretary, or”. (103) Amendments of section 820.— (A) Section 820(c) (relating to optional treatment of certain reinsured policies) is amended by striking out paragraph (6) (relating to reimbursement for 1957 income taxes), and by redesignating paragraph (7) as paragraph (6). (B) The last sentence of section 820(c) is amended by striking out “(5). and (6) and the rules prescribed under paragraph (7)” and inserting in lieu thereof “and (5) and the rules prescribed under paragraph (6)”. (104) Amendments of section 821.— (A) Section 821(a) (relating to imposition of tax on certain mutual insurance companies) is amended by striking out “beginning after December 31, 1963,”. (B) Section 821(c)(1) (relating to alternative tax for certain small insurance companies) is amended by striking out “In the ease of taxable years beginning after December 31, 1963. there is” and inserting in lieu thereof “There is”. (C) Section 821 (relating to tax on certain mutual insurance companies) is amended by striking out subsection (e) (relating to 1962 transitional rules) and by redesignating subsection (f) as subsection (e). (105) Amendments of section 822.— (A) Section 822(c)(5) (relating to deduction of interest) is amended by striking out “(other than obligations of the United States issued after September 24, 1917, and originally subscribed for by the taxpayer)”. (B) The last sentence of section 822(d)(2) (relating to amortization of premium and accrual of discount) is amended by striking out “For taxable years beginning after December 31, 1962. no accrual” and inserting in lieu thereof “No accrual”. (106) Amendments of section 825.— Section 825(g) (relating to unused loss deduction of certain insurance companies) is amended by striking out paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively. (107) Amendment of section 831.— Section 831(a) (relating to tax on certain insurance companies) is amended by striking out “or the taxable income” and inserting in lieu thereof “on the taxable income.” (108) Amendments of section 832.— Paragraphs (1) and (6) of section 832(b)(definitions relating to insurance company taxable income) are each amended by striking out “Convention” and inserting in lieu thereof “Association”. (109) Amendments of section 851.— (A) Section 851(a)(1) (relating 26 USC 851. to definition of regulated investment company) is amended by striking out “54 Stat. 789;”. (B) Section 851(b)(1) (relating to regulated investment companies) is amended by stinking out “which began after December 31, 1941”, (110) Amendments of section 852.— (A) Subparagraph (C) of section 852(b)(3) (relating to 26 USC 852. method of taxation of regulated investment companies and their shareholders) is amended by striking out the third sentence. (B) (i) Section 852(b)(3)(D)(iii) is amended by striking out “by 75 percent of so much of such amounts as equals the amount subject to tax in accordance with section 1201 (a)(1)(A) and by 70 percent (72 percent in the case of a Post, p, 1786. taxable year beginning after December 31, 1969, and before January 1, 1971) of so much of such amounts as equals the amount subject to tax in accordance with section 1201(a)(1)(B) or (2)” and inserting in lieu thereof “by 70 percent of so much of such amounts as equals the amount subject to tax in accordance with section 1201(a)”. (ii) The amendment made by clause (i) shall not be considered 26 USC 852 note. to affect the amount of any increase in the basis of stock under the provisions of section 852(b)(3)(D)(iii) of the Internal Revenue Code of 1954 which is based upon amounts subject to tax under section 1201 of such Code in taxable years beginning before January 1, 1975. (C) Section 852(d) is amended by inserting after “Investment Company Act of 1940” the following: “(15 U.S.C. 80a–l and following)”. (111) Amendments of section 856.— (A) Section 856(c)(1) (relating to real estate investment 26 USC 856. trusts) is amended by striking out “which began after December 31, 1960”. (B) Section 856(c)(6)(D) (relating to definition of other terms) is amended by inserting after “Investment Company Act of 1940, as amended” the following: “(15 U.S.C. 80a–1 and following)”. (112) Amendment of section 857.— Section 857(b)(3)(C) 26 USC 857. (relating to the taxation of capital gains in the case of real estate investment trusts) is amended by striking out the last sentence. (113) Amendments of section 864.— (A) Subsection (a) of section 864 (definitions relating to 26 USC 864. determinations of sources of income) is amended to read as follows: “(a) Produced.— For purposes of this part, the term ‘produced’ “Produced.” includes created, fabricated, manufactured, extracted, processed, cured, or aged.” (B) Clauses (i) and (iii) of section 864(c)(4)(B) and subparagraph (C) of section 864(c)(5) (relating to effectively connected income) are each amended by striking out “sale” each place it appears and inserting in lieu thereof “sale or exchange”. (C) Section 864(c)(4)(B)(iii) (relating to effectively connected income) is amended by striking out “sold” and inserting in lieu thereof “sold or exchanged”. (114) Amendment of section 905.— Section 905(b) (relating to proof of foreign tax credits) is amended by striking out the last sentence (relating to the treatment of certain royalty payments). (115) Amendment of section 911.— Section 911(c) (relating to earned income from sources without the United States) is amended by striking out paragraph (7) (relating to taxable years ending in 1963, 1964, or 1965). (116) Amendment of section 921.— Section 921 (relating to definition of Western Hemisphere Trade Corporation) is amended by striking out the last sentence, (relating to taxable years before 1954). (117) Amendments of section 931.— Section 931 (relating to income from sources within possession) is amended by striking out subsection (h) (relating to certain persons taken as prisoners of war while working in a possession), and by redesignating subsection (i) as subsection (h). (118) Amendment of section 934.— Section 934(b) (relating to gross income received by a corporation from the Virgin Islands) is amended by striking out the last sentence. (119) Amendment of section 951.— Section 951 (a)(1) (relating to treatment, of subpart F income) is amended by striking out “beginning after December 31, 1962”. (120) Repeal of section 972.— Section 972 (relating to consolidation of export trade corporations) is repealed. (121) Amendment of section 1001.— Section 1001(c) (relating to recognition of gain or loss) is amended to read as follows: “(c) Recognition of Gain or Loss.— Except as otherwise provided in this subtitle, the entire amount of the gain or loss, determined under this section, on the sale or exchange of property shall be recognized.” (122) Amendments of section 1015.— (A) Subparagraph (A) of section 1015(d)(1) (relating to increased ‘basis for gift tax paid) is amended by striking out “the date of the enactment of the Technical Amendments Act of 1958” and inserting in lieu thereof “September 2, 1958”. (B) Subparagraph (B) of section 1015(d)(1) is amended by striking out “the date of the enactment of the Technical Amendments Act of 1958” and inserting in lieu thereof “September 2, 1958,”. (123) Amendment of section 1016.— Section 1016(a) (relating to adjustments to basis) is amended by striking out paragraph (19). (124) Amendment of section 1018.— Section 1018 (relating to adjustment of capital structure before September 22, 1938) is amended by striking out “54 Stat. 709;”. (125) Repeal of section 1020.— Section 1020 (relating to election in respect of depreciation allowed before 1952) is repealed. (126) Repeal of section 1022.— (A) Section 1022 (relating to the basis of certain foreign personal holding company stock) is repealed. (B) The repeal made by subparagraph (A) shall apply with respect to stock or securities acquired from a decedent dying after the date of the enactment of this Act. (127) Amendment of section 1024.— Section 1024 (containing cross references) is amended by striking out paragraph (4). (128) Amendments of section 1033.— (A) Section 1033(a) (relating to involuntary conversions) 26 USC 1033. is amended by striking out paragraph (2) and by redesignating paragraph (3) as paragraph (2). (B) Section 1033(a)(2) (relating to conversion into money), as redesignated by subparagraph (A) of this paragraph and as amended by this Act, is amended— (i) by striking out “where disposition occurred after 1950” in the paragraph heading; (ii) by striking out “(g)” each place it appears and inserting in lieu thereof “(h)”; (iii) by striking out “and the disposition of the converted property (as defined in paragraph (2)) occurred after December 31, 1950,” in the text; and (iv) by adding at the end thereof the following new subparagraph: “(E) Definitions.— For purposes of this paragraph— “(i) Control.— The term ‘control’ means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation. “(ii) Disposition of the converted property.— The term ‘disposition of the converted property’ means the destruction, theft, seizure, requisition, or condemnation of the converted property, or the sale or exchange of such property under threat or imminence of requisition or condemnation.” (C) Section 1033 (relating to involuntary conversions) is amended by striking out subsection (b) (relating to certain conversions occurring before 1954) and by redesignating subsections (c), (d), (e), (f), (g), and (h), as subsections (b), (c), (d), (e), (f), and (g), respectively. (D) The first sentence of section 1033(b) (relating to basis of a property acquired through involuntary conversions), as redesignated by subparagraph (G) of this paragraph, is amended by striking out “or (2)” and inserting in lieu thereof “or section 112(f)(2) of the Internal Revenue Code of 1939”. (E) Section 1033(f)(2) (relating to condemnation of real property), as redesignated by subparagraph (C) of this paragraph, is amended to read as follows: “(2) Limitation.— Paragraph (1) shall not apply to the purchase of stock in the acquisition of control of a corporation described in subsection (a)(2)(A).” (F) Section 1033(g)(4) (relating to condemnation of real property), as amended by section 2140(a) of this Act, is amended by striking out “(a)(3)(B)(i)” and inserting in lieu thereof“(a)(2)(B)(i)”. (129) Amendments of section 1034.— (A) Section 1034(a) (relating to gain on sale of residence) 26 USC 1034. is amended by striking out “after December 31, 1953,”. (B) Section 1034(b)(defining adjusted sales price) is amended by striking out paragraph (3) (relating to effective date of subsection (b)). (C) Section 1034(d) (relating to certain limitations) is amended by striking out “or section 112 (n) of the Internal Revenue Code of 1939”. (D) Section 1034(i) (relating to involuntary conversions) is amended to read as follows: “(ii) Special Rule for Condemnation.— In the case of the seizure, requisition, or condemnation of a residence, or the sale or exchange of a residence under threat or imminence thereof, the provisions of this section, in lieu of section 1033 (relating to involuntary conversions), shall be applicable if the taxpayer so elects. If such election is made, such seizure, requisition, or condemnation shall be treated as the sale of the residence. Such election shall he made at such time and in such manner as the Secretary shall prescribe by regulations.” (E) Section 1034(j) (relating to statute of limitations) is amended by striking out “after December 31, 1950,”. (130) Amendment of section 1037.— Section 1037(b)(1) (relating to certain exchanges of United States obligations) is amended by striking out “section 1232(a)(2)(A)” and inserting in lieu thereof “section 1232 (a)(2) (B)”. (131) Amendment of section 1051.— Section 1051 (relating to property acquired before 1929 during affiliation) is amended by striking out the last two sentences. (132) Amendments of section 1081.— (A) Subsection (e) of section 1081 (relating to distributions required by the SEC) is amended to read as follows: “(c) Distribution of Stock or Securities Only.— If there is distributed, in obedience to an order of the Securities and Exchange Commission, to a shareholder in a corporation which is a registered holding company or a majority-owned subsidiary company, stock or securities (other than stock or securities which are nonexempt property), without the surrender by such shareholder of stock or securities in such corporation, no gain to the distributee from the receipt of the stock or securities so distributed shall be recognized.” (B) Section 1081(f) (relating to conditions for application of section) is amended by striking out “Except in the case of a distribution described in subsection (c)(2), the provisions” and inserting in lien thereof “The provisions”, and by striking out “49 Stat. 820;”. (C) Section 1081(g) (relating to applicability of other provisions) is amended by striking out “If a distribution described in subsection (c)(2). or an” and inserting in lieu thereof “If an”, and by striking out the comma after “Commission”. (133) Amendments of section 1083.— (A) Section 1083(a) is amended by striking out “49 Stat. 820;”. (B) Section 1083(b) is amended by striking out “49 Stat. 804;”. (C) Section 1083(e)(4) is amended by striking out “49 Stat. 820;”. (134) Repeal of section 1111.— Part IX of subchapter O of chapter 1 (relating to distributions pursuant to orders enforcing the antitrust laws) is repealed. (135) Amendments of section 1201.— (A) Section 1201(a) (relating to the alternative tax on capital gain) is amended to read as follows: “(a) Corporations.— If for any taxable year a corporation has a net capital gain, then, in lien of the tax imposed by sections 11. 511, 821 (a) or (c) and 831(a), there is hereby imposed a tax (if such tax is less than the tax imposed by such sections) which shall consist of the sum of— “(1) a tax computed on the taxable income reduced by the amount of the net capital gain, at the rates and in the manner as if this subsection had not been enacted, plus “(2) a tax of 30 percent of the net capital gain.” (B) Section 1201(c) (relating to computation of alternative 26 USC 1201. tax) is amended to read as follows: “(c) Computation of Tax Where Capital Gain Exceeds $50,000.— The tax computed for purposes of subsection (b)(3) shall be the amount by which a tax determined under section 1 or 511 on an amount equal to the taxable income (but not less than 50 percent of the net capital gain) for the taxable year exceeds a tax determined under section 1 or 511 on an amount, equal to the sum of (A) the amount subject to tax under subsection (b)(1) plus (B) an amount equal to 50 percent of the sum referred to in subsection (b)(2)(A).” (C) (i) Section 1201 is amended by striking out subsection (d)(defining subsection (d) gain) and by redesignating subsection (e) as subsection (d). (ii) Section 1201(b)(2)(A) (relating to alternative tax on noncorporate taxpayers) is amended by striking out “the amount of the subsection (d) gain” and inserting in lieu thereof “the sum of the long-term capital gains for the taxable year, but not to exceed $50,000 ($25,000 in the case of a married individual filing a separate return)”. (iii) Section 1201(b)(3) is amended by striking out “the amount of the subsection (d) gain” and inserting in lieu thereof “the sum referred to in subparagraph (A)”. (136) Amendments of section 1222.— (A) Paragraph (9) of section 1222 (relating to definition 26 USC 1222. of terms applicable to capital gains and losses) is amended to read as follows: “(9) Capital gain net income.— The term ‘capital gain net income’ means the excess of the gains from sales or exchanges of capital assets over the losses from such sales or exchanges.” (B) Paragraph (11) of section 1222 (relating to definition of terms applicable to capital gains and losses) is amended to read as follows: “(11) Net capital gain.— The term ‘net capital gain’ means “Net capita] gain.” the excess of the net long-term capital gain for the taxable year over the net short-term capital loss for such year.” (137) Amendment of section 1233.— Section 1283((3) (relating 26 USC 1233. to certain options to sell) is amended by striking out “the date of enactment of this title” and inserting in lieu thereof “August 16, 1954”. (138) Amendment of section 1237.— Section 1237 (relating 26 USC 1237. to real property subdivided for sale) is amended by striking out subsection (d) (relating to effective date). (139) Repeal of section 1240.— Section 1240 (relating to taxability 26 USC 1240. to employee of certain termination payments) is repealed. (140) Amendment of section 1245.— Section 1245(b)(7)(B) 26 USC 1245. (relating to transfers to tax-exempt organization where property will be used in unrelated business) is amended by striking out “such organization acquiring such property,”. (141) Amendment of section 1246.— Section 1246(f) (relating 26 USC 1246. to gain on foreign investment company stock) is amended by striking out “beginning after December 31, 1962”. (142) Amendment of section 1311.— Paragraphs (2)(A), (2)(B), and (3) of section 1311(b) (relating to mitigation of effect of limitations) are each amended by striking out “Tax Court of the United States” and inserting in lieu thereof “Tax Court”. (143) Repeal of section 1315.— Section 1315 (relating to effective date of part II of subchapter Q of chapter 1) is repealed. (144) Repeal of section 1321.— Part III of subchapter Q of chapter 1 (relating to involuntary liquidation of LIFO inventories) is repealed. (145) Repeal of sections 1331 through 1337.— (A) Part IV of subchapter Q of chapter 1 (relating to war loss recoveries) is repealed. (B) The repeal by subparagraph (A) shall apply with respect to war loss recoveries in taxable years beginning after December 31, 1976. (146) Amendment of section 1341.— Section 1341(b)(2) (relating to claim of right) is amended by striking out the last sentence. (147) Repeal of section 1342.— Section 1342 (relating to computation of tax on certain amounts recovered as a result of a patent infringement suit) is repealed. (148) Repeal of section 134A.— Section 1346 (relating to recovery of unconstitutional Federal taxes) is repealed. (149) Amendments of section 1372.— (A) Section 1372(b)(1) (relating to effect of election under subchapter S) is amended by striking out “(other than the tax imposed by section 1378)” and inserting in lieu thereof “(other than as provided by section 58(d)(2) and by section 1378)”. (B) Section 1372(c) (relating to subchapter S elections by small business corporations) is amended to read as follows: “(c) Where and How Made.— An election under subsection (a) may be made by a small business corporation for any taxable year at any time during the first month of such taxable year, or at any time Regulations. during the month preceding such first month. Such election shall be made in such manner as the Secretary shall prescribe by regulations.” (C) Section 1372 is amended by striking out subsection (g) (relating to certain elections for years beginning before 1961). (150) Amendments of section 1374.— (A) Section 1374(b) (relating to net operating losses of subchapter S corporations) is amended by adding at the end thereof the following new sentence: “The deduction allowed by this subsection shall, for purposes of this chapter, be considered as a deduction attributable to a trade or business carried on by the shareholder.” (B) Subsection (d) of section 1374 (relating to treatment of net operating losses of subchapter S corporations) is repealed. (151) Amendments of section 1375.— (A) The heading of subsection (b) of section 1375 is amended by striking out “Received Credit Not Allowed” and inserting in lieu thereof “Not Treated as Such for Certain Purposes”. (B) Section 1375 (f) (relating to elections as to certain distributions) is amended by striking out paragraph (3). (152) Amendment of section 1378.— Section 1378(b) (relating 26 USC 1378. to the taxation of capital gain in the case of electing small business corporations) is amended by striking out the last sentence. (153) Amendments of section 1388.— (A) Section 1388(c)(2)(B)(i) (relating to patronage 26 USC 1388. dividends) is amended by striking out “the date of the enactment of the Revenue Act of 1962” and inserting in lieu thereof “October 16, 1962”. (B) Section 1388(h)(2)(B)(i) (relating to perunit retain certificates) is amended by striking out “the date of the enactment of Ibis subsection” and inserting in lieu thereof “November 13, 1966”. (154) Amendments of section 1401.— (A) Section 1401(a) (relating to rate of tax on self-employment 26 USC 1401. income) is amended to read as follows: “(a) Old-Age, Survivors, and Disability Insurance.— In addition to other taxes, there shall be imposed for each taxable year, on the self-employment income of every individual, a tax equal to 7.0 percent of the amount of the self-employment income for such taxable year.” (B) Section 1401(b) (relating to rate of tax on self-employment income for hospital insurance) is amended by striking out paragraphs (1) and (2) and by redesignating paragraphs (3), (4), (5), and (6), as paragraphs (1), (2), (3) and (4), respectively. (155) Amendments of section 1402.— (A) Paragraph (1) of section 1402(b) (relating to definition 26 USC 1402. of self-employment income) is amended to read as follows: “(1) that part of the net earnings from self-employment which is in excess of (i) an amount equal to the contribution and benefit base (as determined under section 230 of the Social Security Act) 42 USC 430. which is effective for the calendar year in which such taxable year begins, minus (ii) the amount of the wages paid to such individual during such taxable years; or”. (B) Section 1402 amended by striking out subsection (g) 26 USC 1402. (relating to treatment of self-employment income for years prior to 1962). and by redesignating subsections (h) and (i) as subsections (g) and (h). respectively. (C) Section 1402(g)(2) (relating to self-employment income, of members of certain religious faiths), as redesignated by subparagraph (B) of this paragraph, is amended to read as follows: “(2) Time for filing applications.— For purposes of this subsection, an application must be filed on or before the time prescribed for filing the return (including any extension thereof) for the first, taxable year for which the individual has self-employment income (determined without regard to this subsection or subsection (c)(6)), except that an application filed after such date but on or before the last day of the third calendar month following the calendar month in which the taxpayer is first notified in writing by the Secretary that a timely application for an exemption from the tax imposed by this chapter has not been filed by him shall be deemed to be filed timely.” (156) Repeal of section 1465.— Section 1465 (relating to definition 26 USC 1465. of withholding agent) is repealed. (157) Amendments of section 1481.— (A) Section 1481(a)(1)(A) (relating to mitigation of 26 USC 1481. effect of renegotiation of Government contracts) is amended by striking out “within the meaning of the Federal renegotiation act applicable to such transaction” and inserting in lieu thereof “within the meaning of the Renegotiation Act of 1951, as amended (50 U.S.C. App, 1211 and following)”. (B) Section 1481(a)(1) (relating to renegotiation) is amended by striking out subparagraph (D). (C) Subparagraphs (B) and (C) of section 1481(a)(1) are each amended by striking out “applicable Federal renegotiation act” and inserting in lieu thereof “Renegotiation Act of 1951, as amended”. (158) Amendment of section 1551.— Section 1551(a) (relating to disallowance of surtax exemption) is amended by striking out “determined under subjection (d)” and inserting in lieu thereof “determined under subsection (c)”. (159) Amendment of section 1552.— The first sentence of section 1552(a) (relating to earnings and profits of an affiliated group) is amended by striking out “beginning after December 31, 1953, and ending after the date of enactment of this title,”. (b) Conforming and Clerical Amendments.— (1) Amendments conforming to repeal of sections 35 and 242.— (A) Section 36, as amended by this Act, is amended by striking out “sections 32 and 35” and inserting in lieu thereof “section 32”. (B) Section 41(b)(2) is amended by striking out “section 35 (relating to partially tax-exempt interest)”. (C) Section 46(a)(3) is amended by striking out subparagraph (B), by inserting “and” at the end of subparagraph (A), and by redesignating subparagraph (C) as subparagraph (B). (D) Section 50A(a)(3) is amended by striking out subparagraph (B) and redesignating subparagraphs (C), (D), and (E), as subparagraphs (B), (C), and (D), respectively. (E) (i) The heading of paragraph (1) of section 171(a) is amended to read “(1) Taxable bonds.—”. (ii) The heading of paragraph (2) of section 171(a) is amended to read “(2) Tax-exempt bonds.—”, (iii) Section 171(a) is amended by striking out paragraph (3) and by redesignating paragraph (4) as paragraph (3). (iv) Section 171(b)(1)(B)(n) is amended by striking out “subsection (c)(1)(B)” and inserting in lieu thereof “subsection (a)(1)”. (v) So much of section 171(c) as precedes paragraph (2) is amended to read as follows: “(c) Election as to Taxable Bonds.— “(1) Eligibility to elect; bonds with respect to which election permitted.— In the case of bonds the interest on which is not excludable from gross income, this section shall apply only if the taxpayer has so elected.”, (F) (i) Section 551 is amended by striking out subsection (c), and by redesignating subsections (d), (e), (f), and (g), as subsections (c), (d), (e), and (f), respectively. (ii) Section 1016(a)(13) is amended by striking out “section 551(f)” and inserting in lieu thereof “section 551(e)”. (G) Section 584(c)(2) is amended to read as follows: “(2) Dividends received.— The proportionate share of each participant in the amount of dividends received by the common trust fund and to which section 116 applies shall be considered for purposes of such section as having been received by such participant.” (H) (i) Section 642(a) is amended by striking out paragraph 26 USC 642. (1), and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively. (ii) Section 41(d) is amended by striking out “section 26 USC 41. 642(a)(3)” and inserting in lieu thereof “section 642(a)(2)”. (iii) Section 901(g)(3), as amended by this Act, is 26 USC 901. amended by striking out “section 642(a)(2)” and inserting in lieu thereof “section 642(a)(1)”. (I) (i) Section 702(a) is amended by striking out paragraph 26 USC 702. (7) and by redesignating paragraphs (8) and (9) as paragraphs (7) and (8), respectively. (ii) Section 702(b) is amended by striking out “paragraphs (1) through (8)” and inserting in lieu thereof “paragraphs (1) through (7)”. (iii) Section 1402(a) is amended by striking out “702(a) 26 USC 1402. (9)” each place it appears and inserting in lieu thereof “702 (a)(8)”. (J) (i) Section 804(a) is amended by striking out paragraph 26 USC 804. (3), and by redesignating paragraphs (4) and (5) as paragraphs (3) and (4),respectively. (ii) Section 243(b)(3)(C)(iii), as redesignated by paragraph 26 USC 243. (21)(A) of this subsection, is amended by striking out “sections 804(a)(4)” and inserting in lieu thereof “sections 804(a)(3)”. (iii) Section 804(a)(2) is amended by striking out “paragraph (5)” and inserting in lieu thereof “paragraph (4)”, and by striking out “paragraph (4)” and inserting in lieu thereof “paragraph (3)”. (iv) Section 809(d)(10) is amended by striking out “section 26 USC 809. 804(a)(4)”, and inserting in lieu thereof “section 804(a)(3)”. (v) Section 1561(a)(3) is amended by striking out “sections 26 USC 1561. 804(a)(4)” and inserting in lieu thereof “sections 804 (a)(3)”. (vi) Section 1564(a)(1)(C) is amended by striking out 26 USC 1564. “sections 804(a)(4)” inserting in lieu thereof “sections 804 (a)(3)”. (K) Section 804(a)(2)(A) is amended by striking out clause, (ii). by inserting “and” at the end of clause (i), and by redesignating clause (iii) as clause (ii). (L) (i) Section 809(d)(8)(A) is amended by striking out clause (ii), by inserting “and” at the end of clause (i), and by redesignating clause (iii) as clause (ii). (ii) Section 809(d)(8)(B) is amended by striking out “subparagraph (A)(iii)” and inserting in lieu thereof “subparagraph (A)(ii)”. (M) Sections 804(a)(1),804(a)(2), 809(a)(1),809(b)(1)(A) and 809(b)(2)(A) are each amended by striking out “, partially tax-exempt interest,”. (N) Section 809(e) is amended by striking out paragraph (6), and by redesignating paragraph (7) as paragraph (6). (O) Section 815(b)(2)(A)(iii) is amended by striking out 26 USC 815. “the deduction for partially tax-exempt interest provided 26 USC 242. by section 242 (as modified by section 804(a)(3)),” and by striking out the comma after “809(d)(8)(B))”. (P) Section 822(c)(2) is amended by striking out “partially tax-exempt interest and”. (Q) Section 822(c)(6)(A) is amended by striking out “or to the deduction provided in section 242 for partially tax-exempt interest”. (R) Section 822(c)(7) is amended by striking out “partially tax-exempt interest and to”. (S) Section 822(d)(2) is amended by striking out “, the deduction provided in subsection (c)(1), and the deduction allowed by section 242 (relating to partially tax-exempt interest)” and inserting in lieu thereof “and the deduction provided in subsection (c)(1)”. (T) Section 832(c)(5)(A) is amended by striking out “or to the deductions provided in section 242 for partially tax-exempt interest”. (U) Section 832(c)(12) is amended by striking out “partially tax-exempt interest and to”. (V) Sections 852(b)(1) and 857(b)(1) are each amended by striking out the last sentence. (W) Section 1244(c)(1)(E) is amended by striking out “sections 172,242,243” and inserting in lieu thereof “sections 172, 243”. (X) Section 1402 (a)(2) is amended by striking out “(other than interest described in section 35)”. (Y) Section 1503(b)(3) is amended by striking out subparagraph (C). (Z) The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by striking out the item relating to section 35. (AA) The table of sections for part VIII of subchapter B of chapter 1 is amended by striking out the item relating to section 242. (2) Amendment conforming to repeal of section 51.— The table of parts for subchapter A of chapter 1 is amended by striking out the item relating to part V. (3) Amendments conforming to auditions of sections 84 and 65.— (A) Paragraphs (1)(C), (5HA), (6)(D), and (12) of section 341(e) are each amended by striking out “gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231(b)” each place it appears and inserting in lieu thereof “ordinary income”. (B) Section 483(f)(3) is amended by striking out “no part of any gain on such” and inserting in lieu thereof “all of the gain, if any, on such” and by striking out “gain from the sale or exchange of a capital asset or property described in section 1231” and inserting in lieu thereof “ordinary income”. (C) Section 707(b)(2) is amended by striking out “as gain from the sale or exchange of property other than a capital asset” and inserting in lieu thereof “as ordinary income”. (D) Paragraphs (1) and (2) of section 735(a) are each amended by striking out “gain or loss from the sale or exchange of property other than a capital asset” and inserting in lieu thereof “as ordinary income or as ordinary loss, as the case may be”. (E) Section 1236 (b) is amended by striking out “loss from 26 USC 1236. the sale or exchange of property which is not a capital asset” and inserting in lieu thereof “ordinary loss”. (F) Sections 1242 and 1243 are each amended by striking 26 USC 1242, 1243. out “a loss from the sale or exchange of property which is not a capital asset” each place it appears and inserting in lieu thereof “an ordinary loss”. (G) Section 1244 is amended by striking out “a loss from 26 USC 1244. the sale or exchange of an asset which is not a capital asset” each place it appears and inserting in lieu thereof “an ordinary loss”. (H) Section 1248(g)(3)(B), as redesignated by this Act, 26 USC 1248. is amended by striking out “gain from the sale of an asset which is not a capital asset” and inserting “ordinary income”. (I) The following provisions are each amended by striking out “gain from the sale or exchange of property which is not a capital asset” each place it appears and inserting in lieu thereof “ordinary income”: sections 341(a). 871(a)(1)(C)(i) and (ii), 881(a)(3)(A) and (B), 996(d)(1) and (2), 1037(b)(1)(A), 1232(a)(2)(A) and (B), 1232(c), 1246(a), and 1385(c)(2)(C). (J) The following provisions are each amended by striking out “gain from the sale of property which is not a capital asset” and inserting in lieu thereof “ordinary income”: sections 306(a)(1)(A),306(a)(1)(B), and 306(f). (K) The following provisions are each amended by striking out “gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231” each place it appears and inserting in lieu thereof “ordinary income”: sections 80(c)(1), 163(d)(3) and (5), 613(a), 617 (d)(1). 995(b)(1)(C). 1238, 1245(a)(1), 1249(a), 1250 (f) and (g), 1251 (b)(3)(B), (c)(1), and (c)(2), and 1252(a)(1). (4) Clerical amendments conforming to additions of sections 64 and 65.— (A) The table of sections for part I of subchapter B of chapter 1 is amended by adding at the end thereof the following new items: “Sec. 64. Ordinary income defined. “Sec. 65. Ordinary loss defined.” (B) The heading for part I of subchapter B of chapter 1 is amended by striking out “AND TAXABLE INCOME” and inserting in lieu thereof “TAXABLE INCOME, ETC.” ETC.” (C) The table of parts for subchapter B of chapter 1 is amended by striking out “and taxable income.” in the item relating to part. I and inserting in lieu thereof “taxable income, etc.” (5) Amendment conforming to repeat, of section 70.— The table of sections for part II of subchapter B of chapter 1 is amended by striking out the item relating to section 76. (6) Amendments conforming to amendment of section 103.— (A) Section 6049(b)(2)(A) is amended by striking out 26 USC 6049. “section 103(a)(1) or (3)” and inserting in lieu thereof “section 103(a)”. (B) Section 852(a)(1)(B), as added by this Act, is amended by striking out “section 103(a)(1)” and inserting in lieu thereof “section 103 (a)”. (7) Amendments conforming to amendment of section 143.— (A) (i) Part V of subchapter B of chapter 1 is amended by striking out section 153 (relating to determination of marital status) and by redesignating section 154 as section 153. (ii) The table of sections for part V of subchapter B of chapter 1 is amended by striking out the items relating to sections 153 and 154 and inserting in lieu thereof the following: “Sec. 153. Cross references.”. (B) Section 152(a)(9) is amended by striking out “section 153” and inserting in lieu thereof “section 143”. (C) Section 153, as redesignated by subparagraph (A) of this paragraph, is amended by adding at the end thereof the following new paragraph: “(5) For determination of marital status, see section 143.” (8) Amendments conforming to amendment of section 151.— (A) The following provisions are each amended by striking out “educational institution (as defined in section 151 Q(4))” each place it appears and inserting in lieu thereof educational organization described in section 170(b)(1)(A)(ii)”: sections 117(a)(1)(A), 117(b)(1), 117(b)(2), 152(d), 170(g)(1)(B)(as redesignated by subsection (a)(28) 26 USC 117, 152, 170, 403. (A)(i) of this section!, and 403(b)(1)(A)(ii). (B) Section 103(c)(3)(A), as redesignated by subsection (a)(17) of this section, is amended by striking out “educational institution (within the meaning of section 151(e)(4))” and inserting in lieu thereof “educational organization described in section 170(b)(1)(A)(ii)”, (C) Section 163(b)(1) is amended by striking out “educational institution (as defined in section 151(e)(4)) and which is provided for a student of such institution” and inserting in lieu thereof “educational organization described in section 170(b)(1)(A)(ii) and which is provided for a student of such organization”. (D) (i) Subparagraphs (A), (B), and (C) of section 415 (c)(4) are each amended by striking out “educational institution” each place it appears and inserting in lieu thereof “educational organization”. (ii) Subparagraph (D)(ii) of section 415(c)(4) is amended to read as follows: “(ii) For purposes of this paragraph the term ‘educational organization’ means an educational organization described in section 170(b)(1)(A)(ii).” (iii) Section 415(c)(4) is amended by striking out “educational institutions” from the paragraph heading and inserting in lieu thereof “educational organizations”. (E) Section 508(c)(2)(A) is amended to read as follows: “(A) educational organizations described in section 170 (b)(1)(A)(u),and”. (F) Section 512(b)(15)(B), as redesignated by section 1951(b)(8)(A) of this Act, is amended by striking out “edu-cational institution (as defined in section 151(e)(4))” and inserting in lieu thereof “educational organization described in section 170(b)(1)(A)(ii)”. (G) Section 1303(d) is amended by striking out “educational 26 USC 1303. institution (as defined in section 151(e)(4))” each place it appears and inserting in lieu thereof “educational organization described in section 170(b)(1)(A)(ii)”. (H) Sections 4941(d)(2)(G)(ii) and 4945(g)(1) each 26 USC 4941, 4945. are amended by striking out “educational institution described in section 151(e)(4)” and inserting in lieu thereof “educational organization described in section 170(b)(1)(AHii)”. (9) Amendments conforming to the amendments of section 152.— Section 2(b)(3)(B) is amended by striking out clause (ii), 26 USC 2. by adding “or” at the end of clause (i), and by redesignating clause (ii) as clause (ii). (10) Amendment conforming to the amendment of section 112.— (A) Section 374(e)(2) is amended by striking out “section Ante, p. 296. 172(j)” and inserting in lieu thereof “172(g)”. (B) Section 904(f)(2)(B)(i) and 904(f)(4)(B)(i), as Ante, p. 1624. amended by this Act, are each amended by striking out “section 172(k)(1)” and inserting in lieu thereof “section 172(h)”. (11) Amendments conforming to repeal of section 187.— (A) Section 48(a)(8) (relating to section 38 property) is 26 USC 48. amended by striking out “187,”. (B) The table of sections for part VI of subchapter B of chapter 1 is amended by striking out the item relating to section 187. (C) Section 1082(a)(2)(B) (relating to basis for determining gain 26 USC 1082. or loss) is amemled by striking out “187,”. (D) Section 1245(a)(2) (relating to gain from dispositions 26 USC 1245. of certain depreciable property) is amended by striking out “187,” each place it appears. (12) Amendments conforming to the repeal of section 342.— (A) Section 551(f), as redesignated by paragraph (1)(F) 26 USC 551. of this subsection, is amended by striking out paragraph (3). (B) The table of subparts for part II of subchapter C of chapter 1 is amended by striking out the item relating to subpart C and inserting in lieu thereof: “Subpart C. Collapsible corporations,” (C) The table of sections for subpart C of part II of subchapter C of chapter 1 is amended by striking out the item relating to section 342. (D) The heading of subpart C of part II of subchapter C of chapter 1 is amended to read as follows: “Subpart C— Collapsible Corporations”. (13) Amendments conforming to the repeal of section 303.— The table of sections for subpart C of part III of subchapter C of chapter 1 is amended by striking out the item relating to section 363. (14) Amendments conforming to the repeal of section 373.— (A) Section 372(b)(1) is amended by striking out “373 26 USC 372. (b) or”. (B) Section 374(b) is amended to read as follows: “(b) Basis.— “(1) Railroad corporations.— If the property of a railroad corporation, as defined in section 77(m) of the Bankruptcy Act (11 U.S.C. 205 (m)), was acquired after December 31, 1938, in pursuance of an order of the court having jurisdiction of such corporation— “(A) in a receivership proceeding, or “(B) in a proceeding under section 77 of the Bankruptcy Act, and the acquiring corporation is a railroad corporation (as defined in section 77(m) of the Bankruptcy Act) organized or made use of to effectuate a plan of reorganization approved by the court, in such proceeding, the basis shall be the same as it would be in the hands of the railroad corporation whose property was so acquired, increased in the amount of gain recognized under subsection (a)(2) to the transferor on such transfer. “(2) Property acquired by street, suburban, or interurban electric railway corporation.— If the property of any street, suburban, or interurban electric railway corporation engaged as a common carrier in the transportation of persons or property in interstate commerce was acquired after December 31, 1934, in pursuance of an order of the court having jurisdiction of such corporation in a proceeding under section 77 of the Bankruptcy Act (11 U.S.C. 501 and following), and the acquiring corporation is a street, suburban, or interurban electric railway engaged as a common carrier in the transportation of persons or property in interstate commerce, organized or made use of to effectuate a plan of reorganization approved by the court in such proceeding, then, notwithstanding the provisions of section 270 of the Bankruptcy Act (11 U.S.C. (570), the basis shall be the same as it would be in the hands of the corporation whose property was so acquired.” (C) Section 374(c)(8) is amended by striking out “subsection (b)” and inserting in lieu thereof “subsection (b)(1)”. . .. (D) Section 1232(b)(2) is amended by striking out “section 371, 373, or 374” and inserting in lieu thereof “section 371 or 374”. (E) The table of sections for part IV of subchapter C of chapter 1 is amended by striking out the item relating to section 373. (15) Amendment conforming to repeal of sections 391 through 395.— The table of parts for subchapter C of chapter 1 is amended by striking out the item relating to part VII. (16) Amendment conforming to the amendments of section 481.— Section 381 (c) is amended by striking out paragraph (21). (17) Amendment conforming to the amendments of section 545.— Section 381(c)(15) is amended by striking out “subsections (b)(7) and (c)” and inserting in lieu thereof “subsection (c)”. (18) Amendment conforming to the repeal of section 583.— The table of sections for part I of subchapter H of chapter 1 is amended by striking out the item relating to section 583. (19) Amendment conforming to the repeal of section 592.— The table of sections for part II of subchapter H of chapter 1 is amended by striking out the item relating to section 592. (20) Amendments conforming to the repeal of section 601.— (A) Section 535(b) is amended by striking out paragraph 26 USC 535. (8). (B) (i) Section 545(b) is amended by striking out paragraph 26 USC 545. (6), and by redesignating paragraph (8) as paragraph (6). (ii) Section 545(b)(2) is amended by striking out “paragraph (8)” and inserting in lieu thereof “paragraph (6)”. (iii) Section 545(c)(5) is amended by striking out “subsection (b)(8)” and inserting in lieu thereof “subsection (b)(6)”. (C) The table of parts for subchapter H of chapter 1 is amended by striking out the item relating to part III. (21) Amendments conforming to the repeal of section 615.— (A) (i) Section 243(b)(3)(C) is amended— 26 USC 243. (I) by striking out clauses (ii) and (iii) and inserting in lieu thereof the following; “(ii) $400,000 limitation for certain exploration expenditures under section 617(h)(1),”, and (II) by redesignating clauses (iv) and (v) as clauses (iii) and (iv), respectively. (ii) Section 1564(h)(2)(C) is amended by striking out 26 USC 1564. “section 243(b)(3)(C)(v)” and inserting in lieu thereof “243(b)(3)(C)(iv)”. (B) Section 381(c)(10) is amended to read us follows: 26 USC 381. “(10) Treatment of certain mining develops cent and exploration expenses of distributor or transfer or corporation.— The acquiring corporation shall be entitled to deduct, as if it were the distributor or transferor corporation, expenses deferred under section 616 (relating to certain development expenditures) if the distributor or transferor corporation has so elected. For the purpose of applying the limitation provided in section 617(h), if, for any taxable year, the distributor or transferor corporation was allowed a deduction under section 617(a), the acquiring corporation shall be deemed to have been allowed such deduction.” (C) Section 617(h)(1) is amended by striking out “and 26 USC 617. section 615(a) and the amounts which are or have been treated as deferred expenses under section 615(b)” and inserting in lieu thereof “and subsection (a) of section 615 (as in effect before the enactment of the Tax Reform Act of 1976)”. (D) Section 617(h)(3) is amended to read as follows: “(3) Application of paragraph (2)(b).— Paragraph (2) (B) shall apply with respect to nil amounts deducted before the latest such transfer from the individual or corporation to the taxpayer. Paragraph (2)(B) shall apply only if— “(A) the taxpayer acquired any mineral property from the individual or corporation under circumstances which make paragraph (7), (8), (11), (15), (17), (20), or (22) of section 113(a) of the Internal Revenue Code of 1939 apply to such transfer; or “(B) the taxpayer acquired any mineral property from the individual or corporation under circumstances which make section 334(b), 362 (a) and (b), 372(a), 374(b)(1), 1051, or 1082 apply to such transfer.” (E) Section 617 is amended by adding at the end thereof the following new subsection: “(i) Certain Pre-1970 Exploration Expenditures.— If— “(1) the taxpayer receives mineral property in a transaction as a result of which the basis of such property in the hands of the transferee is determined by reference to the basis in the hands of the transferor, “(2) an election made by the transferor under subsection (e) of section 615(e)(as in effect before the enactment of the Tax Reform Act of 1976) applied with respect to expenditures which were made by him and which were properly chargeable to such property, and “(3) the taxpayer has made or makes an election under subsection (a), then in the application of this section with respect to the transferee, the amounts allowed as deductions under such section 615 to the transferor, which (but for the transferor’s election) would be reflected in the adjusted basis of such property in the hands of the transferee, shall be treated as expenditures allowed as deductions under subsection (a) to the transferor.” (F) Section 703 (b) is amended by striking out “under section 615 (relating to pre–1970 exploration expenditures),”. (G) Section 1016 (a) is amended by striking out paragraph (I?)-. (H) The table of sections for part. I of subchapter I of chapter 1 is amended by striking out the item relating to section 615. (22) Amendments conforming to the repeal of section 632.— (A) The table of sections for part III of subchapter I of chapter 1 is amended by striking out the item relating to section 632. (B) Section 5(b) is amended by striking out paragraph (1). (23) Amendment conforming to the repeal of section 771.— The table of parts for’ subchapter K of chapter 1 is amended by striking out the item relating to part IV. (24) Amendment conforming to the amendment of section 802.— Section 815(c)(3)(B) is amended by striking out “(determined without regard to section 802(a)(3))”. (25) Amendment conforming to the amendment of section 812.— Section 844(b)(2) is amended by striking out “section 812(b)(1)(A)(iii)” and inserting in lieu thereof “section 812 (b)(1)(C)”. (26) Amendments conforming to the amendments of section 804.— (A) Paragraphs (5) and (6) of section 861(a) (relating to items treated as income from within United States) are each amended by striking out in the heading “sale” and inserting in lieu thereof “sale or exchange”, and by striking out “sale” in the text and inserting in lieu thereof “sale or exchange”. (B) section 861(e)(1) (relating to income from certain aircraft and vessels) is amended by striking out “sale or other disposition” and inserting in lieu thereof “sale, exchange, or other disposition”. (C) Paragraphs (5) and (6) of section 862(a) (relating to items treated as income from without the United States) 26 USC 863. and paragraphs (2) and (3) of section 863(b) (relating to sources of income) are each amended by striking out “sale” and inserting in lieu thereof “sale or exchange”. (D) Paragraph (2) of section 863(b) (relating to sources 26 USC 863. of income) is amended by striking out “sold” each place it appears and inserting in lieu thereof “sold or exchanged”. (27) Amendments conforming to the repeal of section 972.— (A) Section 970(b)(1) (relating to inclusion of certain 26 USC 970. previously excluded amounts of sub part F income) is amended by striking out “application of section 972” and inserting in lieu thereof “treatment (under section 972 as in effect before the date of the enactment of the Tax Reform Act of 1976) of two or more controlled foreign corporations which are export trade corporations as a single controlled foreign corporation ”. (B) The table of sections for subpart G of part III of subchapter N of chapter 1 is amended by striking out the item relating to section 972. (28) Amendments conforming to the amendment of section 1001.— (A) Subsection (c) of section 331 is amended to read as 26 USC 331. follows: “(c) Cross Reference.— “For general rule for determination of the amount of gain or loss recognized, see section 1001.” (B) (i) Section 1002 (relating to recognition of gain or 26 USC 1002. loss) is repealed. (ii) The table of sections for part I of subchapter 0 of chapter 1 is amended by striking out the item relating to section 1002. (29) Amendments conforming to the repeal of section 1920.— (A) The third sentence of subsection (a) of section 1016 is 26 USC 1016. amended by striking out “under section 1020” and inserting in lieu thereof “under section 1020 (as in effect before the date of the enactment of the Tax Reform Act of 1976)”, Ante, p. 1520; (B) The table of sections for part II of subchapter O of chapter 1 is amended by striking out the item relating to section 1020. (30) Amendments conforming to the repeal of section 1022.— (A) Section 1016(a) is amended— 26 USC 1016. (i) by striking out paragraph (21), and (ii) by redesignating paragraphs (20) and (22) as paragraphs (19) and (20), respectively. (B) The amendment made by subparagraph (A)(i) shall 26 USC 1016 note. apply with respect to stock or securities acquired from a decedent dying after the date of the enactment of this Act. (C) Tho table of sections for part II of subchapter O of chapter 1 is amended by striking out the item relating to section 1022, ~ (31) Amendments conforming to amendments of section 1033.— (A) Section 1250(d)(4)(B) is amended by striking out 26 USC 1250. “1033(a)(3)(A)” and inserting in lieu thereof “1033(a)(2)(A)” (B) Section 1250(d)(4)(C) and (D) are each amended by striking out “1033(a)(3)” and inserting in lieu thereof “1033(a)(2)”. (C) Section 6212(c)(2)(B) is amended by striking out “1033(a)(3)(C) and (D)” and inserting in lieu thereof “1033 (aj (2)(C) and (D)”. (D) Section 6504(4) is amended by Striking out “1033(a)(3)(C) and (D)” and inserting in lieu thereof “1033(a)(2)(C) and (D)”. (E) Sections 1071(b) and 1250(d)(4)(D) are each amended by striking out “1033(c)” and inserting in lieu thereof “1033(b)”. (32) Amendments conforming to the repeal of section 1111.— (A) Section 301 is amended by striking out subsection (f), and by redesignating subsection (g) as subsection (e). (B) (i) Section 312 is amended by striking out subsection (k), and by redesignating subsections (1) and (m) as subsections (j) and (k), respectively, (ii) Section 1246(g) is amended by striking out “312(1)” and inserting in lieu thereof “312 (j)”. (iii) Sections 964(a) and 1248(c)(1) are each amended by striking out “312 (m)(3)” and inserting in lieu thereof “312 (k)” (iv) Subsection (d) of section 1377, as added by this Act, is amended by striking out “312(m)” and inserting in lieu thereof “312(k)”. (C) Section 535(b) is amended by striking out paragraphs (9) and (10). (D) Section 543(a)(1) is amended by inserting “and” at the end of subparagraph (A), and by striking out subparagraphs (B) and (C) and inserting in lieu thereof the following: “(B) interest on amounts set aside in a reserve fund under section 511 or 607 of the Merchant Marine Act, 1936 (46 U.S.C. 1161 or 1177).” (E) Section 545(b) is amended by striking out paragraphs (10) and (11). (F) Section 553(a)(1) is amended to read as follows: “(1) Dividends, etc.— Dividends, interest, royalties, and annuities.” (G) Section 556(b) is amended by striking out paragraphs (7) and (8). (H) Section 561(b) is amended to read as follows: “(b) Special Rules Applicable.— In determining the deduction for dividends paid, the rules provided in section 562 (relating to rules applicable in determining dividends eligible for dividends paid deduction) and section 563 (relating to dividends paid after the close of the taxable year) shall be applicable.” (I) The table of parts for subchapter O of chapter 1 is amended by striking out the item relating to part IX. (33) Amendments conforming to amendment of section 1222.— (A) Section 57(a)(9)(A) is amended by striking out “the amount by which the net long-term capital gain exceeds the net short-term capital loss” and inserting in lieu thereof “the net capital gain”. (B) So much of the first sentence of section 57(a)(9)(B) as precedes “by a fraction” is amended to read as follows: “In the case of a corporation having a net capital gain for the taxable year, an amount equal to the product obtained by multiplying the net capital gain”. (C) Section 527(b)(2) is amended by striking out “net 26 USC 527. section 1201 gain” and inserting in lieu thereof “net capital gain”. (D) Sections 535(b)(6) and 545(b)(5) are each amended— 26 USC 535, 545. (1) by striking out from the paragraph heading “Long-term” and inserting in lieu thereof “Net”, (2) by striking out from the text “the excess of the net long-term capital gain for the taxable year over the net short-term capital loss for such year” each place it appears and inserting in lieu thereof’ “the net capital gain for the taxable year”, and (3) by striking out from the text “such excess” each place it appears and inserting in lieu thereof “such net capital gain”. (E) Section 802(a)(2) is amended— 26 USC 802. (i) by striking out “the net long-term capital gain of any life insurance company exceeds the net short-term capital loss” and inserting in lieu thereof “any life insurance company has a net capital gain”, and (ii) by striking out “such excess” each place it appears and inserting in lieu thereof “such net capital gain”. (F) Section 804(a)(2) is amended by 26 USC 804. striking out “by which the net long-term capital gain exceeds the net short-term capital loss” and inserting in lieu thereof “of the net capital gain”. (G) Sections 809(b)(1)(B) and 809(b)(2)(B) are each 26 USC 809. amended by striking out “by which the net long-term capital gain exceeds the net short-term capital loss” and inserting in lieu thereof “of the net capital gain”. (H) Section 815(b)(2)(A)(ii) is amended by striking out 26 USC 815. “by which the net long-term capital gain exceeds the net short-term capital loss” and inserting in lieu thereof “of the net capital gain”. (I) Section 852(b)(2)(A) is amended by striking out 26 USC 852. “the excess, if any, of the net long-term capital gain over the net short-term capital loss” and inserting in lieu thereof “the amount of the net capital gain, if any”. (J) (i) Section 852(b)(3)(A) is amended to read as follows: “(A) Imposition of tax.— There is hereby imposed for each taxable year in the case of every regulated investment company a tax, determined as provided in section 1201 (a), on the excess, if any, of the net capital gain over the deduction for dividends paid (as defined in section 561) determined with reference to capital gain dividends only.” (ii) The second sentence of section 852(b)(3)(C) is amended by striking out “excess of the net long-term capital gain over the net short-term capital loss” each place it appears and inserting in lien thereof “net capital gain”. (K) The second sentence of section 857(b)(3)(C) is 26 USC 857. amended by striking out “excess of the net long-term capital gain over the net short-term capital loss” each place it appears and inserting in lieu thereof “net capital gain”. (L) Section 1201(b) is amended by striking out “net section 26 USC 1201. 1201 gain” each place it appears and inserting in lieu thereof “net capital gain”. (M) The first sentence of section 1202 is amended to read as follows: “If for any taxable year, a taxpayer other than a corporation has a net capital gain, 50 percent of the amount of the net capital gain shall be a deduction from gross income.” (N) Sections 381(e)(3)(B), 381(c)(3)(C), 852(d), 4940 (c)(1), and 4940(c)(4) are each amended by striking out “net capital gain” and inserting in lieu thereof “capital gain net income”. (O) Section 1212(a)(1) is amended by striking out “net capital gain” each place it appears and inserting in lieu thereof “capital gain net income”, and by striking out “net capital gains” and inserting in lieu thereof “capital gain net income”. (P) Section 1247(a)(1)(B) is amended by striking out “the excess (determined as if such corporation were a domestic corporation) of the net long-term capital gain over the net short-term capital loss” and inserting in lieu thereof “the amount (determined as if such corporation were a domestic corporation) of the net capital gain”. (Q) (i) Section 1375(a)(1) is amended by striking out “the excess of the corporation’s net long-term capital gain over its short-term capital loss” and inserting in lieu thereof “the corporation’s net capital gain”. (ii) The second sentence of section 1375(a)(1) is amended by striking out “such excess” and inserting in lieu thereof “such net capital gain”. (iii) Section 1375(a)(3) is amended by striking out “the excess of an electing small business corporation’s net long-term capita] gain over its net short-term capital loss” and inserting in lieu thereof “an electing small business corporation’s net capital gain”. (R) The following provisions are each amended by striking out “the excess of the net long-term capital gain over the net short-term capital loss,” and inserting in lieu thereof “the net capital gain”: Sections 1247(a)(2)(A)(i), 1247(a)(2) 26 USC 1247, 1378. (C), 1247(d)(1) and (2). 1378(a)(1), 1378(b)(1), and 1378 (c)(8). (34) Amendment conforming to the repeal of section 1240.— The table of sections of part IV of subchapter P of chapter 1 is amended by striking out the item relating to section 1240. (35) Amendment conforming to the repeal of section 1315.— The table of sections for part II of subchapter Q of chapter 1 is amended by striking out the item relating to section 1315. (36) Amendments conforming to the repeal of section 1321.— (A) Section 472 is amended by striking out subsection (f). (B) Section 6422, as amended by this Act, is amended by striking out paragraph (2), and by redesignating paragraphs (3) through (13) as paragraphs (2) through (12), respectively. (C) Section 6504 is amended by striking out paragraph (1). (D) Section 6515 is amended by striking out paragraph (1). (E) The table of parts for subchapter Q of chapter 1 is amended by striking out the item relating to part III. (37) Amendments conforming to the repeal of sections 1331 through 1337.— (A) The third sentence of section 901(a) is amended by 26 USC 901. striking out “under section 1333 (relating to war loss recoveries) or”. _ . (B) Section 936(a)(2), as added by this Act, is 26 USC 936. amended— (i) by inserting “or” at the end of subparagraph (C), and (ii) by striking out subparagraph (D). (C) Section 6212(c),(2) is amended by striking out subparagraph 26 USC 6212. (D). (D) Section 6515 is amended by striking out paragraph 26 USC 6515. (6). (E) Section 6515, as amended by this Act, is amended by striking out paragraph (2), and by redesignating paragraphs (3), (4), (5), (6), (7), and (8) as paragraphs (1), (2), (3), (4). (5),and (6) respectively. (F) The table of parts tor subchapter Q of chapter 1 is amended by striking out the item relating to part IV. (38) Amendment conforming to the repeal of section 1342.— The table of sections for part V of subchapter Q of chapter 1 is amended by striking out the item relating to section 1342. (39) Amendments conforming to the repeal of section 1340.— (A) The table of sections for part VI of subchapter Q of chapter 1 is amended by striking out the item relating to section 1346. (B) Section 6504 is amended by striking out paragraph Post, p. 1829. (7). (40) Amendment conforming to amendment of section 1372.— Section 58(d)(2) is amended by striking out “, notwithstanding 26 USC 58. the provisions of section 1371(b)(1),” (41) Amendment conforming to the repeal of section 1465.— The table of sections for subchapter C of chapter 3 is amended by striking out the item relating to section 1465. (c) Amendments to Provisions Referring to Territories.— (1) Section 37(f) is amended by striking out “a Territory,”. Ante, p. 1559. 26 USC 105, 273, 454. 26 USC 117. (2) Sections 105(e)(2), 273, and 454(b)(2) are each amended by striking out a Territory.”. (3) Section 117(b)(2)(A)(iv) is amended by striking out “a territory,”. (4) Section 162(a) is amended by striking out “territory”. 26 USC 162. 26 USC 581. (5) Section 581 is amended by striking out “, of any State, or of any Territory” and inserting m lieu thereof “or of any State”, and by striking out “, Territorial,”. (6) Section 801(b)(3) is amended by striking out “or 26 USC 801. Territorial”. (7) Section 861(a)(1) is amended by striking out “, any Territory, 26 USC 861. any political subdivision of a Territory.”. (8) Paragraphs (6) and (7) of section 1014(b) are each 26 USC 1014. amended by striking out “Territory.”. (9) Section 1221 (5) is amended by striking out “or Territory,”. 26 USC 1221. 26 USC 2 note. (d) Effective Date.— Except as otherwise expressly provided in this section, the amendments made by this section shall apply with respect to taxable years beginning after December 31, 1976. The amendments made by subsections (a)(29) and (b)(10) shall apply with respect to taxable years ending after the date of the enactment of this Act. SEC. 1902. AMENDMENTS OF SUBTITLE B; ESTATE AND GIFT TAXES. (a) In General.— (1) Amendments of section 2012.— (A) Section 2012(b) (relating to credit for gift tax) is amended— (i) by Striking out “(b) in applying,” and inserting in lieu thereof “(b) Valuation Reductions.—In applying,”, and (ii) by striking out in paragraphs (2) and (3) “ deduction)—then” and inserting in lieu thereof “deduction), then”. (B) Section 2012(c) (relating to gift by spouse or third party) is amended by striking out “(c) Where the decedent” and inserting in lieu thereof “(c) Where Gift Considered Made One-Half by Spouse.—Where the decedent”. (C) Section 2012(d)(1) (relating to computation of amount of gift tax) is amended by striking out “(d)(1) For purposes of” and inserting in lieu thereof the following: “(d) Computation of Amount of Gift Tax Paid.— “(1) Amount of tax.— For purposes of”. (D) Section 2012(d)(2) (relating to credit for gift tax) is amended by striking out “(2) For purposes” and inserting in lieu thereof: “(2) Amount of gift.—For purposes”., (2) Amendments of section 2013.— Section 2013(d)(3) is amended by striking out “, or the corresponding provision of prior law,”. (3) Amendment of section 2038.— Section 2038 (relating to revocable transfers) is amended by striking out subsection (c) (relating to effect of disability in certain cases). (4) Amendments of section 2055.— (A) Section 2055(b) (relating to powers of appointment) is amended to read as follows: “(b) Powers of Appointment.— Property includible in the decedent’s gross estate under section 2041 (relating to powers of appointment) received by a donee described in this section shall, for purposes of this section, be considered a bequest of such decedent.” (B) Section 2055(f) (relating to cross references) is amended to read as follows: (f) Cross References.— “(1) For option as to time for valuation for purpose of deduction under this section, see section 2032. “(2) For exemption of gifts and bequests to or for the benefit of Library of Congress, see section 5 of the Act of March 3, 1925, as amended (2 U.S.C. 161). “(3) For treatment of gifts and bequests for the benefit of the Office of Naval Records and History as gifts or bequests to or for the use of the United States, see section 7222 of title 10, United States Code. “(4) For treatment of gifts and bequests to or for the benefit of National Park Foundation as gifts or bequests to or for the use of the United States, see section 8 of the Act of December 18, 1967 (16 U.S.C. 191). “(5) For treatment of gifts, devises, or bequests accepted by the Secretary of State under the Foreign Service Act of 1946 as gifts, devices, or bequests to or for the use of the United States, see section 1021(e) of that Act (22 U.S.C. 869(e)) . “(6) For treatment of gifts or bequests of money accepted by the Attorney General for credit to ‘Commissary Funds, Federal Prisons/ as gifts or bequests to or for the use of the United States, see section 2 of the Act of May 15, 1952, as amended by the Act of July 9, 1952 (31 U.S.C. 725s–4). “(7) For payment of tax on gifts and bequests of United States obligations to the United States, see section 24 of the Second Liberty Bond Act (31 U.S.C. 757e), “(8) For treatment of gifts and bequests for benefit of the Naval Academy as gifts or bequests to or for the use of the United States, see section 6973 of title 10, United States Code. _ “(9) For treatment of gifts and bequests for benefit of the Naval Academy Museum as gifts or bequests to or for the use of the United States, see section 6974 of title 10, United States Code. “(10) For exemption of gifts and bequests received by National Archives Trust Fund Board, see section 2308 of title 44, United States Code.” (5) Amendments of section 2100.— (A) Section 2106(a)(2)(F) (relating to cross references 26 USC 2106. concerning the charitable deduction for estate tax purposes) is amended to read as follows: “(F) Cross References.— “(1) For option as to time for valuation for purposes of deduction under this section, see section 2032. “(2) For exemption of certain bequests for the benefit of the United States and for rules of construction for certain bequests, see section 2C55(O.” (B) Section 2106 (relating to taxable estate of nonresidents) is amended by striking out subsection (c) (relating to treatment of United States bonds). (6) Amendment of sections 2107 and 2108.— Section 2107(a) (relating 26 USC 2107, 2108. to estate tax on expatriates) and section 2108(a) (relating to application of pre–1967 estate tax provisions) are each amended by striking out “the date, of enactment of this section” and inserting in lieu thereof “November 13, 1966”. (7) Amendment relating to section 2201.— (A) Section 6(b)(1) of the Act of January 2, 1975 (Public Law 93–597; 88 Stat. 1950) is amended by striking out 26 USC 2201. “Section 2210” and inserting in lieu thereof “Section 2201”. (B) The amendment made by subsection (A) is effective 26 USC 2201 note. 26 USC 2202. July 1, 1973. (8) Repeal of section 2202.— Section 2202 (relating to missionaries in foreign service) is repealed. (9) Amendment of section 2204.— The last sentence of section 2204(b) (relating to the discharge from personal liability of a fiduciary other than the executor) is amended by striking out “has not been” and inserting in lieu thereof 26 USC 2204. “has been”. (10) Amendment of section 2501.— Section 2501(a)(1) (relating 26 USC 2501. to imposition of gift tax) is amended to read as follows: “(1) General rule.— A tax, computed as provided in section 2502, is hereby imposed for each calendar quarter on the transfer of property by gift during such calendar quarter by any individual, resident or nonresident.” (11) Amendment of section 2522.— Subsection (d) of section 26 USC 2522. 2522 (relating to cross references) is amended to read as follows: “(d) Cross Reference.— “For exemption of certain gifts to or for the benefit of the United States and for rules of construction with respect to certain gifts, see section 2055(f).” (12) Amendments to sections referring to territories.— (A) The following provisions are each amended by striking out “Territory,”: sections 2055(a)(1), 2056(c)(2)(B), 26 USC 2055, 2056, 2106. and 2106(a)(2)(A)(i). (B) The following provisions are each amended by striking out “or Territory”: sections 2011(a), 2011(e), and 2053 (C) Section 2016 is amended by striking out “Territory or”. (D) Sections 2522(a)(1) and 2522(b)(1) are. each amended by striking out “Territory,”. (E) Section 2523(f)(1) is amended by striking out “Territory, or”. (b) Conforming and Clerical Amendments.— (1) Amendment conforming to repeal of section 2202.— The table of sections for subchapter C of chapter 11 is amended by striking out the item relating to section 2202. (2) Amendments conforming to amendment of section 2055.— (A) Section 6503, as amended by this Act, is amended by striking out subsection (e), and by redesignating subsections (f), (g) (h), and (i) as subsections (e), (f), (g), and (h), respectively. (B) Section 6167(h)(2) is amended by striking out “section 6503(f)” and inserting in lieu thereof “section 6503(e)”. (c) Effective Dates.— (1) Estate tax amendments.— The amendments made by paragraphs (1) through (10), and paragraphs (14)(A), (B),and (C), of subsection (a), and by subsection (b) shall apply in the case of estates of decedents dying after the date of the enactment of this Act, and the amendment made by paragraph (11) of subsection (a) shall apply in the case of estates of decedents dying after December 31, 1970. (2) Gift tax amendments.— The amendments made by paragraphs (12), (13), and (14)(D) and (E) of subsection (a) shall apply with respect to gifts made after December 31, 1976. SEC. 1903. AMENDMENTS OF SUBTITLE C; EMPLOYMENT TAXES. (a) In General.— (1) Amendments of sections 3101 and 3111.— (A) Section 3101(a) (relating to rate of tax on employees for old-age, survivors, and disability insurance) and section 26 USC 3111. 3111(a) (relating to rate of tax on employers for such insurance) are each amended by striking out paragraphs (1), (2), (3), and (4), and by redesignating paragraphs (5) and (6) as paragraphs (1) and (2), respectively. (B) Section 3101(b) (relating to rate of tax on employees for hospital insurance) and section 3111(b) (relating to rate of tax on employers for such insurance) are each amended by striking out paragraphs (1) and (2), and by redesignating paragraphs (3), (4), (5), and (6) as paragraphs (1), (2), (3), and (4), respectively. (2) Repeal of section 3113.— Section 3113 (relating to application of social security tax on District of Columbia credit unions) is repealed. (3) Amendments of section 3121.— (A) Section 3121(b) (relating to employment) is amended— (i) by striking out “performed after 1936 and prior to 1955 which was employment for purposes of subchapter A of chapter 9 of the Internal Revenue Code of 1939 under the law applicable to the period in which such service was performed, and any service, of whatever nature, performed after 1954” and inserting in lieu thereof “, of whatever nature, performed”, and (ii) by striking out “, in the case of service performed after 1954,”. (B) Section 3121(b)(1) is amended by striking out “65 26 USC 3121. Stat. 119;”. (C) Section 3121(b)(6)(B)(v) is amended by striking out “Secretary of the Treasury” and inserting in lieu thereof “Secretary of Transportation”. (D) Section 3121(g)(3) (relating to agricultural labor) is amended by striking out “46 Stat. 1550, § 3;”. (E) Section 3121(k)(1) (relating to exemption of certain organizations) is amended by striking out subparagraphs (F) and (H) and by redesignating subparagraph (G) as subparagraph (F). (F) Section 3121 (1)(2) (relating to employees of foreign subsidiaries) is amended by striking out “, but in no case prior to January 1, 1955”. (G) Section 3121 (m)(1) (relating to service in the uniformed services) is amended by striking out “after December 1956”. (4) Amendments of section 3122.— The last sentence of section 3122 (relating to Federal service) is amended by striking out 26 USC 3122. “Secretary” each place it appears and inserting in lieu thereof “Secretary of Transportation”. (5) Amendment of section 3123.— Section 3125(c) (relating 26 USC 3125. to returns in the case of Governmental employees in the District of Columbia) is amended by striking out “Commissioners of the District of Columbia or such agents as they may designate” and by inserting in lieu thereof “Mayor of the District of Columbia of such agents as he may designate”. (6) Amendment of section 3201.— Section 3201 (relating to 26 USC 3201. rate of tax on railroad employees) is amended— (A) by striking out “oi the Internal Revenue Code of 1954” each place it appears; (B) by striking out “of such Code”; (C) by striking out “after September 30, 1973, as is” and inserting in lieu thereof “as is”; and (D) by striking out “any month after September 30, 1973” and inserting in lieu thereof “any month”. (7) Amendments of section 3202.— (A) The second sentence of section 3202(a) (relating to 26 USC 3202. reduction of tax by railroad employer) is amended— (i) by striking out “after September 30, 1973,” each place it appears; (ii) by striking out “after September 30, 1973 and the aggregate” and inserting in lieu thereof “and the aggregate” (iii) by striking out “of the Internal Revenue Code of 1954” each place it appears; and (iv) by inserting a comma immediately after “for any month” each place it appears. (B) Section 3202(b) (relating to indemnification of employer) is amended by striking out “made”. (8) Amendments of section 3211.— Section 3211(a) (relating 26 USC 3211. to rate of tax on railroad employee representatives) is amended— (A) by striking out “3111(a), 3111(b)” and inserting in lieu thereof “3111(a), and 3111(b)”; (B) by striking out “of the Internal Revenue Code of 1954” each place it appears; (C) by striking out “rendered by him after September 30, 1973,” and inserting in lieu thereof “rendered by him”; and (D) by striking out “after September 30, 1973”. (9) Amendments of section 3221.— (A) The first sentence of section 3221(a) (relating to rate of tax on railroad employers) is amended— (i) by striking out “after September 30, 1973,” each place it appears; (ii) by striking out “after September 30, 1973: except that” and inserting in lieu thereof “, except that”; (iii) by striking out “after September 30, 1973 of the aggregate” and inserting in lieu thereof “of the aggregate”; (iv) by striking out “of the Internal Revenue Code of 1954” each place it appears; and (v) by inserting a comma before “the tax imposed”. (B) Section 3221(b) (relating to rate of tax on railroad employers) is amended to read as follows: “(b) The rate of tax imposed by subsection (a) shall be increased by the rate of tax imposed with respect to wages by section 3111(a) plus the rate imposed by section 3111(b).” (C) Section 3221(c) (relating to additional railroad retirement tax) is amended— (i) by striking out “(1) at the rate of 2 cents for the period beginning November 1, 1966, and ending March 31, 1970, and (2) commencing April 1, 1970,” and (ii) by striking out “commencing with the quarter beginning April 1, 1970”. (10) Amendments of section 3231.— (A) Section 3231(a)(defining employer) is amended by striking out “44 Stat. 577;”. (B) Section 3231(b)(defining employee) is amended by striking out. “50 Stat. 312;”. (C) Section 3231(e)(defining employee representative) is amended by striking out “44 Stat. 577;”. (D) Section 3231(d)(7)(defining service) is amended by striking out “50 Stat, 308;”. (11) Amendments of section 3301.— Section 3301 (relating to Federal unemployment tax rate) is amended— (A) by striking out “the calendar year 1970 and each calendar year thereafter” and inserting in lieu thereof “each calendar year”, and (B) by striking out the last sentence. (12) Amendments of section 3302.— (A) Section 3302(a) (relating to credits against tax) is amended by striking out “(10month period in the case of October 31, 1972)”. (B) Section 3302(b) (relating to additional credit) is amended— (i) by striking out “(10month period in the case of October 31, 1972)”, and (ii) by striking out “12 or 10month period, as the case may be,” and inserting in lieu thereof “12month period”. (C) (i) Section 3302(c) (relating to limitation on credits 26 USC 3302. against unemployment tax) is amended by striking out paragraph (2) and the unnumbered paragraph immediately following such paragraph (2) (relating to advances made to a State unemployment account before September 13, 1960), and by redesignating paragraphs (3) and (4) as paragraphs (2) and (3),respectively. (ii) Section 3302(c)(2) (relating to advances made to a State unemployment account after September 12, 1960), as redesignated by clause (i) of this subparagraph, is amended by striking out “on or after the date of the enactment of the Employment Security Act of 1960”, and by striking out “paragraphs (1) and (2)” and inserting in lieu thereof “paragraph (1)”. (iii) Section 3302(c)(3) (relating to reductions with respect to certain agreements under the Trade Act of 1974),as redesignated by clause (i) of this subparagraph, is amended by striking out “paragraphs (1), (2), and (3)” and inserting in lieu thereof “paragraphs (1) and (2)”. (iv) Section 3302 (d)(3) (relating to effect of repayment of advances) is amended by striking out “or (3)”. (v) Section 3302(d)(4), (5), and (6) (relating to special rules) are each amended by striking out “subsection (c)(3)” each place it appears and inserting in lieu thereof “subsection (c)(2)”. (vi) Section 3302(d)(7) (relating to determination and certification of percentages) is amended by striking out “subsection (c)(3)(B) or (C)” and inserting in lieu thereof “subsection (c)(2)(B) or (C)”. (D) Section 3302(d) (relating to special rules for credits against the unemployment tax) is amended by striking out paragraph (8)(a cross reference). (13) Amendments to section 3303.— Section 3303 (b) (relating 26 USC 3303. to certification with respect to additional credit allowance) is amended— (A) by striking out “(10month period in the case of October 31, 1972) ” each place it appears, (B) by striking out “12 or 10month period, as the case may be,” each place it appears in paragraphs (1) and (2), and inserting in lieu thereof “12month period”, and (C) by striking out “12 or 10month period, as the case may be,” in paragraph (3) and inserting in lieu thereof “12month period,”. (14) Amendments to section 3304.— (A) Section 3304(a)(3) (relating to requirements) is 26 USC 3304. amended by striking out “49 Stat, 640; 52 Stat. 1104, 1105;”. (B) Section 3304(c) (relating to certification) is amended by striking out “(10month period in the case of October 31, 1972)”. (15) Amendments of section 3305.— (A) Section 3305(g) (relating to vessels operated by 26 USC 3305. general agents of the United States) is amended by striking out “on or after July 1, 1953,”. (B) Section 3305 (h) (relating to certain contributions to States) is amended by striking out “on or after July 1, 1953, and”. (C) Section 3305(j) (relating to denial of credits in certain cases) is amended by striking out “after December 31, 1971,”. (16) Amendments of section 3300.— (A) Section 3306(c)(9) (relating to the exclusion of service performed by certain employees and employee representatives from the definition of employment) is amended by striking out “52 Stat. 1094, 1095;”. (B) Section 3306(c)(18) (relating to the exclusion of certain service performed by nonresident aliens from the definition of employment) is amended by inserting after the “Immigration and Nationality Act, as amended” the following: “(8U.S.C. 1101(a)(15)(F) or (J))”. (C) Section 3306(f) (relating to the definition of an unemployment fund) is amended by striking out “49 Stat. 640; 52 Stat. 1104, 1105;”. . (D) Section 3306(n) (relating to vessels operated by general agents of the United States) is amended by striking out “on or after July 1, 1953,”. (17) Amendment of section 3402.— Section 3402(1)(3)(B) (relating to marital status) is amended by striking out “section 2(b)” and inserting in lieu thereof “section 2 (a)”. (b) Amendment Conforming to the Repeal of Section 3113.— The table of sections for subchapter B of chapter 21 is amended by striking out the item relating to section 3113. (c) Amendments to Profusions Referring to Territories.— Sections 3401(c) and 3404 are each amended by striking out “Territory,” each place it appears. (d) Effective Dates.— The amendments made by this section shall apply with respect to wages paid after December 31, 1976, except that the amendments made to chapter 22 of the Internal Revenue Code of 26 USC 3201. 1954 shall apply with respect to compensation paid for services rendered after December 31, 1976. SEC. 1904. AMENDMENTS OF SUBTITLE D; MISCELLANEOUS EXCISE TAXES. (a) In General.— (1) Amendments of chapter 31.— (A) So much of chapter 31 (relating to retailers excise taxes) as precedes section 4041 is amended to read as follows: “Sec. 4041. Imposition of tax.” (B) Section 4041(g) (relating to exemptions from fuel taxes) is amended to read as follows: “(g) Other Exemptions.— Under regulations prescribed by the Secretary, no tax shall be imposed under this section— “(1) on any liquid sold for use or used as supplies for vessels or aircraft (within the meaning of section 4221(d)(3)); “(2) with respect to the sale of any liquid for the exclusive use of any State, any political subdivision of a State, or the District of Columbia, or with respect to the use by any of the foregoing of any liquid as a fuel; “(3) upon the sale of any liquid for export, or for shipment to a possession of the United States, and in due course so exported or shipped; and “(4) with respect to the sale of any liquid to a nonprofit educational organization for its exclusive use, or with respect to the use by a nonprofit educational organization of any liquid as a fuel. For purposes of paragraph (4), the term ‘nonprofit educational organization’ “Nonprofit educational organization.” means an educational organization described in section 170(h)(1)(A)(ii) which is exempt from income tax under section 501(a). The term also includes a school operated as an activity of an organization described in section 501(c)(3) which is exempt from income tax under section 501(a), if such school normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.” (C) Section 4041 (relating to tax on fuels) is amended by 26 USC 4041. adding at the end thereof the following new subsection: “(i) Sales by United States, Etc.— The taxes imposed by this section shall apply with respect to liquids sold at retail by the United States, or by any agency or instrumentality of the United States, unless sales by such agency or instrumentality are by statute specifically exempted from such taxes.” (D) Chapter 31 is amended by striking out section 4042 (a cross reference) and subchapter F (special provisions 26 USC 4042, 4054–4058. applicable to retailers taxes). (2) Amendments of section 421a.— (A) Section 4216 (relating to definition of price) is 26 USC 4216. amended by redesignating subsections (e), (f), and (g) as subsections (d), (e).and (f), respectively. (B) Paragraphs (3), (4). and (5) of section 4216(b) (relating to constructive sales price) are each amended by striking out “subsections (a) and (f)” each place it appears and inserting in lieu thereof “subsections (a) and (e)”. (3) Amendment of section 4217.— Section 4217(d) (relating 26 USC 4217. to lease treated as sale) is amended by striking out paragraph (4) (relating to certain 1958 transitional rules). (4) Repeal of section 4223.— Section 4223 (relating to floor-stock 26 USC 4226. taxes imposed before 1967) is repealed. (5) Amendment of section 4227.— Section 4227 (relating to 26 USC 4227. cross references) is amended to read as follows: “SEC. 4227. CROSS REFERENCE. “For credit for taxes on tires and inner tubes, see section 6416(c).” (6) Amendment of section 4263.— Section 4253 (relating to 26 USC 4253. exemptions from the tax on communications services) is amended by adding at the end thereof the following new subsections: “(i) State and Local Governmental Exemption.— Under regulations prescribed by the Secretary, no tax shall be imposed under section 4251 upon any payment received for services or facilities furnished to the government of any State, or any political subdivision thereof, or the District of Columbia. “(j) Exemption foe Nonprofit Educational Organizations.— Under regulations prescribed by the Secretary, no tax shall be imposed under section 4251 on any amount paid by a nonprofit educational organization for services or facilities furnished to such organization. For purposes of this subsection, the term ‘nonprofit educational organization’ means an educational “Nonprofit educational organization.” organization described in section 170(b)(1)(A)(ii) which is exempt from income tax under section 501(a). The term also includes a school operated as an activity of an organization described in section 501(c)(3) which is exempt from income tax under section 501(a), if such school normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.” (7) Amendments of section 4201.— (A) Subsections (a) and (b) of section 4261 (relating to tax on transportation of persons by air) are each amended by striking out “which begins after June 30, 1970,”. (B) Section 4261(c) is amended by striking out “and begins after June 30, 1970”. (8) Amendment of section 4271.— Section 4271 (a) (relating to tax on transportation of property by air) is amended by striking out “which begins after June 30, 1970,”. (9) Repeal of section 4292.— Section 4292 (relating to State and local governmental exemption from the tax on communications services) is repealed. (10) Repeal of section 4284.— Section 4294 (relating to exemption of nonprofit educational organizations from the tax on communications services) is repealed. (11) Repeal of section 4295.— Section 4295 (across reference) is repealed. (12) Amendment of of after 34.— Chapter 34 (relating to documentary stamp taxes) is amended to read as follows: “CHAPTER 34— POLICIES ISSUED BY FOREIGN INSURERS “Sec. 4371. Imposition of tax. “Sec. 4372. Definitions. “Sec. 4373. Exemptions. “Sec. 4374. Liability for tax. “SEC. 4371. IMPOSITION OF TAX. “There is hereby imposed, on each policy of insurance, indemnity bond, annuity contract, or policy of reinsurance issued by any foreign insurer or reinsurer, a tax at the following rates: “(1) Casualty insurance and indemnity bonds.— 4 cents on each dollar, or fractional part thereof, of the premium paid on the policy of casualty insurance or the indemnity bond, if issued to or for, or in the name of, an insured as defined in section 4372(d); “(2) Life insurance, sickness and accident policies, and annuity contracts.— 1 cent on each dollar, or fractional part thereof, of the premium paid on the policy of life, sickness, or accident insurance, or annuity contract, unless the insurer is subject to tax under section 819; and “(3) Reinsurance.— 1 cent on each dollar, or fractional part thereof, of the premium paid on the policy of reinsurance covering any of the contracts taxable under paragraph (1) or (2). “SEC. 4372. DEFINITIONS. “(a) Foreign Insurer or Reinsurer.— For purposes of section 4371, the term ‘foreign insurer or reinsurer’ means an insurer or reinsurer who is a nonresident alien individual, or a foreign partnership, or a foreign corporation. The term includes a nonresident alien individual, foreign partnership, or foreign corporation which shall become bound by an obligation of the nature of an indemnity bond. The term does not include a foreign government, or municipal or other corporation exercising the taxing power. “(b) Policy of Casualty Insurance.— For purposes of section 4371(1), the term ‘policy of casualty insurance’ means any policy Ante, p. 1812. (other than li fe) or other instrument by whatever name called whereby a contract of insurance is made, continued, or renewed. “(c) Indemnity Bond.— For purposes of this chapter, the term ‘indemnity bond’ means any instrument by whatever name called whereby an obligation of the nature of an indemnity, fidelity, or surety bond is made, continued, or renewed. The term includes any bond for indemnifying any person who shall have become bound or engaged as surety, and any bond for the due execution or performance of any contract, obligation, or requirement, or the duties of any office or position, and to account for money received by virtue thereof, where a premium is charged for the execution of such bond. “(d) Insured.— For purposes of section 4371 (1), the term ‘insured’ means— “(1) a domestic corporation or partnership, or an individual resident of the United States, against, or with respect to, hazards, risks, losses, or liabilities wholly or partly within the United States, or “(2) a foreign corporation, foreign partnership, or nonresident individual, engaged in a trade or business within the United States, against, or with respect to, hazards, risks, losses, or liabilities within the United States. “(e) Policy of Life, Sickness, or Accident Insurance, or Annuity Contract.— For purposes of section 4371(2), the term ‘policy of life, sickness, or accident insurance, or annuity contract’ means any policy or other instrument by whatever name called whereby a contract of insurance Or an annuity contract is made, continued, or renewed with respect to the life or hazards to the person of a citizen or resident of the United States. “(f) Policy of Reinsurance.— For purposes of section 4371(3), the term ‘policy of reinsurance’ means any policy or other instrument by whatever name called whereby a contract or reinsurance is made, continued, or renewed against, or with respect to, any of the hazards, risks, losses, or liabilities covered by contracts taxable under paragraph (1) or (2) of section 4371. “SEC. 4373. EXEMPTIONS. “The tax imposed by section 4371 shall not apply to— “(1) Domestic agent.— Any policy, indemnity bond, or annuity contract signed or countersigned by an officer or agent of the insurer in a State, or in the District of Columbia, within which such insurer is authorized to do business; or “(2) Indemnity bond.— Any indemnity bond required to be filed by any person to secure payment of any pension, allowance, allotment, relief, or insurance by the United States, or to secure a duplicate for, or the payment of, any bond, note, certificate of indebtedness, war-saving certificate, warrant, or check, issued by the United States. “SEC. 4374. LIABILITY FOR TAX. “The tax imposed by this chapter shall be paid, on the basis of a return, by any person who makes, signs, issues, or sells any of the documents and instruments subject to the tax, or for whose use or benefit the same are made, signed, issued, or sold. The United States or any agency or instrumentality thereof shall not be liable for the tax,” (13) Amendment of section 4493.— (A) Section 4493(b)(1) (relating to certain persons engaged in foreign air commerce) is amended by striking out “beginning on or after July 1, 1970”. (B) Section 4493(b)(2) is amended by striking out the last sentence. (14) Amendment of chapter 37.— So much of chapter 37 as precedes section 4501 (relating to tax on sugar) is amended to read as follows: “CHAPTER 37— SUGAR “Sec. 4501. Imposition of tax. “Sec. 4502. Definitions, “Sec. 4503. Exemptions for sugar manufactured for home consumption.” (15) Repeal of sections 4591 through 4597.— Chapter 38 (relating to import taxes on oleomargarine) is repealed. (16) Repeal of sections 4801 through 4806.— Subchapter B of chapter 39 (relating to tax on white phosphorus matches) is repealed. (17) Repeal of sections 4811 through 4826.— Subchapter C of chapter 39 (relating to tax on unadulterated butter) is repealed. (18) Repeal of sections 4881 through 4886.— Subchapter E of chapter 39 (relating to tax on circulation other than of national banks) is repealed. (19) Amendment of section 4901.— Section 4901 (relating to payment of occupational taxes) is amended by striking out subsection (c). (20) Amendment of section 4905.— Section 4905(a) (relating to liability for occupational taxes in case of death or change of location) is amended by striking out “wife” and inserting in lieu thereof “spouse”. (21) Repeal of section 4911 through 4931.— (A) Chapter 41 (relating to interest equalization tax) is repealed. (B) The repeal made by subparagraph (A) shall apply with respect to acquisitions of stock and debt obligations made after June 30, 1974. (22) Amendments of section 4973.— (A) So much of section 4973(a) (relating to tax on excess contributions) as follows “of any individual,” in paragraph (3) thereof is amended to read as follows: “there is imposed for each taxable year a tax in an amount equal to 6 percent of the amount of the excess contributions to such individual’s accounts, annuities, or bonds (determined as of the close of the taxable year). The amount of such tax for any taxable year shall not exceed 6 percent of the value of the account, annuity, or bond (determined as of the close of the taxable year). in the case of an endowment contract described in section 408(b), the tax imposed by this section does not apply to any amount allocable to life, health, accident, or other insurance under such contract. The tax imposed by this subsection shall be paid by such individual.” (B) Section 4973(c) is amended by striking out “subsection 26 USC 4973. (a)(3)” and inserting in lieu thereof “subsection (a)(2)”. (b) Conforming and Clerical Amendments.— (1) Amendments conforming to amendment of chapter 31.— (A) Section 6416(a)(1) is amended by striking out 26 USC 6416. “(retailers taxes)” and inserting in lieu thereof “(special fuels)”, (B) Section 6416 (e) is amended by striking out “subchapter E of”. (2) Amendment conforming to amendment of section 4216.— Section 6416(b)(1) is amended by striking out “section 4216(f)(2) and (3)” and inserting in lieu thereof “section 4216 (e)(2) and (3)” (3) Amendment conforming to the repeal of section 4226.— The table of sections for subchapter G of chapter 32 is amended by striking out the item relating to section 4226. (4) Amendment conforming to the repeal of sections 4292, 4294, and 4295.— The table of sections for subchaptet E of chapter 33 is amended by striking out the items relating to sections 4292, 4294, and 4295. (5) Amendments conforming to the amendment of chapter 34.— (A) Section 7270 is amended by striking out “the affixing 26 USC 7270. of stamps on insurance policies, etc.” and inserting in lieu thereof “liability for tax on policies issued by foreign insurers”. (B) Section 6808 is amended by striking out paragraph 26 USC 6808. (4). (6) Amendments conforming to the amendment of chapter 37.— (A) Section 7240 is amended by striking out “subchapter 26 USC 7240. A of”. (B) Section 7655(a) is amended— 26 USC 7655. (i) by striking out “Subchapter A of chapter 37” in paragraph (5) and inserting in lieu thereof “Chapter 37”, and (ii) by redesignating paragraph (5) as paragraph (3). (7) Amendments conforming to repeal of sections 4591 through 4597.— (A) Section 6808 is amended by striking out paragraph 26 USC 6808. (7). (B) (i) Section 7234 (relating to violations of laws concerning 26 USC 7234. oleomargarine or adulterated butter operations) is repealed. (ii) The table of sections for part II of subchapter A of chapter 75 is amended by striking out the item relating to section 7234. (C) (i) Section 7265 (relating to other offenses concerning 26 USC 7265. oleomargarine or adulterated butter operations) is repealed. (ii) The table of sections for subchapter B of chapter 75 is amended by striking out the item relating to section 7265. (D) Section 7611(a), as redesignated by this Act, is Ante, p. 1699. amended by striking out paragraph (1). (E) The table of chapters for subtitle D is amended by striking out the item relating to chapter 38, (8) Amendments conforming to repeal of sections 4801 through 4806.— (A) Section 4905(b) is amended to rend as follows: “(b) Registration.— “For registration in case of wagering, see section 1412.” (B) Section 6808 is amended by striking out paragraph (12). (C) Section 7012 is amended by striking out subsection (D) (i) Section 7239 (relating to violations of laws concerning white phosphorus matches) is repealed. (ii) The table of sections for part II of subchapter A of chapter 75 is amended by striking out the item relating to section 7239. (E) (i) Sections 7267 and 7274 (relating to offenses and penalties concerning white phosphorus matches) are each repealed. (ii) The table of sections for subchapter B of chapter 75 is amended by striking out the items relating to sections 7267 and 7274. (F) Section 7272(b) is amended by striking out “4804” (G) Section 7303 is amended by striking out paragraph (6) (H) (i) Part II of subchapter C of chapter 75 (relating to provisions common to forfeitures) is amended by striking out section 7328 (relating to confiscation of white phosphorus 26 USC 7328, 7329. matches), and by redesignating section 7329 (relating to cross references) as section 7328. (ii) The table of sections for part II of subchapter C of chapter 75 is amended by striking out the last two items and inserting in lieu thereof the following: “Sec. 7328. Cross references.” (9) Amendments conforming to repeat, of sections 4811 through 4826.— (A) Section 6808 (relating to cross references) is amended by striking out paragraph (10). (B) (i) Section 7235 (relating to violations of laws concerning adulterated butter and process or renovated butter) is repealed. (ii) The table of sections for part II of subchapter A of chapter 75 is amended by striking out the item relating to section 7235. (C) (i) Section 7264 (relating to offenses concerning renovated or adulterated butter) is repealed. (ii) The table of sections for subchapter B of chapter 75 is amended by striking out the item relating to section 7264. (D) Section 7303 is amended by striking out paragraphs (3), (4), and (5), and by redesignating paragrapns (7) and (8) as paragraphs (2) and (3), respectively. (E) Section 7611(a), as redesignated by this Act, is amended by striking out paragraph (2) , and by redesignating paragraphs (5) and (6) as paragraphs (1) and (2), respectively. (10) Amendments conforming to the repeal of sections 4911 through 4931.— (A) (i) (I) Section 263, as amended by this Act, is amended 26 USC 263. by striking out subsections (a)(3) and (d) (relating to the allowance of deductions for payment of interest equalization tax), and by redesignating subsections (e), (f), and (g) as subsections (d), (c),and (f), respectively. (II) Section 263(d), as redesignated by clause (i)(I) of this subparagraph, is amended by striking out “subsection (f)” and inserting in lieu thereof “subsection (e)”, (ii) Section 6011 (relating to requirement of return, statement, or 26 USC 6011. list) is amended by striking out subsection (d) (relating to interest equalization tax returns, etc.), and by redesignating subsections (e) and (f) as subsections (c) and (d), respectively. (iii) (I) Section 6076 (relating to time for filing interest 26 USC 6076. equalization tax returns) is repealed. (II) The table of sections for part V of subchapter A of chapter 61 is amended by sticking out the item relating to section 6076. (iv) Section 6611 (relating to interest on overpayments) 26 USC 6611. is amended by striking out subsection (h) (relating to over-payments of interest equalization tax) and by redesignating subsection (i) as subsection (h). (v) Section 6651 (relating to failure to file tax return 26 USC 6651. or to pay tax) is amended by striking out subsection (e) (relating to certain interest equalization tax returns). (vi) (I) Section 6680 (relating to failure to file interest 26 USC 6680. equalization tax returns) is repealed. (II) The table of sections for subchapter B of chapter 68 is amended by striking out the item relating to section 6680. (vii) The amendments made by this subparagraph shall 26 USC 263 note. apply with respect to acquisitions of stock or debt obligations made after June 30, 1974, except that the repeal of paragraph (2) of section 6011(d) under clause (ii) shall apply with respect to loans and commitments made after such date. (B) Section 861(a)(1)(G) (relating to income from 26 USC 861. sources within the United States) is amended— (i) by striking out “section 4912(c)” and inserting in lieu thereof “subsection (c) of section 4912 (as in effect before July 1, 1974)”; and (ii) by striking out “section 4912(c)(2)” and inserting in lieu thereof “subsection (c)(2) of such section”. (C) The second sentence of section 1232(b)(2) (relating 26 USC 1232. to the definition of the issue price of bonds and other evidences of indebtedness) is amended by striking out “section 4911” anrl inserting in lieu thereof “section 4911, as in effect before July 1, 1974”. (D) (i) Section 6681 (relating to false equalization tax 26 USC 6681. certificates) is repealed. (ii) The table of sections for subchapter B of chapter 68 is amended by striking out the item relating to section 6681. (iii) The amendments made by this subparagraph shall 26 USC 6681 note. apply with respect to actions occurring after June 30, 1974. (E) (i) Section. 6689 (relating to failure by certain foreign 26 USC 6689. issuers and obligors to comply with United States investment equalization tax requirements) is repealed. (ii) The table of sections for subchapter B of chapter 68 is amended by striking out the item relating to section 6689. (iii) The amendments made by this subparagraph shall apply with respect to stock or debt obligations issued after June 30, 1974. (F) (i) Section 7241 (relating to penalty for fraudulent equalization tax certificates) is repealed. (ii) The table of sections for part II of subchapter A of chapter 75 is amended by striking out the item relating to section 7241. (iii) The amendments made by this subparagraph shall apply with respect to statements and certificates executed after June 30, 1974. (G) The table of chapters for subtitle D is amended by striking out the item relating to chapter 41. (c) Amendment to Provision Referring to Territories.— Section 4482 (c)(1) is amended by striking out “, a Territory of the United States,”. (d) Effective Date.— Except as otherwise provided in this section, the amendments made by this section shall take effect on the first day of the first month which begins more than 90 days after the date of the enactment of this Act. SEC. 1905. AMENDMENTS OF SUBTITLE E; ALCOHOL, TOBACCO, AND CERTAIN OTHER EXCISE TAXES. (a) In General.— (1) Amendment of section 5005.— Section 5005(c)(2) (relating to transfers in bond of distilled spirits) is amended by striking out the last two sentences and inserting in lieu thereof the following: “Such relief from liability shall be effective from the time of removal from the transferor’s bonded premises, or from the time of divestment of interest, whichever is later.” (2) Amendments of section 5008.— (A) Section 5008(b)(1) (relating to abatement, remission, refund, and allowance for loss of destruction of distilled spirits) is amended by inserting immediately after “the tax imposed by this chapter” the following: “or by section 7652”. (B) Section 5008(b)(2) is amended by striking out “the taxes imposed under section 5001(a)(1)” and all that follows and inserting in lieu thereof the following: “the taxes imposed under section 5001(a)(1), under subpart B of this part, or under section 7652 on the spirits so destroyed, to the proprietor of the distilled spirits plant who withdrew the distilled spirits on payment or determination of tax.” (C) Subsections (c)(1) and (d)(1) of section 5008 are each amended by inserting immediately after “under section 5001(a)(1)” the following: “or under section 7652”. (D) Section 5008(d)(1) is amended by striking out “, on or after July 1, 1959,”. (3) Amendment of section 5009.— Section 5009(b)(3) is amended by striking out “46 Stat. 694;”. (4) Amendment of section 5025.— Section 5025 (j) (relating to stabilization of distilled spirits) is amended by striking out “the bottling of distilled spirits,” and inserting in lieu thereof “the bottling of distilled spirits, or preparatory to exportation,”. (5) Amendment of section 5054.— Section 5054 (relating to determination and collection of tax on beer) is amended by striking out subsection (c) (relating to stamps or other devices as evidence of payment of tax) and by redesignating subsection (d) as subsection (c). (6) Amendments of section 5061.— (A) Section 5061(a) (relating to collections of alcohol 26 USC 5061. taxes) is amended by striking out the last sentence. (B) Section 5061(b) (relating to methods of collection) is amended to read as follows: “(b) Exceptions.— Notwithstanding the provisions of subsection (a), any taxes imposed on, or amounts to be paid or collected in respect of, distilled spirits, wines, rectified distilled spirits and wines, and beer under— “(1) section 5001(a)(5), (6),or (7), “(2) section 5006(c) or (d), “(3) section 5026(a)(2), “(4) section 5041 (d), “(5) section5043(a)(3), “(6) section5054(a)(3) or (4),or “(7) section5505(a), shall be immediately due and payable at the time provided by such provisions (or if no specific time for payment is provided, at the time the event referred to in such provision occurs). Such taxes and amounts shall be assessed and collected by the Secretary on the basis of the information available to him in the same manner as taxes payable by return but with respect to which no return has been filed.” (C) Section 5061(c) (relating to applicability of other provisions of law) is amended to read as follows: “(c) Import Duties.— The internal revenue taxes imposed by this part shall be in addition to any import duties unless such duties are specifically designated as being in lieu of internal revenue tax.” (7) Amendment of section 5113.— Section 5113(f)(1) (relating 26 USC 5113. to retail dealers in liquors) is amended by striking out “wines or beer” and inserting in lieu thereof “distilled spirits, wines, or beer”. (8) Amendments of section 5117.— Section 5117 (relating 26 USC 5117. to prohibited purchases by dealers) is amended by redesignating subsection (b) as subsection (c) and by inserting after subsection (a) the fol lowing new subsection: “(b) Limited Retail Dealers.— A limited retail dealer may lawfully purchase distilled spirits for resale from a retail dealer in liquors.” (9) Amendment of section 5121.— Section 5121(c) (relating 26 USC 5121. to limited retail dealers) is amended to read as follows: “(c) Limited Retail Dealers.— Every limited retail dealer shall pay a special tax of $4.50 for each calendar month in which sales are made as such dealer; except that the special tax shall be $2.20 for each calendar month in which only sales of beer or wine are made.” (10) Amendment of section 3122.— Section 5122(c) (relating 26 USC 5122. to definition of limited retail dealer) is amended by striking out “beer or wine” each place it appears and inserting in lieu thereof “distilled spirits, wine, or beer”. (11) Amendment of section 5131.— Section 5131(a) (relating 26 USC 5131. to eligibility for drawback) is amended by striking out “produced in a domestic registered distillery or industrial alcohol plant and withdrawn from bond, or using distilled spirits withdrawn from the bonded premises of a distilled spirits plant,”. (12) Amendment of section 5142.— Section 5142(c) (relating to payment of occupational taxes) is amended to read as follows: “(c) How Paid.— “(1) Payment by return.— The special taxes imposed by this part shall he paid on the basis of a return under such regulations as the Secretary shall prescribe. “(2) Stamp denoting payment of tax.— After receiving a properly executed return and remittance of any special tax imposed by this subpart, the Secretary shall issue to the taxpayer an appropriate stamp as a receipt denoting payment of the tax. This paragraph shall not apply in the case of a return covering liability for a past period.” (13) Amendments of section 5171.— Section 5171(b) (relating to permits for operation of business as distillers, etc.) is amended— (A) in paragraph (1), by striking out “49 Stat. 978;”, and (B) by striking out paragraph (3) (relating to continuance of business after June 30, 1959, pending application for permit). (14) Amendment of section 5174.— Section 5174(a)(2)(A) (relating to withdrawal bonds for distilled spirits) is amended by striking out “such spirits” and inserting in lieu thereof “distilled spirits from bond”. (15) Amendment of section 5232.— Section 5232(a) (relating to transfer of imported distilled spirits) is amended by striking out “and the importer” and inserting in lieu thereof “and the importer, or the person bringing such distilled spirits into the United States,”. (16) Amendment of section 5233.— Section 5233(b)(4) (relating to bottling requirements) is amended by striking out “49 Stat. 977;”. (17) Amendment of section 5234.— The first sentence of section 5234(a)(2) (relating to the mingling of distilled spirits) is amended by striking out “8 years” and inserting in lieu thereof “20 years”. (18) Amendment of section 5314.— Section 5314(a)(2) (relating to application of certain provisions to Puerto Rico) is amended by striking out “section 5001(a)(4)” and inserting in lieu thereof “section 5001(a)(10)”. _ (19) Repeal of section 5315.— Section 5315 (relating to the status of certain distilled spirits on July 1, 1959) is repealed. (20) Amendments of section 5368.— (A) The heading of section 5368 is amended to read as follows: “SEC. 5368. GAUGING AND MARKING.” (B) Section 5368(b) (relating to removal of wines) is amended to read as follows: “(b) Marking.— Wines shall be removed in such containers (including vessels, vehicles, and pipelines) bearing such marks and labels, evidencing compliance with this chapter, as the Secretary may by regulations prescribe.” (21) Amendment of section 5392.— Section 5392(f)(defining own production) is amended by striking out “49 Stat. 990;”. (22) Amendments of section 5601.— Section 5601(b) (relating to presumptions in the case of criminal penalties) is amended to read as follows: “(b) Presumption.— Whenever on trial for violation of subsection (a)(4) the defendant is shown to have been at the site or place where, and at the time when, the business of a distiller or rectifier was so engaged in or carried on, such presence of the defendant shall be deemed sufficient, evidence to authorize conviction, unless the defendant explains such presence, to the satisfaction of the jury (or of the court when tried without jury).” (23) Amendments of section 5685.— (A) Section 5685(a) (relating to penalty for possession 26 USC 5685. of devices for emitting gas, smoke, etc.) is amended by striking out “section 5848” and inserting in lieu thereof “section 5845”. (B) Section 5685(c) (relating to forfeiture of firearms, devices, etc.) is amended by striking out “section 5862” and inserting in lieu thereof “section 5872”. (C) Section 5685(d) (relating to the definition of machine gun) is amended to read as follows: “(d) Definition of Machine Gun.— As used in this section, the term ‘machine gun’ means a machine gun as defined in section 5845(b).” (24) Amendment of section 5701.— Section 5701(e) (relating 26 USC 5701. to imported tobacco products, etc.) is amended by striking out “such articles” and inserting in lieu thereof “such articles, unless such import duties are imposed in lieu of internal revenue tax”. (25) Amendments of section 5703.— (A) Section 5703(a)(2) (relating to transfer of liability 26 USC 5703. for tobacco taxes) is amended by adding at the end thereof the following new sentence: “All provisions of this chapter applicable to tobacco products and cigarette, papers and tubes in bond shall be applicable to such articles returned to bond upon withdrawal from the market or returned to bond after previous removal for a tax-exempt purpose.” (B) The second sentence of section 5703(b) (relating to method of payment of tobacco taxes) is amended by striking out “, except that the taxes shall continue to be paid by stamp until the Secretary or his delegate provides, by regulations, for the payment, of the taxes on the basis of a return”. (C) Section 5703 is amended by striking out subsection (c) (relating to stamps to evidence tobacco taxes) and by redesignating subsections (d) and (e) as subsections (c) and (d), respectively. (26) Amendments of section 3704.— Subsections (c) and (d) of section 5704 (relating to exemptions from tobacco taxes) are 26 USC 5704. each amended by inserting after “to a manufacturer of tobacco products or cigarette papers and tubes” the following: “or to the proprietor of an export warehouse”. (27) Amendment of section 5712.— Section 5712 (relating to 26 USC 5712. application for permit) is amended by striking out the last sentence. (28) Amendments of section 572a.— (A) The heading of section 5723 is amended by striking 26 USC 5723. out “NOTICES, AND STAMPS” and inserting in lieu thereof “AND NOTICES”. (B) Section 5723(b) (relating to marks, and so forth, on packages) is amended to rend as follows: “(b) Marks, Labels, and Notices.— Every package of tobacco products Regulation. or cigarette papers or tubes shall, before removal, bear the marks, labels, and notices, if any, that the Secretary by regulation prescribes.” (b) Conforming and Clerical Amendments.— (1) Amendments conforming to amendment of section 5054.— (A) Section 5676 (relating to beer stamp penalties) is repealed. (B) The table of sections for part III of subchapter J of chapter 51 is amended by striking out the item relating to section 5676. (2) Amendments conforming to amendments of section 5081.— (A) Section 5007(b)(1) is amended by striking out the second sentence. (B) Section 5026(b) is amended by striking out “Except as provided in subsection (a)(2), the taxes” and inserting in lieu thereof “The taxes”. (C) Section 5043(b) is amended by striking out “Except as provided in subsection (a)(3), the taxes” and inserting in lieu thereof “The taxes”. (D) Section 5662 is amended by striking out “stamp,” each place it appears. (E) (i) Section 5689 (relating to penalty and forfeiture for tampering with a stamp machine) is repealed. (ii) The table of sections for part IV of subchapter J of chapter 51 is amended by striking out the item relating to section 5689. (iii) Section 5061 is amended by striking out subsection (d). (3) Amendments conforming to amendment of section 5142.— (A) (i) Section 5104 (relating to method of payment of tax on stills) is repealed. (ii) The table of sections for subpart C of part II of subchapter A of chapter 51 is amended by striking out the item relating to section 5104. (B) Section 5111(a) is amended by striking out the second sentence. (C) Section 5121(a) is amended by striking out the second sentence. (D) (i) Section 5144 (relating to supply of stamps) is repealed. (ii) The table of sections for subpart G of part II of subchapter A of chapter 51 is amended by striking out the item relating to section 5144. (E) Section 5148(3) is amended by striking out “penalties” and inserting in lieu thereof “penalties, authority for assessments,”. (4) Amendment conforming to the repeal of section 5315.— The table of sections for part III of subchapter E of chapter 51 is amended by striking out the item relating to section 5315. (5) Amendment conforming to the amendment of section 5358.— The item relating to section 5368 in the table of sections for part II of subchapter E of chapter 51 is amended to read as follows: “Sec. 5368. Gauging and marking.” (6) Amendments conforming to the amendment of section 5001.— (A) Section 5105 (b)(2) is amended by striking out “, 5601 26 USC 5105. (b)(1),”. (B) Section 5177(b)(2) is amended by striking out “5601 26 USC 5177. (b)(2),” and inserting in lieu thereof “5601 (b),”. (C) Section 5179(b)(1) is amended by striking out “, 5601 26 USC 5179. (b)(1)”. (D) Section 5222(d) is amended by striking out “5601(b) 26 USC 5222. (3), 5601(b)(4)”. (E) Section 5505(i) is amended by striking out “5601(b) 26 USC 5505. (1),”. (7) Amendments conforming to the amendment of section 5723.— (A) Paragraphs (2) and (3) of section 5751(a) are each 26 USC 5751. amended by striking out “notices, and stamps” and inserting in lieu thereof “and notices”. (B) (i) Section 5752 is amended to read as follows: “SEC. 5752. RESTRICTIONS RELATING TO MARKS, LABELS, NOTICES, AND PACKAGES. “No person shall, with intent to defraud the United States, destroy, obliterate, or detach any mark, label, or notice prescribed or authorized, by this chapter or regulations thereunder, to appear on, or be affixed to, any package of tobacco products or cigarette papers or tubes, before such package is emptied.” (ii) Section 5762(a) is amended by striking out paragraphs 26 USC 5762. (8), (7), (8), (9), (10), and (11) and inserting in lieu thereof the following: “(6) Destroying, obliterating, or detaching marks, labels, or notices before packages are emptied.— Violates any provision of section 5752;”. (iii) The item relating to section 5752 in the table of sections for subchapter E of chapter 52 is amended to read as follows: “Sec. 5752. Restrictions relating to marks, labels, notices, and packages.” (C) (i) Section 5763(a)(2) is amended by striking out 26 USC 5763. “notices, and stamps” and inserting in lieu thereof “and notices”. (ii) Section 5763(b) is amended by striking out “internal revenue stamps,”. (D) The item relating to section 5723 in the table of sections for subchapter C of chapter 52 is amended to read as follows: “Sec. 5723. Packages, marks, labels, and notices.” (c) Amendments to Provisions Referring to Territories.— (1) Section 5114(b) is amended by striking out “or Territory” 26 USC 5114. each place it appears and by striking out “Territories,”. (2) Section 5214(a)(2) is amended by striking out “or Territory 26 USC 5214. ” each place it appears. (3) Section 5272(b) is amended by striking out “and 26 USC 5272. Territories”. (4) Section 5362(c)(9) is amended by striking out “and 26 USC 5362. Territories”. (5) Section 5551(b)(2) is amended by striking out “Territory, 26 USC 5551. or”. (6) Section 5685(a) is amended by striking out “Territory 26 USC 5685. or”. (d) Effective Date.— The amendments made by this section shall take effect on the first day of the first month which begins more than 90 days after the date of the enactment of this Act. SEC. 1906. AMENDMENTS OF SUBTITLE F; PROCEDURE AND ADMINISTRATION. (a) In General.— (1) Amendments of section 6013.— (A) Section 6013(b)(2)(C) (relating to petition to the Tax Court) is amended by striking out “of the United States”. (B) The heading of section 6013(d) is amended to read as follows: “(d) Special Rules.—”. (C) Section 6013(d)(1) (relating to joint return after death of one spouse) is amended by striking out “and” at the end of subparagraph (A) and inserting in lieu thereof “or”, and by striking out “and” at the end of the subparagraph (B). (2) Amendment of section 6015.— Section 6015 (relating to declaration of estimated tax by individuals) is amended by striking out subsection (j) (relating to an effective date provision). (3) Amendment of section 6037.— Section 6037 (relating to returns of subchapter S corporations) is amended by striking out “section 1371(a)(2)” and inserting in lieu thereof “section 1371 (b)” (4) Amendment of section 6046.— Section 6046(e) (relating to information as to organization of foreign corporation) is amended to read as follows: “(e) Limitation.— No information shall be required to be furnished under this section with respect to any foreign corporation unless such information was required to be furnished under regulations which have been in effect for at least 90 days before the date on which the United States citizen, resident, or person becomes liable to file a return required under subsection (a).” (5) Amendment of section 6051.— Section 6051(a) (relating to information required to be furnished to employees) is amended by striking out “and” where it appears at the end of paragraph (6). (6) Amendments of section 6065.— Section 6065 (relating to verification of returns) is amended by striking out subsection (b) (relating to verification by oath), and by striking out in subsection (a) the following: “(a) Penalties of Perjury.—”. (7) Repeat, of section 6105.— Section 6105 (relating to compilation of data for certain excess profits tax cases) is repealed. (8) Amendment of section 6111.— Section 6111 (relating to cross references), as redesignated by this Act, is amended to read as follows: “SEC. 6111. CROSS REFERENCE. “For inspection of records, returns, etc., concerning gasoline or lubricating oils, see section 4102.” (9) Amendment of section 6152.— Section 6152(a)(1) (relating to installment payments by corporations) is amended to read as follows: “(1) Corporations.— A corporation subject to the taxes imposed 26 USC 1. by chapter 1 may elect to pay the unpaid amount of such taxes in two equal installments.” (10) Amendments of section bib4.— (A) Section 6154(c)(1)(B) (relating to definition of estimated 26 USC 6154. tax) is amended— (i) by adding “and” after the comma at the end of clause (i), and (ii) by striking out clauses (ii) and (iii) and inserting in lieu thereof the following: “(ii) in the case of a taxable year beginning before January 1, 1977, the amount of the corporation’s temporary estimated tax exemption for such year.” (B) Section 6154(c)(2)(A)(ii) (relating to temporary estimated tax payments) is amended by striking out “clauses (ii) and (iii)” and inserting in lieu thereof “clause (ii)”. (C) Section 6154(c)(2)(B) (relating to estimated tax) is amended by striking out the following: “1968, 1969, 1970, 1971, and 1972 100 percent   1973 80 percent   1974 60 percent”. (D) Section 6154(c) (relating to estimated tax) is amended by striking out paragraph (3) (relating to transitional exemption for taxable years beginning before 1972). (11) Amendments of section 6157.— (A) Section 6157 (relating to payment of Federal unemployment 26 USC 6157. tax) is amended by striking out subsection (c) (relating to special rides for 1970 and 1971), and by redesignating subsection (d) as subsection (c). (B) Section 6157(a) is amended by striking out “subsections (c) and (d)” and inserting in lieu thereof “subsection (c)” (12) Repeal of section 6162.— Section 6162 (relating to payment 26 USC 6162. of tax on gain on liquidation of certain personal holding companies) is repealed. (13) Amendment of section 6205.— Section 6205 (a)(4) (relating 26 USC 6205. to District of Columbia as employer) is amended by striking out “Commissioners of the District of Columbia and each agent designated by them” and inserting in lieu thereof “Mayor of the District of Columbia and each agent designated by him”. (14) Amendment of section 6207.— Section 6207 (relating to 26 USC 6207. cross references) is amended by striking out paragraph (7). (15) Amendment of section 6213.— Section 6213(a) (relating Ante, p. 1698. to time for filing petition with the Tax Court) is amended by striking out “States of the Union and the District of Columbia” and inserting in lieu thereof “United States”. (16) Amendment of section 6215.— Section 6215(b)(5)(a 26 USC 6215. cross reference) is amended by striking out “60 Stat. 48;”. (17) Amendment of section 6302.— Section 6302(b) (relating 26 USC 6302. to collection of certain excise taxes) is amended by striking out “sections 4501 (a) or 4511 of chapter 37, or section 4701 or 4721 of chapter 39” and inserting in lien thereof “section 4501(a) of chapter 37”. (18) Repeal of section 6304.— Section 6304 (relating to a cross 26 USC 6304. reference) is repealed. (19) Amendment of section 6313.— Section 6313 (relating to 26 USC 6313. fractional parts of a cent) is amended by striking out “not payable by stamp”. (20) Amendments of section 6326.— (A) Paragraph (2) of section 6326 (cross references) is amended by striking out “52 Stat. 851;”. (B) Paragraph (3) of section 6326 is amended by striking out “52 Stat. 867” (C) Paragraph (4) of section 6326 is amended by striking out “52 Stat. 867–877;”. (D) Paragraph (5) of section 6326 is amended by striking out “52 Stat. 938;”. (21) Amendment of section 6365.— Section 6365 (b) (relating to definition of governor) is amended by striking out “Commissioner of the District of Columbia” and inserting in lieu thereof “Mayor of the District of Columbia”. (22) Amendment of section 6412.— Section 6412(a) (relating to floor stock refunds) is amended by redesignating paragraphs (2) and (4) as paragraphs (1) and (2), respectively. (23) Amendments of section 6413.— (A) Section 6413(a)(4) (relating to District of Columbia as employer) is amended by striking out “Commissioners of the District of Columbia and each agent designated by them” and inserting in lieu thereof “Mayor of the District of Columbia and each agent designated by him”. (B) (i) Section 6413 (c)(1) (relating to refunds of certain employment taxes) is amended to read as follows: “(1) In General.— If by reason of an employee receiving wages from more than one employer during a calendar year the wages received by him during such year exceed the contribution and benefit base (as determined under section 230 of the Social 42 USC 430. Security Act) which is effective with respect to such year, the employee shall be entitled (subject to the provisions of section 31 (b)) to a credit or refund of any amount of tax, with respect to such wages, imposed by section 3101 or section 3201, or by both such sections, and deducted from the employee’s wages (whether or not paid to the Secretary), which exceeds the tax with respect to the amount of such wages received in such year which is equal “Wages.” to such contribution and benefit base. The term ‘wages’ as used in this paragraph shall, for purposes of this paragraph, include ‘compensation’ as defined in section 3231(e).” (ii) So much of section 6413(c)(2)(A) (relating to Federal employees) as follows “and the term ‘wages’ includes” is amended to read as follows: “for purposes of this subsection the amount, not to exceed an amount equal to the contribution and benefit base (as determined under section 230 of the Social Security Act) for any calendar year with respect to which such contribution and benefit base is effective, determined by each such head or agent as constituting wages paid to an employee.” (iii) The amendments made by clauses (i) and (ii) shall apply with respect to remuneration paid after December 31, 1976. (C) Section 6413(c)(2)(F) (relating to government employees in the District of Columbia) is amended by striking out “Commissioners of the District of Columbia and each agent designated by them” and inserting in lieu thereof “Mayor of the District of Columbia and each agent designated by him”. (D) Section 6418(c)(3) (relating to special refunds) is 26 USC 6413. amended by striking out “after 1967”. (24) Amendments of section 6416.— (A) Section 6416(a)(3) (relating to special rules for 26 USC 6416. refund of overpayment of tax) is amended by redesignating subparagraphs (C) and (D) as subparagraphs (A) and (B), respectively, (B) (i) Section 6416(b)(2) (relating to overpayments of certain excise taxes), as amended by section 2108 of this Act, Post, p. 1904. is amended by striking out subparagraphs (G), (H), (I), and (J), and by redesignating subparagraphs (F), (K), (L), (M), (R), (8), and (T) as subparagraphs (E), (F), (G), (H), (I), (J),and (K),respectively. (ii) The repeals made by clause (i) shall apply with 26 USC 6416 note. respect to the use or resale for use of liquids after December 31, 1976. (25) Repeal of section 6417.— Section 6417 (relating to coconut 26 USC 6417. and palm oil) is repealed. (26) Amendments of section 6420.— (A) Section 6420(b) (relating to time for filing refund 26 USC 6420. claims on gasoline) is amended to read as follows: “(b) Time fob Filing Claims; Period Covered.— Not more than one claim may be filed under this section by any person with respect to gasoline used during his taxable year, and no claim shall be allowed under this section with respect to gasoline used during any taxable year unless filed by such person not later than the time prescribed by law for filing a claim for credit or refund of overpayment of income tax for such taxable year. For purposes of this subsection, a person’s taxable year shall be his taxable year for purposes of subtitle A.” 26 USC 1. (B) Section 6420(e)(1) (relating to application of other laws) is amended by striking out “apply in in respect” and inserting in lieu thereof “apply in respect’”. (C) (i) Section 6420 is amended by striking out subsection (g) (relating to effective date) and by redesignating subsections (h) and (i) as subsections (g) and (h), respectively. (ii) Section 6420(a) is amended by striking out “subsection (h)” and inserting in lieu thereof “subsection (g)”. (D) Section 6420(g) (relating to income tax credit in lieu of gas tax refund), as redesignated by subparagraph (C)(i) of this paragraph, is amended by strikingout “with respect to gasoline used after June 30, 1965,” and “for gasoline used after June 30, 1965”. (27) Amendments of section 6421.— (A) (i) Subsections (a) and (e)(3) of section 6421 (relating 26 USC 6421. to nonhighway use of gasoline) are each amended by striking out “after June 30, 1970,”. (ii) The amendments made by clause (i) shall only 26 USC 6421 note. apply with respect, to gasoline used as a fuel after June 30, 1970. (B) Section 6421(c) (relating to nonhighway use of gasoline) is amended to read as follows: “(c) Time for Filing Claims; Period Covered.— “(1) In general.— Except as provided in paragraph (2), not more than one claim may be filed under subsection (a), and not more than one. claim may be filed under subsection (b), by any person with respect to gasoline used during his taxable year; and no claim shall be allowed under this paragraph with respect to gasoline used during any taxable year unless filed by such person not later than the time prescribed by law for filing a claim for credit or refund of overpayment of income tax for such taxable year. For purposes of this subsection, a person’s taxable year shall be his taxable year for purposes of subtitle A. “(2) Exception.— If $1,000 or more is payable under this section to any person with respect to gasoline used during any of the first three Quarters of his taxable year, a claim may be filed under this section by such person with respect to gasoline used during such quarter. No claim filed under this paragraph shall be allowed unless filed on or before the last day of the first quarter following the quarter for which the claim is filed.” (C) Section 6421(h) (relating to effective dates) is amended by striking out “after June 30, 1956, and”. (D) Section 6421 (i) (relating to income tax credit in lieu of refund) is amended— (i) by striking out, in paragraph (1), “with respect to gasoline used after June 30, 1965,”, (ii) by striking out, in paragraph (2), “subsection (c)(3)(B)” and inserting in lieu thereof “subsection (c)(2)”, and (iii) by striking out, in paragraph (3), “for gasoline used after June 30, 1965.” (28) Amendments of Section 6422.— (A) Paragraph (9) of section 6422 (relating to cross references), as redesignated by section 1901(b)(36)(B), is amended by striking out “60 Stat. 48;”. (B) Paragraph (11) of section 6422, as so redesignated, is amended by striking out “47 Stat. 1516;”. (29) Amendments of section 6423.— (A) Section 6423(b) (relating to filing of refund claim in case of alcohol and tobacco taxes) is amended to read as follows: “(b) Filing of claims.— No credit or refund of any amount to which subsection (a) applies shall be allowed or made unless a claim therefor has been filed by the person who paid the a mount claimed, and unless such claim is filed within the time prescribed by law and in accordance with regulations prescribed by the Secretary. Al] evidence relied upon in support of such claim shall be clearly set forth and submitted with the claim.” (B) Section 6123 is amended by striking out subsection (c) (relating to suits barred on April 30, 1958) and by redesignating subsections (d) and (e) as subsections (c) and (d), respectively. (C) Section 6423 (c) (relating to application of section), as redesignated by subparagraph (B) of this paragraph, is amended by adding “and” at the end of paragraph (1), by striking out “, and” at the end of paragraph (2) and inserting in lieu thereof a period, and by striking out paragraph (3). (30) Amendments of section 6424.— (A) The last sentence of section 6424(b)(1) (relating to refund claims with respect to lubricating oil) is amended by striking out “, except that a person’s first taxable year beginning after December 31, 1965, shall include the period after December 31, 1965, and before tile beginning of such first taxable year”. (B) Section 6424 (relating to lubricating oil not used in highway motor vehicles) is amended by striking out subsection (f) (relating to effective date of section), and by redesignating subsections (g) and (h) as subsections (f) and (g), respectively. (31) Amendments of section 6427.— (A) Subsections (a), (b), and (c) of section 6427 (relating 26 USC 6427. to fuels not used for taxable purposes) are each amended by striking out “, after June 30, 1970,” (B) The amendments made by subparagraph (A) shall 26 USC 6427 note. apply only with respect to fuel used or resold after June 30, 1970. (32) Amendments of section 6504.— (A) Section 6504 (relating to cross references) is amended 26 USC 6504. by striking out paragraphs (13) and (14) and inserting in lieu thereof: “(13) Assessments to recover excessive amounts paid under section 6420 (relating to gasoline used on farms), 6421 (relating to gasoline used for certain nonhighway purposes or by local transit systems), 6424 (relating to lubricating oil not used in highway motor vehicles), or 6427 (relating to fuels not used for taxable purposes) and assessments of civil penalties under section 6675 for excessive claims under section 6420, 6421, 6424, or 6427, see section 6206.” (B) Section 6504, as amended by this Act, Is further amended by redesignating paragraphs (2), (3), (4), (5), (9), (19), (11), (12), (13), and (15) as paragraphs (1), (2), (3), (4), (5), (6), (7), (8), (9), and (10), respectively. (33) Amendments of section 6511.— (A) Section 6511(d)(2)(A)(ii) (relating to net operating 26 USC 6511. loss carryback) is amended by striking out “September 1, 1959, or” and by striking out “, whichever is the later”. (B) Section 6511(d)(5) is amended by striking out “the later of the following dates: (A)”, and by striking out “, or (B) December 31, 1965”. (34) Amendment of section 6601.— Section 6601(h) (relating 26 USC 6601. to interest on estimated tax payments) is amended by striking out “(or section 59 of the Internal Revenue Code of 1939)”. 53 Stat. 32. 26 USC 6654. (35) Amendment of section 6654.— Section 6654 (relating to payment of estimated income tax) is amended by striking out subsection (h) (relating to applicability of section). (36) Amendment of section 6802.— Section 6802(2) (relating 26 USC 6802. to supply and distribution of stamps) is amended by striking out the semicolon at the end and inserting in lieu thereof a period. (37) Amendment of section 6803.— Section 6803 (relating to 26 USC 6803. accounting and safeguarding is amended to read as follows: “SEC. 6803. ACCOUNTING AND SAFEGUARDING. “(a) Bond.— In cases coining within the provisions of paragraph (2) of section 6802, the Secretary may require a bond, with sufficient sureties, in a sum to be fixed by the Secretary, conditioned for the faithful return, whenever so required, of all quantities or amounts undisposed of and for the payment monthly for all quantities or amounts sold or not remaining on hand. “(b) Regulations.— The Secretary may from time to time make such regulations as he may find necessary to insure the safekeeping or prevent the illegal use of all adhesive stamps referred to in paragraph (2) of section 6802.” (38) Amendment of section 6863.— Section 6863(b)(3) (relating to stay of sale of seized property pending Tax Court decision) is amended by striking out subparagraph (C) (relating to effective date). (39) Amendment of section 7012.— Section 7012 (relating to cross references), as amended by section 1904(b)(8)(C) of this Act, is amended to read as follows: “SEC. 7012. CROSS REFERENCES. “(1) For provisions relating to registration in connection with firearms, see sections 5802, 5841, and 5861. “(2) For special rules with respect to registration by persons engaged in receiving wagers, see section 4412. “(3) For provisions relating to registration in relation to the production or importation of gasoline, see section 4101. “(4) For provisions relating to registration in relation to the manufacture or production of lubricating oils, see section 4101. “(5) For penalty for failure to register, see section 7272. “(6) For other penalties for failure to register with respect to wagering, see section 7262.” (40) Amendment of section 7103.— Section 7103 (relating to cross references regarding bonds) is amended by striking out subsection (d). ‘ (41) Amendments of section 7271.— Section 7271 (relating to penalties for offenses concerning stamps) is amended by striking out paragraph (2), and by redesignating paragraphs’ (3) and (4) as paragraphs (2) and (3), respectively. (42) Amendment of section 7272.— Section 7272(b) (relating to cross references) is amended by striking out “4722, 4753,”. (43) Amendments of section 7326.— Section 7326 (relating to disposal of forfeited property) is amended— (A) by striking out “section 5862(b)” and inserting in lieu thereof “section 5872(b)”, and (B) by redesignating subsection (c) as subsection (b). (44) Amendments of section 7422.— Section 7422(c) (relating to suits against collection officers) is amended by striking out “instituted after June 15, 1942,”, and by striking out “where the petition to the Tax Court was filed after such date”. (45) Amendments of section 7428.— (A) Paragraph (1) of section 7428 (cross references), as redesignated by this Act, is amended by striking out “52 Stat, 851;”. (B) Paragraph (2) of such section 7428 is amended by striking out “52 Stat. 867;”. (C) Paragraph (3) of such section 7428 is amended by Striking out “52 Stat. 876–877;”. (D) Paragraph (4) of such section 7428 is amended by striking out “52 Stat. 938;”. (46) Amendments of section 7448.— (A) Subsection (a)(6) of section 7448 (relating to annuities to widows and dependent children of Tax Court judges) is amended— (i) by striking out “The term ‘widow’ means a surviving wife of,” and inserting in lieu thereof “The term ‘surviving spouse’ means a surviving spouse of”; and (ii) by striking out “the mother of issue” and inserting in lieu thereof “a parent of issue”. (B) Section 7448(h) is amended— (i) by striking out “surviving widow or widower” and inserting in lieu thereof “surviving spouse”; (ii) by striking out “such widow” each place it appears and inserting in lieu thereof “such surviving spouse”; (iii) by striking out “a widow” each place it appeal’s and inserting in lieu thereof “a surviving spouse”; (iv) by striking out “widow’s” each place it appears and inserting in lieu thereof “surviving spouse’s”; and (v) by striking out “surviving her” and inserting hi lieu thereof “surviving such spouse”. (C) Sections 7448 (h) and (o) are each amended by striking 26 USC 7448. out “she” and inserting in lieu thereof “such spouse”. (D) Section 7448 (o) is amended by striking out “her” and inserting in lieu thereof “such spouse’s”. (E) Sections 7448 (d), (j), (m), (n), (o), and (q) are each amended by striking out “widow” each place it appears and inserting in lieu thereof “surviving spouse”. (F) The section heading for section 7448 is amended by striking out “WIDOWS” and inserting in lieu thereof “SURVIVING SPOUSES”. (47) Amendments of section 7471.— (A) Subsection (a) of section 7471 (relating to Tax Court 26 USC 7471. employees) is amended by striking out “is authorized in accordance with the civil service laws to appoint, and in accordance with the Classification Act of 1949 (63 Stat. 954; 5 U.S.C. chapter 21), as amended, to fix the compensation of,” and inserting in lieu thereof “is authorized to appoint, in accordance with the provisions of title 5, United States Code, governing appointment in the competitive service, and 5 USC 101 et seq. 5 USC 5101, 5331. to fix the basic pay of, in accordance with chapter 51 and subchapter III of chapter 53 of such title,”. (B) Subsection (b) of section 7471 is amended by striking out “as provided in the Travel Expense Act of 1949 (63 Stat. 166; 5 U.S.C. chapter 16).” and inserting in lieu thereof “as provided in chapter 57 of title 5, United States Code.” 5 USC 5701. 26 USC 7476. (48) Amendment of section 7476.— Section 7476(a) (relating to declaratory judgments) is amended by striking out so much thereof as follows paragraph (2)(B) and inserting in lieu thereof the following: “upon the filing of an appropriate pleading, the Tax Court may make a declaration with respect to such initial qualification or continuing qualification. Any such declaration shall have the force and effect of a decision of the Tax Court, and shall be reviewable, as such.” (49) Amendment of section 7502.— Section 7502(b) (relating 26 USC 7502. to timely mailing treated as timely filing and paying) is amended by striking out “United State Post Office” and inserting in lieu thereof “United States Postal Service”. (50) Amendments of section 7507.— Paragraphs (2) and (3) of section 7507(c) (relating to insolvent hanks) are each amended 26 USC 7507. by striking out “after May 28, 1938,”. (51) Amendments of section 7508.— (A) The heading of section 7508 (relating to time for 26 USC 7508. performing certain acts) is amended by striking out “BY REASON OF WAR” and inserting in lieu thereof “BY REASON OF SERVICE IN COMBAT ZONE”. (B) Section 7508(a) (relating to time to be disregarded) is amended by striking out “States of the Union and the District of Columbia” each place it appears and inserting in lieu thereof “United States”. (52) Amendments of section 7509.— Section 7509 (relating to expenditures incurred by the Post Office Department) is amended— (A) in the section heading, by striking out “POST OFFICE DEPARTMENT” and inserting in lieu thereof “UNITED STATES POSTAL SERVICE”; (B) by striking out “Post Office Department” each place it appears and inserting in lieu thereof “United States Postal Service”; (C) by striking out “such Department” and inserting in lieu thereof “such Service”; and (D) by striking out “, together with the receipts required to be deposited under section 6803(a),”, (53) Amendment or section Tear.— Section 7621 (b) (relating to boundaries of internal revenue districts) is amended to read as follows: “(b) Boundaries.— For the purpose mentioned in subsection (a), the President may subdivide any State or the District of Columbia, or may unite into one district two or more States.” (54) Repeal of section 7G4t.— Subchapter C of chapter 78 (relating to supervision of operations of certain manufacturers) is repealed. (55) Amendments of section 7052.— Section 7652(b)(3) (relating to disposition of internal revenue collections) is amended— (A) by striking out subparagraph (B) and by redesignating subparagraph (C) as subparagraph (B). (B) by striking out “approved emergency relief purposes and essential public projects as provided in subparagraph (B)” and inserting in lieu thereof “emergency relief purposes and essential public projects, with the prior approval of the President or his designated representative”, and (C) by striking out “, including payments under subparagraph (B),”. (56) Amendment of section 7653.— Section 7653(d)(a cross reference) is amended by striking out “c. 512, 64 Stat. 392, section 30;”. (57) Amendments of section 7701.— (A) Section 7701(a)(11) (relating to definitions of Secretary) is amended to read as follows: “(11) Secretary of the treasury and secretary.— “(A) Secretary of the treasury.— The term ‘Secretary of the Treasury’ means the Secretary of the Treasury, personally, and shall not include any delegate of his. “(B) Secretary.— The term ‘Secretary’ means the Secretary or the Treasury or his delegate.”. (B) Section 7701(a)(12)(A) (relating to definition of Secretary or his delegate) is amended to read as follows: “(A) In general.— The term ‘or his delegate’— “(i) when used with reference to the Secretary of the Treasury, means any officer, employee, or agency of the Treasury Department duly authorized by the Secretary of the Treasury directly, or indirectly by one or more redelegations of authority, to perform the function mentioned or described in the context; and “(ii) when used with reference to any other official of the United States, shall be similarly construed.” (58) Amendment of section 7803.— Section 7803 (relating 26 USC 7803. to other personnel) is amended by redesignating subsection (d) as subsection (c). (59) Amendment of section 7809.— Section 7809(a) (relating 26 USC 7809. to deposit of collections) is amended by striking out “4735, 4762,”. (b) Conforming and Clerical Amendments.— (1) Amendment conforming to the repeal of section 6105.— The table of sections for subchapter B of chapter 61 is amended by striking out the item relating to section 6105. (2) Amendment conforming to amendment of section 6111.— The item relating to section 6111 in the table of sections for subchapter B of chapter 61 is amended to read as follows: “Sec. 6111. Cross reference.” (3) Amendments conforming to amendments of section 6154.— (A) Paragraph (1)(B) of section 6655(e) is amended: 26 USC 6655. (i) by adding “and” at the end of clause (i), and (ii) by striking out clauses (ii) and (iii) and inserting in lieu thereof the following: “(ii) in the case of a taxable year beginning before January 1, 1977, the amount of the corporation’s temporary estimated tax exemption for such year.” (B) Paragraph (2)(B) of section 6655(e) is amended by striking out “clauses (ii) and (iii)” and inserting in lieu thereof “clause (ii)”. (C) (i) Section 6655(e) is amended by striking out paragraph (3) and by redesignating paragraph (4) as paragraph (3). (ii) Section 243(b)(3)(C)(iv), as redesignated by section Ante, p. 1797. 1901 (b)(20)(A) of this Act, is amended by striking out “sections 6154(c)(2) and (3)” and inserting in lieu thereof “section 6154(c)(2)”, and by striking out. “sections 6655(e)(2) and (3)” and inserting in lieu thereof “section 6655(e)(2)”. (4) Amendment conforming to the re feat, of section 6162.— The table of sections for subchapter B of chapter 62 is amended by striking out the item relating to section 6162. (5) Amendment conforming to the repeal of section 6304.— The table of sections for subchapter A of chapter 64 is amended by striking out the item relating to section 6304. (6) Amendments conforming to the amendment of section 6416.— (A) Subparagraph (A) of section 6420(c)(3) is amended 26 USC 6420. to read as follows: “(A) by the owner, tenant, or operator of a farm, in connection with cultivating the soil, or in connection with raising or harvesting any agricultural or horticultural commodity, including the raising, shearing, feeding, caring for, training, and management of livestock, bees, poultry, and fur-bearing animals and wildlife, on a farm of which he is the owner, tenant, or operator; except that, if such use is by any person other than the owner, tenant, or operator of such farm, then for purposes of this subparagraph, in applying subsection (a) to this subparagraph, the owner, tenant, or operator of the farm on which gasoline or a liquid taxable under section 26 USC 4041. 4041 issued shall be treated as the user and the ultimate purchaser of such gasoline or liquid;”. (B) The amendments made by subparagraph (A) shall apply with respect to the use of liquids after December 31, 1970. (7) Amendment conforming to the repeal of section 6417.— The table of sections for subchapter B of chapter 65 is amended Ante, p. 1827. by striking out the item relating to section 6417. (8) Amendment conforming to amendment of section 6420.— Section 39(a)(1) is amended by striking out “section 6420(h)” and inserting in lieu thereof “section 6420(g)”. (9) Amendment conforming to amendment of section 6424.— Section 39(a)(3) is amended by striking out “section 6424(g)” Ante, p, 1829. and inserting in lieu thereof “section 6424(f)”. (10) Amendment conforming to amendment of section 7448.— The item relating to section 7448 in the table of sections for part I of subchapter C of chapter 76 is amended to read as follows: “Sec. 7448. Annuities of surviving spouses and dependent children.”. (11) Amendment conforming to amendment of section 7508.— The item relating to section 7508 in the table of sections for chapter 77 is amended to read as follows: “Sec. 7508. Time for performing certain acts postponed by reason of service in combat gone.”. (12) Amendment conforming to amendment of section 7500.— The item relating to section 7509 in the table of sections for chapter 77 is amended to read as follows: “Sec. 7509. Expenditures incurred by the United States Postal Service,”. (13) Amendment conforming to repeal of section 7641.— The table of subchapters for chapter 78 is amended by striking Ante, p. 1832. 26 USC 1 el seq. out the item relating to subchapter C. (A) The Internal Revenue Code of 1954, as amended by this Act, is amended by striking out “Secretary or his delegate” each place it appears and inserting in lieu thereof “Secretary”. (B) The following provisions are each amended by striking 26 USC 4293, 4483, 5551, 7801, 7802, 9006, 9007. 26 USC 3121, 3303, 3304, 3305, 3306, 9005, 9007, 9010, 9012. 26 USC 31. 26 USC 3304. out “Secretary” each place it appears and inserting in lieu thereof “Secretary of the Treasury”: sections 4293, 4483 (b), 5551, 7801(b). 7802(a), 9006(a), 9006(b), and 9007(d). (C) The following provisions are each amended by striking out “to the Secretary” each place it appears and inserting in lieu thereof “to the Secretary of the Treasury”: sections 3121 (b)(12)(B). 3303(b), 3304(a)(3). 3304(c), 3305(j), 3306(c)(12)(B), 9005(a), 9007(b), 9010(b), and 9012(e)(3). (D) Section 31(b)(1) is amended by striking out “(or his delegate)”. (E) The last sentence of section 3304(c) is amended by striking out “the Secretary shall” and inserting in lieu thereof “the Secretary of Labor shall”. (F) Section 3310(d)(2) is amended by striking out “the 26 USC 3310. Secretary’s action” each place it appears and inserting in lieu thereof “the Secretary of Labor’s action”. (G) Section 3221(a) and 3221(c) are each amended by 26 USC 3221. striking out “of the Treasury” each place it appears. (H) Section 3310(e) is amended by striking out “of 26 USC 3310. the Secretary” and inserting in lieu thereof “of the Secretary of Labor”. (I) Section 4412(c) is amended by striking out “he or his 26 USC 4412. delegate” and inserting in lieu thereof “the Secretary”. (J) Section 5845(f) is amended by striking out “of the 26 USC 5845. Treasury or his delegate”. (K) Section 6402(b) is amended by striking out “(or his 26 USC 6402. delegate)”. (L) Section 7458 is amended by striking out “nor his 26 USC 7458. delegate”. (M) Section 7514 is amended by striking out “functions of 26 USC 7514. the Secretary” and inserting in lieu thereof “functions of the Secretary of the Treasury”. (c) Amendments to Sections Referring to Territories.— (1) Section 6871(a) is amended by striking out “or Territory”. 26 USC 6871. 26 USC 7622. 26 USC 7701. (2) Section 7622(b) is amended by striking out “, Territory,”. (3) Section 7701(a)(4) is amended by striking out “or Territory”. (d) Effective Date.— (1) General rule.— Except as otherwise expressly provided in this section, the amendments made by this section shall take effect on the first day of the first month which begins more than 90 days after the date of the enactment of this Act. (2) Amendments relating to income tax.— The amendments made by this section, when relating to a tax imposed by chapter 26 USC 1, 1401. 1 or chapter 2 of the Internal Revenue Code of 1954, shall take effect with respect to taxable years beginning after December 31, 1976. SEC. 1907. AMENDMENTS OF SUBTITLE G; THE JOINT COMMITTEE ON INTERNAL REVENUE TAXATION. (a) In General.— (1) Amendment of section 8001.— Section 8001 (relating to 26 USC 8001. creation of the Joint Committee) is amended by striking out “Joint Committee on Internal Revenue Taxation” and inserting in lieu thereof “Joint Committee on Taxation”. (2) Amendment of section 8004.— Section 8004 (relating to 26 USC 8004. compensation of staff) is amended by striking out “compensation of a clerk” and inserting in lieu thereof “compensation of the Chief of Staff of the Joint Committee”. (3) Amendment of section 8021.— Section 8021(d) (relating 26 USC 8021. to authority to make expenditures) is amended to read as follows: “(d) To Make Expenditures.— The Joint Committee, or any subcommittee thereof, is authorized to make such expenditures as it deems advisable.”. (4) Amendment of section 8023.— Section 8023(c) (relating 26 USC 8023. to reorganization plans) is amended to read as follows: “(c) Application of Subsections (a) and(b).— Subsections (a) and (b) shall be applied in accordance with their provisions without regard to any reorganization plan becoming effective on, before, or after the date of the enactment of this subsection.”. (5) All references in any other statute, or in any rule, regulation, or order, to the Joint Committee on Internal be venue Taxation shall be considered to be made to the Joint Committee on Taxation. (b) Amendments Conforming to the Amendment of Section 8001.— (1) The heading of subtitle G is amended by striking out “Internal Revenue”, (2) The table of subtitles for the Internal Revenue Code of 1954 is amended by striking out the item relating to subtitle G and inserting in lieu thereof the following: “Subtitle G. The Joint Committee on Taxation.”. (c) Effective Date.— The amendments made by this section shall take effect on the first day of the first month which begins more than 90 days after the date of the enactment of this Act. SEC. 1908. EFFECTIVE DATE OF CERTAIN DEFINITIONS AND DESIGNATIONS For purposes of any amendment made by any provision of this Act (other than this title)— (1) which contains a term the meaning of which is defined in or modified by any provision of this title, and (2) which has an effective date earlier than the effective date of the provision of this title defining or modifying such term, that definition or modification shall be considered to take effect as of such earlier effective date. Subtitle B— Amendments of Code Provisions With Limited Current Application; Repeals and Savings Provisions SEC. 1951. PROVISIONS OF SUBTITLE A (a) References to Internal Revenue Code.— Except as otherwise expressly provided, whenever in this section a reference is made to a section or other provision, the reference shall be considered to be made 26 USC 1. to a section or other provision of the Internal Revenue Code of 1954. (b) Amendments.— (1) Amendment of section 72.— (A) Repeal.— Section 72 (relatinfi to annuities) is amended by striking out subsection (i) (relating to joint and survivor annuities where first annuitant died in 1951, 1952, or 1953). (B) Savings provision.— Notwithstanding subparagraph (A), if the provisions of section 72(i) applied to amounts received in taxable years beginning before January 1, 1977, under an annuity contract, then amounts received under such contract on or after such date shall be treated as if such provisions were not repealed. (2) Amendments of section 108.— (A) Repeal.— Section 108 (relating to income from discharge of indebtedness) is amended by striking out subsection (b) (relating to certain railroad corporations) and by striking out of subsection (a) the following: “(a) Special Rule of Exclusion.—”. (B) Savings provision.— If any discharge, cancellation, 26 USC 108 note. or modification of indebtedness of a railroad corporation occurs in a taxable year beginning after December 31, 1976, pursuant to an order of a court in a proceeding referred to in section 108(b)(A) or (13) which commenced before January 1, 1960, then, notwithstanding the amendments made by subparagraph (A), the provisions of subsection (b) of section 108 shall be considered as not repealed with respect to such discharge, cancellation, or modification of indebtedness. (3) Amendments of section 164.— (A) Repeal.— Section 164 (relating to taxes) is amended 26 USC 164. by striking out subsection (f) (relating to payments for municipal services in atomic energy communities) and by redesignating subsection (g) as subsection (f). (B) Savings provision.— Notwithstanding subparagraph 26 USC 164 note. (A), any amount paid or accrued in a taxable year beginning after December 31, 1976, to the Atomic Energy Commission or its successors for municipal-type services shall be allowed as a deduction under section 164 if such amount would have been deductible by reason of section 164(f)(as in effect for a taxable year ending on December 31, 1976) and if the amount is paid or accrued with respect to real property in a community (within the meaning of section 21 b. of the Atomic Energy Community Act of 1955 (42 U.S.C. 2304 (b))) in which the Commission on December 31, 1976, was rendering municipal-type services for which it received compensation from the owners of property within such community. (4) Repeal of section 168.— (A) Repeal.— Section 168 (relating to amortization of 26 USC 168. emergency facilities) is repealed. (B) Savings provision.— Notwithstanding the repeal 26 USC 168 note. made by subparagraph (A), if a certificate was issued before January 1, 1960, with respect to an emergency facility which is or has been placed in service before the date of the enactment of this Act, the provisions of section 168 shall not, with respect to such facility, be considered repealed. The benefit of deductions by reason of the preceding sentence shall be allowed to estates and trusts in the same manner as in the case of an individual. The allowable deduction shall be apportioned between the income beneficiaries and the fiduciary in accordance with regulations prescribed under section 642(f). (5) Amendment of section 171.— (A) Repeal.— (i) Section 171(b)(1)(B) (relating to amount of 26 USC 171. bond premium) is amended by striking out clause (iii) (relating to certain bonds acquired before 1958). (ii) Section 171(b)(1)(B)(i) is amended by striking out “clause (ii) or (iii) applies,” and inserting in lieu thereof “clause (ii) applies, or”, and by inserting “and” at the end thereof. (iii) Section 171 (b)(1)(B)(ii) is amended by striking out “. or” and inserting “, and” in lieu thereof. (iv) The second sentence in section 171 (b)(2) is amended by striking out “or (iii)”. (B) Savings provision.— Notwithstanding the amendments made by subparagraph (A), in the case of a bond the interest on which is not excludable from gross income— (i) which was issued after January 22, 1951, with a call date not more than 3 years after the date of such issue, and (ii) which was acquired by the taxpayer after January 22, 1954, and before January 1, 1958, the bond premium for a taxable year beginning after December 31, 1975, shall not be determined under section 171(b)(1)(B)(i) but shall be determined with reference to the amount payable on maturity, and if the bond is called before its maturity, the bond premium for the year in which the bond is called shall be determined in accordance with the provisions of section 171 (b)(2). (6) Amendment of section 333.— (A) Repeal.— Section 333 (relating to election as to recognition of gain in certain liquidations) is amended by striking out subsection (g) (relating to the liquidation of certain personal holding companies). (B) Savings provision.— Nothwithstanding subparagraph (A), if any corporation meets all the requirements of section 333(g)(2)(B), as in effect before its repeal by this Act, the liquidation of such corporation shall be treated as if paragraphs (2), (3), and (4) of section 333(g) had not been repealed. (C) Phase-in of 12month holding period requirement.— For purposes of subparagraph (B), the period for holding of stock specified in section 333(g)(2)(A)(u), as in effect before such repeal, shall— (i) in the case of taxable years beginning in 1977, be considered to be “9 months”; and (ii) in the case of taxable years beginning after December 31, 1977, be considered to be “1 year”. (7) Amendment of section 453.— (A) Repeal.— Section 453(b)(2) (relating to limitation on use of installment sales method) is amended to read as follows: “(2) Limitation.— Paragraph (1) shall apply only if in the taxable year of the sale or other disposition— “(A) there are no payments, or “(B) the payments (exclusive of evidences of indebtedness or the purchaser) do not exceed 30 percent of the selling price.”. (B) Savings provision.— Notwithstanding subparagraph (A), in the case of installment payments received during taxable years beginning after December 31, 1976, on account of a sale or other disposition made during a taxable year beginning before January 1, 1954, subsection (b)(1) of section 453 (relating to sales of realty and casual sales of personalty) shall apply only if the income was (by reason of section 53 Stat. 24. 44(b) of the Internal Revenue Code of 1939) returnable on the basis and in the manner prescribed in section 44(a) of such Code. (8) Amendments of section 512.— (A) Repeal.— Section 512(b) (relating to unrelated business 26 USC 512. taxable income) is amended by striking out paragraphs (13) and (14) and by redesignating paragraphs (15), (16), and (17) as paragraphs (13), (14), and (15), respectively. (B) Savings provision.— Notwithstanding subparagraph 26 USC 512 note. (A), income received in a taxable year beginning after December 31, 1975, shall be excluded from gross income in determining unrelated business taxable income, if such income would have been excluded by paragraph (13) or (14) of section 512(b) if received in a taxable year beginning before such date. Any deductions directly connected with income excluded under the preceding sentence in determining unrelated business taxable income shall also be excluded for such purpose. (9) Amendment of section 545.— (A) Repeal.— Section 545(b) (relating to adjustments in 26 USC 545. computing undistributed personal holding company income) is amended by striking out paragraph (9) (relating to deductions on account of certain liens in favor of the United States). (B) Savings provision.— Notwithstanding subparagraph 26 USC 545 note. (A), if any amount was deducted under paragraph (9) of section 545(b) in a taxable year beginning before January 1, 1977, on account of a lien which is satisfied or released in a taxable year beginning on or after such date, the amount so deducted shall be included in income, for purposes of section 545, as provided in the second sentence of such paragraph. Shareholders of any corporation which has amounts included in its income by reason of the preceding sentence may elect to compute the income tax on dividends attributable to amounts so included as provided in the third sentence of such paragraph. (10) Amendments of section 691.— (A) Repeal.— Section 691 (relating to income in respect 26 USC 691. of decedents) is amended by striking out subsection (e) (relating to certain installment obligations transmitted at death) and by redesignating subsection (f) as subsection (e). (B) Savings provision.— Notwithstanding subparagraph 26 USC 691 note. (A), any election made under section 691(e) to have subsection (a)(4) of such section apply in the case of an installment obligation shall continue to be effective with respect to taxable years beginning after December 31, 1976. Section 691(c) shall not apply in respect of any amount included in gross income by reason of the preceding sentence. The liability under bond filed under section 44(d) of the Internal Revenue Code of 1939 (or corresponding provisions of prior law) in 53 Stat. 24. respect of which such an election applies is hereby released with respect to taxable years to which such election applies. (11) Amendments of section 817.— (A) Repeal.— Section 817 is amended by striking out 26 USC 817. subsection (d) (relating to certain gains occurring before 1959). (B) Savings provision.— Notwithstanding subparagraph 26 USC 817 note. (A), any gain in a taxable year beginning after December 31, 1976, from any sale or other disposition of property prior to January 1, 1959, would be excluded or not taken into account for purposes of part 1 of subchapter L of chapter Ante, p. 1839. 1 if subsection (d) of section 817 of such Code were still in effect for such taxable year, such gain shall be excluded for purposes of such part. (12) Repeal of section 1347.— (A) Repeal.— Section 1347 (relating to certain claims filed against the United States before January 1, 1958) is repealed. (B) Savings provision.— Notwithstanding subparagraph (A), if amounts received in a taxable year beginning after December 31, 1976, would have been subject to the provisions of section 1347 if received in a taxable year beginning before such date, the tax imposed by section 1 attributable to such receipt shall be computed as if section 1347 had not been repealed. (13) Repeal of section 1471.— (A) Repeal.— Subchapter A of chapter 4 (relating to recovery of excessive profits on certain Government contracts) is repealed. (B) Savings provision.— If the amount of profit required to be paid into the Treasury under section 2382 or 7300 of title 10, United States Code, is not voluntarily paid, the Secretary of the Treasury or his delegate shall collect the same under the methods employed to collect taxes under subtitle A. All provisions of law (including penalties) applicable with respect to such taxes and not inconsistent with section 2382 or 7300 of title 10 of such Code, shall apply with respect to the assessment, collection, or payment of excess profits to the Treasury as provided in the preceding sentence, and to refunds by the Treasury of overpayments of excess profits into the Treasury. (14) Amendment of section 1481.— (A) Repeal.— Section 1481 (relating to mitigation of effect of renegotiation of Government contracts) is amended by striking out subsection (d) (relating to renegotiation for years prior to 1954). (B) Savings provision.— If, during a taxable year beginning after December 31, 1976, a recovery of excessive profits through renegotiation which relates to profits of a taxable 53 Stat. 1. year subject to the Internal Revenue Code of 1939, the adjustments in respect to such renegotiation shall be made under section 3806 of such Code. (c) Conforming and Clerical Amendments.— (1) Amendment conforming to the amendment of section 1017.— Section 1017 is amended by striking out “section 108(a)” each time it appears therein and inserting in lieu thereof “section 108”. (2) Amendments conforming to repeal of section 168.— (A) Section 1238 is amended by striking out “(relating to amortization deduction of emergency facilities)” and inserting in lieu thereof “(as in effect before its repeal by the Tax Ante, p. 1520. 26 USC 642, 1082. Ante, p. 1837. 26 USC 1245, 1250. Reform Act. of 1976)”. (B) Sections 642(f) and 1082(a)(2)(B) are each amended by striking out “168,”. (C) Sections 1245(a)(2) and 1250(b)(3) are each amended by striking out “168,” each place it appears and inserting in lieu thereof “168 (as in effect before its repeal by the Tax Reform Act of 1976),”. (D) The table of sections for part VI of subchapter B of chapter 1 is amended by striking out the item relating to section 168. Ante, p. 1837. (3) Amendments conforming to the repeal of section 1347.— (A) Section 5(b) is amended by striking out paragraph 26 USC 5. (5) and by redesignating paragraphs (2), (3), and (4), as paragraphs (1), (2), and (3), respectively. (B) The table of sections for part VI of subchapter Q of chapter 1 is amended by striking out the item relating to section 1347. Ante, p. 1840. (C) The heading of part VI of subchapter Q of chapter 1 is amended to read as follows: “PART VI— MAXIMUM RATE ON PERSONAL SERVICE INCOME.” (D) The table of parts for subchapter Q of chapter 1 is amended by striking out the item relating to part VI and inserting in lieu thereof the following: “Part VI. Maximum rate on personal service income.” (4) Amendment conforming to the repeal of section 1471.— The table of subchapters for chapter 4 is amended by striking out the item relating to subchapter A. (d) Effective Date.— Except as otherwise expressly provided, the 26 USC 72 note. amendments made by this section shall apply with respect to taxable years beginning after December 31, 1976. SEC. 1952. PROVISIONS OF SUBCHAPTER D OF CHAPTER 39; COTTON FUTURES. (a) Short Title.— This section may be cited as the “United States Cotton Futures Act”. (b) Repeal of Tax on Cotton Futures.— Subchapter D of chapter 39 (relating to tax on cotton futures) is repealed. 26 USC 4851. (c) Definitions.— For purposes of this section— (1) Cotton futures contract.— The term “cotton futures contract” means any contract of sale of cotton for future delivery made at, on, or in any exchange, board of trade, or similar institution or place of bus mess which has been designated a “contract market” by the Commodity Futures Trading Commission pursuant to the Commodity Exchange Act and the term “contract of 7 USC 1. sale” as so used shall be held to include sales, agreements of sale, and agreements to sell. (2) Future delivery.— The term “future delivery” shall not include any cash sale of cotton for deferred shipment or delivery. (3) Person.— The term “person” includes an individual, trust, estate, partnership, association, company, or corporation. (4) Secretary.— The term “Secretary” means the Secretary of Agriculture of the United States. (5) Standards.— The term “standards” means the official cotton standards of the United States established by the Secretary pursuant to the United States Cotton Standards Act, as emended. (d) Bona Fide Spot Markets and Commercial Differences.— (1) Definition.— For purposes of this section, the only markets which shall be considered bona fide spot markets shall be those which the Secretary shall, from time to time, after investigation, determine and designate to be such, and which we shall give public notice. (2) Determination.— In determining, pursuant to the provisions of this section, what markets are bona fide spot markets, the Secretary is directed to consider only markets in “which spot cotton is sold in such volume and under such conditions as customarily to reflect accurately the value of middling cotton and the differences between the prices or values of middling cotton and of other grades of cotton for which standards shall have been established by the Secretary; except that if there are not sufficient places, in the markets of which are made bona fide sales of spot cotton of grades for which standards are established by the Secretary, to enable him to designate at least five spot markets in accordance with subsection (f)(3), he shall, from data as to spot sales collected by him, make rules and regulations for determining the actual commercial differences in the value of spot cotton of the grades established by him as reflected by bona fide sales of spot cotton, of the same or different, grades, in the market selected and designated by him, from time to time, for that purpose, and in that event differences in value of cotton of various grades involved in contracts made pursuant to subsection (f)(1) and (2) shall be determined in compliance with such rules and regulations. It shall be the duty of any person engaged in the business of dealing in cotton, when requested by the Secretary or any agent acting under his instructions, to answer correctly to the best of his knowledge, under oath or otherwise, all questions touching his knowledge of the number of bales, the classification, the price or bona fide price offered, and other trims of purchase or sale, of any cotton involved in any transaction participated in by him, or to produce all books, letters, papers, or documents in his possession or under his control relating to such matter. (3) Withholding information.— Any person engaged in the business of dealing in cotton who shall, within a reasonable time prescribed by the Secretary or any agent acting under his instructions, willfully fail or refuse to answer questions or to produce books, letters, papers, or documents, as required under paragraph (2) of this subsection, or who shall willfully give any answer that is false or misleading, shall, upon conviction thereof, be fined not more than $500. (e) Form and Validity of Cotton Futures Contracts.— Each cotton futures contract shall be a basis grade contract, or a tendered grade contract, or a specific grade contract as specified in subsections (f), (g), or (h) and shall be in writing plainly stating, or evidenced by written memorandum showing, the terms of such contract, including the quantity of the cotton involved and the names and addresses of the seller and buyer in such contract, and shall be signed by the party to be charged, or by his agent in his behalf. No cotton futures contracts which does not conform to such requirements shall be enforceable by, or on behalf of, any party to such contract or his privies. (f) Basis Grade Contracts.— (1) Conditions.— Each basis grade cotton futures contract shall comply with each of the following conditions: (A) Conformity with regulations.— Conform to the regulations made pursuant to this section. (B) Specification of grade, price, and dates of sale and settlement.— Specify the basis grade for the cotton involved in the contract, which shall be one of the grades for which standards are established by the Secretary, except grades prohibited from being delivered on a contract made under this subsection by subparagraph (E), the price per pound at which the cotton of such basis grade is contracted to be bought or sold, the date when the purchase or sale was made, and the month or months in which the contract is to be fulfilled or settled; except that middling shall be deemed the basis £ade incorporated into the contract if no other basis grade specified either in the contract or in the memorandum evidencing the same. (C) Provision for delivery of standard grades only.— Provide that the cotton dealt with therein or delivered thereunder shall be of or within the grades for which standards are established by the Secretary except grades prohibited from being delivered on a contract made under this subsection by subparagraph (E) and no other grade or grades. (D) Provision for settlement on basis of actual commercial differences.— Provide that in case cotton of grade other than the basis grade be tendered or delivered in settlement of such contract, the differences above or below the contract price which the receiver shall pay for such grades other than the basis grade shall be the actual commercial differences, determined as hereinafter provided, (E) Prohibition of delivery of inferior cotton.— Provide that cotton that, because of the presence of extraneous matter of any character, or irregularities or defects, is reduced in value below that of low middling, or cotton that is below the grade of low middling, or, if tinged, cotton that is below the grade of strict middling, or, if yellow stained, cotton that is below the grade of good middling, the grades mentioned being of the official cotton standards of the United States, or cotton that is less than seven-eighths of an inch in length of staple, or cotton of perished staple, or of immature staple, or cotton that is “gin cut” or reginned, or cotton that is “repacked” or “false packed” or “mixed packed” or “water packed”, shall not be delivered on, under, or in settlement of such contract. (F) Provisions for tender in full, notice of delivery date, and certificate of grade.— Provide that all tenders of cotton under such contract shall be the full number of bales involved therein, except that such variations of the number of bales may be permitted as is necessary to bring the total weight of the cotton tendered within the provisions of the contract as to weight; that, on the fifth business day prior to delivery, the person making the tender shall give to the person receiving the same written notice of the date of delivery, and that, on or prior to the date so fixed for delivery, and in advance of final settlement of the contract, the person making the tender shall furnish to the person receiving the same a written notice or certificate stating the grade of each individual bale to be delivered and, by means of marks or numbers, identifying each bale with its grade. (G) Provision for tender and settlement in accordance with government classification.— Provide that all tenders of cotton and settlements therefor under such contract shall be in accordance with the classification thereof made under the regulations of the Secretary by such officer or officers of the Government as shall be designated for the purpose, and the costs of such classification shall be fixed, assessed, col- Regulations. lected, and paid as provided in such regulations. The Secretary is authorized to prescribe regulations for carrying out the purposes of this subparagraph and the certificates of the officers of the Government, as to the classification of any cotton for the purposes of this subparagraph shall be accepted in the courts of the United States in all suits between the parties to such contract, or their privies, as prima facie evidence of the true classification of the cotton involved. (2) Incorporation of conditions in contracts.— The provisions of paragraphs (1)(C), (D), (E), (F), and (G) shall be deemed fully incorporated into any such contract if there be written or printed thereon, or on the memorandums evidencing the same, at or prior to the time the same is signed, the phrase “Subject to United States Cotton Futures Act, subsection (f).” (3) Delivery allowances.— For the purpose of this subsection, the differences above or below the contract price which the receiver shall pay for cotton of grades above or below the basic grade in the settlement of a contract of sale for the future delivery of cotton shall be determined by the actual commercial differences in value thereof upon the sixth business day prior to the day fixed, in accordance with paragraph (1)(F), for the delivery of cotton on the contract, established by the sale of spot cotton in the spot markets of not less than five places designated for the purpose from time to time by the Secretary, as such values were established by the sales of spot cotton, in such designated five or more markets. For purposes of this paragraph, such values in the such spot markets shall be based upon the standards for grades of cotton established by the Secretary. Whenever the value Rules and regulations. of one grade is to be determined from the sale or sales of spot cotton of another grade or grades, such value shall be fixed in accordance with rules and regulations which shall be prescribed for the purpose by the Secretary. (g) Tendered Grade Contracts.— (1) Conditions.— Each tendered grade cotton future contract shall comply with each of the following conditions: (A) Compliance with subsection (f).— Comply with all the terms and conditions of subsection (f) not inconsistent with this subsection; and (B) Provision for contingent specific performance.— Provide that, in case cotton of grade or grades other than the basis grade specified in the contract shall be tendered in performance of the contract, the parties to such contract may agree, at the time of the tender, as to the price of the grade or grades so tendered, and that if they shall not then agree as to such price, then, and in that event, the buyer of said contract shall have the right to demand the specific fulfillment of such contract by the actual delivery of cotton of the basis grade named therein and at the price specified for such basis grade in said contract. (2) Incorporation of conditions in contract.— Contracts made in compliance, with this subsection shall be known as “subsection (g) Contracts”. The provisions of this subsection shall be deemed fully incorporated into any such contract if there be written or printed thereon, or on the memorandum evidencing the same, at or prior to the time the same is signed, the phrase “Subject to United States Cotton Futures Act, subsection (g)”. (3) Application of subsection.— Nothing in this subsection shall be so construed as to authorize any contract in which, or in the settlement of or in respect to which, any device or arrangement whatever is resorted to, or any agreement is made, for the determination or adjustment of the price of the grade or grades tendered other than the basis grade specified in the contract by any “fixed difference” system, or by arbitration, or by any other method not provided for by this section. (h) Specific Grade Contracts.— (1) Conditions.— Each specific grade cotton futures contract shall comply with each of the following conditions: (A) Conformity with rulesand regulations.— Con form to the rules and regulations made pursuant to this section. (B) Specification of grade, price, dates of sale and delivery.— Specify the grade, type, sample, or description of the cotton involved in the contract, the price per pound at which such cotton is contracted to be bought or sold, the date of the purchase or sale, and the time when shipment or delivery of such cotton is to be made. (C) Prohibition of delivery of other than specified grade.— Provide that cotton of or within the grade or of the type, or according to the sample or description, specified in the contract shall be delivered thereunder, and that no cotton which does not conform to the type, sample, or description, or which is not of or within the grade specified in the contract shall be tendered or delivered thereunder. (D) Provision for specific performance.— Provide that the delivery of cotton under the contract shall not be effected by means of “setoff” or “ring” settlement, but only by the actual transfer of the specified cotton mentioned in the contract. (2) Incorporation of conditions in contract.— The provisions of paragraphs (1)(A), (C). and (D) shall be deemed fully incorporated into any such contract if there be written or printed thereon, or on the document or memorandum evidencing the same, at or prior to the time the same is entered into, the words “Subject to United States Cotton Futures Act, subsection (h)”. Ante, p. 1841. (3) Application of subsection.— This subsection shall not be construed to apply to any contract of sale made in compliance with subsection (f) or (g). (i) Liability of Principal for Acts of Agent.— When construing and enforcing the provisions of this section, the act, omission, or failure of any official, agent, or other person acting for or employed by any association, partnership, or corporation within the scope of his employment or office shall, in every case, also be deemed the act, omission, or failure of such association, partnership, or corporation, as well as that of the person. (j) Regulations.— The Secretary is authorized to make such regulations with the force and effect of law as he determines may be necessary to carry out the provisions of this section and the powers vested in him by this section. (k) Validations.— Any person who knowingly violates any regulation made in pursuance of this section, shall, upon conviction thereof be fined not less than $100 nor more than $500, for each violation thereof, in the discretion of the court, and, in case of natural persons, may, in addition be punished by imprisonment for not less than 30 days nor more than 90 days, for each violation, in the discretion of the court except that this subsection shall not apply to violations subject to subsection (d)(3). (l) Applicability to Contracts Prior to Effective Date.— The provisions of this section shall not apply to any cotton futures contract entered into prior to the effective date of this section or to any act or failure to act by any person prior to such effective date and all such prior contracts, acts or failure to act shall continue to be governed by 26 USC 1. the applicable provisions of the Internal Revenue Code of 1954 as in effect prior to the enactment of this section. All designations of bona fide spot markets and all rules and regulations issued by the Secretary pursuant to the applicable provisions of the Internal Revenue Code of 1954 which were in effect on the effective date of this section, shall remain fully effective as designations and regulations under this section until superseded, amended, or terminated by the Secretary. (m) Authorization.— There are authorized to be appropriated such sums as may be necessary to carry out this section. (n) Conforming and Clerical, Amendments.— (1) Section 6808 (relating to cross references) is amended by striking out paragraph (2), and by redesignating paragraphs (3), (6), and (11) as paragraphs (1), (2), and (3), respectively. (2) (A) Section 7233 (relating to failure to pay tax on cotton futures) is repealed. (B) The table of sections for part II of subchapter A of chapter 75 is amended by striking out the item relating to section 7233. (3) (A) Section 7263 (relating to penalties concerning cotton futures) is repealed. (B) The table of sections for subchapter B of chapter 75 is amended by striking out the item relating to section 7263. (4) (A) Subchapter E of chapter 76 (relating to miscellaneous provisions regarding cotton futures contracts) is repealed. (B) The table of subchapters for chapter 76 is amended by striking out the items relating to subchapter E. (5) Chapter 39 (relating to regulatory taxes) is amended by striking out the chapter heading and the table of subchapters. (6) The table of chapters for subtitle D is amended by striking out the item relating to chapter 39. (o) Effective Date.— The provisions of this section shall take effect on the 90th day after the date of the enactment of this Act.

14. 1976

    Pub. L. 94–455 § 1901(a)(17)(B) · 90 Stat. 1520

    Redesignated · 26 U.S.C. § 103(d)

    Pub. L. 94–455, § 1901(a)(17)(B), redesignated subsec. (e) as (d). Former subsec. (d) redesignated (c)

    Source evidence

    Code amendment note
    Subsec. (d). Pub. L. 94–455, § 1901(a)(17)(B), redesignated subsec. (e) as (d). Former subsec. (d) redesignated (c).

    Enacted provision · exact public law section
    (B) Section 103 is amended by striking out subsection (b) (relating to certain exceptions) and by redesignating subsections (c), (d), (e) (f), and (g)(as added by this Act) as subsections (b), (c), (d), (e), and (f) respectively.

15. 1976

    Pub. L. 94–455 title XIX · 90 Stat. 1520

    1. Added · 26 U.S.C. § 103(e)

       Pub. L. 94–455, §§ 1901(a)(17)(B), (E), 2105(b), 2137(d), added subsec. (e) relating to qualified scholarship funding bonds

    2. Redesignated · 26 U.S.C. § 103(e)

       Pub. L. 94–455, §§ 1901(a)(17)(B), (E), 2105(b), 2137(d), redesignated former subsec. (f) relating to cross references as a second subsec. (e), reduced the number of cross references in subsec. (e) as so redesignated from twenty-three (which made reference to various obligations of the United States and of corporations organized under Acts of Congress) to three, relating, respectively, to Puerto Rican bonds, Virgin Islands insular and municipal bonds, and certain obligations issued under title I of the Housing Act of 1949

    3. Inserted · 26 U.S.C. § 103(e)

       Pub. L. 94–455, §§ 1901(a)(17)(B), (E), 2105(b), 2137(d), inserted a fourth cross reference

    4. Redesignated · 26 U.S.C. § 103(e)

       Pub. L. 94–455, §§ 1901(a)(17)(B), (E), 2105(b), 2137(d), designated as par. (24) relating to the treatment of exempt-interest dividends. Former subsec. (e) redesignated (d)

    Source evidence

    Code amendment note
    Subsec. (e). Pub. L. 94–455, §§ 1901(a)(17)(B), (E), 2105(b), 2137(d), added subsec. (e) relating to qualified scholarship funding bonds, redesignated former subsec. (f) relating to cross references as a second subsec. (e), reduced the number of cross references in subsec. (e) as so redesignated from twenty-three (which made reference to various obligations of the United States and of corporations organized under Acts of Congress) to three, relating, respectively, to Puerto Rican bonds, Virgin Islands insular and municipal bonds, and certain obligations issued under title I of the Housing Act of 1949, and inserted a fourth cross reference, designated as par. (24) relating to the treatment of exempt-interest dividends. Former subsec. (e) redesignated (d).

    Enacted provision · exact public law
    TITLE XIX— REPEAL AND REVISION OF OBSOLETE, RARELY USED, ETC., PROVISIONS OF INTERNAL REVENUE CODE OF 1954 SUBTITLE A— AMENDMENTS OF INTERNAL REVENUE CODE GENERALLY SEC. 1901. AMENDMENTS OF SUBTITLE A; INCOME TAXES. (a) In General.— (1) Amendment of section 2.— Subsection (c) of section 2 (relating to certain married individuals living apart) is amended to read as follows: “(c) Certain Married Individuals Living Apart.— For purposes of this part, an individual shall be treated as not married at the close of the taxable year if such individual is so treated under the provisions of section 143 (b).” (2) Repeal of section 36.— Section 35 (relating to partially tax-exempt interest received by individuals) is repealed. (3) Amendment of section 39.— Section 39 (relating to certain uses of gasoline, special fuels, and lubricating oil) is amended by striking out subsections (b) and (c) and inserting after subsection (a) the following new subsection: “(b) Exception.— Credit shall not be allowed under subsection (a) for any amount payable under section 6421, 6424, or 6427, if a claim for such amount is timely filed and, under section 6421 (i), 6424 (f), or 6427(f), is payable under such section.” (4) Amendments of section 46.— (A) The second sentence of section 46(a)(4), as redesignated by this Act, is amended by striking out “section 408(e)” and inserting in lieu thereof “section 408(f)”. (B) Clause (iii) of section 46(c)(3)(B) (relating to public utility property) is amended by striking out “47 U.S.C., sec. 222(a)(5)” and inserting in lieu thereof “47 U.S.C. 222(a)(5)”. (5) Amendments or section 48.— (A) Section 48(a)(2)(B)(vi) (relating to section 38 property used outside the United States) is amended by striking out “; 43 U.S.C., sec. 1331)” and inserting in lieu thereof “(43 U.S.C. 1331))”. (B) Section 48(a)(2)(B)(viii) is amended by striking out “47 U.S.C., sec. 702” and inserting in lieu thereof “47 U.S.C. 702”. (6) Amendment of section 50a.— The second sentence of section 50A (a)(3) (relating to liability for tax) is amended by 26 USC 50A. striking out “section 408 (e)” and inserting in lieu thereof “section 408(f)”. (7) Repeal of section 51.— Subchapter A of chapter 1 is 26 USC 51. amended by striking out part V (relating to tax surcharge). (8) Amendments op section 62.— Section 62 (relating to definition 26 USC 62. of adjusted gross income) is amended by redesignating paragraph (11), as added by the Act of October 26, 1974 (Public Law 93–483), as paragraph (12). (9) Additional amendment of section 62.— Section 62(12), as redesignated by subparagraph (A) of this paragraph, is amended by striking out “trade or business to the extent” and inserting in lieu thereof “trade or business, to the extent”. (10) Definition of ordinary income.— Part I of subchapter B of chapter 1 (relating to definitions of gross income, adjusted 26 USC 61. gross income, and taxable income) is amended by adding at the end thereof the following new section: “SEC. 64. ORDINARY INCOME DEFINED. “For purposes of this subtitle, the term ‘ordinary income’ includes any gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231(b). Any gain from the sale or exchange of property which is treated or considered, under other provisions of this subtitle, as ‘ordinary income’ shall be treated as gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231(b).” (11) Definition of ordinary loss.— Part I of subchapter B of chapter 1 (relating to definitions of gross 26 USC 61. income, adjusted gross income, and taxable income) is amended by adding at the end thereof the following new section: “SEC. 65. ORDINARY LOSS DEFINED. “For purposes of this subtitle, the term ‘ordinary loss’ includes any loss from the sale or exchange of property which is not a capital asset. Any loss from the sale or exchange of property which is treated or considered, under other provisions of this subtitle, as ‘ordinary loss’ shall be treated as loss from the sale or exchange of property which is not a capital asset.” (12) Amendment of section 72.— Section 72(d)(1) (relating 26 USC 72. to employees’ annuities) is amended by striking out “(whether or not before January 1, 1954)” and by striking out “(under this paragraph and prior income tax laws)”. (13) Additional amendment of section 72.— Section 72(m)(4)(A) (relating to assignments or pledges) is amended by striking out “an individual retirement amount” and inserting in lieu thereof “an individual retirement account”. (14) Repeal of section 76.— Section 76 (relating to mortgages 26 USC 76. made or obligations issued by joint stock land banks) is repealed. (15) Amendment of section 83.— Section 83(b)(2) (relating 26 USC 83. to election to include the value of restricted property in gross income) is amended by striking out “(or, if later, 30 days after 26 USC 1 note. the date of the enactment of the Tax Reform Act of 1969)”. (16) Amendment of section 101.— Section 101 is amended by 26 USC 101. striking out subsection (f) (relating to effective date of section). (17) Amendments of section 103.— (A) Section 103(a) (relating to tax-exempt interest), as 26 USC 103. amended by this Act, is amended by inserting “and” at the end of paragraph (1), by striking out paragraphs (2) and (3), and by redesignating paragraph (4) as paragraph (2). (B) Section 103 is amended by striking out subsection (b) (relating to certain exceptions) and by redesignating subsections (c), (d), (e) (f), and (g)(as added by this Act) as subsections (b), (c), (d), (e), and (f) respectively. (C) Section 103(b)(1) (relating to industrial development bonds), as redesignated by subparagraph (B) of this paragraph, is amended by inserting “or (2)” after “(a)(1)”. (D) Section 103(c)(2)(A) (relating to definition of arbitrage bonds), as redesignated by subparagraph (B) of this paragraph, is amended by inserting “or (2)” after “(a)(1)”. (E) Section 103(e) (relating to certain cross references) as redesignated by subparagraph (B) of this paragraph, is amended to read as follows: “(e) Cross References.— “For provisions relating to the taxable status of— “(1) Puerto Rican bonds, see section 3 of the Act of March 2, 1917, as amended (48 U.S.C. 745). “(2) Virgin Islands insular and municipal bonds, see section 1 of the Act of October 27, 1919 (48 U.S.C. 1403). “(3) Certain obligations issued under title I of the Housing Act of 1949, see section 102(g) of title I of such Act (42 U.S.C. 1452(g)).” (18) Amendments of section 104.— (A) Section 104(a)(4) (relating to exclusion of compensation for injuries or sickness) is amended by striking out “;60 Stat. 1021” (B) Section 104(c)(2) as redesignated by section 505 of this Act, is amended to read as follows: “(2) For exclusion of part of disability retirement pay from the application of subsection (a)(4) of this section, see section 1403 of title 10, United States Code (relating to career compensation laws).” (19) Amendment of section 115.— Section 115 (relating to income of States, municipalities, etc.) is amended to read as follows: “SEC. 115. INCOME OF STATES, MUNICIPALITIES, ETC. “Gross income does not include— “(1) income derived from any public utility or the exercise of any essential governmental function and accruing to a State or any political subdivision thereof, or the District of Columbia; or “(2) income accruing to the government of any possession of the United States, or any political subdivision thereof.” (20) Amendment of section 116.— Subsection (a) of section 116 (relating to partial exclusion of dividends received by individuals) is amended by striking out “Effective with respect to any taxable year ending after July 31, 1954, gross income” and inserting in lieu thereof “Gross income”. (21) Amendment of section 124.— Section 124 (relating to cross references to other Acts) is amended to read as follows: “SEC. 124. CROSS REFERENCES TO OTHER ACTS. “(a) For exemption of— “(1) Adjustments of indebtedness under wage earners’ plans, see section 679 of the Bankruptcy Act (11 U.S.C. 1079). “(2) Allowances and expenditures to meet losses sustained by persons serving the United States abroad, due to appreciation of foreign currencies, see section 5943 of title 5, United States Code. “(3) Amounts credited to the Maritime Administration under section 9(b)(6) of the Merchant Ship Sales Act of 1946, see section 9(c)(1) of that Act (50 U.S.C. App. 1742). “(4) Benefits under laws administered by the Veterans’ Administration, see section 3101 of title 38, United States Code. “(5) Earning of ship contractors deposited in special reserve funds, see section 607(d) of the Merchant Marine Act, 1936 (46 U.S.C. 1177). “(6) Income derived from Federal Reserve banks, including capital stock and surplus, see section 7 of the Federal Reserve Act (12 U.S.C. 531). “(7) Railroad retirement annuities and pensions, see section 12 of the Railroad Retirement Act of 1935 (45 U.S.C. 2281). “(8) Railroad unemployment benefits, see section 2(e) of the Railroad Unemployment Insurance Act (45 U.S.C. 352). “(9) Special pensions of persons on Army and Navy medal of honor roll, see 38 U.S.C. 562(a)–(c). “(b) For extension of military income-tax-exemption benefits to commissioned officers of Public Health Service in certain circumstances, see section 212 of the Public Health Service Act (42 U.S.C. 213).” (22) Amendment of section 143.— Section 143 (relating to 26 USC 143. determination of marital status) is amended by striking out “this part” each place it appears and inserting in lieu thereof “this part and part V”. (23) Amendment of section 151.— Section 151 (e)(4)(defining 26 USC 151. student and educational institution) is amended to read as follows: “(4) Student defined.— For purposes of paragraph (1)(B)(ii), the term ‘student’ means an individual who during each of 5 calendar months during the calendar year in which the taxable year of the taxpayer begins— “(A) is a full-time student at an educational organization described in section 170(b)(1)(A)(ii); or “(B) is pursuing a full-time course of institutional on-farm training under the supervision of an accredited agent of an educational organization described in section 170(b)(1)(A)(ii) or of a State or political subdivision of a State.” (24) Amendments or section 152.— (A) Section 152(a)(defining dependent) is amended— 26 USC 152. (i) by inserting “or” at the end of paragraph (8), (ii) by striking out “, or” at the end of paragraph (9) and inserting in lieu thereof a period, and (iii) by striking out paragraph (10). (B) Section 152(b)(3) (relating to rules concerning the definition of dependent) is amended to read as follows: “(3) The term ‘dependent’ does not include any individual who “Dependent.” is not a citizen or national of the United States unless such individual is a resident of the United States or of a country contiguous to the United States. The preceding sentence shall not exclude from the definition of ‘dependent’ any child of the tax-payer legally adopted by him, if, for the taxable year of the tax-payer, the child has as his principal place of abode the home of the taxpayer and is a member of the taxpayer’s household, and if the taxpayer is a citizen or national of the United States.” (25) Amendments of section 164.— Section 164(d)(2) (relating 26 USC 164. to apportionment of taxes on real property between the seller and purchaser) is amended by striking out subparagraphs (B) and (C), and by redesignating subparagraph (D) as subparagraph (B). (26) Amendments of section 165.— Section 165 (relating 26 USC 165. to deduction of losses) is amended by striking out subsection (i) (relating to property confiscated by Cuba), and by redesignating subsection (j) as subsection (i). (27) Amendments or section 167.— (A) Section 167 (d) (relating to agreement as to useful life for depreciation) is amended by striking out “after the date of enactment of this title” and inserting in lieu thereof “after August 16, 1954”. (B) Section 167(f)(2)(defining personal property) is amended by striking out “the date of the enactment of the Revenue Act of 1962” and inserting in lieu thereof “October 16, 1962”. (C) Section 167(1)(4)(A) (relating to election as to increased-capacity property) is amended by striking out “within 180 days after the date of the enactment of this subparagraph” and inserting in lieu thereof “before June 29, 1970,”. (28) Amendments of section 170.— (A) (i) Section 170 (relating to charitable deductions) is amended by striking out subsections (f)(6) and (g) (relating to unlimited charitable deductions allowed for taxable years beginning before January 1, 1975), and by redesignating subsections (h), (i), and (j) as subsections (g), (h), and (i), respectively. (ii) Section 170(b)(1) (relating to percentage limitations on deductions for individuals) is amended by striking out subparagraph (C) (relating to unlimited deductions), and by redesignating subparagraphs (D), (E), and (F) as subparagraphs (C), (D), and (E), respectively. (iii) Section 170(b)(1)(A)(vii) is amended by striking out “subparagraph (E)” and inserting in lieu thereof “subparagraph (D)”. (iv) Section 170(b)(1)(B)(ii) is amended by striking out “subparagraph (D)” and inserting in lieu thereof “subparagraph (C)”. (v) Section 170(c) (relating to definition of charitable contribution) is amended by striking out in the last sentence “subsection (h)” and inserting in lieu thereof “subsection (g)”. (vi) Section 170(e)(1)(B)(ii) (relating to certain contributions of ordinary income and capital gain property) is amended by striking out “subsection (b)(1)(E)” and inserting in lieu thereof “subsection (b)(1)(D)”. (B) Section 170(d)(1)(A) (relating to carryover of excess charitable contributions) is amended by striking out “(30 percent, in the case of a contribution year beginning before January 1, 1970)”. (C) Section 170(h) (relating to disallowance of deductions in certain cases), as redesignated by subparagraph (A)(i) of this paragraph, is amended by striking out “64 Stat. 996;”. (D) Section 170(i) (relating to cross references), as redesignated by subparagraph (A)(i) of this paragraph, is amended to read as follows: “(i) Other Cross References.— “(1) Fer charitable contributions of estates and trusts, see section 642(c). “(2) For nondeductibilit; of contributions by common trust funds, see section 584. “(3) For charitable contributions of partners, see section 702. “(4) For charitable contributions of nonresident aliens, see section 873. “(5) For treatment of gifts for benefit of or use in connection with the Naval Academy as gifts to or for use of the United States, see section 6973 of title 10, United States Code. “(6) For treatment of gifts accepted by the Secretary of State under the Foreign Service Act of 1946 as gifts to or for the use of the United States, see section 1021(e) of that Act (22 U.S.C. 809(e)). “(7) For treatment of gifts of money accepted by the Attorney General for credit to the ‘Commissary Funds, Federal Prisons’ as gifts to or for the use of the United States, see section 2 of the Act of May 15, 1952. as amended by the Act of July 9, 1952 (31 U.S.C. 7 25s–4).” (29) Amendments of section 172.— (A) (i) Section 172(b)(1) (relating to years to which loss Ante, p. 1755. may be carried) is amended by striking out subparagraph (E). (ii) Section 172(b)(3) is amended by striking out subparagraphs 26 USC 172. (E) and (F). (B) Section 172(c) (relating to definition of net operating loss) is amended by striking out “(for any taxable year ending after December 31, 1953)”. (C) (i) Section 172 (relating to net operating loss deduction) is amended by striking out subsections (f), (g), and (i), and by redesignating subsections (h), (j), (k), and (1) as subsections (f) , (g). (h), and (i), respectively. (ii) Section 172(b)(1)(C) (relating to regulated transportation corporations) is amended by striking out “subsection (j)(1)” and “subsection (j)”, and inserting in lieu thereof “subsection (g)(1)” and “subsection (g)”, respectively. (iii) Paragraphs (1)(D) and (3)(C)(i) of section 172 Post, p. 1920. (b) (relating to net operating loss carryovers and carry-backs) are each amended by striking out “subsection (k)” and inserting in lieu thereof “subsection (h)”. (iv) Section 172(b)(2) (relating to amount of carrybacks and carryovers) is amended by striking out “subsections (i) and (j)” and inserting in lieu thereof Subsection (g)”. (D) Section 172(e) (relating to law applicable to computations) is amended by striking out the last sentence. (E) Section 172(g)(2) (relating to certain regulated transportation corporations), as redesignated by subparagraph (C) of this paragraph, is amended by striking out paragraph (4). (30) Amendments of sections 174 and 175.— Section 174(a)(2) 26 USC 174, 175. (A)(1) (relating to research and development expenditures) and section 175(d)(1)(A) (relating to soil and water conservation expenditures) are each amended by striking out “the date on which this title is enacted,” and inserting in lieu thereof “August. 16, 1954,”. (31) Repeal of section 187.— Section 187 (relating to rapid 26 USC 187. amortization for certain coal mine safety equipment) is repealed. (32) Amendment of section 219.— Section 219(b)(2)(A)(iv) 26 USC 219. (disqualifying governmental plan participants from contributing to individual retirement accounts, etc.) is amended by striking out “division” and inserting in lieu thereof “subdivision”. (33) Repeat of section 242.— Section 242 (relating to partially 26 USC 242. tax-exempt interest received by corporations) is repealed. (34) Amendments of section 243.— (A) Section 243(a)(2) (relating to the dividends received deduction) is amended by inserting after “Small Business Investment Act of 1958” the following: “(15 U.S.C. 661 and following)”. (B) Section 243(b)(2)(A) (relating to dividends received by a member of an affiliated group) is amended by striking out “(except that in the case of a taxable year of a member beginning in 1963 and ending in 1964, if the election is effective for the taxable year of the common parent corporation which includes the last day of such taxable year of such member, such election shall be effective for such taxable year of such member, if such member consents to such election with respect to such taxable year)”. (35) Amendment of section 247.— Section 247(b)(2) (relating to preferred stock) is amended to read as follows: “(2) Preferred stock.— “(A) In general.— The term ‘preferred stock’ means stock issued before October 1, 1942, which during the whole of the taxable year (or the part of the taxable year after its issue) was stock the dividends in respect of which were cumulative, limited to the same amount, and payable in preference to the payment of dividends on other stock. “(B) Certain stock issued on or after October 1, 1942.— Stock issued on or after October 1, 1942, shall be deemed for purposes of this paragraph to have been issued before October 1, 1942, if it was issued to refund or replace bonds or debentures issued before October 1, 1942, or to refund or replace other preferred stock (including stock which is preferred stock by reason of this subparagraph or subparagraph (D)), but only to the extent that the par or stated value of the new stock does not exceed the par, stated, or face value of the bonds or debentures issued before October 1, 1942, or the other preferred stock, which such new stock is issued to refund or replace. “(C) Determination under regulations.— The determination of whether stock was issued to refund or replace bonds or debentures issued before October 1, 1942, or to refund or replace other preferred stock, shall be made under regulations prescribed by the Secretary. “(D) Issuance of stock.— For purposes of subparagraph (B), issuance of stock includes issuance either by the same or another corporation in a transaction which is a reorganization (as defined in section 368(a)), a transaction to which section 371 (relating to insolvency reorganizations) applies, 26 USC 1081. or a transaction subject to part VI of subchapter 0 (relating to exchanges in SEC. obedience orders), or the respectively corresponding provisions of the Internal Revenue Code of 1939.” (36) Amendment of section 248.— Section 248(c) (relating to organizational expenditures) is amended by striking out “the date of enactment of this title” and inserting in lieu thereof “August 16, 1954”, (37) Amendment of section 265.— Section 265(2) (relating to tax-exempt interest) is amended by striking out “(other than obligations of the United States issued after September 24, 1917, and originally subscribed for by the taxpayer)”, (38) Amendment of section 269.— Section 269 (relating to 26 USC 269. acquisitions made to evade or avoid income tax) is amended by striking out subsection (c) (relating to presumption in the ease of disproportionate purchase price). (39) Amendment of section 275.— Section 275(a)(1)(C) 26 USC 275. relating to nondeductible taxes) is amended by striking out (“, and corresponding provisions of prior revenue laws”. (40) Amendments of section 281.— (A) Section 281(d)(1)(A) (relating to definition of terminal 26 USC 281. railroad corporation) is amended by inserting after “Interstate Commerce Act” the following: “(49 U.S.C. 1 and following) (B) Section 281 (relating to terminal railroad corporations and their shareholders) is amended by striking out subsection (e) (relating to taxable years ending before October 23, 1962) and by redesignating subsection (f) as subsection (e). (41) Amendment of section 301.— Section 301 (relating to distributions 26 USC 301. of property) is amended by striking out subsection (e) (relating to certain distributions by personal service corporations). (42) Amendments of section 311.— (A) Section 311(d)(1) (relating to appreciated property 26 USC 311. used to redeem stock) is amended by striking out “then again shall be recognized” and inserting in lieu thereof “then a gain shall be recognized”. (B) (i) Section 311(d)(2) (relating to exceptions and limitations) is amended by striking out subparagraph (C) (relating to certain distributions before December 1, 1974) and by redesignating subparagraphs (D), (E), (F), and (G) as subparagraphs (C), (D). (E), and (F), respectively. (ii) The amendments made by clause (i) shall apply only 26 USC 311 note. with respect to distributions after November 30, 1974. (C) Section 311(d)(2)(C), as redesignated by subparagraph (B) of this paragraph, is amended by striking out “26 Stat. 209;” and “38 Stat. 730;”. (43) Amendments of section 312.— (A) Section 312(d)(1) (relating to certain distributions 26 USC 312. of stock and securities) is amended by striking out “this Code” each place it appears and inserting in lieu thereof “this title”. (B) Section 312 (relating to earnings and profits) is amended by striking out subsection (h) (relating to personal service corporations) and by redesignating subsections (i) and (j) as subsections (h) and (i), respectively. (C) Subsection (i) of section 312 (relating to distribution of proceeds of certain loans), as redesignated by subparagraph (B) of this paragraph, is amended to read as follows: “(i) Distribution of Proceeds of Loan Insured by the United States.— If a corporation distributes property with respect to its stock and if, at the time of distribution— “(1) there, is outstanding a loan to such corporation which was made, guaranteed, or insured by the United States (or by any agency or instrumentality thereof), and “(2) the amount of such loan so outstanding exceeds the adjusted basis of the property constituting security for such loan, then the earnings and profits of the corporation shall be increased by the amount of such excess, and (immediately after the distribution) shall be decreased by the amount of such excess. For purposes of paragraph (2), the adjusted basis of the property at the time of distribution shall be determined without regard to any adjustment under section 1016(a)(2) (relating to adjustment for depreciation, etc.). For purposes of this subsection, a commitment to make, guarantee, or insure a loan shall be treated as the making, guaranteeing, or insuring of a loan.” (D) Section 312(j)(3) (relating to foreign investment companies), as redesignated by subsection (b)(32)(B)(i), is amended to read as follows: “(3) Partial liquidations and redemptions.— If a foreign investment company (as defined in section 1246) distributes amounts in partial liquidation or in a redemption to which section 302(a) or 303 applies, the part of such distribution which is properly chargeable to earnings and profits shall be an amount which is not in excess of the ratable share of the earnings and profits of the company accumulated after February 28, 1913, attributable to the stock so redeemed.” (44) Amendment of section 333.— Section 333(a)(1) (relating to election as to recognition of gain in certain liquidations) is amended by striking out “on or after June 22, 1954”. (45) Amendment of section 334.— Section 334(b)(2)(A) (relating to liquidation of subsidiary) is amended to read as follows: “(A) the distribution is pursuant to a plan of liquidation adopted not more than 2 years after the date of the transaction described in subparagraph (B) (or, in the case of a series of transactions, the date of the last such transaction); and”. (46) Amendments of section 337.— (A) Section 337(a) (relating to nonrecognition of gain or loss on certain liquidations) is amended to read as follows: “(a) General Rule.— If, within the 12month period beginning on the date on which a corporation adopts a plan of complete liquidation, all of the assets of the corporation are distributed in complete liquidation, less assets retained to meet claims, then no gain or loss shall be recognized to such corporation from the sale or exchange by it of property within such 12month period.” (B) The first sentence, of section 337(d) (relating to certain minority stockholders) is amended by striking out “on or after January 1, 1958”. (47) Repeal of section 342.— Section 342 (relating to the liquidation of certain foreign personal holding companies) is repealed. (48) Amendments of section 351.— (A) Section 351(a) (relating to transfer to corporation controlled by transferor) is amended by striking out “(including, in the case of transfers made on or before June 30, 1967, an investment company)”. (B) Section 351(d) (relating to application of June 30, 1967, date) is amended to read as follows: “(d) Exception.— This section shall not apply to a transfer of property to an investment company.” (C) The amendments made by this paragraph shall take effect with respect to transfers of property occurring after the date of the enactment of this Act. (49) Repeal of section 363.— Section 363 (a cross reference to 26 USC 363. other sections) is repealed. (50) Amendments of section 371.— Section 371 (a)(1) (relating 26 USC 371. to certain reorganization exchanges by corporations) is amended— (A) by striking out “49 Stat. 922;” and (B) by striking out “(52 Stat. 883–905; 11 U.S.C., chapter 10) or the corresponding provisions of prior law” and inserting in lieu thereof “(11 U.S.C. 501 and following)”. (51) Amendment of section 372.— Section 372(a) (relating 26 USC 372. to basis in connection with bankruptcy proceedings) is amended by striking out “54 Stat. 709;”. (52) Repeal of section 373.— Section 373 (relating to nonrecognition 26 USC 373. of loss in certain railroad reorganizations) is repealed. (53) Amendment of section 374 .— Section 374(a)(1) (relating 26 USC 374. to non recognition of gain or loss in certain railroad reorganizations) is amended by striking out “49 Stat. 922;”. (54) Amendment of section 381.— Section 381 (c) (relating to 26 USC 381. items carried over in certain corporate acquisitions) is amended by striking out paragraph (20). (55) Repeal of sections 391 through 395.— Subchapter C of 26 USC 391–395. chapter 1 (relating to corporate distributions and adjustments) is amended by striking out part VII (relating to effective dates of subchapter C). (56) Amendments of section 401.— (A) Paragraphs (12) and (13) of section 401(a) (relating 26 USC 401. to requirements for qualification) are each amended by striking out “the date of the enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu thereof “September 2, 1974”. (B) Paragraph (15) of section 401(a) is amended by striking out “the date of the enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu 29 USC 1001 note. thereof “September 2, 1974,”. (C) Paragraph (19) of section 401(a) is amended by striking out “enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu thereof “September 2, 1974”. (D) The last sentence of section 401(a) is amended to read as follows: “Paragraphs (11), (12), (13), (14), (15), (19), and (20) shall apply only in the case of a plan to which section 411 (relating to minimum vesting standards) applies without regard to subsection (e)(2) of such section.” (57) Amendments of section 402.— (A) Section 402(a)(4) (relating to distributions made to 26 USC 402. nonresident alien individuals) is amended by striking out “basic salary” each place it appears therein and inserting in lieu thereof “basic pay”, and by amending the last sentence in such paragraph to read as follows: “In the case of distributions under the civil service retirement laws, the term ‘basic pay’ shall have the meaning provided in section 8331(3) of title 5, United States Code.” (B) Section 402 (relating to taxability of beneficiary of employees’ trusts) is amended by striking out subsection (d) (relating to certain trust agreements made before October 21, 1942), (C) (i) So much of the third sentence of section 402(e)(4) 26 USC 402. (A) (relating to definition of lump sum distributions) as precedes “a distribution of an annuity contract” is amended to read as follows: “Except for purposes of subsection (a)(2) and section 403(a)(2),”. (ii) The amendment made by clause (i) shall apply with respect to distributions or payments made after December 31, 1973, in taxable years beginning after such date. (58) Amendment of section 403.— The last two sentences of section 403(a)(4) (relating to taxation of employee annuities) are amended to read as follows: “For purposes of this title, a transfer described in subparagraph (B)(1) shall be treated as a rollover contribution described in section 408(d)(3). Subparagraph (B)(ii) does not apply in the case of a transfer to an employees’ trust, or annuity plan if any part of a payment described in subparagraph (A) is attributable to an annuity plan under which the employee was an employee within the meaning of section 401(c)(1) at the time contributions were made on his behalf under the plan.” (59) Amendment of section 404.— Section 404 (relating to deduction for contributions to pension plans, etc.) is amended by striking out subsection (d) (relating to carryover of pre–1954 unused deductions). (60) Amendment of section 409.— Section 409(b)(3)(C) (relating to tax-free rollovers of individual retirement bonds) is amended by striking out “section 403(d)(3).” and inserting in lieu thereof “section 408 (d)(3).” (61) Amendments of section 410.— (A) Subparagraphs (C) and (D) of section 410(a)(5) (relating to breaks in service) are each amended by striking out “purposes of subsection (a)(1)” and inserting in lieu thereof “purposes of paragraph (1)”. (B) Paragraph (1)(C) of section 410(c) (relating to application of minimum participation standards) is amended by striking out “the date of the enactment of the Employee 29 USC 1001 note. Retirement Income Security Act of 1974” and inserting in lieu thereof “September 2, 1974,”. (C) Paragraph (2) of section 410(c) is amended by striking out “the day before the date of the enactment of this section” and inserting in lieu thereof “September 1, 1974”. (62) Amendments of section 411.— (A) Subsection (a) of section 411 (relating to minimum vesting standards) is amended by striking out “subsection (a)(8)” and inserting in lieu thereof “paragraph (8)”. (B) Subsection (a)(3)(D)(iii) of section 411 is amended— (i) by striking out “the date of the enactment of the Employee Retirement Income Security Act of 1974” and “the date of the enactment of such Act” and inserting in lieu thereof in both such places “September 2, 1974”, and (ii) by striking out “the date of the enactment of the Act” and inserting in lieu thereof “September 2, 1974,”. (C) The heading for subparagraph (C) of section 411 (a)(7) is amended to read as follows: “(C) Repayment of subparagraph (b) distributions.—” (D) Subsection (b)(1)(D)(i) and (e)(1)(C) of section 411 are each amended by striking out “the date of the enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu thereof “September 2, 1974”. 29 USC 1001 note. (E) Subsection (e)(2) of section 411 is amended by striking out “the date before the date of the enactment of the Employee Retirement Income Security Act of 1974” and 26 USC 411. inserting in lieu thereof “September 1, 1974”. (63) Amendments of section 412.— (A) Subsection (h) of section 412 (relating to minimum 26 USC 412. funding standards) is amended by striking out “the day before the date of the enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu thereof “September 1, 1974”. (B) Subsection (h)(5) of section 412 is amended by striking out “the date of the enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu thereof “September 2, 1974”. (64) Amendments of section 414.— (A) The heading for section 414(f) (relating to multi-employer 26 USC 414. plans) is amended to read as follows: ‘(f) Multiemployer Plan.—” (B) Section 414(1) (relating to mergers and consolidations of plans or transfers of plan assets) is amended by striking out “the date of the enactment of the Employee Retirement Income Security Act of 1974” and inserting in lieu thereof “September 2, 1974”. (65) Amendments of section 415.— (A) Section 415(b)(2)(A) (relating to adjustments for 26 USC 415. certain forms of benefits) is amended by striking out “and 409(b)(3)(C)” and inserting in lieu thereof “and 409(b)(3)(C))”. (B) Section 415(b)(2)(B) is amended by striking out “(as defined in section 401(a)(11)(II)(iii))” and inserting in lieu thereof “(as defined in section 401 (a)(11)(G)(iii))”. (66) Amendments of section 453.— (A) Section 453(c)(3) (relating to adjustment in tax for 26 USC 453. amounts previously taxed) is amended by striking out “corresponding provisions of the Internal Revenue Code, of 1939” and inserting in lieu thereof “corresponding provisions of the Internal Revenue Code of 1954”. (B) Section 453(d)(4)(B) (relating to liquidations to which section 337 applies) is amended by striking out “or section 617(d)(1)” and inserting in lieu thereof “, 617(d)” (67) Amendment of section 455.— Section 455(c)(3)(B) 26 USC 455. (relating to prepaid subscription income) is amended by striking out “for his first taxable year (i) which begins after December 31, 1957, and (ii) in which he receives prepaid subscription income in the trade or business” and inserting in lieu thereof “for his first taxable year in which he receives prepaid subscription income in the trade or business”. (68) Amendment of section 458.— Section 456(c)(3)(B) 26 USC 456. (relating to election without consent with respect to treatment of prepaid dues) is amended by striking out “for its first taxable year (i) which begins after December 31, 1960, and (ii)” and inserting in lieu thereof “for its first taxable year”. (69) Amendments of section 461.— (A) Section 461(c) (relating to accrual of real property taxes) is amended by striking out paragraph (2) and by redesignating paragraph (3) as paragraph (2). (B) Section 461(c)(2) (relating to elections without consent), as redesignated by subparagraph (A), is amended by striking out “his first taxable year which begins after December 31, 1953, and ends after the date of enactment of this title in which the taxpayer” and inserting in lieu thereof “his first taxable year in which he”. (70) Amendments of section 481.— (A) Section 481(b) (relating to limitation on tax where substantial adjustments are required by a change in accounting method) is amended by striking out paragraphs (4), (5), and (6) (relating to pre–1954 adjustments). (B) Section 481(b)(1) and (2) are each amended by striking out “, other than the amount of such adjustments to which paragraph (4) or (5) applies,” each place it appears. (71) Amendments of section 508.— (A) Subsections (a) and (b) of section 508 (relating to special rules relating to 501(c)(3) organizations) are each amended by striking out the hist sentence therein. (B) Section 508(e)(2) (relating to special rules for existing private foundations) is amended by striking out subparagraph (A) (relating to taxable years beginning before 1972), by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively, and by striking out “(B)” in subparagraph (B)(as so redesignated) and inserting in lieu thereof “(A)”. (C) Section 508(d)(2)(A) (relating to disallowance of deductions for certain charitable gifts or bequests) is amended by striking out “(e)(2)(B) and (C)” and inserting in lieu thereof “(e)(2)”. (72) Amendments of section 514.— (A) Section 514(c)(1) (relating to definition of acquisition indebtedness) is amended by striking out the comma at the end of subparagraph (C) and all that follows, and inserting in lieu thereof a period. (B) Section 514 (relating to unrelated debt-financed income) is amended by striking out subsection (f) (relating to definition of business lease), by striking out subsection (g) (relating to definition of business lease indebtedness), and by redesignating subsection (h) as subsection (f). (C) Section 514(b)(3)(C)(iii) (relating to definition of debt-financed property) is amended to read as follows: “(iii) shall not apply to property subject to a lease which is a business lease (as defined in this section immediately before the enactment of the Tax Reform Act of 1976).” (D) Section 514(f) (relating to personal property leased with real property), as redesignated by subparagraph (B) of this paragraph, is amended by striking out “and the term ‘premises’ include” and inserting in lieu thereof “includes”. (73) Amendments of section 534.— (A) Section 534(b) (relating to mailing notices of deficiency) is amended by striking out the last sentence, (B) Subsection (e) of section 534 (relating to effective date of section) is repealed. (74) Amendment of section 533.— Section 535(b)(1) (relating 26 USC 535. to adjustments in computing accumulated taxable income) is amended by striking out “(other than the excess profits tax imposed by subchapter E of chapter 2 of the Internal Revenue Code of 1939 for taxable years beginning after December 31, 1940)”. (75) Amendments of section 537.— (A) Section 537(b)(2) (relating to definition of excess 26 USC 537. business holdings redemption needs) is amended by striking out “, with respect to taxable years of the corporation ending after May 26, 1969,”. (B) Section 537(b)(4) (relating to inferences as to prior years) is amended by striking out “or (2)”. (76) Amendments of section 542.— (A) Section 542(a)(2) (relating to definition of personal 26 USC 542. holding company) is amended by striking out the last sentence. (B) Section 542(b)(2) (relating to ineligible affiliated group) is amended by striking out “, other than an affiliated group of railroad corporations the common parent of which would be eligible to file a consolidated return under section 141 of the Internal Revenue Code of 1939 prior to its amendment by the Revenue Act of 1942,”. (C) Section 542(c)(2) (relating to financial institutions) is amended by striking out “without regard to subparagraphs (D) and (E) thereof”, (D) Section 542(c)(8) (relating to small business investment companies) is amended by inserting after “Small Business Investment Act of 1958” the following: “(15 U.S.C. 661 and following)”. (77) Amendments of section 545.— (A) Section 545(b)(1) (relating to deduction of taxes in 26 USC 545. computing undistributed personal holding company income) is amended— (i) in the first sentence, by striking out “(other than the excess profits tax imposed by subchapter E of chapter 2 of the Internal Revenue Code of 1939 for taxable years beginning after December 31, 1940)”; and (ii) by striking out the last two sentences (relating to deduction of taxes). (B) Section 545(b) (relating to adjustments in computing undistributed personal holding company income) is amended by striking out paragraph (7) (relating to payment of indebtedness incurred before 1934). (C) Section 545(c)(2)(A) (relating to corporations to which special adjustment applies) is amended by striking out “the date of enactment of this subsection” and inserting in lieu thereof “February 26, 1964”. (78) Amendment of section 547.— Section 547 (relating to the 26 USC 547. deduction of deficiency dividends) is amended by striking out subsection (h) (relating to the effective date). ‘ (79) Amendment of section 551.— Section 551(c) (relating to 26 USC 551. foreign personal holding company income tax returns), as redesignated by subsection (b)(1)(F) of this section, is amended by striking out “taxable income, foreign personal holding com-pany,” and inserting in lieu thereof “taxable income, foreign personal holding company income,”. (80) Amendment of section 554.— The first sentence of section 556(b)(1) (relating to deduction of taxes in computing undistributed foreign personal holding company income) is amended by striking out “(other than the excess profits tax imposed by subchapter E of chapter 2 of the Internal Revenue Code of 1939 for taxable years beginning after December 1, 1940)”. (81) Amendment of section 584.— Section 564 (relating to dividend carryovers) is amended by striking out subsection (c) (relating to carryovers from pre–1954 years). (82) Repeal of section 583.— Section 583 (relating to deduction of dividends paid on certain preferred stock by banks or trust companies) is repealed. (83) Repeal of section 592.— Section 592 (relating to the deduction by mutual savings banks for repayment of certain loans) is repealed. (84) Amendments of section 593.— (A) Section 593(b)(2) (relating to additions to bad debt reserves for mutual savings banks, etc.) is amended by striking out, in the table in subparagraph (A), the following: “1969 60 percent 1970 57 percent 1971 54 percent 1972 51 percent 1973 49 percent 1974 47 percent 1975 45 percent” (B) Section 593(c) (relating to reserves for mutual savings banks) is amended by striking out paragraphs (2), (3), (4), and (5), by redesignating paragraph (6) as paragraph (3), and by inserting immediately after paragraph (1) the following: “(2) Certain pre-1963 reserves.— Notwithstanding the second sentence of paragraph (1), any amount allocated pursuant to paragraph (5)(as in effect immediately before the enactment of the Tax Reform Act of 1976) during a taxable year beginning before January 1, 1977, to the reserve for losses on qualifying real property loans out of the surplus, undivided profits, and bad debt reserves (determined as of December 31, 1962) attributable to the period before the first taxable year beginning after December 31, 1951, shall not be treated as a reserve for bad debts for any purpose other than determining the amount referred to in subsection (b)(1)(B), and for such purpose such amount shall be treated as remaining in such reserve.” (C) Section 593 is amended by striking out subsection (d) (relating to taxable years beginning in 1962 and ending in 1963), and by redesignating subsections (e) and (f) as subsections (d) and (e),respectively. (D) Section 593(b)(2)(E)(1) is amended by striking out “subsection (f)” and inserting in lien thereof “subsection (e)”- (85) Repeal of section 601.— Subchapter H of chapter 1 relating to 26 USC 601. banking institutions) is amended by striking out part III (relating to special deduction for bank affiliates). (86) Amendments of section 613a.— (A) Section 613A(b)(1)(C) (relating to exemption for 26 USC 613A. certain domestic gas wells) is amended by striking out “within the meaning of section 613(b)(1)(A)”. (B) Section 613A(c)(6)(i) (relating to limitations on percentage depletion in case of oil and gas wells) is amended by striking out “determined with” and inserting in lieu thereof “determined without”. (87) Amendments of section 614.— (A) (i) Section 614(c) (relating to aggregation of mineral 26 USC 614. interests in mines) is amended by striking out paragraph (4) (relating to special rule as to exploration deductions prior to aggregation). (ii) The amendment made by clause (i) shall apply with 26 USC 614 note. respect to elections to form aggregations of operating mineral interests made under section 614(c)(1) of the Internal Revenue Code of 1954 for taxable years beginning after December 31, 1976. (B) The third sentence of section 614(c)(2) (relating to election to treat a single interest as more than one property) is amended to read as follows: “A separate property so formed may, under regulations prescribed by the Secretary, be included as a part of an aggregation in accordance with paragraphs (1) and (3).” (C) Section 614(c)(3) (relating to manner and scope of election) is amended to read as follows: “(3) Manner and scope of election.— The elections provided by paragraphs (1) and (2) shall be made, in accordance with regulations prescribed by the Secretary, not later than the time prescribed for filing the return (including extensions thereof) for the first taxable year— “(A) in which, in the ease of an election under paragraph (1), any expenditure for development or operation in respect of the separate operating mineral interest is made by the taxpayer after the acquisition of such interest, or “(B) in which, in the case of an election under paragraph (2), expenditures for development or operation of more than one mine in respect of a property are made by the taxpayer after the acquisition of the property. An election made under paragraph (1) or (2) for a taxable year shall be binding upon the taxpayer for such year and all subsequent taxable years, except that the Secretary may consent to a different treatment of any interest with respect to which an election has been made.” (88) Repeal or section 615.— Section 615 (relating to deduction 26 USC 615. of pre–1970 exploration expenses) is repealed. (89) Amendment of section 617.— Section 617(a)(2)(B) 26 USC 617. (relating to time and scope of election to deduct certain mining exploration expenditures) is amended by striking out. “may not be revoked after the last day of the third month following the month in which the final regulations issued under the authority of this subsection are published in the Federal Register“, unless” and inserting in lieu thereof “may not be revoked unless”. (90) Repeal of section 632.— Section 632 (relating to tax in 26 USC 632. case of sale of oil and gas properties) is repealed. (91) Amendment of section 691.— Section 691(c)(1)(B) 26 USC 691. (relating to deduction for estate tax) is amended by striking out the last sentence. (92) Amendment of section 692.— The heading of section 692 (relating to income taxes of members of Armed Forces who die in a combat zone) is amended by striking out “ON” the first time it appeals in the section heading and inserting in lieu thereof “OF”. (93) Amendment of section 751.— Section 751(c) (relating to unrealized receivables) is amended by striking out “1254(a), or 1250(a),” and inserting in lieu thereof “1245(a), 1250(a),”. (94) Repeal of section 771.— Part IV of subchapter K of chapter 1 (relating to effective date of subchapter K) is repealed. (95) Amendments of section 802.— (A) Section 802(a)(1) (relating to tax imposed on life insurance companies) is amended by striking out “beginning after December 31, 1957,”. (B) Section 802(a)(2) (relating to alternative tax in case of capital gains) is amended by striking out “beginning after December 31, 1961,”. (C) Section 802(a) is amended by striking out paragraph (3) (relating to special rules for 1959 and 1960). (96) Amendments of section 804.— (A) Section 804(a) is amended by sticking out paragraph (6) (relating to certain exceptions). (B) Section 804(b)(2) (relating to short-term capital gains) is amended by striking out “In the case of a taxable year beginning after December 31, 1958, the” and inserting in lieu thereof “The”. (97) Amendments of section 805.— (A) Section 805(b)(3)(B) (relating to average earnings rate) is amended to read as follows: “(B) Special rule.— For purposes of subparagraph (A), the current earnings rate for tiny taxable year of any company which, for such year, is an insurance company (but not a life insurance company) shall be determined as if this part applied to such company for such year.” (B) Section 805(b)(4)(B) (relating to basis of assets) is amended by striking out “(determined without regard to fair market value on December 31, 1958)”. (C) Section 805(d) (relating to pension plan reserves) is amended to read as follows: “(d) Pension Plan Reserves.— For purposes of this part, the term ‘pension plan reserves’ means that portion of the life insurance reserves which is allocable to contracts— “(1) purchased under contracts entered into with trusts which (as of the time the contracts were entered into) were deemed to be (A), trusts described in section 401(a) and exempt from tax under section 501(a), or (B) trusts exempt from tax under section 185 of the Internal Revenue Code of 1939 or the corresponding provisions of prior revenue laws; “(2) purchased under contracts entered into under plans which (as of the time the, contracts were entered into) were deemed to be plans described in section 403(a), or plans meeting the requirements of paragraphs (3), (4), (5), and (6) of section 165(a) of the Internal Revenue Code of 1939; “(3) provided for employees of the life insurance company under a plan which, for the taxable year, meets the requirements of paragraphs (3), (4), (5), (6), (7), (8), (11), (12), (13), (14), (15), (16), (19), and (20) of section 401(a); “(4) purchased to provide retirement annuities for its employees by an organization which (as of the time the contracts were purchased) was an organization described in section 501(c)(3) which was exempt from tax under section 501(a) or was an organization exempt from tax under section 101(6) of the Internal Revenue Code of 1939 or the corresponding provisions of prior revenue laws, or purchased to provide retirement annuities for employees described in section 403(b)(1)(A)(ii) by an employer which is a State, a political subdivision of a state, or an agency or instrumentality of any one or more of the foregoing; or “(5) purchased under contracts entered into with trusts which (at the time the contracts were entered into) were individual retirement accounts described in section 408(a) or under contracts entered into with individual retirement annuities described in section 408(b).” (98) Amendments of section 809.— (A) Section 809(b) (relating to definition of gain and loss 26 USC 809. from operations) is amended by striking out paragraph (4). (B) (i) Section 809(d) (relating to life insurance company deductions) is amended by striking out paragraph (11) relating to mutualization distributions before 1963), and by redesignating paragraph (12) as paragraph (11). (ii) Section 809(e) is amended by striking out “subsection (d)(12)” and inserting in lieu thereof “subsection (d)(11)”, (C) Section 809 (relating to computation of gain and loss from operations) is amended by striking out subsection (g) (relating to deduction for certain mutualization distributions before 1963). (99) Amendment of section 812.— Section 812(b)(1) (relating 26 USC 812. to years to which operating losses of an insurance company may be carried), other than the last sentence thereof, as added by section 806(d)(1)(A) of this Act, is amended to read as follows: “(1) Years to which loss may be carried.— The loss from operations for any taxable year (hereinafter in this section referred to as the ‘loss year’) shall be— “(A) an operations loss carryback to each of the 3 taxable years preceding the loss year, “(B) an operations loss carryover to each of the 5 taxable years following the loss year, and “(C) subject to subsection (e), if the life insurance company is a new company for the loss year, an operations loss carryover to each of the 3 taxable years following the 5 taxable years described in subparagraph (B).” (100) Amendments of section 817.— Section 817 (relating to 26 USC 817. rules applicable to certain gains and losses) is amended by striking out subsection (c) (relating to treatment of pre–1959 capital losses) and subsection (e) (relating to certain 1958 reinsurance transactions). (101) Amendment of section 818.— Section 818 (relating to 26 USC 818. life insurance accounting provisions) is amended by striking out subsection (e) (relating to certain rules applicable to taxable years 1957, 1958, and 1959). and by redesignating subsections (f) and (g) as subsections (e) and (f), respectively. (102) Amendments of section 819.— (A) The first sentence of section 819(a)(2)(A) (relating 26 USC 819. to definition of minimum figure for foreign life insurance companies) is amended to read as follows: “The minimum figure is the amount determined by multiplying the tax-payer’s total insurance liabilities on United States business by a percentage for the taxable year to be determined and proclaimed by the Secretary.” (B) The second sentence of section 819(a)(2)(A) is amended by striking out “under clause (ii)” and inserting in lieu thereof “under the preceding sentence”. (C) Clause (i) of section 819(b)(2)(B) (relating to distributions pursuant to certain mutualizations) is amended to read as follows: “(i) the minimum figure for 1958 determined under subsection (a)(2)(A) computed by using a percentage of 9 percent in lieu of the percentage determined and proclaimed by the Secretary, or”. (103) Amendments of section 820.— (A) Section 820(c) (relating to optional treatment of certain reinsured policies) is amended by striking out paragraph (6) (relating to reimbursement for 1957 income taxes), and by redesignating paragraph (7) as paragraph (6). (B) The last sentence of section 820(c) is amended by striking out “(5). and (6) and the rules prescribed under paragraph (7)” and inserting in lieu thereof “and (5) and the rules prescribed under paragraph (6)”. (104) Amendments of section 821.— (A) Section 821(a) (relating to imposition of tax on certain mutual insurance companies) is amended by striking out “beginning after December 31, 1963,”. (B) Section 821(c)(1) (relating to alternative tax for certain small insurance companies) is amended by striking out “In the ease of taxable years beginning after December 31, 1963. there is” and inserting in lieu thereof “There is”. (C) Section 821 (relating to tax on certain mutual insurance companies) is amended by striking out subsection (e) (relating to 1962 transitional rules) and by redesignating subsection (f) as subsection (e). (105) Amendments of section 822.— (A) Section 822(c)(5) (relating to deduction of interest) is amended by striking out “(other than obligations of the United States issued after September 24, 1917, and originally subscribed for by the taxpayer)”. (B) The last sentence of section 822(d)(2) (relating to amortization of premium and accrual of discount) is amended by striking out “For taxable years beginning after December 31, 1962. no accrual” and inserting in lieu thereof “No accrual”. (106) Amendments of section 825.— Section 825(g) (relating to unused loss deduction of certain insurance companies) is amended by striking out paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively. (107) Amendment of section 831.— Section 831(a) (relating to tax on certain insurance companies) is amended by striking out “or the taxable income” and inserting in lieu thereof “on the taxable income.” (108) Amendments of section 832.— Paragraphs (1) and (6) of section 832(b)(definitions relating to insurance company taxable income) are each amended by striking out “Convention” and inserting in lieu thereof “Association”. (109) Amendments of section 851.— (A) Section 851(a)(1) (relating 26 USC 851. to definition of regulated investment company) is amended by striking out “54 Stat. 789;”. (B) Section 851(b)(1) (relating to regulated investment companies) is amended by stinking out “which began after December 31, 1941”, (110) Amendments of section 852.— (A) Subparagraph (C) of section 852(b)(3) (relating to 26 USC 852. method of taxation of regulated investment companies and their shareholders) is amended by striking out the third sentence. (B) (i) Section 852(b)(3)(D)(iii) is amended by striking out “by 75 percent of so much of such amounts as equals the amount subject to tax in accordance with section 1201 (a)(1)(A) and by 70 percent (72 percent in the case of a Post, p, 1786. taxable year beginning after December 31, 1969, and before January 1, 1971) of so much of such amounts as equals the amount subject to tax in accordance with section 1201(a)(1)(B) or (2)” and inserting in lieu thereof “by 70 percent of so much of such amounts as equals the amount subject to tax in accordance with section 1201(a)”. (ii) The amendment made by clause (i) shall not be considered 26 USC 852 note. to affect the amount of any increase in the basis of stock under the provisions of section 852(b)(3)(D)(iii) of the Internal Revenue Code of 1954 which is based upon amounts subject to tax under section 1201 of such Code in taxable years beginning before January 1, 1975. (C) Section 852(d) is amended by inserting after “Investment Company Act of 1940” the following: “(15 U.S.C. 80a–l and following)”. (111) Amendments of section 856.— (A) Section 856(c)(1) (relating to real estate investment 26 USC 856. trusts) is amended by striking out “which began after December 31, 1960”. (B) Section 856(c)(6)(D) (relating to definition of other terms) is amended by inserting after “Investment Company Act of 1940, as amended” the following: “(15 U.S.C. 80a–1 and following)”. (112) Amendment of section 857.— Section 857(b)(3)(C) 26 USC 857. (relating to the taxation of capital gains in the case of real estate investment trusts) is amended by striking out the last sentence. (113) Amendments of section 864.— (A) Subsection (a) of section 864 (definitions relating to 26 USC 864. determinations of sources of income) is amended to read as follows: “(a) Produced.— For purposes of this part, the term ‘produced’ “Produced.” includes created, fabricated, manufactured, extracted, processed, cured, or aged.” (B) Clauses (i) and (iii) of section 864(c)(4)(B) and subparagraph (C) of section 864(c)(5) (relating to effectively connected income) are each amended by striking out “sale” each place it appears and inserting in lieu thereof “sale or exchange”. (C) Section 864(c)(4)(B)(iii) (relating to effectively connected income) is amended by striking out “sold” and inserting in lieu thereof “sold or exchanged”. (114) Amendment of section 905.— Section 905(b) (relating to proof of foreign tax credits) is amended by striking out the last sentence (relating to the treatment of certain royalty payments). (115) Amendment of section 911.— Section 911(c) (relating to earned income from sources without the United States) is amended by striking out paragraph (7) (relating to taxable years ending in 1963, 1964, or 1965). (116) Amendment of section 921.— Section 921 (relating to definition of Western Hemisphere Trade Corporation) is amended by striking out the last sentence, (relating to taxable years before 1954). (117) Amendments of section 931.— Section 931 (relating to income from sources within possession) is amended by striking out subsection (h) (relating to certain persons taken as prisoners of war while working in a possession), and by redesignating subsection (i) as subsection (h). (118) Amendment of section 934.— Section 934(b) (relating to gross income received by a corporation from the Virgin Islands) is amended by striking out the last sentence. (119) Amendment of section 951.— Section 951 (a)(1) (relating to treatment, of subpart F income) is amended by striking out “beginning after December 31, 1962”. (120) Repeal of section 972.— Section 972 (relating to consolidation of export trade corporations) is repealed. (121) Amendment of section 1001.— Section 1001(c) (relating to recognition of gain or loss) is amended to read as follows: “(c) Recognition of Gain or Loss.— Except as otherwise provided in this subtitle, the entire amount of the gain or loss, determined under this section, on the sale or exchange of property shall be recognized.” (122) Amendments of section 1015.— (A) Subparagraph (A) of section 1015(d)(1) (relating to increased ‘basis for gift tax paid) is amended by striking out “the date of the enactment of the Technical Amendments Act of 1958” and inserting in lieu thereof “September 2, 1958”. (B) Subparagraph (B) of section 1015(d)(1) is amended by striking out “the date of the enactment of the Technical Amendments Act of 1958” and inserting in lieu thereof “September 2, 1958,”. (123) Amendment of section 1016.— Section 1016(a) (relating to adjustments to basis) is amended by striking out paragraph (19). (124) Amendment of section 1018.— Section 1018 (relating to adjustment of capital structure before September 22, 1938) is amended by striking out “54 Stat. 709;”. (125) Repeal of section 1020.— Section 1020 (relating to election in respect of depreciation allowed before 1952) is repealed. (126) Repeal of section 1022.— (A) Section 1022 (relating to the basis of certain foreign personal holding company stock) is repealed. (B) The repeal made by subparagraph (A) shall apply with respect to stock or securities acquired from a decedent dying after the date of the enactment of this Act. (127) Amendment of section 1024.— Section 1024 (containing cross references) is amended by striking out paragraph (4). (128) Amendments of section 1033.— (A) Section 1033(a) (relating to involuntary conversions) 26 USC 1033. is amended by striking out paragraph (2) and by redesignating paragraph (3) as paragraph (2). (B) Section 1033(a)(2) (relating to conversion into money), as redesignated by subparagraph (A) of this paragraph and as amended by this Act, is amended— (i) by striking out “where disposition occurred after 1950” in the paragraph heading; (ii) by striking out “(g)” each place it appears and inserting in lieu thereof “(h)”; (iii) by striking out “and the disposition of the converted property (as defined in paragraph (2)) occurred after December 31, 1950,” in the text; and (iv) by adding at the end thereof the following new subparagraph: “(E) Definitions.— For purposes of this paragraph— “(i) Control.— The term ‘control’ means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation. “(ii) Disposition of the converted property.— The term ‘disposition of the converted property’ means the destruction, theft, seizure, requisition, or condemnation of the converted property, or the sale or exchange of such property under threat or imminence of requisition or condemnation.” (C) Section 1033 (relating to involuntary conversions) is amended by striking out subsection (b) (relating to certain conversions occurring before 1954) and by redesignating subsections (c), (d), (e), (f), (g), and (h), as subsections (b), (c), (d), (e), (f), and (g), respectively. (D) The first sentence of section 1033(b) (relating to basis of a property acquired through involuntary conversions), as redesignated by subparagraph (G) of this paragraph, is amended by striking out “or (2)” and inserting in lieu thereof “or section 112(f)(2) of the Internal Revenue Code of 1939”. (E) Section 1033(f)(2) (relating to condemnation of real property), as redesignated by subparagraph (C) of this paragraph, is amended to read as follows: “(2) Limitation.— Paragraph (1) shall not apply to the purchase of stock in the acquisition of control of a corporation described in subsection (a)(2)(A).” (F) Section 1033(g)(4) (relating to condemnation of real property), as amended by section 2140(a) of this Act, is amended by striking out “(a)(3)(B)(i)” and inserting in lieu thereof“(a)(2)(B)(i)”. (129) Amendments of section 1034.— (A) Section 1034(a) (relating to gain on sale of residence) 26 USC 1034. is amended by striking out “after December 31, 1953,”. (B) Section 1034(b)(defining adjusted sales price) is amended by striking out paragraph (3) (relating to effective date of subsection (b)). (C) Section 1034(d) (relating to certain limitations) is amended by striking out “or section 112 (n) of the Internal Revenue Code of 1939”. (D) Section 1034(i) (relating to involuntary conversions) is amended to read as follows: “(ii) Special Rule for Condemnation.— In the case of the seizure, requisition, or condemnation of a residence, or the sale or exchange of a residence under threat or imminence thereof, the provisions of this section, in lieu of section 1033 (relating to involuntary conversions), shall be applicable if the taxpayer so elects. If such election is made, such seizure, requisition, or condemnation shall be treated as the sale of the residence. Such election shall he made at such time and in such manner as the Secretary shall prescribe by regulations.” (E) Section 1034(j) (relating to statute of limitations) is amended by striking out “after December 31, 1950,”. (130) Amendment of section 1037.— Section 1037(b)(1) (relating to certain exchanges of United States obligations) is amended by striking out “section 1232(a)(2)(A)” and inserting in lieu thereof “section 1232 (a)(2) (B)”. (131) Amendment of section 1051.— Section 1051 (relating to property acquired before 1929 during affiliation) is amended by striking out the last two sentences. (132) Amendments of section 1081.— (A) Subsection (e) of section 1081 (relating to distributions required by the SEC) is amended to read as follows: “(c) Distribution of Stock or Securities Only.— If there is distributed, in obedience to an order of the Securities and Exchange Commission, to a shareholder in a corporation which is a registered holding company or a majority-owned subsidiary company, stock or securities (other than stock or securities which are nonexempt property), without the surrender by such shareholder of stock or securities in such corporation, no gain to the distributee from the receipt of the stock or securities so distributed shall be recognized.” (B) Section 1081(f) (relating to conditions for application of section) is amended by striking out “Except in the case of a distribution described in subsection (c)(2), the provisions” and inserting in lien thereof “The provisions”, and by striking out “49 Stat. 820;”. (C) Section 1081(g) (relating to applicability of other provisions) is amended by striking out “If a distribution described in subsection (c)(2). or an” and inserting in lieu thereof “If an”, and by striking out the comma after “Commission”. (133) Amendments of section 1083.— (A) Section 1083(a) is amended by striking out “49 Stat. 820;”. (B) Section 1083(b) is amended by striking out “49 Stat. 804;”. (C) Section 1083(e)(4) is amended by striking out “49 Stat. 820;”. (134) Repeal of section 1111.— Part IX of subchapter O of chapter 1 (relating to distributions pursuant to orders enforcing the antitrust laws) is repealed. (135) Amendments of section 1201.— (A) Section 1201(a) (relating to the alternative tax on capital gain) is amended to read as follows: “(a) Corporations.— If for any taxable year a corporation has a net capital gain, then, in lien of the tax imposed by sections 11. 511, 821 (a) or (c) and 831(a), there is hereby imposed a tax (if such tax is less than the tax imposed by such sections) which shall consist of the sum of— “(1) a tax computed on the taxable income reduced by the amount of the net capital gain, at the rates and in the manner as if this subsection had not been enacted, plus “(2) a tax of 30 percent of the net capital gain.” (B) Section 1201(c) (relating to computation of alternative 26 USC 1201. tax) is amended to read as follows: “(c) Computation of Tax Where Capital Gain Exceeds $50,000.— The tax computed for purposes of subsection (b)(3) shall be the amount by which a tax determined under section 1 or 511 on an amount equal to the taxable income (but not less than 50 percent of the net capital gain) for the taxable year exceeds a tax determined under section 1 or 511 on an amount, equal to the sum of (A) the amount subject to tax under subsection (b)(1) plus (B) an amount equal to 50 percent of the sum referred to in subsection (b)(2)(A).” (C) (i) Section 1201 is amended by striking out subsection (d)(defining subsection (d) gain) and by redesignating subsection (e) as subsection (d). (ii) Section 1201(b)(2)(A) (relating to alternative tax on noncorporate taxpayers) is amended by striking out “the amount of the subsection (d) gain” and inserting in lieu thereof “the sum of the long-term capital gains for the taxable year, but not to exceed $50,000 ($25,000 in the case of a married individual filing a separate return)”. (iii) Section 1201(b)(3) is amended by striking out “the amount of the subsection (d) gain” and inserting in lieu thereof “the sum referred to in subparagraph (A)”. (136) Amendments of section 1222.— (A) Paragraph (9) of section 1222 (relating to definition 26 USC 1222. of terms applicable to capital gains and losses) is amended to read as follows: “(9) Capital gain net income.— The term ‘capital gain net income’ means the excess of the gains from sales or exchanges of capital assets over the losses from such sales or exchanges.” (B) Paragraph (11) of section 1222 (relating to definition of terms applicable to capital gains and losses) is amended to read as follows: “(11) Net capital gain.— The term ‘net capital gain’ means “Net capita] gain.” the excess of the net long-term capital gain for the taxable year over the net short-term capital loss for such year.” (137) Amendment of section 1233.— Section 1283((3) (relating 26 USC 1233. to certain options to sell) is amended by striking out “the date of enactment of this title” and inserting in lieu thereof “August 16, 1954”. (138) Amendment of section 1237.— Section 1237 (relating 26 USC 1237. to real property subdivided for sale) is amended by striking out subsection (d) (relating to effective date). (139) Repeal of section 1240.— Section 1240 (relating to taxability 26 USC 1240. to employee of certain termination payments) is repealed. (140) Amendment of section 1245.— Section 1245(b)(7)(B) 26 USC 1245. (relating to transfers to tax-exempt organization where property will be used in unrelated business) is amended by striking out “such organization acquiring such property,”. (141) Amendment of section 1246.— Section 1246(f) (relating 26 USC 1246. to gain on foreign investment company stock) is amended by striking out “beginning after December 31, 1962”. (142) Amendment of section 1311.— Paragraphs (2)(A), (2)(B), and (3) of section 1311(b) (relating to mitigation of effect of limitations) are each amended by striking out “Tax Court of the United States” and inserting in lieu thereof “Tax Court”. (143) Repeal of section 1315.— Section 1315 (relating to effective date of part II of subchapter Q of chapter 1) is repealed. (144) Repeal of section 1321.— Part III of subchapter Q of chapter 1 (relating to involuntary liquidation of LIFO inventories) is repealed. (145) Repeal of sections 1331 through 1337.— (A) Part IV of subchapter Q of chapter 1 (relating to war loss recoveries) is repealed. (B) The repeal by subparagraph (A) shall apply with respect to war loss recoveries in taxable years beginning after December 31, 1976. (146) Amendment of section 1341.— Section 1341(b)(2) (relating to claim of right) is amended by striking out the last sentence. (147) Repeal of section 1342.— Section 1342 (relating to computation of tax on certain amounts recovered as a result of a patent infringement suit) is repealed. (148) Repeal of section 134A.— Section 1346 (relating to recovery of unconstitutional Federal taxes) is repealed. (149) Amendments of section 1372.— (A) Section 1372(b)(1) (relating to effect of election under subchapter S) is amended by striking out “(other than the tax imposed by section 1378)” and inserting in lieu thereof “(other than as provided by section 58(d)(2) and by section 1378)”. (B) Section 1372(c) (relating to subchapter S elections by small business corporations) is amended to read as follows: “(c) Where and How Made.— An election under subsection (a) may be made by a small business corporation for any taxable year at any time during the first month of such taxable year, or at any time Regulations. during the month preceding such first month. Such election shall be made in such manner as the Secretary shall prescribe by regulations.” (C) Section 1372 is amended by striking out subsection (g) (relating to certain elections for years beginning before 1961). (150) Amendments of section 1374.— (A) Section 1374(b) (relating to net operating losses of subchapter S corporations) is amended by adding at the end thereof the following new sentence: “The deduction allowed by this subsection shall, for purposes of this chapter, be considered as a deduction attributable to a trade or business carried on by the shareholder.” (B) Subsection (d) of section 1374 (relating to treatment of net operating losses of subchapter S corporations) is repealed. (151) Amendments of section 1375.— (A) The heading of subsection (b) of section 1375 is amended by striking out “Received Credit Not Allowed” and inserting in lieu thereof “Not Treated as Such for Certain Purposes”. (B) Section 1375 (f) (relating to elections as to certain distributions) is amended by striking out paragraph (3). (152) Amendment of section 1378.— Section 1378(b) (relating 26 USC 1378. to the taxation of capital gain in the case of electing small business corporations) is amended by striking out the last sentence. (153) Amendments of section 1388.— (A) Section 1388(c)(2)(B)(i) (relating to patronage 26 USC 1388. dividends) is amended by striking out “the date of the enactment of the Revenue Act of 1962” and inserting in lieu thereof “October 16, 1962”. (B) Section 1388(h)(2)(B)(i) (relating to perunit retain certificates) is amended by striking out “the date of the enactment of Ibis subsection” and inserting in lieu thereof “November 13, 1966”. (154) Amendments of section 1401.— (A) Section 1401(a) (relating to rate of tax on self-employment 26 USC 1401. income) is amended to read as follows: “(a) Old-Age, Survivors, and Disability Insurance.— In addition to other taxes, there shall be imposed for each taxable year, on the self-employment income of every individual, a tax equal to 7.0 percent of the amount of the self-employment income for such taxable year.” (B) Section 1401(b) (relating to rate of tax on self-employment income for hospital insurance) is amended by striking out paragraphs (1) and (2) and by redesignating paragraphs (3), (4), (5), and (6), as paragraphs (1), (2), (3) and (4), respectively. (155) Amendments of section 1402.— (A) Paragraph (1) of section 1402(b) (relating to definition 26 USC 1402. of self-employment income) is amended to read as follows: “(1) that part of the net earnings from self-employment which is in excess of (i) an amount equal to the contribution and benefit base (as determined under section 230 of the Social Security Act) 42 USC 430. which is effective for the calendar year in which such taxable year begins, minus (ii) the amount of the wages paid to such individual during such taxable years; or”. (B) Section 1402 amended by striking out subsection (g) 26 USC 1402. (relating to treatment of self-employment income for years prior to 1962). and by redesignating subsections (h) and (i) as subsections (g) and (h). respectively. (C) Section 1402(g)(2) (relating to self-employment income, of members of certain religious faiths), as redesignated by subparagraph (B) of this paragraph, is amended to read as follows: “(2) Time for filing applications.— For purposes of this subsection, an application must be filed on or before the time prescribed for filing the return (including any extension thereof) for the first, taxable year for which the individual has self-employment income (determined without regard to this subsection or subsection (c)(6)), except that an application filed after such date but on or before the last day of the third calendar month following the calendar month in which the taxpayer is first notified in writing by the Secretary that a timely application for an exemption from the tax imposed by this chapter has not been filed by him shall be deemed to be filed timely.” (156) Repeal of section 1465.— Section 1465 (relating to definition 26 USC 1465. of withholding agent) is repealed. (157) Amendments of section 1481.— (A) Section 1481(a)(1)(A) (relating to mitigation of 26 USC 1481. effect of renegotiation of Government contracts) is amended by striking out “within the meaning of the Federal renegotiation act applicable to such transaction” and inserting in lieu thereof “within the meaning of the Renegotiation Act of 1951, as amended (50 U.S.C. App, 1211 and following)”. (B) Section 1481(a)(1) (relating to renegotiation) is amended by striking out subparagraph (D). (C) Subparagraphs (B) and (C) of section 1481(a)(1) are each amended by striking out “applicable Federal renegotiation act” and inserting in lieu thereof “Renegotiation Act of 1951, as amended”. (158) Amendment of section 1551.— Section 1551(a) (relating to disallowance of surtax exemption) is amended by striking out “determined under subjection (d)” and inserting in lieu thereof “determined under subsection (c)”. (159) Amendment of section 1552.— The first sentence of section 1552(a) (relating to earnings and profits of an affiliated group) is amended by striking out “beginning after December 31, 1953, and ending after the date of enactment of this title,”. (b) Conforming and Clerical Amendments.— (1) Amendments conforming to repeal of sections 35 and 242.— (A) Section 36, as amended by this Act, is amended by striking out “sections 32 and 35” and inserting in lieu thereof “section 32”. (B) Section 41(b)(2) is amended by striking out “section 35 (relating to partially tax-exempt interest)”. (C) Section 46(a)(3) is amended by striking out subparagraph (B), by inserting “and” at the end of subparagraph (A), and by redesignating subparagraph (C) as subparagraph (B). (D) Section 50A(a)(3) is amended by striking out subparagraph (B) and redesignating subparagraphs (C), (D), and (E), as subparagraphs (B), (C), and (D), respectively. (E) (i) The heading of paragraph (1) of section 171(a) is amended to read “(1) Taxable bonds.—”. (ii) The heading of paragraph (2) of section 171(a) is amended to read “(2) Tax-exempt bonds.—”, (iii) Section 171(a) is amended by striking out paragraph (3) and by redesignating paragraph (4) as paragraph (3). (iv) Section 171(b)(1)(B)(n) is amended by striking out “subsection (c)(1)(B)” and inserting in lieu thereof “subsection (a)(1)”. (v) So much of section 171(c) as precedes paragraph (2) is amended to read as follows: “(c) Election as to Taxable Bonds.— “(1) Eligibility to elect; bonds with respect to which election permitted.— In the case of bonds the interest on which is not excludable from gross income, this section shall apply only if the taxpayer has so elected.”, (F) (i) Section 551 is amended by striking out subsection (c), and by redesignating subsections (d), (e), (f), and (g), as subsections (c), (d), (e), and (f), respectively. (ii) Section 1016(a)(13) is amended by striking out “section 551(f)” and inserting in lieu thereof “section 551(e)”. (G) Section 584(c)(2) is amended to read as follows: “(2) Dividends received.— The proportionate share of each participant in the amount of dividends received by the common trust fund and to which section 116 applies shall be considered for purposes of such section as having been received by such participant.” (H) (i) Section 642(a) is amended by striking out paragraph 26 USC 642. (1), and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively. (ii) Section 41(d) is amended by striking out “section 26 USC 41. 642(a)(3)” and inserting in lieu thereof “section 642(a)(2)”. (iii) Section 901(g)(3), as amended by this Act, is 26 USC 901. amended by striking out “section 642(a)(2)” and inserting in lieu thereof “section 642(a)(1)”. (I) (i) Section 702(a) is amended by striking out paragraph 26 USC 702. (7) and by redesignating paragraphs (8) and (9) as paragraphs (7) and (8), respectively. (ii) Section 702(b) is amended by striking out “paragraphs (1) through (8)” and inserting in lieu thereof “paragraphs (1) through (7)”. (iii) Section 1402(a) is amended by striking out “702(a) 26 USC 1402. (9)” each place it appears and inserting in lieu thereof “702 (a)(8)”. (J) (i) Section 804(a) is amended by striking out paragraph 26 USC 804. (3), and by redesignating paragraphs (4) and (5) as paragraphs (3) and (4),respectively. (ii) Section 243(b)(3)(C)(iii), as redesignated by paragraph 26 USC 243. (21)(A) of this subsection, is amended by striking out “sections 804(a)(4)” and inserting in lieu thereof “sections 804(a)(3)”. (iii) Section 804(a)(2) is amended by striking out “paragraph (5)” and inserting in lieu thereof “paragraph (4)”, and by striking out “paragraph (4)” and inserting in lieu thereof “paragraph (3)”. (iv) Section 809(d)(10) is amended by striking out “section 26 USC 809. 804(a)(4)”, and inserting in lieu thereof “section 804(a)(3)”. (v) Section 1561(a)(3) is amended by striking out “sections 26 USC 1561. 804(a)(4)” and inserting in lieu thereof “sections 804 (a)(3)”. (vi) Section 1564(a)(1)(C) is amended by striking out 26 USC 1564. “sections 804(a)(4)” inserting in lieu thereof “sections 804 (a)(3)”. (K) Section 804(a)(2)(A) is amended by striking out clause, (ii). by inserting “and” at the end of clause (i), and by redesignating clause (iii) as clause (ii). (L) (i) Section 809(d)(8)(A) is amended by striking out clause (ii), by inserting “and” at the end of clause (i), and by redesignating clause (iii) as clause (ii). (ii) Section 809(d)(8)(B) is amended by striking out “subparagraph (A)(iii)” and inserting in lieu thereof “subparagraph (A)(ii)”. (M) Sections 804(a)(1),804(a)(2), 809(a)(1),809(b)(1)(A) and 809(b)(2)(A) are each amended by striking out “, partially tax-exempt interest,”. (N) Section 809(e) is amended by striking out paragraph (6), and by redesignating paragraph (7) as paragraph (6). (O) Section 815(b)(2)(A)(iii) is amended by striking out 26 USC 815. “the deduction for partially tax-exempt interest provided 26 USC 242. by section 242 (as modified by section 804(a)(3)),” and by striking out the comma after “809(d)(8)(B))”. (P) Section 822(c)(2) is amended by striking out “partially tax-exempt interest and”. (Q) Section 822(c)(6)(A) is amended by striking out “or to the deduction provided in section 242 for partially tax-exempt interest”. (R) Section 822(c)(7) is amended by striking out “partially tax-exempt interest and to”. (S) Section 822(d)(2) is amended by striking out “, the deduction provided in subsection (c)(1), and the deduction allowed by section 242 (relating to partially tax-exempt interest)” and inserting in lieu thereof “and the deduction provided in subsection (c)(1)”. (T) Section 832(c)(5)(A) is amended by striking out “or to the deductions provided in section 242 for partially tax-exempt interest”. (U) Section 832(c)(12) is amended by striking out “partially tax-exempt interest and to”. (V) Sections 852(b)(1) and 857(b)(1) are each amended by striking out the last sentence. (W) Section 1244(c)(1)(E) is amended by striking out “sections 172,242,243” and inserting in lieu thereof “sections 172, 243”. (X) Section 1402 (a)(2) is amended by striking out “(other than interest described in section 35)”. (Y) Section 1503(b)(3) is amended by striking out subparagraph (C). (Z) The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by striking out the item relating to section 35. (AA) The table of sections for part VIII of subchapter B of chapter 1 is amended by striking out the item relating to section 242. (2) Amendment conforming to repeal of section 51.— The table of parts for subchapter A of chapter 1 is amended by striking out the item relating to part V. (3) Amendments conforming to auditions of sections 84 and 65.— (A) Paragraphs (1)(C), (5HA), (6)(D), and (12) of section 341(e) are each amended by striking out “gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231(b)” each place it appears and inserting in lieu thereof “ordinary income”. (B) Section 483(f)(3) is amended by striking out “no part of any gain on such” and inserting in lieu thereof “all of the gain, if any, on such” and by striking out “gain from the sale or exchange of a capital asset or property described in section 1231” and inserting in lieu thereof “ordinary income”. (C) Section 707(b)(2) is amended by striking out “as gain from the sale or exchange of property other than a capital asset” and inserting in lieu thereof “as ordinary income”. (D) Paragraphs (1) and (2) of section 735(a) are each amended by striking out “gain or loss from the sale or exchange of property other than a capital asset” and inserting in lieu thereof “as ordinary income or as ordinary loss, as the case may be”. (E) Section 1236 (b) is amended by striking out “loss from 26 USC 1236. the sale or exchange of property which is not a capital asset” and inserting in lieu thereof “ordinary loss”. (F) Sections 1242 and 1243 are each amended by striking 26 USC 1242, 1243. out “a loss from the sale or exchange of property which is not a capital asset” each place it appears and inserting in lieu thereof “an ordinary loss”. (G) Section 1244 is amended by striking out “a loss from 26 USC 1244. the sale or exchange of an asset which is not a capital asset” each place it appears and inserting in lieu thereof “an ordinary loss”. (H) Section 1248(g)(3)(B), as redesignated by this Act, 26 USC 1248. is amended by striking out “gain from the sale of an asset which is not a capital asset” and inserting “ordinary income”. (I) The following provisions are each amended by striking out “gain from the sale or exchange of property which is not a capital asset” each place it appears and inserting in lieu thereof “ordinary income”: sections 341(a). 871(a)(1)(C)(i) and (ii), 881(a)(3)(A) and (B), 996(d)(1) and (2), 1037(b)(1)(A), 1232(a)(2)(A) and (B), 1232(c), 1246(a), and 1385(c)(2)(C). (J) The following provisions are each amended by striking out “gain from the sale of property which is not a capital asset” and inserting in lieu thereof “ordinary income”: sections 306(a)(1)(A),306(a)(1)(B), and 306(f). (K) The following provisions are each amended by striking out “gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231” each place it appears and inserting in lieu thereof “ordinary income”: sections 80(c)(1), 163(d)(3) and (5), 613(a), 617 (d)(1). 995(b)(1)(C). 1238, 1245(a)(1), 1249(a), 1250 (f) and (g), 1251 (b)(3)(B), (c)(1), and (c)(2), and 1252(a)(1). (4) Clerical amendments conforming to additions of sections 64 and 65.— (A) The table of sections for part I of subchapter B of chapter 1 is amended by adding at the end thereof the following new items: “Sec. 64. Ordinary income defined. “Sec. 65. Ordinary loss defined.” (B) The heading for part I of subchapter B of chapter 1 is amended by striking out “AND TAXABLE INCOME” and inserting in lieu thereof “TAXABLE INCOME, ETC.” ETC.” (C) The table of parts for subchapter B of chapter 1 is amended by striking out “and taxable income.” in the item relating to part. I and inserting in lieu thereof “taxable income, etc.” (5) Amendment conforming to repeat, of section 70.— The table of sections for part II of subchapter B of chapter 1 is amended by striking out the item relating to section 76. (6) Amendments conforming to amendment of section 103.— (A) Section 6049(b)(2)(A) is amended by striking out 26 USC 6049. “section 103(a)(1) or (3)” and inserting in lieu thereof “section 103(a)”. (B) Section 852(a)(1)(B), as added by this Act, is amended by striking out “section 103(a)(1)” and inserting in lieu thereof “section 103 (a)”. (7) Amendments conforming to amendment of section 143.— (A) (i) Part V of subchapter B of chapter 1 is amended by striking out section 153 (relating to determination of marital status) and by redesignating section 154 as section 153. (ii) The table of sections for part V of subchapter B of chapter 1 is amended by striking out the items relating to sections 153 and 154 and inserting in lieu thereof the following: “Sec. 153. Cross references.”. (B) Section 152(a)(9) is amended by striking out “section 153” and inserting in lieu thereof “section 143”. (C) Section 153, as redesignated by subparagraph (A) of this paragraph, is amended by adding at the end thereof the following new paragraph: “(5) For determination of marital status, see section 143.” (8) Amendments conforming to amendment of section 151.— (A) The following provisions are each amended by striking out “educational institution (as defined in section 151 Q(4))” each place it appears and inserting in lieu thereof educational organization described in section 170(b)(1)(A)(ii)”: sections 117(a)(1)(A), 117(b)(1), 117(b)(2), 152(d), 170(g)(1)(B)(as redesignated by subsection (a)(28) 26 USC 117, 152, 170, 403. (A)(i) of this section!, and 403(b)(1)(A)(ii). (B) Section 103(c)(3)(A), as redesignated by subsection (a)(17) of this section, is amended by striking out “educational institution (within the meaning of section 151(e)(4))” and inserting in lieu thereof “educational organization described in section 170(b)(1)(A)(ii)”, (C) Section 163(b)(1) is amended by striking out “educational institution (as defined in section 151(e)(4)) and which is provided for a student of such institution” and inserting in lieu thereof “educational organization described in section 170(b)(1)(A)(ii) and which is provided for a student of such organization”. (D) (i) Subparagraphs (A), (B), and (C) of section 415 (c)(4) are each amended by striking out “educational institution” each place it appears and inserting in lieu thereof “educational organization”. (ii) Subparagraph (D)(ii) of section 415(c)(4) is amended to read as follows: “(ii) For purposes of this paragraph the term ‘educational organization’ means an educational organization described in section 170(b)(1)(A)(ii).” (iii) Section 415(c)(4) is amended by striking out “educational institutions” from the paragraph heading and inserting in lieu thereof “educational organizations”. (E) Section 508(c)(2)(A) is amended to read as follows: “(A) educational organizations described in section 170 (b)(1)(A)(u),and”. (F) Section 512(b)(15)(B), as redesignated by section 1951(b)(8)(A) of this Act, is amended by striking out “edu-cational institution (as defined in section 151(e)(4))” and inserting in lieu thereof “educational organization described in section 170(b)(1)(A)(ii)”. (G) Section 1303(d) is amended by striking out “educational 26 USC 1303. institution (as defined in section 151(e)(4))” each place it appears and inserting in lieu thereof “educational organization described in section 170(b)(1)(A)(ii)”. (H) Sections 4941(d)(2)(G)(ii) and 4945(g)(1) each 26 USC 4941, 4945. are amended by striking out “educational institution described in section 151(e)(4)” and inserting in lieu thereof “educational organization described in section 170(b)(1)(AHii)”. (9) Amendments conforming to the amendments of section 152.— Section 2(b)(3)(B) is amended by striking out clause (ii), 26 USC 2. by adding “or” at the end of clause (i), and by redesignating clause (ii) as clause (ii). (10) Amendment conforming to the amendment of section 112.— (A) Section 374(e)(2) is amended by striking out “section Ante, p. 296. 172(j)” and inserting in lieu thereof “172(g)”. (B) Section 904(f)(2)(B)(i) and 904(f)(4)(B)(i), as Ante, p. 1624. amended by this Act, are each amended by striking out “section 172(k)(1)” and inserting in lieu thereof “section 172(h)”. (11) Amendments conforming to repeal of section 187.— (A) Section 48(a)(8) (relating to section 38 property) is 26 USC 48. amended by striking out “187,”. (B) The table of sections for part VI of subchapter B of chapter 1 is amended by striking out the item relating to section 187. (C) Section 1082(a)(2)(B) (relating to basis for determining gain 26 USC 1082. or loss) is amemled by striking out “187,”. (D) Section 1245(a)(2) (relating to gain from dispositions 26 USC 1245. of certain depreciable property) is amended by striking out “187,” each place it appears. (12) Amendments conforming to the repeal of section 342.— (A) Section 551(f), as redesignated by paragraph (1)(F) 26 USC 551. of this subsection, is amended by striking out paragraph (3). (B) The table of subparts for part II of subchapter C of chapter 1 is amended by striking out the item relating to subpart C and inserting in lieu thereof: “Subpart C. Collapsible corporations,” (C) The table of sections for subpart C of part II of subchapter C of chapter 1 is amended by striking out the item relating to section 342. (D) The heading of subpart C of part II of subchapter C of chapter 1 is amended to read as follows: “Subpart C— Collapsible Corporations”. (13) Amendments conforming to the repeal of section 303.— The table of sections for subpart C of part III of subchapter C of chapter 1 is amended by striking out the item relating to section 363. (14) Amendments conforming to the repeal of section 373.— (A) Section 372(b)(1) is amended by striking out “373 26 USC 372. (b) or”. (B) Section 374(b) is amended to read as follows: “(b) Basis.— “(1) Railroad corporations.— If the property of a railroad corporation, as defined in section 77(m) of the Bankruptcy Act (11 U.S.C. 205 (m)), was acquired after December 31, 1938, in pursuance of an order of the court having jurisdiction of such corporation— “(A) in a receivership proceeding, or “(B) in a proceeding under section 77 of the Bankruptcy Act, and the acquiring corporation is a railroad corporation (as defined in section 77(m) of the Bankruptcy Act) organized or made use of to effectuate a plan of reorganization approved by the court, in such proceeding, the basis shall be the same as it would be in the hands of the railroad corporation whose property was so acquired, increased in the amount of gain recognized under subsection (a)(2) to the transferor on such transfer. “(2) Property acquired by street, suburban, or interurban electric railway corporation.— If the property of any street, suburban, or interurban electric railway corporation engaged as a common carrier in the transportation of persons or property in interstate commerce was acquired after December 31, 1934, in pursuance of an order of the court having jurisdiction of such corporation in a proceeding under section 77 of the Bankruptcy Act (11 U.S.C. 501 and following), and the acquiring corporation is a street, suburban, or interurban electric railway engaged as a common carrier in the transportation of persons or property in interstate commerce, organized or made use of to effectuate a plan of reorganization approved by the court in such proceeding, then, notwithstanding the provisions of section 270 of the Bankruptcy Act (11 U.S.C. (570), the basis shall be the same as it would be in the hands of the corporation whose property was so acquired.” (C) Section 374(c)(8) is amended by striking out “subsection (b)” and inserting in lieu thereof “subsection (b)(1)”. . .. (D) Section 1232(b)(2) is amended by striking out “section 371, 373, or 374” and inserting in lieu thereof “section 371 or 374”. (E) The table of sections for part IV of subchapter C of chapter 1 is amended by striking out the item relating to section 373. (15) Amendment conforming to repeal of sections 391 through 395.— The table of parts for subchapter C of chapter 1 is amended by striking out the item relating to part VII. (16) Amendment conforming to the amendments of section 481.— Section 381 (c) is amended by striking out paragraph (21). (17) Amendment conforming to the amendments of section 545.— Section 381(c)(15) is amended by striking out “subsections (b)(7) and (c)” and inserting in lieu thereof “subsection (c)”. (18) Amendment conforming to the repeal of section 583.— The table of sections for part I of subchapter H of chapter 1 is amended by striking out the item relating to section 583. (19) Amendment conforming to the repeal of section 592.— The table of sections for part II of subchapter H of chapter 1 is amended by striking out the item relating to section 592. (20) Amendments conforming to the repeal of section 601.— (A) Section 535(b) is amended by striking out paragraph 26 USC 535. (8). (B) (i) Section 545(b) is amended by striking out paragraph 26 USC 545. (6), and by redesignating paragraph (8) as paragraph (6). (ii) Section 545(b)(2) is amended by striking out “paragraph (8)” and inserting in lieu thereof “paragraph (6)”. (iii) Section 545(c)(5) is amended by striking out “subsection (b)(8)” and inserting in lieu thereof “subsection (b)(6)”. (C) The table of parts for subchapter H of chapter 1 is amended by striking out the item relating to part III. (21) Amendments conforming to the repeal of section 615.— (A) (i) Section 243(b)(3)(C) is amended— 26 USC 243. (I) by striking out clauses (ii) and (iii) and inserting in lieu thereof the following; “(ii) $400,000 limitation for certain exploration expenditures under section 617(h)(1),”, and (II) by redesignating clauses (iv) and (v) as clauses (iii) and (iv), respectively. (ii) Section 1564(h)(2)(C) is amended by striking out 26 USC 1564. “section 243(b)(3)(C)(v)” and inserting in lieu thereof “243(b)(3)(C)(iv)”. (B) Section 381(c)(10) is amended to read us follows: 26 USC 381. “(10) Treatment of certain mining develops cent and exploration expenses of distributor or transfer or corporation.— The acquiring corporation shall be entitled to deduct, as if it were the distributor or transferor corporation, expenses deferred under section 616 (relating to certain development expenditures) if the distributor or transferor corporation has so elected. For the purpose of applying the limitation provided in section 617(h), if, for any taxable year, the distributor or transferor corporation was allowed a deduction under section 617(a), the acquiring corporation shall be deemed to have been allowed such deduction.” (C) Section 617(h)(1) is amended by striking out “and 26 USC 617. section 615(a) and the amounts which are or have been treated as deferred expenses under section 615(b)” and inserting in lieu thereof “and subsection (a) of section 615 (as in effect before the enactment of the Tax Reform Act of 1976)”. (D) Section 617(h)(3) is amended to read as follows: “(3) Application of paragraph (2)(b).— Paragraph (2) (B) shall apply with respect to nil amounts deducted before the latest such transfer from the individual or corporation to the taxpayer. Paragraph (2)(B) shall apply only if— “(A) the taxpayer acquired any mineral property from the individual or corporation under circumstances which make paragraph (7), (8), (11), (15), (17), (20), or (22) of section 113(a) of the Internal Revenue Code of 1939 apply to such transfer; or “(B) the taxpayer acquired any mineral property from the individual or corporation under circumstances which make section 334(b), 362 (a) and (b), 372(a), 374(b)(1), 1051, or 1082 apply to such transfer.” (E) Section 617 is amended by adding at the end thereof the following new subsection: “(i) Certain Pre-1970 Exploration Expenditures.— If— “(1) the taxpayer receives mineral property in a transaction as a result of which the basis of such property in the hands of the transferee is determined by reference to the basis in the hands of the transferor, “(2) an election made by the transferor under subsection (e) of section 615(e)(as in effect before the enactment of the Tax Reform Act of 1976) applied with respect to expenditures which were made by him and which were properly chargeable to such property, and “(3) the taxpayer has made or makes an election under subsection (a), then in the application of this section with respect to the transferee, the amounts allowed as deductions under such section 615 to the transferor, which (but for the transferor’s election) would be reflected in the adjusted basis of such property in the hands of the transferee, shall be treated as expenditures allowed as deductions under subsection (a) to the transferor.” (F) Section 703 (b) is amended by striking out “under section 615 (relating to pre–1970 exploration expenditures),”. (G) Section 1016 (a) is amended by striking out paragraph (I?)-. (H) The table of sections for part. I of subchapter I of chapter 1 is amended by striking out the item relating to section 615. (22) Amendments conforming to the repeal of section 632.— (A) The table of sections for part III of subchapter I of chapter 1 is amended by striking out the item relating to section 632. (B) Section 5(b) is amended by striking out paragraph (1). (23) Amendment conforming to the repeal of section 771.— The table of parts for’ subchapter K of chapter 1 is amended by striking out the item relating to part IV. (24) Amendment conforming to the amendment of section 802.— Section 815(c)(3)(B) is amended by striking out “(determined without regard to section 802(a)(3))”. (25) Amendment conforming to the amendment of section 812.— Section 844(b)(2) is amended by striking out “section 812(b)(1)(A)(iii)” and inserting in lieu thereof “section 812 (b)(1)(C)”. (26) Amendments conforming to the amendments of section 804.— (A) Paragraphs (5) and (6) of section 861(a) (relating to items treated as income from within United States) are each amended by striking out in the heading “sale” and inserting in lieu thereof “sale or exchange”, and by striking out “sale” in the text and inserting in lieu thereof “sale or exchange”. (B) section 861(e)(1) (relating to income from certain aircraft and vessels) is amended by striking out “sale or other disposition” and inserting in lieu thereof “sale, exchange, or other disposition”. (C) Paragraphs (5) and (6) of section 862(a) (relating to items treated as income from without the United States) 26 USC 863. and paragraphs (2) and (3) of section 863(b) (relating to sources of income) are each amended by striking out “sale” and inserting in lieu thereof “sale or exchange”. (D) Paragraph (2) of section 863(b) (relating to sources 26 USC 863. of income) is amended by striking out “sold” each place it appears and inserting in lieu thereof “sold or exchanged”. (27) Amendments conforming to the repeal of section 972.— (A) Section 970(b)(1) (relating to inclusion of certain 26 USC 970. previously excluded amounts of sub part F income) is amended by striking out “application of section 972” and inserting in lieu thereof “treatment (under section 972 as in effect before the date of the enactment of the Tax Reform Act of 1976) of two or more controlled foreign corporations which are export trade corporations as a single controlled foreign corporation ”. (B) The table of sections for subpart G of part III of subchapter N of chapter 1 is amended by striking out the item relating to section 972. (28) Amendments conforming to the amendment of section 1001.— (A) Subsection (c) of section 331 is amended to read as 26 USC 331. follows: “(c) Cross Reference.— “For general rule for determination of the amount of gain or loss recognized, see section 1001.” (B) (i) Section 1002 (relating to recognition of gain or 26 USC 1002. loss) is repealed. (ii) The table of sections for part I of subchapter 0 of chapter 1 is amended by striking out the item relating to section 1002. (29) Amendments conforming to the repeal of section 1920.— (A) The third sentence of subsection (a) of section 1016 is 26 USC 1016. amended by striking out “under section 1020” and inserting in lieu thereof “under section 1020 (as in effect before the date of the enactment of the Tax Reform Act of 1976)”, Ante, p. 1520; (B) The table of sections for part II of subchapter O of chapter 1 is amended by striking out the item relating to section 1020. (30) Amendments conforming to the repeal of section 1022.— (A) Section 1016(a) is amended— 26 USC 1016. (i) by striking out paragraph (21), and (ii) by redesignating paragraphs (20) and (22) as paragraphs (19) and (20), respectively. (B) The amendment made by subparagraph (A)(i) shall 26 USC 1016 note. apply with respect to stock or securities acquired from a decedent dying after the date of the enactment of this Act. (C) Tho table of sections for part II of subchapter O of chapter 1 is amended by striking out the item relating to section 1022, ~ (31) Amendments conforming to amendments of section 1033.— (A) Section 1250(d)(4)(B) is amended by striking out 26 USC 1250. “1033(a)(3)(A)” and inserting in lieu thereof “1033(a)(2)(A)” (B) Section 1250(d)(4)(C) and (D) are each amended by striking out “1033(a)(3)” and inserting in lieu thereof “1033(a)(2)”. (C) Section 6212(c)(2)(B) is amended by striking out “1033(a)(3)(C) and (D)” and inserting in lieu thereof “1033 (aj (2)(C) and (D)”. (D) Section 6504(4) is amended by Striking out “1033(a)(3)(C) and (D)” and inserting in lieu thereof “1033(a)(2)(C) and (D)”. (E) Sections 1071(b) and 1250(d)(4)(D) are each amended by striking out “1033(c)” and inserting in lieu thereof “1033(b)”. (32) Amendments conforming to the repeal of section 1111.— (A) Section 301 is amended by striking out subsection (f), and by redesignating subsection (g) as subsection (e). (B) (i) Section 312 is amended by striking out subsection (k), and by redesignating subsections (1) and (m) as subsections (j) and (k), respectively, (ii) Section 1246(g) is amended by striking out “312(1)” and inserting in lieu thereof “312 (j)”. (iii) Sections 964(a) and 1248(c)(1) are each amended by striking out “312 (m)(3)” and inserting in lieu thereof “312 (k)” (iv) Subsection (d) of section 1377, as added by this Act, is amended by striking out “312(m)” and inserting in lieu thereof “312(k)”. (C) Section 535(b) is amended by striking out paragraphs (9) and (10). (D) Section 543(a)(1) is amended by inserting “and” at the end of subparagraph (A), and by striking out subparagraphs (B) and (C) and inserting in lieu thereof the following: “(B) interest on amounts set aside in a reserve fund under section 511 or 607 of the Merchant Marine Act, 1936 (46 U.S.C. 1161 or 1177).” (E) Section 545(b) is amended by striking out paragraphs (10) and (11). (F) Section 553(a)(1) is amended to read as follows: “(1) Dividends, etc.— Dividends, interest, royalties, and annuities.” (G) Section 556(b) is amended by striking out paragraphs (7) and (8). (H) Section 561(b) is amended to read as follows: “(b) Special Rules Applicable.— In determining the deduction for dividends paid, the rules provided in section 562 (relating to rules applicable in determining dividends eligible for dividends paid deduction) and section 563 (relating to dividends paid after the close of the taxable year) shall be applicable.” (I) The table of parts for subchapter O of chapter 1 is amended by striking out the item relating to part IX. (33) Amendments conforming to amendment of section 1222.— (A) Section 57(a)(9)(A) is amended by striking out “the amount by which the net long-term capital gain exceeds the net short-term capital loss” and inserting in lieu thereof “the net capital gain”. (B) So much of the first sentence of section 57(a)(9)(B) as precedes “by a fraction” is amended to read as follows: “In the case of a corporation having a net capital gain for the taxable year, an amount equal to the product obtained by multiplying the net capital gain”. (C) Section 527(b)(2) is amended by striking out “net 26 USC 527. section 1201 gain” and inserting in lieu thereof “net capital gain”. (D) Sections 535(b)(6) and 545(b)(5) are each amended— 26 USC 535, 545. (1) by striking out from the paragraph heading “Long-term” and inserting in lieu thereof “Net”, (2) by striking out from the text “the excess of the net long-term capital gain for the taxable year over the net short-term capital loss for such year” each place it appears and inserting in lieu thereof’ “the net capital gain for the taxable year”, and (3) by striking out from the text “such excess” each place it appears and inserting in lieu thereof “such net capital gain”. (E) Section 802(a)(2) is amended— 26 USC 802. (i) by striking out “the net long-term capital gain of any life insurance company exceeds the net short-term capital loss” and inserting in lieu thereof “any life insurance company has a net capital gain”, and (ii) by striking out “such excess” each place it appears and inserting in lieu thereof “such net capital gain”. (F) Section 804(a)(2) is amended by 26 USC 804. striking out “by which the net long-term capital gain exceeds the net short-term capital loss” and inserting in lieu thereof “of the net capital gain”. (G) Sections 809(b)(1)(B) and 809(b)(2)(B) are each 26 USC 809. amended by striking out “by which the net long-term capital gain exceeds the net short-term capital loss” and inserting in lieu thereof “of the net capital gain”. (H) Section 815(b)(2)(A)(ii) is amended by striking out 26 USC 815. “by which the net long-term capital gain exceeds the net short-term capital loss” and inserting in lieu thereof “of the net capital gain”. (I) Section 852(b)(2)(A) is amended by striking out 26 USC 852. “the excess, if any, of the net long-term capital gain over the net short-term capital loss” and inserting in lieu thereof “the amount of the net capital gain, if any”. (J) (i) Section 852(b)(3)(A) is amended to read as follows: “(A) Imposition of tax.— There is hereby imposed for each taxable year in the case of every regulated investment company a tax, determined as provided in section 1201 (a), on the excess, if any, of the net capital gain over the deduction for dividends paid (as defined in section 561) determined with reference to capital gain dividends only.” (ii) The second sentence of section 852(b)(3)(C) is amended by striking out “excess of the net long-term capital gain over the net short-term capital loss” each place it appears and inserting in lien thereof “net capital gain”. (K) The second sentence of section 857(b)(3)(C) is 26 USC 857. amended by striking out “excess of the net long-term capital gain over the net short-term capital loss” each place it appears and inserting in lieu thereof “net capital gain”. (L) Section 1201(b) is amended by striking out “net section 26 USC 1201. 1201 gain” each place it appears and inserting in lieu thereof “net capital gain”. (M) The first sentence of section 1202 is amended to read as follows: “If for any taxable year, a taxpayer other than a corporation has a net capital gain, 50 percent of the amount of the net capital gain shall be a deduction from gross income.” (N) Sections 381(e)(3)(B), 381(c)(3)(C), 852(d), 4940 (c)(1), and 4940(c)(4) are each amended by striking out “net capital gain” and inserting in lieu thereof “capital gain net income”. (O) Section 1212(a)(1) is amended by striking out “net capital gain” each place it appears and inserting in lieu thereof “capital gain net income”, and by striking out “net capital gains” and inserting in lieu thereof “capital gain net income”. (P) Section 1247(a)(1)(B) is amended by striking out “the excess (determined as if such corporation were a domestic corporation) of the net long-term capital gain over the net short-term capital loss” and inserting in lieu thereof “the amount (determined as if such corporation were a domestic corporation) of the net capital gain”. (Q) (i) Section 1375(a)(1) is amended by striking out “the excess of the corporation’s net long-term capital gain over its short-term capital loss” and inserting in lieu thereof “the corporation’s net capital gain”. (ii) The second sentence of section 1375(a)(1) is amended by striking out “such excess” and inserting in lieu thereof “such net capital gain”. (iii) Section 1375(a)(3) is amended by striking out “the excess of an electing small business corporation’s net long-term capita] gain over its net short-term capital loss” and inserting in lieu thereof “an electing small business corporation’s net capital gain”. (R) The following provisions are each amended by striking out “the excess of the net long-term capital gain over the net short-term capital loss,” and inserting in lieu thereof “the net capital gain”: Sections 1247(a)(2)(A)(i), 1247(a)(2) 26 USC 1247, 1378. (C), 1247(d)(1) and (2). 1378(a)(1), 1378(b)(1), and 1378 (c)(8). (34) Amendment conforming to the repeal of section 1240.— The table of sections of part IV of subchapter P of chapter 1 is amended by striking out the item relating to section 1240. (35) Amendment conforming to the repeal of section 1315.— The table of sections for part II of subchapter Q of chapter 1 is amended by striking out the item relating to section 1315. (36) Amendments conforming to the repeal of section 1321.— (A) Section 472 is amended by striking out subsection (f). (B) Section 6422, as amended by this Act, is amended by striking out paragraph (2), and by redesignating paragraphs (3) through (13) as paragraphs (2) through (12), respectively. (C) Section 6504 is amended by striking out paragraph (1). (D) Section 6515 is amended by striking out paragraph (1). (E) The table of parts for subchapter Q of chapter 1 is amended by striking out the item relating to part III. (37) Amendments conforming to the repeal of sections 1331 through 1337.— (A) The third sentence of section 901(a) is amended by 26 USC 901. striking out “under section 1333 (relating to war loss recoveries) or”. _ . (B) Section 936(a)(2), as added by this Act, is 26 USC 936. amended— (i) by inserting “or” at the end of subparagraph (C), and (ii) by striking out subparagraph (D). (C) Section 6212(c),(2) is amended by striking out subparagraph 26 USC 6212. (D). (D) Section 6515 is amended by striking out paragraph 26 USC 6515. (6). (E) Section 6515, as amended by this Act, is amended by striking out paragraph (2), and by redesignating paragraphs (3), (4), (5), (6), (7), and (8) as paragraphs (1), (2), (3), (4). (5),and (6) respectively. (F) The table of parts tor subchapter Q of chapter 1 is amended by striking out the item relating to part IV. (38) Amendment conforming to the repeal of section 1342.— The table of sections for part V of subchapter Q of chapter 1 is amended by striking out the item relating to section 1342. (39) Amendments conforming to the repeal of section 1340.— (A) The table of sections for part VI of subchapter Q of chapter 1 is amended by striking out the item relating to section 1346. (B) Section 6504 is amended by striking out paragraph Post, p. 1829. (7). (40) Amendment conforming to amendment of section 1372.— Section 58(d)(2) is amended by striking out “, notwithstanding 26 USC 58. the provisions of section 1371(b)(1),” (41) Amendment conforming to the repeal of section 1465.— The table of sections for subchapter C of chapter 3 is amended by striking out the item relating to section 1465. (c) Amendments to Provisions Referring to Territories.— (1) Section 37(f) is amended by striking out “a Territory,”. Ante, p. 1559. 26 USC 105, 273, 454. 26 USC 117. (2) Sections 105(e)(2), 273, and 454(b)(2) are each amended by striking out a Territory.”. (3) Section 117(b)(2)(A)(iv) is amended by striking out “a territory,”. (4) Section 162(a) is amended by striking out “territory”. 26 USC 162. 26 USC 581. (5) Section 581 is amended by striking out “, of any State, or of any Territory” and inserting m lieu thereof “or of any State”, and by striking out “, Territorial,”. (6) Section 801(b)(3) is amended by striking out “or 26 USC 801. Territorial”. (7) Section 861(a)(1) is amended by striking out “, any Territory, 26 USC 861. any political subdivision of a Territory.”. (8) Paragraphs (6) and (7) of section 1014(b) are each 26 USC 1014. amended by striking out “Territory.”. (9) Section 1221 (5) is amended by striking out “or Territory,”. 26 USC 1221. 26 USC 2 note. (d) Effective Date.— Except as otherwise expressly provided in this section, the amendments made by this section shall apply with respect to taxable years beginning after December 31, 1976. The amendments made by subsections (a)(29) and (b)(10) shall apply with respect to taxable years ending after the date of the enactment of this Act. SEC. 1902. AMENDMENTS OF SUBTITLE B; ESTATE AND GIFT TAXES. (a) In General.— (1) Amendments of section 2012.— (A) Section 2012(b) (relating to credit for gift tax) is amended— (i) by Striking out “(b) in applying,” and inserting in lieu thereof “(b) Valuation Reductions.—In applying,”, and (ii) by striking out in paragraphs (2) and (3) “ deduction)—then” and inserting in lieu thereof “deduction), then”. (B) Section 2012(c) (relating to gift by spouse or third party) is amended by striking out “(c) Where the decedent” and inserting in lieu thereof “(c) Where Gift Considered Made One-Half by Spouse.—Where the decedent”. (C) Section 2012(d)(1) (relating to computation of amount of gift tax) is amended by striking out “(d)(1) For purposes of” and inserting in lieu thereof the following: “(d) Computation of Amount of Gift Tax Paid.— “(1) Amount of tax.— For purposes of”. (D) Section 2012(d)(2) (relating to credit for gift tax) is amended by striking out “(2) For purposes” and inserting in lieu thereof: “(2) Amount of gift.—For purposes”., (2) Amendments of section 2013.— Section 2013(d)(3) is amended by striking out “, or the corresponding provision of prior law,”. (3) Amendment of section 2038.— Section 2038 (relating to revocable transfers) is amended by striking out subsection (c) (relating to effect of disability in certain cases). (4) Amendments of section 2055.— (A) Section 2055(b) (relating to powers of appointment) is amended to read as follows: “(b) Powers of Appointment.— Property includible in the decedent’s gross estate under section 2041 (relating to powers of appointment) received by a donee described in this section shall, for purposes of this section, be considered a bequest of such decedent.” (B) Section 2055(f) (relating to cross references) is amended to read as follows: (f) Cross References.— “(1) For option as to time for valuation for purpose of deduction under this section, see section 2032. “(2) For exemption of gifts and bequests to or for the benefit of Library of Congress, see section 5 of the Act of March 3, 1925, as amended (2 U.S.C. 161). “(3) For treatment of gifts and bequests for the benefit of the Office of Naval Records and History as gifts or bequests to or for the use of the United States, see section 7222 of title 10, United States Code. “(4) For treatment of gifts and bequests to or for the benefit of National Park Foundation as gifts or bequests to or for the use of the United States, see section 8 of the Act of December 18, 1967 (16 U.S.C. 191). “(5) For treatment of gifts, devises, or bequests accepted by the Secretary of State under the Foreign Service Act of 1946 as gifts, devices, or bequests to or for the use of the United States, see section 1021(e) of that Act (22 U.S.C. 869(e)) . “(6) For treatment of gifts or bequests of money accepted by the Attorney General for credit to ‘Commissary Funds, Federal Prisons/ as gifts or bequests to or for the use of the United States, see section 2 of the Act of May 15, 1952, as amended by the Act of July 9, 1952 (31 U.S.C. 725s–4). “(7) For payment of tax on gifts and bequests of United States obligations to the United States, see section 24 of the Second Liberty Bond Act (31 U.S.C. 757e), “(8) For treatment of gifts and bequests for benefit of the Naval Academy as gifts or bequests to or for the use of the United States, see section 6973 of title 10, United States Code. _ “(9) For treatment of gifts and bequests for benefit of the Naval Academy Museum as gifts or bequests to or for the use of the United States, see section 6974 of title 10, United States Code. “(10) For exemption of gifts and bequests received by National Archives Trust Fund Board, see section 2308 of title 44, United States Code.” (5) Amendments of section 2100.— (A) Section 2106(a)(2)(F) (relating to cross references 26 USC 2106. concerning the charitable deduction for estate tax purposes) is amended to read as follows: “(F) Cross References.— “(1) For option as to time for valuation for purposes of deduction under this section, see section 2032. “(2) For exemption of certain bequests for the benefit of the United States and for rules of construction for certain bequests, see section 2C55(O.” (B) Section 2106 (relating to taxable estate of nonresidents) is amended by striking out subsection (c) (relating to treatment of United States bonds). (6) Amendment of sections 2107 and 2108.— Section 2107(a) (relating 26 USC 2107, 2108. to estate tax on expatriates) and section 2108(a) (relating to application of pre–1967 estate tax provisions) are each amended by striking out “the date, of enactment of this section” and inserting in lieu thereof “November 13, 1966”. (7) Amendment relating to section 2201.— (A) Section 6(b)(1) of the Act of January 2, 1975 (Public Law 93–597; 88 Stat. 1950) is amended by striking out 26 USC 2201. “Section 2210” and inserting in lieu thereof “Section 2201”. (B) The amendment made by subsection (A) is effective 26 USC 2201 note. 26 USC 2202. July 1, 1973. (8) Repeal of section 2202.— Section 2202 (relating to missionaries in foreign service) is repealed. (9) Amendment of section 2204.— The last sentence of section 2204(b) (relating to the discharge from personal liability of a fiduciary other than the executor) is amended by striking out “has not been” and inserting in lieu thereof 26 USC 2204. “has been”. (10) Amendment of section 2501.— Section 2501(a)(1) (relating 26 USC 2501. to imposition of gift tax) is amended to read as follows: “(1) General rule.— A tax, computed as provided in section 2502, is hereby imposed for each calendar quarter on the transfer of property by gift during such calendar quarter by any individual, resident or nonresident.” (11) Amendment of section 2522.— Subsection (d) of section 26 USC 2522. 2522 (relating to cross references) is amended to read as follows: “(d) Cross Reference.— “For exemption of certain gifts to or for the benefit of the United States and for rules of construction with respect to certain gifts, see section 2055(f).” (12) Amendments to sections referring to territories.— (A) The following provisions are each amended by striking out “Territory,”: sections 2055(a)(1), 2056(c)(2)(B), 26 USC 2055, 2056, 2106. and 2106(a)(2)(A)(i). (B) The following provisions are each amended by striking out “or Territory”: sections 2011(a), 2011(e), and 2053 (C) Section 2016 is amended by striking out “Territory or”. (D) Sections 2522(a)(1) and 2522(b)(1) are. each amended by striking out “Territory,”. (E) Section 2523(f)(1) is amended by striking out “Territory, or”. (b) Conforming and Clerical Amendments.— (1) Amendment conforming to repeal of section 2202.— The table of sections for subchapter C of chapter 11 is amended by striking out the item relating to section 2202. (2) Amendments conforming to amendment of section 2055.— (A) Section 6503, as amended by this Act, is amended by striking out subsection (e), and by redesignating subsections (f), (g) (h), and (i) as subsections (e), (f), (g), and (h), respectively. (B) Section 6167(h)(2) is amended by striking out “section 6503(f)” and inserting in lieu thereof “section 6503(e)”. (c) Effective Dates.— (1) Estate tax amendments.— The amendments made by paragraphs (1) through (10), and paragraphs (14)(A), (B),and (C), of subsection (a), and by subsection (b) shall apply in the case of estates of decedents dying after the date of the enactment of this Act, and the amendment made by paragraph (11) of subsection (a) shall apply in the case of estates of decedents dying after December 31, 1970. (2) Gift tax amendments.— The amendments made by paragraphs (12), (13), and (14)(D) and (E) of subsection (a) shall apply with respect to gifts made after December 31, 1976. SEC. 1903. AMENDMENTS OF SUBTITLE C; EMPLOYMENT TAXES. (a) In General.— (1) Amendments of sections 3101 and 3111.— (A) Section 3101(a) (relating to rate of tax on employees for old-age, survivors, and disability insurance) and section 26 USC 3111. 3111(a) (relating to rate of tax on employers for such insurance) are each amended by striking out paragraphs (1), (2), (3), and (4), and by redesignating paragraphs (5) and (6) as paragraphs (1) and (2), respectively. (B) Section 3101(b) (relating to rate of tax on employees for hospital insurance) and section 3111(b) (relating to rate of tax on employers for such insurance) are each amended by striking out paragraphs (1) and (2), and by redesignating paragraphs (3), (4), (5), and (6) as paragraphs (1), (2), (3), and (4), respectively. (2) Repeal of section 3113.— Section 3113 (relating to application of social security tax on District of Columbia credit unions) is repealed. (3) Amendments of section 3121.— (A) Section 3121(b) (relating to employment) is amended— (i) by striking out “performed after 1936 and prior to 1955 which was employment for purposes of subchapter A of chapter 9 of the Internal Revenue Code of 1939 under the law applicable to the period in which such service was performed, and any service, of whatever nature, performed after 1954” and inserting in lieu thereof “, of whatever nature, performed”, and (ii) by striking out “, in the case of service performed after 1954,”. (B) Section 3121(b)(1) is amended by striking out “65 26 USC 3121. Stat. 119;”. (C) Section 3121(b)(6)(B)(v) is amended by striking out “Secretary of the Treasury” and inserting in lieu thereof “Secretary of Transportation”. (D) Section 3121(g)(3) (relating to agricultural labor) is amended by striking out “46 Stat. 1550, § 3;”. (E) Section 3121(k)(1) (relating to exemption of certain organizations) is amended by striking out subparagraphs (F) and (H) and by redesignating subparagraph (G) as subparagraph (F). (F) Section 3121 (1)(2) (relating to employees of foreign subsidiaries) is amended by striking out “, but in no case prior to January 1, 1955”. (G) Section 3121 (m)(1) (relating to service in the uniformed services) is amended by striking out “after December 1956”. (4) Amendments of section 3122.— The last sentence of section 3122 (relating to Federal service) is amended by striking out 26 USC 3122. “Secretary” each place it appears and inserting in lieu thereof “Secretary of Transportation”. (5) Amendment of section 3123.— Section 3125(c) (relating 26 USC 3125. to returns in the case of Governmental employees in the District of Columbia) is amended by striking out “Commissioners of the District of Columbia or such agents as they may designate” and by inserting in lieu thereof “Mayor of the District of Columbia of such agents as he may designate”. (6) Amendment of section 3201.— Section 3201 (relating to 26 USC 3201. rate of tax on railroad employees) is amended— (A) by striking out “oi the Internal Revenue Code of 1954” each place it appears; (B) by striking out “of such Code”; (C) by striking out “after September 30, 1973, as is” and inserting in lieu thereof “as is”; and (D) by striking out “any month after September 30, 1973” and inserting in lieu thereof “any month”. (7) Amendments of section 3202.— (A) The second sentence of section 3202(a) (relating to 26 USC 3202. reduction of tax by railroad employer) is amended— (i) by striking out “after September 30, 1973,” each place it appears; (ii) by striking out “after September 30, 1973 and the aggregate” and inserting in lieu thereof “and the aggregate” (iii) by striking out “of the Internal Revenue Code of 1954” each place it appears; and (iv) by inserting a comma immediately after “for any month” each place it appears. (B) Section 3202(b) (relating to indemnification of employer) is amended by striking out “made”. (8) Amendments of section 3211.— Section 3211(a) (relating 26 USC 3211. to rate of tax on railroad employee representatives) is amended— (A) by striking out “3111(a), 3111(b)” and inserting in lieu thereof “3111(a), and 3111(b)”; (B) by striking out “of the Internal Revenue Code of 1954” each place it appears; (C) by striking out “rendered by him after September 30, 1973,” and inserting in lieu thereof “rendered by him”; and (D) by striking out “after September 30, 1973”. (9) Amendments of section 3221.— (A) The first sentence of section 3221(a) (relating to rate of tax on railroad employers) is amended— (i) by striking out “after September 30, 1973,” each place it appears; (ii) by striking out “after September 30, 1973: except that” and inserting in lieu thereof “, except that”; (iii) by striking out “after September 30, 1973 of the aggregate” and inserting in lieu thereof “of the aggregate”; (iv) by striking out “of the Internal Revenue Code of 1954” each place it appears; and (v) by inserting a comma before “the tax imposed”. (B) Section 3221(b) (relating to rate of tax on railroad employers) is amended to read as follows: “(b) The rate of tax imposed by subsection (a) shall be increased by the rate of tax imposed with respect to wages by section 3111(a) plus the rate imposed by section 3111(b).” (C) Section 3221(c) (relating to additional railroad retirement tax) is amended— (i) by striking out “(1) at the rate of 2 cents for the period beginning November 1, 1966, and ending March 31, 1970, and (2) commencing April 1, 1970,” and (ii) by striking out “commencing with the quarter beginning April 1, 1970”. (10) Amendments of section 3231.— (A) Section 3231(a)(defining employer) is amended by striking out “44 Stat. 577;”. (B) Section 3231(b)(defining employee) is amended by striking out. “50 Stat. 312;”. (C) Section 3231(e)(defining employee representative) is amended by striking out “44 Stat. 577;”. (D) Section 3231(d)(7)(defining service) is amended by striking out “50 Stat, 308;”. (11) Amendments of section 3301.— Section 3301 (relating to Federal unemployment tax rate) is amended— (A) by striking out “the calendar year 1970 and each calendar year thereafter” and inserting in lieu thereof “each calendar year”, and (B) by striking out the last sentence. (12) Amendments of section 3302.— (A) Section 3302(a) (relating to credits against tax) is amended by striking out “(10month period in the case of October 31, 1972)”. (B) Section 3302(b) (relating to additional credit) is amended— (i) by striking out “(10month period in the case of October 31, 1972)”, and (ii) by striking out “12 or 10month period, as the case may be,” and inserting in lieu thereof “12month period”. (C) (i) Section 3302(c) (relating to limitation on credits 26 USC 3302. against unemployment tax) is amended by striking out paragraph (2) and the unnumbered paragraph immediately following such paragraph (2) (relating to advances made to a State unemployment account before September 13, 1960), and by redesignating paragraphs (3) and (4) as paragraphs (2) and (3),respectively. (ii) Section 3302(c)(2) (relating to advances made to a State unemployment account after September 12, 1960), as redesignated by clause (i) of this subparagraph, is amended by striking out “on or after the date of the enactment of the Employment Security Act of 1960”, and by striking out “paragraphs (1) and (2)” and inserting in lieu thereof “paragraph (1)”. (iii) Section 3302(c)(3) (relating to reductions with respect to certain agreements under the Trade Act of 1974),as redesignated by clause (i) of this subparagraph, is amended by striking out “paragraphs (1), (2), and (3)” and inserting in lieu thereof “paragraphs (1) and (2)”. (iv) Section 3302 (d)(3) (relating to effect of repayment of advances) is amended by striking out “or (3)”. (v) Section 3302(d)(4), (5), and (6) (relating to special rules) are each amended by striking out “subsection (c)(3)” each place it appears and inserting in lieu thereof “subsection (c)(2)”. (vi) Section 3302(d)(7) (relating to determination and certification of percentages) is amended by striking out “subsection (c)(3)(B) or (C)” and inserting in lieu thereof “subsection (c)(2)(B) or (C)”. (D) Section 3302(d) (relating to special rules for credits against the unemployment tax) is amended by striking out paragraph (8)(a cross reference). (13) Amendments to section 3303.— Section 3303 (b) (relating 26 USC 3303. to certification with respect to additional credit allowance) is amended— (A) by striking out “(10month period in the case of October 31, 1972) ” each place it appears, (B) by striking out “12 or 10month period, as the case may be,” each place it appears in paragraphs (1) and (2), and inserting in lieu thereof “12month period”, and (C) by striking out “12 or 10month period, as the case may be,” in paragraph (3) and inserting in lieu thereof “12month period,”. (14) Amendments to section 3304.— (A) Section 3304(a)(3) (relating to requirements) is 26 USC 3304. amended by striking out “49 Stat, 640; 52 Stat. 1104, 1105;”. (B) Section 3304(c) (relating to certification) is amended by striking out “(10month period in the case of October 31, 1972)”. (15) Amendments of section 3305.— (A) Section 3305(g) (relating to vessels operated by 26 USC 3305. general agents of the United States) is amended by striking out “on or after July 1, 1953,”. (B) Section 3305 (h) (relating to certain contributions to States) is amended by striking out “on or after July 1, 1953, and”. (C) Section 3305(j) (relating to denial of credits in certain cases) is amended by striking out “after December 31, 1971,”. (16) Amendments of section 3300.— (A) Section 3306(c)(9) (relating to the exclusion of service performed by certain employees and employee representatives from the definition of employment) is amended by striking out “52 Stat. 1094, 1095;”. (B) Section 3306(c)(18) (relating to the exclusion of certain service performed by nonresident aliens from the definition of employment) is amended by inserting after the “Immigration and Nationality Act, as amended” the following: “(8U.S.C. 1101(a)(15)(F) or (J))”. (C) Section 3306(f) (relating to the definition of an unemployment fund) is amended by striking out “49 Stat. 640; 52 Stat. 1104, 1105;”. . (D) Section 3306(n) (relating to vessels operated by general agents of the United States) is amended by striking out “on or after July 1, 1953,”. (17) Amendment of section 3402.— Section 3402(1)(3)(B) (relating to marital status) is amended by striking out “section 2(b)” and inserting in lieu thereof “section 2 (a)”. (b) Amendment Conforming to the Repeal of Section 3113.— The table of sections for subchapter B of chapter 21 is amended by striking out the item relating to section 3113. (c) Amendments to Profusions Referring to Territories.— Sections 3401(c) and 3404 are each amended by striking out “Territory,” each place it appears. (d) Effective Dates.— The amendments made by this section shall apply with respect to wages paid after December 31, 1976, except that the amendments made to chapter 22 of the Internal Revenue Code of 26 USC 3201. 1954 shall apply with respect to compensation paid for services rendered after December 31, 1976. SEC. 1904. AMENDMENTS OF SUBTITLE D; MISCELLANEOUS EXCISE TAXES. (a) In General.— (1) Amendments of chapter 31.— (A) So much of chapter 31 (relating to retailers excise taxes) as precedes section 4041 is amended to read as follows: “Sec. 4041. Imposition of tax.” (B) Section 4041(g) (relating to exemptions from fuel taxes) is amended to read as follows: “(g) Other Exemptions.— Under regulations prescribed by the Secretary, no tax shall be imposed under this section— “(1) on any liquid sold for use or used as supplies for vessels or aircraft (within the meaning of section 4221(d)(3)); “(2) with respect to the sale of any liquid for the exclusive use of any State, any political subdivision of a State, or the District of Columbia, or with respect to the use by any of the foregoing of any liquid as a fuel; “(3) upon the sale of any liquid for export, or for shipment to a possession of the United States, and in due course so exported or shipped; and “(4) with respect to the sale of any liquid to a nonprofit educational organization for its exclusive use, or with respect to the use by a nonprofit educational organization of any liquid as a fuel. For purposes of paragraph (4), the term ‘nonprofit educational organization’ “Nonprofit educational organization.” means an educational organization described in section 170(h)(1)(A)(ii) which is exempt from income tax under section 501(a). The term also includes a school operated as an activity of an organization described in section 501(c)(3) which is exempt from income tax under section 501(a), if such school normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.” (C) Section 4041 (relating to tax on fuels) is amended by 26 USC 4041. adding at the end thereof the following new subsection: “(i) Sales by United States, Etc.— The taxes imposed by this section shall apply with respect to liquids sold at retail by the United States, or by any agency or instrumentality of the United States, unless sales by such agency or instrumentality are by statute specifically exempted from such taxes.” (D) Chapter 31 is amended by striking out section 4042 (a cross reference) and subchapter F (special provisions 26 USC 4042, 4054–4058. applicable to retailers taxes). (2) Amendments of section 421a.— (A) Section 4216 (relating to definition of price) is 26 USC 4216. amended by redesignating subsections (e), (f), and (g) as subsections (d), (e).and (f), respectively. (B) Paragraphs (3), (4). and (5) of section 4216(b) (relating to constructive sales price) are each amended by striking out “subsections (a) and (f)” each place it appears and inserting in lieu thereof “subsections (a) and (e)”. (3) Amendment of section 4217.— Section 4217(d) (relating 26 USC 4217. to lease treated as sale) is amended by striking out paragraph (4) (relating to certain 1958 transitional rules). (4) Repeal of section 4223.— Section 4223 (relating to floor-stock 26 USC 4226. taxes imposed before 1967) is repealed. (5) Amendment of section 4227.— Section 4227 (relating to 26 USC 4227. cross references) is amended to read as follows: “SEC. 4227. CROSS REFERENCE. “For credit for taxes on tires and inner tubes, see section 6416(c).” (6) Amendment of section 4263.— Section 4253 (relating to 26 USC 4253. exemptions from the tax on communications services) is amended by adding at the end thereof the following new subsections: “(i) State and Local Governmental Exemption.— Under regulations prescribed by the Secretary, no tax shall be imposed under section 4251 upon any payment received for services or facilities furnished to the government of any State, or any political subdivision thereof, or the District of Columbia. “(j) Exemption foe Nonprofit Educational Organizations.— Under regulations prescribed by the Secretary, no tax shall be imposed under section 4251 on any amount paid by a nonprofit educational organization for services or facilities furnished to such organization. For purposes of this subsection, the term ‘nonprofit educational organization’ means an educational “Nonprofit educational organization.” organization described in section 170(b)(1)(A)(ii) which is exempt from income tax under section 501(a). The term also includes a school operated as an activity of an organization described in section 501(c)(3) which is exempt from income tax under section 501(a), if such school normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.” (7) Amendments of section 4201.— (A) Subsections (a) and (b) of section 4261 (relating to tax on transportation of persons by air) are each amended by striking out “which begins after June 30, 1970,”. (B) Section 4261(c) is amended by striking out “and begins after June 30, 1970”. (8) Amendment of section 4271.— Section 4271 (a) (relating to tax on transportation of property by air) is amended by striking out “which begins after June 30, 1970,”. (9) Repeal of section 4292.— Section 4292 (relating to State and local governmental exemption from the tax on communications services) is repealed. (10) Repeal of section 4284.— Section 4294 (relating to exemption of nonprofit educational organizations from the tax on communications services) is repealed. (11) Repeal of section 4295.— Section 4295 (across reference) is repealed. (12) Amendment of of after 34.— Chapter 34 (relating to documentary stamp taxes) is amended to read as follows: “CHAPTER 34— POLICIES ISSUED BY FOREIGN INSURERS “Sec. 4371. Imposition of tax. “Sec. 4372. Definitions. “Sec. 4373. Exemptions. “Sec. 4374. Liability for tax. “SEC. 4371. IMPOSITION OF TAX. “There is hereby imposed, on each policy of insurance, indemnity bond, annuity contract, or policy of reinsurance issued by any foreign insurer or reinsurer, a tax at the following rates: “(1) Casualty insurance and indemnity bonds.— 4 cents on each dollar, or fractional part thereof, of the premium paid on the policy of casualty insurance or the indemnity bond, if issued to or for, or in the name of, an insured as defined in section 4372(d); “(2) Life insurance, sickness and accident policies, and annuity contracts.— 1 cent on each dollar, or fractional part thereof, of the premium paid on the policy of life, sickness, or accident insurance, or annuity contract, unless the insurer is subject to tax under section 819; and “(3) Reinsurance.— 1 cent on each dollar, or fractional part thereof, of the premium paid on the policy of reinsurance covering any of the contracts taxable under paragraph (1) or (2). “SEC. 4372. DEFINITIONS. “(a) Foreign Insurer or Reinsurer.— For purposes of section 4371, the term ‘foreign insurer or reinsurer’ means an insurer or reinsurer who is a nonresident alien individual, or a foreign partnership, or a foreign corporation. The term includes a nonresident alien individual, foreign partnership, or foreign corporation which shall become bound by an obligation of the nature of an indemnity bond. The term does not include a foreign government, or municipal or other corporation exercising the taxing power. “(b) Policy of Casualty Insurance.— For purposes of section 4371(1), the term ‘policy of casualty insurance’ means any policy Ante, p. 1812. (other than li fe) or other instrument by whatever name called whereby a contract of insurance is made, continued, or renewed. “(c) Indemnity Bond.— For purposes of this chapter, the term ‘indemnity bond’ means any instrument by whatever name called whereby an obligation of the nature of an indemnity, fidelity, or surety bond is made, continued, or renewed. The term includes any bond for indemnifying any person who shall have become bound or engaged as surety, and any bond for the due execution or performance of any contract, obligation, or requirement, or the duties of any office or position, and to account for money received by virtue thereof, where a premium is charged for the execution of such bond. “(d) Insured.— For purposes of section 4371 (1), the term ‘insured’ means— “(1) a domestic corporation or partnership, or an individual resident of the United States, against, or with respect to, hazards, risks, losses, or liabilities wholly or partly within the United States, or “(2) a foreign corporation, foreign partnership, or nonresident individual, engaged in a trade or business within the United States, against, or with respect to, hazards, risks, losses, or liabilities within the United States. “(e) Policy of Life, Sickness, or Accident Insurance, or Annuity Contract.— For purposes of section 4371(2), the term ‘policy of life, sickness, or accident insurance, or annuity contract’ means any policy or other instrument by whatever name called whereby a contract of insurance Or an annuity contract is made, continued, or renewed with respect to the life or hazards to the person of a citizen or resident of the United States. “(f) Policy of Reinsurance.— For purposes of section 4371(3), the term ‘policy of reinsurance’ means any policy or other instrument by whatever name called whereby a contract or reinsurance is made, continued, or renewed against, or with respect to, any of the hazards, risks, losses, or liabilities covered by contracts taxable under paragraph (1) or (2) of section 4371. “SEC. 4373. EXEMPTIONS. “The tax imposed by section 4371 shall not apply to— “(1) Domestic agent.— Any policy, indemnity bond, or annuity contract signed or countersigned by an officer or agent of the insurer in a State, or in the District of Columbia, within which such insurer is authorized to do business; or “(2) Indemnity bond.— Any indemnity bond required to be filed by any person to secure payment of any pension, allowance, allotment, relief, or insurance by the United States, or to secure a duplicate for, or the payment of, any bond, note, certificate of indebtedness, war-saving certificate, warrant, or check, issued by the United States. “SEC. 4374. LIABILITY FOR TAX. “The tax imposed by this chapter shall be paid, on the basis of a return, by any person who makes, signs, issues, or sells any of the documents and instruments subject to the tax, or for whose use or benefit the same are made, signed, issued, or sold. The United States or any agency or instrumentality thereof shall not be liable for the tax,” (13) Amendment of section 4493.— (A) Section 4493(b)(1) (relating to certain persons engaged in foreign air commerce) is amended by striking out “beginning on or after July 1, 1970”. (B) Section 4493(b)(2) is amended by striking out the last sentence. (14) Amendment of chapter 37.— So much of chapter 37 as precedes section 4501 (relating to tax on sugar) is amended to read as follows: “CHAPTER 37— SUGAR “Sec. 4501. Imposition of tax. “Sec. 4502. Definitions, “Sec. 4503. Exemptions for sugar manufactured for home consumption.” (15) Repeal of sections 4591 through 4597.— Chapter 38 (relating to import taxes on oleomargarine) is repealed. (16) Repeal of sections 4801 through 4806.— Subchapter B of chapter 39 (relating to tax on white phosphorus matches) is repealed. (17) Repeal of sections 4811 through 4826.— Subchapter C of chapter 39 (relating to tax on unadulterated butter) is repealed. (18) Repeal of sections 4881 through 4886.— Subchapter E of chapter 39 (relating to tax on circulation other than of national banks) is repealed. (19) Amendment of section 4901.— Section 4901 (relating to payment of occupational taxes) is amended by striking out subsection (c). (20) Amendment of section 4905.— Section 4905(a) (relating to liability for occupational taxes in case of death or change of location) is amended by striking out “wife” and inserting in lieu thereof “spouse”. (21) Repeal of section 4911 through 4931.— (A) Chapter 41 (relating to interest equalization tax) is repealed. (B) The repeal made by subparagraph (A) shall apply with respect to acquisitions of stock and debt obligations made after June 30, 1974. (22) Amendments of section 4973.— (A) So much of section 4973(a) (relating to tax on excess contributions) as follows “of any individual,” in paragraph (3) thereof is amended to read as follows: “there is imposed for each taxable year a tax in an amount equal to 6 percent of the amount of the excess contributions to such individual’s accounts, annuities, or bonds (determined as of the close of the taxable year). The amount of such tax for any taxable year shall not exceed 6 percent of the value of the account, annuity, or bond (determined as of the close of the taxable year). in the case of an endowment contract described in section 408(b), the tax imposed by this section does not apply to any amount allocable to life, health, accident, or other insurance under such contract. The tax imposed by this subsection shall be paid by such individual.” (B) Section 4973(c) is amended by striking out “subsection 26 USC 4973. (a)(3)” and inserting in lieu thereof “subsection (a)(2)”. (b) Conforming and Clerical Amendments.— (1) Amendments conforming to amendment of chapter 31.— (A) Section 6416(a)(1) is amended by striking out 26 USC 6416. “(retailers taxes)” and inserting in lieu thereof “(special fuels)”, (B) Section 6416 (e) is amended by striking out “subchapter E of”. (2) Amendment conforming to amendment of section 4216.— Section 6416(b)(1) is amended by striking out “section 4216(f)(2) and (3)” and inserting in lieu thereof “section 4216 (e)(2) and (3)” (3) Amendment conforming to the repeal of section 4226.— The table of sections for subchapter G of chapter 32 is amended by striking out the item relating to section 4226. (4) Amendment conforming to the repeal of sections 4292, 4294, and 4295.— The table of sections for subchaptet E of chapter 33 is amended by striking out the items relating to sections 4292, 4294, and 4295. (5) Amendments conforming to the amendment of chapter 34.— (A) Section 7270 is amended by striking out “the affixing 26 USC 7270. of stamps on insurance policies, etc.” and inserting in lieu thereof “liability for tax on policies issued by foreign insurers”. (B) Section 6808 is amended by striking out paragraph 26 USC 6808. (4). (6) Amendments conforming to the amendment of chapter 37.— (A) Section 7240 is amended by striking out “subchapter 26 USC 7240. A of”. (B) Section 7655(a) is amended— 26 USC 7655. (i) by striking out “Subchapter A of chapter 37” in paragraph (5) and inserting in lieu thereof “Chapter 37”, and (ii) by redesignating paragraph (5) as paragraph (3). (7) Amendments conforming to repeal of sections 4591 through 4597.— (A) Section 6808 is amended by striking out paragraph 26 USC 6808. (7). (B) (i) Section 7234 (relating to violations of laws concerning 26 USC 7234. oleomargarine or adulterated butter operations) is repealed. (ii) The table of sections for part II of subchapter A of chapter 75 is amended by striking out the item relating to section 7234. (C) (i) Section 7265 (relating to other offenses concerning 26 USC 7265. oleomargarine or adulterated butter operations) is repealed. (ii) The table of sections for subchapter B of chapter 75 is amended by striking out the item relating to section 7265. (D) Section 7611(a), as redesignated by this Act, is Ante, p. 1699. amended by striking out paragraph (1). (E) The table of chapters for subtitle D is amended by striking out the item relating to chapter 38, (8) Amendments conforming to repeal of sections 4801 through 4806.— (A) Section 4905(b) is amended to rend as follows: “(b) Registration.— “For registration in case of wagering, see section 1412.” (B) Section 6808 is amended by striking out paragraph (12). (C) Section 7012 is amended by striking out subsection (D) (i) Section 7239 (relating to violations of laws concerning white phosphorus matches) is repealed. (ii) The table of sections for part II of subchapter A of chapter 75 is amended by striking out the item relating to section 7239. (E) (i) Sections 7267 and 7274 (relating to offenses and penalties concerning white phosphorus matches) are each repealed. (ii) The table of sections for subchapter B of chapter 75 is amended by striking out the items relating to sections 7267 and 7274. (F) Section 7272(b) is amended by striking out “4804” (G) Section 7303 is amended by striking out paragraph (6) (H) (i) Part II of subchapter C of chapter 75 (relating to provisions common to forfeitures) is amended by striking out section 7328 (relating to confiscation of white phosphorus 26 USC 7328, 7329. matches), and by redesignating section 7329 (relating to cross references) as section 7328. (ii) The table of sections for part II of subchapter C of chapter 75 is amended by striking out the last two items and inserting in lieu thereof the following: “Sec. 7328. Cross references.” (9) Amendments conforming to repeat, of sections 4811 through 4826.— (A) Section 6808 (relating to cross references) is amended by striking out paragraph (10). (B) (i) Section 7235 (relating to violations of laws concerning adulterated butter and process or renovated butter) is repealed. (ii) The table of sections for part II of subchapter A of chapter 75 is amended by striking out the item relating to section 7235. (C) (i) Section 7264 (relating to offenses concerning renovated or adulterated butter) is repealed. (ii) The table of sections for subchapter B of chapter 75 is amended by striking out the item relating to section 7264. (D) Section 7303 is amended by striking out paragraphs (3), (4), and (5), and by redesignating paragrapns (7) and (8) as paragraphs (2) and (3), respectively. (E) Section 7611(a), as redesignated by this Act, is amended by striking out paragraph (2) , and by redesignating paragraphs (5) and (6) as paragraphs (1) and (2), respectively. (10) Amendments conforming to the repeal of sections 4911 through 4931.— (A) (i) (I) Section 263, as amended by this Act, is amended 26 USC 263. by striking out subsections (a)(3) and (d) (relating to the allowance of deductions for payment of interest equalization tax), and by redesignating subsections (e), (f), and (g) as subsections (d), (c),and (f), respectively. (II) Section 263(d), as redesignated by clause (i)(I) of this subparagraph, is amended by striking out “subsection (f)” and inserting in lieu thereof “subsection (e)”, (ii) Section 6011 (relating to requirement of return, statement, or 26 USC 6011. list) is amended by striking out subsection (d) (relating to interest equalization tax returns, etc.), and by redesignating subsections (e) and (f) as subsections (c) and (d), respectively. (iii) (I) Section 6076 (relating to time for filing interest 26 USC 6076. equalization tax returns) is repealed. (II) The table of sections for part V of subchapter A of chapter 61 is amended by sticking out the item relating to section 6076. (iv) Section 6611 (relating to interest on overpayments) 26 USC 6611. is amended by striking out subsection (h) (relating to over-payments of interest equalization tax) and by redesignating subsection (i) as subsection (h). (v) Section 6651 (relating to failure to file tax return 26 USC 6651. or to pay tax) is amended by striking out subsection (e) (relating to certain interest equalization tax returns). (vi) (I) Section 6680 (relating to failure to file interest 26 USC 6680. equalization tax returns) is repealed. (II) The table of sections for subchapter B of chapter 68 is amended by striking out the item relating to section 6680. (vii) The amendments made by this subparagraph shall 26 USC 263 note. apply with respect to acquisitions of stock or debt obligations made after June 30, 1974, except that the repeal of paragraph (2) of section 6011(d) under clause (ii) shall apply with respect to loans and commitments made after such date. (B) Section 861(a)(1)(G) (relating to income from 26 USC 861. sources within the United States) is amended— (i) by striking out “section 4912(c)” and inserting in lieu thereof “subsection (c) of section 4912 (as in effect before July 1, 1974)”; and (ii) by striking out “section 4912(c)(2)” and inserting in lieu thereof “subsection (c)(2) of such section”. (C) The second sentence of section 1232(b)(2) (relating 26 USC 1232. to the definition of the issue price of bonds and other evidences of indebtedness) is amended by striking out “section 4911” anrl inserting in lieu thereof “section 4911, as in effect before July 1, 1974”. (D) (i) Section 6681 (relating to false equalization tax 26 USC 6681. certificates) is repealed. (ii) The table of sections for subchapter B of chapter 68 is amended by striking out the item relating to section 6681. (iii) The amendments made by this subparagraph shall 26 USC 6681 note. apply with respect to actions occurring after June 30, 1974. (E) (i) Section. 6689 (relating to failure by certain foreign 26 USC 6689. issuers and obligors to comply with United States investment equalization tax requirements) is repealed. (ii) The table of sections for subchapter B of chapter 68 is amended by striking out the item relating to section 6689. (iii) The amendments made by this subparagraph shall apply with respect to stock or debt obligations issued after June 30, 1974. (F) (i) Section 7241 (relating to penalty for fraudulent equalization tax certificates) is repealed. (ii) The table of sections for part II of subchapter A of chapter 75 is amended by striking out the item relating to section 7241. (iii) The amendments made by this subparagraph shall apply with respect to statements and certificates executed after June 30, 1974. (G) The table of chapters for subtitle D is amended by striking out the item relating to chapter 41. (c) Amendment to Provision Referring to Territories.— Section 4482 (c)(1) is amended by striking out “, a Territory of the United States,”. (d) Effective Date.— Except as otherwise provided in this section, the amendments made by this section shall take effect on the first day of the first month which begins more than 90 days after the date of the enactment of this Act. SEC. 1905. AMENDMENTS OF SUBTITLE E; ALCOHOL, TOBACCO, AND CERTAIN OTHER EXCISE TAXES. (a) In General.— (1) Amendment of section 5005.— Section 5005(c)(2) (relating to transfers in bond of distilled spirits) is amended by striking out the last two sentences and inserting in lieu thereof the following: “Such relief from liability shall be effective from the time of removal from the transferor’s bonded premises, or from the time of divestment of interest, whichever is later.” (2) Amendments of section 5008.— (A) Section 5008(b)(1) (relating to abatement, remission, refund, and allowance for loss of destruction of distilled spirits) is amended by inserting immediately after “the tax imposed by this chapter” the following: “or by section 7652”. (B) Section 5008(b)(2) is amended by striking out “the taxes imposed under section 5001(a)(1)” and all that follows and inserting in lieu thereof the following: “the taxes imposed under section 5001(a)(1), under subpart B of this part, or under section 7652 on the spirits so destroyed, to the proprietor of the distilled spirits plant who withdrew the distilled spirits on payment or determination of tax.” (C) Subsections (c)(1) and (d)(1) of section 5008 are each amended by inserting immediately after “under section 5001(a)(1)” the following: “or under section 7652”. (D) Section 5008(d)(1) is amended by striking out “, on or after July 1, 1959,”. (3) Amendment of section 5009.— Section 5009(b)(3) is amended by striking out “46 Stat. 694;”. (4) Amendment of section 5025.— Section 5025 (j) (relating to stabilization of distilled spirits) is amended by striking out “the bottling of distilled spirits,” and inserting in lieu thereof “the bottling of distilled spirits, or preparatory to exportation,”. (5) Amendment of section 5054.— Section 5054 (relating to determination and collection of tax on beer) is amended by striking out subsection (c) (relating to stamps or other devices as evidence of payment of tax) and by redesignating subsection (d) as subsection (c). (6) Amendments of section 5061.— (A) Section 5061(a) (relating to collections of alcohol 26 USC 5061. taxes) is amended by striking out the last sentence. (B) Section 5061(b) (relating to methods of collection) is amended to read as follows: “(b) Exceptions.— Notwithstanding the provisions of subsection (a), any taxes imposed on, or amounts to be paid or collected in respect of, distilled spirits, wines, rectified distilled spirits and wines, and beer under— “(1) section 5001(a)(5), (6),or (7), “(2) section 5006(c) or (d), “(3) section 5026(a)(2), “(4) section 5041 (d), “(5) section5043(a)(3), “(6) section5054(a)(3) or (4),or “(7) section5505(a), shall be immediately due and payable at the time provided by such provisions (or if no specific time for payment is provided, at the time the event referred to in such provision occurs). Such taxes and amounts shall be assessed and collected by the Secretary on the basis of the information available to him in the same manner as taxes payable by return but with respect to which no return has been filed.” (C) Section 5061(c) (relating to applicability of other provisions of law) is amended to read as follows: “(c) Import Duties.— The internal revenue taxes imposed by this part shall be in addition to any import duties unless such duties are specifically designated as being in lieu of internal revenue tax.” (7) Amendment of section 5113.— Section 5113(f)(1) (relating 26 USC 5113. to retail dealers in liquors) is amended by striking out “wines or beer” and inserting in lieu thereof “distilled spirits, wines, or beer”. (8) Amendments of section 5117.— Section 5117 (relating 26 USC 5117. to prohibited purchases by dealers) is amended by redesignating subsection (b) as subsection (c) and by inserting after subsection (a) the fol lowing new subsection: “(b) Limited Retail Dealers.— A limited retail dealer may lawfully purchase distilled spirits for resale from a retail dealer in liquors.” (9) Amendment of section 5121.— Section 5121(c) (relating 26 USC 5121. to limited retail dealers) is amended to read as follows: “(c) Limited Retail Dealers.— Every limited retail dealer shall pay a special tax of $4.50 for each calendar month in which sales are made as such dealer; except that the special tax shall be $2.20 for each calendar month in which only sales of beer or wine are made.” (10) Amendment of section 3122.— Section 5122(c) (relating 26 USC 5122. to definition of limited retail dealer) is amended by striking out “beer or wine” each place it appears and inserting in lieu thereof “distilled spirits, wine, or beer”. (11) Amendment of section 5131.— Section 5131(a) (relating 26 USC 5131. to eligibility for drawback) is amended by striking out “produced in a domestic registered distillery or industrial alcohol plant and withdrawn from bond, or using distilled spirits withdrawn from the bonded premises of a distilled spirits plant,”. (12) Amendment of section 5142.— Section 5142(c) (relating to payment of occupational taxes) is amended to read as follows: “(c) How Paid.— “(1) Payment by return.— The special taxes imposed by this part shall he paid on the basis of a return under such regulations as the Secretary shall prescribe. “(2) Stamp denoting payment of tax.— After receiving a properly executed return and remittance of any special tax imposed by this subpart, the Secretary shall issue to the taxpayer an appropriate stamp as a receipt denoting payment of the tax. This paragraph shall not apply in the case of a return covering liability for a past period.” (13) Amendments of section 5171.— Section 5171(b) (relating to permits for operation of business as distillers, etc.) is amended— (A) in paragraph (1), by striking out “49 Stat. 978;”, and (B) by striking out paragraph (3) (relating to continuance of business after June 30, 1959, pending application for permit). (14) Amendment of section 5174.— Section 5174(a)(2)(A) (relating to withdrawal bonds for distilled spirits) is amended by striking out “such spirits” and inserting in lieu thereof “distilled spirits from bond”. (15) Amendment of section 5232.— Section 5232(a) (relating to transfer of imported distilled spirits) is amended by striking out “and the importer” and inserting in lieu thereof “and the importer, or the person bringing such distilled spirits into the United States,”. (16) Amendment of section 5233.— Section 5233(b)(4) (relating to bottling requirements) is amended by striking out “49 Stat. 977;”. (17) Amendment of section 5234.— The first sentence of section 5234(a)(2) (relating to the mingling of distilled spirits) is amended by striking out “8 years” and inserting in lieu thereof “20 years”. (18) Amendment of section 5314.— Section 5314(a)(2) (relating to application of certain provisions to Puerto Rico) is amended by striking out “section 5001(a)(4)” and inserting in lieu thereof “section 5001(a)(10)”. _ (19) Repeal of section 5315.— Section 5315 (relating to the status of certain distilled spirits on July 1, 1959) is repealed. (20) Amendments of section 5368.— (A) The heading of section 5368 is amended to read as follows: “SEC. 5368. GAUGING AND MARKING.” (B) Section 5368(b) (relating to removal of wines) is amended to read as follows: “(b) Marking.— Wines shall be removed in such containers (including vessels, vehicles, and pipelines) bearing such marks and labels, evidencing compliance with this chapter, as the Secretary may by regulations prescribe.” (21) Amendment of section 5392.— Section 5392(f)(defining own production) is amended by striking out “49 Stat. 990;”. (22) Amendments of section 5601.— Section 5601(b) (relating to presumptions in the case of criminal penalties) is amended to read as follows: “(b) Presumption.— Whenever on trial for violation of subsection (a)(4) the defendant is shown to have been at the site or place where, and at the time when, the business of a distiller or rectifier was so engaged in or carried on, such presence of the defendant shall be deemed sufficient, evidence to authorize conviction, unless the defendant explains such presence, to the satisfaction of the jury (or of the court when tried without jury).” (23) Amendments of section 5685.— (A) Section 5685(a) (relating to penalty for possession 26 USC 5685. of devices for emitting gas, smoke, etc.) is amended by striking out “section 5848” and inserting in lieu thereof “section 5845”. (B) Section 5685(c) (relating to forfeiture of firearms, devices, etc.) is amended by striking out “section 5862” and inserting in lieu thereof “section 5872”. (C) Section 5685(d) (relating to the definition of machine gun) is amended to read as follows: “(d) Definition of Machine Gun.— As used in this section, the term ‘machine gun’ means a machine gun as defined in section 5845(b).” (24) Amendment of section 5701.— Section 5701(e) (relating 26 USC 5701. to imported tobacco products, etc.) is amended by striking out “such articles” and inserting in lieu thereof “such articles, unless such import duties are imposed in lieu of internal revenue tax”. (25) Amendments of section 5703.— (A) Section 5703(a)(2) (relating to transfer of liability 26 USC 5703. for tobacco taxes) is amended by adding at the end thereof the following new sentence: “All provisions of this chapter applicable to tobacco products and cigarette, papers and tubes in bond shall be applicable to such articles returned to bond upon withdrawal from the market or returned to bond after previous removal for a tax-exempt purpose.” (B) The second sentence of section 5703(b) (relating to method of payment of tobacco taxes) is amended by striking out “, except that the taxes shall continue to be paid by stamp until the Secretary or his delegate provides, by regulations, for the payment, of the taxes on the basis of a return”. (C) Section 5703 is amended by striking out subsection (c) (relating to stamps to evidence tobacco taxes) and by redesignating subsections (d) and (e) as subsections (c) and (d), respectively. (26) Amendments of section 3704.— Subsections (c) and (d) of section 5704 (relating to exemptions from tobacco taxes) are 26 USC 5704. each amended by inserting after “to a manufacturer of tobacco products or cigarette papers and tubes” the following: “or to the proprietor of an export warehouse”. (27) Amendment of section 5712.— Section 5712 (relating to 26 USC 5712. application for permit) is amended by striking out the last sentence. (28) Amendments of section 572a.— (A) The heading of section 5723 is amended by striking 26 USC 5723. out “NOTICES, AND STAMPS” and inserting in lieu thereof “AND NOTICES”. (B) Section 5723(b) (relating to marks, and so forth, on packages) is amended to rend as follows: “(b) Marks, Labels, and Notices.— Every package of tobacco products Regulation. or cigarette papers or tubes shall, before removal, bear the marks, labels, and notices, if any, that the Secretary by regulation prescribes.” (b) Conforming and Clerical Amendments.— (1) Amendments conforming to amendment of section 5054.— (A) Section 5676 (relating to beer stamp penalties) is repealed. (B) The table of sections for part III of subchapter J of chapter 51 is amended by striking out the item relating to section 5676. (2) Amendments conforming to amendments of section 5081.— (A) Section 5007(b)(1) is amended by striking out the second sentence. (B) Section 5026(b) is amended by striking out “Except as provided in subsection (a)(2), the taxes” and inserting in lieu thereof “The taxes”. (C) Section 5043(b) is amended by striking out “Except as provided in subsection (a)(3), the taxes” and inserting in lieu thereof “The taxes”. (D) Section 5662 is amended by striking out “stamp,” each place it appears. (E) (i) Section 5689 (relating to penalty and forfeiture for tampering with a stamp machine) is repealed. (ii) The table of sections for part IV of subchapter J of chapter 51 is amended by striking out the item relating to section 5689. (iii) Section 5061 is amended by striking out subsection (d). (3) Amendments conforming to amendment of section 5142.— (A) (i) Section 5104 (relating to method of payment of tax on stills) is repealed. (ii) The table of sections for subpart C of part II of subchapter A of chapter 51 is amended by striking out the item relating to section 5104. (B) Section 5111(a) is amended by striking out the second sentence. (C) Section 5121(a) is amended by striking out the second sentence. (D) (i) Section 5144 (relating to supply of stamps) is repealed. (ii) The table of sections for subpart G of part II of subchapter A of chapter 51 is amended by striking out the item relating to section 5144. (E) Section 5148(3) is amended by striking out “penalties” and inserting in lieu thereof “penalties, authority for assessments,”. (4) Amendment conforming to the repeal of section 5315.— The table of sections for part III of subchapter E of chapter 51 is amended by striking out the item relating to section 5315. (5) Amendment conforming to the amendment of section 5358.— The item relating to section 5368 in the table of sections for part II of subchapter E of chapter 51 is amended to read as follows: “Sec. 5368. Gauging and marking.” (6) Amendments conforming to the amendment of section 5001.— (A) Section 5105 (b)(2) is amended by striking out “, 5601 26 USC 5105. (b)(1),”. (B) Section 5177(b)(2) is amended by striking out “5601 26 USC 5177. (b)(2),” and inserting in lieu thereof “5601 (b),”. (C) Section 5179(b)(1) is amended by striking out “, 5601 26 USC 5179. (b)(1)”. (D) Section 5222(d) is amended by striking out “5601(b) 26 USC 5222. (3), 5601(b)(4)”. (E) Section 5505(i) is amended by striking out “5601(b) 26 USC 5505. (1),”. (7) Amendments conforming to the amendment of section 5723.— (A) Paragraphs (2) and (3) of section 5751(a) are each 26 USC 5751. amended by striking out “notices, and stamps” and inserting in lieu thereof “and notices”. (B) (i) Section 5752 is amended to read as follows: “SEC. 5752. RESTRICTIONS RELATING TO MARKS, LABELS, NOTICES, AND PACKAGES. “No person shall, with intent to defraud the United States, destroy, obliterate, or detach any mark, label, or notice prescribed or authorized, by this chapter or regulations thereunder, to appear on, or be affixed to, any package of tobacco products or cigarette papers or tubes, before such package is emptied.” (ii) Section 5762(a) is amended by striking out paragraphs 26 USC 5762. (8), (7), (8), (9), (10), and (11) and inserting in lieu thereof the following: “(6) Destroying, obliterating, or detaching marks, labels, or notices before packages are emptied.— Violates any provision of section 5752;”. (iii) The item relating to section 5752 in the table of sections for subchapter E of chapter 52 is amended to read as follows: “Sec. 5752. Restrictions relating to marks, labels, notices, and packages.” (C) (i) Section 5763(a)(2) is amended by striking out 26 USC 5763. “notices, and stamps” and inserting in lieu thereof “and notices”. (ii) Section 5763(b) is amended by striking out “internal revenue stamps,”. (D) The item relating to section 5723 in the table of sections for subchapter C of chapter 52 is amended to read as follows: “Sec. 5723. Packages, marks, labels, and notices.” (c) Amendments to Provisions Referring to Territories.— (1) Section 5114(b) is amended by striking out “or Territory” 26 USC 5114. each place it appears and by striking out “Territories,”. (2) Section 5214(a)(2) is amended by striking out “or Territory 26 USC 5214. ” each place it appears. (3) Section 5272(b) is amended by striking out “and 26 USC 5272. Territories”. (4) Section 5362(c)(9) is amended by striking out “and 26 USC 5362. Territories”. (5) Section 5551(b)(2) is amended by striking out “Territory, 26 USC 5551. or”. (6) Section 5685(a) is amended by striking out “Territory 26 USC 5685. or”. (d) Effective Date.— The amendments made by this section shall take effect on the first day of the first month which begins more than 90 days after the date of the enactment of this Act. SEC. 1906. AMENDMENTS OF SUBTITLE F; PROCEDURE AND ADMINISTRATION. (a) In General.— (1) Amendments of section 6013.— (A) Section 6013(b)(2)(C) (relating to petition to the Tax Court) is amended by striking out “of the United States”. (B) The heading of section 6013(d) is amended to read as follows: “(d) Special Rules.—”. (C) Section 6013(d)(1) (relating to joint return after death of one spouse) is amended by striking out “and” at the end of subparagraph (A) and inserting in lieu thereof “or”, and by striking out “and” at the end of the subparagraph (B). (2) Amendment of section 6015.— Section 6015 (relating to declaration of estimated tax by individuals) is amended by striking out subsection (j) (relating to an effective date provision). (3) Amendment of section 6037.— Section 6037 (relating to returns of subchapter S corporations) is amended by striking out “section 1371(a)(2)” and inserting in lieu thereof “section 1371 (b)” (4) Amendment of section 6046.— Section 6046(e) (relating to information as to organization of foreign corporation) is amended to read as follows: “(e) Limitation.— No information shall be required to be furnished under this section with respect to any foreign corporation unless such information was required to be furnished under regulations which have been in effect for at least 90 days before the date on which the United States citizen, resident, or person becomes liable to file a return required under subsection (a).” (5) Amendment of section 6051.— Section 6051(a) (relating to information required to be furnished to employees) is amended by striking out “and” where it appears at the end of paragraph (6). (6) Amendments of section 6065.— Section 6065 (relating to verification of returns) is amended by striking out subsection (b) (relating to verification by oath), and by striking out in subsection (a) the following: “(a) Penalties of Perjury.—”. (7) Repeat, of section 6105.— Section 6105 (relating to compilation of data for certain excess profits tax cases) is repealed. (8) Amendment of section 6111.— Section 6111 (relating to cross references), as redesignated by this Act, is amended to read as follows: “SEC. 6111. CROSS REFERENCE. “For inspection of records, returns, etc., concerning gasoline or lubricating oils, see section 4102.” (9) Amendment of section 6152.— Section 6152(a)(1) (relating to installment payments by corporations) is amended to read as follows: “(1) Corporations.— A corporation subject to the taxes imposed 26 USC 1. by chapter 1 may elect to pay the unpaid amount of such taxes in two equal installments.” (10) Amendments of section bib4.— (A) Section 6154(c)(1)(B) (relating to definition of estimated 26 USC 6154. tax) is amended— (i) by adding “and” after the comma at the end of clause (i), and (ii) by striking out clauses (ii) and (iii) and inserting in lieu thereof the following: “(ii) in the case of a taxable year beginning before January 1, 1977, the amount of the corporation’s temporary estimated tax exemption for such year.” (B) Section 6154(c)(2)(A)(ii) (relating to temporary estimated tax payments) is amended by striking out “clauses (ii) and (iii)” and inserting in lieu thereof “clause (ii)”. (C) Section 6154(c)(2)(B) (relating to estimated tax) is amended by striking out the following: “1968, 1969, 1970, 1971, and 1972 100 percent   1973 80 percent   1974 60 percent”. (D) Section 6154(c) (relating to estimated tax) is amended by striking out paragraph (3) (relating to transitional exemption for taxable years beginning before 1972). (11) Amendments of section 6157.— (A) Section 6157 (relating to payment of Federal unemployment 26 USC 6157. tax) is amended by striking out subsection (c) (relating to special rides for 1970 and 1971), and by redesignating subsection (d) as subsection (c). (B) Section 6157(a) is amended by striking out “subsections (c) and (d)” and inserting in lieu thereof “subsection (c)” (12) Repeal of section 6162.— Section 6162 (relating to payment 26 USC 6162. of tax on gain on liquidation of certain personal holding companies) is repealed. (13) Amendment of section 6205.— Section 6205 (a)(4) (relating 26 USC 6205. to District of Columbia as employer) is amended by striking out “Commissioners of the District of Columbia and each agent designated by them” and inserting in lieu thereof “Mayor of the District of Columbia and each agent designated by him”. (14) Amendment of section 6207.— Section 6207 (relating to 26 USC 6207. cross references) is amended by striking out paragraph (7). (15) Amendment of section 6213.— Section 6213(a) (relating Ante, p. 1698. to time for filing petition with the Tax Court) is amended by striking out “States of the Union and the District of Columbia” and inserting in lieu thereof “United States”. (16) Amendment of section 6215.— Section 6215(b)(5)(a 26 USC 6215. cross reference) is amended by striking out “60 Stat. 48;”. (17) Amendment of section 6302.— Section 6302(b) (relating 26 USC 6302. to collection of certain excise taxes) is amended by striking out “sections 4501 (a) or 4511 of chapter 37, or section 4701 or 4721 of chapter 39” and inserting in lien thereof “section 4501(a) of chapter 37”. (18) Repeal of section 6304.— Section 6304 (relating to a cross 26 USC 6304. reference) is repealed. (19) Amendment of section 6313.— Section 6313 (relating to 26 USC 6313. fractional parts of a cent) is amended by striking out “not payable by stamp”. (20) Amendments of section 6326.— (A) Paragraph (2) of section 6326 (cross references) is amended by striking out “52 Stat. 851;”. (B) Paragraph (3) of section 6326 is amended by striking out “52 Stat. 867” (C) Paragraph (4) of section 6326 is amended by striking out “52 Stat. 867–877;”. (D) Paragraph (5) of section 6326 is amended by striking out “52 Stat. 938;”. (21) Amendment of section 6365.— Section 6365 (b) (relating to definition of governor) is amended by striking out “Commissioner of the District of Columbia” and inserting in lieu thereof “Mayor of the District of Columbia”. (22) Amendment of section 6412.— Section 6412(a) (relating to floor stock refunds) is amended by redesignating paragraphs (2) and (4) as paragraphs (1) and (2), respectively. (23) Amendments of section 6413.— (A) Section 6413(a)(4) (relating to District of Columbia as employer) is amended by striking out “Commissioners of the District of Columbia and each agent designated by them” and inserting in lieu thereof “Mayor of the District of Columbia and each agent designated by him”. (B) (i) Section 6413 (c)(1) (relating to refunds of certain employment taxes) is amended to read as follows: “(1) In General.— If by reason of an employee receiving wages from more than one employer during a calendar year the wages received by him during such year exceed the contribution and benefit base (as determined under section 230 of the Social 42 USC 430. Security Act) which is effective with respect to such year, the employee shall be entitled (subject to the provisions of section 31 (b)) to a credit or refund of any amount of tax, with respect to such wages, imposed by section 3101 or section 3201, or by both such sections, and deducted from the employee’s wages (whether or not paid to the Secretary), which exceeds the tax with respect to the amount of such wages received in such year which is equal “Wages.” to such contribution and benefit base. The term ‘wages’ as used in this paragraph shall, for purposes of this paragraph, include ‘compensation’ as defined in section 3231(e).” (ii) So much of section 6413(c)(2)(A) (relating to Federal employees) as follows “and the term ‘wages’ includes” is amended to read as follows: “for purposes of this subsection the amount, not to exceed an amount equal to the contribution and benefit base (as determined under section 230 of the Social Security Act) for any calendar year with respect to which such contribution and benefit base is effective, determined by each such head or agent as constituting wages paid to an employee.” (iii) The amendments made by clauses (i) and (ii) shall apply with respect to remuneration paid after December 31, 1976. (C) Section 6413(c)(2)(F) (relating to government employees in the District of Columbia) is amended by striking out “Commissioners of the District of Columbia and each agent designated by them” and inserting in lieu thereof “Mayor of the District of Columbia and each agent designated by him”. (D) Section 6418(c)(3) (relating to special refunds) is 26 USC 6413. amended by striking out “after 1967”. (24) Amendments of section 6416.— (A) Section 6416(a)(3) (relating to special rules for 26 USC 6416. refund of overpayment of tax) is amended by redesignating subparagraphs (C) and (D) as subparagraphs (A) and (B), respectively, (B) (i) Section 6416(b)(2) (relating to overpayments of certain excise taxes), as amended by section 2108 of this Act, Post, p. 1904. is amended by striking out subparagraphs (G), (H), (I), and (J), and by redesignating subparagraphs (F), (K), (L), (M), (R), (8), and (T) as subparagraphs (E), (F), (G), (H), (I), (J),and (K),respectively. (ii) The repeals made by clause (i) shall apply with 26 USC 6416 note. respect to the use or resale for use of liquids after December 31, 1976. (25) Repeal of section 6417.— Section 6417 (relating to coconut 26 USC 6417. and palm oil) is repealed. (26) Amendments of section 6420.— (A) Section 6420(b) (relating to time for filing refund 26 USC 6420. claims on gasoline) is amended to read as follows: “(b) Time fob Filing Claims; Period Covered.— Not more than one claim may be filed under this section by any person with respect to gasoline used during his taxable year, and no claim shall be allowed under this section with respect to gasoline used during any taxable year unless filed by such person not later than the time prescribed by law for filing a claim for credit or refund of overpayment of income tax for such taxable year. For purposes of this subsection, a person’s taxable year shall be his taxable year for purposes of subtitle A.” 26 USC 1. (B) Section 6420(e)(1) (relating to application of other laws) is amended by striking out “apply in in respect” and inserting in lieu thereof “apply in respect’”. (C) (i) Section 6420 is amended by striking out subsection (g) (relating to effective date) and by redesignating subsections (h) and (i) as subsections (g) and (h), respectively. (ii) Section 6420(a) is amended by striking out “subsection (h)” and inserting in lieu thereof “subsection (g)”. (D) Section 6420(g) (relating to income tax credit in lieu of gas tax refund), as redesignated by subparagraph (C)(i) of this paragraph, is amended by strikingout “with respect to gasoline used after June 30, 1965,” and “for gasoline used after June 30, 1965”. (27) Amendments of section 6421.— (A) (i) Subsections (a) and (e)(3) of section 6421 (relating 26 USC 6421. to nonhighway use of gasoline) are each amended by striking out “after June 30, 1970,”. (ii) The amendments made by clause (i) shall only 26 USC 6421 note. apply with respect, to gasoline used as a fuel after June 30, 1970. (B) Section 6421(c) (relating to nonhighway use of gasoline) is amended to read as follows: “(c) Time for Filing Claims; Period Covered.— “(1) In general.— Except as provided in paragraph (2), not more than one claim may be filed under subsection (a), and not more than one. claim may be filed under subsection (b), by any person with respect to gasoline used during his taxable year; and no claim shall be allowed under this paragraph with respect to gasoline used during any taxable year unless filed by such person not later than the time prescribed by law for filing a claim for credit or refund of overpayment of income tax for such taxable year. For purposes of this subsection, a person’s taxable year shall be his taxable year for purposes of subtitle A. “(2) Exception.— If $1,000 or more is payable under this section to any person with respect to gasoline used during any of the first three Quarters of his taxable year, a claim may be filed under this section by such person with respect to gasoline used during such quarter. No claim filed under this paragraph shall be allowed unless filed on or before the last day of the first quarter following the quarter for which the claim is filed.” (C) Section 6421(h) (relating to effective dates) is amended by striking out “after June 30, 1956, and”. (D) Section 6421 (i) (relating to income tax credit in lieu of refund) is amended— (i) by striking out, in paragraph (1), “with respect to gasoline used after June 30, 1965,”, (ii) by striking out, in paragraph (2), “subsection (c)(3)(B)” and inserting in lieu thereof “subsection (c)(2)”, and (iii) by striking out, in paragraph (3), “for gasoline used after June 30, 1965.” (28) Amendments of Section 6422.— (A) Paragraph (9) of section 6422 (relating to cross references), as redesignated by section 1901(b)(36)(B), is amended by striking out “60 Stat. 48;”. (B) Paragraph (11) of section 6422, as so redesignated, is amended by striking out “47 Stat. 1516;”. (29) Amendments of section 6423.— (A) Section 6423(b) (relating to filing of refund claim in case of alcohol and tobacco taxes) is amended to read as follows: “(b) Filing of claims.— No credit or refund of any amount to which subsection (a) applies shall be allowed or made unless a claim therefor has been filed by the person who paid the a mount claimed, and unless such claim is filed within the time prescribed by law and in accordance with regulations prescribed by the Secretary. Al] evidence relied upon in support of such claim shall be clearly set forth and submitted with the claim.” (B) Section 6123 is amended by striking out subsection (c) (relating to suits barred on April 30, 1958) and by redesignating subsections (d) and (e) as subsections (c) and (d), respectively. (C) Section 6423 (c) (relating to application of section), as redesignated by subparagraph (B) of this paragraph, is amended by adding “and” at the end of paragraph (1), by striking out “, and” at the end of paragraph (2) and inserting in lieu thereof a period, and by striking out paragraph (3). (30) Amendments of section 6424.— (A) The last sentence of section 6424(b)(1) (relating to refund claims with respect to lubricating oil) is amended by striking out “, except that a person’s first taxable year beginning after December 31, 1965, shall include the period after December 31, 1965, and before tile beginning of such first taxable year”. (B) Section 6424 (relating to lubricating oil not used in highway motor vehicles) is amended by striking out subsection (f) (relating to effective date of section), and by redesignating subsections (g) and (h) as subsections (f) and (g), respectively. (31) Amendments of section 6427.— (A) Subsections (a), (b), and (c) of section 6427 (relating 26 USC 6427. to fuels not used for taxable purposes) are each amended by striking out “, after June 30, 1970,” (B) The amendments made by subparagraph (A) shall 26 USC 6427 note. apply only with respect to fuel used or resold after June 30, 1970. (32) Amendments of section 6504.— (A) Section 6504 (relating to cross references) is amended 26 USC 6504. by striking out paragraphs (13) and (14) and inserting in lieu thereof: “(13) Assessments to recover excessive amounts paid under section 6420 (relating to gasoline used on farms), 6421 (relating to gasoline used for certain nonhighway purposes or by local transit systems), 6424 (relating to lubricating oil not used in highway motor vehicles), or 6427 (relating to fuels not used for taxable purposes) and assessments of civil penalties under section 6675 for excessive claims under section 6420, 6421, 6424, or 6427, see section 6206.” (B) Section 6504, as amended by this Act, Is further amended by redesignating paragraphs (2), (3), (4), (5), (9), (19), (11), (12), (13), and (15) as paragraphs (1), (2), (3), (4), (5), (6), (7), (8), (9), and (10), respectively. (33) Amendments of section 6511.— (A) Section 6511(d)(2)(A)(ii) (relating to net operating 26 USC 6511. loss carryback) is amended by striking out “September 1, 1959, or” and by striking out “, whichever is the later”. (B) Section 6511(d)(5) is amended by striking out “the later of the following dates: (A)”, and by striking out “, or (B) December 31, 1965”. (34) Amendment of section 6601.— Section 6601(h) (relating 26 USC 6601. to interest on estimated tax payments) is amended by striking out “(or section 59 of the Internal Revenue Code of 1939)”. 53 Stat. 32. 26 USC 6654. (35) Amendment of section 6654.— Section 6654 (relating to payment of estimated income tax) is amended by striking out subsection (h) (relating to applicability of section). (36) Amendment of section 6802.— Section 6802(2) (relating 26 USC 6802. to supply and distribution of stamps) is amended by striking out the semicolon at the end and inserting in lieu thereof a period. (37) Amendment of section 6803.— Section 6803 (relating to 26 USC 6803. accounting and safeguarding is amended to read as follows: “SEC. 6803. ACCOUNTING AND SAFEGUARDING. “(a) Bond.— In cases coining within the provisions of paragraph (2) of section 6802, the Secretary may require a bond, with sufficient sureties, in a sum to be fixed by the Secretary, conditioned for the faithful return, whenever so required, of all quantities or amounts undisposed of and for the payment monthly for all quantities or amounts sold or not remaining on hand. “(b) Regulations.— The Secretary may from time to time make such regulations as he may find necessary to insure the safekeeping or prevent the illegal use of all adhesive stamps referred to in paragraph (2) of section 6802.” (38) Amendment of section 6863.— Section 6863(b)(3) (relating to stay of sale of seized property pending Tax Court decision) is amended by striking out subparagraph (C) (relating to effective date). (39) Amendment of section 7012.— Section 7012 (relating to cross references), as amended by section 1904(b)(8)(C) of this Act, is amended to read as follows: “SEC. 7012. CROSS REFERENCES. “(1) For provisions relating to registration in connection with firearms, see sections 5802, 5841, and 5861. “(2) For special rules with respect to registration by persons engaged in receiving wagers, see section 4412. “(3) For provisions relating to registration in relation to the production or importation of gasoline, see section 4101. “(4) For provisions relating to registration in relation to the manufacture or production of lubricating oils, see section 4101. “(5) For penalty for failure to register, see section 7272. “(6) For other penalties for failure to register with respect to wagering, see section 7262.” (40) Amendment of section 7103.— Section 7103 (relating to cross references regarding bonds) is amended by striking out subsection (d). ‘ (41) Amendments of section 7271.— Section 7271 (relating to penalties for offenses concerning stamps) is amended by striking out paragraph (2), and by redesignating paragraphs’ (3) and (4) as paragraphs (2) and (3), respectively. (42) Amendment of section 7272.— Section 7272(b) (relating to cross references) is amended by striking out “4722, 4753,”. (43) Amendments of section 7326.— Section 7326 (relating to disposal of forfeited property) is amended— (A) by striking out “section 5862(b)” and inserting in lieu thereof “section 5872(b)”, and (B) by redesignating subsection (c) as subsection (b). (44) Amendments of section 7422.— Section 7422(c) (relating to suits against collection officers) is amended by striking out “instituted after June 15, 1942,”, and by striking out “where the petition to the Tax Court was filed after such date”. (45) Amendments of section 7428.— (A) Paragraph (1) of section 7428 (cross references), as redesignated by this Act, is amended by striking out “52 Stat, 851;”. (B) Paragraph (2) of such section 7428 is amended by striking out “52 Stat. 867;”. (C) Paragraph (3) of such section 7428 is amended by Striking out “52 Stat. 876–877;”. (D) Paragraph (4) of such section 7428 is amended by striking out “52 Stat. 938;”. (46) Amendments of section 7448.— (A) Subsection (a)(6) of section 7448 (relating to annuities to widows and dependent children of Tax Court judges) is amended— (i) by striking out “The term ‘widow’ means a surviving wife of,” and inserting in lieu thereof “The term ‘surviving spouse’ means a surviving spouse of”; and (ii) by striking out “the mother of issue” and inserting in lieu thereof “a parent of issue”. (B) Section 7448(h) is amended— (i) by striking out “surviving widow or widower” and inserting in lieu thereof “surviving spouse”; (ii) by striking out “such widow” each place it appears and inserting in lieu thereof “such surviving spouse”; (iii) by striking out “a widow” each place it appeal’s and inserting in lieu thereof “a surviving spouse”; (iv) by striking out “widow’s” each place it appears and inserting in lieu thereof “surviving spouse’s”; and (v) by striking out “surviving her” and inserting hi lieu thereof “surviving such spouse”. (C) Sections 7448 (h) and (o) are each amended by striking 26 USC 7448. out “she” and inserting in lieu thereof “such spouse”. (D) Section 7448 (o) is amended by striking out “her” and inserting in lieu thereof “such spouse’s”. (E) Sections 7448 (d), (j), (m), (n), (o), and (q) are each amended by striking out “widow” each place it appears and inserting in lieu thereof “surviving spouse”. (F) The section heading for section 7448 is amended by striking out “WIDOWS” and inserting in lieu thereof “SURVIVING SPOUSES”. (47) Amendments of section 7471.— (A) Subsection (a) of section 7471 (relating to Tax Court 26 USC 7471. employees) is amended by striking out “is authorized in accordance with the civil service laws to appoint, and in accordance with the Classification Act of 1949 (63 Stat. 954; 5 U.S.C. chapter 21), as amended, to fix the compensation of,” and inserting in lieu thereof “is authorized to appoint, in accordance with the provisions of title 5, United States Code, governing appointment in the competitive service, and 5 USC 101 et seq. 5 USC 5101, 5331. to fix the basic pay of, in accordance with chapter 51 and subchapter III of chapter 53 of such title,”. (B) Subsection (b) of section 7471 is amended by striking out “as provided in the Travel Expense Act of 1949 (63 Stat. 166; 5 U.S.C. chapter 16).” and inserting in lieu thereof “as provided in chapter 57 of title 5, United States Code.” 5 USC 5701. 26 USC 7476. (48) Amendment of section 7476.— Section 7476(a) (relating to declaratory judgments) is amended by striking out so much thereof as follows paragraph (2)(B) and inserting in lieu thereof the following: “upon the filing of an appropriate pleading, the Tax Court may make a declaration with respect to such initial qualification or continuing qualification. Any such declaration shall have the force and effect of a decision of the Tax Court, and shall be reviewable, as such.” (49) Amendment of section 7502.— Section 7502(b) (relating 26 USC 7502. to timely mailing treated as timely filing and paying) is amended by striking out “United State Post Office” and inserting in lieu thereof “United States Postal Service”. (50) Amendments of section 7507.— Paragraphs (2) and (3) of section 7507(c) (relating to insolvent hanks) are each amended 26 USC 7507. by striking out “after May 28, 1938,”. (51) Amendments of section 7508.— (A) The heading of section 7508 (relating to time for 26 USC 7508. performing certain acts) is amended by striking out “BY REASON OF WAR” and inserting in lieu thereof “BY REASON OF SERVICE IN COMBAT ZONE”. (B) Section 7508(a) (relating to time to be disregarded) is amended by striking out “States of the Union and the District of Columbia” each place it appears and inserting in lieu thereof “United States”. (52) Amendments of section 7509.— Section 7509 (relating to expenditures incurred by the Post Office Department) is amended— (A) in the section heading, by striking out “POST OFFICE DEPARTMENT” and inserting in lieu thereof “UNITED STATES POSTAL SERVICE”; (B) by striking out “Post Office Department” each place it appears and inserting in lieu thereof “United States Postal Service”; (C) by striking out “such Department” and inserting in lieu thereof “such Service”; and (D) by striking out “, together with the receipts required to be deposited under section 6803(a),”, (53) Amendment or section Tear.— Section 7621 (b) (relating to boundaries of internal revenue districts) is amended to read as follows: “(b) Boundaries.— For the purpose mentioned in subsection (a), the President may subdivide any State or the District of Columbia, or may unite into one district two or more States.” (54) Repeal of section 7G4t.— Subchapter C of chapter 78 (relating to supervision of operations of certain manufacturers) is repealed. (55) Amendments of section 7052.— Section 7652(b)(3) (relating to disposition of internal revenue collections) is amended— (A) by striking out subparagraph (B) and by redesignating subparagraph (C) as subparagraph (B). (B) by striking out “approved emergency relief purposes and essential public projects as provided in subparagraph (B)” and inserting in lieu thereof “emergency relief purposes and essential public projects, with the prior approval of the President or his designated representative”, and (C) by striking out “, including payments under subparagraph (B),”. (56) Amendment of section 7653.— Section 7653(d)(a cross reference) is amended by striking out “c. 512, 64 Stat. 392, section 30;”. (57) Amendments of section 7701.— (A) Section 7701(a)(11) (relating to definitions of Secretary) is amended to read as follows: “(11) Secretary of the treasury and secretary.— “(A) Secretary of the treasury.— The term ‘Secretary of the Treasury’ means the Secretary of the Treasury, personally, and shall not include any delegate of his. “(B) Secretary.— The term ‘Secretary’ means the Secretary or the Treasury or his delegate.”. (B) Section 7701(a)(12)(A) (relating to definition of Secretary or his delegate) is amended to read as follows: “(A) In general.— The term ‘or his delegate’— “(i) when used with reference to the Secretary of the Treasury, means any officer, employee, or agency of the Treasury Department duly authorized by the Secretary of the Treasury directly, or indirectly by one or more redelegations of authority, to perform the function mentioned or described in the context; and “(ii) when used with reference to any other official of the United States, shall be similarly construed.” (58) Amendment of section 7803.— Section 7803 (relating 26 USC 7803. to other personnel) is amended by redesignating subsection (d) as subsection (c). (59) Amendment of section 7809.— Section 7809(a) (relating 26 USC 7809. to deposit of collections) is amended by striking out “4735, 4762,”. (b) Conforming and Clerical Amendments.— (1) Amendment conforming to the repeal of section 6105.— The table of sections for subchapter B of chapter 61 is amended by striking out the item relating to section 6105. (2) Amendment conforming to amendment of section 6111.— The item relating to section 6111 in the table of sections for subchapter B of chapter 61 is amended to read as follows: “Sec. 6111. Cross reference.” (3) Amendments conforming to amendments of section 6154.— (A) Paragraph (1)(B) of section 6655(e) is amended: 26 USC 6655. (i) by adding “and” at the end of clause (i), and (ii) by striking out clauses (ii) and (iii) and inserting in lieu thereof the following: “(ii) in the case of a taxable year beginning before January 1, 1977, the amount of the corporation’s temporary estimated tax exemption for such year.” (B) Paragraph (2)(B) of section 6655(e) is amended by striking out “clauses (ii) and (iii)” and inserting in lieu thereof “clause (ii)”. (C) (i) Section 6655(e) is amended by striking out paragraph (3) and by redesignating paragraph (4) as paragraph (3). (ii) Section 243(b)(3)(C)(iv), as redesignated by section Ante, p. 1797. 1901 (b)(20)(A) of this Act, is amended by striking out “sections 6154(c)(2) and (3)” and inserting in lieu thereof “section 6154(c)(2)”, and by striking out. “sections 6655(e)(2) and (3)” and inserting in lieu thereof “section 6655(e)(2)”. (4) Amendment conforming to the re feat, of section 6162.— The table of sections for subchapter B of chapter 62 is amended by striking out the item relating to section 6162. (5) Amendment conforming to the repeal of section 6304.— The table of sections for subchapter A of chapter 64 is amended by striking out the item relating to section 6304. (6) Amendments conforming to the amendment of section 6416.— (A) Subparagraph (A) of section 6420(c)(3) is amended 26 USC 6420. to read as follows: “(A) by the owner, tenant, or operator of a farm, in connection with cultivating the soil, or in connection with raising or harvesting any agricultural or horticultural commodity, including the raising, shearing, feeding, caring for, training, and management of livestock, bees, poultry, and fur-bearing animals and wildlife, on a farm of which he is the owner, tenant, or operator; except that, if such use is by any person other than the owner, tenant, or operator of such farm, then for purposes of this subparagraph, in applying subsection (a) to this subparagraph, the owner, tenant, or operator of the farm on which gasoline or a liquid taxable under section 26 USC 4041. 4041 issued shall be treated as the user and the ultimate purchaser of such gasoline or liquid;”. (B) The amendments made by subparagraph (A) shall apply with respect to the use of liquids after December 31, 1970. (7) Amendment conforming to the repeal of section 6417.— The table of sections for subchapter B of chapter 65 is amended Ante, p. 1827. by striking out the item relating to section 6417. (8) Amendment conforming to amendment of section 6420.— Section 39(a)(1) is amended by striking out “section 6420(h)” and inserting in lieu thereof “section 6420(g)”. (9) Amendment conforming to amendment of section 6424.— Section 39(a)(3) is amended by striking out “section 6424(g)” Ante, p, 1829. and inserting in lieu thereof “section 6424(f)”. (10) Amendment conforming to amendment of section 7448.— The item relating to section 7448 in the table of sections for part I of subchapter C of chapter 76 is amended to read as follows: “Sec. 7448. Annuities of surviving spouses and dependent children.”. (11) Amendment conforming to amendment of section 7508.— The item relating to section 7508 in the table of sections for chapter 77 is amended to read as follows: “Sec. 7508. Time for performing certain acts postponed by reason of service in combat gone.”. (12) Amendment conforming to amendment of section 7500.— The item relating to section 7509 in the table of sections for chapter 77 is amended to read as follows: “Sec. 7509. Expenditures incurred by the United States Postal Service,”. (13) Amendment conforming to repeal of section 7641.— The table of subchapters for chapter 78 is amended by striking Ante, p. 1832. 26 USC 1 el seq. out the item relating to subchapter C. (A) The Internal Revenue Code of 1954, as amended by this Act, is amended by striking out “Secretary or his delegate” each place it appears and inserting in lieu thereof “Secretary”. (B) The following provisions are each amended by striking 26 USC 4293, 4483, 5551, 7801, 7802, 9006, 9007. 26 USC 3121, 3303, 3304, 3305, 3306, 9005, 9007, 9010, 9012. 26 USC 31. 26 USC 3304. out “Secretary” each place it appears and inserting in lieu thereof “Secretary of the Treasury”: sections 4293, 4483 (b), 5551, 7801(b). 7802(a), 9006(a), 9006(b), and 9007(d). (C) The following provisions are each amended by striking out “to the Secretary” each place it appears and inserting in lieu thereof “to the Secretary of the Treasury”: sections 3121 (b)(12)(B). 3303(b), 3304(a)(3). 3304(c), 3305(j), 3306(c)(12)(B), 9005(a), 9007(b), 9010(b), and 9012(e)(3). (D) Section 31(b)(1) is amended by striking out “(or his delegate)”. (E) The last sentence of section 3304(c) is amended by striking out “the Secretary shall” and inserting in lieu thereof “the Secretary of Labor shall”. (F) Section 3310(d)(2) is amended by striking out “the 26 USC 3310. Secretary’s action” each place it appears and inserting in lieu thereof “the Secretary of Labor’s action”. (G) Section 3221(a) and 3221(c) are each amended by 26 USC 3221. striking out “of the Treasury” each place it appears. (H) Section 3310(e) is amended by striking out “of 26 USC 3310. the Secretary” and inserting in lieu thereof “of the Secretary of Labor”. (I) Section 4412(c) is amended by striking out “he or his 26 USC 4412. delegate” and inserting in lieu thereof “the Secretary”. (J) Section 5845(f) is amended by striking out “of the 26 USC 5845. Treasury or his delegate”. (K) Section 6402(b) is amended by striking out “(or his 26 USC 6402. delegate)”. (L) Section 7458 is amended by striking out “nor his 26 USC 7458. delegate”. (M) Section 7514 is amended by striking out “functions of 26 USC 7514. the Secretary” and inserting in lieu thereof “functions of the Secretary of the Treasury”. (c) Amendments to Sections Referring to Territories.— (1) Section 6871(a) is amended by striking out “or Territory”. 26 USC 6871. 26 USC 7622. 26 USC 7701. (2) Section 7622(b) is amended by striking out “, Territory,”. (3) Section 7701(a)(4) is amended by striking out “or Territory”. (d) Effective Date.— (1) General rule.— Except as otherwise expressly provided in this section, the amendments made by this section shall take effect on the first day of the first month which begins more than 90 days after the date of the enactment of this Act. (2) Amendments relating to income tax.— The amendments made by this section, when relating to a tax imposed by chapter 26 USC 1, 1401. 1 or chapter 2 of the Internal Revenue Code of 1954, shall take effect with respect to taxable years beginning after December 31, 1976. SEC. 1907. AMENDMENTS OF SUBTITLE G; THE JOINT COMMITTEE ON INTERNAL REVENUE TAXATION. (a) In General.— (1) Amendment of section 8001.— Section 8001 (relating to 26 USC 8001. creation of the Joint Committee) is amended by striking out “Joint Committee on Internal Revenue Taxation” and inserting in lieu thereof “Joint Committee on Taxation”. (2) Amendment of section 8004.— Section 8004 (relating to 26 USC 8004. compensation of staff) is amended by striking out “compensation of a clerk” and inserting in lieu thereof “compensation of the Chief of Staff of the Joint Committee”. (3) Amendment of section 8021.— Section 8021(d) (relating 26 USC 8021. to authority to make expenditures) is amended to read as follows: “(d) To Make Expenditures.— The Joint Committee, or any subcommittee thereof, is authorized to make such expenditures as it deems advisable.”. (4) Amendment of section 8023.— Section 8023(c) (relating 26 USC 8023. to reorganization plans) is amended to read as follows: “(c) Application of Subsections (a) and(b).— Subsections (a) and (b) shall be applied in accordance with their provisions without regard to any reorganization plan becoming effective on, before, or after the date of the enactment of this subsection.”. (5) All references in any other statute, or in any rule, regulation, or order, to the Joint Committee on Internal be venue Taxation shall be considered to be made to the Joint Committee on Taxation. (b) Amendments Conforming to the Amendment of Section 8001.— (1) The heading of subtitle G is amended by striking out “Internal Revenue”, (2) The table of subtitles for the Internal Revenue Code of 1954 is amended by striking out the item relating to subtitle G and inserting in lieu thereof the following: “Subtitle G. The Joint Committee on Taxation.”. (c) Effective Date.— The amendments made by this section shall take effect on the first day of the first month which begins more than 90 days after the date of the enactment of this Act. SEC. 1908. EFFECTIVE DATE OF CERTAIN DEFINITIONS AND DESIGNATIONS For purposes of any amendment made by any provision of this Act (other than this title)— (1) which contains a term the meaning of which is defined in or modified by any provision of this title, and (2) which has an effective date earlier than the effective date of the provision of this title defining or modifying such term, that definition or modification shall be considered to take effect as of such earlier effective date. Subtitle B— Amendments of Code Provisions With Limited Current Application; Repeals and Savings Provisions SEC. 1951. PROVISIONS OF SUBTITLE A (a) References to Internal Revenue Code.— Except as otherwise expressly provided, whenever in this section a reference is made to a section or other provision, the reference shall be considered to be made 26 USC 1. to a section or other provision of the Internal Revenue Code of 1954. (b) Amendments.— (1) Amendment of section 72.— (A) Repeal.— Section 72 (relatinfi to annuities) is amended by striking out subsection (i) (relating to joint and survivor annuities where first annuitant died in 1951, 1952, or 1953). (B) Savings provision.— Notwithstanding subparagraph (A), if the provisions of section 72(i) applied to amounts received in taxable years beginning before January 1, 1977, under an annuity contract, then amounts received under such contract on or after such date shall be treated as if such provisions were not repealed. (2) Amendments of section 108.— (A) Repeal.— Section 108 (relating to income from discharge of indebtedness) is amended by striking out subsection (b) (relating to certain railroad corporations) and by striking out of subsection (a) the following: “(a) Special Rule of Exclusion.—”. (B) Savings provision.— If any discharge, cancellation, 26 USC 108 note. or modification of indebtedness of a railroad corporation occurs in a taxable year beginning after December 31, 1976, pursuant to an order of a court in a proceeding referred to in section 108(b)(A) or (13) which commenced before January 1, 1960, then, notwithstanding the amendments made by subparagraph (A), the provisions of subsection (b) of section 108 shall be considered as not repealed with respect to such discharge, cancellation, or modification of indebtedness. (3) Amendments of section 164.— (A) Repeal.— Section 164 (relating to taxes) is amended 26 USC 164. by striking out subsection (f) (relating to payments for municipal services in atomic energy communities) and by redesignating subsection (g) as subsection (f). (B) Savings provision.— Notwithstanding subparagraph 26 USC 164 note. (A), any amount paid or accrued in a taxable year beginning after December 31, 1976, to the Atomic Energy Commission or its successors for municipal-type services shall be allowed as a deduction under section 164 if such amount would have been deductible by reason of section 164(f)(as in effect for a taxable year ending on December 31, 1976) and if the amount is paid or accrued with respect to real property in a community (within the meaning of section 21 b. of the Atomic Energy Community Act of 1955 (42 U.S.C. 2304 (b))) in which the Commission on December 31, 1976, was rendering municipal-type services for which it received compensation from the owners of property within such community. (4) Repeal of section 168.— (A) Repeal.— Section 168 (relating to amortization of 26 USC 168. emergency facilities) is repealed. (B) Savings provision.— Notwithstanding the repeal 26 USC 168 note. made by subparagraph (A), if a certificate was issued before January 1, 1960, with respect to an emergency facility which is or has been placed in service before the date of the enactment of this Act, the provisions of section 168 shall not, with respect to such facility, be considered repealed. The benefit of deductions by reason of the preceding sentence shall be allowed to estates and trusts in the same manner as in the case of an individual. The allowable deduction shall be apportioned between the income beneficiaries and the fiduciary in accordance with regulations prescribed under section 642(f). (5) Amendment of section 171.— (A) Repeal.— (i) Section 171(b)(1)(B) (relating to amount of 26 USC 171. bond premium) is amended by striking out clause (iii) (relating to certain bonds acquired before 1958). (ii) Section 171(b)(1)(B)(i) is amended by striking out “clause (ii) or (iii) applies,” and inserting in lieu thereof “clause (ii) applies, or”, and by inserting “and” at the end thereof. (iii) Section 171 (b)(1)(B)(ii) is amended by striking out “. or” and inserting “, and” in lieu thereof. (iv) The second sentence in section 171 (b)(2) is amended by striking out “or (iii)”. (B) Savings provision.— Notwithstanding the amendments made by subparagraph (A), in the case of a bond the interest on which is not excludable from gross income— (i) which was issued after January 22, 1951, with a call date not more than 3 years after the date of such issue, and (ii) which was acquired by the taxpayer after January 22, 1954, and before January 1, 1958, the bond premium for a taxable year beginning after December 31, 1975, shall not be determined under section 171(b)(1)(B)(i) but shall be determined with reference to the amount payable on maturity, and if the bond is called before its maturity, the bond premium for the year in which the bond is called shall be determined in accordance with the provisions of section 171 (b)(2). (6) Amendment of section 333.— (A) Repeal.— Section 333 (relating to election as to recognition of gain in certain liquidations) is amended by striking out subsection (g) (relating to the liquidation of certain personal holding companies). (B) Savings provision.— Nothwithstanding subparagraph (A), if any corporation meets all the requirements of section 333(g)(2)(B), as in effect before its repeal by this Act, the liquidation of such corporation shall be treated as if paragraphs (2), (3), and (4) of section 333(g) had not been repealed. (C) Phase-in of 12month holding period requirement.— For purposes of subparagraph (B), the period for holding of stock specified in section 333(g)(2)(A)(u), as in effect before such repeal, shall— (i) in the case of taxable years beginning in 1977, be considered to be “9 months”; and (ii) in the case of taxable years beginning after December 31, 1977, be considered to be “1 year”. (7) Amendment of section 453.— (A) Repeal.— Section 453(b)(2) (relating to limitation on use of installment sales method) is amended to read as follows: “(2) Limitation.— Paragraph (1) shall apply only if in the taxable year of the sale or other disposition— “(A) there are no payments, or “(B) the payments (exclusive of evidences of indebtedness or the purchaser) do not exceed 30 percent of the selling price.”. (B) Savings provision.— Notwithstanding subparagraph (A), in the case of installment payments received during taxable years beginning after December 31, 1976, on account of a sale or other disposition made during a taxable year beginning before January 1, 1954, subsection (b)(1) of section 453 (relating to sales of realty and casual sales of personalty) shall apply only if the income was (by reason of section 53 Stat. 24. 44(b) of the Internal Revenue Code of 1939) returnable on the basis and in the manner prescribed in section 44(a) of such Code. (8) Amendments of section 512.— (A) Repeal.— Section 512(b) (relating to unrelated business 26 USC 512. taxable income) is amended by striking out paragraphs (13) and (14) and by redesignating paragraphs (15), (16), and (17) as paragraphs (13), (14), and (15), respectively. (B) Savings provision.— Notwithstanding subparagraph 26 USC 512 note. (A), income received in a taxable year beginning after December 31, 1975, shall be excluded from gross income in determining unrelated business taxable income, if such income would have been excluded by paragraph (13) or (14) of section 512(b) if received in a taxable year beginning before such date. Any deductions directly connected with income excluded under the preceding sentence in determining unrelated business taxable income shall also be excluded for such purpose. (9) Amendment of section 545.— (A) Repeal.— Section 545(b) (relating to adjustments in 26 USC 545. computing undistributed personal holding company income) is amended by striking out paragraph (9) (relating to deductions on account of certain liens in favor of the United States). (B) Savings provision.— Notwithstanding subparagraph 26 USC 545 note. (A), if any amount was deducted under paragraph (9) of section 545(b) in a taxable year beginning before January 1, 1977, on account of a lien which is satisfied or released in a taxable year beginning on or after such date, the amount so deducted shall be included in income, for purposes of section 545, as provided in the second sentence of such paragraph. Shareholders of any corporation which has amounts included in its income by reason of the preceding sentence may elect to compute the income tax on dividends attributable to amounts so included as provided in the third sentence of such paragraph. (10) Amendments of section 691.— (A) Repeal.— Section 691 (relating to income in respect 26 USC 691. of decedents) is amended by striking out subsection (e) (relating to certain installment obligations transmitted at death) and by redesignating subsection (f) as subsection (e). (B) Savings provision.— Notwithstanding subparagraph 26 USC 691 note. (A), any election made under section 691(e) to have subsection (a)(4) of such section apply in the case of an installment obligation shall continue to be effective with respect to taxable years beginning after December 31, 1976. Section 691(c) shall not apply in respect of any amount included in gross income by reason of the preceding sentence. The liability under bond filed under section 44(d) of the Internal Revenue Code of 1939 (or corresponding provisions of prior law) in 53 Stat. 24. respect of which such an election applies is hereby released with respect to taxable years to which such election applies. (11) Amendments of section 817.— (A) Repeal.— Section 817 is amended by striking out 26 USC 817. subsection (d) (relating to certain gains occurring before 1959). (B) Savings provision.— Notwithstanding subparagraph 26 USC 817 note. (A), any gain in a taxable year beginning after December 31, 1976, from any sale or other disposition of property prior to January 1, 1959, would be excluded or not taken into account for purposes of part 1 of subchapter L of chapter Ante, p. 1839. 1 if subsection (d) of section 817 of such Code were still in effect for such taxable year, such gain shall be excluded for purposes of such part. (12) Repeal of section 1347.— (A) Repeal.— Section 1347 (relating to certain claims filed against the United States before January 1, 1958) is repealed. (B) Savings provision.— Notwithstanding subparagraph (A), if amounts received in a taxable year beginning after December 31, 1976, would have been subject to the provisions of section 1347 if received in a taxable year beginning before such date, the tax imposed by section 1 attributable to such receipt shall be computed as if section 1347 had not been repealed. (13) Repeal of section 1471.— (A) Repeal.— Subchapter A of chapter 4 (relating to recovery of excessive profits on certain Government contracts) is repealed. (B) Savings provision.— If the amount of profit required to be paid into the Treasury under section 2382 or 7300 of title 10, United States Code, is not voluntarily paid, the Secretary of the Treasury or his delegate shall collect the same under the methods employed to collect taxes under subtitle A. All provisions of law (including penalties) applicable with respect to such taxes and not inconsistent with section 2382 or 7300 of title 10 of such Code, shall apply with respect to the assessment, collection, or payment of excess profits to the Treasury as provided in the preceding sentence, and to refunds by the Treasury of overpayments of excess profits into the Treasury. (14) Amendment of section 1481.— (A) Repeal.— Section 1481 (relating to mitigation of effect of renegotiation of Government contracts) is amended by striking out subsection (d) (relating to renegotiation for years prior to 1954). (B) Savings provision.— If, during a taxable year beginning after December 31, 1976, a recovery of excessive profits through renegotiation which relates to profits of a taxable 53 Stat. 1. year subject to the Internal Revenue Code of 1939, the adjustments in respect to such renegotiation shall be made under section 3806 of such Code. (c) Conforming and Clerical Amendments.— (1) Amendment conforming to the amendment of section 1017.— Section 1017 is amended by striking out “section 108(a)” each time it appears therein and inserting in lieu thereof “section 108”. (2) Amendments conforming to repeal of section 168.— (A) Section 1238 is amended by striking out “(relating to amortization deduction of emergency facilities)” and inserting in lieu thereof “(as in effect before its repeal by the Tax Ante, p. 1520. 26 USC 642, 1082. Ante, p. 1837. 26 USC 1245, 1250. Reform Act. of 1976)”. (B) Sections 642(f) and 1082(a)(2)(B) are each amended by striking out “168,”. (C) Sections 1245(a)(2) and 1250(b)(3) are each amended by striking out “168,” each place it appears and inserting in lieu thereof “168 (as in effect before its repeal by the Tax Reform Act of 1976),”. (D) The table of sections for part VI of subchapter B of chapter 1 is amended by striking out the item relating to section 168. Ante, p. 1837. (3) Amendments conforming to the repeal of section 1347.— (A) Section 5(b) is amended by striking out paragraph 26 USC 5. (5) and by redesignating paragraphs (2), (3), and (4), as paragraphs (1), (2), and (3), respectively. (B) The table of sections for part VI of subchapter Q of chapter 1 is amended by striking out the item relating to section 1347. Ante, p. 1840. (C) The heading of part VI of subchapter Q of chapter 1 is amended to read as follows: “PART VI— MAXIMUM RATE ON PERSONAL SERVICE INCOME.” (D) The table of parts for subchapter Q of chapter 1 is amended by striking out the item relating to part VI and inserting in lieu thereof the following: “Part VI. Maximum rate on personal service income.” (4) Amendment conforming to the repeal of section 1471.— The table of subchapters for chapter 4 is amended by striking out the item relating to subchapter A. (d) Effective Date.— Except as otherwise expressly provided, the 26 USC 72 note. amendments made by this section shall apply with respect to taxable years beginning after December 31, 1976. SEC. 1952. PROVISIONS OF SUBCHAPTER D OF CHAPTER 39; COTTON FUTURES. (a) Short Title.— This section may be cited as the “United States Cotton Futures Act”. (b) Repeal of Tax on Cotton Futures.— Subchapter D of chapter 39 (relating to tax on cotton futures) is repealed. 26 USC 4851. (c) Definitions.— For purposes of this section— (1) Cotton futures contract.— The term “cotton futures contract” means any contract of sale of cotton for future delivery made at, on, or in any exchange, board of trade, or similar institution or place of bus mess which has been designated a “contract market” by the Commodity Futures Trading Commission pursuant to the Commodity Exchange Act and the term “contract of 7 USC 1. sale” as so used shall be held to include sales, agreements of sale, and agreements to sell. (2) Future delivery.— The term “future delivery” shall not include any cash sale of cotton for deferred shipment or delivery. (3) Person.— The term “person” includes an individual, trust, estate, partnership, association, company, or corporation. (4) Secretary.— The term “Secretary” means the Secretary of Agriculture of the United States. (5) Standards.— The term “standards” means the official cotton standards of the United States established by the Secretary pursuant to the United States Cotton Standards Act, as emended. (d) Bona Fide Spot Markets and Commercial Differences.— (1) Definition.— For purposes of this section, the only markets which shall be considered bona fide spot markets shall be those which the Secretary shall, from time to time, after investigation, determine and designate to be such, and which we shall give public notice. (2) Determination.— In determining, pursuant to the provisions of this section, what markets are bona fide spot markets, the Secretary is directed to consider only markets in “which spot cotton is sold in such volume and under such conditions as customarily to reflect accurately the value of middling cotton and the differences between the prices or values of middling cotton and of other grades of cotton for which standards shall have been established by the Secretary; except that if there are not sufficient places, in the markets of which are made bona fide sales of spot cotton of grades for which standards are established by the Secretary, to enable him to designate at least five spot markets in accordance with subsection (f)(3), he shall, from data as to spot sales collected by him, make rules and regulations for determining the actual commercial differences in the value of spot cotton of the grades established by him as reflected by bona fide sales of spot cotton, of the same or different, grades, in the market selected and designated by him, from time to time, for that purpose, and in that event differences in value of cotton of various grades involved in contracts made pursuant to subsection (f)(1) and (2) shall be determined in compliance with such rules and regulations. It shall be the duty of any person engaged in the business of dealing in cotton, when requested by the Secretary or any agent acting under his instructions, to answer correctly to the best of his knowledge, under oath or otherwise, all questions touching his knowledge of the number of bales, the classification, the price or bona fide price offered, and other trims of purchase or sale, of any cotton involved in any transaction participated in by him, or to produce all books, letters, papers, or documents in his possession or under his control relating to such matter. (3) Withholding information.— Any person engaged in the business of dealing in cotton who shall, within a reasonable time prescribed by the Secretary or any agent acting under his instructions, willfully fail or refuse to answer questions or to produce books, letters, papers, or documents, as required under paragraph (2) of this subsection, or who shall willfully give any answer that is false or misleading, shall, upon conviction thereof, be fined not more than $500. (e) Form and Validity of Cotton Futures Contracts.— Each cotton futures contract shall be a basis grade contract, or a tendered grade contract, or a specific grade contract as specified in subsections (f), (g), or (h) and shall be in writing plainly stating, or evidenced by written memorandum showing, the terms of such contract, including the quantity of the cotton involved and the names and addresses of the seller and buyer in such contract, and shall be signed by the party to be charged, or by his agent in his behalf. No cotton futures contracts which does not conform to such requirements shall be enforceable by, or on behalf of, any party to such contract or his privies. (f) Basis Grade Contracts.— (1) Conditions.— Each basis grade cotton futures contract shall comply with each of the following conditions: (A) Conformity with regulations.— Conform to the regulations made pursuant to this section. (B) Specification of grade, price, and dates of sale and settlement.— Specify the basis grade for the cotton involved in the contract, which shall be one of the grades for which standards are established by the Secretary, except grades prohibited from being delivered on a contract made under this subsection by subparagraph (E), the price per pound at which the cotton of such basis grade is contracted to be bought or sold, the date when the purchase or sale was made, and the month or months in which the contract is to be fulfilled or settled; except that middling shall be deemed the basis £ade incorporated into the contract if no other basis grade specified either in the contract or in the memorandum evidencing the same. (C) Provision for delivery of standard grades only.— Provide that the cotton dealt with therein or delivered thereunder shall be of or within the grades for which standards are established by the Secretary except grades prohibited from being delivered on a contract made under this subsection by subparagraph (E) and no other grade or grades. (D) Provision for settlement on basis of actual commercial differences.— Provide that in case cotton of grade other than the basis grade be tendered or delivered in settlement of such contract, the differences above or below the contract price which the receiver shall pay for such grades other than the basis grade shall be the actual commercial differences, determined as hereinafter provided, (E) Prohibition of delivery of inferior cotton.— Provide that cotton that, because of the presence of extraneous matter of any character, or irregularities or defects, is reduced in value below that of low middling, or cotton that is below the grade of low middling, or, if tinged, cotton that is below the grade of strict middling, or, if yellow stained, cotton that is below the grade of good middling, the grades mentioned being of the official cotton standards of the United States, or cotton that is less than seven-eighths of an inch in length of staple, or cotton of perished staple, or of immature staple, or cotton that is “gin cut” or reginned, or cotton that is “repacked” or “false packed” or “mixed packed” or “water packed”, shall not be delivered on, under, or in settlement of such contract. (F) Provisions for tender in full, notice of delivery date, and certificate of grade.— Provide that all tenders of cotton under such contract shall be the full number of bales involved therein, except that such variations of the number of bales may be permitted as is necessary to bring the total weight of the cotton tendered within the provisions of the contract as to weight; that, on the fifth business day prior to delivery, the person making the tender shall give to the person receiving the same written notice of the date of delivery, and that, on or prior to the date so fixed for delivery, and in advance of final settlement of the contract, the person making the tender shall furnish to the person receiving the same a written notice or certificate stating the grade of each individual bale to be delivered and, by means of marks or numbers, identifying each bale with its grade. (G) Provision for tender and settlement in accordance with government classification.— Provide that all tenders of cotton and settlements therefor under such contract shall be in accordance with the classification thereof made under the regulations of the Secretary by such officer or officers of the Government as shall be designated for the purpose, and the costs of such classification shall be fixed, assessed, col- Regulations. lected, and paid as provided in such regulations. The Secretary is authorized to prescribe regulations for carrying out the purposes of this subparagraph and the certificates of the officers of the Government, as to the classification of any cotton for the purposes of this subparagraph shall be accepted in the courts of the United States in all suits between the parties to such contract, or their privies, as prima facie evidence of the true classification of the cotton involved. (2) Incorporation of conditions in contracts.— The provisions of paragraphs (1)(C), (D), (E), (F), and (G) shall be deemed fully incorporated into any such contract if there be written or printed thereon, or on the memorandums evidencing the same, at or prior to the time the same is signed, the phrase “Subject to United States Cotton Futures Act, subsection (f).” (3) Delivery allowances.— For the purpose of this subsection, the differences above or below the contract price which the receiver shall pay for cotton of grades above or below the basic grade in the settlement of a contract of sale for the future delivery of cotton shall be determined by the actual commercial differences in value thereof upon the sixth business day prior to the day fixed, in accordance with paragraph (1)(F), for the delivery of cotton on the contract, established by the sale of spot cotton in the spot markets of not less than five places designated for the purpose from time to time by the Secretary, as such values were established by the sales of spot cotton, in such designated five or more markets. For purposes of this paragraph, such values in the such spot markets shall be based upon the standards for grades of cotton established by the Secretary. Whenever the value Rules and regulations. of one grade is to be determined from the sale or sales of spot cotton of another grade or grades, such value shall be fixed in accordance with rules and regulations which shall be prescribed for the purpose by the Secretary. (g) Tendered Grade Contracts.— (1) Conditions.— Each tendered grade cotton future contract shall comply with each of the following conditions: (A) Compliance with subsection (f).— Comply with all the terms and conditions of subsection (f) not inconsistent with this subsection; and (B) Provision for contingent specific performance.— Provide that, in case cotton of grade or grades other than the basis grade specified in the contract shall be tendered in performance of the contract, the parties to such contract may agree, at the time of the tender, as to the price of the grade or grades so tendered, and that if they shall not then agree as to such price, then, and in that event, the buyer of said contract shall have the right to demand the specific fulfillment of such contract by the actual delivery of cotton of the basis grade named therein and at the price specified for such basis grade in said contract. (2) Incorporation of conditions in contract.— Contracts made in compliance, with this subsection shall be known as “subsection (g) Contracts”. The provisions of this subsection shall be deemed fully incorporated into any such contract if there be written or printed thereon, or on the memorandum evidencing the same, at or prior to the time the same is signed, the phrase “Subject to United States Cotton Futures Act, subsection (g)”. (3) Application of subsection.— Nothing in this subsection shall be so construed as to authorize any contract in which, or in the settlement of or in respect to which, any device or arrangement whatever is resorted to, or any agreement is made, for the determination or adjustment of the price of the grade or grades tendered other than the basis grade specified in the contract by any “fixed difference” system, or by arbitration, or by any other method not provided for by this section. (h) Specific Grade Contracts.— (1) Conditions.— Each specific grade cotton futures contract shall comply with each of the following conditions: (A) Conformity with rulesand regulations.— Con form to the rules and regulations made pursuant to this section. (B) Specification of grade, price, dates of sale and delivery.— Specify the grade, type, sample, or description of the cotton involved in the contract, the price per pound at which such cotton is contracted to be bought or sold, the date of the purchase or sale, and the time when shipment or delivery of such cotton is to be made. (C) Prohibition of delivery of other than specified grade.— Provide that cotton of or within the grade or of the type, or according to the sample or description, specified in the contract shall be delivered thereunder, and that no cotton which does not conform to the type, sample, or description, or which is not of or within the grade specified in the contract shall be tendered or delivered thereunder. (D) Provision for specific performance.— Provide that the delivery of cotton under the contract shall not be effected by means of “setoff” or “ring” settlement, but only by the actual transfer of the specified cotton mentioned in the contract. (2) Incorporation of conditions in contract.— The provisions of paragraphs (1)(A), (C). and (D) shall be deemed fully incorporated into any such contract if there be written or printed thereon, or on the document or memorandum evidencing the same, at or prior to the time the same is entered into, the words “Subject to United States Cotton Futures Act, subsection (h)”. Ante, p. 1841. (3) Application of subsection.— This subsection shall not be construed to apply to any contract of sale made in compliance with subsection (f) or (g). (i) Liability of Principal for Acts of Agent.— When construing and enforcing the provisions of this section, the act, omission, or failure of any official, agent, or other person acting for or employed by any association, partnership, or corporation within the scope of his employment or office shall, in every case, also be deemed the act, omission, or failure of such association, partnership, or corporation, as well as that of the person. (j) Regulations.— The Secretary is authorized to make such regulations with the force and effect of law as he determines may be necessary to carry out the provisions of this section and the powers vested in him by this section. (k) Validations.— Any person who knowingly violates any regulation made in pursuance of this section, shall, upon conviction thereof be fined not less than $100 nor more than $500, for each violation thereof, in the discretion of the court, and, in case of natural persons, may, in addition be punished by imprisonment for not less than 30 days nor more than 90 days, for each violation, in the discretion of the court except that this subsection shall not apply to violations subject to subsection (d)(3). (l) Applicability to Contracts Prior to Effective Date.— The provisions of this section shall not apply to any cotton futures contract entered into prior to the effective date of this section or to any act or failure to act by any person prior to such effective date and all such prior contracts, acts or failure to act shall continue to be governed by 26 USC 1. the applicable provisions of the Internal Revenue Code of 1954 as in effect prior to the enactment of this section. All designations of bona fide spot markets and all rules and regulations issued by the Secretary pursuant to the applicable provisions of the Internal Revenue Code of 1954 which were in effect on the effective date of this section, shall remain fully effective as designations and regulations under this section until superseded, amended, or terminated by the Secretary. (m) Authorization.— There are authorized to be appropriated such sums as may be necessary to carry out this section. (n) Conforming and Clerical, Amendments.— (1) Section 6808 (relating to cross references) is amended by striking out paragraph (2), and by redesignating paragraphs (3), (6), and (11) as paragraphs (1), (2), and (3), respectively. (2) (A) Section 7233 (relating to failure to pay tax on cotton futures) is repealed. (B) The table of sections for part II of subchapter A of chapter 75 is amended by striking out the item relating to section 7233. (3) (A) Section 7263 (relating to penalties concerning cotton futures) is repealed. (B) The table of sections for subchapter B of chapter 75 is amended by striking out the item relating to section 7263. (4) (A) Subchapter E of chapter 76 (relating to miscellaneous provisions regarding cotton futures contracts) is repealed. (B) The table of subchapters for chapter 76 is amended by striking out the items relating to subchapter E. (5) Chapter 39 (relating to regulatory taxes) is amended by striking out the chapter heading and the table of subchapters. (6) The table of chapters for subtitle D is amended by striking out the item relating to chapter 39. (o) Effective Date.— The provisions of this section shall take effect on the 90th day after the date of the enactment of this Act.

16. 1976

    Pub. L. 94–455 § 1901(a)(17)(B) · 90 Stat. 1520

    Redesignated · 26 U.S.C. § 103(f)

    Pub. L. 94–455, § 1901(a)(17)(B), redesignated subsec. (f), relating to cross references, as (e)

    Source evidence

    Code amendment note
    Subsec. (f). Pub. L. 94–455, § 1901(a)(17)(B), redesignated subsec. (f), relating to cross references, as (e).

    Enacted provision · exact public law section
    (B) Section 103 is amended by striking out subsection (b) (relating to certain exceptions) and by redesignating subsections (c), (d), (e) (f), and (g)(as added by this Act) as subsections (b), (c), (d), (e), and (f) respectively.

17. 1978

    Pub. L. 95–339 title II § 201(a) · 92 Stat. 460

    Redesignated · 26 U.S.C. § 103(e)

    Pub. L. 95–339 redesignated second subsec. (e), relating to cross references, as (g)

    Source evidence

    Code amendment note
    Subsec. (e). Pub. L. 95–339 redesignated second subsec. (e), relating to cross references, as (g).

    Enacted provision · exact public law section
    (a) Certain Federally Guaranteed Obligations.— Section 103 of the Internal Revenue Code of 1954 (relating to interest on certain 26 USC 103. governmental obligations) is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection: “(f) Certain Federally Guaranteed Obligation.— Any obligation the payment of interest or principal (or both) of which is guaranteed in whole or in part under title I of the New York City Loan Guarantee Act of 1978 shall, with respect to interest accrued during the period for which such guarantee is in effect, be treated as an obligation not described in subsection (a).”.

18. 1978

    Pub. L. 95–339 title II § 201(a) · 92 Stat. 460

    Added · 26 U.S.C. § 103(f)

    Pub. L. 95–339 added subsec. (f)

    Source evidence

    Code amendment note
    Subsec. (f). Pub. L. 95–339 added subsec. (f).

    Enacted provision · exact public law section
    (a) Certain Federally Guaranteed Obligations.— Section 103 of the Internal Revenue Code of 1954 (relating to interest on certain 26 USC 103. governmental obligations) is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection: “(f) Certain Federally Guaranteed Obligation.— Any obligation the payment of interest or principal (or both) of which is guaranteed in whole or in part under title I of the New York City Loan Guarantee Act of 1978 shall, with respect to interest accrued during the period for which such guarantee is in effect, be treated as an obligation not described in subsection (a).”.

19. 1978

    Pub. L. 95–339 title II § 201(a) · 92 Stat. 460

    Redesignated · 26 U.S.C. § 103(g)

    Pub. L. 95–339 redesignated second subsec. (e), relating to cross references, as (g)

    Source evidence

    Code amendment note
    Subsec. (g). Pub. L. 95–339 redesignated second subsec. (e), relating to cross references, as (g).

    Enacted provision · exact public law section
    (a) Certain Federally Guaranteed Obligations.— Section 103 of the Internal Revenue Code of 1954 (relating to interest on certain 26 USC 103. governmental obligations) is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection: “(f) Certain Federally Guaranteed Obligation.— Any obligation the payment of interest or principal (or both) of which is guaranteed in whole or in part under title I of the New York City Loan Guarantee Act of 1978 shall, with respect to interest accrued during the period for which such guarantee is in effect, be treated as an obligation not described in subsection (a).”.

20. 1978

    Pub. L. 95–600 § 703(j)(1)(A) · 92 Stat. 2763

    Substituted · 26 U.S.C. § 103(b)(1)

    Pub. L. 95–600, § 703(j)(1)(A), substituted “subsection (a)(1) or (2)” for “subsection (a)(1)” in heading

    Source evidence

    Code amendment note
    Subsec. (b)(1). Pub. L. 95–600, § 703(j)(1)(A), substituted “subsection (a)(1) or (2)” for “subsection (a)(1)” in heading.

    Enacted provision · exact public law section
    (A) The heading of paragraph (1) of section 103(b) is 26 USC 103. amended to read as follows: “(1) Subsection (a) (1) or (2) not to apply.—”.

21. 1978

    Pub. L. 95–600 title III · 92 Stat. 2763

    1. Inserted · 26 U.S.C. § 103(b)(4)

       Pub. L. 95–600, §§ 332(a), 333(a), in subpar. (G)(i) inserted reference to electric utility, industrial, agricultural, or commercial users

    2. Added · 26 U.S.C. § 103(b)(4)

       Pub. L. 95–600, §§ 332(a), 333(a), in subpar. (G)(i) added subpar. (G)(ii) and provision following subpar. (G)(ii) relating to the local furnishing of electric energy

    Source evidence

    Code amendment note
    Subsec. (b)(4). Pub. L. 95–600, §§ 332(a), 333(a), in subpar. (G)(i) inserted reference to electric utility, industrial, agricultural, or commercial users and added subpar. (G)(ii) and provision following subpar. (G)(ii) relating to the local furnishing of electric energy.

    Enacted provision · exact public law
    TITLE III— PROVISIONS PRIMARILY AFFECTING BUSINESS INCOME TAX Subtitle A— Corporate Rate Reductions SEC. 301. CORPORATE RATE REDUCTIONS. (a) 26 USC 11. In General.— Section 11 (relating to the tax imposed on corporations) is amended to read as follows: “SEC. 11. TAX IMPOSED. “(a) Corporations in General.— A tax is hereby imposed for each taxable year on the taxable income of every corporation. “(b) Amount of Tax.— The amount of the tax imposed by subsection (a) shall be the sum of— “(1) 17 percent of so much of the taxable income as does not exceed $25,000; “(2) 20 percent of so much of the taxable income as exceeds $25,000 but does not exceed $50,000; “(3) 30 percent of so much of the taxable income as exceeds $50,000 but does not exceed $75,000; “(4) 40 percent of so much of the taxable income as exceeds $75,000 but does not exceed $100,000; plus “(5) 46 percent of so much of the taxable income as exceeds $100,000. “(c) Exceptions.— Subsection (a) shall not apply to a corporation subject to a tax imposed by— “(1) 26 USC 594. section 594 (relating to mutual savings banks conducting life insurance business), “(2) 26 USC 801. subchapter L (sec. 801 and following, relating to insurance companies), or “(3) 26 USC 851. subchapter M (sec. 851 and following, relating to regulated investment companies and real estate investment trusts). “(d) Foreign Corporations.— In the case of a foreign corporation, the tax imposed by subsection (a) shall apply only as provided by 26 USC 882. section 882.” (b) Conforming Amendments.— (1) Cross references relating to corporations.— Paragraph 26 USC 12. (7) of section 12 (relating to cross references relating to tax on corporations) is amended to read as follows: “(7) For limitation on benefits of graduated rate schedule provided in section 11(b), see section 1551.” (2) 26 USC 57. Minimum tax.— Subparagraph (B) of section 57(a)(9) (relating to capital gains preference for corporations) is amended by striking out “the sum of the normal tax rate and the surtax rate under section 11” each place it appears and inserting in lieu thereof “the highest rate of tax specified in section 11(b)”. (3) Dividends received on certain preferred stock.— Subparagraph 26 USC 244. (B) of section 244(a)(2) (relating to dividends received on certain preferred stock) is amended by striking out “the sum of the normal tax rate and the surtax rate for the taxable year prescribed by section 11” and inserting in lieu thereof “the highest rate of tax specified in section 11(b)”. (4) Dividends paid on certain preferred stock of public utilities.— Subparagraph (B) of section 247(a)(2) (relating to dividends paid on certain preferred stock of public utilities) is amended by striking out “the sum of the normal tax rate and the surtax rate for the taxable year specified in section 11” and inserting in lieu thereof “the highest rate of tax specified in section 11(b)”. (5) Tax on unrelated business income of charitable, etc., organizations.— (A) Imposition of tax.— Paragraph (1) of section 511(a) 26 USC 511. (relating to charitable, etc., organizations taxable at corporation rates) is amended by striking out “a normal tax and a surtax” and inserting in lieu thereof “a tax”. (B) Organizations subject to tax.— Paragraph (2) of section 511(a) is amended by striking out “taxes” each place it appears and inserting in lieu thereof “tax”. (6) Political organizations.— Paragraph (1) of section 527(b) 26 USC 527. (relating to tax imposed) is amended to read as follows: “(1) In general.— A tax is hereby imposed for each taxable year on the political organization taxable income of every political organization. Such tax shall be computed by multiplying the political organization taxable income by the highest rate of tax specified in section 11(b).” Ante, p. 2820. (7) Homeowners associations.— Paragraph (1) of section 528(b) (relating to tax imposed) is amended to read as follows: 26 USC 528. “(1) In general.— A tax is hereby imposed for each taxable year on the homeowners association taxable income of every homeowners association. Such tax shall be computed by multiplying the homeowners association taxable income by the highest rate of tax specified in section 11(b).” (8) Life insurance companies.— Paragraph (1) of section 802(a) 26 USC 802. (relating to tax imposed) is amended by striking out “a normal tax and surtax” and inserting in lieu thereof “a tax”. (9) Mutual insurance companies.— (A) In general.— Subsection (a) of section 821 (relating to 26 USC 821. tax on mutual insurance companies to which part II applies) is amended to read as follows: “(a) Imposition of Tax.— “(1) In general.— A tax is hereby imposed for each taxable year on the mutual insurance company taxable income of every mutual insurance company (other than a life insurance company and other than a fire, flood, or marine insurance company subject to the tax imposed by section 831). Such tax shall be 26 USC 831. computed by multiplying the mutual insurance company taxable income by the rates provided in section 11(b). “(2) Cap on tax where income is less than $12,000.— The tax imposed by paragraph (1) shall not exceed 34 percent of the amount by which the mutual insurance company taxable income exceeds $6,000.” (B) Small companies.— Paragraph (1) of section 821(c) 26 USC 821. (relating to alternative tax for certain small companies) is amended to read as follows: “(1) Imposition of tax.— “(A) In general.— There is hereby imposed for each taxable year on the income of every mutual insurance company to which this subsection applies a tax (which shall be in lieu of the tax imposed by subsection (a)). Such tax shall be computed by multiplying the taxable investment income by the rates provided in section 11(b). “(B) Cap where income is less than $6,ooo.—The tax imposed by subparagraph (A) shall not exceed 34 percent of the amount by which the taxable investment income exceeds $3,000.” (10) 26 USC 826. Election by mutual insurance company which is a reciprocal.— Paragraph (1) of section 826(c) (relating to exception) is amended to read as follows: “(1) is subject to the tax imposed by section 11;”. (11) Regulated investment companies.— Paragraph (1) of 26 USC 852. section 852(b) (relating to method of taxation of companies and shareholders) is amended to read as follows: “(1) Ante, p. 2820. Imposition of tax on regulated investment companies.— There is hereby imposed for each taxable year upon the investment company taxable income of every regulated investment company a tax computed as provided in section 11, as though the investment company taxable income were the taxable income referred to in section 11.” (12) Real estate investment trusts.— Paragraph (1) of section 26 USC 857. 857(b) (relating to imposition of normal tax and surtax on real estate investment trusts) is amended to read as follows: “(1) Imposition of tax on real estate investment trusts.— There is hereby imposed for each taxable year on the real estate investment trust taxable income of every real estate investment trust a tax computed as provided in section 11, as though the real estate investment trust taxable income were the taxable income referred to in section 11.” (13) Tax on income of foreign corporations connected with united states business.— The heading of subsection (a) of section 26 USC 882. 882 (relating to tax on income of foreign corporations connected with United States business) and the heading of paragraph (1) of such subsection are amended to read as follows: “(a) Imposition of Tax.— “(1) In general.—”. (14) 26 USC 907. Foreign tax credit.— Paragraph (2) of section 907(a) (relating to reduction in amount allowed as foreign tax under 26 USC 901. section 901) is amended to read as follows: “(2) the percentage which is equal to the highest rate of tax specified in section 11(b).” (15) Special deduction for western hemisphere trade corporation.— Subparagraph (B) of section 922(a)(2) (relating to general rule) is amended by striking out “the sum of the normal tax rate and the surtax rate for the taxable year prescribed by section 11” and inserting in lieu thereof “the highest rate of tax specified in section 11(b).” (16) Election by individuals to be subject to tax at corporate rates.— Subsection (c) of section 962 (relating to surtax exemption with respect to individuals subject to tax at corporate rates) is amended to read as follows: “(c) Pro Ration of Each Section 11 Bracket Amount.— For purposes of applying subsection (a)(1), the amount in each taxable income bracket in the tax table in section 11(b) shall not exceed an amount which bears the same ratio to such bracket amount as the amount included in the gross income of the United States shareholder 26 USC 951. under section 951(a) for the taxable year bears to such shareholder’s pro rata share of the earnings and profits for the taxable year of all controlled foreign corporations with respect to which such shareholder includes any amount in gross income under section 951(a).” 26 USC 951. (17) Treatment of recoveries of foreign expropriation losses.— Paragraph (4) of section 1351(d) (relating to adjustment 26 USC 1351. for prior tax benefits) is amended to read as follows: “(4) Substitution of current tax rate.— For purposes of this subsection, the rates of tax specified in section 11(b) for the Ante, p. 2820. p. 2820. taxable year of the recovery shall be treated as having been in effect for all prior taxable years.” (18) Amendments of section 1551.— (A) Subsection (a) of section 1551 (relating to disallowance of surtax exemption and accumulated earnings credit) is amended— (i) by striking out “disallow the surtax exemption (as defined in section 11(d))” and inserting in lieu thereof “disallow the benefits of the rates contained in section 11(b) which are lower than the highest rate specified in such section”, and (ii) by striking out “such exemption or” and inserting in lieu thereof “such benefits or”. (B) The section heading of section 1551 is amended to read as follows: “SEC. 1551. DISALLOWANCE OF THE BENEFITS OF THE GRADUATED CORPORATE RATES AND ACCUMULATED EARNINGS CREDIT.” (C) The table of sections for part I of subchapter B of chapter 6 is amended by striking out the item relating to section 1551 and inserting in lieu thereof the following new item: “Sec. 1551. Disallowance of the benefits of the graduated corporate rates and accumulated earnings credit.” (19) Limitations on certain multiple tax benefits in the case of certain controlled corporations.— (A) In general.— Subsection (a) of section 1561 (relating to 26 USC 1561. limitations on certain multiple tax benefits in the case of certain controlled corporations) is amended— (i) by striking out paragraph (1) and inserting in lieu thereof the following: “(1) amounts in each taxable income bracket in the tax table in section 11(b) which do not aggregate more than the maximum amount in such bracket to which a corporation which is not a component member of a controlled group is entitled,”, (ii) by striking out “amount” each place it appears in the second sentence and inserting in lieu thereof “amounts”, and (iii) by striking out the last sentence. (B) Certain short taxable years.— Paragraph (1) of section 1561(b) (relating to certain short taxable years) is amended to read as follows: “(1) the amount in each taxable income bracket in the tax table insection 11(b),”. (20) Repeal of certain obsolete provisions.— (A) Subsection (c) of section 6154 (defining estimated tax) is 26 USC 6154. amended to read as follows: “(c) Estimated Tax Defined.— For purposes of this title, in the case of a corporation the term ‘estimated tax’ means the excess of— “(1) the amount which the corporation estimates as the amount of the income tax imposed by section 11 or 1201(a), or 26 USC 11, 1201. subchapter L of chapter 1, whichever is applicable, over “(2) the amount which the corporation estimates as the sum of 26 USC 801. the credits against tax provided by part IV of subchapter A of 26 USC 31. chapter 1.” (B) 26 USC 6655. Subsection (e) of section 6655 (defining tax) is amended to read as follows: “(e) Definition of Tax.— For purposes of subsections (b) and (d), the term ‘tax’ means the excess of— “(1) the tax imposed by section 11 or 1201(a), or subchapter L of 26 USC 11, 1201. chapter 1, whichever is applicable, over “(2) the credits against tax provided by part IV of subchapter A 26 USC 801 et seq. of chapter 1.” (c) 26 USC 31 et seq. Effective Date.— The amendments made by this section shall 26 USC 11 note. apply to taxable years beginning after December 31, 1978. Subtitle B— Credits SEC. 311. 10-PERCENT INVESTMENT TAX CREDIT AND $100,000 LIMITATION ON USED PROPERTY MADE PERMANENT. (a) 10-Percent Investment Credit.— Subparagraph (B) of section 26 USC 46. 46(a)(2) (defining regular percentage) is amended to read as follows: “(B) Regular percentage.— For purposes of this paragraph, the regular percentage is 10 percent.” (b) $100,000 Limitation on Used Property.— Paragraph (2) of 26 USC 48 note. section 301(c) of the Tax Reduction Act of 1975 (relating to effective date for increase of dollar limitation on used property) is amended by striking out “, and before January 1, 1981”. (c) Technical Amendments.— (1) 26 USC 46. Subparagraph (A) of section 46(c)(3) (relating to public utility property) is amended by striking out “For the period beginning on January 1, 1981” and inserting in lieu thereof “To the extent that the credit allowed by section 38 with respect to any public utility property is determined at the rate of 7 percent”. (2) 26 USC 46. The first sentence of section 46(0(8) (relating to prohibition of immediate flow through) is amended by striking out “and the Energy Tax Act of 1978” and inserting in lieu thereof “the 92 Stat. 3174. 26 USC 1 note. Ante, p. 2763. Energy Tax Act of 1978, and the Revenue Act of 1978”. SEC. 312. INCREASE IN LIMITATION ON INVESTMENT CREDIT TO 90 PERCENT OF TAX LIABILITY (a) Increase in General Limitation.— Paragraph (3) of section 46(a) (relating to amount of credit) is amended to read as follows: “(3) Limitation based on amount of tax.— Notwithstanding paragraph (1), the credit allowed by section 38 for the taxable year shall not exceed— “(A) so much of the liability for tax for the taxable year as does not exceed $25,000, plus “(B) the following percentage of so much of the liability for tax for the taxable year as exceeds $25,000: “If the taxable year ends in: The percentage is:  1979 60  1980 70  1981 80  1982 or thereafter 90.” (b) Special Rules for Certain Utilities, Railroads, and Airlines.— (1) Utilities.— Paragraph (7) of section 46(a) (relating to alternative 26 USC 46. limitation in the case of certain utilities) is amended to read as follows: “(7) Alternative limitation in the case of certain utilities.— “(A) In general.— If, for the taxable year ending in 1979— “(i) the amount of the qualified investment of the taxpayer which is attributable to public utility property is 25 percent or more of his aggregate qualified investment, and “(ii) the application of this paragraph results in a percentage higher than 60 percent, then subparagraph (B) of paragraph (3) of this subsection shall be applied by substituting for ‘60 percent’ the taxpayer’s applicable percentage for such year. “(B) Applicable percentage.— The applicable percentage for any taxpayer for any taxable year ending in 1979 is— “(i) 50 percent, plus “(ii) that portion of 20 percent which the taxpayer’s amount of qualified investment which is public utility property bears to his aggregate qualified investment. If the proportion referred to in clause (ii) is 75 percent or more, the applicable percentage of the taxpayer for the year shall be 70 percent. “(C) Public utility property defined.— For purposes of this paragraph, the term ‘public utility property’ has the meaning given to such term by the first sentence of subsection (c)(3)(B).” (2) Alternative limitation in the case of certain railroads and airlines.— Subsection (a) of section 46 is amended by striking out paragraphs (8) and (9) and by inserting in lieu thereof the following new paragraph: “(8) Alternative limitation in the case of certain railroads and airlines.— “(A) In general.— If, for a taxable year ending in 1979 or 1980— “(i) the amount of the qualified investment of the taxpayer which is attributable to railroad property or to airline property, as the case may be, is 25 percent or more of his aggregate qualified investment, and “(ii) the application of this paragraph results in a percentage higher than 60 percent (70 percent in the case of a taxable year ending in 1980), then subparagraph (B) of paragraph (3) of this subsection shall be applied by substituting for ‘60 percent’ (‘70 percent’ in the case of a taxable year ending in 1980) the taxpayer’s applicable percentage for such year. “(B) Applicable percentage.— The applicable percentage of any taxpayer for any taxable year under this paragraph is— “(i) 50 percent, plus “(ii) that portion of the tentative percentage for the taxable year which the taxpayer’s amount of qualified investment which is railroad property or airline prop-erty (as the case may be) bears to his aggregate qualified investment. If the proportion referred to in clause (ii) is 75 percent or more, the applicable percentage of the taxpayer for the taxable year shall be 90 percent (80 percent in the case of a taxable year ending in 1980). “(C) Tentative percentage.— For purposes of subparagraph (B), the tentative percentage shall be determined under the following table: “If the taxable year ends in: The tentative percentage is:  1979 40  1980 30 “(D) Railroad property defined.— For purposes of this paragraph, the term ‘railroad property’ means section 38 property used by the taxpayer directly in connection with the trade or business carried on by the taxpayer of operating a railroad (including a railroad switching or terminal company). “(E) Airline property defined.— For purposes of this paragraph, the term ‘airline property’ means section 38 property used by the taxpayer directly in connection with the trade or business carried on by the taxpayer of the furnishing or sale of transportation as a common carrier by air subject to the jurisdiction of the Civil Aeronautics Board or the Federal Aviation Administration.” (c) Repeal of Certain Obsolete Provisions.— (1) Subsections (h), (i), and (j) of section 48 and sections 49 and 26 USC 48, 50. 50 are hereby repealed. (2) Paragraphs (1) and (2) of section 46(f) and subparagraph (B) 26 USC 46. 26 USC 48. 26 USC 50. 26 USC 48. 26 USC 167. of section 48(a)(7) are each amended by striking out “described in section 50”. (3) Subparagraph (A) of section 48(a)(7) is amended by striking out “(other than pretermination property)”. (4) Subsection (i) of section 167 is hereby repealed. (5) The table of sections for subpart B of part IV of subchapter 26 USC 46. 26 USC 49, 50. 26 USC 46 note. A of chapter 1 is amended by striking out the items relating to sections 49 and 50. (e) Effective Date.— The amendments made by this section shall apply to taxable years ending after December 31, 1978. SEC. 313. INVESTMENT CREDIT FOR POLLUTION CONTROL FACILITIES. (a) 26 USC 46. In General.— Paragraph (5) of section 46(c) (relating to applicable percentage in the case of certain pollution control facilities) is amended to read as follows: “(5) Applicable percentage in the case of certain pollution control facilities.— (A) In general.— Notwithstanding paragraph (2), in the case of property— “(i) with respect to which an election under section 26 USC 169. 169 applies, and “(ii) the useful life of which (determined without regard to section 169) is not less than 5 years. 100 percent shall be the applicable percentage for purposes of applying paragraph (1) with respect to so much of the adjusted basis of the property as (after the application of section 169(f)) constitutes the amortizable basis for purposes of section 169. “(B) Special rule where property is financed by industrial development bonds.— To the extent that any property is financed by the proceeds of an industrial development bond (within the meaning of section 103(b)(2)) the interest on 26 USC 103. which is exempt from tax under section 103, subparagraph (A) shall be applied by substituting ‘50 percent’ for ‘100 percent’.” (b) Effective Date.— The amendment made by subsection (a) shall 26 USC 46 note. apply to— (1) property acquired by the taxpayer after December 31, 1978, and (2) property the construction, reconstruction, or erection of which was completed by the taxpayer after December 31, 1978 (but only to the extent of the basis thereof attributable to construction, reconstruction, or erection after such date). SEC. 314. INVESTMENT CREDIT FOR CERTAIN SINGLE PURPOSE AGRICULTURAL OR HORTICULTURAL STRUCTURES. (a) General Rule.— Paragraph (1) of section 48(a) (defining section 26 USC 48. 38 property) is amended by striking out the period at the end of 26 USC 38. subparagraph (C) and inserting in lieu thereof “, or” and by inserting after subparagraph (C) the following new subparagraph: “(D) single purpose agricultural or horticultural structures.” (b) Definition of Single Purpose Agricultural or Horticultural Structures.— Section 48 is amended by redesignating subsection 26 USC 48. (p) as subsection (q) and by inserting after subsection (o) the following new subsection: “(p) Single Purpose Agricultural or Horticultural Structure Defined.— For purposes of this section— “(1) In general.— The term ‘single purpose agricultural or horticultural structure’ means— “(A) a single purpose livestock structure, and “(B) a single purpose horticultural structure. “(2) Single purpose livestock structure.— The term ‘single purpose livestock structure’ means any enclosure or structure specifically designed, constructed, and used— “(A) for housing, raising, and feeding a particular type of livestock and their produce, and “(B) for housing the equipment (including any replacements) necessary for the housing, raising, and feeding referred to in subparagraph (A). “(3) Single purpose horticultural structure.— The term ‘single purpose horticultural structure’ means— “(A) a greenhouse specifically designed, constructed, and used for the commerical production of plants, and “(B) a structure specifically designed, constructed and used for the commercial production of mushrooms. “(4) Structures which include work space.— An enclosure or structure which provides work space shall be treated as a single purpose agricultural or horticultural structure only if such work space is solely for— “(A) the stocking, caring for, or collecting of livestock or plants (as the case may be) or their produce, “(B) the maintenance of the enclosure or structure, and “(C) the maintenance or replacement of the equipment or stock enclosed or housed therein. “(5) 26 USC 47. Special rule for applying section 47.— For purposes of section 47, any single purpose agricultural or horticultural structure shall be treated as meeting the requirements of this subsection for any period during which such structure is held for the use under which it qualified under this subsection. “(6) Livestock.— The term ‘livestock’ includes poultry.” (c) 26 USC 48 note. Effective Date.— The amendments made by subsections (a) and (b) shall apply to taxable years ending after August 15, 1971. SEC. 315. INVESTMENT CREDIT ALLOWED FOR CERTAIN REHABILITATED BUILDINGS. (a) 26 USC 48.26 USC 38. In General.— Paragraph (1) of section 48(a) (defining section 38 property) is amended by striking out the period at the end of subparagraph (D) and by inserting in lieu thereof or” and the following new subparagraph: “(E) in the case of a qualified rehabilitated building, that portion of the basis which is attributable to qualified rehabilitation expenditures (within the meaning of subsection (g))” (b) Qualified Rehabilitated Buildings Defined.— Section 48 is amended by inserting after subsection (f) the following new subsection: “(g) Special Rules for Qualified Rehabilitated Buildings.— For purposes of this subpart— “(1) Qualified rehabilitated building defined.— “(A) In general.— The term ‘qualified rehabilitated building’ means any building (and its structural components)— “(i) which has been rehabilitated, “(ii) which was placed in service before the beginning of the rehabilitation, and “(iii) 75 percent or more of the existing external walls of which are retained in place as external walls in the rehabilitation process. “(B) 20 years must have elapsed since construction or prior rehabilitation.— A building shall not be a qualified rehabilitated building unless there is a period of at least 20 years between— “(i) the date the physical work on this rehabilitation of the building began, and “(ii) the later of— “(I) the date such building was first placed in service, or “(II) the date such building was placed in service in connection with a prior rehabilitation with respect to which a credit was allowed by reason of subsection (a)(1)(E). “(C) Major portion treated as separate building in certain cases.— Where there is a separate rehabilitation of a major portion of a building, such major portion shall be treated as a separate building. “(D) Rehabilitation includes reconstruction.— Rehabilitation includes reconstruction. “(2) Qualified rehabilitation expenditure defined.— “(A) In general.— The term ‘qualified rehabilitation expenditure’ means any amount properly chargeable to capital account which is incurred after October 31, 1978— “(i) for property (or additions or improvements to property) with a useful life of 5 years or more, and “(ii) in connection with the rehabilitation of a qualified rehabilitated building. “(B) Certain expenditures not included.— The term ‘qualified rehabilitation expenditure’ does not include— “(i) Property otherwise section 38 property.— Any 26 USC 38. expenditure for property which constitutes section 38 property (determined without regard to subsection (a)(1)(E). “(ii) Cost of acquisition.— The cost of acquiring any building or any interest therein. “(iii) Enlargements.— Any expenditure attributable to the enlargement of the existing building. “(iv) Certified historic structures.— Any expenditure attributable to the rehabilitation of a certified historic structure (within the meaning of section 191(d)(1)), unless the rehabilitation 26 USC 191. is a certified rehabilitation (within the meaning of section 191(d)(4)). “(3) Property treated as new section 38 property.— Property which is treated as section 38 property by reason of subsection (a)(1)(E) shall be treated as new section 38 property.” (c) Technical Amendment.— Paragraph (8) of section 48(a) (relating 26 USC 48. to amortized property) is amended by striking out “or 188” and inserting in lieu thereof “188, or 191”. (d) Effective Date.— The amendments made by this section shall 26 USC 48 note. apply to taxable years ending after October 31, 1978; except that the amendment made by subsection (c) shall only apply with respect to property placed in service after such date. SEC. 316. TAX TREATMENT OF THE INVESTMENT CREDIT IN THE CASE OF COOPERATIVE ORGANIZATIONS. (a) In General.— Section 46 (relating to amount of credit) is 26 USC 46. amended by adding at the end thereof the following new subsection: “(h) Special Rules for Cooperatives.— In the case of a cooperative organization described in section 1381(a)— 26 USC 1381. “(1) that portion of the credit allowable to the organization under section 38 which the organization cannot use for the taxable year to which the qualified investment is attributable because of the limitation contained in subsection (a)(3) shall be allocated to the patrons of the organization, “(2) section 47 (relating to certain dispositions, etc., of section 26 USC 47. 38 property) shall be applied as if any allocated portion of the credit had been retained by the organization, and “(3) the rules necessary to carry out the purposes of this subsection shall be determined under regulations prescribed by the Secretary.” (b) Conforming Amendments.— (1) Paragraph (1) of section 46(e) (relating to limitations in case 26 USC 46. of certain persons) is amended— (A) by adding “and” at the end of subparagraph (A), (B) by striking out “and” at the end of subparagraph (B), and (C) by striking out subparagraph (C). (2) Paragraph (2) of section 46(e) is amended— (A) by adding “and” at the end of subparagraph (A), (B) by striking out, “, and” at the end of subparagraph (B) and inserting in lieu thereof a period, and (C) by striking out subparagraph (C). (3) 26 USC 1388. Section 1388 (relating to definitions and special rules for cooperative organizations) is amended by adding at the end thereof the following new subsection. “(j) Cross Reference.— “For provisions relating to the apportionment of the investment credit between cooperative organizations and their patrons, see section 46(h).” (c) 26 USC 46 note. Effective Date.— The amendments made by this section shall apply to taxable years ending after October 31, 1978. SEC. 317. TRANSFERS TO CONRAIL NOT TREATED AS DISPOSITIONS FOR PURPOSES OF THE INVESTMENT CREDIT. (a) 26 USC 47.26 USC 38. In General.— Subsection (b) of section 47 (relating to certain disposition, etc., of section 38 property) is amended by striking out “or” at the end of paragraph (1), by striking out the period at the end of paragraph (2) and inserting in lieu thereof “, or”, and by inserting after paragraph (2) the following new paragraph: “(3) 26 USC 374. transfer to which subsection (c) of section 374 (relating to exchanges under the final system plan for ConRail) applies.” (b) 26 USC 47 note. Effective Date.— The amendments made by subsection (a) shall apply to taxable years ending after March 31, 1976. Subtitle C— Targeted Jobs Credit; WIN Credit SEC. 321. TARGETED JOBS CREDIT. (a) In General.— Section 51 (relating to amount of credit) is amended to read as follows: “SEC. 51. AMOUNT OF CREDIT. “(a) Determination of Amount.— The amount of the credit allowable Post, p. 2834. by section 44B for the taxable year shall be the sum of— “(1) 50 percent of the qualified first-year wages for such year, and “(2) 25 percent of the qualified second-year wages for such year. “(b) Qualified Wages Defined.— For purposes of this subpart— “(1) In general.— The term ‘qualified wages’ means the wages paid or incurred by the employer during the taxable year to individuals who are members of a targeted group. “(2) Qualified first-year wages.— The term ‘qualified first-year wages’ means, with respect to any individual, qualified wages attributable to service rendered during the 1-year period beginning with the day the individual begins work for the employer (or, in the case of a vocational rehabilitation referral, the day the individual begins work for the employer on or after the beginning of such individual’s rehabilitation plan). “(3) Qualified second-year wages—The term ‘qualified second-year wages’ means, with respect to any individual, the qualified wages attributable to service rendered during the 1- year period beginning on the day after the last day of the 1-year period with respect to such individual determined under paragraph (2). “(4) Only first $6,000 of wages per year taken into account.— The amount of the qualified first-year wages, and the amount of the qualified second-year wages, which may be taken into account with respect to any individual shall not exceed $6,000 per year. “(c) Wages Defined.— For purposes of this subpart— “(1) In general.— Except as otherwise provided in this subsection and subsection (h)(2), the term ‘wages’ has the meaning given to such term by subsection (b) of section 3306 (determined 26 USC 3306. without regard to any dollar limitation contained in such section). “(2) Exclusion for employers receiving on-the-job training payments.— The term ‘wages’ shall not include any amounts paid by an employer for any period to any individual for whom the employer receives federally funded payments for on-the-job training of such individual for such period. “(3) Individuals for whom win credit claimed.— The term ‘wages’ does not include any amount paid or incurred by the employer to an individual with respect to whom the employer claims credit under section 40. 26 USC 40. “(4) Termination.— The term ‘wages’ shall not include any amount paid or incurred after December 31, 1980. “(d) Members of Targeted Groups.— For purposes of this subpart— “(1) In general.— An individual is a member of a targeted group if such individual is— “(A) a vocational rehabilitation referral, “(B) an economically disadvantaged youth, “(C) an economically disadvantaged Vietnam-era veteran, “(D) an SSI recipient, “(E) a general assistance recipient, or “(F) a youth participating in a cooperative education program, or “(G) an economically disadvantaged ex-convict. “(2) Vocational rehabilitation referral.— The term ‘vocational rehabilitation referral’ means any individual who is certified by the designated local agency as— “(A) having a physical or mental disability which, for such individual, constitutes or results in a substantial handicap to employment, and “(B) having been referred to the employer upon completion of (or while receiving) rehabilitative services pursuant to— “(i) an individualized written rehabilitation plan under a State plan for vocational rehabilitation services approved under the Rehabilitation Act of 1973, or 29 USC 701 note. “(ii) a program of vocational rehabilitation carried out under chapter 31 of title 38, United States Code. “(3) Economically disadvantaged youth.— “(A) In general.— The term ‘economically disadvantaged youth’ means any individual who is certified by the designated local agency as— “(i) meeting the age requirements of subparagraph (B), and “(ii) being a member of an economically disadvantaged family (as determined under paragraph (9)). “(B) Age requirements.— An individual meets the age requirements of this subparagraph if such individual has attained age 18 but not age 25 on the hiring date. “(4) Vietnam veteran who is a member of an economically disadvantaged family.— The term ‘Vietnam veteran who is a member of an economically disadvantaged family’ means any individual who is certified by the designated local agency as— “(A) (i) having served on active day (other than active duty for training) in the Armed Forces of the United States for a period of more than 180 days, any part of which occurred after August 4, 1964, and before May 8, 1975, or “(ii) having been discharged or released from active duty in the Armed Forces of the United States for a service-connected disability if any part of such active duty was performed after August 4, 1964, and before May 8, 1975, “(B) not having any day during the premployment period which was a day of extended active duty in the Armed Forces of the United States, “(C) being a member of an economically disadvantaged family (determined under paragraph (9)), and “(D) not having attained the age of 35 on the hiring date. For purposes of subparagraph (B), the term ‘extended active duty’ means a period of more than 90 days during which the individual was on active duty (other than active duty for training). “(5) SSI recipients.— The term ‘SSI recipient’ means any individual who is certified by the designated local agency as receiving supplemental security income benefits under title XVI 42 USC 1381. 42 USC 1382e. 87 Stat. 155. of the Social Security Act (including supplemental security income benefits of the type described in section 1616 of such Act or section 212 of Public Law 93–66) for any month ending in the preemployment period. “(6) General assistance recipients.— “(A) In general.— The term ‘general assistance recipient’ means any individual who is certified by the designated local agency as receiving assistance under a qualified general assistance program for any period of not less than 30 days ending within the preemployment period. “(B) Qualified general assistance program.— The term ‘qualified general assistance program’ means any program of a State or a political subdivision of a State— “(i) which provides general assistance or similar assistance which— “(I) is based on need, and “(II) consists of money payments, and “(ii) which is designated by the Secretary (after consultation with the Secretary of Health, Education, and Welfare) as meeting the requirements of clause (i). “(7) Economically disadvantaged ex-convict.— The term ‘economically disadvantaged ex-convict’ means any individual who is certified by the designated local agency— “(A) as having been convicted of a felony under any statute of the United States or any State, “(B) as being a member of an economically disadvantaged family (as determined under paragraph (9)), and “(C) as having a hiring date which is not more than 5 years after the last date on which such individual was so convicted or was released from prison. “(8) Youth participating in a qualified cooperative education program.— “(A) In general.— The term ‘youth participating in a qualified cooperative education program’ means any individual who is certified by the school participating in the program as— “(i) having attained age 16 and not having attained age 19, “(ii) not having graduated from a high school or vocational school, and “(iii) being enrolled in and actively pursuing a qualified cooperative education program. “(B) Qualified cooperative education program defined.— The term ‘qualified cooperative education program’ means a program of vocational education for individuals who (through written cooperative arrangements between a qualified school and 1 or more employers) receive instruction (including required academic instruction) by alternation of study and school with a job in any occupational field (but only if these 2 experiences are planned by the school and employer so that each contributes to the student’s education and employability). “(C) Qualified school defined.— The term ‘qualified school’ means— “(i) a specialized high school used exclusively or principally for the provision of vocational education to individuals who are available for study in preparation for entering the labor market, “(ii) the department of a high school exclusively or principally used for providing vocational education to persons who are available for study in preparation for entering the labor market, or “(iii) a technical or vocational school used exclusively or principally for the provision of vocational education to persons who have completed or left high school and who are available for study in preparation for entering the labor market. A school which is not a public school shall be treated as a qualified school only if it is exempt from tax under section 501(a). 26 USC 501. “(D) Individual must be currently pursuing program.— Wages shall be taken into account with respect to a qualified cooperative education program only if the wages are attributable to services performed while the individual meets the requirements of subparagraph (A). “(9) Members of economically disadvantaged families.— An individual is a member of an economically disadvantaged family if the designated local agency determines that such individual was a member of a family which had an income during the 6 months immediately preceding the month in which the hiring date occurs, which, on an annual basis would be less than 70 percent of the Bureau of Labor Statistics lower living standard. “(10) Preemployment period.— The term ‘preemployment period’ means the 60-day period ending on the hiring date. “(11) Hiring date.— The term ‘hiring date’ means the day the individual is hired by the employer. “(12) Designated local agency.— The term ‘designated local agency’ means the agency for any locality designated jointly by the Secretary and the Secretary of Labor to perform certification of employees for employer in that locality. “(e) Qualified First-Year Wages Cannot Exceed 30 Percent of FUTA Wages for All Employees.— The amount of the qualified first-year wages which may be taken into account under subsection (a)(1) for any taxable year shall not exceed 30 percent of the aggregate unemployment insurance wages paid by the employer during the calendar year ending in such taxable year. For purposes of the preceding sentence, the term ‘unemployment insurance wages’ has 26 USC 3306. the meaning given to the term ‘wages’ by section 3306(b). “(f) Remuneration Must Be for Trade or Business Employment.— “(1) In general.— For purposes of this subpart, remuneration paid by an employer to an employee during any year shall be taken into account only if more than one-half of the remuneration so paid is for services performed in a trade or business of the employer. “(2) Special rule for certain determination.— Any determination as to whether paragraph (1), or subparagraph (A) or (B) of subsection (h)(1), applies with respect to any employee for any year shall be made without regard to subsections (a) and (b) of 26 USC 52. section 52. “(3) Year defined.— For purposes of this subsection and subsection (h), the term ‘year’ means the taxable year; except that, for purposes of applying so much of such subsections as relates to subsection (e), such term means the calendar year. “(g) Secretary of Labor To Notify Employers of Availability of Credit.— The Secretary of Labor, in consultation with the Internal Revenue Service, shall take such steps as may be necessary or appropriate to keep employers apprised of the availability of the Infra. credit provided by section 44B. “(h) Special Rules for Agricultural Labor and Railway Labor.— For purposes of this subpart— “(1) Unemployment insurance wages.— “(A) Agricultural labor.— If the services performed by any employee for an employer during more than one-half of any pay period (within the meaning of section 3306(d)) taken into account with respect to any year constitute agricultural labor (within the meaning of section 3306(k)), the term ‘unemployment insurance wages’ means, with respect to the remuneration paid by the employer to such employee for such year, an amount equal to so much of such remuneration 26 USC 3121. as constitutes ‘wages’ within the meaning of section 3121(a), except that the contribution and benefit base for each calendar year shall be deemed to be $6,000. “(B) Railway labor.— If more than one-half of remuneration paid by an employer to an employee during any year is remuneration for service described in section 3306(c)(9), the term ‘unemployment insurance wages’ means, with respect to such employee for such year, an amount equal to so much of the remuneration paid to such employee during such year which would be subject to contributions under section 8(a) of the Railroad Unemployment Insurance Act (45 U.S.C. 358(a)) if the maximum amount subject to such contributions were $500 per month. “(2) Wages.— In any case to which subparagraph (A) or (B) of paragraph (1) applies, the term ‘wages’ means unemployment insurance wages (determined without regard to any dollar limitation).” (b) Jobs Credit Made Elective.— (1) 26 USC 44B. Section 44B (relating to credit for employment of certain new employees) is amended— (A) by striking out “There shall be allowed” in subsection (a) and inserting in lieu thereof “At the election at the taxpayer, there shall be allowed”, and (B) by adding at the end thereof the following new subsection: “(c) Election.— “(1) Time for making election.— An election under subsection (a) for any taxable year may be made (or revoked) at any time before the expiration of the 3-year period beginning on the last date prescribed by law for filing the return for such taxable year (determined without regard to extensions). “(2) Manner of making election.— Any election under subsection (a) (or revocation thereof) shall be made in such manner as the Secretary may be regulations prescribe.” (2) Section 6501 (relating to limitations on assessment and 26 USC 6501. collection) is amended by adding at the end thereof the following new subsection: “(q) Deficiency Attributable to Election Under Section 44B.— The period for assessing a deficiency attributable to any election under section 44B (or any revocation thereof) shall not expire before the date 1 year after the date on which the Secretary is notified of such election (or revocation).” (c) Technical and Conforming Amendments.— (1) Amendments of section 52.— (A) Section 52 (relating to special rules for computing credit for employment of certain new employees) is amended— (i) by striking out subsections (c), (e), (i), and (j), and (ii) by redesignating subsections (d), (f), (g), and (h) as subsections (c), (d), (e), and (f), respectively. (B) Subsections (a) and (b) of section 52 are each amended by striking out “proportionate contribution to the increase in unemployment insurance wages” and inserting in lieu thereof “proportionate share of the wages”. (C) Subsection (e) of section 52 (as redesignated by subparagraph (A)) is amended— (i) by adding “and” at the end of paragraph (1); (ii) by striking out “, and” at the end of paragraph (2) and inserting a period; and (iii) by striking out paragraph (3). (2) Amendments of section 53.— (A) Subsection (a) of section 53 is amended by striking out “the amount of the tax imposed by this chapter for the taxable year, reduced by” and inserting in lieu thereof “90 percent of the excess of the tax imposed by this chapter for the taxable year over the sum of”. (B) Section 53 (relating to limitation based on amount of tax is amended by striking out subsection (b) and by redesignating subsection (c) as subsection (b). (d) Effective Date.— (1) In general.— Except as otherwise provided in this subsection, the amendments made by this section shall apply to amounts paid or incurred after December 31, 1978, in taxable years ending after such date. (2) Special rules for newly targeted groups.— (A) Individual must be hired after September 26, 1978.— In the case of a member of a newly targeted group— (i) such individual shall be taken into account for purposes of the credit allowable by section 44B of the Ante, p. 2834. Internal Revenue Code of 1954 only if such individual is first hired by the employer after September 26, 1978, and (ii) such individual shall be treated for purposes of such credit as having first begun work for the employer not earlier than January 1, 1979. (B) Member of newly targeted group defined.— For purposes of subparagraph (A), an individual is a member of a newly targeted group if— (i) such individual meets the requirements of subparagraph (A), (C), (D), (E), (F), or (G) of section 51(d)(1) of Ante, p. 2830. such Code, and (ii) in the case of an individual meeting the requirements of subparagraph (A) of such section 51(d)(1), a credit was not claimed for such individual by the tax-payer for a taxable year beginning before January 1, (3) Transitional rule.— In the case of a taxable year which begins in 1978 and ends after December 31, 1978, the amount of the credit allowable by section 44B of the Internal Revenue Code 26 USC 53. of 1954 (determined without regard to section 53 of such Code) shall be the sum of— (A) the amount of the credit which would be so allowable without regard to the amendments made by this section, plus (B) the amount which would be so allowable by reason of the amendments made by this section. (4) 26 USC 53 note. Subsection (c)(2).— The amendments made by subsection (u)(2) shall apply to taxable years beginning after December 31, 1978. SEC. 322. WORK INCENTIVE PROGRAM CREDIT CHANGES. (a) 26 USC 50A. Changes in Amount of Credit.— Section 50A(a) (relating to amount of credit) is amended by striking out paragraphs (1) and (2) and inserting in lieu thereof the following: “(1) General rule.— The amount of the credit allowed by 26 USC 40. section 40 for the taxable year shall be equal to the sum of— “(A) 50 percent of the first-year work incentive program expenses, and “(B) 25 percent of the second-year work incentive program expenses. “(2) Limitation based on amount of tax.— Notwithstanding paragraph (1), the amount of the credit allowed by section 40 for the taxable year shall not exceed the liability for tax for the taxable year.”. (b) 26 USC 50A. Changes in Limitations.— Subsection (a) of section 50A is amended by striking out paragraphs (4), (5), and (6) and by inserting immediately after paragraph (3) the following new paragraph: “(4) Limitation with respect to nonbusiness eligible employees.— “(A) In general.— In the case of any work incentive program expenses paid or incurred by the taxpayer during the taxable year to eligible employees whose services are not performed in connection with a trade or business of the taxpayer— “(i) paragraph (1)(A) shall be applied by substituting ‘35 percent’ for ‘50 percent’, “(ii) subparagraph (B) of paragraph (1) shall not apply, and “(iii) the aggregate amount of such work incentive program expenses which may be taken into account under paragraph (1) for such taxable year may not exceed $12,000. “(B) Dependent care credit may not be claimed.— No credit shall be allowed under section 44A with respect to any Ante, p. 2834. amounts paid or incurred by the taxpayer with respect to which the taxpayer is allowed a credit under section 40. 26 USC 40. “(C) Married individuals.— In the case of a husband or wife who files a separate return, subparagraph (A) shall be applied by substituting ‘$6,000’ and ‘$12,000’. The preceding sentence shall not apply if the spouse of the taxpayer has no work incentive program expenses described in such subparagraph for the taxable year.”. (c) Repeal of Provisions Permitting Recovery of Credit.— Section 50A is amended by striking out subsections (c) and (d). 26 USC 50A. (d) Changes in Definitions and Special Rules.— (1) Subsection (a) of section 50B (relating to work incentive 26 USC 50B. program expenses) is amended to read as follows: “(a) Work Incentive Program Expenses.— For purposes of this subpart— “(1) In general.— The term ‘work incentive program expenses’ means the amount of wages paid or incurred by the taxpayer for services rendered by eligible employees. “(2) First-year work incentive program expenses.— The term ‘first-year work incentive program expenses’ means, with respect to any eligible employee, work incentive program expenses attributable to service rendered during the one-year period which begins on the day the eligible employee begins work for the taxpayer. “(3) Second-year work incentive program expenses.— The term ‘second-year work incentive program expenses’ means, with respect to any eligible employee, work incentive program expenses attributable to service rendered during the one-year period which begins on the day after the last day of the one-year period described in paragraph (2). “(4) Limitation on amount of work incentive program expenses.— The amount of the work incentive program expenses taken into account with respect to any eligible employee for any one-year period described in paragraph (2) or (3) (as the case may be) shall not exceed $6,000.” (2) Subsection (c) of section 50B is amended by striking out paragraphs (1) and (4) and by redesignating paragraphs (2), (3), and (5) as paragraphs (1), (2), and (3), respectively. (3) Subsection (e) of section 50B (relating to estates and trusts) is amended— (A) by inserting “and” at the end of paragraph (1), (B) by striking out “, and” at the end of paragraph (2) and inserting in lieu thereof a period, and (C) by striking out paragraph (3). (4) Section 50B is amended by redesignating subsections (g) and (h) as subsections (h) and (i), respectively, and by inserting after subsection (f) the following new subsection: “(g) Special Rules for Controlled Groups.— “(1) Controlled group of corporations.— For purposes of this subpart, all employees of all corporations which are members of the same controlled group of corporations shall be treated as employed by a single employer. In any such case, the credit (if 26 USC 40. any) allowable by section 40 to each such member shall be its proportionate share of the work incentive program expenses giving rise to such credit. For purposes of this subsection, the term ‘controlled group of corporations’ has the meaning given to 26 USC 1563. such term by section 1563(a), except that— “(A) ‘more than 50 percent’ shall be substituted for ‘at least 80 percent’ each place it appears in section 1563(a)(1), and “(B) the determination shall be made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. “(2) Employees of partnerships, proprietorships, etc., which are under common control.— For purposes of this subpart, under regulations prescribed by the Secretary— “(A) all employees of trades or business (whether or not incorporated) which are under common control shall be treated as employed by a single employer, and “(B) 26 USC 40. the credit (if any) allowable by section 40 with respect to each trade or business shall be its proportionate share of the work incentive program expenses giving to such credit. The regulations prescribed under this paragraph shall be based on principles similar to the principles which apply in the case of paragraph (1).” (5) Paragraph (1) of subsection (h) (as redesignated by paragraph 26 USC 50B. (4)) of section 50B (relating to eligible employee) is amended to read as follows: “(1) Eligible Employee.— For purposes of this subpart the term ‘eligible employee’ means an individual— “(A) who has been certified by the Secretary of Labor or by the appropriate agency of State or local government as— “(i) being eligible for financial assistance under part A 42 USC 601. of title IV of the Social Security Act and as having continually received such financial assistance during the 9-day period which immediately precedes the date on which such individual is hired by the employer, or “(ii) having been placed in employment under a work incentive program established under section 432(b)(1) of 42 USC 632. the Social Security Act, “(B) who has been employed by the taxpayer for a period in excess of 30 consecutive days on a substantially full-time basis, “(C) who has not displaced any other individual from employment by the taxpayer, and “(D) who is not a migrant worker. The term ‘eligible employee’ includes an employee of the tax-payer whose services are not performed in connection with a trade or business of the taxpayer.”. (d) Deduction for Wages Reduced by Amount of Credit.— (1) 26 USC 280C.Ante, p. 2834. Section 280C (relating to portion of wages for which credit is claimed under section 44B) is amended— (A) by striking our “section 44b” in the caption and inserting in lieu thereof “section 40 or 44b”, (B) by inserting “(b) Rule for Section 44B Credit.—” immediately before “No deduction”, (C) by striking out “this section shall be applied” and inserting in lieu thereof “this subsection shall be applied” in the second sentence, and (D) by inserting immediately after the caption of such section the following new subsection: “(a) Rule for Section 40 Credit.— No deduction shall be allowed 26 USC 40. for that portion of the work incentive program expenses paid or incurred for the taxable year which is equal to the amount of the credit allowable for the taxable year under section 40 (relating to credit for expenses of work incentive programs) determined without regard to the provisions of section 50A(a)(2) (relating to limitation Ante, p. 2836. based on amount of tax). In the case of a corporation which is a member of a controlled group of corporations (within the meaning of section 50B(g)(1)) or a trade or business which is treated as being Ante, p. 2837. under common control with other trades or businesses (within the meaning of section 50B(g)(2), this subsection shall be applied under rules prescribed by the Secretary similar to the rules applicable under paragraphs (1) and (2) of section 50B(g).”. (e) Effective Date.— (1) In general.— Except as otherwise provided in this subsection, the amendments made by this section shall apply to work incentive program expenses paid or incurred after December 31, 1978, in taxable years ending after such date; except that so much of the amendment made by subsection (a) as affects section 50A(a)(2) of the Internal Revenue Code of 1954 shall apply to taxable years beginning after December 31, 1978. (2) Special rules for certain eligible employees.— (A) Eligible employees hired before September 27, 1978.— In the case of any eligible employee (as defined in section 50B(h)) hired before September 27, 1978, no credit Ante, p. 2837. shall be allowed under section 40 with respect to second-year work incentive program expenses (as defined in section 50B(a)) attributable to service performed by such employee. Ante, p. 2837. (B) Eligible employees hired after September 26, 1978.— In the case of any eligible employee (as defined in section 50B(h)) hired after September 27, 1978, such individual shall be treated for purposes of the credit allowed by section 40 as 26 USC 40. having first begun work for the taxpayer not earlier than January 1, 1979. Subtitle D— Tax-Exempt Bonds PART I— INDUSTRIAL DEVELOPMENT BONDS SEC. 331. INCREASE IN LIMIT ON SMALL ISSUES OF INDUSTRIAL DEVELOPMENT BONDS. (a) General Rule.— Subparagraph (D) of section 103(b)(6) (relating 26 USC 103. to $5,000,000 limit in certain cases) is amended by striking out “$5,000,000” in the heading and in the text and inserting in lieu thereof “$10,000,000”. (b) Treatment of Certain Urban Development Action Grants.— Paragraph (6) of section 103(b) (relating to exemption for certain small issues) is amended by adding at the end thereof the following new subparagraph: “(I) Aggregate amount of capital expenditures where there is urban development action grant.— In the Case of any issue substantially all of the proceeds of which are to be used to provide facilities with respect to which an urban development action grant has been made under section 119 42 USC 5301 note. of the Housing and Community Development Act of 1974, capital expenditures of not to exceed $10,000,000 shall not be taken into account for purposes of applying subparagraph (D)(ii).” (c) 26 USC 103 note. Effective Dates.— (1) The amendments made by subsection (a) shall apply to— (A) obligations issued after December 31, 1978, in taxable years ending after such date, and (B) capital expenditures made after December 31, 1978, with respect to obligations issued before January 1, 1979. (2) The amendment made by subsection (b) shall apply to— (A) obligations issued after September 30, 1979, in taxable years ending after such date, and (B) capital expenditures made after September 30, 1979, with respect to obligations issued after such date. SEC. 332. LOCAL FURNISHING OF ELECTRIC ENERGY. (a) 26 USC 103. In General.— Paragraph (4) of section 103(b) (relating to certain exempt activities) is amended by adding at the end thereof the following new sentence: “For purposes of subparagraph (E), the local furnishing of electric energy from a facility shall include furnishing solely within the area consisting of a city and 1 contiguous county.” (b) 26 USC 103 note. Effective Date.— The amendment made by subsection (a) shall apply to taxable years ending after April 30, 1968, but only with respect to obligations issued after such date. SEC. 333. INDUSTRIAL DEVELOPMENT BONDS FOR WATER FACILITIES. (a) 26 USC 103. In General.— Subparagraph (G) of section 103(b)(4) (relating to industrial development bonds) is amended to read as follows: “(G) facilities for the furnishing of water for any purpose if— “(i) the water is or will be made available to members of the general public (including electric utility, industrial, agricultural, or commercial users), and “(ii) either the facilities are operated by a governmental unit or the rates for the furnishing or sale of the water have been established or approved by a State or political subdivision thereof, by an agency or instrumentality of the United States, or by a public service or public utility commission or other similar body of any State or political subdivision thereof.” (b) 26 USC 103 note. Effective Date.— The amendment made by subsection (a) shall apply to obligations issued after the date of the enactment of this Act in taxable years ending after such date. SEC. 334. ADVANCE REFUNDING OF INDUSTRIAL DEVELOPMENT BONDS FOR CERTAIN PUBLIC WORKS. (a) 26 USC 103. In General.— Subsection (b) of section 103 (relating to industrial development bonds) is amended by redesignating paragraph (7) as paragraph (8) and by inserting after paragraph (6) the following new paragraph: “(7) Advance refunding of qualified public facilities.— “(A) In general.— Paragraph (1) shall not apply to a refunding issue if substantially all the proceeds of the refunded issue were used to provide a qualified public facility. “(B) Qualified public facility defined.— For purposes of subparagraph (A), the term ‘qualified public facility means facilities described in subparagraph (C) or (D) of paragraph (4) which are generally available to the general public.” (b) Obligation May Not Be Held by Substantial User.— Paragraph 26 USC 103. (8) of section 103(b) (as redesignated by subsection (a)) is amended by striking out “and (6)” and inserting in lieu thereof “(6), and (7)”. (c) Effective Date.— The amendments made by this section shall 26 USC 103 note. apply to obligations issued after the date of the enactment of this Act. PART II— OTHER TAX-EXEMPT BOND PROVISIONS SEC. 336. DECLARATORY JUDGMENT PROCEDURE FOR JUDICIAL REVIEW OF DETERMINATIONS RELATING TO GOVERNMENTAL OBLIGATIONS. (a) In General.— Part IV of subchapter C of chapter 76 (relating to declaratory judgments) is amended by adding at the end thereof the following new section: “SEC. 7478. DECLARATORY JUDGMENTS RELATING TO STATUS OF CERTAIN GOVERNMENTAL OBLIGATIONS. “(a) Creation of Remedy.— In a case of actual controversy involving— “(1) a determination by the Secretary whether prospective obligations are described in section 103(a), or 26 USC 103. “(2) a failure by the Secretary to make a determination with respect to any matter referred to in paragraph (1), upon the filing of an appropriate pleading, the Tax Court may make a declaration whether such prospective obligations are described in section 103(a). Any such declaration shall have the force and effect of a decision of the Tax Court and shall be reviewable as such. “(b) Limitations.— “(1) Petitioner.— A pleading may be filed under this section only by the prospective issuer. “(2) Exhaustion of administrative remedies.— The court shall not issue a declaratory judgment or decree under this section in any proceeding unless it determines that the petitioner has exhausted all available administrative remedies within the Internal Revenue Service. A petitioner shall be deemed to have exhausted its administrative remedies with respect to a failure of the Secretary to make a determination with respect to an issue of obligations at the expiration of 180 days after the date on which the request for such determination was made if the petitioner has taken, in a timely manner, all reasonable steps to secure such determination. “(3) Time for bringing action.— If the Secretary sends by certified or registered mail notice of his determination as described in subsection (a)(1) to the petitioner, no proceeding may be initiated under this section unless the pleading is filed before the 91st day after the date of such mailing. ’ (b) Authority of Tax Court To Assign Proceedings to Commissioners.— (1) In general.— Subsection (c) of section 7456 (relating to 26 USC 7456. commissioners of the Tax Court) is amended by adding at the end thereof the following new sentence: “The chief judge may assign 26 USC 7428, 7476, 7477, 7478. proceedings under sections 7428,7476,7477, and 7478 to be heard by the commissioners of the court, and the court may authorize a commissioner to make the decision of the court with respect to such proceedings, subject to such conditions and review as the court may by rule provide.” (2) Technical amendments.— (A) 26 USC 7476. Section 7476 is amended by striking out subsection (c) and by redesignating subsections (d) and (e) and subsections (c) and (d), respectively. (B) 26 USC 7477. Section 7477 is amended by striking out subsection (c). (c) Technical and Conforming Amendments.— (1) 26 USC 7482. Paragraph (1) of section 7482(b) (relating to venue for appeal of decision of Tax Court) is amended— (A) by striking out “provided in paragraph (2)” in paragraph (1) and inserting in lieu thereof “provided in paragraphs (2) and (3)”, and (B) by adding at the end thereof the following new paragraph: “(3) Declaratory judgment actions relating to status of certain governmental obligations.— In the case of any decision 26 USC 7478. of the Tax Court in a proceeding under section 7478, such decision may only be reviewed by the Court of Appeals for the District of Columbia.” (2) The table of sections for part IV of subchapter C of chapter 76 26 USC 7476. is amended by adding at the end thereof the following new item: “Sec. 7478. Declaratory judgments relating to status of certain governmental obligations.” (d) 26 USC 7478 note. Effective Date.— The amendments made by this section shall apply to requests for determinations made after December 31, 1978. SEC. 337. DISPOSITION OF AMOUNTS GENERATED BY ADVANCE REFUNDING OF CERTAIN GOVERNMENTAL OBLIGATIONS. (a) 26 USC 103 note. General Rule.— The payment to a charitable organization or a refund profit held in a trust fund or escrow arrangement, or held by an underwriter or other person under a qualified agreement in accordance with that agreement— (1) shall not cause the refunding obligations out of which the refund profit arose to be treated as arbitrage bonds (within the 26 USC 103. meaning of section 103(c) of the Internal Revenue Code of 1954) and (2) may be paid without penalty imposed on the issuer of such obligations. (b) Rule for Governments Which Have Already Paid Arbitrage Profits to the United States.— In the case of a State or local government which, before January 1, 1977— (1) requested in writing a rule by the Internal Revenue Service with respect to the tax consequences of paying refund profit to charitable organizations, (2) failed to receive a favorable ruling and did not pay the refund profit to a charitable organization, and which accounted to the United States for refund profit by direct payment to the United States, or by the purchase of low-interest United States obligations, the Secretary of the Treasury shall pay, out of any amounts in the Treasury not otherwise appropriated, an amount equal to the refund profit for which the State or local government has accounted to the United States. Amounts paid to a State or local government under this subsection shall be distributed to such charitable organizations within 90 days after the date on which the payment is received by the State or local government in the same manner as if the refund profit had not been paid to the United States and met the requirements of subsection (a). (c) Definitions.— For purposes of this section— (1) Refund profit.— The term “refund profit” means interest, profit, or other amounts generated by, or arising out of, the advance refunding, before September 24, 1976, of an obligation of a State or local government described in section 103 of such Code. 26 USC 103. (2) Charitable organization.— The term “charitable organization” means an organization described in section 501(c)(3) 26 USC 501. of such Code and exempt from taxation under section 501(a) of such Code other than an organization described in section 509(a) of 26 USC 509. such Code. (3) Qualified agreement.— The term “qualified agreement” means an agreement (whether or not enforceable) which provides for, or contemplates, the payment of refund profit to one or more charitable organizations. (4) Low-interest united states obligations.— The term “low-interest United States obligations” means United States obligations which bear an interest rate lower than the highest rate of interest borne by public debt securities generally available for purchase at the time such obligations were purchased. Subtitle E— Small Business Provisions PART I— PROVISIONS RELATING TO SUBCHAPTER S SEC. 341. SUBCHAPTER S CORPORATIONS ALLOWED 15 SHAREHOLDERS. (a) General Rule.— Paragraph (1) of section 1371(a) (defining small 26 USC 1371. business corporation) is amended to read as follows: “(1) have more than 15 shareholders;”. (b) Technical Amendments.— (1) Section 1371 is amended by striking out subsection (e) and by redesignating subsection (f) as subsection (e). (2) Paragraph (2) of section 1371(a) is amended by striking out “subsection (r)” and inserting in lieu thereof “subsection (e)”. SEC. 342. PERMITTED SHAREHOLDERS OF SUBCHAPTER S CORPORATIONS. (a) Husband and Wife Treated as One Individual.— Subsection (c) of section 1371 (relating to stock owned by husband and wife) is amended to read as follows: “(c) Stock Owned by Husband and Wife.— For purposes of subsection (a)(1), a husband and wife (and their estates) shall be treated as one shareholder.” (b) Grantor of Grantor Trust Treated as the Shareholder.— Subsection (e) of section 1371 (as redesignated by section 331(b)(1) of this Act) is amended by inserting after the first sentence the following new sentence: “In the case of a trust described in paragraph (1), the grantor shall be treated as the shareholder.” SEC. 343. EXTENSION OF PERIOD FOR MAKING SUBCHAPTER S ELECTIONS. (a) General Rule.— Subsection (c) of section 1372 (relating to when 26 USC 1372. and how subchapter S election may be made) is amended to read as follows: “(c) When and How Made.— “(1) In general.— An election under subsection (a) may be made by a small business corporation for any taxable year— “(A) at any time during the preceding taxable year, or “(B) at any time during the first 75 days of the taxable year. “(2) Treatment of certain late elections.— If— “(A) a small business corporation makes an election under subsection (a) for any taxable year, and “(B) such election is made after the first 75 days of the taxable year and on or before the last day of such taxable year, then such election shall be treated as made for the following taxable year. “(3) Manner of making election.— An election under subsection (a) shall be made in such manner as the Secretary shall prescribe by regulations.” (b) Technical Amendments.— (1) 26 USC 1372. The second sentence of section 1372(a) is amended to read as follows: “Such election shall be valid only if all persons who are shareholders in such corporation on the day on which such election is made consent to such election.” (2) Subparagraph (A) of section 1372(e)(1) is amended to read as follows: “(A) An election under subsection (a) made by a small business corporation shall terminate if any person who was not a shareholder in such corporation on the day on which the election is made becomes a shareholder in such corporation and affirmatively refuses (in such manner as the Secretary may by regulations prescribe) to consent to such election on or before the 60th day after the day on which he acquires the stock.” (3) Subparagraph (C) of section 1372(e)(1) is amended by inserting “(or, if later, the first taxable year for which such election would otherwise have been effective)” after “in the corporation”. SEC. 344. EFFECTIVE DATE. 26 USC 1371 note. The amendments made by this part shall apply to taxable years beginning after December 31, 1978. PART II— OTHER PROVISIONS SEC. 345. SMALL BUSINESS CORPORATION STOCK. (a) Increase to $1,000,000 Amount of Stock Potentially Subject to Ordinary Loss Treatment; Removal of Equity Capital Test.— 26 USC 1244. Subsection (c) of section 1244 (relating to losses on small business stock) is amended by striking out paragraph (2) and inserting in lieu thereof the following: “(3) Small business corporation defined.— “(A) In general.— For purposes of this section, a corporation shall be treated as a small business corporation if the aggregate amount of money and other property received by the corporation for stock, as a contribution to capital, and as paid-in surplus, does not exceed $1,000,000. The determination under the preceding sentence shall be made as of the time of the issuance of the stock in question but shall include amounts received for such stock and for all stock theretofore issued. “(B) Amount taken into account with respect to property.— For purposes of subparagraph (A), the amount taken into account with respect to any property other than money shall be the amount equal to the adjusted basis to the corporation of such property for determining gain, reduced by any liability to which the property was subject or which was assumed by the corporation. The determination under the preceding sentence shall be made as of the time the property was received by the corporation.” (b) Increase in Maximum Amount Treated as Ordinary Loss for Any Taxable Year.— Subsection (b) of section 1244 is amended— 26 USC 1244. (1) by striking out “$25,000” in paragraph (1) and inserting in lieu thereof“$50,000”, and (2) by striking out “$50,000” in paragraph (2) and inserting in lieu thereof “$100,000”. (c) Removal of Requirement That Stock Issuance Be Pursuant to Plan.— Subsection (c) of section 1244 (defining section 1244 stock) is amended by striking out paragraph (1) and inserting in lieu thereof the following new paragraphs: “(1) In general.— For purposes of this section, the term ‘section 1244 stock’ means common stock in a domestic corporation if— “(A) at the time such stock is issued, such corporation was a small business corporation, “(B) such stock was issued by such corporation for money or other property (other than stock and securities), and “(C) such corporation, during the period of its 5 most recent taxable years ending before the date the loss on such stock was sustained, derived more than 50 percent of its aggregate gross receipts from sources other than royalties, rents, dividends, interests, annuities, and sales or exchanges of stocks or securities. “(2) Rules for application of paragraph (i)(c).— “(A) Period taken into account with respect to new corporations.— For purposes of paragraph (1)(C), if the corporation has not been in existence for 5 taxable years ending before the date the loss on the stock was sustained, there shall be substituted for such 5-year period— “(i) the period of the corporation’s taxable years ending before such date, or “(ii) if the corporation has not been in existence for 1 taxable year ending before such date, the period such corporation has been in existence before such date. “(B) Gross receipts from sales of securities.— For purposes of paragraph (1)(C), gross receipts from the sales or exchanges of stock or securities shall be taken into account only to the extent of gains therefrom. 26 USC 172, 243, 244, 245. 26 USC 1244. “(C) Nonapplication where deductions exceed gross income.— Paragraph (1)(C) shall not apply with respect to any corporation if, for the period taken into account for purposes of paragraph (1)(C), the amount of the deductions allowed by this chapter (other than by sections 172, 243, 244, and 245) exceeds the amount of gross income.” (d) Technical Amendments.— Paragraph (2) of section 1244(d) (relating to special rules) is amended— (1) by striking out “subparagraph (E)” and inserting in lieu thereof “subparagraph (C)”, and (2) by striking out “paragraphs (1)(E) and (2)(A)” and inserting in lieu thereof “paragraphs (1)(C) and (3)(A)”. (e) Effective Date.— The amendments made by this section shall 26 USC 1244 note. apply to stock issued after the date of the enactment of this Act. Subtitle F— Accounting Provisions SEC. 351. TREATMENT OF CERTAIN CLOSELY HELD FARM CORPORATIONS FOR PURPOSES OF RULE REQUIRING ACCRUAL ACCOUNTING. (a) 26 USC 447. General Rule.— Section 447 (relating to method of accounting for corporations engaged in farming) is amended by adding at the end thereof the following new subsection: “(h) Exception for Certain Closely Held Corporations.— “(1) In general.— This section shall not apply to any corporation if, on October 4, 1976, and at all times thereafter— “(A) members of 2 families (within the meaning of subsection (d)(1)) have owned (directly or through the application of subsection (d)) at least 65 percent of the total combined voting power of all classes of stock of such corporation entitled to vote, and at least 65 percent of the total number of shares of all other classes of stock of such corporation; or “(B) (i) members of 3 families (within the meaning of subsection (d)(1)) have owned (directly or through the application of subsection (d)) at least 50 percent of the total combined voting power of all classes of stock of such corporation entitled to vote, and at least 50 percent of the total number of shares of all other classes of stock of such corporation; and “(ii) substantially all of the stock of such corporation which is not so owned (directly or through the application of subsection (d)) by members of such 3 families is owned directly— “(I) by employees of the corporation or members of 26 USC 267. their families (within the meaning of section 267(c)(4)), or “(II) by a trust for the benefit of the employees of such 26 USC 401. 26 USC 501. corporation which is described in section 401(a) and which is exempt from taxation under section 501(a). “(2) Stock held by employees, etc.— For purposes of this subsection, stock which— “(A) is owned directly by employes of the corporation or members of their families (within the meaning of section 26 USC 267. 267(c)(4)) or by a trust described in paragraph (1)(B)(ii)(II), and “(B) was acquired on or after October 4, 1976, from the corporation or from a member of a family which, on October 4, 1976, was described in subparagraph (A) or (B)(i) of paragraph (1), shall be treated as owned by a member of a family which, on October 4, 1976, was described in subparagraph (A) or (B)(i) of paragraph (1). “(3) Corporation must be engaged in farming.— This subsection shall apply only in the case of a corporation which was, on October 4, 1976, and at all times thereafter, engaged in the trade or business of farming.” (b) 26 USC 447 note. Effective Date.— The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1977. SEC. 352. ACCOUNTING FOR GROWING CROPS. (a) 26 USC 447 note. Application of Section.— This section shall apply to a taxpayer who— (1) is a farmer, nurseryman, or florist, (2) is on an accrual method of accounting, and (3) is not required by section 447 of the Internal Revenue Code of 1954 to capitalize preproductive period expenses. 26 USC 447. (b) Taxpayer May Not Be Required To Inventory Growing Crops.— A taxpayer to whom this section applies may not be required to inventory growing crops for any taxable year beginning after December 31, 1977. (c) Taxpayer May Elect To Change to Cash Method.— A tax-payer to whom this section applies may, for any taxable year beginning after December 31, 1977 and before January 1, 1981, change to the cash receipts and disbursements method of accounting with respect to any trade or business in which the principal activity is growing crops. (d) Section 481 of Code To Apply.— Any change in the way in 26 USC 481. which a taxpayer accounts for the costs of growing crops resulting from the application of subsection (b) or (c)— (1) shall not require the consent of the Secretary of the Treasury or his delegate, and (2) shall be treated, for purposes of section 481 of the Internal Revenue Code of 1954, as a change in the method of accounting initiated by the taxpayer. (e) Growing Crops.— For purposes of this section, the term “growing crops” does not include trees grown for lumber, pulp, or other nonlife purposes. SEC. 353. TREATMENT OF CERTAIN FARMS FOR PURPOSES OF RULE REQUIRING ACCRUAL ACCOUNTING. (a) General Rule.— Section 447 (relating to method of accounting 26 USC 447. for corporations engaged in farming) is amended by striking out “nursery” in subsection (a) thereof and adding in lieu thereof “nursery or sod farm”. (b) Effective Date.— The amendment made by subsection (a) shall 26 USC 447 note. apply to taxable years beginning after December 31, 1976. Subtitle G— Other Business Provisions SEC. 361. DISALLOWANCE OF CERTAIN DEDUCTIONS FOR YACHTS, HUNTING LODGES, ETC. (a) Extension of Rule Disallowing Deductions for Facilities.— So much of paragraph (1) of section 274(a) (relating to disallowance of 26 USC 274. certain entertainment, etc., expenses) as follows subparagraph (A) is amended to read as follows: “(B) Facility.— With respect to a facility used in connection with an activity referred to in subparagraph (A). In the case of an item described in subparagraph (A), the deduction shall in no event exceed the portion of such item which meets the requirements of subparagraph (A).”. (b) Country Clubs.— Paragraph (2) of section 274(2) (relating to special rules) is amended by adding at the end thereof the following new subparagraph: “(C) In the case of a country club, paragraph (1)(B) shall apply unless the taxpayer establishes that the facility was used primarily for the furtherance of the taxpayer’s trade or business and that the item was directly related to the active conduct of such trade or business.” (c) Effective Date.— The amendments made by this section shall 26 USC 274 note. apply to items paid or incurred after December 31, 1978, in taxable years ending after such date. SEC. 362. DEFICIENCY DIVIDEND PROCEDURE FOR REGULATED INVESTMENT COMPANIES. (a) General Rule.— Subchapter M of chapter 1 (relating to regulated investment companies and real estate investment trusts) is amended by adding at the end thereof the following new part: “PART III— PROVISIONS WHICH APPLY TO BOTH REGULATED INVESTMENT COMPANIES AND REAL ESTATE INVESTMENT TRUSTS “Sec. 860. Deduction for deficiency dividends. “SEC. 860. DEDUCTION FOR DEFICIENCY DIVIDENDS. “(a) General Rule.— If a determination with respect to any qualified investment entity results in any adjustment for any taxable year, a deduction shall be allowed to such entity for the amount of deficiency dividends for purposes of determining the deduction for 26 USC 852, 857. dividends paid (for purposes of section 852 or 857, whichever applies) for such year. “(b) Qualified Investment Entity Defined.— For purposes of this section, the term ‘qualified investment entity’ means— “(1) a regulated investment company, and “(2) a real estate investment trust. “(c) Rules for Application of Section.— “(1) Interest and additions to tax determined with respect to the amount of deficiency dividend deduction allowed.— For purposes of determining interest, additions to tax, and additional amounts— “(A) the tax imposed by this chapter (after taking into account the deduction allowed by subsection (a)) on the qualified investment entity for the taxable year with respect to which the determination is made shall be deemed to be increased by an amount equal to the deduction allowed by subsection (a) with respect to such taxable year, “(B) the last date prescribed for payment of such increase in tax shall be deemed to have been the last date prescribed for the payment of tax (determined in the manner provided 26 USC 6601. by section 6601(b)) for the taxable year with respect to which the determination is made, and “(C) such increase in tax shall be deemed to be paid as of the date the claim for the deficiency dividend deduction is filed. “(2) Credit or refund.— If the allowance of a deficiency dividend deduction results in an overpayment of tax for any taxable year, credit or refund with respect to such overpayment shall be made as if on the date of the determination 2 years remained before the expiration of the period of limitations on the filing of claim for renmd for the taxable year to which the overpayment relates. “(d) Adjustment.— For purposes of this section— “(1) Adjustment in the case of regulated investment company.— In the case of any regulated investment company, the term ‘adjustment’ means— “(A) any increase in the investment company taxable income of the regulated investment company (determined without regard to the deduction for dividends paid (as 26 USC 561. defined in section 561)), “(B) any increase in the amount of the excess described in 26 USC 852. section 852(b)(3)(A) (relating to the excess of the net capital gain over the deduction for capital gain dividends paid), and “(C) any decrease in the deduction for dividends paid (as defined in section 561) determined without regard to capital 26 USC 561. gains dividends. “(2) Adjustment in the case of real estate investment trust.— In the case of any real estate investment trust, the term ‘adjustment’ means— “(A) any increase in the sum of— “(i) the real estate investment trust taxable income of the real estate investment trust (determined without regard to the deduction for dividends paid (as defined in section 561) and by excluding any net capital gain), and “(ii) the excess of the net income from foreclosure property (as defined in section 857(b)(4)(B)) over the tax 26 USC 857. on such income imposed by section 857(b)(4)(A), “(B) any increase in the amount of the excess described in section 857(b)(3)(A)(ii) (relating to the excess of the net capital gain over the deduction for capital gains dividends paid), and “(C) any decrease in the deduction for dividends paid (as defined in section 561) determined without regard to capital 26 USC 561. gains dividends. “(e) Determination.— For purposes of this section, the term ‘determination’ means— “(1) a decision by the Tax Court, or a judgment, decree, or other order by any court of competent jurisdiction, which has become final; “(2) a closing agreement made under section 7121; or 26 USC 7121. “(3) under regulations prescribed by the Secretary, an agreement signed by the Secretary and by, or on behalf of, the qualified investment entity relating to the liability of such entity for tax. “(f) Efficiency Dividends.— “(1) Definition.— For purposes of this section, the term ‘deficiency dividends’ means a distribution of property made by the qualified investment entity on or after the date of the determination and before filing claim under subsection (g), which would have been includible in the computation of the deduction for dividends paid under section 561 for the taxable year with respect to which the liability for tax resulting from the determination exists if distributed during such taxable year. No distribution of property shall be considered as deficiency dividends for purposes of subsection (a) unless distributed within 90 days after the determination, and unless a claim for a deficiency dividend deduction with respect to such distribution is filed pursuant to subsection (g). “(2) Limitations.— “(A) Ordinary dividends.— The amount of deficiency dividends (other than deficiency dividends qualifying as capital gain dividends) paid by a qualified investment entity for the taxable year with respect to which the liability for tax resulting from the determination exists shall not exceed the sum of— “(i) the excess of the amount of increase referred to in subparagraph (A) of paragraph (1) or (2) of subsection (d) (whichever applies) over the amount of any increase in the deduction for dividends paid computed without regard to capital gain dividends) for such taxable year which results from such determination, and “(ii) the amount of decreased referred to in subparagraph (C) of paragraph (1) or (2) of subsection (d) (whichever applies). “(B) Capital gain dividends.— The amount of deficiency dividends qualifying as capital gain dividends paid by a qualified investment entity for the taxable year with respect to which the liability for tax resulting from the determination exists shall not exceed the amount by which (i) the increase referred to in subparagraph (B) of paragraph (1) or (2) of subsection (d) (whichever applies), exceeds (ii) the amount of any dividends paid during such taxable year which are designated as capital gain dividends after such determination. “(3) Effect on dividends paid deduction.— “(A) For taxable year in which paid.— Deficiency dividends paid in any taxable year shall not be included in the amount of dividends paid for such year for purposes of computing the dividends paid deduction for such year. “(B) For prior taxable year.— Deficiency dividends paid in any taxable year shall not be allowed for purposes of 26 USC 855, 858. section 855(a) or 858(a) in the computation of the dividends paid deduction for the taxable year preceding the taxable year in which paid. “(g) Claim Required.— No deficiency dividend deduction shall be allowed under subsection (a) unless (under regulations prescribed by the Secretary) claim therefore is filed within 120 days after the date of the determination. “(h) Suspension of Statute of Limitations and Stay of Collection.— “(1) Suspension of running of statute.— If the qualified investment entity files a claim as provided in subsection (g), the 26 USC 6501. running of the statute of limitations provided in section 6501 on the maldng of assessments, and the bringing of distraint or a proceeding in court for collection, in respect of the deficiency established by a determination under this section, and all interest, additions to tax, additional amounts, or assessable penalties in respect thereof, shall be suspended for a period of 2 years after the date of the determination. “(2) Stay of collection.— In the case of any deficiency established by a determination under this section— “(A) the collection of the deficiency, and all interest, additions to tax, additional amounts, and assessable penalties in respect thereof, shall, except in cases of jeopardy, be stayed until the expiration of 120 days after the date of the determination, and “(B) if claim for a deficiency dividend deduction is filed under subsection (g), the collection of such part of the deficiency as is not reduced by the deduction for deficiency dividends provided in subsection (a) shall be stayed until the date the claim is disallowed (in whole or in part), and if disallowed in part collection shall be made only with respect to the part disallowed. No distraint or proceeding in court shall be begun for the collection of an amount the collection of which is stayed under subparagraph (A) or (B) during the period for which the collection of such amount is stayed. “(i) Deduction Denied in Case of Fraud.— No deficiency dividend deduction shall be allowed under subsection (a) if the determination contains a finding that any part of any deficiency attributable to an adjustment with respect to the taxable year is due to fraud with intent to evade tax or to willfull failure to file an income tax return within the time prescribed by law or prescribed by the Secretary in pursuance of law. “(j) Penalty.— “For assessable penalty with respect to liability for tax of a qualified investment entity which is allowed a deduction under subsection (a), see section 6697.” (b) Assessable Penalities.— Section 6697 (relating to assessable penalties with respect to liability for tax of real estate investment trusts) is amended to read as follows: “SEC. 6697. ASSESSABLE PENALTIES WITH RESPECT TO LIABILITY FOR TAX OF QUALIFIED INVESTMENT ENTITIES. “(a) Civil Penalty.— In addition to any other penalty provided by law, any qualified investment entity (as defined in section 860(b)) whose tax liability for any taxable year is deemed to be increased pursuant to section 860(c)(1)(A) (relating to interest and additions to 26 USC 860. tax determined with respect to the amount of the deduction for deficiency dividends allowed) shall pay a penalty in an amount equal to the amount of interest (for which such entity is liable) which is attributable solely to such increase. “(b) 50-Percent Limitation.— The penalty payable under this section with respect to any determination shall not exceed one-half of the amount of the deduction allowed by section 860(a) for such taxable year. “(c) Deficiency Procedures Not To Apply.— Subchapter B of chapter 63 (relating to deficiency procedure for income, estate, gift, 26 USC 6211. and certain excise taxes) shall not apply in respect of the assessment or collection of any penalty imposed by subsection (a).” (c) Late Designation and Payment of Capital Gain Dividend.— The first sentence of subparagraph (C) of section 852(b)(3) (defining capital gain dividend) is amended by inserting before the period at the end thereof the following: except that, if there is an increase in the excess described in subparagraph (A) of this paragraph for such year which results from a determination (as defined in section 860(e)), 26 USC 860. such designation may be made with respect to such increase at any time before the expiration of 120 days after the date of such determination”. (d) Technical and Conforming Amendments.— (1) Paragraph (3) of section 316(b) (relating to deficiency 26 USC 316. dividend distributions by a real estate investment trust) is amended— (A) by striking out “section 859(d)” and inserting in lieu thereof “section 860(f)”, and (B) by striking out “real estate investment trust” in the paragraph heading and inserting in lieu thereof “regulated investment company or real estate investment trust”. (2) Paragraph (25) of section 381(c) is amended— 26 USC 381. (A) by striking out “section 859(d)” and inserting in lieu thereof “section 860(f)”, (B) by striking out “section 859” and inserting in lieu thereof “section 860”, and (C) by striking out “real estate investment trust” in the paragraph heading and inserting in lieu thereof “regulated investment company or real estate investment trust”. (3) Subparagraph (C) of section 857(b)(3) is amended by striking 26 USC 857. out “section 859(c)” and inserting in lieu thereof “section 860(e)”. (4) 26 USC 6422, 6515. Sections 6422(14) and 6515(5) are each amended— (A) by inserting “regulated investment company or” before “real estate investment trust”, and (B) by striking out “859” and inserting in lieu thereof “860”, (5) 26 USC 6503. Paragraph (5) of section 6503(i) is amended to read as follows: “(5) Deficiency dividends in the case of a regulated investment company or a real estate investment trust, see section 860(h).” (6) Part II of subchapter M of chapter 1 is amended by striking out 26 USC 859, 860. section 859 and redesignating section 860 as section 859. (7) The table of sections for part II of subchapter M of chapter 1 is amended by striking out the items relating to sections 859 and 860 and inserting in lieu thereof the following: “Sec. 859. Adoption of annual accounting period.” (8) The table of parts for subchapter M of chapter 1 is amended by adding at the end thereof the following new item: “Part III. Provisions which apply to both regulated investment companies and real estate investment trusts.” (9) The table of sections for subchapter B of chapter 68 is 26 USC 6697. amended by striking out the item relating to section 6697 and inserting in lieu thereof the following: “Sec. 6697. Assessable penalties with respect to liability for tax of qualified investment entities.” (e) 26 USC 860 note. Effective Date.— The amendments made by this section shall apply with respect to determinations (as defined in section 860(d) of 26 USC 860. the Internal Revenue Code of 1954) after the date of the enactment of this Act. SEC. 363. REAL ESTATE INVESTMENT TRUST PROVISIONS. (a) Limitations.— (1) 26 USC 856. Section 856(c)(2) (relating to limitations) is amended by striking out the word “and” at the end of subparagraph (F), by inserting the word “and” at the end of subparagraph (G), and by adding the following new subparagraph at the end thereof: “(H) gain from the sale or other disposition of a real estate asset which is not a prohibited transaction solely by reason 26 USC 857. 26 USC 856. of section 857(b)(6);”. (2) Section 856(c)(3) (relating to limitations) is amended by striking out the word “and” at the end of subparagraph (F), by inserting the word “and” at the end of subparagraph (G), and by adding the following new subparagraph at the end thereof: “(H) gain from the sale or other disposition of a real estate asset which is not a prohibited transaction solely by reason of section 857(b)(6);”. (3) 26 USC 856. Subparagraph (B) of section 856(c)(4) (relating to limitations) is amended to read as follows: “(B) property in a transaction which is a prohibited transaction; ana”. (b) 26 USC 857. Prohibited Transactions.— Paragraph (6) of section 857(b) (relating to income from prohibited transactions) is amended by adding the following subparagraphs at the end thereof: “(C) Certain sales not to constitute prohibited transactions.— For purposes of this part, the term ‘prohibited transaction’ does not include a sale of property which is a real estate asset as defined in section 856(c)(6)(B) if— “(i) the trust has held the property for not less than 4 years; “(ii) aggregate expenditures made by the trust, or any partner of the trust, during the 4-year period preceding the date of sale which are includible in the basis of the property do not exceed 20 percent of the net selling price of the property; “(iii) during the taxable year the trust does not make more than 5 sales of property (other than foreclosure property); and “(iv) in the case of property, which consists of land or improvements, not acquired through foreclosure (or deed in lieu of foreclosure), or lease termination, the trust has held the property for not less than 4 years for production of rental income. “(D) Special rules.— In applying subparagraph (C) the following special rules apply: “(i) The holding period of property acquired through foreclosure (or deed in lieu of foreclosure), or termination of the lease, includes the period for which the trust held the loan which such property secured, or the lease of such property. “(ii) In the case of a property acquired through foreclosure (or deed in lieu of foreclosure), or termination of a lease, expenditures made by, or for the account of, the mortgagor or lessee after default became imminent will be regarded as made by the trust. “(iii) Expenditures (including expenditures regarded as made directly by the trust, or indirectly by any partner of the trust, under clause (ii)) will not be taken into account if they relate to foreclosure property and did not cause the property to lose its status as foreclosure property. “(iv) Expenditures will not be taken into account if they are made solely to comply with standards or requirements of any government or governmental authority having relevant jurisdiction, or if they are made to restore the property as a result of losses arising from fire, storm or other casualty. “(v) The term ‘expenditures’ does not include advances on a loan made by the trust. “(vi) The sale of more than one property to one buyer as part of one transaction constitutes one sale. “(vii) The term ‘sale’ does not include any transaction in which the net selling price is less than $10,000. “(E) Sales not meeting requirements.— In determining whether or not any sale constitutes a ‘prohibited transaction’ for purposes of subparagraph (A), the fact that such sale does not meet the requirements of subparagraph (C) of this paragraph shall not be taken into account; and such determination, in the case of a sale not meeting such requirements, shall be made as if subparagraphs (C) and (D) had not been enacted.” (c) Extensions.— Paragraph (3) of section 856(e) (relating to extensions 26 USC 856. ) is amended to read as follows: “(3) Extensions.— If the real estate investment trust establishes to the satisfaction of the Secretary that an extension of the grace period is necessary for the orderly liquidation of the trust’s interests in such property, the Secretary may grant one or more extensions of the grace period for such property. Any such extension shall not extend the grace period beyond the date which is 6 years after the date such trust acquired such property.” (d) 26 USC 856 note. Effective Date.— The amendments made by subsections (a) and (b) shall apply to taxable years ending after the date of the enactment of this Act. The amendment made by subsection (c) shall apply to extensions granted after the date of the enactment of this Act with respect to periods beginning after December 31, 1977. SEC. 364. CONTRIBUTIONS IN AID OF CONSTRUCTION. (a) 26 USC 118. In General.— Section 118(b) (relating to contributions in aid of construction) is amended— (1) by striking out “water” in the portion of paragraph (1) preceding subparagraph (A) thereof and inserting in lieu thereof “electric energy, gas (through a local distribution system or transportation by pipeline), water,”; (2) by striking out “water” in paragraph (1)(B) and inserting in lieu thereof “electric energy, gas, steam, water,”; (3) by striking out “water” in paragraph (2)(A)(ii) and by inserting in lieu thereof “electric energy, gas, steam, water,”; (4) by striking out “property” in paragraph (3)(A) and by inserting in lieu thereof “line” and by striking out “a main water or sewer line” in paragraph (3)(A) and by inserting in lieu thereof “an electric line, a gas main, a steam line, or a main water or sewer line”; and (5) by amending paragraph (3)(C) to read as follows: “(C) Regulated public utility.— The term ‘regulated public utility’ has the meaning given such term by section 26 USC 7701. 7701(a)(33); except that such term shall not include any such utility which is not required to provide electric energy, gas, water, or sewerage disposal services to members of the general public (including in the case of a gas transmission utility, the provision of gas services by sale for resale to the general public) in its service area.” (b) 26 USC 118 note. Effective Date.— The amendments made by this section shall apply to contributions made after January 31, 1976. SEC. 365. LIABILITIES OF CONTROLLED CORPORATIONS. (a) 26 USC 357. In General.— Subsection (c) of section 357 (relating to assumption of liability) is amended by adding at the end thereof the following new paragraph: “(3) Certain liabilities excluded.— “(A) In general.— If— “(i) the taxpayer’s taxable income is computed under the cash receipts and disbursements method of accounting, and “(ii) such taxpayer transfers, in an exchange to which 26 USC 351. section 351 applies, a liability which is either— “(I) an account payable payment of which would give rise to a deduction, or “(II) an amount payable which is described in 26 USC 736. section 736(a), then, for purposes of paragraph (1), the amount of such liability shall be excluded in determining the amount of liabilities assumed or to which the property transferred is subject. “(B) Exception.— Subparagraph (A) shall not apply to any liability to the extent that the incurrence of the liability resulted in the creation of, or an increase in, the basis of any property.” (b) Basis of Distributees.— Subsection (d) of section 358 (relating to 26 USC 358. basis to distributees) is amended to read as follows: “(d) Assumption of liability.— “(1) In general.— Where, as part of the consideration to the taxpayer, another party to the exchange assumed a liability of the taxpayer or acquired from the taxpayer property subject to a liability, such assumption or acquisition (in the amount of the liability) shall, for purposes of this section, be treated as money received by the taxpayer on the exchange. “(2) Exception.— Paragraph (1) shall not apply to the amount of any liability excluded under section 357(c)(3).” 26 USC 357. 26 USC 357 note. (c) Effective Date.— The amendments made by subsections (a) and (b) shall apply to transfers occurring on or after the date of the enactment of this Act. SEC. 366. MEDICAL EXPENSE REIMBURSEMENT PLANS. (a) General Rule.— Section 105 (relating to accident and health 26 USC 105. plans) is amended by adding at the end thereof the following: “(h) Amount Paid to Highly Compensated Individuals Under a Discriminatory Self-Insured Medical Expense Reimbursement Plan.— “(1) In general.— In the case of amounts paid to a highly compensated individual under a self-insured medical reimbursement plan which does not satisfy the requirements of paragraph (2) for a plan year, subsection (b) shall not apply to such amounts to the extent they constitute an excess reimbursement of such highly compensated individual. “(2) Prohibition of discrimination.— A self-insured medical reimbursement plan satisfies the requirements of this paragraph only if— “(A) the plan does not discriminate in favor of highly compensated individuals as to eligibility to participate; and “(B) the benefits provided under the plan do not discriminate in favor of participants who are highly compensated individuals. “(3) Nondiscriminatory eligibility classifications.— “(A) In general.— A self-insured medical reimbursement plan does not satisfy the requirements of subparagraph (A) of paragraph (2) unless such plan benefits— “(i) 70 percent or more of all employees, or 80 percent or more of all the employees who are eligible to benefit under the plan if 70 percent or more of all employees are eligible to benefit under the plan; or “(ii) such employees as qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of highly compensated participants. “(B) Exclusion of certain employees.— For purposes of subparagraph (A), there may be excluded from consideration— “(i) employees who have not completed 3 years of service; “(ii) employees who have not attained age 25; “(iii) part-time or seasonal employees; “(iv) employees not included in the plan who are included in a unit of employees covered by an agreement between employee representatives and one or more employers which the Secretary finds to be a collective bargaining agreement, if accident and health benefits were the subject of good faith bargaining between such employee representatives and such employer or employers; and “(v) employees who are nonresident aliens and who receive no earned income (within the meaning of section 26 USC 911. 911(b)) from the employer which constitutes income from sources within the United States (within the meaning 26 USC 861. of section 861(a)(3)). “(4) Nondiscriminatory benefits.— A self-insured medical reimbursement plan does not meet the requirements of subparagraph (B) of paragraph (2) unless all benefits provided for participants who are highly compensated individuals are provided for all other participants. “(5) Highly compensated individual defined.— For purposes of this subsection, the term ‘highly compensated individual’ means an individual who is— “(A) one of the 5 highest paid officers, “(B) a shareholder who owns (with the application of 26 USC 318. section 318) more than 10 percent in value of the stock of the employer, or “(C) among the highest paid 25 percent of all employees (other than employees described in paragraph (3)(B) who are not participants). “(6) Self-insured medical reimbursement plan.— The term ‘self-insured medical reimbursement plan’ means a plan of an employer to reimburse employees for expenses referred to in subsection (b) for which reimbursement is not provided under a policy of accident and health insurance. “(7) Excess reimbursement of highly compensated individual.— For purposes of this section, the excess reimbursement of a highly compensated individual which is attributable to a self-insured medical reimbursement plan is— “(A) in the case of a benefit available to a highly compensated individual but not to a broad cross-section of employees, the amount reimbursed under the plan to the employee with respect to such benefit, and “(B) in the case of benefits (other than benefits described in subparagraph (A) paid to a highly compensated individual by a plan which fails to satisfy the requirements of paragraph (2), the total amount reimbursed to the highly compensated individual for the plan year multiplied by a fraction— “(i) the numerator of which is the total amount reimbursed to all participants who are highly compensated individuals under the plan for the plan year, and “(ii) the denominator of which is the total amount reimbursed to all employees under the plan for such plan year. In determining the fraction under subparagraph (B), there shall not be taken into account any reimbursement which is attributable to a benefit described in subparagraph (A). “(8) Certain controlled groups.— All employees who are treated as employed by a single employer under subsection (b) or (c) of section 414 shall be treated as employed by a single 26 USC 414. employer for purposes of this section. “(9) Regulations.— The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section. “(10) Time of inclusion.— Any amount paid for a plan year that is included in income by reason of this subsection shall be treated as received or accrued in the taxable year of the participant in which the plan year ends.” (b) Effective Date.— The amendments made by this section shall 26 USC 105 note. apply to taxable years beginning after December 31, 1979. SEC. 367. THREE-YEAR EXTENSION OF PROVISION FOR 60-MONTH DEPRECIATION OF EXPENDITURES TO REHABILITATE LOW-INCOME RENTAL HOUSING. Subsection (k) of section 167 (relating to depreciation of expenditures 26 USC 167. to rehabilitate low-income rental housing) is amended by striking out “January 1, 1979” each place it appears and inserting in lieu thereof “January 1, 1982”. SEC. 368. DELAY IN APPLICATION OF NEW NET OPERATING LOSS RULES. (a) In General.— Except as provided in subsection (b), paragraphs (2) and (3) of section 806(g) of the Tax Reform Act of 1976 (relating to 26 USC 382 note. 26 USC 382, 383. effective dates for the amendments to sections 382 and 383 of the Code) are amended by striking out “1978” each place it appears and inserting in lieu thereof “1980”. (b) Election of Prior Law.— (1) A taxpayer may elect not to have the amendment made by subsection (a) apply with respect to any acquisition or reorganization occurring before the end of the taxpayer’s first taxable year beginning after June 30, 1978, where such acquisition or reorganization occurs pursuant to a written binding contract or option to acquire stock or assets which was entered into before September 27, 1978. (2) An election under this subsection shall be filed with a taxpayer’s timely filed return for the first taxable year in which a reorganization or acquisition described in paragraph (1) occurs, or, if later, within 90 days after the date of enactment of this Act. Such election shall apply to all acquisitions and reorganizations to which, but for such election, subsection (a) would apply. SEC. 369. USE OF CERTAIN EXPIRED NET OPERATING LOSS CARRYOVERS. (a) In General.— Clause (iv) of section 374(e)(1)(A) (relating to use 26 USC 374. of expired net operating loss carryovers to offset income arising from certain railroad reorganization proceedings) is amended to read as follows: “(iv) a redemption of a certificate of value of the United States Railway Association issued under section 306 of such Act to such corporation (or issued to another 26 USC 306. member of the same affiliated group (within the meaning of section 1504) as such corporation for their taxable 26 USC 1504. years which included March 31, 1967),”. (b) Effective Date.— The amendment made by subsection (a) shall 26 USC 374 note. apply to taxable years ending after March 31, 1976. SEC. 370. INCOME FROM CERTAIN RAILROAD ROLLING STOCK TREATED AS INCOME FROM SOURCES WITHIN THE UNITED STATES. (a) 26 USC 861. General Rule.— Section 861 (relating to income from sources within the United States) is amended by adding at the end thereof the following new subsection: “(f) Income From Certain Railroad Rolling Stock Treated as Income From Sources Within the United States. “(1) General rule.— For purposes of subsection (a) and section 26 USC 826. 826(a), if— “(A) a taxpayer leases railroad rolling stock which is 26 USC 38. 26 USC 48. section 38 property (or would be section 38 property but for section 48(a)(5)) to a domestic common carrier by railroad or a corporation which is controlled, directly or indirectly, by one or more such common carriers, and “(B) the use under such lease is expected to be use within the United States, all amounts includible in gross income by the taxpayer with respect to such railroad rolling stock (including gain from sale or other disposition of such railroad rolling stock) shall be treated as income from sources within the United States. The requirements of subparagraph (B) of the preceding sentence shall be treated as satisfied if the only expected use outside the United States is use by a person (whether or not a United States person) in Canada or Mexico on a temporary basis which is not expected to exceed a total of 90 days in any taxable year. “(2) Paragraph (1) not to apply where lessor is a member of controlled group which includes a railroad.— Paragraph (1) shall not apply to a lease between two members of the same 26 USC 1563. controlled group of corporations (as defined in section 1563) if any member of such group is a domestic common carrier by railroad or a switching or terminal company referred to in 26 USC 184. subparagraph (B) of section 184(d)(1). “(3) Denial of foreign tax credit.— No credit shall be allowed 26 USC 901. under section 901 for any payments to foreign countries with respect to any amount received by the taxpayer with respect to railroad rolling stock which is subject to paragraph (1).”. (b) 26 USC 861 note. Effective Dates.— (1) In general.— The amendment made by subsection (a) shall apply to all railroad rolling stock placed in service with respect to the taxpayer after the date of the enactment of this Act. (2) Supra. Election to extend section 861(f) to railroad rolling stock placed in service before date of enactment. (A) In general.— At the election of the taxpayer, the amendment made by subsection (a) shall also apply, for taxable years beginning after the date of the enactment of this Act, to all railroad rolling stock placed in service with respect to the taxpayer on or before such date of enactment. Such an election may not be revoked except with the consent of the Secretary of the Treasury or his delegate. (B) Manner and time of election and revocation.— An election under subparagraph (A), and any revocation of such an election, shall be made in such manner and at such time as the Secretary of the Treasury or his delegate may by regulations prescribe. SEC. 371. NET OPERATING LOSSES ATTRIBUTABLE TO PRODUCT LIABILITY LOSSES. (a) 10-Year Carryback.— (1) In general.— Paragraph (1) of section 172(b) (relating to 26 USC 172. years to which loss may be carried) is amended by adding at the end thereof the following new subparagraph: “(H) Product liability losses.— In the case of a taxpayer which has a product liability loss (as defined in subsection (i)) for a taxable year beginning after September 30, 1979 (referred to in this subparagraph as the ‘loss year’), the product liability loss shall be a net operating loss carryback to each of the 10 taxable years preceding the loss year.” (2) Conforming amendment.—Clause (i) of section 172(b)(1)(A) is amended by striking out “and (G)” and inserting in lieu thereof “(G), and (H)’\ (b) Rules Relating to Product Liability Losses.— Section 172 is amended by redesignating subsection (i) as subsection (j) and by inserting after subsection (h) the following new subsection: “(i) Rules Relating to Product Liability Losses.— For purposes of subsection (b)— “(1) Product liability loss.— The term ‘product liability loss’ means, for any taxable year, the lesser of— “(A) the net operating loss for such year reduced by any portion thereof which is attributable to a foreign expropriation loss, or “(B) the sum of the amounts allowable as deductions under sections 162 and 165 which are attributable to— 26 USC 162, 165. “(i) product liability, or “(ii) expenses incurred in the investigation or settlement of, or opposition to, claims against the taxpayer on account of product liability. “(2) Product liability.— The term ‘product liability’ means— “(A) liability of the taxpayer for damages on account of physical injury or emotional harm to individuals, or damage to or loss of the use of property, on account of any defect in any product which is manufactured, leased, or sold by the taxpayer, but only if “(B) such injury, harm, or damage arises after the tax-payer has completed or terminated operations with respect to, and has relinquished possession of, such product. “(3) Election.— Any taxpayer entitled to a 10-year carryback under subsection (b)(1)(H) from any loss year may elect to have the carryback period with respect to such loss year determined without regard to subsection (b)(1)(H). Such election shall be made in such manner as may be prescribed by the Secretary and shall be made by the due date (including extensions of time) for filing the taxpayer’s return for the taxable year of the net operating loss. Such election, once made for any taxable year, shall be irrevocable for that taixable year.” (c) Application of Accumulated Earnings Tax to Product Liability Loss Reserves.— Subsection (b) of section 537 (relating to 26 USC 537. special rules) is amended by redesignating paragraph (4) as paragraph (5) and by inserting after paragraph (3) the following new paragraph: “(4) Product liability loss reserves.— The accumulation of reasonable amounts for the payment of reasonably anticipated product liability losses (as defined in section 172(i)), as deter- Supra. mined under regulations prescribed by the Secretary, shall be treated as accumulated for the reasonably anticipated needs of the business.” (d) 26 USC 172 note. Effective Date.— The amendments made by this section shall apply with respect to taxable years beginning after September 30, 1979. SEC. 372. EXCLUSION FROM GROSS INCOME WITH RESPECT TO MAGAZINES, PAPERBACKS, AND RECORDS RETURNED AFTER THE CLOSE OF THE TAXABLE YEAR. (a) In General.— Subpart B of part II of subchapter E of chapter 1 (relating to taxable year for which items of gross income included) is amended by adding at the end thereof the following new section: “SEC. 458. MAGAZINES, PAPERBACKS. AND RECORDS RETURNED AFTER THE CLOSE OF THE TAXABLE YEAR. “(a) Exclusion From Gross Income.— A taxpayer who is on an accrual method of accounting may elect not to include in the gross income for the taxable year the income attributable to the qualified sale of any magazine, paperback, or record which is returned to the taxpayer before the close of the merchandise return period. “(b) Definitions and Special Rules.— For purposes of this section— “(1) Magazine.— The term ‘magazine’ includes any other periodical. “(2) Paperback.— The term ‘paperback’ means any book which has a flexible outer cover and the pages of which are affixed directly to such outer cover. Such term does not include a magazine. “(3) Record.— The term ‘record’ means a disc, tape, or similar object on which musical, spoken, or other sounds are recorded. “(4) Separate application with respect to magazines, paper-backs, and records.— If a taxpayer makes qualified sales of more than one category of merchandise in connection with the same trade or business, this section shall be applied as if the qualified sales of each such category were made in connection with a separate trade or business. For purposes of the preceding sentence, magazines, paperbacks, and records shall each be treated as a separate category of merchandise. “(5) Qualified sale.— A sale of a magazine, paperback, or record is a qualified sale if— “(A) at the time of sale, the taxpayer has a legal obligation to adjust the sales price of such magazine, paperback, or record if it is not resold, and “(B) the sales price of such magazine, paperback, or record is adjusted by the taxpayer because of a failure to resell it. “(6) Amount excluded.— The amount excluded under this section with respect to any qualified sale shall be the lesser of— “(A) the amount covered by the legal obligation described in paragraph (5)(A), or “(B) the amount of the adjustment agreed to by the taxpayer before the close of the merchandise return period. “(7) Merchandise return period.— “(A) Except as provided in subparagraph (B), the term ‘merchandise return period’ means, with respect to any taxable year— “(i) in the case of magazines, the period of 2 months and 15 days first occurring after the close of taxable year, or “(ii) in the case of paperbacks and records, the period of 4 months and 15 days first occurring after the close of the taxable year. “(B) The taxpayer may select a shorter period than the applicable period set forth in subparagraph (A). “(C) Any change in the merchandise return period shall be treated as a change in the method of accounting. “(8) Certain evidence may be substituted for physical return of merchandise.— Under regulations prescribed by the Secretary, the taxpayer may substitute, for the physical return of magazines, paperbacks, or records required by subsection (a), certification or other evidence that the magazine, paperback, or record has not been resold and will not be resold if such evidence— “(A) is in the possession of the taxpayer at the close of the merchandise return period, and “(B) is satisfactory to the Secretary. “(9) Repurchased by the taxpayer not treated as resale.— A repurchase by the taxpayer shall be treated as an adjustment of the sales price rather than as a resale. “(c) Qualified Sales to Which Section Applies.— “(1) Election of benefits.— This section shall apply to qualified sales of magazines, paperbacks, or records, as the case may be, if and only if the taxpayer makes an election under this section with respect to the trade or business in connection with which such sales are made. An election under this section may be made without the consent of the Secretary. The election shall be made in such manner as the Secretary may by regulations prescribed and shall be made for any taxable year not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). “(2) Scope of election.— An election made under this section shall apply to all qualified sales of magazines, paperbacks, or records, as the case may be, made in connection with the trade or business with respect to which the taxpayer has made the election. “(3) Period to which election applies.— An election under this section shall be effective for the taxable year for which it is made and for all subsequent taxable years, unless the taxpayer secures the consent of the Secretary to the revocation of such election. “(4) Treatment as method of accounting.— Except to the extent inconsistent with the provisions of this section, for purposes of this subtitle, the computation of taxable income under an election made under this section shall be treated as a method of accounting. “(d) 5-Year Spread of Transitional Adjustments for Magazines.— In applying section 481(c) with respect to any election under 26 USC 481. this section which applies to magazines, the period for taking into account any decrease in taxable income resulting from the application of section 481(a)(2) shall be the taxable year for which the election is made and the 4 succeeding taxable years. “(e) Suspense Account for Paperbacks and Records.— “(1) In general.— In the case of any election under this section which applies to paperbacks or records, in lieu of applying 26 USC 481. section 481, the taxpayer shall establish a suspense account for the trade or business for the taxable year for which the election is made. “(2) Initial opening balance.— The opening balance of the account described in paragraph (1) for the first taxable year to which the election applies shall be the largest dollar amount of returned merchandise which would have been taken into account under this section for any of the 3 immediately preceding taxable years if this section had applied to such preceding 3 taxable years. This paragraph and paragraph (3) shall be applied by taking into account only amounts attributable to the trade or business for which such account is established. “(3) Adjustments in suspense account.— At the close of each taxable year the suspense account shall be— “(A) reduced the excess (if any) of— “(i) the opening balance of the suspense account for the taxable year, over “(ii) the amount excluded from gross income for the taxable year under subsection (a), or “(B) increased (but not in excess of the initial opening balance) by the excess (if any) of— “(i) the amount excluded from gross income for the taxable year under subsection (a), over “(ii) the opening balance of the account for the taxable year. “(4) Gross income adjustments.— “(A) Reductions excluded from gross income.— In the case of any reduction under paragraph (3)(A) in the account for the taxable year, an amount equal to such reduction shall be excluded from gross income for such taxable year. “(B) Increases added to gross income.— In the case of any increase under paragraph (3)(B) in the account for the taxable year, an amount equal to such increase shall be included in gross income for such taxable year. If the initial opening balance exceeds the dollar amount of returned merchandise which would have been taken into account under subsection (a) for the taxable year preceding the first taxable year for which the election is effective if this section had applied to such preceding taxable year, then an amount equal to the amount of such excess shall be included in gross income for such first taxable year. “(5) Subchapter c transactions.— The application of this subsection with respect to a taxpayer which is a party to any transaction with respect to which there is nonrecognition of gain or loss to any party to the transaction by reason of subchapter C shall be determined under regulations prescribed by the Secretary.” (b) Clerical Amendments.— The table of sections for such subpart B is amended by adding at the end thereof the following: “Sec. 458. Magazines, paperbacks, and records returned after the close of the taxable year.” (c) 26 USC 458 note. Effective Date.— The amendments made by this section shall apply to taxable years beginning after September 30, 1979. SEC. 373. QUALIFIED DISCOUNT COUPONS REDEEMED AFTER CLOSE OF TAXABLE YEAR. (a) General Rule.— Subpart C of part II of subchapter E of chapter 1 of the Internal Revenue Code of 1954 (relating to taxable year for which deductions taken) is amended by adding at the end thereof the following new section: “SEC. 466. QUALIFIED DISCOUNT COUPONS REDEEMED AFTER CLOSE OF TAXABLE YEAR. “(a) Allowance of Deduction.— At the election of a taxpayer whose taxable income is computed under an accrual method of accounting, the deduction allowable under this chapter for the redemption costs of qualified discount coupons shall be an amount equal to the sum of— “(1) such costs incurred by the taxpayer with respect to coupons— “(A) which were outstanding at the close of the taxable year, and “(B) which were received by the taxpayer before the close of the redemption period for the taxable year, plus “(2) such costs (other than costs properly taken into account under paragraph (1) for a prior taxable year) incurred by the taxpayer during the taxable year. “(b) Qualified Discount Coupons.— For purposes of this section— “(1) In general.— The term ‘qualified discount coupon’ means a discount coupon which— “(A) was issued by the taxpayer, “(B) is redeemable by the taxpayer, and “(C) allows a discount on the purchase price of merchandise or other tangible personal property. “(2) Method of issuance not taken into account.— The determination of whether or not a discount coupon is a qualified discount coupon shall be made without regard to whether the coupon was issued through a newspaper, magazine, or other publication, by mail, on the pack or in the pack of merchandise, or otherwise. “(3) Discount on item cannot exceed $5.— A coupon shall not be a qualified discount coupon if— “(A) the face amount of such coupon is more than $5, or “(B) such coupon may be used with other coupons to bring about a price discount of more than $5 with respect to any item. “(4) There must be redemption chain.— A coupon shall not be a qualified discount coupon if the issuer directly redeems such coupon from the person using the coupon to receive a price discount. For purposes of the preceding sentence, corporations which are members of the same controlled group of corporations (within the meaning of section 1563(a) as the issuer shall be 26 USC 1563. treated as the issuer. “(5) Redeemable by taxpayer.— A coupon is redeemable by the taxpayer if the terms of the coupon require the taxpayer to redeem the coupon when presented for redemption in accordance with its terms. “(c) Redemption Costs; Redemption Period.— For purposes of this section— “(1) Redemption costs.— The term ‘redemption cost’ means, with respect to any coupon— “(A) the lesser of— “(i) the amount of the discount provided by the terms of the coupon, or “(ii) the amount incurred by the taxpayer for paying such discount, plus “(B) the amount incurred by the taxpayer for a payment to the retailer (or other person redeeming the coupon from the person receiving the price discount), but only if the amount so payable is stated on the coupon. “(2) Redemption period.— “(A) In general.— Except as provided in subparagraph (B), the redemption period for any taxable year is the 6-month period immediately following the close of the taxable year. “(B) Taxpayer may select shorter period.— The tax-payer may select a redemption period which is shorter than 6 months. “(C) Change in redemption period.— Any change in the redemption period shall be treated as a change in the method of accounting. “(d) Qualified Discount Coupons to Which Section Applies.— “(1) Election of benefits.— This section shall apply to qualified discount coupons if and only if the taxpayer makes an election under this section with respect to the trade or business in connection with which such coupons are issued. An election under this section may be made without the consent of the Secretary. The election shall be made in such manner as the Secretary may by regulations prescribe and shall be made for any taxable year not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). “(2) Scope of election.— An election made under this section shall apply to all qualified discount coupons issued in connection with the trade or business with respect to which the taxpayer has made the election. “(3) Period to which election applies.— An election under this section shall apply to the taxable year for which it is made and for all subsequent taxable years, unless the taxpayer secures the consent of the Secretary to the revocation of such election. “(4) Treatment as method of accounting.— Except to the extent inconsistent with the provisions of this section, for purposes of this subtitle, the computation of taxable income under an election made under this section shall be treated as a method of accounting. “(e) Suspense Account.— “(1) In general.— In the case of any election under this section which (but for this subsection) would result in a net decrease in 26 USC 481. taxable income under section 481(a)(2), in lieu of applying section 481, the taxpayer shall establish a suspense account for the trade or business for the taxable year for which the election is made. “(2) Initial opening balance.— The initial opening balance of the account described in paragraph (1) for the first taxable year to which the election applies shall be the amount by which— “(A) the largest dollar amount which would have been taken into account under subsection (a)(1) for any of the 3 immediately preceding taxable years if this section had applied to such 3 preceding taxable years, exceeds “(B) the sum of the increases in income (and the decreases in deductions) which (hut for this subsection) would result under section 481(a)(2) for such first taxable years. 26 USC 481. This subsection shall be applied by taking into account only amounts attributal to the trade or business for which such account is established. “(3) Adjustments in suspense account.— At the close of each taxable year, the suspense account shall be— “(A) reduced by the excess (if any) of— “(i) the opening balance of the suspense account for the taxable year, over “(ii) the amount deducted for the taxable year under subsection (a)(1), or “(B) increased (but not in excess of the initial opening balance) by the excess (if any) of— “(i) the amount deducted for the taxable year under subsection (a)(1), over “(ii) the opening balance of the suspense account for the taxable year. “(4) Income adjustments — “(A) Reductions allowed as deduction.— In the case of any reduction under paragraph (3)(A) in the account for the taxable year, an amount equal to such reduction shall be allowed as a deduction for such taxable year. “(B) Increases added to gross income.— In the case of any increase under paragraph (3)(B) in the account for the taxable year, an amount equal to such increase shall be included in gross income for such taxable year. If the amount described in paragraph (2)(A) exceeds the dollar amount which would have been taken into account under subsection (a)(1) for the taxable year preceding the first taxable year for which the election is effective if this section had applied to such preceding taxable year, then an amount equal to the amount of such excess shall be included in gross income for such first taxable year. “(5) Subchapter c transactions.— The application of this subsection with respect to a taxpayer which is a party to any transaction with respect to which there is nonrecognition of gain or loss to any party to the transaction by reason of subchapter C shall be determined under regulations prescribed by the Secretary. “(f) 10-Year Spread of Any Net Increase in Taxable Income Under Section 481(a)(2).— In the case of any election under this section which results in a net increase in taxable income under section 481(a)(2), under regulations prescribed by the Secretary, such net increase shall (except as otherwise provided in such regulations) be taken into account by the taxpayer in computing taxable income in each of the 10 taxable years beginning with the year for which the election is made.” (b) Clerical Amendment.— The table of sections for such subpart C is amended by adding at the end thereof the following new item: “Sec. 466. Qualified discount coupons redeemed after close of taxable year.” (C) Effective Date.— (1) In general.— The amendments made by subsections (a) and (b) shall apply to taxable years ending after December 31, 1978. (2) Application to certain prior taxable years.— (A) In general.— If— (i) the taxpayer makes an election under section 466 of Ante, p. 2863. the Internal Revenue Code of 1954 for his first taxable year ending after December 31, 1978, and (ii) for a continuous period of 1 or more taxable years each of which ends on or before December 31, 1978, the taxpayer used the method of accounting with respect to any type of discount coupons which was reasonably similar to the method of accounting provided by section 26 CFR 1.451–4. 1.451–4 of the Income Tax Regulations, then the taxpayer may make an election under this paragraph to have the method of accounting which he used for such continuous period treated as a valid method of accounting with respect to each such type of discount coupons for such period for purposes of the Internal Revenue Code of 26 USC 1. 1954. A taxpayer may make an election under this paragraph with respect to only one such continuous period. (B) Certain amounts to which method of accounting applies.— An accounting method which the taxpayer used for the period described in subparagraph (A) may include— (i) costs of the type permitted by section 1.451–4 of the Income Tax Regulations to be included in the estimated average cost of redeeming coupons, plus (ii) any amount designated or referred to on the coupon payable by the taxpayer to the person who allowed the discount on a sale by such person to the user of the coupon. (C) Suspense account not required in certain cases.— A taxpayer whose election under this paragraph applies to all types of discount coupons which he issued during the continuous period referred to in subparagraph (A)(ii) shall not be required to establish a suspense account under section 466(e) of the Internal Revenue Code of 1954. (D) Rules relating to election under this subsection.— An election under this paragraph may be made only before the expiration of the period for making an election under section 466 of the 26 USC 1. Internal Revenue Code of 1954 for the taxpayer’s first taxable year ending after December 31, 1978. An election under this paragraph shall be made in such a manner and form as the Secretary of the Treasury or his delegate may by regulations prescribe. For purposes of the Internal Revenue Code of 1954, such an election shall be treated as a method of accounting, except that the approval of the Secretary of the Treasury or his delegate to the making of the election may not be required.

22. 1978

    Pub. L. 95–600 § 331(a) · 92 Stat. 2763

    Substituted · 26 U.S.C. § 103(b)(6)(D)

    Pub. L. 95–600, § 331(a), substituted in heading and cl. (i) “$10,000,000” for “$5,000,000”

    Source evidence

    Code amendment note
    Subsec. (b)(6)(D). Pub. L. 95–600, § 331(a), substituted in heading and cl. (i) “$10,000,000” for “$5,000,000”.

    Enacted provision · exact public law section
    (a) General Rule.— Subparagraph (D) of section 103(b)(6) (relating 26 USC 103. to $5,000,000 limit in certain cases) is amended by striking out “$5,000,000” in the heading and in the text and inserting in lieu thereof “$10,000,000”.

23. 1978

    Pub. L. 95–600 § 331(b) · 92 Stat. 2763

    Added · 26 U.S.C. § 103(b)(6)(I)

    Pub. L. 95–600, § 331(b), added subpar. (I)

    Source evidence

    Code amendment note
    Subsec. (b)(6)(I). Pub. L. 95–600, § 331(b), added subpar. (I).

    Enacted provision · exact public law section
    (b) Treatment of Certain Urban Development Action Grants.— Paragraph (6) of section 103(b) (relating to exemption for certain small issues) is amended by adding at the end thereof the following new subparagraph: “(I) Aggregate amount of capital expenditures where there is urban development action grant.— In the Case of any issue substantially all of the proceeds of which are to be used to provide facilities with respect to which an urban development action grant has been made under section 119 42 USC 5301 note. of the Housing and Community Development Act of 1974, capital expenditures of not to exceed $10,000,000 shall not be taken into account for purposes of applying subparagraph (D)(ii).”

24. 1978

    Pub. L. 95–600 § 334(a) · 92 Stat. 2763

    1. Added · 26 U.S.C. § 103(b)(7); 26 U.S.C. § 103(b)(8)

       Pub. L. 95–600, § 334(a), (b), added par. (7)

    2. Redesignated · 26 U.S.C. § 103(b)(7); 26 U.S.C. § 103(b)(8)

       Pub. L. 95–600, § 334(a), (b), redesignated former par. (7) as (8) and, as so redesignated

    3. Substituted · 26 U.S.C. § 103(b)(7); 26 U.S.C. § 103(b)(8)

       Pub. L. 95–600, § 334(a), (b), substituted “(6), and (7)” for “and (6)”

    Source evidence

    Code amendment note
    Subsec. (b)(7), (8). Pub. L. 95–600, § 334(a), (b), added par. (7), redesignated former par. (7) as (8) and, as so redesignated, substituted “(6), and (7)” for “and (6)”.

    Enacted provision · exact public law section
    (a) 26 USC 103. In General.— Subsection (b) of section 103 (relating to industrial development bonds) is amended by redesignating paragraph (7) as paragraph (8) and by inserting after paragraph (6) the following new paragraph: “(7) Advance refunding of qualified public facilities.— “(A) In general.— Paragraph (1) shall not apply to a refunding issue if substantially all the proceeds of the refunded issue were used to provide a qualified public facility. “(B) Qualified public facility defined.— For purposes of subparagraph (A), the term ‘qualified public facility means facilities described in subparagraph (C) or (D) of paragraph (4) which are generally available to the general public.”

25. 1978

    Pub. L. 95–600 § 703(j)(1)(B) · 92 Stat. 2763

    Substituted · 26 U.S.C. § 103(c)(1)

    Pub. L. 95–600, § 703(j)(1)(B), substituted in heading and text “(a)(1) or (2)” for “(a)(1) or (4)”

    Source evidence

    Code amendment note
    Subsec. (c)(1). Pub. L. 95–600, § 703(j)(1)(B), substituted in heading and text “(a)(1) or (2)” for “(a)(1) or (4)”.

    Enacted provision · exact public law section
    (B) Paragraph (1) of section 103(c) is amended by striking out “(a) (1) or (4)” each place it appears (including in the paragraph heading) and inserting in lieu thereof “(a) (1) or (2)”.

26. 1978

    Pub. L. 95–600 § 703(j)(1)(C) · 92 Stat. 2763

    Substituted · 26 U.S.C. § 103(c)(2)(A)

    Pub. L. 95–600, § 703(j)(1)(C), substituted “subsection (a)(1) or (2)” for “subsection (a)(1) or (2) or (4)”

    Source evidence

    Code amendment note
    Subsec. (c)(2)(A). Pub. L. 95–600, § 703(j)(1)(C), substituted “subsection (a)(1) or (2)” for “subsection (a)(1) or (2) or (4)”.

    Enacted provision · exact public law section
    (C) Subparagraph (A) of section 103(c)(2) is amended by striking out “subsection (a) (1) or (2) or (4)” and inserting in lieu thereof “subsection (a) (1) or (2)”.

27. 1978

    Pub. L. 95–600 § 703(j)(1)(D) · 92 Stat. 2763

    1. Amended · 26 U.S.C. § 103(c)(5)

       Pub. L. 95–600, § 703(j)(1)(D), (q)(1), as amended by Pub. L. 96–222, § 107(a)(3)(C)

    2. Substituted · 26 U.S.C. § 103(c)(5)

       Pub. L. 95–600, § 703(j)(1)(D), (q)(1), as substituted “section 438 of the Higher Education Act of 1965” for “section 2 of the Emergency Insured Student Loan Act of 1969”

    3. Substituted · 26 U.S.C. § 103(c)(5)

       Pub. L. 95–600, § 703(j)(1)(D), (q)(1), as substituted “paragraph (2)(A)” for “subsection (d)(2)(A)”

    Source evidence

    Code amendment note
    Subsec. (c)(5). Pub. L. 95–600, § 703(j)(1)(D), (q)(1), as amended by Pub. L. 96–222, § 107(a)(3)(C), substituted “section 438 of the Higher Education Act of 1965” for “section 2 of the Emergency Insured Student Loan Act of 1969” and “paragraph (2)(A)” for “subsection (d)(2)(A)”.

    Enacted provision · exact public law section
    (D) Paragraph (5) of section 103(c) is amended by striking out “subsection (d)(2)(A)” and inserting in lieu thereof “paragraph (2)(A)”.

28. 1978

    Pub. L. 95–600 § 703(j)(1)(E) · 92 Stat. 2763

    Substituted · 26 U.S.C. § 103(d)

    Pub. L. 95–600, § 703(j)(1)(E), substituted “subsection (b)(4)(G)” for “subsection (c)(4)(G)”

    Source evidence

    Code amendment note
    Subsec. (d). Pub. L. 95–600, § 703(j)(1)(E), substituted “subsection (b)(4)(G)” for “subsection (c)(4)(G)”.

    Enacted provision · exact public law section
    (E) Subsection (d) of section 103 is amended by striking out “subsection (c)(4)(G)” and inserting in lieu thereof “subsection (b)(4)(G)”.

29. 1980

    Technical Corrections Act of 1979

    Pub. L. 96–222 § 107(a)(3)(C) · 94 Stat. 194

    Amended · 26 U.S.C. § 103(c)(5)

    Pub. L. 96–222, § 107(a)(3)(C), amended the directory language of Pub. L. 96–500, § 703(q)(1). See 1978 Amendment note below for subsec. (c)(5)

    Source evidence

    Code amendment note
    Subsec. (c)(5). Pub. L. 96–222, § 107(a)(3)(C), amended the directory language of Pub. L. 96–500, § 703(q)(1). See 1978 Amendment note below for subsec. (c)(5).

    Enacted provision · exact public law section
    (C) Paragraph (1) of section 703(q) of the Revenue Act of 1978 is amended by striking out “section 103(d)” and inserting in lieu thereof “section 103(c)”.

30. 1980

    Pub. L. 96–223 § 242(a)(1) · 94 Stat. 229

    Added · 26 U.S.C. § 103(b)(4)(H)

    Pub. L. 96–223, § 242(a)(1), added subpar. (H)

    Source evidence

    Code amendment note
    Subsec. (b)(4)(H). Pub. L. 96–223, § 242(a)(1), added subpar. (H).

    Enacted provision · exact public law section
    (1) In general.— Paragraph (4) of section 103(b) (relating to 26 USC 103. certain exempt activities) is amended— (A) by striking out “or” at the end of subparagraph (F), (B) by striking out the period at the end of subparagraph (G) and inserting in lieu thereof”, or”, and (C) by inserting after subparagraph (G) the following new subparagraph: “(H) qualified hydroelectric generating facilities.”

31. 1980

    Pub. L. 96–223 § 242(a)(2) · 94 Stat. 229

    1. Added · 26 U.S.C. § 103(b)(8); 26 U.S.C. § 103(b)(9)

       Pub. L. 96–223, § 242(a)(2), added par. (8)

    2. Redesignated · 26 U.S.C. § 103(b)(8); 26 U.S.C. § 103(b)(9)

       Pub. L. 96–223, § 242(a)(2), redesignated former par. (8) as (9)

    Source evidence

    Code amendment note
    Subsec. (b)(8), (9). Pub. L. 96–223, § 242(a)(2), added par. (8) and redesignated former par. (8) as (9).

    Enacted provision · exact public law section
    (2) Definitions.— Subsection (b) of section 103 is amended by redesignating paragraph (8) as paragraph (9) and by inserting after paragraph (7) the following new paragraph: “(8) Qualified hydroelectric generating facilities.— For purposes of this section— “(A) Qualified hydroelectric generating facility.— The term ‘qualified hydroelectric generating facility’ means any qualified hydroelectric generating property which is owned by a State, political subdivision thereof, or agency or instrumentality of any of the foregoing. “(B) Qualified hydroelectric generating property.— “(i) In general.— Except as provided in clause (ii), the term ‘qualified hydroelectric generating property’ has the meaning given to such term by section 48(l)(13). Ante, p. 262. “(ii) Dam must be owned by governmental body.— The term ‘qualified hydroelectric generating property’ does not include any property installed at the site of any dam described in section 48(1)(13)(B)(i)(I) unless such dam was owned by one or more governmental bodies described in subparagraph (A) on October 18, 1979, and at all times thereafter until the obligations are no longer outstanding. “(C) Limitation.— Paragraph (4)(H) of this subsection shall not apply to any issue of obligations (otherwise qualifying under paragraph (4)(H)) if the portion of the proceeds of such issue which is used to provide qualified hydroelectric generating facilities exceeds (by more than an insubstantial amount) the product of— “(i) the eligible cost of the facilities being provided in whole or in part from the proceeds of the issue, and “(ii) the installed capacity fraction. “(D) Installed capacity fraction.— The term ‘installed capacity fraction’ means the fraction— “(i) the numerator of which is 25, reduced by 1 for each megawatt by which the installed capacity exceeds 100 megawatts, and “(ii) the denominator of which is the number of megawatts of the installed capacity (but not in excess of 100). For purposes of the preceding sentence, the term ‘installed capacity’ has the meaning given to such term by section Ante, p. 262. 48(l)(13)(E). “(E) Eligible cost.— “(i) In general.— The eligible cost of any facilities is that portion of the total cost of such facilities which is reasonably expected— “(I) to be the cost to the governmental body described in subparagraph (A), and “(II) to be attributable to periods after October 18, 1979, and before 1986 (determined under rules similar to the rules of section 48(m)). “(ii) Longer period for certain hydroelectric generating property.— If an application has been docketed by the Federal Energy Regulatory Commission before January 1, 1986, with respect to the installation of any qualified hydroelectric generating property, clause (i)(II) shall be applied with respect to such property by substituting ‘1989’ for ‘1986’. “(F) Certain prior issues taken into account.— If the proceeds of 2 or more issues (whether or not the issuer of each issue is the same) are or will be used to finance the same facilities, then, for purposes of subparagraph (C), in determining the amount of the proceeds of any later issue used to finance such facilities, there shall be taken into account the proceeds used to finance such facilities of all prior such issues which are outstanding at the time of such later issue (not including as outstanding any obligation which is to be redeemed from the proceeds of the later issue).”

32. 1980

    Pub. L. 96–223 § 241(a) · 94 Stat. 229

    Redesignated · 26 U.S.C. § 103(g)

    Pub. L. 96–223, § 241(a), added subsec. (g). Former subsec. (g) redesignated (i)

    Source evidence

    Code amendment note
    Subsec. (g). Pub. L. 96–223, § 241(a), added subsec. (g). Former subsec. (g) redesignated (i).

    Enacted provision · exact public law section
    (a) In General.— Section 103 (relating to interest on governmental 26 USC 103. obligations) is amended by redesignating subsection (g) as subsection (h), and by inserting after subsection (f) the following new subsection: “(g) Qualified Steam-Generating or Alcohol-Producing Facilities.— “(1) In general.— For purposes of subsection (b)(4)(E), the term Definitions. ‘solid waste disposal facility’ includes— “(A) a qualified steam-generating facility, and “(B) a qualified alcohol-producing facility. “(2) Qualified steam-generating facility defined.— For purposes of paragraph (1), the term ‘qualified steam-generating facility’ means a steam-generating facility for which— “(A) more than half of the fuel (determined on a Btu basis) is solid waste or fuel derived from solid waste, and “(B) substantially all of the solid waste derived fuel is produced at a facility which is— “(i) located at or adjacent to the site for such steam-generating facility, and “(ii) owned and operated by the person who owns and operates the steam-generating facility. “(3) Qualified alcohol-producing facility.— For purposes of paragraph (1), the term ‘qualified alcohol-producing facility’ means a facility— “(A) the primary product of which is alcohol, “(B) more than half of the feedstock for which is solid waste or a feedstock derived from solid waste, and “(C) substantially all of the solid waste derived feedstock for which is produced at a facility which is— “(i) located at or adjacent to the site for such alcohol-producing facility, and “(ii) owned and operated by the person who owns and operates the alcohol-producing facility. “(4) Special rule in case of steam-generating facility.— A facility for producing solid waste derived fuel shall be treated as a facility which meets the requirements of clauses (i) and (ii) of paragraph (2)(B) if— “(A) such facility and the steam-generating facility are owned and operated by or for a State or the same political subdivision or subdivisions of a State, and “(B) substantially all of the solid waste used in producing the solid waste derived fuel at the facility producing such fuel is collected from the area in which the steam-generating facility is located.”

33. 1980

    Pub. L. 96–223 § 244(a) · 94 Stat. 229

    Added · 26 U.S.C. § 103(h)

    Pub. L. 96–223, § 244(a), added subsec. (h)

    Source evidence

    Code amendment note
    Subsec. (h). Pub. L. 96–223, § 244(a), added subsec. (h).

    Enacted provision · exact public law section
    (a) General Rule.— Section 103 (relating to interest on governmental Ante, p. 281. obligations), as amended by section 241, is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection: “(h) Certain Obligations Must Be in Registered Form and Not Guaranteed or Subsidized Under an Energy Program.— “(1) In general.— An obligation to which this subsection applies shall be treated as an obligation not described in subsection (a) if— “(A) such obligation is not issued in registered form, “(B) the payment of principal or interest with respect to such obligation is guaranteed (in whole or in part) by the United States under a program a principal purpose of which is to encourage the production or conservation of energy, or “(C) the payment of the principal or interest with respect to such obligation is to be made (in whole or in part) with funds provided under such a program of the United States, a State, or a political subdivision of a State. “(2) Obligations to which this subsection applies.— This subsection shall apply to any obligations to which paragraph (1) of subsection (b) does not apply by reason of— “(A) subsection (b)(4)(H) (relating to qualified hydroelectric generating facilities), or “(B) subsection (g) (relating to qualified steam-generating or alcohol-producing facilities).”

34. 1980

    Pub. L. 96–223 title II · 94 Stat. 229

    Redesignated · 26 U.S.C. § 103(i)

    Pub. L. 96–223, §§ 241(a), 244(a), redesignated former subsec. (g) as (i)

    Source evidence

    Code amendment note
    Subsec. (i). Pub. L. 96–223, §§ 241(a), 244(a), redesignated former subsec. (g) as (i).

    Enacted provision · exact public law
    TITLE II— ENERGY CONSERVATION AND PRODUCTION INCENTIVES PART I— RESIDENTIAL ENERGY CREDIT SEC. 201. GENERAL PROVISIONS RELATING TO CREDIT. (a) Joint Ownership of Energy Items.— Section 44C(d) (relating to special rules) is amended by redesignating paragraph (4) as paragraph (5) and by inserting after paragraph (3) the following new paragraph: “(4) Joint ownership of energy items.— “(A) In general.— Any expenditure otherwise qualifying as an energy conservation expenditure or a renewable energy source expenditure shall not be treated as failing to so qualify merely because such expenditure was made with respect to 2 or more dwelling units. “(B) Limits applied separately.— In the case of any expenditure described in subparagraph (A), the amount of the credit allowable under subsection (a) shall (subject to paragraph (1)) be computed separately with respect to the amount of the expenditure made by each individual.” (b) Secretarial Authority.— (1) In general.— Section 440(c) (relating to definitions and 26 USC 44C. special rules) is amended by adding at the end thereof the following new paragraph: “(9) Limitations on secretarial authority.— “(A) In general.— The Secretary shall not specify any item under paragraph (4)(A)(viii) or any form of renewable energy under paragraph (5)(A)(i) unless the Secretary determines that— “(i) there will be a reduction in oil or natural gas consumption as a result of such specification, and such reduction is sufficient to justify any resulting decrease in Federal revenues, “(ii) such specification will not result in an increased use of any item which is known to be, or reasonably suspected to be, environmentally hazardous or a threat to public health or safety, and “(iii) available Federal subsidies do not make such specification unnecessary or inappropriate (in the light of the most advantageous allocation of economic resources). “(B) Factors taken into account.— In making any determination under subparagraph (A)(i), the Secretary (after consultation with the Secretary of Energy)— “(i) shall make an estimate of the amount by which the specification will reduce oil and natural gas consumption, and “(ii) shall determine whether such specification compares favorably, on the basis of the reduction in oil and natural gas consumption per dollar of cost to the Federal Government (including revenue loss), with other Federal programs in existence or being proposed. “(C) Factors taken into account in making estimates.— In making any estimate under subparagraph (B)(i), the Secretary shall take into account (among other factors)— “(i) the extent to which the use of any item will be increased as a result of the specification, “(ii) whether sufficient capacity is available to increase production to meet any increase in demand caused by such specification, “(iii) the amount of oil and natural gas used directly or indirectly in the manufacture of such item and other items necessary for its use, and “(iv) the estimated useful life of such item.” (2) Period for specifying items.— Paragraph (6) of section 44C(c) (relating to definitions and special rules) is amended by adding at the end thereof the following new subparagraphs: “(C) Action on requests.— “(i) In general.— The Secretary shall make a final determination with respect to any request filed under subparagraph (A)(ii) for specifying an item under paragraph (4)(A)(viii) or for specifying a form of renewable energy under paragraph (5)(A)(i) within 1 year after the filing of the request, together with any information required to be filed with such request under subparagraph (A)(ii). “(ii) Reports.— Each month the Secretary shall publish a report of any request which has been denied during the preceding month and the reasons for the denial. “(D) Effective date.— “(i) In general.— In the case of any item or energy source specified under paragraph (4)(A)(viii) or (5)(A)(i), the credit allowed by subsection (a) shall apply with respect to expenditures which are made on or after the date on which final notice of such specification is published in the Federal Register. “(ii) Expenditures taken into account in following taxable years.— The Secretary may prescribe by regulations that expenditures made on or after the date referred to in clause (i) and before the close of the taxable year in which such date occurs shall be taken into account in the following taxable year.” SEC. 202. RENEWABLE ENERGY SOURCE EXPENDITURES. (a) Amount of Credit.— Paragraph (2) of section 44C(b) (relating to qualified renewable energy source expenditures) is amended to read as follows: “(2) Renewable energy source.— In the case of any dwelling unit, the qualified renewable energy source expenditures are 40 percent of so much of the renewable energy source expenditures made by the taxpayer during the taxable year with respect to such unit as does not exceed $10,000.” (b) Solar Electric Energy.— Clause (i) of section 44C(c)(5)(A) (defining renewable energy source property) is amended by striking out “providing hot water” and inserting in lieu thereof “providing hot water or electricity”. (c) Costs of Drilling Geothermal Well.— Subparagraph (B) of section 44C(c)(2) (relating to renewable energy source expenditure) is amended to read as follows: “(B) Certain labor and other costs included.— The term ‘renewable energy source expenditure’ includes— “(i) expenditures for labor costs properly allocable to the onsite preparation, assembly, or original installation of renewable energy source property, and “(ii) expenditures for an onsite well drilled for any 26 USC 613. 26 USC 263. geothermal deposit (as defined in section 613(e)(3)), but only if the taxpayer has not elected under section 263(c) to deduct any portion of such expenditures.” (d) Solar Panels Installed on Roofs.— Paragraph (2) of section 44C(c) (relating to renewable energy source expenditure) is amended by adding at the end thereof the following new subparagraph: “(D) Certain solar panels.— No solar panel installed as a roof (or portion thereof) shall fail to be treated as renewable energy source property solely because it constitutes a structural component of the dwelling on which it is installed.” (e) Effective Dates.— (1) Subsection (a).— The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1979. (2) Subsections (b), (c), and (d).— The amendments made by subsections (b), (c), and (d) shall apply to expenditures made after December 31, 1979, in taxable years ending after such date. SEC. 203. PROVISIONS TO PREVENT DOUBLE BENEFITS. (a) Credit To Be Reduced Where Certain Financing Is Used.— (1) In general.— Section 44C(c) (relating to definitions and 26 USC 44C. special rules) is amended by adding at the end thereof the following new paragraph: “(10) Property financed by subsidized energy financing.— “(A) Reduction of qualified expenditures .— For purposes of determining the amount of energy conservation or renewable energy source expenditures made by any individual with respect to any dwelling unit, there shall not be taken into account expenditures which are made from subsidized energy financing. “(B) Dollar limits reduced.— Paragraph (1) or (2) of subsection (b) (whichever is appropriate) shall be applied with respect to such dwelling unit for any taxable year of such taxpayer by reducing each dollar amount contained in such paragraph (reduced as provided in subsection (b)(3)) by an amount equal to the sum of— “(i) the amount of the expenditures which were made by the taxpayer during such taxable year or any prior taxable year with respect to such dwelling unit and which were not taken into account by reason of subparagraph (A), and “(ii) the amount of any Federal, State, or local grant received by the taxpayer during such taxable year or any prior taxable year which was used to make energy conservation or renewable energy source expenditures with respect to the dwelling unit and which was not included in the gross income of such taxpayer. “(C) Subsidized energy financing.— For purposes of subparagraph (A), the term ‘subsidized energy financing’ means financing provided under a Federal, State, or local program a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy.” (b) Return Requirement.— (1) In general.— Subpart B of part III of subchapter A of chapter 61 (relating to information returns) is amended by adding at the end thereof the following new section: “SEC. 6050D. RETURNS RELATING TO ENERGY GRANTS AND FINANCING. “(a) In General.— Every person who administers a Federal, State, or local program a principal purpose of which is to provide subsidized financing or grants for projects to conserve or produce energy shall, to the extent required under regulations prescribed by the Secretary, make a return setting forth the name and address of each taxpayer receiving financing or a grant under such program and the aggregate amount so received by such individual. “(b) Definition of Person.— For purposes of this section, the term ‘person’ means the officer or employee having control of the program, or the person appropriately designated for purposes of this section.” (2) Conforming amendment.— The table of sections for such subpart B is amended by adding at the end thereof the following new item: “Sec. 6050D. Returns relating to energy grants and financing.” (c) Effective Date.— The amendments made by this section shall 26 USC 44C note. apply to taxable years beginning after December 31, 1980, but only with respect to financing or grants made after such date. PART II— BUSINESS ENERGY INVESTMENT CREDITS SEC. 221. CHANGES IN AMOUNT AND PERIOD OF APPLICATION OF ENERGY PERCENTAGE. (a) In General.— Subparagraph (C) of section 46(a)(2) (relating to energy percentage) is amended to read as follows: “(C) Energy percentage.— For purposes of this paragraph— “(i) In general.— The energy percentage shall be determined in accordance with the following table: “Column A—Description Column B—Percentage Column C—Period In the case of:   For the period: The energy percentage Beginning on: And ending on: is:       I. General Rule.—Property not described in any of the following provisions of this column 10 percent Oct. 1, 1978 Dec. 31, 1982. II. Solar, Wind, or Geothermal Property.—Property described in section 48(l)(2)(A)(ii) or 48(l)(3)(A)(viii) A. 10 percent Oct. 1, 1978 Dec. 31, 1979.   B. 15 percent Jan. 1, 1980 Dec. 31, 1985. III. Ocean Thermal Property.—Property described in section 48(l)(3)(A)(ix) 15 percent Jan. 1, 1980 Dec. 31, 1985. IV. Qualified Hydroelectric Generating Property.—Property described in section 48(l)(2)(A)(vii) 11 percent Jan. 1, 1980 Dec. 31, 1985. V. Qualified Intercity Buses.—Property described in section 48(l)(2)(A)(ix) 10 percent Jan. 1, 1980 Dec. 31, 1985. VI. Biomass Property.—Property described in section 48(l)(15) 10 percent Oct. 1, 1978 Dec. 31, 1985. “(ii) Periods for which percentage not specified.— In the case of any energy property, the energy percentage shall be zero for any period for which an energy percentage is not specified for such property under clause (i) (as modified by clauses (iii) and (iv)). “(iii) Longer period for certain long-term projects.— For the purpose of applying the energy percentage contained in subclause (I) of clause (i) with respect to property which is a part of a project with a normal construction period of 2 years or more (within the meaning of section 46(d)(2)(A)(i)), ‘December 31, 1990’ shall be substituted for ‘December 31, 1982’ if— “(I) before January 1, 1983, the taxpayer has completed all engineering studies in connection with the commencement of the construction of the project, and has applied for all environmental and construction permits required under Federal, State, or local law in connection with the commencement of the construction of the project, and “(II) before January 1, 1986, the taxpayer has entered into binding contracts for the acquisition, construction, reconstruction, or erection of equipment specially designed for the project and the aggregate cost to the taxpayer of that equipment is at least 50 percent of the reasonably estimated cost for all such equipment which is to be placed in service as part of the project upon its completion, “(iv) Longer period for certain hydroelectric generating property.— If an application has been docketed by the Federal Energy Regulatory Commission before January 1, 1986, with respect to the installation of any qualified hydroelectric generating property, for purposes of applying the energy percentage contained in subclause (IV) of clause (i) with respect to such property, ‘December 31, 1988’ shall be substituted for ‘December 31, 1985’.” (b) Conforming Amendments.— (1) Paragraph (1) of section 48(l) (relating to treatment as 26 USC 48. section 38 property) is amended to read as follows: “(1) Treatment as section 38 property.— For any period for which the energy percentage determined under section 46(a)(2)(C) for any energy property is greater than zero— 26 USC 46. “(A) such energy property shall be treated as meeting the requirements of paragraph (1) of subsection (a), and “(B) paragraph (3) of subsection (a) shall not apply to such property.” (2) Paragraph (11) of section 48(l) (relating to special rule for Post, p. 266. property financed by industrial development bonds) is amended by striking out “5 percent” and inserting in lieu thereof “one-half of the energy percentage determined under section 46(a)(2)(C)”. SEC. 222. CHANGES IN ENERGY PROPERTY ITEM DESCRIPTIONS. (a) In General.— Subparagraph (A) of section 48(l)(2) (defining energy property) is amended— (1) by striking out “or” at the end of clause (v), and (2) by adding at the end thereof the following new clauses: “(vii) qualified hydroelectric generating property, “(viii) cogeneration equipment, or “(ix) qualified intercity buses,”. (b) Alternative Energy Property.— Subparagraph (A) of section 48(l)(3) (defining alternative energy property) is amended— (1) by striking out “(other than coke or coke gas)” in clause (iii), (2) by striking out clause (v) and inserting in lieu thereof the following: “(v) equipment to convert— “(I) coal (including lignite), or any nonmarketable substance derived therefrom, into a substitute for a petroleum or natural gas derived feedstock for the manufacture of chemicals or other products, or “(II) coal (including lignite), or any substance derived therefrom, into methanol, ammonia, or a hydroprocessed coal-liquid or solid,”, (3) by striking out “and” at the end of clause (vii), (4) by striking out the period at the end of clause (viii) and inserting in lieu thereof “, and”, and (5) by adding at the end thereof the following new clause: “(ix) equipment, placed in service at either of 2 locations designated by the Secretary after consultation with the Secretary of Energy, which converts ocean thermal energy to usable energy.” (c) Solar or Wind Energy Property.— Paragraph (4) of section 26 USC 48. 48(l) (defining solar or wind energy property) is amended— (1) by striking out “or” at the end of subparagraph (A), (2) by striking out the period at the end of subparagraph (B) and inserting in lieu thereof or”, and (3) by adding at the end thereof the following new subparagraph: “(C) to provide solar process heat.” (d) Specially Defined Energy Property.— (1) Alumina electrolytic cells.— Paragraph (5) of section 48(l) (defining specially defined energy property) is amended— (A) by striking out “or” at the end of subparagraph (K), and (B) by redesignating subparagraph (L) as subparagraph (M) and by inserting after subparagraph (K) the following new subparagraph: “(L) modifications to alumina electrolytic cells, or”. (2) Standards for secretarial discretion.— Paragraph (5) of section 48(l) is amended by adding at the end thereof the following new sentence: “The Secretary shall not specify any property under subparagraph (M) unless he determines that such specification meets the requirements of paragraph (9) of section 440(c) for specification of items under section Ante, p. 257. 44C(c)(4)(A)(viii).” (e) Qualified Hydroelectric Generating Property.— (1) In general.— Subsection (1) of section 48 (relating to energy property) is amended by adding at the end thereof the following new paragraph: “(13) Qualified hydroelectric generating property.— “(A) In general.— The term ‘qualified hydroelectric generating property’ means property installed at a qualified hydroelectric site which is— “(i) equipment for increased capacity to generate electricity by water (up to, but not including, the electrical transmission stage), and “(ii) structures for housing such generating equipment, fish passageways, and dam rehabilitation property, required by reason of the installation of equipment described in clause (i). “(B) Qualified hydroelectric site.— The term ‘qualified hydroelectric site’ means any site— “(i) at which— “(I) there is a dam the construction of which was completed before October 18, 1979, and which was not significantly enlarged after such date, or “(II) electricity is to be generated without any dam or other impoundment of water, and “(ii) the installed capacity of which is less than 125 megawatts. “(C) Limitation on credit when installed capacity exceeds 25 megawatts.— For purposes of applying the energy percentage to any qualified hydroelectric generating property placed in service in connection with a site the installed capacity of which exceeds 25 megawatts, the amount taken into account as qualified investment shall not exceed the amount which (but for this subparagraph) would be the qualified investment multiplied by a fraction— “(i) the numerator of which is 25 reduced by 1 for each whole megawatt by which such installed capacity exceeds 100 megawatts, and “(ii) the denominator of which is the number of megawatts of such installed capacity but not in excess of 100. “(D) Dam rehabilitation property.— For purposes of this paragraph, the term ‘dam rehabilitation property’ means any amount properly chargeable to capital account for property (or additions or improvements to property) in connection with the rehabilitation of a dam. “(E) Installed capacity.— The term ‘installed capacity’ means, with respect to any site, the installed capacity of all electrical generating equipment placed in service at such site. Such term includes the capacity of equipment installed during the 3 taxable years following the taxable year in which the equipment is placed in service.” (2) Regular investment credit to apply to fish passageways.— Subparagraph (D) of section 46(a)(2) (relating to special 26 USC 46. rule for certain energy property) is amended by adding at the end thereof the following new sentence: “In the case of any qualified hydroelectric generating property which is a fish passageway, the preceding sentence shall not apply to any period after 1979 for which the energy percentage for such property is greater than zero.” (f) Cogeneration Property.— Subsection (1) of section 48 (relating 26 USC 48. to energy property) is amended by adding at the end thereof the following new paragraph: “(14) Cogeneration equipment.— “(A) In general.— The term ‘cogeneration equipment’ means property which is an integral part of a system for using the same fuel to produce both qualified energy and electricity at an industrial or commercial facility at which, as of January 1, 1980, electricity or qualified energy was produced. “(B) Only cogeneration increases taken into account.— The term ‘cogeneration equipment’ includes property only to the extent that such property increases the capacity of the system to produce qualified energy or electricity, whichever is the secondary energy product of the system. “(C) Limitation on use of oil or gas.— The term ‘cogeneration equipment’ does not include any property which is part of a system if— “(i) such system uses oil or natural gas (or a product of oil or natural gas) as a fuel for any purpose other than— “(I) start-up, “(II) flame control, or “(III) back-up, or “(ii) more than 20 percent (determined on a Btu basis) of the fuel for such system for any taxable year consists of oil or natural gas (or a product of oil or natural gas). “(D) Qualified energy.— The term ‘qualified energy’ means steam, heat, or other forms of useful energy (other than electric energy) to be used for industrial, commercial, or space-heating purposes (other than in the production of electricity). “(E) Industrial includes purification and desalinization of water.— The term ‘industrial’ includes the purification of water and the desalinization of water.” (g) Biomass Property.— (1) In general.— Subsection (1) of section 48 (relating to energy property) is amended by adding at the end thereof the following new paragraph: “(15) Biomass property.— “(A) In general.— The term ‘biomass property’ means— “(i) any property described in clause (i), (ii), or (iii) of paragraph (3)(A), as modified by the last sentence of paragraph (3)(A) and by subparagraph (B) of this paragraph, and “(ii) any equipment described in so much of clause (vi) or (vii) of paragraph (3)(A) as relates to property described in clause (i) of this subparagraph. “(B) Modifications.— For purposes of subparagraph (A)— “(i) the term ‘alternate substance’ has the meaning given to such term by paragraph (3)(B), except that such term does not include any inorganic substance and does not include coal (including lignite) or any product of such coal, and “(ii) clause (iii) of paragraph (3)(A) shall be applied by substituting ‘a qualified fuel’ for ‘a synthetic liquid, gaseous, or solid fuel’. “(C) Qualified fuel.— For purposes of subparagraph (B), the term ‘qualified fuel’ means— “(i) any synthetic solid fuel, and “(ii) alcohol for fuel purposes if the primary source of energy for the facility producing the alcohol is not oil or natural gas or a product of oil or natural gas.” (2) Storage of fuel derived from garbage.— Subparagraph Ante, p. 261. (A) of section 48(l)(3) (defining alternative energy property) is amended by adding at the end thereof the following new sentence: “The equipment described in clause (vii) includes equipment used for the storage of fuel derived from garbage at the site at which such fuel was produced from garbage.” (h) Qualified Intercity Buses.— Subsection (1) of section 48 (relating to energy property) is amended by adding at the end thereof the following new paragraph: “(16) Qualified intercity buses.— “(A) In general.— Paragraph (2)(A)(ix) shall apply only with respect to the qualified investment in qualified intercity buses of a taxpayer— “(i) which is a common carrier regulated by the Interstate Commerce Commission or an appropriate State agency (as determined by the Secretary), and “(ii) which is engaged in the trade or business of furnishing intercity passenger transportation or intercity charter service by bus. “(B) Qualified intercity bus.— The term ‘qualified intercity bus’ means an automobile bus— “(i) the chassis and body of which is exempt under 26 USC 4063. 26 USC 4061. section 4063(a)(6) from the tax imposed by section 4061(a), “(ii) which has— “(I) a seating capacity of more than 35 passengers (in addition to the driver), and “(II) 1 or more baggage compartments, separated from the passenger area, with a capacity of at least 200 cubic feet, and “(iii) which is used predominantly by the taxpayer in the trade or business of furnishing intercity passenger transportation or intercity charter service. “(C) Operating capacity must increase.— Under regulations prescribed by the Secretary— “(i) In general.— The amount of qualified investment taken into account under paragraph (2)(A)(ix) for any taxable year shall not exceed the amount of the qualified investment which is attributable to an increase in the taxpayer’s total operating seating capacity for the taxable year over such capacity as of the close of the preceding taxable year. “(ii) Special rules.— The regulations prescribed under this subparagraph— “(I) shall provide that only buses used predominantly on a full-time basis in the trade or business of furnishing intercity passenger or intercity charter service shall be taken into account in determining the taxpayer’s total operating seating capacity, and “(II) shall provide rules treating related taxpayers as 1 person.” (i) Technical Amendments.— (1) Public utility property.— (A) Paragraph (3) of section 48(l) is amended by striking 26 USC 48. out subparagraph (B) and by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively. (B) Subsection (1) of section 48 is amended by adding at the end thereof the following new paragraph: “(17) Exclusion for public utility property.— The terms ‘alternative energy property’, ‘biomass property’, ‘solar or wind energy property’, ‘recycling equipment’, and ‘cogeneration property’ do not include property which is public utility property (within the meaning of section 46(f)(5)).” 26 USC 46. (2) Ocean thermal property.— Section 48(a)(2)(B) (relating to property used outside the United States) is amended— (A) by striking out “and” at the end of clause (ix), (B) by striking out the period at the end of clause (x) and inserting in lieu thereof and”, and (C) by inserting immediately after clause (x) the following new clause: “(xi) any property described in subsection (l)(3)(A)(ix) which is owned by a United States person and which is used in international or territorial waters to generate energy for use in the United States.” (3) Pollution control equipment.— Subparagraph (C) of section 48(l)(3) (as redesignated by paragraph (D) is amended by Supra. adding at the end thereof the following new sentence: “For purposes of the preceding sentence, in the case of property which is alternative energy property solely by reason of the amendments made by section 222(b) of the Crude Oil Windfall Profit Tax Act of 1980, ‘January 1, 1980’ Ante, p. 261. shall be substituted for ‘October 1, 1978’.” (j) Effective Dates.— (1) In general.— Except as provided in paragraph (2), the amendments made by this section shall apply to periods after December 31, 1979, under rules similar to the rules of section 26 USC 48. 48(m) of the Internal Revenue Code of 1954. (2) Alumina electrolytic cells.— The amendments made by subsection (d)(1) shall apply to periods after September 30, 1978, under rules similar to the rules of section 48(m) of such Code. SEC. 223. OTHER CHANGES WITH RESPECT TO THE INVESTMENT CREDIT FOR INVESTMENT IN ENERGY PROPERTY. (a) Boilers Fueled by Petroleum Coke or Petroleum Pitch.— (1) In general.— Paragraph (10) of section 48(a) (relating to boilers fueled by oil or gas) is amended by adding at the end thereof the following new sentence: “For purposes of the preceding sentence, the term ‘petroleum or petroleum products’ does not include petroleum coke or petroleum pitch.” (2) Effective date.— The amendment made by paragraph (1) shall apply to periods after December 31, 1979, under rules similar to the rules of section 48(m) of the Internal Revenue Code of 1954. (b) Repeal of Refundable Credit for Solar or Wind Property.— (1) In general.— Paragraph (10) of section 46(a) (relating to special rules in case of energy property) is amended— (A) in subparagraph (A)— (i) by inserting “and” at the end of clause (i), (ii) by striking out “(other than solar or wind energy property), and” and inserting in lieu thereof a period in clause (ii), and (iii) by striking out clause (iii); (B) by striking out “other than solar or wind energy property” in the heading of subparagraph (B); and (C) by striking out subparagraph (C). (2) Conforming amendment.— Section 6401 (relating to amounts treated as overpayments) is amended by striking out subsection (d). (3) Effective date.— The amendments made by this subsection shall apply to qualified investment for taxable years beginning after December 31, 1979. (c) Credit To Be Reduced Where Certain Financing Is Used.— (1) In general.— Paragraph (11) of section 48(l) (relating to special rule for property financed by industrial development bonds), as amended by section 221(b)(2), is amended to read as follows: “(11) Special rule for property financed by subsidized energy financing or industrial development bonds.— “(A) Reduction of qualified investment.— For purposes of applying the energy percentage to any property, if such property is financed in whole or in part by— “(i) subsidized energy financing, or “(ii) the proceeds of an industrial development bond 26 USC 103. (within the meaning of section 103(b)(2)) the interest on which is exempt from tax under section 103, the amount taken into account as qualified investment shall not exceed the amount which (but for this subparagraph) would be the qualified investment multiplied by the fraction determined under subparagraph (B). “(B) Determination of fraction.— For purposes of subparagraph (A), the fraction determined under this subparagraph is 1 reduced by a fraction— “(i) the numerator of which is that portion of the qualified investment in the property which is allocable to such financing or proceeds, and “(ii) the denominator of which is the qualified investment in the property. “(C) Subsidized energy financing.— For purposes of subparagraph (A), the term ‘subsidized energy financing’ means financing provided under a Federal, State, or local program a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy.” (2) Effective dates.— (A) In general.— Except as provided in subparagraph (B), the amendment made by paragraph (1) shall apply to periods after December 31, 1982, under rules similar to the rules of section 48(m) of the Internal Revenue Code of 1954. 26 USC 48. (B) Earlier application for certain property.— In the case of property which is— (i) qualified hydroelectric generating property (described in section 48(l)(2)(A)(vii) of such Code), (ii) cogeneration equipment (described in section 48(l)(2)(A)(viii) of such Code), (iii) qualified intercity buses (described in section 48(l)(2)(A)(ix) of such Code), (iv) ocean thermal property (described in section 48(l)(3)(A)(ix) of such Code), or (v) expanded energy credit property, the amendment made by paragraph (1) shall apply to periods after December 31, 1979, under rules similar to the rules of section 48(m) of the Internal Revenue Code of 1954. (C) Expanded energy credit property.— For purposes of subparagraph (B), the term “expanded energy credit property” means— (i) property to which section 48(l)(3)(A) of such Code applies because of the amendments made by paragraphs (1) and (2) of section 222(b), Ante, p. 261. (ii) property described in section 48(l)(4)(C) of such Code (relating to solar process heat), Ante, p. 262. (iii) property described in section 48(l)(5)(L) of such Code (relating to alumina electrolytic cells), and Ante, p. 262. (iv) property described in the last sentence of section 48(l)(3)(A) of such Code (relating to storage equipment Ante, p. 264. for refuse-derived fuel). (D) Financing taken into account.— For the purpose of applying the provisions of section 48(l)(11) of such Code in the Ante, p. 266. case of property financed in whole or in part by subsidized energy financing (within the meaning of section 48(l)(11)(C) of such Code), no financing made before January 1, 1980, shall be taken into account. The preceding sentence shall not apply to financing provided from the proceeds of any tax-exempt industrial development bond (within the meaning of section 103(b)(2) of such Code). 26 USC 103. PART III— PRODUCTION OF FUEL FROM NONCONVENTIONAL SOURCES; ALCOHOL FUELS SEC. 231. PRODUCTION TAX CREDIT. (a) In General.— Subpart A of part IV of subchapter A of chapter 1 (relating to credits against tax) is amended by inserting after section 44C the following new section: “SEC. 44D. CREDIT FOR PRODUCING FUEL FROM A NONCONVENTIONAL SOURCE. “(a) Allowance of Credit.— There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to— “(1) $3, multiplied by “(2) the barrel-of-oil equivalent of qualified fuels— “(A) sold by the taxpayer to an unrelated person during the taxable year, and “(B) the production of which is attributable to the taxpayer. “(b) Limitations and Adjustments.— “(1) Phaseout of credit.— The amount of the credit allowable under subsection (a) shall be reduced by an amount which bears the same ratio to the amount of the credit (determined without regard to this paragraph) as— “(A) the amount by which the reference price for the calendar year in which the taxable year begins exceeds $23.50, bears to “(B) $6. “(2) Credit and phaseout adjustment based on inflation.— The $3 amount in subsection (a) and the $23.50 and $6 amounts in paragraph (1) shall each be adjusted by multiplying such amount by the inflation adjustment factor for the calendar year in which a taxable year begins. In the case of gas from a tight formation, the $3 amount in subsection (a) shall not be adjusted. “(3) Credit reduced for grants, tax-exempt bonds, and subsidized energy financing.— “(A) In general.— The amount of the credit allowable under subsection (a) with respect to any project for any taxable year (determined after the application of paragraphs (1) and (2)) shall be reduced by the amount which is the product of the amount so determined for such year and a fraction— “(i) the numerator of which is the sum, for the taxable year and all prior taxable years, of— “(I) grants provided by the United States, a State, or a political subdivision of a State for use in connection with the project, “(II) proceeds of any issue of State or local government obligations used to provide financing for the project the interest on which is exempt from tax 26 USC 103. under section 103, and “(III) the aggregate amount of subsidized energy Ante, p. 266. financing (within the meaning of section 48(l)(11)(C)) provided in connection with the project, and “(ii) the denominator of which is the aggregate amount of additions to the capital account for the project for the taxable year and all prior taxable years. “(B) Amounts determined at close of year.— The amounts under subparagraph (A) for any taxable year shall be determined as of the close of the taxable year. “(4) Credit reduced for energy credit.— The amount allowable as a credit under subsection (a) with respect to any project for any taxable year (determined after the application of paragraphs (1), (2), and (3)) shall be reduced by the excess of— “(A) the aggregate amount allowed under section 38 for 26 USC 38. the taxable year or any prior taxable year by reason of the energy percentage with respect to property used in the project, over “(B) the aggregate amount recaptured with respect to the amount described in subparagraph (A)— “(i) under section 47 for the taxable year or any prior 26 USC 47. taxable year, or “(ii) under this paragraph for any prior taxable year. The amount recaptured under section 47 with respect to any property shall be appropriately reduced to take into account any reduction in the credit allowed by this section by reason of the preceding sentence. “(5) Application with other credits.— The credit allowed by subsection (a) for a taxable year shall not exceed the tax imposed by this chapter for such taxable year, reduced by the sum of the credits allowable under a section of this subpart having a lower number or letter designation than this section, other than the credits allowable by sections 31, 39, and 43. For purposes of the 26 USC 31, 39, 43. preceding sentence, the term ‘tax imposed by this chapter’ shall not include any tax treated as not imposed by this chapter under the last sentence of section 53(a). 26 USC 53. “(c) Definition of Qualified Fuels.— For purposes of this section— “(1) In general.— The term ‘qualified fuels’ means— “(A) oil produced from shale and tar sands, “(B) gas produced from— “(i) geopressured brine, Devonian shale, coal seams, or a tight formation, or “(ii) biomass, “(C) liquid, gaseous, or solid synthetic fuels produced from coal (including lignite), including such fuels when used as feedstocks, “(D) qualifying processed wood fuels, and “(E) steam produced from solid agricultural byproducts (not including timber byproducts). “(2) Gas from geopressured brine, etc.— “(A) In general.— Except as provided in subparagraph (B), the determination of whether any gas is produced from geopressured brine, Devonian shale, coal seams, or a tight formation shall be made in accordance with section 503 of the Natural Gas Policy Act of 1978. 15 USC 3413. “(B) Special rules for gas from tight formations.— The term ‘gas produced from a tight formation’ shall only include— “(i) gas the price of which is regulated by the United States, and “(ii) gas for which the maximum lawful price applicable under the Natural Gas Policy Act of 1978 is at least 15 USC 3301 note. 150 percent of the then applicable price under section 103 of such Act. 15 USC 3313. “(3) Biomass.— The term “biomass’ means any organic material 26 USC 48. which is an alternate substance (as defined in section 48(l)(3)(B)) other than coal (including lignite) or any product of such coal. “(4) Qualifying processed wood fuel.— “(A) In general.— The term ‘qualifying processed wood fuel’ means any processed solid wood fuel (other than charcoal, fireplace products, or a product used for ornamental or recreational purposes) which has a Btu content per unit of volume or weight, determined without regard to any non-wood elements, which is at least 40 percent greater per unit of volume or weight than the Btu content of the wood from which it is produced (determined immediately before the processing). “(B) Election.— A taxpayer shall elect, at such time and in such manner as the Secretary by regulations may prescribe, as to whether Btu content per unit shall be determined for purposes of this paragraph on a volume or weight basis. Any such election— “(i) shall apply to all production from a facility; and “(ii) shall be effective for the taxable year with respect to which it is made and for all subsequent taxable years and, once made, may be revoked only with the consent of the Secretary. “(5) Agricultural byproduct steam.— Steam produced from solid agricultural byproducts which is used by the taxpayer in his trade or business shall be treated as having been sold by the taxpayer to an unrelated person on the date on which it is used. “(d) Other Definitions and Special Rules.— For purposes of this section— “(1) Only production within the united states taken into account.— Sales shall be taken into account under this section only with respect to qualified fuels the production of which is within— “(A) the United States (within the meaning of section 26 USC 638. 638(1)), or “(B) a possession of the United States (within the meaning of section 638(2)). “(2) Computation of inflation adjustment factor and reference price.— “(A) In general.— The Secretary shall, not later than April 1 of each calendar year, determine and publish in the Federal Register the inflation adjustment factor and the reference price for the preceding calendar year in accordance with this paragraph. “(B) Inflation adjustment factor.— The term ‘inflation adjustment factor’ means, with respect to a calendar year, a fraction the numerator of which is the GNP implicit price deflator for the calendar year and the denominator of which is the GNP implicit price deflator for calendar year 1979. The term ‘GNP implicit price deflator’ means the first revision of the implicit price deflator for the gross national product as computed and published by the Department of Commerce. “(C) Reference price.— The term ‘reference price’ means with respect to a calendar year the Secretary’s estimate of the annual average wellhead price per barrel for all domestic crude oil the price of which is not subject to regulation by the United States. “(3) Production attributable to the taxpayer.— In the case of a property or facility in which more than 1 person has an interest, except to the extent provided in regulations prescribed by the Secretary, production from the property or facility (as the case may be) shall be allocated among such persons in proportion to their respective interests in the gross sales from such property or facility. “(4) Special rules applicable to gas from geopressured brine, devonian shale, coal seams, or a tight formation.— “(A) Credit allowed only for new production.— The amount of the credit allowable under subsection (a) shall be determined without regard to any production attributable to a property from which gas from Devonian shale, coal seams, geopressured brine, or a tight formation was produced in marketable quantities before January 1, 1980. “(B) Reference price and application of phaseout for devonian shale.— “(i) Reference price for devonian shale.— For purposes of this section, the term ‘reference price’ for gas from Devonian shale sold during calendar years 1980, 1981, and 1982 shall be the average wellhead price per thousand cubic feet for such year of high cost natural gas (as defined in section 107(c) (2), (3), and (4) of the Natural Gas Policy Act of 1978 and determined under 15 USC 3317. 15 USC 3413. section 503 of that Act) as estimated by the Secretary after consultation with the Federal Energy Regulatory Commission. “(ii) Different phaseout to apply for 1980, 1981, and 1982.— For purposes of applying paragraphs (1) and (2) of subsection (b) with respect to sales during calendar years 1980, 1981, and 1982 of gas from Devonian shale, ‘$4.05’ shall be substituted for ‘$23.50’ and ‘$1.03’ shall be substituted for ‘$6.00’. “(5) Phaseout does not apply for first 3 years of production from facility producing qualifying processed wood or steam from solid agricultural byproducts.— In the case of a facility for the production of— “(A) qualifying processed wood fuel, or “(B) steam from solid agricultural byproducts, paragraph (1) of subsection (b) shall not apply with respect to the amount of the credit allowable under subsection (a) for fuels sold during the 3-year period beginning on the date the facility is placed in service. “(6) Barrel-of-oil equivalent.— The term ‘barrel-of-oil equivalent’ with respect to any fuel means that amount of such fuel which has a Btu content of 5.8 million; except that in the case of qualified fuels described in subparagraph (C), (D), or (E) of subsection (c)(1), the Btu content shall be determined without regard to any material from a source not described in such subparagraph. “(7) Barrel defined.— The term ‘barrel’ means 42 United States gallons. “(8) Related persons.— Persons shall be treated as related to each other if such persons would be treated as a single employer under the regulations prescribed under section 52(b). 26 USC 52. “(9) Pass-through in the case of subchapter s corporations, etc.— Under regulations prescribed by the Secretary, rules similar 26 USC 52. to the rules of subsections (d) and (e) of section 52 shall apply. “(e) Credit Not Allowable If Taxpayer Makes Election Under Natural Gas Policy Act of 1978.— If the taxpayer makes an election under section 107(d) of the Natural Gas Policy Act of 1978 to have subsections (a) and (b) of section 107 of that Act, and subtitle B of title I of that Act, apply with respect to gas described in subsection (c)(1)(B)(i) produced from any well on a property, then the credit allowable by subsection (a) shall not be allowed with respect to any gas produced on that property. “(f) Application of Section.— “(1) In general.— Except as provided in paragraph (2), this section shall apply with respect to qualified fuels— “(A) which are— “(i) produced from a well drilled after December 31, 1979, and before January 1, 1990, or “(ii) produced in a facility placed in service after December 31, 1979, and before January 1, 1990, and “(B) which are sold after December 3, 1979, and before January 1, 2001. “(2) Special rules applicable to qualified processed wood and solid agricultural byproduct steam.— “(A) Credit allowed only for certain production.— In the case of qualifying processed wood fuel and steam from solid agricultural byproducts, this section shall apply only with respect to— “(i) qualifying processed wood fuel produced in facilities placed in service after December 3, 1979, and before January 1, 1982, which is sold before the later of— “(I) October 1, 1983, or “(II) the date which is 3 years after the date on which the facility is placed in service; and “(ii) steam produced in facilities placed in service after December 31, 1979, from solid agricultural byproducts which is sold before January 1, 1985. “(B) Expanded production of steam treated as new facility production.— For purposes of this subsection and subsection (d)(5), in the case of a facility for the production of steam from solid agricultural byproducts which was placed in service before January 1, 1980, any production of steam attributable to an expansion of the capacity of the facility to produce such steam through placing additional or replacement equipment in service after December 31, 1979, shall be treated as if it were produced by a facility placed in service on the date on which such equipment is placed in service.” (b) Technical and Conforming Amendments.— (1) The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 44C the following new item: “Sec. 44D. Credit for producing fuel from a nonconventional source.” (2) Subsection (b) of section 6096 (relating to designation of income tax payments to Presidential Election Campaign Fund) is amended by striking out “and 44C” and inserting in lieu thereof “44C, and 44D”. (c) Effective Dates.— The amendments made by this section shall apply to taxable years ending after December 31, 1979. SEC. 232. ALCOHOL FUELS. (a) Extension of Exemption Through 1992.— (1) Gasoline.— Subsection (c) of section 4081 (relating to gasoline 26 USC 4081. mixed with alcohol) is amended by adding at the end thereof the following new paragraph: “(4) Termination.— Paragraph (1) shall not apply to any sale after December 31, 1992.” (2) Special fuels.— Subsection (k) of section 4041 (relating to 26 USC 4041. fuels containing alcohol) is amended by adding at the end thereof the following new paragraph: “(3) Termination.— Paragraph (1) shall not apply to any sale or use after December 31, 1992.” (3) Technical amendment.— Subsections (a)(2) and (b)(2) of the Energy Tax Act of 1978 are each amended by striking out “, and 26 USC 4041 note, 4081 note. before October 1, 1984”. (b) Credit Against Income Tax.— (1) In general.— Subpart A of part IV of subchapter A of chapter 1 (relating to credits allowed) is amended by inserting before section 45 the following new section: “SEC. 44E. ALCOHOL USED AS FUEL. “(a) General Rule.— There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of— “(1) the alcohol mixture credit, plus “(2) the alcohol credit. “(b) Definition of Alcohol Mixture Credit and Alcohol Credit.— For purposes of this section— “(1) Alcohol mixture credit.— “(A) In general.— The alcohol mixture credit of any taxpayer for any taxable year is 40 cents for each gallon of alcohol used by the taxpayer in the production of a qualified mixture. “(B) Qualified mixture.— The term ‘qualified mixture’ means a mixture of alcohol and gasoline or of alcohol and a special fuel which— “(i) is sold by the taxpayer producing such mixture to any person for use as a fuel, or “(ii) is used as a fuel by the taxpayer producing such mixture. “(C) Sale or use must be in trade or business, etc.— Alcohol used in the production of a qualified mixture shall be taken into account— “(i) only if the sale or use described in subparagraph (B) is in a trade or business of the taxpayer, and “(ii) for the taxable year in which such sale or use occurs. “(D) Casual off-farm production not eligible.— No credit shall be allowed under this section with respect to any casual off-farm production of a qualified mixture. “(2) Alcohol credit.— “(A) In general.— The alcohol credit of any taxpayer for any taxable year is 40 cents for each gallon of alcohol which is not in a mixture with gasoline or a special fuel (other than any denaturant) and which during the taxable year— “(i) is used by the taxpayer as a fuel in a trade or business, or “(ii) is sold by the taxpayer at retail to a person and placed in the fuel tank of such person’s vehicle. “(B) User credit not to apply to alcohol sold at retail.— No credit shall be allowed under subparagraph (A)(i) with respect to any alcohol which was sold in a retail sale described in subparagraph (A)(ii). “(3) Smaller credit for lower proof alcohol.— In the case of any alcohol with a proof which is at least 150 but less than 190, paragraphs (1)(A) and (2)(A) shall be applied by substituting “30 cents” for “40 cents”. “(4) Adding of denaturants not treated as mixture.— The adding of any denaturant to alcohol shall not be treated as the production of a mixture. “(c) Coordination With Exemption From Excise Tax.— The amount of the credit allowable under this section with respect to any alcohol shall, under regulations prescribed by the Secretary, be properly reduced to take into account any benefit provided with respect to such alcohol solely by reason of the application of section Ante, p. 273. 4041(k) or 4081(c). “(d) Definitions and Special Rules.— For purposes of this section— “(1) Alcohol defined.— “(A) In general.— The term ‘alcohol’ includes methanol and ethanol but does not include— “(i) alcohol produced from petroleum, natural gas, or coal, or “(ii) alcohol with a proof of less than 150. “(B) Determination of proof.— The determination of the proof of any alcohol shall be made without regard to any added denaturants. “(2) Special fuel defined.— The term ‘special fuel’ includes any liquid fuel (other than gasoline) which is suitable for use in an internal combustion engine. “(3) Mixture or alcohol not used as a fuel, etc.— “(A) Mixtures.— If— “(i) any credit was allowable under this section with respect to alcohol used in the production of any qualified mixture, and “(ii) any person— “(I) separates the alcohol from the mixture, or “(II) without separation, uses the mixture other than as a fuel, then there is hereby imposed on such person a tax equal to 40 cents a gallon (30 cents in the case of alcohol with a proof less than 190) for each gallon of alcohol in such mixture. “(B) Alcohol.— If— “(i) any credit was allowable under this section with respect to the retail sale of any alcohol, and “(ii) any person mixes such alcohol or uses such alcohol other than as a fuel, then there is hereby imposed on such person a tax equal to 40 cents a gallon (30 cents in the case of alcohol with a proof less than 190) for each gallon of such alcohol. “(C) Applicable laws.— All provisions of law, including penalties, shall, insofar as applicable and not inconsistent with this section, apply in respect of any tax imposed under subparagraph (A) or (B) as if such tax were imposed by 26 USC 4081. section 4081 and not by this chapter. “(4) Volume of alcohol.— For purposes of determining— “(A) under subsection (a) the number of gallons of alcohol with respect to which a credit is allowable under subsection (a), or “(B) under section 4041(k) or 4081(c) the percentage of any Ante, p. 273. mixture which consists of alcohol, the volume of alcohol shall include the volume of any denaturant (including gasoline) which is added under any formulas approved by the Secretary to the extent that such denaturants do not exceed 5 percent of the volume of such alcohol (including denaturants). “(5) Pass-through in the case of subchapter s corporations, etc.— Under regulations prescribed by the Secretary, rules similar to the rules of subsections (d) and (e) of section 52 shall apply. 26 USC 52. “(e) Limitation Based on Amount of Tax.— “(1) In general.— The amount of the credit allowed by this section for the taxable year shall not exceed the tax imposed by this chapter for the taxable year, reduced by the sum of the credits allowed under a section of this subpart having a lower number designation than this section, other than credits allowable by sections 31, 39, and 43. For purposes of the preceding 26 USC 31, 39, 43. sentence, the term ‘tax imposed by this chapter’ shall not include any tax treated as not imposed by this chapter under the last sentence of section 53(a). 26 USC 53. “(2) Carryover of unused credit.— “(A) In general.— If the amount of the credit determined under subsection (a) for any taxable year exceeds the limitation provided by paragraph (1) for such taxable year (hereinafter in this paragraph referred to as the ‘unused credit year’), such excess shall be an alcohol fuel credit carryover to each of the 7 taxable years following the unused credit year, and shall be added to the amount allowable as credit under subsection (a) for such years. The entire amount of the unused credit for an unused credit year shall be carried to the earliest of the 7 taxable years to which (by reason of the preceding sentence) such credit may be carried, and then to each of the other 6 taxable years to the extent that, because of the limitation contained in subparagraph (B), such unused credit may not be added for a prior taxable year to which such unused credit may be carried. “(B) Limitation.— The amount of the unused credit which may be added under subparagraph (A) for any succeeding taxable year shall not exceed the amount by which the limitation provided by paragraph (1) for such succeeding taxable year exceeds the sum of— “(i) the credit allowable under subsection (a) for such taxable year, and “(ii) the amounts which, by reason of this paragraph, are added to the amount allowable for such taxable year and which are attributable to taxable years preceding the unused credit year. “(f) Termination.— “(1) In general.— This section shall not apply to any sale or use after December 31, 1992. “(2) No carryovers to years after 1994.— No amount may be carried under subsection (e)(2) to any taxable year beginning after December 31, 1994.” (2) Technical amendments related to carryover of credit.— (A) Paragraph (3) of section 55(c) is amended by adding at the end thereof the following new sentence: Ante, p. 273. “In determining any carryover under section 44E(e)(2), a rule similar to the rule set forth in subparagraph (A) shall be treated as inserted in this paragraph before subparagraph (A), and the applications of subparagraphs (A), (B), and (C) shall be adjusted accordingly.” (B) Subsection (c) of section 381 (relating to items of the distributor or transferor corporation) is amended by adding at the end thereof the following new paragraph: “(27) Credit under section 44e for alcohol used as fuel.— The acquiring corporation shall take into account (to the extent proper to carry out the purposes of this section and section 44E, and under such regulations as may be prescribed by the Secretary) the items required to be taken into account for purposes of section 44E in respect of the distributor or transferor corporation.” (C) Section 383 (relating to special limitations on unused investment credits, work incentive credits, new employee credits, foreign taxes, and capital losses), as in effect for taxable years beginning after June 30, 1982, is amended— (i) by inserting “to any unused credit of the corporation under section 44E(e)(2),” after “section 53(c),”, and (ii) by striking out “NEW EMPLOYEE CREDITS” in the section heading and inserting in lieu thereof “NEW EMPLOYEE CREDITS, ALCOHOL FUEL CREDITS”. (D) Section 383 (as in effect on the day before the date of 26 USC 1 note. the enactment of the Tax Reform Act of 1976) is amended— (i) by inserting “to any unused credit of the corporation which could otherwise be carried forward under section 44E(e)(2),” after “section 53(c),”, and (ii) by striking out “NEW EMPLOYEE CREDITS” in the section heading and inserting in lieu thereof “NEW EMPLOYEE CREDITS, ALCOHOL FUEL CREDITS”. (3) Other technical and conforming amendments.— (A) Paragraph (3) of section 4081(c) (defining alcohol) is amended by adding at the end thereof the following new sentence: “Such term does not include alcohol with a proof of less than 190 (determined without regard to any added denaturants).” (B) The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by inserting immediately after the item relating to section 44D the following new item: “Sec. 44E. Alcohol used as fuel.” (C) Section 6096(b) (relating to designation of income tax payments to Presidential Election Campaign Fund), as amended by section 231, is amended by striking out “and 44D” and inserting “44D, and 44E”. (c) Credit To Be Included in Income.— (1) In general.— Part II of subchapter B of chapter 1 (relating to items specifically included in gross income) is amended by adding at the end thereof the following new section: “SEC. 86. ALCOHOL FUEL CREDIT. “Gross income includes an amount equal to the amount of the credit allowable to the taxpayer under section 44E for the taxable Ante, p. 273. year (determined without regard to subsection (e) thereof).” (2) Technical amendment.— Subparagraph (B) of section 55(b)(1) (defining alternative minimum taxable income) is 26 USC 55. amended by striking out “section 667” and inserting in lieu thereof “section 86 or 667”. (3) Conforming amendment.— The table of sections for such part II is amended by inserting at the end thereof the following new item: “Sec. 86. Alcohol fuel credit” (d) Refund of Tax on Gasoline Used to Produce Certain Alcohol Fuels.— (1) General rule.— Section 6427 (relating to fuels not used for 26 USC 6427. taxable purposes) is amended— (A) by redesignating subsections (f), (g), (h), (i), and (j) as subsections (g), (h), (i), (j), and (k), respectively; and (B) by inserting after subsection (e) the following new subsection: “(f) Gasoline Used to Produce Certain Alcohol Fuels.— “(1) In general.— Except as provided in subsection (i), if any gasoline on which tax is imposed by section 4081 is used by any 26 USC 4081. Ante, pp. 273, 276. Infra. person in producing a mixture described in section 4081(c) which is sold or used in such person’s trade or business, the Secretary shall pay (without interest) to such person an amount equal to the aggregate amount of the tax imposed on such gasoline. The preceding sentence shall not apply with respect to any mixture sold or used after December 31, 1992. “(2) Coordination with other repayment provisions.— No amount shall be payable under subsection (d) or (e) of this section or under section 6420 or 6421 with respect to any gasoline with 26 USC 6420, 6421. respect to which an amount is payable under paragraph (1).” (2) Quarterly refund allowed where $200 or more is payable.— (A) Subparagraph (A) of section 6427(g)(2) (as redesignated 26 USC 6427. by paragraph (1)) is amended by striking out “or” at the end of clause (i), by inserting “or” at the end of clause (ii), and by inserting after clause (ii) the following new clause: “(iii) $200 or more is payable under subsection (f),”. (B) Subparagraph (B) of section 6427(g)(2) (as redesignated by paragraph (D) is amended to read as follows: “(B) Special rule.— If the requirements of clause (ii) or clause (iii) of subparagraph (A) are met by any person for any quarter but the requirements of subparagraph (A)(i) are not met by such person for such quarter, such person may file a claim under subparagraph (A) for such quarter only with respect to amounts referred to in the clause (or clauses) of subparagraph (A) the requirements of which are met by such person for such quarter.” (3) Treatment of subsequent separation.— Paragraph (2) of section 4081(c) (relating to later separation of gasoline) is 26 USC 4081. amended by inserting “(or with respect to which a credit or payment was allowed or made by reason of section 6427(f)(1))” after “this subsection”. (4) Technical amendments.— (A) Subsections (a)(4) and (b) of section 39 are each amended by striking out “6427(h)” and inserting in lieu thereof “6427(i)”. (B) Subsections (a), (b)(1), (c), (d), and (e)(1) of section 6427 are each amended by striking out “(h)” and inserting in lieu thereof “(i)”. (C) Subsection (g)(1) of such section 6427 (as redesignated by paragraph (1)(A)) is amended by striking out “(a), (b), (c), (a), or (e)” and inserting in lieu thereof “(a), (b), (c), (d), (e), or (f)”. (D) Subsection (i)(2) of such section 6427 (as redesignated by paragraph (1)(A)) is amended by striking out “(f)(2)” and inserting in lieu thereof “(g)(2)”. (E) Sections 7210, 7603, 7604(b), 7604(c)(2), 7605(a), 26 USC 7210, 7603, 7604, 7605, 7609, 7610. 7609(c)(1), and 7610(c) are each amended by striking out “6427(g)(2)” each place it appears and inserting in lieu thereof “6427(h)(2)”. (e) Exemption From Distilled Spirits Rules.— (1) In general.— Subchapter B of chapter 51 (relating to distilled spirits, wines, and beers) is amended by redesignating 26 USC 5182. section 5181 as section 5182 and by inserting after section 5180 the following new section: “SEC. 5181. DISTILLED SPIRITS FOR FUEL USE. “(a) In General.— “(1) Purposes for which plant may be established.— On such application and bond and in such manner as the Secretary may prescribe by regulation, a person may establish a distilled spirits plant solely for the purpose of— “(A) producing, processing, and storing, and “(B) using or distributing, distilled spirits to be used exclusively for fuel use. “(2) Regulations.— In prescribing regulations under paragraph (1) and in carrying out the provisions of this section, the Secretary shall, to the greatest extent possible, take steps to— “(A) expedite all applications; “(B) establish a minimum bond; and “(C) generally encourage and promote (through regulation or otherwise) the production of alcohol for fuel purposes. “(b) Authority To Exempt.— The Secretary may by regulation provide for the waiver of any provision of this chapter (other than this section or any provision requiring the payment of tax) for any distilled spirits plant described in subsection (a) if the Secretary finds it necessary to carry out the provisions of this section. “(c) Special Rules for Small Plant Production.— “(1) Applications.— “(A) In general.— An application for an operating permit for an eligible distilled spirits plant shall be in such a form and manner, and contain such information, as the Secretary may by regulations prescribe; except that the Secretary shall, to the greatest extent possible, take steps to simplify the application so as to expedite the issuance of such permits. “(B) Receipt of application.— Within 15 days of receipt of an application under subparagraph (A), the Secretary shall send a written notice of receipt to the applicant, together with a statement as to whether the application meets the requirements of subparagraph (A). If such a notice is not sent and the applicant has a receipt indicating that the Secretary has received an application, paragraph (2) shall apply as if a written notice required by the preceding sentence, together with a statement that the application meets the requirements of subparagraph (A), had been sent on the 15th day after the date the Secretary received the application. “(C) Multiple applications.— If more than one application is submitted with respect to any eligible distilled spirits plant in any calendar quarter, the provisions of this section shall apply only to the first application submitted with respect to such plant during such quarter. For purposes of the preceding sentence, if a corrected or amended first application is filed, such application shall not be considered as a separate application, and the 15-day period referred to in subparagraph (A) shall commence with receipt of the corrected or amended application. “(2) Determination.— “(A) In general.— In any case in which the Secretary under paragraph (1)(B) has notified an applicant of receipt of an application which meets the requirements of paragraph (1)(A), the Secretary shall make a determination as to whether such operating permit is to be issued, and shall notify the applicant of such determination, within 45 days of the date on which notice was sent under paragraph (1)(B). “(B) Failure to make determination.— If the Secretary has not notified an applicant within the time prescribed under subparagraph (A), the application shall be treated as approved. “(C) Rejection of application.— If the Secretary determines under subparagraph (A) that a permit should not be issued— “(i) the Secretary shall include in the notice to the applicant of such determination under subparagraph (A) detailed reasons for such determination, and “(ii) such determination shall not prejudice any further application for such operating permit. “(3) Bond.— No bond shall be required for an eligible distilled spirits plant. For purposes of section 5212 and subsection (e)(2) of 26 USC 5212. this section, the premises of an eligible distilled spirits plant shall be treated as bonded premises. “(4) Eligible distilled spirits plant.— The term ‘eligible distilled spirits plant’ means a plant which is used to produce distilled spirits exclusively for fuel use and the production from which does not exceed 10,000 proof gallons per year. “(d) Withdrawal Free of Tax.— Distilled spirits produced under this section may be withdrawn free of tax from the bonded premises (and any premises which are not bonded by reason of subsection (c)(3)) of a distilled spirits plant exclusively for fuel use as provided in section 5214(a)(12). 26 USC 5214. “(e) Prohibited Withdrawal, Use, Sale, or Disposition.— “(1) In general.— Distilled spirits produced under this section shall not be withdrawn, used, sold, or disposed of for other than fuel use. “(2) Rendering unfit for use.— For protection of the revenue and under such regulations as the Secretary may prescribe, distilled spirits produced under this section shall, before withdrawal from the bonded premises of a distilled spirits plant, be rendered unfit for beverage use by the addition of substances which will not impair the quality of the spirits for fuel use. “(f) Definition of Distilled Spirits.— For purposes of this section, the term ‘distilled spirits’ does not include distilled spirits produced from petroleum, natural gas, or coal”. (2) Technical and conforming amendments.— (A) Section 5601(a) (relating to criminal penalties) is amended by adding the word “or” at the end of paragraph (14) and by inserting immediately after paragraph (14) the following new paragraph: “(15) Unauthorized withdrawal, use, sale, or distribution of distilled spirits for fuel use.— Withdraws, uses, sells, or otherwise disposes of distilled spirits produced under section Ante, p. 278. 26 USC 5214. 5181 for other than fuel use;”. (B) Section 5214(a) (relating to withdrawal of distilled spirits from bonded premises free of tax) is amended by striking out the period at the end of paragraph (11) and inserting in lieu thereof a semicolon and the word “or” and by adding at the end thereof the following new paragraph: “(12) free of tax in the case of distilled spirits produced under Ante, p. 278. 26 USC 5004. section 5181.” (C) Section 5004(a)(2)(B) (relating to lien for tax) is amended by striking out “or (11),” and inserting “(11), or (12),”. (D) Section 5005(d) (relating to person liable for tax) is amended by striking out “or (11)”, and inserting “(11), or (12),”. (E) Section 221(d) of the Energy Tax Act of 1978 is repealed. (F) The table of sections for subchapter B of chapter 51 is amended by striking out the item relating to section 5181 and by inserting after section 5180 the following new items: “Sec. 5181. Distilled spirits for fuel use. “Sec. 5182. Cross references.” (f) Study of Imported Alcohol.— Within 180 days after the date of the enactment of this Act, the Secretary of the Treasury shall furnish to the Committee on Finance of the United States Senate and to the Committee on Ways and Means of the United States House of Representatives recommendations as to what methods, if any, may be used to limit the importing of alcohol into the United States for fuel purposes, including, but not limited to— (1) denial of the exemption under sections 4081(c) and 4041(k) of the Internal Revenue Code of 1954 or of the credit under section Ante, pp. 273, 276, 277. 44E of such Code to fuels produced from imported alcohol, (2) import quotas and duties on such alcohol, and (3) strict surveillance of such imports to monitor their effect on the domestic fuel alcohol industry. (g) Reports.— Subsection (c) of section 221 of the Energy Tax Act of 26 USC 4041 note. Submittal to Congress. 1978 is amended to read as follows: “(c) Reports.— On April 1 of each year, beginning with April 1, 1981, and ending with April 1, 1992, the Secretary of Energy, in consultation with the Secretary of the Treasury and the Secretary of Transportation, shall submit to the Congress a report on the use of alcohol in fuel. The report shall include— “(1) a description of the firms engaged in the alcohol fuel industry, “(2) the amount of alcohol fuel sold in each State, and the amount of gasoline saved in each State by reason of the use of alcohol fuels, “(3) the revenue loss resulting from the exemptions from tax for alcohol fuels under sections 404 l(k) and 4081(c) of the Internal Revenue Code of 1954 and the credit allowable under section 44E Ante, pp. 273, 276, 277. of such Code and the impact of such revenue loss on the Highway Trust Fund, and “(4) the cost of production and the retail cost of alcohol fuels as compared to gasoline and special fuels not mixed with alcohol.” (h) Effective Dates.— (1) Subsections (b) and (c).— The amendments made by subsections 26 USC 44E note. (b) and (c) shall apply to sales or uses after September 30, 1980, in taxable years ending after such date. (2) Subsection (d).— (A) In general.— The amendments made by subsection (d) shall take effect on January 1, 1979. (B) Transitional rule.— Any mixture sold or used on or after January 1, 1979, and before the date of the enactment of this Act which is described in section 6427(f)(1) of the Internal Revenue Code of 1954 (as amended by subsection Ante, p. 277. (d)) shall, for purposes of section 6427 of such Code, be treated as sold or used on the date of the enactment of this Act. (3) Distilled spirits plants.— The amendments made by subsection 26 USC 5181 note. (e) shall take effect on the first day of the first calendar month beginning more than 60 days after the date of the enactment of this Act. PART IV— ENERGY-RELATED USES OF TAX-EXEMPT BONDS SEC. 241. SOLID WASTE DISPOSAL FACILITIES. (a) In General.— Section 103 (relating to interest on governmental 26 USC 103. obligations) is amended by redesignating subsection (g) as subsection (h), and by inserting after subsection (f) the following new subsection: “(g) Qualified Steam-Generating or Alcohol-Producing Facilities.— “(1) In general.— For purposes of subsection (b)(4)(E), the term Definitions. ‘solid waste disposal facility’ includes— “(A) a qualified steam-generating facility, and “(B) a qualified alcohol-producing facility. “(2) Qualified steam-generating facility defined.— For purposes of paragraph (1), the term ‘qualified steam-generating facility’ means a steam-generating facility for which— “(A) more than half of the fuel (determined on a Btu basis) is solid waste or fuel derived from solid waste, and “(B) substantially all of the solid waste derived fuel is produced at a facility which is— “(i) located at or adjacent to the site for such steam-generating facility, and “(ii) owned and operated by the person who owns and operates the steam-generating facility. “(3) Qualified alcohol-producing facility.— For purposes of paragraph (1), the term ‘qualified alcohol-producing facility’ means a facility— “(A) the primary product of which is alcohol, “(B) more than half of the feedstock for which is solid waste or a feedstock derived from solid waste, and “(C) substantially all of the solid waste derived feedstock for which is produced at a facility which is— “(i) located at or adjacent to the site for such alcohol-producing facility, and “(ii) owned and operated by the person who owns and operates the alcohol-producing facility. “(4) Special rule in case of steam-generating facility.— A facility for producing solid waste derived fuel shall be treated as a facility which meets the requirements of clauses (i) and (ii) of paragraph (2)(B) if— “(A) such facility and the steam-generating facility are owned and operated by or for a State or the same political subdivision or subdivisions of a State, and “(B) substantially all of the solid waste used in producing the solid waste derived fuel at the facility producing such fuel is collected from the area in which the steam-generating facility is located.” (b) Certain Solid Waste and Energy-Producing Facilities.— (1) General rule.— For purposes of section 103 of the Internal Ante, p. 281. Post, p. 286. Revenue Code of 1954, any obligation issued by an authority for 2 or more political subdivisions of a State which is part of an issue substantially all of the proceeds of which are to be used to provide solid waste-energy producing facilities shall be treated as an obligation of a political subdivision of a State which meets the requirements of section 103(b)(4)(E) of such Code (relating to solid waste disposal, etc., facilities). Nothing in the preceding sentence shall be construed to override the limitations of section 103(c) of such Code (relating to arbitrage bonds). (2) Solid waste-energy producing facilities.— For purposes of paragraph (1), the term “solid waste-energy producing facilities” means any solid waste disposal facility and any facility for the production of steam and electrical energy if— (A) substantially all of the fuel for the facility producing steam and electrical energy is derived from solid waste from such solid waste disposal facility, (B) both such solid waste disposal facility and the facility producing steam and electrical energy are owned and operated by the authority referred to in paragraph (1), and (C) all of the electrical energy and steam produced by the facility for producing steam and electricity which is not used by such facility is sold, for purposes other than resale, to an agency or instrumentality of the United States. (3) Solid waste disposal facility.— For purposes of paragraph (2), the term “solid waste disposal facility” means any solid waste disposal facility within the meaning of section 103(b)(4)(E) of the Internal Revenue Code of 1954 (determined without regard to section 103(g) of such Code). (4) Obligations must be in registered form.— This subsection shall not apply to any obligation which is not issued in registered form. (c) Special Rule for Certain Alcohol-Producing Facilities.— (1) In general.— Subparagraph (C) of section 103(g)(3) of the Ante, p. 281. Internal Revenue Code of 1954 (as added by subsection (a)) shall not apply to any facility for the production of alcohol from solid waste if— (A) substantially all of the solid waste derived feedstock for such facility is produced at a facility which— (i) went into full production in 1977, (ii) is located within the limits of a city, and (iii) is located in the same metropolitan area as the alcohol-producing facility, and (B) before March 1, 1980, there were negotiations between a governmental body and an organization described in section 501(c)(3) of the Internal Revenue Code of 1954 with 26 USC 501. respect to the utilization of a special process for the production of alcohol at such alcohol-producing facility. (2) Limitation.— The aggregate amount of obligations which may be issued by reason of paragraph (1) with respect to any project shall not exceed $30,000,000. (3) Termination.— This subsection shall not apply to obligations issued after December 31, 1985. (d) Effective Date.— The amendments made by subsection (a) and 26 USC 103 note. the provisions of subsections (b) and (c) shall apply with respect to obligations issued after October 18, 1979. SEC. 242. QUALIFIED HYDROELECTRIC GENERATING FACILITIES. (a) Qualified Hydroelectric Generating Facilities.— (1) In general.— Paragraph (4) of section 103(b) (relating to 26 USC 103. certain exempt activities) is amended— (A) by striking out “or” at the end of subparagraph (F), (B) by striking out the period at the end of subparagraph (G) and inserting in lieu thereof”, or”, and (C) by inserting after subparagraph (G) the following new subparagraph: “(H) qualified hydroelectric generating facilities.” (2) Definitions.— Subsection (b) of section 103 is amended by redesignating paragraph (8) as paragraph (9) and by inserting after paragraph (7) the following new paragraph: “(8) Qualified hydroelectric generating facilities.— For purposes of this section— “(A) Qualified hydroelectric generating facility.— The term ‘qualified hydroelectric generating facility’ means any qualified hydroelectric generating property which is owned by a State, political subdivision thereof, or agency or instrumentality of any of the foregoing. “(B) Qualified hydroelectric generating property.— “(i) In general.— Except as provided in clause (ii), the term ‘qualified hydroelectric generating property’ has the meaning given to such term by section 48(l)(13). Ante, p. 262. “(ii) Dam must be owned by governmental body.— The term ‘qualified hydroelectric generating property’ does not include any property installed at the site of any dam described in section 48(1)(13)(B)(i)(I) unless such dam was owned by one or more governmental bodies described in subparagraph (A) on October 18, 1979, and at all times thereafter until the obligations are no longer outstanding. “(C) Limitation.— Paragraph (4)(H) of this subsection shall not apply to any issue of obligations (otherwise qualifying under paragraph (4)(H)) if the portion of the proceeds of such issue which is used to provide qualified hydroelectric generating facilities exceeds (by more than an insubstantial amount) the product of— “(i) the eligible cost of the facilities being provided in whole or in part from the proceeds of the issue, and “(ii) the installed capacity fraction. “(D) Installed capacity fraction.— The term ‘installed capacity fraction’ means the fraction— “(i) the numerator of which is 25, reduced by 1 for each megawatt by which the installed capacity exceeds 100 megawatts, and “(ii) the denominator of which is the number of megawatts of the installed capacity (but not in excess of 100). For purposes of the preceding sentence, the term ‘installed capacity’ has the meaning given to such term by section Ante, p. 262. 48(l)(13)(E). “(E) Eligible cost.— “(i) In general.— The eligible cost of any facilities is that portion of the total cost of such facilities which is reasonably expected— “(I) to be the cost to the governmental body described in subparagraph (A), and “(II) to be attributable to periods after October 18, 1979, and before 1986 (determined under rules similar to the rules of section 48(m)). “(ii) Longer period for certain hydroelectric generating property.— If an application has been docketed by the Federal Energy Regulatory Commission before January 1, 1986, with respect to the installation of any qualified hydroelectric generating property, clause (i)(II) shall be applied with respect to such property by substituting ‘1989’ for ‘1986’. “(F) Certain prior issues taken into account.— If the proceeds of 2 or more issues (whether or not the issuer of each issue is the same) are or will be used to finance the same facilities, then, for purposes of subparagraph (C), in determining the amount of the proceeds of any later issue used to finance such facilities, there shall be taken into account the proceeds used to finance such facilities of all prior such issues which are outstanding at the time of such later issue (not including as outstanding any obligation which is to be redeemed from the proceeds of the later issue).” (b) Application of Section 103(b)(4)(H) to Certain Facilities.— (1) In general.— For purposes of section 103(b)(4)(H) of the Internal Revenue Code of 1954 (relating to qualified hydroelectric generating facilities), in the case of a hydroelectric generating facility described in paragraph (2)— (A) the facility shall be treated as a qualified hydroelectric generating facility (as defined in section 103(b)(8)(A) of such Code) without regard to clause (ii) of section 48(l)(13)(8) of such Code (relating to maximum generating capacity), and (B) the fraction referred to in subparagraph (C) of section 103(b)(8) of such Code shall be deemed to be 1. (2) Facilities to which paragraph (1) applies.— A facility is described in this paragraph if— (A) it would be a qualified hydroelectric generating facility (as defined in section 103(b)(8)(A) of such Code) if clause (ii) of section 48(l)(13)(B) did not apply, (B) it constitutes an expansion of generating capacity at an existing hydroelectric generating facility, (C) such facility is located at 1 of 2 dams located in the same county where— (i) the rated capacity of the hydroelectric generating facilities at each such dam on October 18, 1979, was more than 750 megawatts, (ii) the construction of the first such dam began in 1956, power at such first dam was first generated in 1959, and full power production at such first dam began in 1961, and (iii) the construction of the second such dam began in 1959, power at such second dam was first generated in 1963, and full power production at such second dam began in 1964, (D) acquisition or construction of the existing facility referred to in subparagraph (B) was financed with the proceeds of an obligation described in section 103(a)(1) of such Code, 26 USC 103. (E) the existing facility is owned and operated by a State, political subdivision of a State, or agency or instrumentality of any of the foregoing, (F) no more than 60 percent of the electric power and energy produced by such existing facility and of the qualified hydroelectric generating facility is to be sold to anyone other than an exempt person (within the meaning of section 103(b)(3) of such Code), and (G) the agency of the State in which the facility is located which has jurisdiction over water rights had granted, before October 18, 1979, a water right under which expanded power and energy generating capacity for the facility was contemplated. (c) Effective Date.— The amendments made by subsection (a) and 26 USC 103 note. the provisions of subsection (b) shall apply with respect to obligations issued after October 18, 1979. SEC. 243. RENEWABLE ENERGY PROPERTY. (a) Certain State Obligations for Renewable Energy Property.— (1) In general.— Paragraph (1) of subsection (b) of section 103 of the Internal Revenue Code of 1954 shall not apply to any obligation issued as part of an issue substantially all of the proceeds of which are to be used to provide renewable energy property, if— (A) the obligations are general obligations of a State, (B) the authority for the issuance of the obligations requires that taxes be levied in sufficient amount to provide for the payment of principal and interest on such obligations, (C) the amount of such obligations, when added to the sum of the amounts of all such obligations previously issued by the State which are outstanding, does not exceed the smaller of— (i) $500,000,000 or (ii) one-half of 1 percent of the value of all property in the State, (D) such obligations are issued pursuant to a program to provide financing for small scale energy projects which was established by a State the legislature of which, before Octo-ber 18, 1979, approved a constitutional amendment to provide for such a program, and (E) such obligations meet the requirements of paragraph Ante, p. 281. Infra. (1) of section 103(h) of the Internal Revenue Code of 1954. (2) Renewable energy property.— For purposes of this subsection, the term “renewable energy property means property used to produce energy (including heat, electricity, and substitute fuels) from renewable energy sources (including wind, solar, and geothermal energy, waste heat, biomass, and water). (b) Effective Date.— Subsection (a) shall apply with respect to obligations issued after the date of enactment of this Act. SEC. 244. CERTAIN OBLIGATIONS MUST BE IN REGISTERED FORM AND NOT GUARANTEED OR SUBSIDIZED UNDER AN ENERGY PROGRAM. (a) General Rule.— Section 103 (relating to interest on governmental Ante, p. 281. obligations), as amended by section 241, is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection: “(h) Certain Obligations Must Be in Registered Form and Not Guaranteed or Subsidized Under an Energy Program.— “(1) In general.— An obligation to which this subsection applies shall be treated as an obligation not described in subsection (a) if— “(A) such obligation is not issued in registered form, “(B) the payment of principal or interest with respect to such obligation is guaranteed (in whole or in part) by the United States under a program a principal purpose of which is to encourage the production or conservation of energy, or “(C) the payment of the principal or interest with respect to such obligation is to be made (in whole or in part) with funds provided under such a program of the United States, a State, or a political subdivision of a State. “(2) Obligations to which this subsection applies.— This subsection shall apply to any obligations to which paragraph (1) of subsection (b) does not apply by reason of— “(A) subsection (b)(4)(H) (relating to qualified hydroelectric generating facilities), or “(B) subsection (g) (relating to qualified steam-generating or alcohol-producing facilities).” (b) Effective Date.— The amendments made by subsection (a) shall apply to obligations issued on or after October 18, 1979. PART V— TERTIARY INJECTANTS SEC. 251. TERTIARY INJECTANTS. (a) Deduction for Tertiary Injectants.— (1) In general.— Part VI of subchapter B of chapter 1 (relating to itemized deductions for individuals and corporations) is amended by adding at the end thereof the following new section: “SEC. 193. TERTIARY INJECTANTS. “(a) Allowance of Deduction.— There shall be allowed as a deduction for the taxable year an amount equal to the qualified tertiary injectant expenses of the taxpayer for tertiary injectants injected during such taxable year. “(b) Qualified Tertiary Injectant Expenses.— For purposes of this section— “(1) In general.— The term ‘qualified tertiary injectant expenses’ means any cost paid or incurred during the taxable year (whether or not chargeable to capital account) for any tertiary injectant (other than a hydrocarbon injectant which is recoverable) which is used as a part of a tertiary recovery method. “(2) Hydrocarbon injectant.— The term ‘hydrocarbon injectant’ includes natural gas, crude oil, and any other injectant which is comprised of more than an insignificant amount of natural gas or crude oil. The term does not include any tertiary injectant which is hydrocarbon-based, or a hydrocarbon-derivative, and which is comprised of no more than an insignificant amount of natural gas or crude oil. For purposes of this paragraph, that portion of a hydrocarbon injectant which is not a hydrocarbon shall not be treated as a hydrocarbon injectant. “(3) Tertiary recovery method.— The term ‘tertiary recovery method’ means— “(A) any method which is described in subparagraphs (1) through (9) of section 212.78(c) of the June 1979 energy 10 CFR 212.78. Ante, p. 247. regulations (as defined by section 4996(b)(8)(C)), or “(B) any other method to provide tertiary enhanced recovery which is approved by the Secretary for purposes of this section. “(c) Application With Other Deductions.— No deduction shall be allowed under subsection (a) with respect to any expenditure— “(1) with respect to which the taxpayer has made an election under section 263(c), or 26 USC 263. “(2) with respect to which a deduction is allowed or allowable to the taxpayer under any other provision of this chapter.” (2) Technical and conforming amendments.— (A) The table of sections for such part VI is amended by adding at the end thereof the following new item: “Sec. 193. Tertiary injectants.” (B) Section 263(a)(1) (relating to capital expenditures) is amended— (i) by striking out “or” at the end of subparagraph (E), (ii) by striking out the period at the end of subparagraph (F) and inserting in lieu thereof “, or”, and (iii) by adding at the end thereof the following new subparagraph: “(G) expenditures for tertiary injectants with respect to which a deduction is allowed under section 193.” Ante, p. 286. 26 USC 1245. (C) Section 1245(a) (relating to gain from dispositions of certain depreciable property) is amended— (i) by striking out “or 190” each place it appears in paragraphs (2)(D) and (3)(D) and inserting in lieu thereof “190, or 193”, (ii) by inserting “193,” after “190,” each place it appears in paragraph (2), and (iii) by inserting “or 193” after “190” in the last sentence of paragraph (2). (D) Section 1250(b)(3) (relating to depreciation adjustments) 26 USC 1250. is amended by striking out “or 190” and inserting in lieu thereof “190, or 193”. (b) Effective Date.— The amendments made by this section shall 26 USC 193 note. apply to taxable years beginning after December 31, 1979.

35. 1980

    Mortgage Subsidy Bond Tax Act of 1980

    Pub. L. 96–499 § 1103(b) · 94 Stat. 2599

    Inserted · 26 U.S.C. § 103(b)(4)

    Pub. L. 96–499, § 1103(b), inserted before last sentence provisions defining “targeted area project” for purposes of subpar. (A)

    Source evidence

    Code amendment note
    Subsec. (b)(4). Pub. L. 96–499, § 1103(b), inserted before last sentence provisions defining “targeted area project” for purposes of subpar. (A).

    Enacted provision · exact public law section
    (b) Targeted Area Project Defined.— Paragraph (4) of section 103(b) of such Code is amended by inserting before the last sentence the following new sentence: “For purposes of subparagraph (A), the term ‘targeted area project’ means a project located in a qualified census tract (within the meaning of section 103A(k)(2)) or an area of chronic economic distress Ante, p. 2660. (within the meaning of section 103A(k)(3)).”

36. 1980

    Mortgage Subsidy Bond Tax Act of 1980

    Pub. L. 96–499 § 1103(a) · 94 Stat. 2599

    Substituted · 26 U.S.C. § 103(b)(4)(A)

    Pub. L. 96–499, § 1103(a), substituted provisions relating to low or moderate income residential rental property for provisions relating to residential real property for family units

    Source evidence

    Code amendment note
    Subsec. (b)(4)(A). Pub. L. 96–499, § 1103(a), substituted provisions relating to low or moderate income residential rental property for provisions relating to residential real property for family units.

    Enacted provision · exact public law section
    (a) In General.— Subparagraph (A) of paragraph (4) of section 26 USC 103. 103(b) of the Internal Revenue Code of 1954 (relating to industrial development bonds) is amended to read as follows: “(A) projects for residential rental property if each obligation issued pursuant to the issue is in registered form and if— “(i) 15 percent or more in the case of targeted area projects, or “(ii) 20 percent or more in the case of any other project, of the units in each project are to be occupied by individuals of low or moderate income (within the meaning of section 26 USC 167. 26 USC 103. 167(k)(3)(B)),”.

37. 1980

    Mortgage Subsidy Bond Tax Act of 1980

    Pub. L. 96–499 § 1103(c) · 94 Stat. 2599

    Added · 26 U.S.C. § 103(b)(6)(J)

    Pub. L. 96–499, § 1103(c), added subpar. (J)

    Source evidence

    Code amendment note
    Subsec. (b)(6)(J). Pub. L. 96–499, § 1103(c), added subpar. (J).

    Enacted provision · exact public law section
    (c) Technical Amendment.— Paragraph (6) of section 103(b) of such Code (relating to exemption for certain small issues) is amended by adding at the end thereof the following new subparagraph: “(J) Issues for residential purposes.— This paragraph shall not apply to any obligation which is issued as a part of an issue a significant portion of the proceeds of which are to be used directly or indirectly to provide residential real property for family units.”

38. 1981

    Economic Recovery Tax Act of 1981

    Pub. L. 97–34 § 811(a) · 95 Stat. 175

    Added · 26 U.S.C. § 103(b)(4)(I)

    Pub. L. 97–34, § 811(a), added subpar. (I)

    Source evidence

    Code amendment note
    Subsec. (b)(4)(I). Pub. L. 97–34, § 811(a), added subpar. (I).

    Enacted provision · exact public law section
    (a) General Rule.— Paragraph (4) of section 103(b) (relating to 26 USC 103. industrial development bonds) is amended by striking out “or” at the end of subparagraph (G), by striking out the period at the end of subparagraph (H) and inserting in lieu thereof “, or”, and by inserting after subparagraph (H) the following new subparagraph: “(I) qualified mass commuting vehicles.”

39. 1981

    Economic Recovery Tax Act of 1981

    Pub. L. 97–34 § 811(b) · 95 Stat. 175

    1. Added · 26 U.S.C. § 103(b)(9); 26 U.S.C. § 103(b)(10)

       Pub. L. 97–34, § 811(b), added par. (9)

    2. Redesignated · 26 U.S.C. § 103(b)(9); 26 U.S.C. § 103(b)(10)

       Pub. L. 97–34, § 811(b), redesignated former par. (9) as (10)

    Source evidence

    Code amendment note
    Subsec. (b)(9), (10). Pub. L. 97–34, § 811(b), added par. (9) and redesignated former par. (9) as (10).

    Enacted provision · exact public law section
    (b) Definition of Qualified Mass Commuting Vehicles.— Subsection (b) of section 103 is amended by redesignating paragraph (9) as paragraph (10) and by inserting after paragraph (8) the following new paragraph: “(9) Qualified mass commuting vehicles.— “(A) In general.— For purposes of paragraph (4)(I), the term ‘qualified mass commuting vehicle’ means any bus, subway car, rail car, or similar equipment— “(i) which is leased to a mass transit system wholly owned by 1 or more governmental units (or agencies or instrumentalities thereof), and “(ii) which is used by such system in providing mass commuting services. “(B) Termination.— Paragraph (4)(I) shall not apply to any obligation issued after December 31, 1984.”

40. 1981

    Economic Recovery Tax Act of 1981

    Pub. L. 97–34 § 812(a) · 95 Stat. 175

    1. Added · 26 U.S.C. § 103(i); 26 U.S.C. § 103(j)

       Pub. L. 97–34, § 812(a), added subsec. (i)

    2. Redesignated · 26 U.S.C. § 103(i); 26 U.S.C. § 103(j)

       Pub. L. 97–34, § 812(a), redesignated former subsec. (i) as (j)

    Source evidence

    Code amendment note
    Subsecs. (i), (j). Pub. L. 97–34, § 812(a), added subsec. (i) and redesignated former subsec. (i) as (j).

    Enacted provision · exact public law section
    (a) In General.— Section 103 (relating to interest on certain governmental obligations) is amended by redesignating subsection (i) as subsection (j) and by inserting after subsection (h) the following new subsection: “(i) Obligations of Certain Volunteer Fire Departments.— “(1) In general.— An obligation of a volunteer fire department shall be treated as an obligation of a political subdivision of a State if— “(A) such department is a qualified volunteer fire department with respect to an area within the jurisdiction of such political subdivision, and “(B) such obligation is issued as part of an issue substantially all of the proceeds of which are to be used for the acquisition, construction, reconstruction, or improvement of a firehouse or firetruck used or to be used by such department. “(2) Qualified volunteer fire department.— For purposes of this subsection, the term ‘qualified volunteer fire department’ means, with respect to a political subdivision of a State, any organization— “(A) which is organized and operated to provide firefighting or emergency medical services for persons in an area (within the jurisdiction of such political subdivision) which is not provided with any other firefighting services, “(B) which is required (by written agreement) by the political subdivision to furnish firefighting services in such area.”

41. 1982

    Pub. L. 97–248 § 215(b)(2) · 96 Stat. 324

    Substituted · 26 U.S.C. § 103(b)(2)

    Pub. L. 97–248, § 215(b)(2), substituted “For purposes of this section” for “For purposes of this subsection”

    Source evidence

    Code amendment note
    Subsec. (b)(2). Pub. L. 97–248, § 215(b)(2), substituted “For purposes of this section” for “For purposes of this subsection”.

    Enacted provision · exact public law section
    (2) Conforming amendment.— Paragraph (2) of section 103(b) 26 USC 103. (defining industrial development bond) is amended by striking out “For purposes of this subsection” and inserting in lieu thereof “For purposes of this section”.

42. 1982

    Pub. L. 97–248 title II · 96 Stat. 324

    1. Substituted · 26 U.S.C. § 103(b)(4)

       Pub. L. 97–248, §§ 217(a)(1), (b), 221(a), (c)(1), 310(c)(1), in subpar. (A) substituted “if at all times during the qualified project period” for “if each obligation issued pursuant to the issue is in registered form and if” after “residential rental property”

    2. Struck · 26 U.S.C. § 103(b)(4)

       Pub. L. 97–248, §§ 217(a)(1), (b), 221(a), (c)(1), 310(c)(1), in subpar. (A) struck out “(within the meaning of section 167(k)(3)(B))” after “low or moderate income”

    3. Added · 26 U.S.C. § 103(b)(4)

       Pub. L. 97–248, §§ 217(a)(1), (b), 221(a), (c)(1), 310(c)(1), in subpar. (A) added subpar. (J)

    4. Struck · 26 U.S.C. § 103(b)(4)

       Pub. L. 97–248, §§ 217(a)(1), (b), 221(a), (c)(1), 310(c)(1), in subpar. (A) struck out provision that for purposes of subpar. (A), “targeted area project” meant a project located in a qualified census tract (within the meaning of section 103A(k)(2)) or an area of chronic economic distress (within the meaning of section 103A(k)(3)) and, in last sentence

    5. Substituted · 26 U.S.C. § 103(b)(4)

       Pub. L. 97–248, §§ 217(a)(1), (b), 221(a), (c)(1), 310(c)(1), in subpar. (A) substituted “electric energy or gas from” for “electric energy from”

    Source evidence

    Code amendment note
    Subsec. (b)(4). Pub. L. 97–248, §§ 217(a)(1), (b), 221(a), (c)(1), 310(c)(1), in subpar. (A) substituted “if at all times during the qualified project period” for “if each obligation issued pursuant to the issue is in registered form and if” after “residential rental property”, and struck out “(within the meaning of section 167(k)(3)(B))” after “low or moderate income”, added subpar. (J), struck out provision that for purposes of subpar. (A), “targeted area project” meant a project located in a qualified census tract (within the meaning of section 103A(k)(2)) or an area of chronic economic distress (within the meaning of section 103A(k)(3)) and, in last sentence, substituted “electric energy or gas from” for “electric energy from”.

    Enacted provision · exact public law
    TITLE II— REVENUE MEASURES Subtitle A— Provisions Relating to Individuals SEC. 201. ALTERNATIVE MINIMUM TAX ON TAXPAYERS OTHER THAN CORPORATIONS. (a) In General.— Section 55 (relating to alternative minimum tax 26 USC 55. for taxpayers other than corporations) is amended to read as follows: “SEC. 55. ALTERNATIVE MINIMUM TAX FOR TAXPAYERS OTHER THAN CORPORATIONS. “(a) Tax Imposed.— In the case of a taxpayer other than a corporation, there is imposed (in addition to any other tax imposed by this subtitle) a tax equal to the excess (if any) of— “(1) an amount equal to 20 percent of so much of the alternative minimum taxable income as exceeds the exemption amount, over “(2) the regular tax for the taxable year. “(b) Alternative Minimum Taxable Income.— For purposes of this title, the term ‘alternative minimum taxable income’ means the adjusted gross income (determined without regard to the deduction allowed by section 172) of the taxpayer for the taxable year— “(1) reduced by the sum of— “(A) the alternative tax net operating loss deduction, plus “(B) the alternative tax itemized deductions, plus “(C) any amount included in income under section 667, 26 USC 667. and “(2) increased by the amount of items of tax preference. “(c) Credits.— “(1) In general.— For purposes of determining any credit allowable under subpart A of part IV of this subchapter (other 26 USC 31. than the foreign tax credit allowed under section 33(a))— “(A) the tax imposed by this section shall not be treated as a tax imposed by this chapter, and “(B) the amount of the foreign tax credit allowed by section 33(a) shall be determined without regard to this section. “(2) Foreign tax credit allowed against alternative minimum tax.— “(A) Determination of foreign tax credit.— The total amount of the foreign tax credit which can be taken against the tax imposed by subsection (a) shall be determined under subpart A of part III of subchapter N (section 901 and following). “(B) Increase in amount of foreign taxes taken into account.— For purposes of the determination provided by subparagraph (A), the amount of the taxes paid or accrued to foreign countries or possessions of the United States during the taxable year shall be increased by an amount equal to the lesser of— “(i) the foreign tax credit allowable under section 33(a) in computing the regular tax for the taxable year, or “(ii) the tax imposed by subsection (a). “(C) Section 904(a) limitation.— For purposes of the determination provided by subparagraph (A), the limitation of section 904(a) shall be an amount equal to the same proportion of the sum of the tax imposed by subsection (a) against which such credit is taken and the regular tax as— “(i) the taxpayer’s alternative minimum taxable income from sources without the United States (but not in excess of the taxpayer’s entire alternative minimum taxable income), bears to “(ii) his entire alternative minimum taxable income. For such purpose, the amount of the limitation of section 904(a) shall not exceed the tax imposed by subsection (a). “(D) Definition of alternative minimum taxable income from sources without the united states.— For purposes of subparagraph (C), the term ‘alternative minimum taxable income from sources without the United States’ means adjusted gross income from sources without the United States, adjusted as provided in paragraphs (1) and (2) of subsection (b) (taking into account in such adjustment only items described in such paragraphs which are properly attributable to items of gross income from sources without the United States). “(E) Special rule for applying section 904(c).— In determining the amount of foreign taxes paid or accrued during the taxable year which may be deemed to be paid or accrued in a preceding or succeeding taxable year under section 904(c)— “(i) the limitation of section 904(a) shall be increased 26 USC 904. by the amount of the limitation determined under subparagraph (C), and “(ii) any increase under subparagraph (B) shall be taken into account. “(3) Carryover and carryback of certain credits.— “(A) In general.— In the case of any taxable year in which a tax is imposed by this section, for purposes of determining the amount of any carryback or carryover of any applicable credit to any other taxable year, the amount of the applicable credit limitation for such taxable year shall be deemed to be— “(i) the amount of the applicable credit allowable for such taxable year (determined without regard to this paragraph), reduced (but not below zero) by “(ii) the amount of the tax imposed by this section for the taxable year, reduced by— “(I) the amount of the credit allowable under section 33(a), and “(II) the amount of such tax taken into account under this clause with respect to any applicable credit having a lower number or letter designation. “(B) Applicable credits, etc.— For purposes of this paragraph— “(i) Applicable credit.— The term ‘applicable credit’ means any credit allowable under section 38, 40, 44B, 44C, 44E, or 44F. “(ii) Applicable credit limitation.— The term ‘applicable credit limitation’ means, with respect to any applicable credit, the limitation under section 46(a)(3), 53(a), 44C(b)(5), 44E(e)(1), 44F(g)(1), or 50A(a)(2), whichever is appropriate. “(d) Alternative tax net operating loss deduction defined.— For purposes of this section— “(1) In general.— The term ‘alternative tax net operating loss deduction’ means the net operating loss deduction allowable for the taxable year under section 172, except that in determining the amount of such deduction— “(A) in the case of taxable years beginning after December 31, 1982, section 172(b)(2) shall be applied by substituting ‘alternative minimum taxable income’ for ‘taxable income’ each place it appears, and “(B) the net operating loss (within the meaning of section 172(c)) for any loss year shall be adjusted as provided in paragraph (2). “(2) Adjustments to net operating loss computation.— “(A) Post-1982 loss years.— In the case of a loss year beginning after December 31, 1982, the net operating loss for such year under section 172(c) shall— “(i) be reduced by the amount of the items of tax preference arising in such year which are taken into account in computing the net operating loss, and “(ii) be computed by taking into account only itemized deductions which are alternative tax itemized deductions for the taxable year and which are otherwise described in section 172(c). “(B) Pre-1983 years.— In the case of loss years beginning before January 1, 1983, the amount of the net operating loss which may be carried over to taxable years beginning after December 31, 1982, for purposes of subparagraph (A), shall be equal to the amount which may be carried from the loss year to the first taxable year of the taxpayer beginning after December 31, 1982. “(e) Alternative tax itemized deductions.— For purposes of this section— “(1) In general.— The term ‘alternative tax itemized deductions’ means an amount equal to the sum of any amount allowable as a deduction for the taxable year (other than a deduction allowable in computing adjusted gross income) under— “(A) section 165(a) for losses described in subsection (c)(3) 26 USC 165. or (d) of section 165, “(B) section 170 (relating to charitable deductions), “(C) section 213 (relating to medical deductions), “(D) this chapter for qualified interest, or “(E) section 691(c) (relating to deduction for estate tax). “(2) Amounts which may be carried over.— No amount shall be taken into account under paragraph (1) to the extent such amount may be carried to another taxable year for purposes of the regular tax. “(3) Qualified interest.— The term ‘qualified interest’ means the sum of— “(A) any qualified housing interest, and “(B) any amount allowed as a deduction for interest (other than qualified housing interest) to the extent such amount does not exceed the qualified net investment income of the taxpayer for the taxable year. “(4) Qualified housing interest.— “(A) In general.— The term ‘qualified housing interest’ means interest which is paid or accrued during the taxable year on indebtedness which is incurred in acquiring, constructing, or substantially rehabilitating any property which— “(i) is the principal residence (within the meaning of section 1034) of the taxpayer at the time such interest accrues or is paid, or “(ii) is a qualified dwelling used by the taxpayer (or any member of his family within the meaning of section 267(c)(4)) during the taxable year. “(B) Qualified dwelling.— The term ‘qualified dwelling’ means any— “(i) house, “(ii) apartment, “(iii) condominium, or “(iv) mobile home not used on a transient basis (within the meaning of section 7701(a)(19)(C)(v)), including all structures or other property appurtenant thereto. “(C) Special rule for indebtedness incurred before july 1, 1982.— The term ‘qualified housing interest’ includes interest paid or accrued on indebtedness which— “(i) was incurred by the taxpayer before July 1, 1982, and “(ii) is secured by property which, at the time such indebtedness was incurred, was— “(I) the principal residence (within the meaning of section 1034) of the taxpayer, or 26 USC 1034. “(II) a qualified dwelling used by the taxpayer (or any member of his family (within the meaning of section 267(c)(4))). “(5) Qualified net investment income.— For purposes of this subsection— “(A) In general.— The term ‘qualified net investment income’ means the excess of— “(i) qualified investment income, over “(ii) qualified investment expenses. “(B) Qualified investment income.— The term ‘qualified investment income’ means the sum of— “(i) investment income (within the meaning of section 163(d)(3)(B) other than clause (ii) thereof), “(ii) any net capital gain attributable to the disposition of property held for investment, and “(iii) the amount of items of tax preference described in paragraph (1) of section 57(a). “(C) Qualified investment expenses.— The term ‘qualified investment expenses’ means the deductions directly connected with the production of qualified investment income to the extent that— “(i) such deductions a reallowable in computing adjusted gross income, and “(ii) such deductions are not items of tax preference. “(6) Special rules for estates and trusts.— “(A) In general.— In the case of an estate or trust, the alternative tax itemized deductions for any taxable year includes the deductions allowable under sections 642(c), 651(a), and 661(a). “(B) Determination of adjusted gross income.— The adjusted gross income of an estate or trust shall be computed in the same manner as in the case of an individual, except that the deductions for costs paid or incurred in connection with the administration of the estate or trust shall be treated as allowable in arriving at adjusted gross income. “(7) Limitation on medical deduction.— In applying subparagraph (C) of paragraph (1), the amount allowable as a deduction under section 213 shall be determined by substituting ‘10 percent’ for ‘5 percent’ in section 213(a). Post, p. 421. “(8) Treatment of interests in limited partnerships and subchapter s corporations.— “(A) Certain interest treated as not allowable in computing adjusted gross income.— Any amount allowable as a deduction for interest on indebtedness incurred or continued to purchase or carry a limited business interest shall be treated as not allowable in computing adjusted gross income. “(B) Income treated as qualified investment income.— Any income derived from a limited business interest shall be treated as qualified investment income. “(C) Limited business interest.— The term ‘limited business interest’ means an interest— “(i) as a limited partner in a partnership, or “(ii) as a shareholder in an electing small business corporation (as defined in section 1371(b)) if the taxpayer does not actively participate in the management of such corporation. “(f) Other definitions.— For purposes of this section— “(1) Exemption amount.— The term ‘exemption amount’ means— “(A) $40,000 in the case of— “(i) a joint return, or “(ii) a surviving spouse (as defined in section 2(a)), “(B) $30,000 in the case of an individual who— “(i) is not a married individual (as defined in section 143), and “(ii) is not a surviving spouse (as so defined), and “(C) $20,000 in the case of— “(i) a married individual (as so defined) who files a separate return, or “(ii) an estate or trust. “(2) Regular tax.— The term ‘regular tax’ means the taxes imposed by this chapter for the taxable year (computed without regard to this section and without regard to the taxes imposed by sections 72(m)(5)(B), 72(q), 402(e), 408(f), 409(c), and 667(b)) Post, pp. 509, 546. Post, p. 585. reduced by the sum of the credits allowable under subpart A of part IV of this subchapter (other than under sections 31, 39, and 43). For purposes of this paragraph, the amount of the credits allowable under such subpart shall be determined without regard to this section.” (b) Items of Tax Preference.— (1) In general.— Subsection (a) of section 57 (relating to items 26 USC 57. of tax preference) is amended— (A) by striking out paragraph (1) and inserting in lieu thereof the following new paragraph: “(1) Exclusion of interest and dividends.— Any amount excluded from gross income for the taxable year under section 116 or 128.”, (B) by striking out paragraphs (5) and (6) and inserting in lieu thereof the following new paragraphs: “(5) Mining exploration and development costs.— With respect to each mine or other natural deposit (other than an oil or gas well) of the taxpayer, an amount equal to the excess of— “(A) the amount allowable as a deduction under section 616(a) or 617, over “(B) the amount which would have been allowable if the expenditures had been capitalized and amortized ratably over the 10-year period beginning with the taxable year in which such expenditures were made. “(6) Circulation and research and experimental expenditures.— An amount equal to the excess of— “(A) the amount allowable as a deduction under section 173 or 174(a) for the taxable year, over “(B) the amount which would have been allowable for the taxable year if the circulation expenditures described in section 173 or the research and experimental expenditures described in section 174 had been capitalized and amortized ratably over the 10-year period beginning with the taxable year in which such expenditures were made.”, and (C) by striking out paragraph (10) and inserting in lieu thereof the following: “(10) Incentive stock options.— With respect to the transfer of a share of stock pursuant to the exercise of an incentive stock option (as defined in section 422A), the amount by which the fair market value of the share at the time of exercise exceeds the option price.” (2) Conforming amendments.— (A) The next to last sentence of section 57(a) is amended 95 Stat. 224. 26 USC 57. by striking out “(3), (11), and (12)” and inserting in lieu thereof “(1), (3), (5), (6), (11), and (12)(A)”. (B) Section 57(a) is amended by striking out the last sentence. (c) Optional 10-year writeoff of certain tax preferences— (1) Section 58 (relating to rules for application of minimum 26 USC 58. tax) is amended by adding at the end thereof the following new subsection: “(i) Optional 10-year writeoff of certain tax preferences.— “(1) In general.— For purposes of this title, in the case of an individual, any qualified expenditure to which an election under this paragraph applies shall be allowed as a deduction ratably over the 10-year period beginning with the taxable year in which such expenditure was made. “(2) Qualified expenditure.— For purposes of this subsection, the term ‘qualified expenditure’ means any amount which, but for an election under this subsection, would have been allowable as a deduction for the taxable year in which paid or incurred under— “(A) section 173 (relating to circulation expenditures), “(B) section 174(a) (relating to research and experimental expenditures), “(C) section 263(c) (relating to intangible drilling and development expenditures), “(D) section 616(a) (relating to development expenditures), or “(E) section 617 (relating to deduction of certain mining exploration expenditures). “(3) Other sections not applicable.— Except as provided in this subsection, no deduction shall be allowed under any other section for any qualified expenditure to which an election under this subsection applies. “(4) Special election for intangible drilling and development costs not allocable to interest as limited partner.— “(A) In general.— In the case of any nonlimited partnership intangible drilling costs to which an election under this paragraph applies— “(i) the applicable percentage of such costs (adjusted as provided in section 48(q)) shall be allowed as a Post, p. 427. deduction for the taxable year in which paid or incurred and for each of the 4 succeeding taxable years, and “(ii) such costs shall be treated, for purposes of determining the amount of the credit allowable under section 38 for the taxable year in which paid or incurred, as qualified investment (within the meaning of subsections (c) and (d) of section 46) with respect to property placed in service during such year. “(B) Applicable percentage.— For purposes of subparagraph (A), the term ‘applicable percentage’ means the percentage determined in accordance with the following table: “Taxable Year: Applicable percentage: 1 15 2 22 3 21 4 21 5 21 “(C) Nonlimited partnership intangible drilling costs.— For purposes of this paragraph, the term ‘non-limited partnership intangible drilling costs’ means any qualified expenditure described in paragraph (2)(C) of an individual which is not allocable to such individual’s interest as a limited partner in a limited partnership. “(5) Election.— “(A) In general.— An election may be made under this subsection with respect to any qualified expenditure. “(B) Revocable only with consent.— An election under this subsection with respect to any qualified expenditure may be revoked only with the consent of the Secretary. “(C) Time and manner.— An election under this subsection shall be made at such time and in such manner as the Secretary shall by regulations prescribe. “(D) Partners.— In the case of a partnership, any election under this subsection shall be made separately by each partner with respect to the partner’s allocable share of any qualified expenditure. “(6) Dispositions.— “(A) Oil, gas, and geothermal property.— In the case of any disposition of any oil, gas, or geothermal property to which section 1254 applies (determined without regard to this section)— “(i) any deduction under paragraph (1) or (4)(A) with respect to costs which are allocable to such property shall, for purposes of section 1254, be treated as a deduction allowable under section 263(c), and “(ii) in the case of any credit allowable under section 38 by reason of paragraph (4XB) which is allocable to such property, such disposition shall, for purposes of section 47, be treated as a disposition of section 38 recovery property which is not 3-year property. “(B) Application of section 617(d).— In the case of any disposition of mining property to which section 617(d) applies (determined without regard to this subsection), any amount allowable as a deduction under paragraph (1) which is allocable to such property shall, for purposes of section 617(d), be treated as a deduction allowable under section 617(a). “(7) Amounts to which election apply not treated as tax preference.— Any qualified expenditure to which an election under paragraph (1) or (4) applies shall not be treated as an item of tax preference under section 57(a).” (2) Subsection (a) of section 1016 (relating to adjustments to 95 Stat. 239. 26 USC 1016. basis) is amended by striking out “and” at the end of paragraph (23), by striking out the period at the end of paragraph (24) and inserting in lieu thereof “, and”, and by adding at the end thereof the following new paragraph: “(25) for amounts allowed as deductions under section 58(i) (relating to optional 10-year writeoff of certain tax preferences).” (c) Conforming Amendments.— (1) Section 56 (relating to corporate minimum tax) is 26 USC 56. amended— (A) by striking out “person” each place it appears and inserting in lieu thereof “corporation”, (B) by striking out “one-half (or in the case of a corporation, an amount equal to)” in subsection (c), (C) by striking out “sections 72(m)(5)(B), 402(e), 408(f), 531, and 541” in subsection (c) and inserting in lieu thereof “sections 531 and 541” (D) by striking out “31, 39, 43, and 440” in subsection (c) 95 Stat. 293. and inserting in lieu thereof “39 and 44G”, and (E) by striking out the section heading and inserting in lieu thereof the following: “SEC. 56. CORPORATE MINIMUM TAX.” (2) The table of sections for part IV of subchapter A of chapter 1 is amended by striking out the item relating to section 56 and inserting in lieu thereof the following: “Sec. 56. Corporate minimum tax.” (3) Section 58 (relating to rules for application of minimum 26 USC 58. taxes) is amended— (A) by striking out subsection (a), (B) by striking out subsection (c) and inserting in lieu thereof the following: “(c) Estates and Trusts.— In the case of an estate or trust, the items of tax preference for any taxable year shall be apportioned between the estate or trust and the beneficiaries in accordance with regulations prescribed by the Secretary.”, and (C) in subsection (g)— (i) by striking out “paragraphs (6) and” in paragraph (1) and inserting in lieu thereof “paragraph”, and (ii) by striking out so much of paragraph (2) as precedes the last two sentences thereof and inserting in lieu thereof the following: For purposes of section 56, the items of tax preference set forth in section 57(a)(9) which are attributable to sources within any foreign country or possession of the United States shall not be taken into account if preferential treatment is not accorded gain from the sale or exchange of capital assets (or property treated as capital assets).” (4) Section 5(a)(4) is amended by striking out “sections 55 and 26 USC 5. 56” and inserting in lieu thereof “section 55”. (5) Section 511(d)(2) is amended by striking out “and section 56 26 USC 511. (as the case may be)”. (6) Subparagraph (A) of section 897(a)(2) (relating to 20-percent 26 USC 897. minimum tax on nonresident alien individuals) is amended to read as follows: “(A) In general.— In the case of any nonresident alien individual, the amount determined under section 55(a)(1) for the taxable year shall not be less than 20 percent of the lesser of— “(i) the individual’s alternative minimum taxable income (as defined in section 55(b)) for the taxable year, or “(ii) the individual’s net United States real property gain for the taxable year.” (7) Sections 6015(d)(1), 6362(b)(2)(A), and 6654(g)(1) are each 26 USC 6015, 6362, 6654. amended by striking out “or 56”. (8) (A) Sections 46(a)(4), 53(a), and 901(a) are each amended by 26 USC 46, 53, 901. striking out “(relating to minimum tax for tax preferences)” and inserting in lieu thereof “(relating to corporate minimum tax)”. (B) Subparagraph (A) of section 936(a)(3) is amended by striking 26 USC 936. out “(relating to minimum tax)” and inserting in lieu thereof “(relating to corporate minimum tax)”. (9) (A) Section 173 (relating to circulation expenditures) is 26 USC 173. amended— (i) by striking out “Notwithstanding section 263” and inserting in lieu thereof Notwithstanding section 263”, and (ii) by adding at the end thereof the following new subsection: “(b) Cross Reference.— “For election of 10-year amortization of expenditures allowable as a deduction under subsection (a), see section 58(i).” (B) Subsection (e) of section 174 (relating to research and 26 USC 174. experimental expenditures) is amended— (i) by striking out “For adjustments” and inserting in lieu thereof “(1) For adjustments”, (ii) by adding at the end thereof the following new paragraph: “(2) For election of 10-year amortization of expenditures allowable as a deduction under subsection (a), see section 58(i).”, and (iii) by striking out “Cross Reference” and inserting in lieu thereof “Cross References”. (C) Section 616 (relating to development expenditures) is 26 USC 616. amended by adding at the end thereof the following new subsection: “(d) Cross Reference.— “For election of 10-year amortization of expenditures allowable as a deduction under subsection (a), see section 58(i).” (D) Section 617 (relating to deduction of certain mining exploration 26 USC 617. expenditures) is amended by adding at the end thereof the following new subsection: “(j) Cross Reference.— “For election of 10-year amortization of expenditures allowable as a deduction under this section, see section 58(i).” (10) Subsection (a) of section 7701 (relating to definitions) is 26 USC 7701. amended by adding at the end thereof the following new paragraph: “(38) Joint return.— The term ‘joint return’ means a single return made jointly under section 6013 by a husband and wife.” (e) Effective Date.— (1) In general.— The amendments made by this section shall 26 USC 55 note. apply to taxable years beginning after December 31, 1982. (2) Special rule for pre-1983 section 56 (b) tax deferrals.— The amendments made by subsection (c)(1) of this section to section 56(b) of the Internal Revenue Code of 1954 shall not apply to any net operating loss carryover from any taxable year beginning before January 1, 1983, which is attributable to any excess described in section 56(b)(1)(B) of such Code for such taxable year. SEC. 202. LIMITATION ON MEDICAL DEDUCTION. (a) General Rule.— Subsection (a) of section 213 (relating to 26 USC 213. deduction for medical, dental, etc., expenses) is amended to read as follows: “(a) Allowance of Deduction.— There shall be allowed as a deduction the expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, his spouse, or a dependent (as defined in section 152), to the extent that such expenses exceed 5 percent of adjusted gross income.” (b) Treatment of Medicine and Drugs.— (1) In general.— Subsection (b) of section 213 (relating to limitation with respect to medicine and drugs) is amended to read as follows: “(b) Limitation with respect to medicine and drugs.— An amount paid during the taxable year for medicine or a drug shall be taken into account under subsection (a) only if such medicine or drug is a prescribed drug or is insulin.” (2) Definition of prescribed drug.— Subsection (e) of section 213 is amended by inserting after paragraph (1) the following new paragraphs: “(2) Prescribed drug.— The term ‘prescribed drug’ means a drug or biological which requires a prescription of a physician for its use by an individual. “(3) Physician.— The term ‘physician’ has the meaning given to such term by section 1861(r) of the Social Security Act (42 U.S.C. 1395x(r)).” (3) Conforming amendments.— (A) Subsection (e) of section 213 (as in effect before the amendment made by paragraph (2)) is amended by redesignating paragraphs (2), (3), and (4) as paragraphs (4), (5), and (6), respectively. (B) Subsections (d), (e), and (f) of section 213 are redesignated as subsections (c), (d), and (e), respectively. (C) Subsection (b) of section 105 is amended by striking 26 USC 105. out “section 213(e)” and inserting in lieu thereof “section 213(d)”. (c) Effective Dates.— (1) Subsection (a).— The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1982. (2) Subsection (b).— The amendments made by subsection (b) shall apply to taxable years beginning after December 31, 1983. SEC. 203. LIMITATION ON DEDUCTION FOR NONBUSINESS CASUALTY LOSSES. (a) General Rule.— Section 165 (relating to losses) is amended by 26 USC 165. striking out subsection (h), by redesignating subsection (i) as subsection (j). and by inserting after subsection (g) the following new subsections: “(h) Casualty and Theft Losses.— “(1) General rule.— Any loss of an individual described in subsection (c)(3) shall be allowed for any taxable year only to the extent that— “(A) the amount of loss to such individual arising from each casualty, or from each theft, exceeds $100, and “(B) the aggregate amount of all such losses sustained by such individual during the taxable year (determined after application of subparagraph (A)) exceeds 10 percent of the adjusted gross income of the individual. “(2) Special rules.— “(A) Joint returns.— For purposes of the $100 and 10 percent limitations described in paragraph (1), a husband and wife making a joint return for the taxable year shall be treated as one individual. “(B) Coordination with estate tax.— No loss described in subsection (c)(3) shall be allowed if, at the time of filing the return, such loss has been claimed for estate tax purposes in the estate tax return. “(i) Disaster Losses.— “(1) Election to take deduction for preceding year.— Notwithstanding the provisions of subsection (a), any loss attributable to a disaster occurring in an area subsequently determined by the President of the United States to warrant assistance by the Federal Government under the Disaster Relief Act of 1974 may, at the election of the taxpayer, be taken into account for the taxable year immediately preceding the taxable year in which the disaster occurred. “(2) Year of loss.— If an election is made under this subsection, the casualty resulting in the loss shall be treated for purposes of this title as having occurred in the taxable year for which the deduction is claimed. “(3) Amount of loss.— The amount of the loss taken into account in the preceding taxable year by reason of paragraph (1) shall not exceed the uncompensated amount determined on the basis of the facts existing at the date the taxpayer claims the (b) Conforming Amendment.— Subsection (c) of section 165 (relating to limitation on losses of individuals) is amended— (1) by inserting “except as provided in subsection (h),” before “losses” the first place it appears in paragraph (3) thereof, and (2) by striking out the last three sentences. (c) Effective Date.— The amendments made by this section shall 26 USC 165 note. apply to taxable years beginning after December 31, 1982. Such amendments shall also apply to the taxpayer’s last taxable year beginning before January 1, 1983, solely for purposes of determining the amount allowable as a deduction with respect to any loss taken into account for such year by reason of an election under section 165(i) of the Internal Revenue Code of 1954 (as amended by this section). Subtitle B— Provisions Primarily Relating to Business PART I— REDUCTION IN CERTAIN DEDUCTIONS AND CREDITS SEC. 204. 15 PERCENT REDUCTION IN CERTAIN CORPORATE PREFERENCE ITEMS. (a) In General.— Subchapter B of chapter 1 (relating to computation of taxable income) is amended by adding at the end thereof the following new part: “PART XI— SPECIAL RULES RELATING TO CORPORATE PREFERENCE ITEMS “Sec. 291. Special rules relating to corporate preference items. “SEC. 291. SPECIAL RULES RELATING TO CORPORATE PREFERENCE ITEMS. “(a) 15-Percent Reduction In Certain Preference Items, Etc.— For purposes of this subtitle, in the case of an applicable corporation— “(1) Section 1250 capital gain treatment.— In the case of section 1250 property which is disposed of during the taxable year, 15 percent of the excess (if any) of— “(A) the amount which would be treated as ordinary income if such property was section 1245 property or section 1245 recovery property, over “(B) the amount treated as ordinary income under section 1250, shall be treated as gain which is ordinary income and shall be recognized notwithstanding any other provision of this title. “(2) Reduction in percentage depletion.— In the case of iron ore and coal (including lignite), the amount allowable as a deduction under section 613 with respect to any property (as defined in section 614) shall be reduced by 15 percent of the amount of the excess (if any) of— “(A) the amount of the deduction allowable under section 613 for the taxable year (determined without regard to this paragraph), over “(B) the adjusted basis of the property at the close of the taxable year (determined without regard to the depletion deduction for the taxable year). “(3) Certain financial institution preference items.— The amount allowable as a deduction under this chapter (determined without regard to this section) with respect to any financial institution preference item shall be reduced by 15 percent. “(4) Certain deferred disc income.— If an applicable corporation is a shareholder of a DISC, in the case of taxable years beginning after December 31, 1982, section 995(b)(1)(F)(i) shall be applied with respect to such corporation by substituting ‘57.5 percent’ for ‘one-half’. “(5) Amortization of pollution control facilities.— If an election is made under section 169 with respect to any certified 26 USC 169. pollution control facility, the amortizable basis of such facility for purposes of such section shall be reduced by 15 percent. “(b) Special Rules for Treatment of Intangible Drilling Costs and Mineral Exploration and Development Costs.— For purposes of this subtitle, in the case of an applicable corporation— “(1) In general.— The amount allowable as a deduction for any taxable year (determined without regard to this section)— “(A) under section 263(c) in the case of an integrated oil company, or “(B) under section 616(a) or 617, shall be reduced by 15 percent. “(2) Special rule for amounts not allowable as deductions under paragraph (1).— “(A) Intangible drilling costs.— The amount not allowable as a deduction under section 263(c) for any taxable year by reason of paragraph (1) shall be allowable as a deduction ratably over the 36-month period beginning with the month in which the costs are paid or incurred. “(B) Mineral exploration and development costs.— In the case of any amount not allowable as a deduction under section 616(a) or 617 for any taxable year by reason of paragraph (1)— “(i) the applicable percentage of the amount not so allowable as a deduction shall be allowable as a deduction for the taxable year in which the costs are paid or incurred and in each of the 4 succeeding taxable years, and “(ii) such costs shall be treated, for purposes of determining the amount of the credit allowable under section 38 for the taxable year in which paid or incurred, as qualified investment (within the meaning of subsections (c) and (d) of section 46) with respect to property placed in service during such year. “(3) Applicable percentage.— For purposes of paragraph (2)(B), the term ‘applicable percentage’ means the percentage determined in accordance with the following table: “Taxable Year: Applicable percentage: 1 15 2 22 3 21 4 21 5 21. “(4) Dispositions.— “(A) Oil, gas, and geothermal property.— In the case of any disposition of any oil, gas, or geothermal property to which section 1254 applies (determined without regard to this section) any deduction under paragraph (2)(A) with respect to intangible drilling and development costs under section 263(c) which are allocable to such property shall, for purposes of section 1254, be treated as a deduction allowable under section 263(c). “(B) Application of section 617(d).— In the case of any disposition of mining property to which section 617(d) 26 USC 617. applies (determined without regard to this section), any amount allowable as a deduction under paragraph (2)(B) which is allocable to such property shall, for purposes of section 617(d), be treated as a deduction allowable under section 617(a). “(C) Recapture of investment credit.— In the case of any disposition of any property to which the credit allowable under section 38 by reason of pa ragraph (2)(B) is allocable, such disposition shall , for purposes of section 47, be treated as a disposition of section 38 recovery property which is not 3-year property. “(5) Integrated oil company defined.— For purposes of this subsection, the term ‘integrated oil company’ means, with respect to any taxable year, any producer (within the meaning of section 4996(a)(1)) of crude oil other than an independent producer (within the meaning of section 4992(b)). “(6) Coordination with cost depletion.— The portion of the adjusted basis of any property which is attributable to intangible drilling and development costs or mining exploration and development costs shall not be taken into account for purposes of determining depletion under section 611. “(c) Special Rules Relating to Pollution Control Facilities.— For purposes of this subtitle— “(1) Accelerated cost recovery deduction.— For purposes of subclause (I) of section 168(d)(1)(A)(ii), a taxpayer shall not be 95 Stat. 204. treated as electing the amortization deduction under section 169 with respect to that portion of the basis not taken into account under section 169 by reason of subsection (a)(5). “(2) 1250 recapture.— Subsection (a)(1) shall not apply to any section 1250 property which is part of a certified pollution control facility (within the meaning of section 169(d)(1)) with respect to which an election under section 169 was made. “(d) Special Rule for Real Estate Investment Trusts.— In the case of a real estate investment trust (as defined in section 856), the difference between the amounts described in subparagraphs (A) and (B) of subsection (a)(1) shall be reduced to the extent that a capital gain dividend (as defined in section 857(b)(3)(C), applied without regard to this section) is treated as paid out of such difference. Any capital gain dividend treated as having been paid out of such difference to a shareholder which is an applicable corporation retains its character in the hands of the shareholder as gain from the disposition of section 1250 property for purposes of applying subsection (a)(1) to such shareholder . For purposes of this section— “(1) Financial institution preference item.— The term ‘financial institution preference item’ includes the following: “(A) Excess reserves for losses on bad debts of financial institutions.— In the case of a financial institution to which section 585 or 593 applies, the excess of— “(i) the amount which would, but for this section, be allowable as a deduction for the taxable year for a reasonable addition to a reserve for bad debts, over “(ii) the amount which would have been allowable had such institution maintained its bad debt reserve for all taxable years on the basis of actual experience. “(B) Interest on debt to carry tax-exempt obligations acquired after december 31, 1982.— “(i) In general.— In the case of a financial institution to which section 585 or 593 applies, the amount of interest on indebtedness incurred or continued to purchase or carry obligations acquired after December 31, 1982, the interest on which is exempt from taxes for the taxable year, to the extent that a deduction would (but for this paragraph) be allowable with respect to such interest for such taxable year. “(ii) Determination of interest allocable to indebtedness on tax-exempt obligations.— Unless the taxpayer (under regulations prescribed by the Secretary) establishes otherwise, the amount determined under clause (i) shall be an amount which bears the same ratio to the aggregate amount allowable (determined without regard to this section) to the taxpayer as a deduction for interest for the taxable year as— “(I) the taxpayer’s average adjusted basis (within the meaning of section 1016) of obligations described in clause (i), bears to “(II) such average adjusted basis for all assets of the taxpayer. “(2) Applicable corporation.— For purposes of this section, the term ‘applicable corporation’ means any corporation other than an electing small business corporation (as defined in section 1371(b)). “(3) Section 1245 and 1250 property.— The terms ‘section 1245 property’, ‘section 1245 recovery property’, and ‘section 1250 property’ have the meanings given such terms by sections 1245(a)(3), 1245(a)(5), and 1250(c), respectively.” 95 Stat. 222. (b) Coordination With Minimum Tax.— Section 57(b) (relating to 26 USC 1245. 26 USC 57. adjusted itemized deductions) is amended to read as follows: “(b) Application With Section 291.— “(1) In general.— In the case of any item of tax preference of an applicable corporation described in— “(A) paragraph (4) or (7) of subsection (a), or “(B) paragraph (8) of subsection (a) (but only to the extent such item is allocable to a deduction for depletion for iron ore and coal (including lignite)), only 71.6 percent of the amount of such item of tax preference (determined without regard to this subsection) shall be taken into account as an item of tax preference. “(2) Certain capital gains.— In determining the net capital gain of any applicable corporation for purposes of paragraph (9)(B) of subsection (a), there shall be taken into account only 71.6 percent of any gain from the sale or exchange of section 1250 property which is equal to 85 percent of the excess determined under section 291(a)(1) with respect to such property. Ante, p. 423. “(3) Applicable corporation defined.— For purposes of this subsection, the term ‘applicable corporation’ has the meaning given such term by section 291(e)(2).” (c) Conforming Amendments.— (1) Subsection (c) of section 263 (relating to intangible drilling 26 USC 263. and development costs) is amended by adding at the end thereof the following new sentence: “This subsection shall not apply with respect to any costs to which any deduction is allowed under section 58(i) or 291.” Ante, pp. 417, 423. (2) The table of parts for subchapter B of chapter 1 is amended by adding at the end thereof the following: “Part XI. Special rules relating to corporate preference items.” (d) Effective Dates.— (1) In general.— Except as provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 1982. (2) 1250 gain.— Section 291(a)(1) of the Internal Revenue Code Ante, p. 423. of 1954 shall apply to sales or other dispositions after December 31, 1982, in taxable years ending after such date. (3) Pollution control facilities.— Section 291(a)(5) of such Code shall apply to property placed in service after December 31, 1982, in taxable years ending after such date. (4) Drilling and mining costs.— Section 291(b) of such Code shall apply to expenditures after December 31, 1982, in taxable years ending after such date. (5) Reduction in percentage depletion for coal and iron ore.— Section 291(a)(2) of such Code shall apply to taxable years beginning after December 31, 1983. (6) Minimum tax.— The amendment made by subsection (b) shall apply to taxable years ending after December 31, 1982, with respect to items of tax preference described in section 57(b) Ante, p. 426. of such Code to which section 291 of such Code applies; except that in the case of an item described in section 291(a)(2) of such Code, such amendment shall apply to taxable years beginning after December 31, 1983. SEC. 205. AMENDMENTS TO INVESTMENT CREDIT. (a) Basis Adjustment to Reflect Investment Tax Credit.— (1) In general.— Section 48 (relating to definitions and special 26 USC 48. rules involving section 38 property) is amended by redesignating subsection (q) as subsection (r) and by inserting after subsection (p) the following new subsection: “(q) Basis Adjustment to Section 38 Property.— “(1) In general.— For purposes of this subtitle, if a credit is determined under section 46(a)(2) with respect to section 38 property, the basis of such property shall be reduced by 50 percent of the amount of the credit so determined. “(2) Certain dispositions.— If during any taxable year there is a recapture amount determined with respect to any section 38 property the basis of which was reduced under paragraph (1), the basis of such property (immediately before the event resulting in such recapture) shall be increased by an amount equal to 50 percent of such recapture amount. For purposes of the “Recapture amounts.” preceding sentence, the term ‘recapture amount’ means any increase in tax (or adjustment in carrybacks or carryovers) determined under section 47. “(3) Special rule for qualified rehabilitated buildings.— In the case of any credit determined under section 46(a)(2) for any qualified rehabilitation expenditure in connection with a qualified rehabilitated building other than a certified historic structure, paragraphs (1) and (2) shall be applied without regard to the phrase ‘50 percent of’. “(4) Election of reduced credit in lieu of basis adjustment for regular percentage.— “(A) In general.— If the taxpayer elects to have this paragraph apply with respect to any recovery property— “(i) paragraphs (1) and (2) shall not apply to so much of the credit determined under section 46(a)(2) with 26 USC 46. respect to such property as is attributable to the regular percentage set forth in section 46(a)(2)(B); and “(ii) the amount of the credit allowable under section 38 with respect to such property shall be determined under subparagraph (B). “(B) Reduction in credit.— In the case of any recovery property to which an election under subparagraph (A) applies— “(i) solely for the purposes of applying the regular percentage, the applicable percentage under subsection (c) or (d) of section 46 shall be deemed to be 100 percent, and “(ii) notwithstanding section 46(a)(2)(B), the regular percentage shall be— “(I) 8 percent in the case of recovery property other than 3-year property, or “(II) 4 percent in the case of recovery property which is 3-year property. For purposes of the preceding sentence, RRB replacement property (within the meaning of section 168(f)(3)(B)) shall be 95 Stat. 204. treated as property which is not 3-year property. “(C) Time and manner of making election.— “(i) In general.— An election under this subsection with respect to any property shall be made on the taxpayer’s return of the tax imposed by this chapter for the taxpayer’s taxable year in which such property is placed in service (or in the case of property to which an election under section 46(d) applies, for the first taxable year for which qualified progress expenditures were taken into account with respect to such property). “(ii) Revocable only with consent.— An election under this subsection with respect to any property, once made, may be revoked only with the consent of the Secretary. “(5) Recapture of reductions.— “(A) In general.— For purposes of sections 1245 and 1250, any reduction under this subsection shall be treated as a deduction allowed for depreciation. “(B) Special rule for section 1250.— For purposes of section 1250(b), the determination of what would have been the depreciation adjustments under the straight line method shall be made as if the re had been no reduction under this section.” (2) Allowance of deduction for certain unused investment credits.— Part VI of subchapter B of chapter 1 (relating to itemized deductions for individuals and corporations) is amended by adding at the end thereof the following new section: “SEC. 196. DEDUCTION FOR CERTAIN UNUSED INVESTMENT CREDITS. “(a) Allowance of Deductions.— If— “(1) the amount of the credit determined under section 46(a)(2) for any taxable year exceeds the limitation provided by 26 USC 46. section 46(a)(3) for such taxable year, and “(2) the amount of such excess has not, after the application of section 46(b), been allowed to the taxpayer as a credit under section 38 for any taxable year, then an amount equal to 50 percent of the amount of such excess (to the extent attributable to property the basis of which is reduced under section 48(q)) not so allowed as a credit shall be allowed to the Ante, p. 427. taxpayer as a deduction for the first taxable year following the last taxable year in which such excess could under section 46(b) have been allowed as a credit. “(b) Taxpayers Dying or Ceasing to Exist.— If a taxpayer dies or ceases to exist prior to the first taxable year following the last taxable year in which the excess described in subsection (a) could under section 46(b) have been allowed as a credit, the amount described in subsection (a), or the proper portion thereof, shall, under regulations prescribed by the Secretary, be allowed to the taxpayer as a deduction for the taxable year in which such death or cessation occurs. “(c) Special rule for qualified rehabilitated buildings.— In the case of any credit to which section 48(q)(3) applies, subsection (a) shall be applied without regard to the phrase ‘50 percent of’.” (3) Basis adjustment not taken into account for purposes of earnings and profits.— Section 312(k) (relating to effect of 26 USC 312. depreciation on earnings and profits) is amended by adding at the end thereof the following new paragraph: “(5) Basis adjustment not taken into account.— In computing the earnings and profits of a corporation for any taxable year, the allowance for depreciation (and amortization, if any) shall be computed without regard to any basis adjustment under section 48(q).” (4) Special rules for certain leased property.— Section 48(d) (relating to certain leased property) is amended by adding 26 USC 48. at the end thereof the following new paragraph: “(5) Coordination with basis adjustment.— In the case of any property with respect to which an election is made under this subsection— “(A) subsection (q) (other than paragraph (4)) shall not apply with respect to such property, “(B) the lessee of such property shall include ratably in gross income over the shortest recovery period which could be applicable under section 168 with respect to such property an amount equal to 50 percent of the amount of the credit allowable under section 38 to the lessee with respect to such property, and “(C) in the case of a disposition of such property to which section 47 applies, this paragraph shall be applied in accordance with regulations prescribed by the Secretary.” (5) Conforming amendments.— (A) Section 48(g) (relating to special rules for qualified rehabilitated buildings) is amended by striking out paragraph (5). (B) Paragraph (24) of section 1016(a) (relating to adjustments 95 Stat. 239. to basis) is amended by striking out “section 48(g)(5)” and inserting in lieu thereof “section 48(q)” (C) The table of sections for part VI of subchapter B of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 196. Deduction for certain unused investment credits.” (b) Investment Credit Limited to 85 Percent of Tax Liability Instead of 90 Percent.— (1) In general.— Subparagraph (B) of section 46(a)(3) (relating 26 USC 46. to limitation based on amount of tax) is amended to read as follows: “(B) 85 percent of so much of the liability for tax for the taxable year as exceeds $25,000.” (2) Technical amendments.— (A) Subsection (a) of section 46 is amended by striking out paragraphs (7) and (8) and by redesignating paragraph (9) as paragraph (7). (B) Clause (i) of section 46(a)(7)(B), as redesignated by subparagraph (A), is amended to read as follows: “(i) paragraph (3)(B) shall be applied by substituting ‘100 percent’ for ‘85 percent’, and”. (C) Subparagraph (B) of section 46(a)(7), as redesignated by subparagraph (A), is amended by striking clause (ii) and by redesignating clause (iii) as clause (ii). (c) Effective Dates.— (1) Subsection (a). — (A) General rule.— Except as otherwise provided in this paragraph, the amendments made by subsection (a) shall apply to periods after December 31, 1982, under rules similar to the rules of section 48(m) of the Internal Revenue Code of 1954. (B) Exception.— The amendments made by subsection (a) shall not apply to any property which— (i) is constructed, reconstructed, erected, or acquired pursuant to a contract which was entered into after August 13, 1981, and was, on July 1, 1982, and at all times thereafter, binding on the taxpayer, (ii) is placed in service after December 31, 1982, and before January 1, 1986, (iii) with respect to which an election under section 168(f)(8)(A) of such Code is not in effect at any time, and Post, p. 442. (iv) is not described in section 167(1)(3)(A) of such Code. (C) Special rule for integrated manufacturing facilities.— (i) In general.— In the case of any integrated manufacturing facility, the requirements of clause (i) of subparagraph (B) shall be treated as met if— (I) the on-site construction of the facility began before July 1, 1982, and (II) during the period beginning after August 13, 1981, and ending on July 1, 1982, the taxpayer constructed (or entered into binding contracts for the construction of) more than 20 percent of the cost of such facility. (ii) Integrated manufacturing facility.— For purposes of clause (i), the term ‘integrated manufacturing facility’ means 1 or more facilities— (I) located on a single site, (II) for the manufacture of 1 or more manufactured products from raw materials by the application of 2 or more integrated manufacturing processes. (D) Special rule for historic structures.— In the case of any certified historic structure (as defined in section 48(g)(3) of the Internal Revenue Code of 1954), clause (i) of 26 USC 48. subparagraph (B) shall be applied by substituting “December 31, 1980” for “August 13, 1981.” (E) Certain projects with respect to historic structures.— In the case of any certified historic structure (as so defined), the requirements of clause (i) of subparagraph (B) shall be treated as met with respect to such property— (i) if the rehabilitation begins after December 31, 1980, and before July 1, 1982, or (ii) if— (I) before July 1, 1982, a public offering with respect to interests in such property was registered with the Securities and Exchange Commission, (II) before such date an application with respect to such property was filed under section 8 of the United States Housing Act of 1937, and 42 USC 1437f. (III) such property is placed in service before July 1, 1984. (2) Subsection (b).— The amendments made by subsection (b) 26 USC 46 note. shall apply to taxable years beginning after December 31, 1982. SEC. 206. REPEAL OF 1985 AND 1986 INCREASES IN ACCELERATED COST RECOVERY DEDUCTIONS. (a) IN GENERAL.— Paragraph (1) of section 168(b) (relating to 95 Stat. 204. amount of accelerated cost recovery deduction) is amended— (1) by striking out “tables” and inserting in lieu thereof “table”; (2) by striking out: “(A) For property placed in service after december 31, 1980, and before january 1, 1985.—”; and (3) by striking out subparagraphs (B) and (C). (b) Conforming Amendments.— Paragraph (4) of section 168(e) (relating to property excluded from application of section) is amended— (1) by striking out subparagraph (H); and (2) by striking out “l986” in the heading thereof and inserting in lieu thereof “1981”. SEC. 207. SECTION 189 MADE APPLICABLE TO CERTAIN CORPORATIONS FOR NONRESIDENTIAL REAL PROPERTY. (a) In General.— Subsection (a) of section 189 is amended to read 26 USC 189. as follows: “(a) Capitalization of Construction Period Interest and Taxes.— Except as otherwise provided in this section or in section 266 (relating to carrying charges), no deduction shall be allowed for real property construction period interest and taxes.” (b) Exclusion of Certain Property.— Subsection (d) of section 95 Stat. 264. 189 (relating to certain property excluded) is amended— (1) by striking out “or” at the end of paragraph (1), (2) by redesignating paragraph (2) as paragraph (3), and (3) by inserting after pa ragraph (1) the following new paragraph: “(2) residential real property (other than low income housing) acquired, constructed, or carried by a corporation other than an electing small business corporation (within the meaning of section 1371(b)), a personal holding company (within the meaning of section 542), or a foreign personal holding company (within the meaning of section 552), or”. (c) Allocation of Interest.— Paragraph (1) of section 189(e) 26 USC 189. (relating to construction period interest and taxes) is amended by adding at the end thereof the following sentence: “The Secretary shall prescribe regulations which provide for the allocation of interest to real property under construction.” (d) Conforming Amendment.— Paragraph (1) of section 189(e) (relating to construction period interest and taxes) is amended— (1) by striking out “construction period interest and taxes” and inserting in lieu thereof “real property construction period interest and taxes”, and (2) by striking out the caption thereof and inserting in lieu thereof: “(1) Real property construction period interest and taxes.—”. (e) Effective Date.— (1) In general.— Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 1982, with respect to construction which commences after such date. (2) Certain planned construction.— The amendments made by this section shall not apply with respect to construction of property which is used in a trade or business described in section 48(a)(3)(B) of the Internal Revenue Code of 1954 or which is a hospital or nursing home if— (A) such construction is conducted pursuant to a written plan of the taxpayer which was in existence on July 1, 1982, and as to which approval from a governmental unit has been requested in writing, and (B) such construction commences before January 1, 1984, and shall not apply to the Alaska Natural Gas Transportation System (15 U.S.C. 719) and its related facilities. PART II— LEASING SEC. 208. LIMITATIONS AND ADDITIONAL REQUIREMENTS ON LEASES UNDER THE ACCELERATED COST RECOVERY SYSTEM. (a) Limitations on Leases Under the Accelerated Cost Recovery System.— (1) In general.— Section 168 (relating to the accelerated cost 95 Stat. 204. Post, p. 445. recovery system) is amended by redesignating subsection (i) as subsection (j) and by inserting after subsection (h) the following new subsection: “(i) Limitations Relating to Leases of Qualified Leased Property.— For purposes of this subtitle, in the case of safe harbor lease property, the following limitations shall apply: “(1) Lessor may not reduce tax liability by more than 50 percent.— “(A) In general.— The aggregate amount allowable as deductions or credits for any taxable year which are allocable to all safe harbor lease property with respect to which the taxpayer is the lessor may not reduce the liability for tax of the taxpayer for such taxable year (determined without regard to safe harbor lease items) by more than 50 percent of such liability. “(B) Carryover of amounts not allowable as deductions or credits.— Any amount not allowable as a deduction or credit under subparagraph (A)— “(i) may be carried over to any subsequent taxable year, and “(ii) shall be treated as a deduction or credit allocable to safe harbor lease property in such subsequent taxable year. “(C) Allocation among deductions and credits.— The Secretary shall prescribe regulations for determining the amount— “(i) of any deduction or credit allocable to safe harbor lease property for any taxable year to which subparagraph (A) applies, and “(ii) of any carryover of any such deduction or credit under subparagraph (B) to any subsequent taxable year. “(D) Liability for tax and safe harbor lease items defined.— For purposes of this paragraph— “(i) Liability for tax defined.— Except as provided in this subparagraph, the term ‘liability for tax’ means the tax imposed by this chapter, reduced by the sum of the credits allowable under subpart A of part IV of subchapter A of this chapter. “(ii) Safe harbor lease items defined.— The term ‘safe harbor lease items’ means any of the following items which are properly allocable to safe harbor lease property with respect to which the taxpayer is the lessor: “(I) Any deduction or credit allowable under this chapter (other than any deduction for interest). “(II) Any rental income received by the taxpayer from any lessee of such property. “(III) Any interest allowable as a deduction under this chapter on indebtedness of the taxpayer (or any related person within the meaning of subsection (e)(4)(D)) which is paid or incurred to the lessee of such property (or any person so related to the lessee), “(iii) Certain taxes not included.— The term ‘tax imposed by this chapter’ shall not include any tax treated as not imposed by this chapter under the last sentence of section 53(a) (other than the tax imposed by 26 USC 53. section 56). “(2) Method of cost recovery.— The deduction allowable under subsection (a) with respect to any safe harbor lease property shall be determined by using the 150 percent declining balance method, switching to the straight-line method at a time to maximize the deduction (with a half-year convention in the first recovery year and without regard to salvage value) and a recovery period determined in accordance with the following table: “In the case of: The recovery period is: 3-year property 5 years. 5-year property 8 years. 10-year property 15 years. “(3) Investment credit allowed only over 5-year period.— In the case of any credit which would otherwise be allowable under section 38 with respect to any safe harbor lease property for any taxable year (determined without regard to this paragraph), only 20 percent of the amount of such credit shall be allowable in such taxable year and 20 percent of such amount shall be allowable in each of the succeeding 4 taxable years. “(4) No carrybacks of credit or net operating loss allocable to elected qualified leased property.— “(A) Credit carrybacks.— In determining the amount of any credit allowable under subpart A of part IV of subchapter A of this chapter which may be carried back to any preceding taxable year— “(i) the liability for tax for the taxable year from which any such credit is to be carried shall be reduced first by any credit not properly allocable to safe harbor lease property, and “(ii) no credit which is properly allocable to safe harbor lease property shall be taken into account in determining the amount of any credit which may be carried back. “(B) Net operating loss carrybacks.— The net operating loss carryback provided in section 172(b) for any taxable 26 USC 172. year shall be reduced by that portion of the amount of such carryback which is properly allocable to the items described in paragraph (1)(I)(ii) with respect to all safe harbor lease property with respect to which the taxpayer is the lessor. “(5) Limitation on deduction for interest paid by the lessor to the lessee.— In the case of interest described in paragraph (1)(D)(ii)(III), the amount allowable as a deduction for any taxable year with respect to such interest shall not exceed the amount which would have been computed if the rate of interest under the agreement were equal to the rate of interest in effect under section 6621 at the time the agreement was entered into. “(6) Computation of taxable income of lessee for purposes of percentage depletion.— “(A) In general.— For purposes of section 613 or 613A, the taxable income of any taxpayer who is a lessee of any safe harbor lease property shall be computed as if the taxpayer was the owner of such property, except that the amount of the deduction under subsection (a) of this section shall be determined after application of paragraph (2) of this subsection. “(B) Coordination with crude oil windfall profit tax.— Section 4988(b)(3)(A) shall be applied without regard to subparagraph (A). “(7) Transitional rule for application of paragraph (i) to certain transactions.— In the case of any deduction or credit with respect to— “(A) any transitional safe harbor lease property (within the meaning of section 208(d)(3) of the Tax Equity and Fiscal Responsibility Act of 1982), or “(B) any other safe harbor lease property placed in service during 1982 and to which paragraph (1) does not apply, paragraph (1) shall not operate to disallow any such deduction or credit for the taxable year for which such deduction or credit would otherwise be allowable but deductions and credits with respect to such property shall be taken into account first in determining whether any deduction or credit is allowable under paragraph (1) with respect to any other safe harbor lease property. “(8) Safe harbor lease property.— For purposes of this section, the term ‘safe harbor lease property’ means qualified leased property with respect to which an election under section 168(f)(8) is in effect.” (2) Conforming amendment.— (A) Subparagraph (A) of section 168(0(8) (relating to special 95 Stat. 204. rules for leases) is amended by inserting “except as provided in subsection (i),” before “for purposes of this subtitle”. (B) Subparagraph (D) of section 47(a)(5) (relating to certain 26 USC 47. dispositions, etc., of section 38 property) is amended by adding at the end thereof the following new sentence: “If, prior to a disposition to which this subsection applies, any portion of any credit is not allowable with respect to any property by reason of section 168(i)(3), such portion shall be treated (for purposes of this subparagraph) as not having been used to reduce tax liability.” (b) Additional Requirements to Qualify as Lease for Purposes of Accelerated Cost Recovery.— (1) Related persons may not qualify as lessors.— Subclause (I) of section 168(f)(8)(B)(i) (relating to qualified lessors) is amended by inserting “which is not a related person with respect to the lessee” before the comma at the end thereof. (2) Maximum lease term reduced.— Clause (iii) of section 168(f)(8)(B) (relating to term of lease) is amended to read as follows: “(iii) the term of the lease (including any extensions) does not exceed the greater of— “(I) 120 percent of the present class life of the property, or “(II) the period equal to the recovery period determined with respect to such property under subsection (i)(2).” (3) Definition of qualified leased property.— Subparagraph (D) of section 168(f)(8) (defining qualified leased property) is amended to read as follows: “(D) Qualified leased property defined.— For purposes of this section— “(i) In general.— The term ‘qualified leased property’ means recovery property— “(I) which is new section 38 property of the lessor, which is leased within 3 months after such property was placed in service, and which, if acquired by the lessee, would have been new section 38 property of the lessee, or “(II) which was new section 38 property of the lessee, which is leased within 3 months after such property is placed in service by the lessee, and with respect to which the adjusted basis of the lessor does not exceed the adjusted basis of the lessee at the time of the lease. “(ii) Only 45 percent of the lessee’s property may be treated as qualified.— The cost basis of all Safe harbor lease property (determined without regard to this clause)— “(I) which is placed in service during any calendar year, and “(II) with respect to which the taxpayer is a lessee, shall not exceed an amount equal to the 45 percent of the cost basis of the taxpayer’s qualified base property placed in service during such calendar year. “(iii) Allocation of disqualified basis.— The cost basis not treated as qualified leased property under clause (ii) shall be allocated to safe harbor lease property for such calendar year (determined without regard to clause (ii)) in reverse order to when the agreement described in subparagraph (A) with respect to such property was entered into. “(iv) Certain property may not be treated as qualified leased property.— The term ‘qualified leased property’ shall not include recovery property— “(I) which is a qualified rehabilitated building (within the meaning of section 48(g)(1)), 26 USC 48. “(II) which is public utility property (within the meaning of section 167(1)(3)(A)), “(III) which is property with respect to which a deduction is allowable by reason of section 291(b), Ante, p. 423. “(IV) with respect to which the lessee of the property (other than property described in clause (v)) under the agreement described in subparagraph (A) is a nonqualified tax-exempt organization, or “(V) property with respect to which the user of such property is a person (other than a United States person) not subject to United States tax on income derived from the use of such property. “(v) Qualified mass commuting vehicles included.— The term ‘qualified leased property’ includes recovery property which is a qualified mass commuting vehicle (as defined in section 103(b)(9)) which is financed in whole or in part by obligations the interest on which is excludable under section 103(a). “(vi) Qualified base property.— For purposes of this subparagraph, the term ‘qualified base property’ means property placed in service during any calendar year which— “(I) is new section 38 property of the taxpayer, “(II) is safe harbor lease property (not described in subclause (I)) with respect to which the taxpayer is the lessee, or “(III) is designated leased property (other than property described in subclause (I) or (II)) with respect which the taxpayer is the lessee. Any designated leased property taken into account by any lessee under the preceding sentence shall not be taken into account by the lessor in determining the lessor’s qualified base property. The lessor shall provide the lessee with such information with respect to the cost basis of such property as is necessary to carry out the purposes of this clause. “(vii) Definition of designated leased property.— For purposes of this subparagraph, the term ‘designated leased property’ means property— “(I) which is new section 38 property, “(II) which is subject to a lease with respect to which the lessor of the property is treated (without regard to this paragraph) as the owner of the property for Federal tax purposes, “(III) with respect to which the term of the lease to which such property is subject is more than 50 percent of the present class life (or, if no present class life, the recovery period used in subsection (i)(2)) of such property, and “(IV) which the lessee designates on his return as designated leased property, “(viii) Definition; special rule.— For purposes of this subparagraph— “(I) New section 38 property.— The term ‘new section 38 property’ has the meaning given such term by section 48(b). “(II) Property placed in service.— For purposes of this title (other than clause (i)), any property described in clause (i) to which subparagraph (A) applies shall be deemed originally placed in service not earlier than the date such property is used under the lease.” (4) Definitions and special rules.— Paragraph (8) of section 168(f) (relating to special rules for leases) is amended by redesignating 95 Stat. 204. subparagraph (H) as subparagraph (K) and by inserting after subparagraph (G) the following new subparagraphs: “(H) Definitions.— For purposes of this paragraph— “(i) Related person.— A person is related to another person if both persons are members of the same affiliated group (within the meaning of subsection (a) of section 1504 and determined without regard to subsection (b) of section 1504). “(ii) Nonqualified tax-exempt organization.— “(I) In general.— The term ‘nonqualified tax-exempt organization’ means, with respect to any agreement to which subparagraph (A) applies, any organization (or predecessor organization which was engaged in substantially similar activities) which was exempt from taxation under this title at any time during the 5-year period ending on the date such agreement was entered into. “(II) Special rule for farmers’ cooperatives.— The term ‘nonqualified tax-exempt organization’ shall not include any farmers’ cooperative organization described in section 521 whether or not 26 USC 521. exempt from taxation under section 521. “(III) Special rule for property used in unrelated trade or business.— An Organization shall not be treated as a nonqualified tax-exempt organization with respect to any property if such property is used in an unrelated trade or business (within the meaning of section 513) of such organization which is subject to tax under section 511. “(I) Transitional rules for certain transactions.— “(i) In general.— Except as provided in clause (ii), clause (ii) of subparagraph (D) shall not apply to any transitional safe harbor lease property (within the meaning of section 208(d)(3) of the Tax Equity and Fiscal Responsibility Act of 1982). “(ii) Special rules.— For purposes of subparagraph (D)(ii)— “(I) Determination of qualified base property.— The cost basis of property described in clause (i) (and other property placed in service during 1982 to which subparagraph (D)(ii) does not apply) shall be taken into account in determining the qualified base property of the taxpayer for the taxable year in which such property was placed in service. “(II) Reduction in qualified leased property.— The cost basis of property which may be treated as qualified leased property under subparagraph (D)(ii) for the taxable year in which such property was placed in service (determined without regard to this subparagraph) shall be reduced by the cost basis of the property taken into account under subclause (I). “(J) Coordination with at risk rules.— “(i) In general.— For purposes of section 465, in the case of property placed in service after the date of the enactment of this subparagraph, if— “(I) an activity involves the leasing of section 1245 property which is safe harbor lease property, and “(II) the lessee of such property (as determined under this paragraph) would, but for this paragraph, be treated as the owner of such property for purposes of this title, then the lessor (as so determined) shall be considered to be at risk with respect to such property in an amount equal to the amount the lessee is considered at risk with respect to such property (determined under section 465 without regard to this paragraph). “(ii) Subparagraph not to apply to certain service corporations.— Clause (i) shall not apply to any lessor which is a corporation the principal function of which is the performance of services in the field of health, law, engineering, architecture, accounting, actuarial science, performing arts, athletics, or consulting. “(iii) Special rule for property placed in service before date of enactment of this subparagraph.— This subparagraph shall apply to property placed in service before the date of enactment of this subparagraph if the provisions of section 465 did not apply to the lessor before such date but become applicable to such lessor after such date.” (c) Certain Leases Before October 20, 1981, Treated as Qualified Leases.— Nothing in paragraph (8) of section 168(f) of the Internal Revenue Code of 1954, or in any regulations prescribed Post, p. 442. thereunder, shall be treated as making such paragraph inapplicable to any agreement entered into before October 20, 1981, solely because under such agreement 1 party to such agreement is entitled to the credit allowable under section 38 of such Code with respect to property and another party to such agreement is entitled to the deduction allowable under section 168 of such Code with respect to such property. Section 168(f)(8)(B)(ii) of such Code shall not apply to the party entitled to such credit. (d) Effective Dates.— (1) In general.— Except as otherwise provided in this subsection, the amendments made by subsections (a) and (b) of this section shall apply to agreements entered into after July 1, 1982, or to property placed in service after July 1, 1982. (2) Transitional rule for certain safe harbor lease property.— (A) In general.— The amendments made by subsections (a) and (b) shall not apply to transitional safe harbor lease property. (B) Special rule for certain provisions.— Subparagraph (A) shall not apply with respect to the provisions of paragraph (6) of section 168(i) of the Internal Revenue Code of 1954 (as added by subsection (a)(1), to the provisions of Ante. p. 432. Ante, p. 437. section 168(f)(8)(J) of such Code (as added by subsection (b)(4)), or to the amendment made by subsection (b)(1). (3) Transitional safe harbor lease property.— For purposes of this subsection, the term “transitional safe harbor lease property” means property described in any of the following subparagraphs: (A) In general.— Property is described in this subparagraph if such property is placed in service before January 1, 1983, if— (i) with respect to such property a binding contract to acquire or to construct such property was entered into by the lessee after December 31, 1980, and before July 2, 1982, or (ii) such property was acquired by the lessee, or construction of such property was commenced by or for the lessee, after December 31, 1980, and before July 2, 1982. (B) Certain qualified lessees.— Property is described in this subparagraph if such property is placed in service before July 1, 1982, and with respect to which— (i) an agreement to which section 168(f)(8)(A) of the Post, p. 442. Internal Revenue Code of 1954 applies was entered into before August 15, 1982, and (ii) the lessee under such agreement is a qualified lessee (within the meaning of paragraph (6)). (C) Manufacturers of certain products.— Property is described in this subparagraph if such property— (i) is used to produce a class of products (within the meaning of paragraph (6)(B)) in an industry described in paragraph (6)(A)(ii)(II) (determined without regard to the phrase “other than the taxpayer”), and (ii) would be described in subparagraph (A) if “October 1” were substituted for “January 1”. (D) Certain aircraft.— Property is described in this subparagraph if such property— (i) is a commercial passenger aircraft (other than a helicopter), and (ii) would be described in subparagraph (A) if “January 1, 1984” were substituted for “January 1, 1983”. For purposes of determining whether property described in this subparagraph is described in subparagraph (A), subparagraph (A)(ii) shall be applied by substituting “June 25, 1981” for “December 31, 1980” and by substituting “February 20, 1982” for “July 2, 1982” and construction of the aircraft shall be treated as having been begun during the period referred to in subparagraph (A)(ii) if during such period construction or reconstruction of a subassembly was commenced, or the stub wing join occurred. (E) Turbines and boilers.— Property is described in this subparagraph if such property— (i) is a turbine or boiler of a cooperative organization 26 USC 1381. described in section 1381(a), and (ii) would be property described in subparagraph (A) if “July 1” were substituted for “January 1”. For purposes of determining whether property described in this subparagraph is described in subparagraph (A), such property shall be treated as having been acquired during the period referred to in subparagraph (A)(ii) if at least 20 percent of the cost of such property is paid during such period. (F) Property used in the production of steel.— Property is described in this subparagraph if such property— (i) is used by the taxpayer directly in connection with the trade or business of the taxpayer of the manufacture or production of steel, and (ii) would be described in subparagraph (A) if “January 1, 1984” were substituted for “January 1, 1983”. (4) Special rule for antiavoidance provisions.— The provisions of paragraph (6) of section 168(i) of such Code (as added by subsection (a)(1)), and the amendment made by subsection (b)(1), Ante, p. 432. shall apply to leases entered into after February 19, 1982, in taxable years ending after such date. (5) Special rule for mass commuting vehicles.— The amendments made by this section (other than section 168(i)(1) and (7) of such Code, as added by subsection (a)(1)) and section 209 shall not apply to qualified leased property described in section 168(f)(8)(D)(V) of such Code (as in effect after the amendments Ante, p. 435. made by this section) which— (A) is placed in service before January 1, 1988, or (B) is placed in service after such date— (i) pursuant to a binding contract or commitment entered into before April 1, 1983, and (ii) solely because of conditions which, as determined by the Secretary of the Treasury or his delegate, are not within the control of the lessor or lessee. (6) Qualified lessee defined.— (A) In general.— The term “qualified lessee” means a taxpayer which is a lessee of an agreement to which section 168(f)(8)(A) of such Code applies and which— Post, p. 442. (i) had net operating losses in each of the three most recent taxable years ending before July 1, 1982, and had an aggregate net operating loss for the five most recent taxable years ending before July 1, 1982, and (ii) which uses the property subject to the agreement to manufacture and produce within the United States a class of products in an industry with respect to which— (I) the taxpayer produced less than 5 percent of the total number of units (or value) of such products during the period covering the three most recent taxable years of the taxpayer ending before July 1, 1982, and (II) four or fewer United States persons (including as one person an affiliated group as defined in section 1504(a)) other than the taxpayer manufactured 26 USC 1504. 85 percent or more of the total number of all units (or value) within such class of products manufactured and produced in the United States during such period. (B) Class of products.— For purposes of subparagraph (A)— (i) the term “class of products” means any of the categories designated and numbered as a “class of products” in the 1977 Census of Manufacturers compiled and published by the Secretary of Commerce under title 13 of the United States Code, and (ii) information— (I) compiled or published by the Secretary of Commerce, as part of or in connection with the Statistical Abstract of the United States or the Census of Manufacturers, regarding the number of units (or value) of a class of products manufactured and produced in the United States during any period, or (II) if information under subclause (I) is not available, so compiled or published with respect to the number of such units shipped or sold by such manufacturers during any period, shall constitute prima facie evidence of the total number of all units of such class of products manufactured and produced in the United States in such period. (6) Underpayments of tax for 1982.— No addition to the tax shall be made under section 6655 of the Internal Revenue Code of 1954 (relating to failure by corporation to pay estimated 26 USC 6655. income tax) for any period before October 15, 1982, with respect to any underpayment of estimated tax by a taxpayer with respect to any tax imposed by chapter 1 of such Code, to the extent that such underpayment was created or increased by any provision of this section. SEC. 209. REPEAL OF LEASING; SPECIAL RULE FOR LEASES WITH ECONOMIC SUBSTANCE. (a) Special Rule for Leases With Economic Substance.— Paragraph (8) of section 168(f) (relating to special rules for leasing) is 95 Stat. 204. amended to read as follows: “(8) Special rules for finance leases.— “(A) In general.— For purposes of this title, except as provided in subsection (i), in the case of any agreement with respect to any finance lease property, the fact that— “(i) a lessee has the right to purchase the property at a fixed price which is not less than 10 percent of the original cost of the property to the lessor, or “(ii) the property is of a type not readily usable by any person other than the lessee, shall not be taken into account in determining whether such agreement is a lease. “(B) Finance lease property defined.— For purposes of this section— “(i) In general.— The term ‘finance lease property’ means recovery property which is subject to an agreement which meets the requirements of subparagraph (C) and— “(I) which is new section 38 property of the lessor, which is leased within 3 months after such property was placed in service, and which, if acquired by the lessee, would have been new section 38 property of the lessee, or “(II) which was new section 38 property of the lessee, which is leased within 3 months after such property is placed in service by the lessee, and with respect to which the adjusted basis of the lessor does not exceed the adjusted basis of the lessee at the time of the lease. “(ii) Only 40 percent of the lessee’s property may be treated as qualified.— The cost basis of all finance lease property (determined without regard to this clause)— “(I) which is placed in service during any calendar year beginning before January 1, 1986, and “(II) with respect to which the taxpayer is a lessee, shall not exceed an amount equal to 40 percent of the cost basis of the taxpayer’s qualified base property placed in service during such calendar year. “(iii) Allocation of disqualified basis.— The cost basis not treated as finance lease property under clause (ii) shall be allocated to finance lease property for such calendar year (determined without regard to clause (ii)) in reverse order to when the agreement described in subparagraph (A) with respect to such property was entered into. “(iv) Certain property may not be treated as finance lease property.— The term ‘finance lease property’ shall not include recovery property— “(I) which is a qualified rehabilitated building (within the meaning of section 48(g)(1)), 26 USC 48. “(II) which is public utility property (within the meaning of section 167(1)(3)(A)), “(III) which is property with respect to which a deduction is allowable by reason of section 291(b), “(IV) with respect to which the lessee of the property under the agreement described in subparagraph (A) is a nonqualified tax-exempt organization, or “(V) property with respect to which the user of such property is a person (other than a United States person) not subject to United States tax on income derived from the use of such property. “(v) Qualified base property.— For purposes of this subparagraph, the term ‘qualified base property’ means property placed in service during any calendar year which— “(I) is new section 38 property of the taxpayer, “(II) is finance lease property (not described in subclause (I)) with respect to which the taxpayer is the lessee, or “(III) is designated leased property (other than property described in subclause (I) or (ID) with respect to which the taxpayer is the lessee. Any designated leased property taken into account by any lessee under the preceding sentence shall not be taken into account by the lessor in determining the lessor’s qualified base property. The lessor shall provide the lessee with such information with respect to the cost basis of such property as is necessary to carry out the purposes of this clause. “(vi) Definition of designated leased property.— For purposes of this subparagraph, the term ‘designated leased property’ means property— “(I) which is new section 38 property, “(II) which is subject to a lease with respect to which the lessor of the property is treated (without regard to this paragraph) as the owner of the property for Federal tax purposes, “(III) with respect to which the term of the lease to which such property is subject is more than 50 percent of the present class life (or, if no present class life, the recovery period under subsection (a)) of such property, and “(IV) which the lessee designates on his return as designated leased property, “(vii) Definition; special rules.— For purposes of this subparagraph— “(I) New section 38 property defined.— The term ‘new section 38 property’ has the meaning given such term by section 4803). “(II) Lessee limitation not to apply to certain farm property.— Clause (ii) shall not apply to any property which is used for farming purposes (within the meaning of section 2032A(e)(5)) and 26 USC 2032A. which is placed in service during the calendar year but only if the cost basis of such property, when added to the cost basis of other finance lease property used for such purpose does not exceed $150,000 (determined under rules similar to the rules of section 209(d)(1)(B) of the Tax Equity and Fiscal Responsibility Act of 1982). “(III) Property placed in service.— For purposes of this title (other than clause (i), any finance lease property shall be deemed originally placed in service not earlier than the date such property is used under the lease. “(C) Agreements must meet certain requirements.— The requirements of this subparagraph are met with respect to any agreement if— “(i) Lessor requirement.— Any lessor under the agreement must be— “(I) a corporation (other than an electing small business corporation within the meaning of section 1371(b) or a personal holding company within the meaning of section 542(a)), “(II) a partnership all of the partners of which are corporations described in subclause (I), or “(III) a grantor trust with respect to which the grantor and all the beneficiaries of the trust are described in subclause (I) or (II). “(ii) Characterization of agreement.— The parties to the agreement characterize such agreement as a lease. “(iii) Agreement contains certain provisions.— The agreement contains the provision described in clause (i) or (ii) of subparagraph (A), or both. “(iv) Agreement otherwise lease, etc.— For purposes of this title (determined without regard to the provisions described in clause (iii)), the agreement would be treated as a lease and the lessor under the agreement would be treated as the owner of the property. “(D) Paragraph not to apply to agreements between related persons.— This paragraph shall not apply to any agreement if the lessor and lessee are both persons who are members of the same affiliated group (within the meaning of subsection (a) of section 1504 and determined without regard to subsection (b) of section 1504). “(E) Nonqualified tax-exempt organization.— “(i) In general.— The term ‘nonqualified tax-exempt organization’ means, with respect to any agreement to which subparagraph (A) applies, any organization (or predecessor organization which was engaged in substantially similar activities) which was exempt from taxation under this title at any time during the 5-year period ending on the date such agreement was entered into. “(ii) Special rule for farmers’ cooperatives.— The term ‘nonqualified tax-exempt organization’ shall not include any farmers’ cooperative organization which is described in section 521 whether or not exempt from 26 USC 521. taxation under section 521. “(iii) Special rule for property used in unrelated trade or business.— An organization shall not be treated as a nonqualified tax-exempt organization with respect to any property if such property is used in an unrelated trade or business (within the meaning of section 513) of such organization which is subject to taxation under section 511. “(F) Cross reference.— “For special recapture in case where lessee acquires financed recovery property, see section 1245.” (b) Special Limitations on Finance Lease Property.— Subsection (i) of section 168 (relating to limitations and additional requirements Ante, p. 432. with respect to leases) is amended to read as follows: “(i) Limitations Relating to Leases of Finance Lease Property.— For purposes of this subtitle, in the case of finance lease property, the following limitations shall apply: “(1) Lessor may not reduce tax liability by more than 50 percent.— “(A) In general.— The aggregate amount allowable as deductions or credits for any taxable year which are allocable to all finance lease property with respect to which the taxpayer is the lessor may not reduce the liability for tax of the taxpayer for such taxable year (determined without regard to finance lease items) by more than 50 percent of such liability. “(B) Carryover of Amounts Not Allowable as Deductions or Credits.— Any amount not allowable as a deduction or credit under subparagraph (A)— “(i) may be carried over to any subsequent taxable year, and “(ii) shall be treated as a deduction or credit allocable to finance lease property in such subsequent taxable year. “(C) Allocation among deductions and credits.— The Secretary shall prescribe regulations for determining the amount— “(i) of any deduction or credit allocable to finance lease property for any taxable year to which subparagraph (A) applies, and “(ii) of any carryover of any such deduction or credit under subparagraph (B) to any subsequent taxable year. “(D) Liability for tax and finance lease items defined.— For purposes of this paragraph— “(i) Liability for tax defined.— Except as provided in this subparagraph, the term ‘liability for tax’ means the tax imposed by this chapter, reduced by the sum of the credits allowable under subpart A of part IV of subchapter A of this chapter. “(ii) Finance lease items defined.— The term ‘finance lease items’ means any of the following items which are properly allocable to finance lease property with respect to which the taxpayer is the lessor: “(I) Any deduction or credit allowable under this chapter. “(II) Any rental income received by the taxpayer from any lessee of such property. “(iii) Certain taxes not included.— The term ‘tax imposed by this chapter’ shall not include any tax treated as not imposed by this chapter under the last sentence of section 53(a) (other than the tax imposed by 26 USC 53. section 56). “(E) Certain safe harbor lease property taken into account.— Under regulations prescribed by the Secretary, deductions and credits and safe harbor lease items which are allocable to safe harbor lease property to which this paragraph (as in effect for taxable years beginning in 1983) applies shall be taken into account for purposes of applying this paragraph. “(2) Investment credit allowed only over 5-year period.— In the case of any credit which would otherwise be allowable under section 38 with respect to any finance lease property for any taxable year (determined without regard to this paragraph), only 20 percent of the amount of such credit shall be allowable in such taxable year and 20 percent of such amount shall be allowable in each of the succeeding 4 taxable years. “(3) Computation of taxable income of lessee for purposes of percentage depletion.— “(A) In general.— For purposes of section 613 or 613A, the taxable income of any taxpayer who is a lessee of any financed recovery property shall be computed as if the taxpayer was the owner of such property, except that the amount of the deduction under subsection (a) of this section shall be determined after application of paragraph (2) of this subsection. “(B) Coordination with crude oil windfall profit tax.— Section 4988(b)(3)(A) shall be applied without regard to subparagraph (A). “(4) Limitations.— “(A) Termination of certain provisions.— “(i) Paragraph (1).— Paragraph (1) shall not apply to property placed in service after September 30, 1985, in taxable years beginning after such date. “(ii) Paragraph (2) shall not apply to property placed in service after September 30, 1985. “(B) Certain farm property.— This subsection shall not apply to property which is used for farming purposes (within the meaning of section 2032A(e)(5)) and which is placed in service during the taxable year but only if the cost basis of such property, when added to the cost basis of other finance lease property used for such purpose, does not exceed $150,000 (determined under rules similar to the rules of section 209(d)(1)(B) of the Tax Equity and Fiscal Ante, p. 442. Responsibility Act of 1982).” (c) Definition of New Section 38 Property.— Subsection (b) of section 48 (defining new section 38 property) is amended by adding 26 USC 48. at the end thereof the following new sentence: “For purposes of determining whether section 38 property subject to a lease is new section 38 property, such property shall be treated as originally placed in service not earlier than the date such property is used under the lease but only if such property is leased within 3 months after such property is placed in service.” (d) Effective Dates.— (1) Subsection (a).— (A) In general.— Except as provided in subparagraph (B) and paragraph (2), the amendments made by this section shall apply to agreements entered into after December 31, 1983. (B) Special rule for farm property aggregating $150,000 or less.— (i) In general.— The amendments made by subsection (a) shall also apply to any agreement entered into after July 1, 1982, and before January 1, 1984, if the property subject to such agreement is section 38 property which is used for farming purposes (within the meaning of section 2032A(e)(5)). (ii) $150,000 limitation.— The provisions of clause (i) shall not apply to any agreement if the sum of— (I) the cost basis of the property subject to the agreement, plus (II) the cost basis of any property subject to an agreement to which this subparagraph previously applied, which was entered into during the same calendar year, and with respect to which the lessee was the lessee of the agreement described in subclause (I) (or any related person within the meaning of section 168(e)(4)(D)), exceeds $150,000. For purposes of subclause (II), in the case of an individual, there shall not be taken into account any agreement of any individual who is a related person involving property which is used in a trade or business of farming of such related person which is separate from the trade or business of farming of the lessee described in subclause (II). (2) Special rule for definition of new section 38 property.— The amendment made by subsection (c) shall apply to property placed in service after December 31, 1983. SEC. 210. MOTOR VEHICLE OPERATING LEASES. (a) In general.— In the case of any qualified motor vehicle agreement, the fact that such agreement contains a terminal rental adjustment clause shall not be taken into account in determining whether such agreement is a lease. (b) Definitions.— For purposes of this section— (1) Qualified motor vehicle agreement.— The term “qualified motor vehicle agreement” means any agreement with respect to a motor vehicle (including a trailer)— (A) which was entered into before— (i) the enactment of any law, or (ii) the publication by the Secretary of the Treasury or his delegate of any regulation, which provides that any agreement with a terminal rental adjustment clause is not a lease, (B) with respect to which the lessor under the agreement— (i) is personally liable for the repayment of, or (ii) has pledged property (but only to the extent of the net fair market value of the lessor’s interest in such property), other than property subject to the agreement or property directly or indirectly financed by indebtedness secured by property subject to the agreement, as security for, all amounts borrowed to finance the acquisition of property subject to the agreement, and (C) with respect to which the lessee under the agreement uses the property subject to the agreement in a trade or business or for the production of income. (2) Terminal rental adjustment clause.— The term “terminal rental adjustment clause” means a provision of an agreement which permits or requires the rental price to be adjusted upward or downward by reference to the amount realized by the lessor under the agreement upon sale or other disposition of such property. PART III— FOREIGN TAX SEC. 211. FOREIGN TAX CREDIT FOR TAXES ON OIL AND GAS INCOME. (a) Amendment of Section 907(C)(4) to Recapture Foreign Oil and Gas Extraction Losses by Recharacterizing Later Extraction Income.— Paragraph (4) of section 907(c) (relating to certain 26 USC 907. losses) is amended to read as follows: “(4) Recapture of foreign oil and gas extraction losses by recharacterizing later extraction income.— “(A) In general.— That portion of the income of the taxpayer for the taxable year which (but for this paragraph) would be treated as foreign oil and gas extraction income shall be treated as income (from sources without the United States) which is not foreign oil and gas extraction income to the extent of the excess of— “(i) the aggregate amount of foreign oil extraction losses for preceding taxable years beginning after December 31, 1982, over “(ii) so much of such aggregate amount as was recharacterized under this subparagraph for preceding taxable years beginning after December 31, 1982. “(B) Foreign oil extraction loss defined.— “(i) In general.— For purposes of this paragraph, the term ‘foreign oil extraction loss’ means the amount by which— “(I) the gross income for the taxable year from sources without the United States and its possessions (whether or not the taxpayer chooses the benefits of this subpart for such taxable year) taken into account in determining the foreign oil and gas extraction income for such year, is exceeded by “(II) the sum of the deductions properly apportioned or allocated thereto. “(ii) Net operating loss deduction not taken into account.— For purposes of clause (i), the net operating loss deduction allowable for the taxable year under section 172(a) shall not be taken into account. 26 USC 172. “(iii) Expropriation and casualty losses not taken into account.— For purposes of clause (i), there shall not be taken into account— “(I) any foreign expropriation loss (as defined in section 172(h)) for the taxable year, or “(II) any loss for the taxable year which arises from fire, storm, shipwreck, or other casualty, or from theft, to the extent such loss is not compensated for by insurance or otherwise.” (b) Extraction income removed from foreign oil related income.— Paragraph (2) of section 907(c) (defining foreign oil related 26 USC 907. income) is amended to read as follows: “(2) Foreign oil related income.— The term ‘foreign oil related income’ means the taxable income derived from sources outside the United States and its possessions from— “(A) the processing of minerals extracted (by the taxpayer or by any other person) from oil or gas wells into their primary products, “(B) the transportation of such minerals or primary products, “(C) the distribution or sale of such minerals or primary products, “(D) the disposition of assets used by the taxpayer in the trade or business described in subparagraph (A), (B), or (C), or “(E) the performance of any other related service.” (c) Repeal of Separate Application of Section 904 to Foreign Oil Related Income; Amounts Treated as Foreign Taxes on Such Income.— (1) In general.— Subsection (b) of section 907 (relating to special rules in case of foreign oil and gas income) is amended to read as follows: “(b) Foreign Taxes on Foreign Oil Related Income.— For purposes of this subtitle, in the case of taxes paid or accrued to any foreign country with respect to foreign oil related income, the term ‘income, war profits, and excess profits taxes’ shall not include any amount paid or accrued after December 31, 1982, to the extent that the Secretary determines that the foreign law imposing such amount of tax is structured, or in fact operates, so that the amount of tax imposed with respect to foreign oil related income will generally be materially greater, over a reasonable period of time, than the amount generally imposed on income that is neither foreign oil related income nor foreign oil and gas extraction income. In computing the amount not treated as tax under this subsection, such amount shall be treated as a deduction under the foreign law.” (2) Repeal of separate treatment of foreign oil related loss.— Subsection (f) of section 904 (relating to recapture of 26 USC 904. overall foreign loss) is amended by striking out paragraph (4) and redesignating paragraphs (5) and (6) as paragraphs (4) and (5), respectively. (d) Carryback and Carryover of Disallowed Credits; Transitional Rules.— (1) Transitional rules.— Subsection (e) of section 907 (relating 26 USC 907. to transitional rules) is amended to read as follows: “(e) Transitional Rules.— “(1) Credits arising in taxable years beginning before january 1, 1983.— The amount of taxes paid or accrued in any taxable year beginning before January 1, 1983 (hereinafter in this paragraph referred to as the ‘excess credit year’) which under section 904(c) or 907(f) may be deemed paid or accrued in a taxable year beginning after December 31, 1982, shall not exceed the amount which could have been deemed paid or accrued if sections 907(b), 907(f), and 904(f)(4) (as in effect on the day before the date of the enactment of the Tax Equity and Fiscal Responsibility Act of 1982) remained in effect for taxable Ante, p. 324. years beginning after December 31, 1982. “(2) Carryback of credits arising in taxable years beginning after december 31, 1982.— The amount of the taxes paid or accrued in a taxable year beginning after December 31, 1982, which may be deemed paid or accrued under section 904(c) or 907(f) in a taxable year beginning before January 1, 1983, shall not exceed the amount which could have been deemed paid or accrued if sections 907(b), 907(f), and 904(f)(4) (as in effect on the day before the date of the enactment of the Tax Equity and Fiscal Responsibility Act of 1982) remained in effect for taxable years beginning after December 31, 1982.” (2) Repeal of 2-percent limitation on carryback and carryover of disallowed extraction taxes.— (A) In general.— Paragraph (1) of section 907(f) (relating to carryback and carryover of disallowed credits) is amended— (i) by striking out “so much of such excess as does not exceed 2 percent of foreign oil and gas extraction income for such taxable year” and inserting in lieu thereof “such excess”, (ii) by striking out the last sentence. (B) Technical amendments.— (i) Subparagraph (B) of section 907(f)(2) is amended— (I) by striking out “on taxes paid or accrued with respect to foreign oil related income”, and (II) by striking out “with respect to such income” in clause (i). (ii) Subparagraph (A) of section 907(f)(3) is amended by striking out “with respect to oil-related income”. (iii) Subparagraph (B) of section 907(f)(3) is amended by striking out “oil-related”. (e) Effective Date.— (1) In general.— Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 1982. (2) Retention of old sections 907(b) and 904(f) (4) where taxpayer had foreign loss from an activity not related to oil and gas.— If, after applying old sections 907(b) and 904(f)(4) to a taxable year beginning before January 1, 1983, the taxpayer had a foreign loss attributable to activities not taken into account in determining foreign oil related income (as defined in old section 907(c)(2)), such loss shall not be recaptured from foreign oil related income more rapidly than ratably over the 8-year period beginning with the first taxable year beginning after December 31, 1982. For purposes of the preceding sentence, an “old” section is such section as in effect on the day before the date of the enactment of this Act. SEC. 212. CURRENT TAXATION OF FOREIGN OIL RELATED INCOME OF CONTROLLED FOREIGN CORPORATIONS. (a) Foreign Oil Related Income Added to Currently Taxed Amounts.— Subsection (a) of section 954 (defining foreign base company 26 USC 954. income) is amended by adding at the end thereof the following new paragraph: “(5) the foreign base company oil related income for the taxable year (determined under subsection (h) and reduced as provided in subsection (b)(5)).” (b) Special Rules.— (1) Allowance of deductions against foreign base company oil related income.— Paragraph (5) of section 954(b) is amended by striking out “and the foreign base company shipping income” and inserting in lieu thereof “, the foreign base company shipping income, and the foreign base company oil related income”. (2) Preemption of foreign base company oil related income.— Subsection (b) of section 954 is amended by adding at the end thereof the following new paragraph: “(8) Foreign base company oil related income not treated as another kind of base company income.— Income of a Corporation which is foreign base company oil related income shall not be considered foreign base company income of such corporation under paragraph (1), (2), or (3) of subsection (a).” (c) Definition of Foreign Base Company Oil Related Income.— Section 954 (relating to foreign base company income) is amended by adding at the end thereof the following new subsection: “(h) Foreign Base Company Oil Related Income.— For purposes of this section— “(1) In general.— Except as otherwise provided in this subsection, the term ‘foreign base company oil related income’ means foreign oil related income (within the meaning of section 907(c)(2)) other than income derived from a source within a foreign country in connection with— “(A) oil or gas which was extracted from an oil or gas well located in such foreign country, or “(B) oil, gas, or a primary product of oil or gas which is sold by the foreign corporation or a related person for use or consumption within such country or is loaded in such country on a vessel or aircraft as fuel for such vessel or aircraft. “(2) Paragraph (i) applies only where corporation has produced 1,000 barrels per day or more.— “(A) In general.— The term ‘foreign base company oil related income’ shall not include any income of a foreign corporation if such corporation is not a large oil producer for the taxable year. “(B) Large oil producer.— For purposes of subparagraph (A), the term ‘large oil producer’ means any corporation if, for the taxable year or for the preceding taxable year, the average daily production of foreign crude oil and natural gas of the related group which includes such corporation equaled or exceeded 1,000 barrels. “(C) Related group.— The term ‘related group’ means a group consisting of the foreign corporation and any other person who is a related person with respect to such corporation. “(D) Average daily production of foreign crude oil and natural gas.— For purposes of this paragraph, the average daily production of foreign crude oil or natural gas of any related group for any taxable year (and the conversion of cubic feet of natural gas into barrels) shall be determined under rules similar to the rules of section 613A except that only crude oil or natural gas from a well located outside the United States shall be taken into account.” (d) Exception from Foreign Base Company Income for Certain Foreign Corporations Not to Apply.— Paragraph (4) of section 954(b) is amended by adding at the end thereof the following new 26 USC 954. sentence: “The preceding sentence shall not apply to foreign base company oil related income described in subsection (a)(5).” (e) Conforming Amendments.— Subsection (a) of section 954 is amended by striking out “and” at the end of paragraph (3), and by striking out the period at the end of paragraph (4) and inserting in lieu thereof”, and”. (f) Effective Date.— The amendments made by this section shall 26 USC 954 note. apply to taxable years of foreign corporations beginning after December 31, 1982, and to taxable years of United States shareholders in which, or with which, such taxable years of foreign corporations end. SEC. 213. POSSESSION TAX CREDIT; INCOME TAX LIABILITY INCURRED TO THE VIRGIN ISLANDS. (a) Possession Tax Credit.— (1) Active trade or business requirement.— Paragraph (2) of section 936(a) (relating to conditions which must be satisfied) is 26 USC 936. amended— (A) by striking out “50 percent” in subparagraph (B) and inserting in lieu thereof “65 percent”, and (B) by adding at the end thereof the following new subparagraph: “(C) Transitional rule.— In applying subparagraph (B) with respect to taxable years beginning after December 31, 1982, and before January 1, 1985, the following percentage shall be substituted for “65 percent”: “For taxable years beginning in calendar year: The percentage tax is: 1983 55 1984 60”. (2) Income attributable to certain intangible property.— Section 936 (relating to Puerto Rico and possession tax credit) is amended by adding at the end thereof the following new subsection: “(h) Tax Treatment Of Intangible Property Income.— “(1) In general.— “(A) Income attributable to shareholders.— The intangible property income of a corporation electing the application of this section for any taxable year shall be included on a pro rata basis in the gross income of all shareholders of such electing corporation at the close of the taxable year of such electing corporation as income from sources within the United States for the taxable year of such shareholder in which or with which the taxable year of such electing corporation ends. “(B) Exclusion from the income of an electing corporation.— Any intangible property income of a corporation electing the application of this section which is included in the gross income of a shareholder of such corporation by reason of subparagraph (A) shall be excluded from the gross income of such corporation. “(2) Foreign shareholders; shareholders not subject to tax.— “(A) In general.— Paragraph (1)(A) shall not apply with respect to any shareholder— “(i) who is not a United States person, or “(ii) who is not subject to tax under this title on intangible property income which would be allocated to such shareholder (but for this subparagraph). “(B) Treatment of nonallocated intangible property income.— For purposes of this subtitle, intangible property income of a corporation electing the application of this section which is not included in the gross income of a shareholder of such corporation by reason of subparagraph (A)— “(i) shall be treated as income from sources within the United States, and “(ii) shall not be taken into account under subsection (a)(2). “(3) Intangible property income.— For purposes of this subsection— “(A) In general.— The term ‘intangible property income’ means the gross income of a corporation attributable to any intangible property other than intangible property which has been licensed to such corporation since prior to 1948 and is in use by such corporation on the date of the enactment of this subparagraph. “(B) Intangible property.— The term ‘intangible property’ means any— “(i) patent, invention, formula, process, design, pattern, or know-how; “(ii) copyright, literary, musical, or artistic composition; “(iii) trademark, trade name, or brand name; “(iv) franchise, license, or contract; “(v) method, program, system, procedure, campaign, survey, study, forecast, estimate, customer list, or technical data; or “(vi) any similar item, which has substantial value independent of the services of any individual. “(C) Exclusion of reasonable profit.— The term ‘intangible property income’ shall not include any portion of the income from the sale, exchange or other disposition of any product, or from the rendering of services, by a corporation electing the application of this section which is determined by the Secretary to be a reasonable profit on the direct and indirect costs incurred by such electing corporation which are attributable to such income. “(D) Related person.— “(i) In general.— A person (hereinafter referred to as the ‘related person’) is related to any person if— “(I) the related person bears a relationship to such person specified in section 267(b) or section 26 USC 267. 707(b)(1), or “(II) the related person and such person are members of the same controlled group of corporations, “(ii) Special rules.— For purposes of clause (i)— “(I) section 267(b) and section 707(b)(1) shall be applied by substituting ‘10 percent’ for ‘50 percent’, and “(II) section 267(b)(3) shall be applied without regard to whether a person was a personal holding company or a foreign personal holding company, “(E) Controlled group of corporations.— The term ‘controlled group of corporations’ has the meaning given to such term by section 1563(a), except that— “(i) ‘more than 10 percent’ shall be substituted for ‘at least 80 percent’ and ‘more than 50 percent’ each place either appears in section 1563(a), and “(ii) the determination shall be made without regard to subsections (a)(4), (b)(2), and (e)(3)(C) of section 1563. “(4) Distributions to meet qualification requirements.— “(A) In general.— If the Secretary determines that a corporation does not satisfy a condition specified in subparagraph (A) or (B) of subsection (a)(2) for any taxable year by reason of the exclusion from gross income under paragraph (1)(B), such corporation shall nevertheless be treated as satisfying such condition for such year if it makes a pro rata distribution of property after the close of such taxable year to its shareholders (designated at the time of such distribution as a distribution to meet qualification requirements) with respect to their stock in an amount which is equal to— “(i) if the condition of subsection (a)(2)(A) is not satisfied, that portion of the gross income for the period described in subsection (a)(2)(A)— “(I) which was not derived from sources within a possession, and “(II) which exceeds the amount of such income for such period which would enable such corporation to satisfy the condition of subsection (a)(2)(A), “(ii) if the condition of subsection (a)(2)(B) is not satisfied, that portion of the gross income for such period— “(I) which was not derived from the active conduct of a trade or business within a possession, and “(II) which exceeds the amount of such income for such period which would enable such corporation to satisfy the conditions of subsection (a)(2)(B), or “(iii) if neither of such conditions is satisfied, that portion of the gross income which exceeds the amount of gross income for such period which would enable such corporation to satisfy the conditions of subparagraphs (A) and (B) of subsection (a)(2). “(B) Effectively connected income.— In the case of a shareholder who is a nonresident alien individual or a foreign corporation, trust, or estate, any distribution described in subparagraph (A) shall be treated as income which is effectively connected with the conduct of a trade or business conducted through a permanent establishment of such shareholder within the United States. “(C) Distribution denied in case of fraud or willful neglect.— Subparagraph (A) shall not apply to a corporation if the determination of the Secretary described in subparagraph (A) contains a finding that the failure of such corporation to satisfy the conditions in subsection (a)(2) was due in whole or in part to fraud with intent to evade tax or willful neglect on the part of such corporation. “(5) Election out.— “(A) In general.— The rules contained in paragraphs (1) through (4) do not apply for any taxable year if an election pursuant to subparagraph (F) is in effect to use one of the methods specified in subparagraph (C). “(B) Eligibility.— “(i) Requirement of significant business presence.— An election may be made to use one of the methods specified in subparagraph (C) with respect to a product or type of service only if an electing corporation has a significant business presence in a possession with respect to such product or type of service. An election may remain in effect with respect to such product or type of service for any subsequent taxable year only if such electing corporation maintains a significant business presence in a possession with respect to such product or type of service in such subsequent taxable year. If an election is not in effect for a taxable year because of the preceding sentence, the electing corporation shall be deemed to have revoked the election on the first day of such taxable year. “(ii) Definition.— For purposes of this subparagraph, an electing corporation has a ‘significant business presence’ in a possession for a taxable year with respect to a product or type of service if: “(I) the total production costs (other than direct material costs and other than interest excluded by regulations prescribed by the Secretary) incurred by the electing corporation in the possession in producing units of that product sold or otherwise disposed of during the taxable year by the affiliated group to persons who are not members of the affiliated group are not less than 25 percent of the difference between (a) the gross receipts from sales or other dispositions during the taxable year by the affiliated group to persons who are not members of the affiliated group of such units of the product produced, in whole or in part, by the electing corporation in the possession, and (b) the direct material costs of the purchase of materials for such units of that product by all members of the affiliated group from persons who are not members of the affiliated group; or “(II) no less than 65 percent of the direct labor costs of the affiliated group for units of the product produced during the taxable year in whole or in part by the electing corporation or for the type of service rendered by the electing corporation during the taxable year, is incurred by the electing corporation and is compensation for services performed in the possession; or “(III) with respect to purchases and sales by an electing corporation of all goods not produced in whole or in part by any member of the affiliated group and sold by the electing corporation to persons other than members of the affiliated group, no less than 65 percent of the total direct labor costs of the affiliated group in connection with all purchases and sales of such goods sold during the taxable year by such electing corporation is incurred by such electing corporation and is compensation for services performed in the possession. Notwithstanding satisfaction of one of the foregoing tests, an electing corporation shall not be treated as having a significant business presence in a possession with respect to a product produced in whole or in part by the electing corporation in the possession, for purposes of an election to use the method specified in subparagraph (C)(ii), unless such product is manufactured or produced in the possession by the electing corporation within the meaning of subsection (d)(1)(A) of section 954. 26 USC 954. “(iii) Special rules.— “(I) An electing corporation which produces a product or renders a type of service in a possession on the date of the enactment of this clause is not required to meet the significant business presence test in a possession with respect to such product or type of service for its taxable years beginning before January 1, 1986. “(II) For purposes of this subparagraph, the costs incurred by an electing corporation or any other member of the affiliated group in connection with contract manufacturing by a person other than a member of the affiliated group, or in connection with a similar arrangement thereto, shall be treated as direct labor costs of the affiliated group and shall not be treated as production costs incurred by the electing corporation in the possession or as direct material costs or as compensation for services performed in the possession, except to the extent as may be otherwise provided in regulations prescribed by the Secretary, “(iv) Regulations.— The Secretary may prescribe regulations setting forth: “(I) an appropriate transitional (but not in excess of three taxable years) significant business pres-ence test for commencement in a possession of operations with respect to products or types of service after the date of the enactment of this clause and not described in subparagraph (B)(iii)(I), “(II) a significant business presence test for other appropriate cases, consistent with the tests specified in subparagraph (B)(ii), “(III) rules for the definition of a product or type of service, and “(IV) rules for treating components produced in whole or in part by a related person as materials, and the costs (including direct labor costs) related thereto as a cost of materials, where there is an independent resale price for such components or where otherwise consistent with the intent of the substantial business presence tests. “(C) Methods of computation of taxable income.— If an election of one of the following methods is in effect pursuant to subparagraph (F) with respect to a product or type of service, an electing corporation shall compute its income derived from the active conduct of a trade or business in a possession with respect to such product or type of service in accordance with the method which is elected. “(i) Cost sharing.— “(I) Payment of cost sharing.— If an election of this method is in effect, the electing corporation must make a payment for its share of the cost (if any) of product area research which is paid or accrued by the affiliated group during that taxable year. Such share shall not be less than the same proportion of the cost of such product area research which the amount of ‘possession sales’ bears to the amount of ‘total sales‘ of the affiliated group. The cost of product area research paid or accrued solely by the electing corporation in a taxable year (excluding amounts paid directly or indirectly to or on behalf of related persons and excluding amounts paid under any cost sharing agreements with related persons) will reduce (but not below zero) the amount of the electing corporation’s cost sharing payment under this method for that year. “(a) Product area research.— For purposes of this section, the term ‘product area research’ includes (notwithstanding any provision to the contrary) the research, development and experimental costs, losses, expenses and other related deductions—including amounts paid or accrued for the performance of research or similar activities by another person; qualified research expenses within the meaning of section 44F(b); amounts paid or 95 Stat. 241. accrued for the use of, or the right to use, research or any of the items specified in subsection (h)(3)(B)(i); and a proper allowance for amounts incurred for the acquisition of any of the items specified in subsection (h)(3)(B)(i)— which are properly apportioned or allocated to the same product area as that in which the electing corporation conducts its activities, and a ratable part of any such costs, losses, expenses and other deductions which cannot definitely be allocated to a particular product area. “(b) Affiliated group.— For purposes of this subsection, the term ‘affiliated group’ shall mean the electing corporation and all other organizations, trades or businesses (whether or not incorporated, whether or not organized in the United States, and whether or not affiliated) owned or controlled directly or indirectly by the same interests, within the meaning of section 482. 26 USC 482. “(c) Possession sales.— For purposes of this section, the term ‘possession sales’ means the aggregate sales or other dispositions for the taxable year to persons who are not members of the affiliated group by members of the affiliated group of products produced, in whole or in part, by the electing corporation in the possession which are in the same product area as is used for determining the amount of product area research, and of services rendered, in whole or in part, in the possession in such product area to persons who are not members of the affiliated group. “(d) Total sales.— For purposes of this section, the term ‘total sales’ means the aggregate sales or other dispositions for the taxable year to persons who are not members of the affiliated group by members of the affiliated group of all products in the same product area as is used for determining the amount of product area research, and of services rendered in such product area to persons who are not members of the affiliated group. “(e) Product area.— For purposes of this section, the term ‘product area’ shall be defined by reference to the three-digit classification of the Standard Industrial Classification code. The Secretary may provide for the aggregation of two or more three-digit classifications where appropriate, and for a classification system other than the Standard Industrial Classification code in appropriate cases. “(II) Effect of election.— For purposes of determining the amount of its gross income derived from the active conduct of a trade or business in a possession with respect to a product produced by, or type of service rendered by, the electing corporation for a taxable year, if an election of this method is in effect, the electing corporation shall be treated as the owner (for purposes of obtaining a return thereon) of intangible property described in subsection (h)(3)(B)(i) which is related to the units of the product produced, or type of service rendered, by the electing corporation. Such electing corporation shall not be treated as the owner (for purposes of obtaining a return thereon) of any intangible property described in subsection (h)(3)(B)(ii) through (v) (to the extent not described in subsection (h)(3)(B)(i)) or of any other nonmanufacturing intangible. Notwithstanding the preceding sentence, an electing corporation shall be treated as the owner (for purposes of obtaining a return thereon) of (a) intangible property which was developed solely by such corporation in a possession and is owned by such corporation, (b) intangible property described in subsection (h)(3)(B)(i) acquired by such corporation from a person who was not related to such corporation (or to any person related to such corporation) at the time of, or in connection with, such acquisition, and (c) any intangible property described in subsection (h)(3)(B)(ii) through (v) (to the extent not described in subsection (h)(3)(B)(i)) and other nonmanufacturing intangibles which relate to sales of units of products, or services rendered, to unrelated persons for ultimate consumption or use in the possession in which the electing corporation conducts its trade or business. “(III) Payment provisions.— “(a) The cost sharing payment determined under subparagraph (C)(i)(I) for any taxable year shall be made to the person or persons specified in subparagraph (C)(i)(IV)(a) not later than the time prescribed by law for filing the electing corporation’s return for such taxable year (including any extensions thereof). If all or part of such payment is not timely made, the amount of the cost sharing payment required to be paid shall be increased by the amount of interest that would have been due under section 6601(a) had the portion of the 26 USC 6601. cost sharing payment that is not timely made been an amount of tax imposed by this title and had the last date prescribed for payment been the due date of the electing corporations return (determined without regard to any extension thereof). The amount by which a cost sharing payment determined under subparagraph (C)(i)(I) is increased by reason of the preceding sentence shall not be treated as a cost sharing payment or as interest. If failure to make timely payment is due in whole or in part to fraud or willful neglect, the electing corporation shall be deemed to have revoked the election made under subparagraph (A) on the first day of the taxable year for which the cost sharing payment was required. “(b) For purposes of this title, any tax of a foreign country or possession of the United States which is paid or accrued with respect to the payment or receipt of a cost sharing payment determined under subparagraph (C)(i)(I) or of an amount of increase referred to in subparagraph (C)(i)(III)(a) shall not be treated as income, war profits, or excess profits taxes paid or accrued to a foreign country or possession of the United States, and no deduction shall be allowed under this title with respect to any amounts of such tax so paid or accrued. “(IV) Special rules.— “(a) The amount of the cost sharing payment determined under subparagraph (C)(i)(I), and any increase in the amount thereof in accordance with subparagraph (C)(i)(III)(a), shall not be treated as income of the recipient, but shall reduce the amount of the deductions (and the amount of reductions in earnings and profits) otherwise allowable to the appropriate domestic member or members (other than an electing corporation) of the affiliated group, or, if there is no such domestic member, to the foreign member or members of such affiliated group as the Secretary may provide under regulations. “(b) If an election of this method is in effect, the electing corporation shall determine its intercompany pricing under the appropriate section 482 method, provided, however, that an 26 USC 482. electing corporation shall not be denied use of the resale price method for purposes of such intercompany pricing merely because the reseller adds more than an insubstantial amount to the value of the product by the use of intangible property. “(c) The amount of qualified research expenses, within the meaning of section 44F, of 95 Stat. 241. any member of the controlled group of corporations (as defined in section 44F(f)) of which the electing corporation is a member shall not be affected by the cost sharing payment required under this method. “(ii) Profit split.— “(I) General rule.— If an election of this method is in effect, the electing corporation’s taxable income derived from the active conduct of a trade or business in a possession with respect to units of a product produced or type of service rendered, in whole or in part, by the electing corporation shall be equal to 50 percent of the combined taxable income of the affiliated group (other than foreign affiliates) derived from covered sales of units of the product produced or type of service rendered, in whole or in part, by the electing corporation in a possession. “(II) Computation of combined taxable income.— Combined taxable income shall be computed separately for each product produced or type of service rendered, in whole or in part, by the electing corporation in a possession. Combined taxable income shall be computed (notwithstanding any provision to the contrary) for each such product or type of service rendered by deducting from the gross income of the affiliated group (other than foreign affiliates) derived from covered sales of such product or type of service all expenses, losses, and other deductions properly apportioned or allocated to gross income from such sales or services, and a ratable part of all expenses, losses, or other deductions which cannot definitely be allocated to some item or class of gross income, which are incurred by the affiliated group (other than foreign affiliates). Notwithstanding any other provision to the contrary, in computing the combined taxable income for each such product or type of service rendered, the research, development, and experimental costs, expenses and related deductions for the taxable year which would otherwise be apportioned or allocated to the gross income of the affiliated group (other than foreign affiliates) derived from covered sales of such product produced or type of service rendered, in whole or in part, by the electing corporation in a possession, shall not be less than the same proportion of the amount of the share of product area research determined under subparagraph (C)(i)(I) (without regard to the third sentence thereof) in the product area which includes such product or type of service, that such gross income from the product or type of service bears to such gross income from all products produced and types of service rendered, in whole or part, by the electing corporation in a possession. “(III) Division of combined taxable income.— 50 percent of the combined taxable income computed as provided in subparagraph (C)(ii)(II) shall be allocated to the electing corporation. Combined taxable income, computed without regard to the last sentence of subparagraph (C)(ii)(II), less the amount allocated to the electing corporation under the preceding sentence, shall be allocated to the appropriate domestic member or members (other than any electing corporation) of the affiliated group and shall be treated as income from sources within the United States, or, if there is no such domestic member, to a foreign member or members of such affiliated group as the Secretary may provide under regulations. “(IV) Covered sales.— For purposes of this paragraph, the term ‘covered sales’ means sales by members of the affiliated group (other than foreign affiliates) to persons who are not members of the affiliated group or to foreign affiliates. “(D) Unrelated person.— For purposes of this paragraph, the term ‘unrelated person’ means any person other than a person related within the meaning of paragraph (3)(D) to the electing corporation. “(E) Electing corporation.— For purposes of this subsection, the term ‘electing corporation’ means a domestic corporation for which an election under this section is in effect. “(F) Time and manner of election; revocation.— “(i) In general.— An election under subparagraph (A) to use one of the methods under subparagraph (C) shall be made only on or before the due date prescribed by law (including extensions) for filing the tax return of the electing corporation for its first taxable year beginning after December 31, 1982. If an election of one of such methods is made, such election shall be binding on the electing corporation and such method must be used for each taxable year thereafter until such election is revoked by the electing corporation under subparagraph (F)(iii). If any such election is revoked by the electing corporation under subparagraph (F)(iii), such electing corporation may make a subsequent election under subparagraph (A) only with the consent of the Secretary. “(ii) Manner of making election.— An election under subparagraph (A) to use one of the methods under subparagraph (C) shall be made by filing a statement to such effect with the return referred to in subparagraph (F)(i) or in such other manner as the Secretary may prescribe by regulations, “(iii) Revocation.— “(I) Except as provided in subparagraph (F)(iii) (II), an election may be revoked for any taxable year only with the consent of the Secretary. “(II) An election shall be deemed revoked for the year in which the electing corporation is deemed to have revoked such election under subparagraph (B)(i) or (C) (i)(III) (a), “(iv) Aggregation.— “(I) Where more than one electing corporation in the affiliated group produces any product or renders any services in the same product area, all such electing corporations must elect to compute their taxable income under the same method under subparagraph (C). “(II) All electing corporations in the same affiliated group that produce any products or render any services in the same product area may elect, subject to such terms and conditions as the Secretary may prescribe by regulations, to compute their taxable income from export sales under a different method from that used for all other sales and services. For this purpose, export sales means all sales by the electing corporation of products to foreign persons for use or consumption outside the United States and its possessions, provided such products are manufactured or produced in the pos-session within the meaning of subsection (d)(1)(A) of section 954, and further provided (except to the 26 USC 954. extent otherwise provided by regulations) the income derived by such foreign person on resale of such products (in the same state or in an altered state) is not included in foreign base company income for purposes of section 954(a). “(III) All members of an affiliated group must consent to an election under this subsection at such time and in such manner as shall be prescribed by the Secretary by regulations. “(6) Treatment of certain sales made after july 1, 1982.— “(A) In general.— For purposes of this section, in the case of a disposition of intangible property made by a corporation after July 1, 1982, any gain or loss from such disposition shall be treated as gain or loss from sources within the United States to which paragraph (5) does not apply. “(B) Exception.— Subparagraph (A) shall not apply to any disposition by a corporation of intangible property if such disposition is to a person who is not a related person to such corporation. “(C) Paragraph does not affect eligibility.— This paragraph shall not apply for purposes of determining whether the corporation meets the requirements of subsection (a)(2). “(7) Regulations.— The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including rules for the application of this subsection to income from leasing of products to unrelated persons.” (b) Income Tax Liability Incurred to the Virgin Islands.— Section 934 (relating to limitation on reduction in income tax liability 26 USC 934. incurred to the Virgin Islands) is amended— (1) by striking out “50 percent” in subsection (b)(2) and inserting in lieu thereof “65 percent”, and (2) by adding at the end thereof the following new subsections: “(e) Tax Treatment of Intangible Property Income of Certain Domestic Corporations.— “(1) In general.— “(A) Income attributable to shareholder.— The intangible property income (within the meaning of section 936(h)(3)) for any taxable year of any domestic corporation Ante, p. 452. which is described in subsection (b) and which is an inhabitant of the Virgin Islands (within the meaning of section 28(a) of the Revised Organic Act of the Virgin Islands (48 U.S.C. 1642)), shall be included on a pro rata basis in the gross income of all shareholders of such corporation at the close of the taxable year of such corporation as income from sources within the United States for the taxable year of such shareholder in which or with which the taxable year of such corporation ends. “(B) Exclusion from the income of the corporation.— Any intangible property income of a corporation described in subparagraph (A) which is included in the gross income of a shareholder of such corporation by reason of subparagraph (A) shall be excluded from the gross income of such corporation. “(2) Foreign shareholders; shareholders not subject to tax; inhabitants of the virgin islands.— “(A) In general.— Paragraph (1)(A) shall not apply with respect to any shareholder— “(i) who is not a United States person, “(ii) who is not subject to tax under this title on intangible property income which would be allocated to such shareholder (but for this subparagraph), or “(iii) who is an inhabitant of the Virgin Islands. “(B) Treatment of nonallocated intangible property income.— For purposes of this subtitle, intangible property income of a corporation described in paragraph (1)(A) which is not included in the gross income of a shareholder of such corporation by reason of subparagraph (A)— “(i) shall be treated as income from sources within the United States, and “(ii) shall not be taken into account for purposes of determining whether the conditions specified in paragraph (1) or (2) of subsection (b) are satisfied. “(3) Distribution to meet qualification requirements.— “(A) In general.— If the Secretary determines that a corporation does not satisfy a condition specified in paragraph (1) or (2) of subsection (b) for any taxable year by reason of the exclusion from gross income under paragraph (1)(B), such corporation shall nevertheless be treated as satisfying such condition for such year if it makes a pro rata distribution of property after the close of such taxable year to its shareholders (designated at the time of such distribution as a distribution to meet qualification requirements) with respect to their stock in an amount which is equal to— “(i) if the condition of subsection (b)(1) is not satisfied, that portion of the gross income for the period described in subsection (b)(1)— “(I) which was not derived from sources within the Virgin Islands, and “(II) which exceeds the amount of such income for such period which would enable such corporation to satisfy the condition of subsection (b)(1), “(ii) if the condition of subsection (b)(2) is not satisfied, that portion of the aggregate gross income for such period— “(I) which was not derived from the active conduct of a trade or business within the Virgin Islands, and “(II) which exceeds the amount of such income for such period which would enable such corporation to satisfy the conditions of subsection (b)(2), or “(iii) if neither of such conditions is satisfied, that portion of the gross income which exceeds the amount of gross income for such period which would enable such corporation to satisfy the conditions of paragraphs (1) and (2) of subsection (b). “(B) Effectively connected income.— In the case of a shareholder who is a nonresident alien individual, an inhabitant of the Virgin Islands, or a foreign corporation, trust, or estate, any distribution described in subparagraph (A) shall be treated as income which is effectively connected with the conduct of a trade or business conducted through a permanent establishment of such shareholder within the United States. “(C) Distribution denied in case of fraud or willful neglect.— Subparagraph (A) shall not apply to a corporation if the determination of the Secretary described in subparagraph (A) contains a finding that the failure of such corporation to satisfy the conditions in subsection (b) was due in whole or in part to fraud with intent to evade tax or willful neglect on the part of such corporation. “(4) Certain provisions of section 936 to apply.— “(A) In general.— The rules contained in paragraphs (5), (6), and (7) of section 936(h) shall apply to a domestic Ante, p. 452. corporation described in paragraph (1)(A) of this subsection. “(B) Certain modifications.— For purposes of subparagraph (A), section 936(h) shall be applied by substituting wherever appropriate— “(i) ‘Virgin Islands’ for ‘possession’, and “(ii) qualification under paragraphs (1) and (2) of subsection (b) for qualification under section 936(a)(2). “(f) Transitional Rule.— In applying subsection (b)(2) with respect to taxable years beginning after December 31, 1982, and before January 1, 1985, the following percentage shall be substituted for ‘65 percent’: “For taxable years beginning in calendar year: The percentage is: 1983 55 1984 60“. (c) Denial of Dividend Received Deduction in Case of a Distribution to Meet Qualification Requirements.— Section 246 (relating 26 USC 246. to rules applying to deduction for dividends received) is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection: “(e) Certain Distributions to Satisfy Requirements.— No deduction shall be allowed under section 243(a) with respect to a dividend received pursuant to a distribution described in section 936(h)(4) or 934(e)(3).” Ante, pp. 452, 463. (d) Transfer of Intangibles by Possession Corporation Treated as Transfer to Avoid Taxes.— Section 367 (relating to 26 USC 367. foreign corporations) is amended by redesignating subsection (d) as subsection (e) and by inserting after subsection (c) the following new subsection: “(d) Special Rule Relating to Transfer of Intangibles by Possession Corporations.— “(1) In general.— If, after August 14, 1982, any possession corporation transfers, directly or indirectly, any intangible property (within the meaning of section 936(h)(3)(B)) to any foreign corporation, such transfer shall be treated for purposes of subsection (a) as pursuant to a plan having as one of its principal purposes the avoidance of Federal income taxes. “(2) Possession corporation.— “(A) In general.— The term ‘possession corporation’ means any corporation— “(i) to which an election under section 936 applies, or “(ii) which is described in subsection (b) of section 934 26 USC 934. and which is an inhabitant of the Virgin Islands (within the meaning of section 28(a) of the Revised Organic Act of the Virgin Islands). 48 USC 1642. “(B) Former possession corporation.— A corporation shall be treated as a possession corporation with respect to any transfer if such corporation was a possession corporation (within the meaning of subparagraph (A)) at any time during the 5-year period ending on the date of such transfer. “(3) Transfer by united states affiliates.— A rule similar to the rule of paragraph (1) shall apply in the case of a direct or indirect transfer by a United States affiliate to a foreign person of intangible property which, after August 14, 1982, was being used (or held for use) by a possession corporation under an arrangement with a United States affiliate. For purposes of the preceding sentence, the term “United States affiliate” means any United States person who is a member of an affiliated group (within the meaning of section 936(h)(5)(C)(i)(I)(b)) which Ante, p. 452. includes the possession corporation. “(4) Waiver authority.— Subject to such terms and conditions as the Secretary may provide, paragraph (1) or (3) shall not apply to any case where the Secretary is satisfied that the transfer will not result in the reduction of current or future Federal income taxes.” (e) Effective Dates.— (1) In general.— Except as provided in paragraphs (2) and (3), the amendments made by this section shall apply to taxable years beginning after December 31, 1982. (2) Certain sales made after july 1, 1982.— Paragraph (6) of section 936(h) of the Internal Revenue Code of 1954, and so much of section 934 to which such paragraph applies by reason of section 934(e)(4) of such Code, shall apply to taxable years Ante, p. 463. ending after July 1, 1982. (3) Certain transfers of intangibles made after august 14, 1982.— Subsection (d) shall apply to taxable years ending after August 14, 1982. PART IV— TAX-EXEMPT OBLIGATIONS SEC. 214. MODIFICATION OF EXEMPTION FOR SMALL ISSUES. (a) Composite Issues.— Paragraph (6) of section 103(b) (relating to 26 USC 103. exemption for certain small issues) is amended by adding at the end thereof the following new subparagraphs: “(K) Limitations on treatment of obligations as part of the same issue.— For purposes of this paragraph, separate lots of obligations which (but for this subparagraph) would be treated as part of the same issue shall be treated as separate issues unless the proceeds of such lots are to be used with respect to 2 or more facilities— “(i) which are located in more than 1 State, or “(ii) which have, or will have, as the same principal user the same person or related persons. “(L) Franchises.— For purposes of subparagraph (K), a person (other than a governmental unit) shall be considered a principal user of a facility if such person (or a group of related persons which includes such person)— “(i) guarantees, arranges, participates in, or assists with the issuance (or pays any portion of the cost of issuance) of any obligation the proceeds of which are to be used to finance or refinance such facility, and “(ii) provides any property, or any franchise, trademark, or tradename (within the meaning of section 1253), which is to be used in connection with such facility.” (b) Small issue exemption not allowed where obligations issued as part of issue exempt from tax other than as a small issue.— Paragraph (6) of section 103(b), as amended by subsection 26 USC 103. (a), is amended by adding at the end thereof the following new subparagraph: “(M) Paragraph not to apply if obligations issued with certain other tax-exempt obligations.— This paragraph shall not apply to any obligation which is issued as part of an issue (other than an issue to which subparagraph (D) applies) if the interest on any other obligation which is part of such issue is excluded from gross income under any provision of law other than this paragraph.” (c) Termination of Small Issue Exemption After December 31, 1986.— Paragraph (6) of section 103(b), as amended by subsections (a) and (b), is amended by adding at the end thereof the following new subparagraph: “(N) Paragraph not to apply to obligations issued after december 31, 1986.— This paragraph shall not apply to any obligation issued after December 31, 1986 (including any obligation issued to refund an obligation issued on or before such date).” (d) Exclusion of Certain Research Expenditures from the Limitation on Certain Industrial Development Bonds.— Subparagraph (F) of section 103(b)(6) (relating to exclusion of certain capital expenditures) is amended— (1) by striking out “or” at the end of clause (ii), (2) by adding “or” at the end of clause (iii), and (3) by adding at the end thereof the following new clause: “(iv) described in clause (i) or (ii) of section 44F(b)(2)(A) for which a deduction was allowed under 95 Stat. 241. section 174(a),”. (e) Restrictions on Financing Certain Facilities.— Paragraph (6) of section 103(b) is amended by adding at the end thereof the following new subparagraph: “(O) Restrictions on financing certain facilities.— This paragraph shall not apply to an issue if— “(i) more than 25 percent of the proceeds of the issue are used to provide a facility the primary purpose of which is one of the following: retail food and beverage services, automobile sales or service, or the provision of recreation or entertainment; or “(ii) any portion of the proceeds of the issue is to be used to provide the following: any private or commercial golf course, country club, massage parlor, tennis club, skating facility (including roller skating, skateboard, and ice skating), racquet sports facility (includ-ing any handball or racquetball court), hot tub facility, suntan facility, or racetrack.” (f) Effective Dates.— (1) Composite issues; small issue exemption.— The amendments made by subsections (a) and (b) shall apply to obligations issued after the date of the enactment of this Act. (2) Termination.— The amendment made by subsection (c) shall take effect on the date of the enactment of this Act. (3) Research expenditures.— The amendment made by subsection (d) shall apply with respect to expenditures made after the date of the enactment of this Act. (4) Certain facilities.— The amendment made by subsection (e) shall apply to obligations issued after December 31, 1982. SEC. 215. PUBLIC APPROVAL AND INFORMATION REPORTING REQUIREMENTS APPLICABLE TO PRIVATE ACTIVITY BONDS. (a) Public Approval.— Section 103 (relating to interest on certain Post, p. 596. governmental obligations) is amended by redesignating subsection (k) as subsection (1) and by inserting after subsection (j) the following new subsection: “(k) Public Approval for Industrial Development Bonds.— “(1) In general.— Notwithstanding subsection (b), an industrial development bond shall be treated as an obligation not described in subsection (a) unless the requirements of paragraph (2) of this subsection are satisfied. “(2) Public approval requirement.— “(A) In general.— An obligation shall satisfy the requirements of this paragraph if such obligation is issued as a part of an issue which has been approved by— “(i) the governmental unit— “(I) which issued such obligation, or “(II) on behalf of which such obligation was issued, and “(ii) each governmental unit having jurisdiction over the area in which any facility, with respect to which financing is to be provided from the proceeds of such issue, is located (except that if more than 1 governmental unit within a State has jurisdiction over the entire area within such State in which such facility is located, only 1 such unit need approve such issue). “(B) Approval by a governmental unit.— For purposes of subparagraph (A), an issue shall be treated as having been approved by any governmental unit if such issue is approved— “(i) by the applicable elected representative of such governmental unit after a public hearing following reasonable public notice, or “(ii) by voter referendum of such governmental unit. “(C) Special rules for approval of facility.— If there has been public approval under subparagraph (A) of the plan of financing a facility, such approval shall constitute approval under subparagraph (A) for any issue— “(i) which is issued pursuant to such plan within 3 years after the date of the first issue pursuant to the approval, and “(ii) all or substantially all of the proceeds of which are to be used to finance such facility or to refund previous financing under such plan. “(D) Refunding obligations.— No approval under subparagraph (A) shall be necessary with respect to any obligation which is issued to refund an obligation approved under subparagraph (A) (or treated as approved under subparagraph (C)) unless the maturity date of such obligation is later than the maturity date of the obligation to be refunded. “(E) Applicable elected representative.— For purposes of this paragraph— “(i) In general.— The term ‘applicable elected representative’ means with respect to any governmental unit— “(I) an elected legislative body of such unit, or “(II) the chief elected executive officer, the chief elected State legal officer of the executive branch, or any other elected official of such unit designated for purposes of this paragraph by such chief elected executive officer or by State law. “(ii) No applicable elected representative.— If (but for this clause) a governmental unit has no applicable elected representative, the applicable elected representative for purposes of clause (i) shall be the applicable elected representative of the governmental unit— “(I) which is the next higher governmental unit with such a representative, and “(II) from which the authority of the governmental unit with no such representative is derived.” (b) Information Reporting.— (1) In general.— Section 103 is amended by redesignating 26 USC 103. subsection (1) as subsection (m) and by adding at the end thereof the following new subsection: “(l) Information Reporting Requirements for Certain Bonds.— “(1) In general.— Notwithstanding subsection (b), any industrial development bond or any other obligation which is issued as part of an issue all or a major portion of the proceeds of which are to be used directly or indirectly— “(A) to finance loans to individuals for educational expenses, or “(B) by an organization described in section 501(c)(3) which is exempt from taxation by reason of section 501(a), shall be treated as an obligation not described in paragraph (1) or (2) of subsection (a) unless such bond satisfies the requirements of paragraph (2). “(2) Information reporting requirement.— An obligation satisfies the requirement of this paragraph if the issuer submits to the Secretary, not later than the 15th day of the 2nd calendar month after the close of the calendar quarter in which the obligation is issued, a statement concerning the issue of which the obligation is a part which contains— “(A) the name and address of the issuer, “(B) the date of issue, the amount of lendable proceeds of the issue, and the stated interest rate, term, and face amount of each obligation which is part of the issue, “(C) where required, the name of the applicable elected representative who approved the issue, or a description of the voter referendum by which the issue was approved, “(D) the name, address, and employer identification number of— “(i) each initial principal user of any facilities provided with the proceeds of the issue, “(ii) the common parent of any affiliated group of corporations (Within the meaning of section 1504(a)) of which such initial principal user is a member, and “(iii) if the issue is treated as a separate issue under subsection (b)(6)(K), any person treated as a principal user under subsection (b)(6)(L), and “(E) a description of any property to be financed from the proceeds of the issue. “(3) Extension of time.— The Secretary may grant an extension of time for the filing of any statement required under paragraph (2) if there is reasonable cause for the failure to file such statement in a timely fashion.” (2) Conforming amendment.— Paragraph (2) of section 103(b) 26 USC 103. (defining industrial development bond) is amended by striking out “For purposes of this subsection” and inserting in lieu thereof “For purposes of this section”. (c) Effective Dates.— (1) Public approval.— The amendment made by subsection (a) shall apply to obligations issued after December 31, 1982, other than obligations issued solely to refund any obligation which— (A) was issued before July 1, 1982, and (B) has a maturity which does not exceed 3 years. (2) Information reporting.— The amendments made by subsection (b) shall apply to obligations issued after December 31, 1982 (including any obligation issued to refund an obligation issued before such date). SEC. 216. COST RECOVERY FOR CERTAIN PROPERTY FINANCED WITH TAX-EXEMPT BONDS. (a) Cost Recovery Method.— Subsection (f) of section 168 (relating 95 Stat. 204. to special rules for the accelerated cost recovery system) is amended by adding at the end thereof the following new paragraph: “(12) Limitations on property financed with tax-exempt bonds.— “(A) In general.— Notwithstanding any other provision of this section, to the extent that any property is financed by the proceeds of an industrial development bond (within the meaning of section 10303)(2)) the interest of which is exempt from taxation under section 103(a), the deduction allowed under subsection (a) (and any deduction allowable in lieu of the deduction allowable under subsection (a)) for any taxable year with respect to such property shall be determined under subparagraph (B). “(B) Recovery method.— “(i) In general.— Except as provided in clause (ii), the amount of the deduction allowed with respect to property described in subparagraph (A) shall be determined by using the straight-line method (with a half-year convention and without regard to salvage value) and a recovery period determined in accordance with the following table: “In the case of: The recovery period is: 3-year property 3 years. 5-year property 5 years. 10-year property 10 years. 15-year public utility property 15 years. “(ii) 15-year real property.— In the case of 15-year real property, the amount of the deduction allowed shall be determined by using the straight-line method (determined on the basis of the number of months in the year in which such property was in service and without regard to salvage value) and a recovery period of 15 years. “(C) Exceptions.— Subparagraph (A) shall not apply to any recovery property which is placed in service— “(i) in connection with projects for residential rental property financed by the proceeds of obligations described in section 103(b)(4)(A), Post, pp. 477, 599. “(ii) in connection with a sewage or solid waste disposal facility— “(I) which provides sewage or solid waste disposal services for the residents of part or all of 1 or more governmental units, and “(II) with respect to which substantially all of the sewage or solid waste processed is collected from the general public, “(iii) as an air or water pollution control facility which is— “(I) installed in connection with an existing facility, or “(II) installed in connection with the conversion of an existing facility which uses oil or natural gas (or any product of oil or natural gas) as a primary fuel to a facility which uses coal as a primary fuel, or “(iv) in connection with a facility with respect to which an urban development action grant has been made under section 119 of the Housing and Community Development Act of 1974. 42 USC 5318. “(D) Existing facility.— For purposes of this paragraph, the term ‘existing facility’ means a plant or property in operation before July 1, 1982. “(E) Exception where longer recovery period applicable.— Subparagraph (A) shall not apply to any recovery property if the recovery period which would be applicable to such property by reason of an election under subsection (b)(3) exceeds the recovery period for such property determined under subparagraph (B).” (b) Effective Dates.— (1) In general.— Except as otherwise provided in this subsection, the amendments made by this section shall apply with respect to property placed in service after December 31, 1982, to the extent such property is financed by the proceeds of an obligation (including a refunding obligation) issued after June 30, 1982. (2) Exceptions.— (A) Construction or binding agreement.— The amendments made by this section shall not apply with respect to facilities the original use of which commences with the taxpayer and— (i) the construction, reconstruction, or rehabilitation of which began before July 1, 1982, or (ii) with respect to which a binding agreement to incur significant expenditures was entered into before July 1, 1982. (B) Refunding.— (i) In general.— Except as provided in clause (ii), in the case of property placed in service after December 31, 1982 which is financed by the proceeds of an obligation which is issued solely to refund another obligation which was issued before July 1, 1982, the amendments made by this section shall apply only with respect to the basis in such property which has not been recovered before the date such refunding obligation is issued, (ii) Significant expenditures.— In the case of facilities the original use of which commences with the taxpayer and with respect to which significant expenditures are made before January 1, 1983, the amendments made by this section shall not apply with respect to such facilities to the extent such facilities are financed by the proceeds of an obligation issued solely to refund another obligation which was issued before July 1, 1982. In the case of an inducement resolution adopted by an issuing authority before July 1, 1982, for purposes of applying subparagraphs (A)(i) and (B)(ii) with respect to obligations described in such resolution, the term “facilities” means the facilities described in such resolution. (3) Certain projects for residential real property.— For purposes of clause (i) of section 168(f)(12)(C) of the Internal Revenue Code of 1954 (as added by this section), any obligation Ante, p. 470. issued to finance a project described in the table contained in paragraph (1) of section 1104(n) of the Mortgage Subsidy Bond Tax Act of 1980 shall be treated as an obligation described in 26 USC 103A note. Post, pp. 477, 599. section 103(b)(4)(A) of the Internal Revenue Code of 1954. SEC. 217. MISCELLANEOUS. (a) Exempt Obligations for Local District Heating and Cooling Facilities.— (1) In general.— Paragraph (4) of section 103(b) (relating to 95 Stat. 349. certain exempt activities) is amended— (A) by striking out “or” at the end of subparagraph (H), (B) by striking out the period at the end of subparagraph (I), and inserting in lieu thereof “, or”, and (C) by inserting after subparagraph (I) the following new subparagraph: “(J) local district heating or cooling facilities.” (2) Local district heating or cooling facilities defined.— Subsection (b) of section 103 is amended by redesignating paragraph 95 Stat. 349. (10) as paragraph (13) and by inserting after paragraph (9) the following new paragraph: “(10) Local district heating or cooling facility.— For purposes of this section— “(A) In general.— The term ‘local district heating or cooling facility’ means property used as an integral part of a local district heating or cooling system. “(B) Local district heating or cooling system.— “(i) In general.— The term ‘local district heating or cooling system’ means any local system consisting of a pipeline or network (which may be connected to a heating or cooling source) providing hot water, chilled water, or steam to 2 or more users for— “(I) residential, commercial, or industrial heating or cooling, or “(II) process steam. “(ii) Local system.— For purposes of this subparagraph, a local system includes facilities furnishing heating and cooling to an area consisting of a city and one contiguous county.” (3) Conforming amendment.— Subparagraph (C) of section 103(b)(6) is amended by striking out “paragraph (7)” and inserting 26 USC 103. in lieu thereof “paragraph (13)”. (b) Facilities for the Local Furnishing of Gas.— Paragraph (4) of section 103(b) is amended by striking out “electric energy from” in the last sentence and inserting in lieu thereof “electric energy or gas from”. (c) Qualified Mass Commuting Vehicle.— Subparagraph (A) of section 103(b)(9) (defining qualified mass commuting vehicle) is 95 Stat. 349. amended— (1) by inserting “ferry,” after “rail car”, and (2) by inserting after “mass commuting services” in clause (ii) the phrase “(or, in the case of a ferry, mass transportation services)”. (d) Pollution Control Facilities Acquired by Regional Pollution Control Authority.— Subsection (b) of section 103 is amended by inserting after paragraph (10) (as added by subsection (a)) the following new paragraph: “(11) Pollution control facilities acquired by regional pollution control authorities.— “(A) In general.— For purposes of subparagraph (F) of paragraph (4), an obligation shall be treated as described in such subparagraph if it is part of an issue substantially all of the proceeds of which are used by a qualified regional pollution control authority to acquire existing air or water pollution control facilities which the authority itself will operate in order to maintain or improve the control of pollutants. “(B) Restrictions.— Subparagraph (A) shall apply only if— “(i) the amount paid, directly or indirectly, for the facilities does not exceed their fair market value, “(ii) the fees or charges imposed, directly or indirectly, on the seller for any use of the facilities after the sale are not less than the amounts that would be charged if the facilities were financed with obligations the interest on which is not exempt from tax, and “(iii) no person other than the qualified regional pollution control authority is considered after the sale as the owner of the facilities for purposes of Federal income taxes. “(C) Qualified regional pollution control authority defined.— For purposes of this paragraph, the term ‘qualified regional pollution control authority‘ means an authority which— “(i) is a political subdivision created by State law to control air or water pollution, “(ii) has within its jurisdictional boundaries all or part of at least 2 counties (or equivalent political subdivisions), and “(iii) operates air or water pollution control facilities.” (e) Effective Date.— The amendments made by this section shall 26 USC 103 note. apply to obligations issued after the date of the enactment of this Act. SEC. 218. TREATMENT OF CERTAIN REFUNDING OBLIGATIONS. (a) General Rule.— Paragraph (1) of section 103(b) of the Internal 26 USC 103. Revenue Code of 1954 shall not apply to any qualified refunding obligation issued by a qualified issuer after the date of the enactment of this Act. (b) Qualified Refunding Obligation.— For purposes of subsection (a), a qualified refunding obligation is any obligation issued as part of an issue if— (1) substantially all of the proceeds of such issue are used to defease refunded bonds which were issued under a pooled security arrangement pursuant to a bond resolution which was adopted in 1974 and under which at least 20 facilities have been financed before 1978, and (2) each refunded bond is to be retired within 6 months after the first date on which there is no premium for early retirement of such bond. (c) Qualified Issuer.— For purposes of subsection (a), a qualified issuer is a political subdivision created by a State in 1932 which is engaged primarily in promoting economic development. SEC. 219. LIMITATION ON MATURITY OF INDUSTRIAL DEVELOPMENT BONDS. (a) General rule.— Subsection (b) of section 103 (relating to industrial development bonds) is amended by adding at the end thereof the following new paragraph: “(14) Maturity may not exceed 120 percent of economic life.— “(A) General rule.— Paragraphs (4), (5), (6), and (7) shall Ante, p. 472. not apply to any obligation issued as part of an issue if— “(i) the average maturity of the obligations which are part of such issue, exceeds “(ii) 120 percent of the average reasonably expected economic life of the facilities being financed with the proceeds of such issue. “(B) Determination of averages.— For purposes of subparagraph (A)— “(i) the average maturity of any issue shall be determined by taking into account the respective issue prices of the obligations which are issued as part of such issue, and “(ii) the average reasonably expected economic life of the facilities being financed with any issue shall be determined by taking into account the respective cost of such facilities. “(C) Special rules.— “(i) Determination of economic life.— For purposes of this paragraph, the reasonably expected economic life of any facility shall be determined as of the later of— “(I) the date on which the obligations are issued, or “(II) the date on which the facility is placed in service (or expected to be placed in service), “(ii) Treatment of land.— “(I) Land not taken into account.— Except as provided in subclause (II), land shall not be taken into account under subparagraph (A)(ii). “(II) Issues where 25 percent or more of proceeds used to finance land.— If 25 percent or more of the proceeds of any issue is used to finance land, such land shall be taken into account under subparagraph (A)(ii) and shall be treated as having an economic life of 50 years.” (b) Effective Date.— The amendment made by subsection (a) 26 USC 103 note. shall apply to obligations issued after December 31, 1982. SEC. 220. MORTGAGE SUBSIDY BONDS. (a) Increase in Amount of Mortgage Interest Limitation.— (1) In general.— Subparagraph (A) of section 103A(i)(2) (relating 26 USC 103A. to effective rate of mortgage interest) is amended by striking out “1 percentage point” and inserting in lieu thereof “1.125 percentage points”. (2) Clarification of prepayment assumptions.— Clause (iv) of section 103A(i)(2)(B) (relating to prepayment assumptions) is amended to read as follows: “(iv) Prepayment assumptions.— In determining the effective rate of interest— “(I) it shall be assumed that the mortgage prepayment rate will be the rate set forth in the most recent mortgage maturity experience table published by the Federal Housing Administration for the State (or, if available, the area within the State) in which the residences are located, and “(II) prepayments of principal shall be treated as received on the last day of the month in which the issuer reasonably expects to receive such prepayments.” (3) Conforming amendments.— (A) The paragraph heading of paragraph (2) of section 103A(i) is amended by striking out “1 percentage point” and inserting in lieu thereof “1.125 percentage points”. (B) Subparagraph (C) of section 103A(i)(4) is amended— (i) by striking out “1 percentage point” in clause (ii) and inserting in lieu thereof “1.125 percentage points”, and (ii) by striking out “1 percentage point” in the caption and inserting in lieu thereof “1.125 percentage points”. (b) Disposition of Nonmortgage Investment in Case of Loss.— Paragraph (3) of section 103A(i) (relating to nonmortgage investment 26 USC 103A. requirements) is amended by adding at the end thereof the following new subparagraph: “(D) No disposition in case of loss.— This pa ragraph shall not require the sale or disposition of any investment if such sale or disposition would result in a loss which exceeds the amount which would be paid or credited to the mortgagors under paragraph (4)(A) (but for such sale or disposition) at the time of such sale or disposition.” (c) Requirement That Mortgagors be First Time Homebuyers.— Subsection (e) of section 103A (relating to 3-year requirement) is amended to read as follows: “(e) 3-Year Requirement.— “(1) In general.— An issue meets the requirements of this subsection only if 90 percent or more of the lendable proceeds of such issue are used to finance the residences of mortgagors who had no present ownership interest in their principal residences at any time during the 3-year period ending on the date their mortgage is executed. “(2) Exceptions.— For purposes of paragraph (1), the proceeds of an issue which are used— “(A) to provide financing with respect to targeted area residences, “(B) to provide qualified home improvement loans, and “(C) to provide qualified rehabilitation loans, shall not be taken into account. “(3) Mortgagor’s interest in residence being financed.— For purposes of paragraph (1), a mortgagor’s interest in the residence with respect to which the financing is being provided shall not be taken into account.” (d) Increase in Maximum Purchase Price.— Subsection (f) of section 103A (relating to purchase price requirement) is amended— (1) by striking out “90 percent” each place it appears and inserting in lieu thereof “110 percent” and (2) by striking out “110 percent” in paragraph (5) and inserting in lieu thereof “120 percent”. (e) Treatment of Cooperative Housing Corporations.— Subsection (1) of section 103A (relating to other definitions and special rules) is amended by adding at the end thereof the following new paragraph: “(10) Cooperative housing corporations.— “(A) In general.— In the case of any cooperative housing corporation— “(i) each dwelling unit shall be treated as if it were actually owned by the person entitled to occupy such dwelling unit by reason of his ownership of stock in the corporation, and “(ii) any indebtedness of the corporation allocable to the dwelling unit shall be treated as if it were indebtedness of the shareholder entitled to occupy the dwelling unit. “(B) Adjustment to targeted area requirement.— In the case of any issue to provide financing to a cooperative housing corporation with respect to cooperative housing not located in a targeted area, to the extent provided in regulations, such issue may be combined with 1 or more other issues for purposes of determining whether the requirements of subsection (h) are met. “(C) Cooperative housing corporation.— The term ‘cooperative housing corporation’ has the meaning given to such term by section 216(b)(l).” 26 USC 216. (f) Effective Dates.— (1) In general.— The amendments made by this section shall apply to obligations issued after the date of the enactment of this Act. (2) First time homebuyer requirement.— The amendments made by subsection (c) shall also apply to obligations issued after April 24, 1979, and before the date of the enactment of this Act but only to the extent that the proceeds of such obligations are not committed as of the date of the enactment of this Act. SEC. 221. INDUSTRIAL DEVELOPMENT BONDS FOR CERTAIN RESIDENTIAL RENTAL PROPERTY. (a) In General.— Subparagraph (A) of section 103(b)(4) (relating to Post, p. 599. certain exempt activities) is amended to read as follows: “(A) projects for residential rental property if each obligation issued pursuant to the issue is in registered form and if at all times during the qualified project period— “(i) 15 percent or more in the case of targeted area projects, or “(ii) 20 percent or more in the case of any other project, of the units in each project are to be occupied by individuals of low or moderate income,”. (b) Definitions.— Subsection (b) of section 103 (relating to industrial development bonds) is amended by inserting after paragraph (11) the following new paragraph: Ante, p. 473. “(12) Projects for residential rental property.— For purposes of paragraph (4)(A)— “(A) Targeted area project.— The term ‘targeted area project’ means— “(i) a project located in a qualified census tract (within the meaning of section 103A(k)(2)), or “(ii) an area of chronic economic distress (within the meaning of section 103A(k)(3)). “(B) Qualified project period.— The term ‘qualified project period’ means the period beginning on the first day on which 10 percent of the units in the project are occupied and ending on the later of— “(i) the date which is 10 years after the date on which 50 percent of the units in the project are occupied, “(ii) the date which is a qualified number of days after the date on which any of the units in the project are occupied, or “(iii) the date on which any assistance provided with respect to the project under section 8 of the United States Housing Act of 1937 terminates. 42 USC 1437f. For purposes of clause (ii), the term ‘qualified number’ “Qualified number.” means, with respect to an obligation described in paragraph (4)(A), 50 percent of the number of days which comprise the term of the obligation with the longest maturity. “(C) Individuals of low and moderate income.— Individuals of low and moderate income shall be determined by the Secretary in a manner consistent with determinations of lower income families under section 8 of the United States Housing Act of 1937 (or if such program is terminated, 42 USC 1437f. under such program as in effect immediately before such termination), except that the percentage of median gross income which qualifies as low or moderate income shall be 80 percent.” (c) Conforming Amendments.— (1) Paragraph (4) of section 103(b) is amended by striking out 26 USC 103. the second sentence thereof. (2) Subsection (k) of section 1104 of the Mortgage Subsidy Bond Tax Act of 1980 is hereby repealed. 26 USC 103A note. (d) Effective Dates.— (1) In general.— Except as provided in paragraph (2), the 26 USC 103 note. amendments made by this section shall apply to obligations issued after the date of the enactment of this Act. (2) Exception.— The amendments made by this section shall not apply with respect to any obligation to which the amendments made by section 1103 of the Mortgage Subsidy Bond Tax Act of 1980 do not apply by reason of section 1104 of such Act. 26 USC 103. PART V— MERGERS AND ACQUISITIONS Subpart A— Changes in Tax Treatment of Partial Liquidations and of Certain Distributions of Appreciated Property SEC. 222. PARTIAL LIQUIDATIONS. (a) Section 331 (Which Provides Capital Gain or Loss Treatment for Shareholders in Liquidations) Limited to Complete Liquidations.— Subsection (a) of section 331 (relating to gain or loss 26 USC 331. to shareholders in corporate liquidations) is amended to read as follows: “(a) Distributions in Complete Liquidation Treated as Exchanges.— Amounts received by a shareholder in a distribution in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock.” (b) Section 336 (Which Provides Nonrecognition of Gain and Loss on Distributions by Liquidating Corporation) Limited to Complete Liquidations.— Subsection (a) of section 336 (relating to 26 USC 336. distributions of property in liquidation) is amended by striking out “partial or complete liquidation” and inserting in lieu thereof “complete liquidation”. (c) Distributions to Noncorporate Shareholders Which Qualify as Partial Liquidations Under Existing Law Treated as Redemptions.— (1) Subsection (b) of section 302 (relating to redemptions 26 USC 302. treated as exchanges) is amended by redesignating paragraph (4) as paragraph (5) and by inserting after paragraph (3) the following new paragraph: “(4) Redemption from noncorporate shareholder in partial liquidation.— Subsection (a) shall apply to a distribution if such distribution is— “(A) in redemption of stock held by a shareholder who is not a corporation, and “(B) in partial liquidation of the distributing corporation.” (2) Section 302 is amended by redesignating subsection (e) as 26 USC 302. subsection (f) and by inserting after subsection (d) the following new subsection: “(e) Partial Liquidation Defined.— “(1) In general.— For purposes of subsection (b)(4), a distribution shall be treated as in partial liquidation of a corporation if— “(A) the distribution is not essentially equivalent to a dividend (determined at the corporate level rather than at the shareholder level), and “(B) the distribution is pursuant to a plan and occurs within the taxable year in which the plan is adopted or within the succeeding taxable year. “(2) Termination of business.— The distributions which meet the requirements of paragraph (1)(A) shall include (but shall not be limited to) a distribution which meets the requirements of subparagraphs (A) and (B) of this paragraph: “(A) The distribution is attributable to the distributing corporation’s ceasing to conduct, or consists of the assets of, a qualified trade or business. “(B) Immediately after the distribution, the distributing corporation is actively engaged in the conduct of a qualified trade or business. “(3) Qualified trade or business.— For purposes of paragraph (2), the term ‘qualified trade or business’ means any trade or business which— “(A) was actively conducted throughout the 5-year period ending on the date of the redemption, and “(B) was not acquired by the corporation within such period in a transaction in which gain or loss was recognized in whole or in part. “(4) Redemption may be pro rata.— Whether or not a redemption meets the requirements of subparagraphs (A) and (B) of paragraph (2) shall be determined without regard to whether or not the redemption is pro rata with respect to all of the shareholders of the corporation. “(5) Treatment of certain pass-thru entities.— For purposes of determining under subsection (b)(4) whether any stock is held by a shareholder who is not a corporation, any stock held by a partnership, estate, or trust shall be treated as if it were actually held proportionately by its partners or beneficiaries.” (3) Subsection (a) of section 302 is amended by striking out “paragraph (1), (2), or (3)” and inserting in lieu thereof “paragraph (1), (2), (3), or (4)”. (4) Paragraph (5) of section 302(b) (as redesignated by paragraph (1)) is amended— (A) by striking out “paragraph (2) or (3)” and inserting in lieu thereof “paragraph (2), (3), or (4)”, and (B) by striking out “paragraph (1) or (2)” and inserting in lieu thereof “paragraph (1), (2), or (4)”. (d) Definition and special rule.— Section 346 (defining partial 26 USC 346. liquidation) is amended to read as follows: “SEC. 346. DEFINITION AND SPECIAL RULE. “(a) Complete Liquidation.— For purposes of this subchapter, a distribution shall be treated as in complete liquidation of a corpora-tion if the distribution is one of a series of distributions in redemption of all of the stock of the corporation pursuant to a plan. “(b) Transactions Which Might Reach Same Result as Partial Liquidations.— The Secretary shall prescribe such regulations as may be necessary to ensure that the purposes of subsections (a) and (b) of section 222 of the Tax Equity and Fiscal Responsibility Act of 1982 (which repeal the special tax treatment for partial liquidations) Ante, p. 478. 26 USC 355, 351, 337. may not be circumvented through the use of section 355, 351, 337, or any other provision of law or regulations (including the consolidated return regulations).” (e) Technical and Conforming Amendments.— (1) The following provisions are each amended by striking out “partial or complete liquidation” and inserting in lieu thereof “complete liquidation”: (A) Paragraph (2) of section 306(b) (relating to exceptions). 26 USC 306. (B) Subsection (b) of section 331 (relating to nonapplication 26 USC 331. of section 301). (C) Subsection (a) of section 334 (relating to basis of 26 USC 334. property received in liquidations). (D) Paragraph (1) of section 336(b) (relating to distributions 26 USC 336. of LIFO inventory). (2) Subparagraph (B) of section 306(b)(1) (relating to exception 26 USC 306. for redemptions) is amended by striking out “section 302(b)(3)” and inserting in lieu thereof “paragraph (3) or (4) of section 302(b)”. (3) Subsection (e) of section 312 (relating to special rule for 26 USC 312. partial liquidation and certain redemptions) is amended— (A) by striking out “in partial liquidation (whether before, on, or after June 22, 1954) or”; and (B) by striking out “Partial Liquidations and” in the heading thereof. (4) Section 338 (as in effect on the day before the date of the 26 USC 338. enactment of this Act) is hereby repealed. (5) Paragraph (2) of section 341(a) (relating to collapsible 26 USC 341. corporations) is amended to read as follows: “(2) a distribution— “(A) in complete liquidation of a collapsible corporation if such distribution is treated under this part as in part or full payment in exchange for stock, or “(B) in partial liquidation (within the meaning of section 302(e)) of a collapsible corporation if such distribution is Ante, p. 479. Ante, p. 478. treated under section 302(b)(4) as in part or full payment in exchange for the stock, and”. (6) Paragraph (1) of section 543(a) (relating to personal holding 26 USC 543. company income) is amended— (A) by striking out “and” at the end of subparagraph (A), (B) by striking out the period at the end of subparagraph (B) and inserting in lieu thereof “, and”, and (C) by adding at the end thereof the following new subparagraph: “(C) dividends to which section 302(b)(4) would apply if the corporation were an individual.” (7) Paragraph (1) of section 562(b) (relating to distributions in 26 USC 562. liquidation) is amended by adding at the end thereof the following new sentence: “For purposes of subparagraph (A), a liquidation includes a redemption of stock to which section 302 applies.” (8) (A) The heading and table of sections for subpart D of part II of subchapter C of chapter 1 are amended to read as follows: “Subpart D— Definition and Special Rule “Sec. 346. Definition and special rule.” (B) The item relating to subpart D in table of subparts for such part II is amended to read as follows: “Subpart D— Definition and special rule.” (f) Effective Dates.— (1) In general.— The amendments made by this section shall apply to distributions after August 31, 1982. (2) Exceptions.— (A) Ruling requests.— The amendments made by this section shall not apply to distributions made by any corporation if— (i) (I) on July 22, 1982, there was a ruling request by such corporation pending with the Internal Revenue Service as to whether such distributions would qualify as a partial liquidation, or (II) within the period beginning on July 12, 1981, and ending on July 22, 1982, the Internal Revenue Service granted a ruling to such corporation that the distributions would qualify as a partial liquidation, and (ii) such distributions are pursuant to a plan of partial liquidation adopted before October 1, 1982 (or, if later, 90 days after the date on which the Internal Revenue Service granted a ruling pursuant to the request described in clause (i)(I)). (B) Plans adopted before july 23, 1982.— The amendments made by this section shall not apply to distributions made pursuant to a plan of partial liquidation adopted before July 23, 1982. (C) Control acquired after 1981 and before july 23, 1982.— The amendments made by this section shall not apply to distributions made pursuant to a plan of partial liquidation adopted before October 1, 1982, where control of the corporation making the distributions was acquired after December 31, 1981, and before July 23, 1982. (D) Tender offer or binding contract outstanding on july 22, 1982.— (i) In general.— The amendments made by this section shall not apply to distributions made by a corporation if— (I) such distributions are pursuant to a plan of liquidation adopted before October 1, 1982, and (II) control of such corporation was acquired after July 22, 1982, pursuant to a tender offer or binding contract outstanding on such date. (ii) Extension of time for adopting plan where acquisition subject to federal regulatory approval.— If the acquisition described in clause (i)(II) is subject to approval by a Federal regulatory agency, clause (i) shall be applied by substituting for “October 1, 1982” the date which is 90 days after the date on which approval by the Federal regulatory agency of such acquisition becomes final. (iii) Special rule where offer subject to approval by foreign regulatory body.— In any case where an offer to acquire stock in a corporation was subject to intervention by a foreign regulatory body and a public announcement of such an offer resulted in the intervention by such foreign regulatory body before July 23, 1982— (I) such public announcement shall be treated as a tender offer, and (II) clause (i) shall be applied by substituting for “October 1, 1982” the date which is 90 days after the date on which such regulatory body approves a public offer to acquire stock in such corporation. (iv) Special rule where one-third of shares acquired during march and april 1982.— If— (I) one-third or more of the shares of a corporation were acquired by another corporation during March and April 1982, and (II) during March or April 1982, the acquiring corporation filed with the Federal Trade Commission notification of its intent to acquire control of the acquired corporation, subclause (II) of clause (i) shall not apply with respect to distributions made by the acquired corporation. (E) Insurance companies.— The amendments made by this section shall not apply to distributions made by an insurance company pursuant to a plan of partial liquidation adopted before October 1, 1982, where control was acquired by the distributee or its parent after December 31, 1980, and before July 23, 1982, and the conduct of the insurance business by the distributee is conditioned on approval by a State regulatory authority. For purposes of this paragraph, the term “control” has the “Control.” meaning given to such term by section 368(c) of the Internal Revenue Code of 1954. 26 USC 368. (3) Approval of plan by board of directors.— For purposes of— (A) paragraph (2), and (B) applying section 346(a)(2) of the Internal Revenue Code of 1954 (as in effect on the day before the date of the enactment of this Act) to distributions to which (but for paragraph (2)) the amendments made by this section would apply, a plan of liquidation shall be treated as adopted when approved by the corporation’s board of directors. (4) Coordination with amendments made by section 224.— For purposes of section 338(e)(2)(C) of the Internal Revenue Code Post, p. 485. of 1954 (as added by section 224), any property acquired in a distribution to which the amendments made by this section do not apply by reason of paragraph (2) shall be treated as acquired before September 1, 1982. SEC. 223. DISTRIBUTION OF APPRECIATED PROPERTY IN REDEMPTION OF STOCK. (a) Amendments to Certain Exceptions to Recognition of Gain.— (1) In general.— Subparagraphs (A), (B), and (C) of section 311(d)(2) (relating to appreciated property used to redeem stock) 26 USC 311. are amended to read as follows: “(A) a distribution to a corporate shareholder if the basis of the property distributed is determined under section 301(d)(2); “(B) a distribution to which section 302(b)(4) applies and Ante, p. 478. which is made with respect to qualified stock; “(C) a distribution of stock or an obligation of a corporation if the requirements of paragraph (2) of subsection (e) are met with respect to the distribution;”. (2) Definitions and special rules.— Section 311 is amended 26 USC 311. by adding at the end thereof the following new subsection: “(e) Definitions and Special Rules for Subsection (d)(2).— For purposes of subsection (d)(2) and this subsection— “(1) Qualified stock.— “(A) In general.— The term ‘qualified stock’ means stock held by a person (other than a corporation) who at all times during the lesser of— “(i) the 5-year period ending on the date of distribution, or “(ii) the period during which the distributing corporation (or a predecessor corporation) was in existence, held at least 10 percent in value of the outstanding stock of the distributing corporation (or predecessor corporation). “(B) Determination of stock held.— Section 318 shall apply in determining ownership of stock under subparagraph (A); except that, in applying section 318(a)(1), the term ‘family’ includes any individual described in section 267(c)(4) and any spouse of any such individual. “(2) Distributions of stock or obligations of controlled corporations.— “(A) Requirements.— A distribution of stock or an obligation of a corporation (hereinafter in this paragraph referred to as the ‘controlled corporation’) meets the requirements of this paragraph if— “(i) such distribution is made with respect to qualified stock, “(ii) substantially all of the assets of the controlled corporation consists of the assets of 1 or more qualified businesses, “(iii) no substantial part of the controlled corporation’s nonbusiness assets were acquired from the distributing corporation, in a transaction to which section 351 applied or as a contribution to capital, within the 5-year period ending on the date of the distribution, and “(iv) more than 50 percent in value of the outstanding stock of the controlled corporation is distributed by the distributing corporation with respect to qualified stock. “(B) Definitions.— For purposes of subparagraph (A)— “(i) Qualified business.— The term ‘qualified business’ means any trade or business which— “(I) was actively conducted throughout the 5-year period ending on the date of the distribution, and “(II) was not acquired by any person within such period in a transaction in which gain or loss was recognized in whole or in part. “(ii) Nonbusiness asset.— The term ‘nonbusiness asset’ means any asset not used in the active conduct of a trade or business.” (3) Conforming amendment.— Section 311(d)(2) is amended— (A) by inserting “and” at the end of subparagraph (E), (B) by striking out the semicolon and “and” at the end of subparagraph (F) and inserting in lieu thereof a period, and (C) by striking out subparagraph (G). (b) Effective Dates.— (1) In general.— Except as otherwise provided in this subsection, the amendments made by this section shall apply to distributions after August 31, 1982. (2) Distributions pursuant to ruling requests before july 23, 1982.— In the case of a ruling request under section 311(d)(2)(A) of the Internal Revenue Code of 1954 (as in effect before the amendments made by this section) made before July 23, 1982, the amendments made by this section shall not apply to distributions made— (A) pursuant to a ruling granted pursuant to such request, and (B) within 90 days after the date of such ruling. (3) Distributions pursuant to final judgments of court.— In the case of a final judgment described in section 311(d)(2)(C) of such Code (as in effect before the amendments made by this section) rendered before July 23, 1982, the amendments made by this section shall not apply to distributions made before January 1, 1986, pursuant to such judgment. (4) Certain distributions with respect to stock acquired before may 1982.— The amendments made by this section shall not apply to distributions— (A) which meet the requirements of section 311(d)(2)(A) of such Code (as in effect on the day before the date of the enactment of this Act), (B) which are made on or before August 31, 1983, and (C) which are made with respect to stock acquired after 1980 and before May 1982. (5) Distributions of timberland with respect to stock of forest products company.— If— (A) a forest products company distributes timberland to a shareholder in redemption of the common and preferred stock in such corporation held by such shareholder, (B) section 311(d)(2)(A) of the Internal Revenue Code of 1954 (as in effect before the amendments made by this section) would have applied to such distributions, and (C) such distributions are made pursuant to 1 of 2 options contained in a contract between such company and such shareholder which is binding on August 31, 1982, and at all times thereafter, then such distributions of timberland having an aggregate fair market value on August 31, 1982, not in excess of $10,000,000 shall be treated as distributions to which section 311(d)(2)(A) of such Code (as in effect before the date of the enactment of this Act) applies. Subpart B— Certain Stock Purchases Treated as Asset Purchases SEC. 224. CERTAIN STOCK PURCHASES TREATED AS ASSET PURCHASES. (a) General Rule.— Subpart B of part II of subchapter C of chapter 1 (relating to effects on corporation) is amended by adding at the end thereof the following new section: “SEC. 338. CERTAIN STOCK PURCHASES TREATED AS ASSET ACQUISITIONS. “(a) General Rule.— For purposes of this subtitle, if a purchasing corporation makes an election under this section (or is treated under subsection (e) as having made such an election), then, in the case of any qualified stock purchase, the target corporation— “(1) shall be treated as having sold all of its assets at the close of the acquisition date in a single transaction to which section 337 applies, and “(2) shall be treated as a new corporation which purchased all of the assets referred to in paragraph (1) as of the beginning of the day after the acquisition date. “(b) Price at Which Deemed Sale Made.— “(1) In general.— For purposes of subsection (a), the assets of the target corporation shall be treated as sold (and purchased) at an amount equal to— “(A) the grossed-up basis of the purchasing corporation’s stock in the target corporation on the acquisition date, “(B) properly adjusted under regulations prescribed by the Secretary for liabilities of the target corporation and other relevant items. “(2) Grossed-up basis.— For purposes of paragraph (1), the grossed-up basis shall be an amount equal to the basis of the purchasing corporation’s stock in the target corporation on the acquisition date multiplied by a fraction— “(A) the numerator of which is 100 percent, and “(B) the denominator of which is the percentage of stock (by value) of the target corporation held by the purchasing corporation on the acquisition date. “(3) Allocation among assets.— The amount determined under paragraph (1) shall be allocated among the assets of the target corporation under regulations prescribed by the Secretary “(c) Special Rules.— “(1) Coordination with section 337 where purchasing corporation holds less than 100 percent of stock.— If during the 1-year period beginning on the acquisition date the maximum percentage (by value) of stock in the target corporation held by the purchasing corporation is less than 100 percent, then in applying section 337 for purposes of subsection (a)(1), the non-recognition of gain or loss shall be limited to an amount determined by applying such maximum percentage to such gain or loss. The preceding sentence shall not apply if the target corporation is liquidated during such 1-year period. “(2) Certain redemptions where election made.— If, in connection with a qualified stock purchase with respect to which an election is made under this section, the target corporation makes a distribution in complete redemption of all of the stock of a shareholder which qualifies under section 302(b)(3) (determined 26 USC 302. without regard to the application of section 302(c)(2)(A)(ii)), section 336 shall apply to such distribution as if it were a distribution in complete liquidation. “(d) Purchasing Corporation; Target Corporation; Qualified Stock Purchase.— For purposes of this section— “(1) Purchasing corporation.— The term ‘purchasing corporation’ means any corporation which makes a qualified stock purchase of stock of another corporation. “(2) Target corporation.— The term ‘target corporation’ means any corporation the stock of which is acquired by another corporation in a qualified stock purchase. “(3) Qualified stock purchase.— The term ‘qualified stock purchase’ means any transaction or series of transactions in which stock of 1 corporation possessing— “(A) at least 80 percent of total combined voting power of all classes of stock entitled to vote, and “(B) at least 80 percent of the total number of shares of all other classes of stock (except nonvoting stock which is limited and preferred as to dividends), is acquired by another corporation by purchase during the 12-month acquisition period. “(e) Deemed Election Where Purchasing Corporation Acquires Asset of Target Corporation.— “(1) In general.— A purchasing corporation shall be treated as having made an election under this section with respect to any target corporation if, at any time during the consistency period, it acquires any asset of the target corporation (or a target affiliate). “(2) Exceptions.— Paragraph (1) shall not apply with respect to any acquisition by the purchasing corporation if— “(A) such acquisition is pursuant to a sale by the target corporation (or the target affiliate) in the ordinary course of its trade or business, “(B) the basis of the property acquired is determined (in whole or in part) by reference to the adjusted basis of such property in the hands of the person from whom acquired, “(C) such acquisition was before September, 1, 1982, “(D) to the extent provided in regulations, the property acquired is located outside the United States, or “(E) such acquisition is described in regulations prescribed by the Secretary. “(3) Anti-avoidance rule.— Whenever necessary to carry out the purpose of this subsection and subsection (f), the Secretary may treat stock acquisitions which are pursuant to a plan and which meet the 80 percent requirements of subparagraphs (A) and (B) of subsection (d)(3) as qualified stock purchases. “(f) Consistency Required for All Stock Acquisitions from Same Affiliated Group.— If a purchasing corporation makes qualified stock purchases with respect to the target corporation and 1 or more target affiliates during any consistency period, then (except as otherwise provided in subsection (e))— “(1) any election under this section with respect to the first such purchase shall apply to each other such purchase, and “(2) no election may be made under this section with respect to the second or subsequent such purchase if such an election was not made with respect to the first such purchase. “(g) Election.— “(1) When made.— Except as otherwise provided in regulations, an election under this section shall be made not later than 75 days after the acquisition date. “(2) Manner.— An election by the purchasing corporation under this section shall be made in such manner as the Secretary shall by regulations prescribe. “(3) Election irrevocable.— An election by a purchasing corporation under this section, once made, shall be irrevocable. “(h) Definitions and Special Rules.— For purposes of this section— “(1) 12-month acquisition period.— The term ‘12-month acquisition period’ means the 12-month period beginning with the date of the first acquisition by purchase of stock included in a qualified stock purchase. “(2) Acquisition date.— The term ‘acquisition date’ means, with respect to any corporation, the first day on which there is a qualified stock purchase with respect to the stock of such corporation. “(3) Purchase.— “(A) In general.— The term ‘purchase’ means any acquisition of stock, but only if— “(i) the basis of the stock in the hands of the purchasing corporation is not determined (I) in whole or in part by reference to the adjusted basis of such stock in the hands of the person from whom acquired, or (II) under section 1014(a) (relating to property acquired from a 26 USC 1014. decedent), “(ii) the stock is not acquired in an exchange to which section 351 applies, and “(iii) the stock is not acquired from a person the ownership of whose stock would, under section 318(a) (other than paragaraph (4) thereof), be attributed to the person acquiring such stock. “(B) Deemed purchase of stock of subsidiaries.— If stock in a corporation is acquired by purchase (within the meaning of subparagraph (A)) and, as a result of such acquisition, the corporation making such purchase is treated (by reason of section 318(a)) as owning stock in a 3rd corporation, the corporation making such purchase shall be treated as having purchased such stock in such 3rd corporation. The corporation making such purchase shall be treated as purchasing stock in the 3rd corporation by reason of the preceding sentence on the first day on which the purchasing corporation is considered under section 318(a) as owning such stock. “(4) Consistency period.— “(A) In general.— Except as provided in subparagraph (B), the term ‘consistency period’ means the period consisting of— “(i) the 1-year period before the beginning of the 12-month acquisition period for the target corporation, “(ii) such acquisition period (up to and including the acquisition date), and “(iii) the 1-year period beginning on the day after the acquisition date. “(B) Extension where there is plan.— The period referred to in subparagraph (A) shall also include any period during which the Secretary determines that there was in effect a plan to make a qualified stock purchase plus 1 or more other qualified stock purchases (or asset acquisitions described in subsection (e)) with respect to the target corporation or any target affiliate. “(5) Affiliated group.— The term ‘affiliated group’ has the meaning given to such term by section 1504(a) (determined 26 USC 1504. without regard to the exceptions contained in section 1504(b)). “(6) Target affiliate.— “(A) In general.— A corporation shall be treated as a target affiliate of the target corporation if each of such corporations was, at any time during so much of the consistency period as ends on the acquisition date of the target corporation, a member of an affiliated group which had the same common parent. “(B) Certain foreign corporations, etc.— Except as otherwise provided in regulations (and subject to such conditions as may be provided in regulations)— “(i) the term ‘target affiliate’ does not include a foreign corporation, a DISC, a corporation described in section 934(b), or a corporation to which an election under section 936 applies, and “(ii) stock held by a target affiliate in a foreign corporation or a domestic corporation which is a DISC or described in section 1248(e) shall be excluded from the operation of this section. “(7) Acquisitions by purchasing corporation include acquisitions by corporations affiliated with purchasing corporation.— Except as otherwise provided in regulations, an acquisition of stock or assets by any member of an affiliated group which includes a purchasing corporation shall be treated as made by the purchasing corporation. “(i) Regulations.— The Secretary shall prescribe such regulations as may be necessary to ensure that the purposes of this section to require consistency of treatment of stock and asset purchases with respect to a target corporation and its target affiliates (whether by treating all of them as stock purchases or as asset purchases) may not be circumvented through the use of any provision of law or regulations (including the consolidated return regulations).” (b) Repeal of Section 334(b)(2).— Subsection (b) of section 334 26 USC 334. (relating to limitation of subsidiary) is amended to read as follows: “(b) Liquidation of Subsidiary.— “(1) Distribution in complete liquidation.— If property is received by a corporation in a distribution in a complete liquidation to which section 332(a) applies, the basis of the property in the hands of the distributee shall be the same as it would be in the hands of the transferor. “(2) Transfers to which section 332 (c) applies.— If property is received by a corporation in a transfer to which section 332(c) applies, the basis of the property in the hands of the transferee shall be the same as it would be in the hands of the transferor. “(3) Distributee defined.— For purposes of this subsection, the term ‘distributee’ means only the corporation which meets the 80-percent stock ownership requirements specified in section 332(b).” (c) Technical Amendments.— (1) Subparagraph (E) of section 168(e)(4) (relating to liquidation 95 Stat. 204. of subsidiary, etc.) is amended by adding at the end thereof the following new sentence: “A similar rule shall apply in the case of a deemed liquidation under section 338.” (2) Clause (i) of section 168(f)(10)(B) is amended by striking out “(other than a transaction with respect to which the basis is determined under section 334(b)(2))”. (3) Paragraph (4) of section 318(b) is amended to read as 26 USC 318. follows: “(4) section 338(h)(3)(B) (relating to purchase of stock from subsidiaries, etc.);”. (4) Paragraph (2) of section 336(b) is amended by striking out 26 USC 336. “334(b)(1)” each place it appears and inserting in lieu thereof “334(b)”. (5) Paragraph (2) of section 337(c) (relating to liquidations to 26 USC 337. which section 332 applies) is amended to read as follows: “(2) Liquidations to which section 332 applies.— In the case of any sale or exchange following the adoption of a plan of complete liquidation, if section 332 applies with respect to such liquidation, this section shall not apply.” (6) Subsection (d) of section 337 is amended by striking out “subsection (c)(2)(A)” each place it appears and inserting in lieu thereof “subsection (c)(2)”. (7) Paragraph (1) of section 381(a) is amended by striking out 26 USC 381. “, except in a case in which the basis of the assets distributed is determined under section 334(b)(2)”. (8) Subparagraph (B) of section 617(h)(3) is amended by inserting 26 USC 617. “338,” after “334(b),”. (9) The table of sections for subpart B of part II of subchapter C of chapter 1 is amended by striking out the item relating to section 338 and inserting in lieu thereof the following: “Sec. 338. Certain stock purchases treated as asset acquisitions.” (d) Effective Dates.— (1) In general.— The amendments made by this section shall apply to any target corporation (within the meaning of section 338 of the Internal Revenue Code of 1954 as added by this section) with respect to which the acquisition date (within the meaning of such section) occurs after August 31, 1982. (2) Certain acquisitions before september 1, 1982.— If— (A) an acquisition date under paragraph (1) occurred after August 31, 1980, and before September 1, 1982, (B) the target corporation (within the meaning of section 338 of such Code) is not liquidated before September 1, 1982, and (C) the purchasing corporation (within the meaning of section 338 of such Code) makes, not later than November 15, 1982, an election under section 338 of such Code, then the amendments made by this section shall apply to the acquisition of such target corporation. (3) Certain acquisitions of financial institutions.— In any case in which— (A) there is, on July 22, 1982, a binding contract to acquire control (within the meaning of section 368(c) of such Code) of any financial institution, (B) the approval of one or more regulatory authorities is required in order to complete such acquisition, and (C) within 90 days after the date of the final approval of the last such regulatory authority granting final approval, a plan of complete liquidation of such financial institution is adopted, then the purchasing corporation may elect not to have the amendments made by this section apply to the acquisition pursuant to such contract. Subpart C— Miscellaneous Provisions SEC. 225. CLARIFICATION OF SECTION 368(a)(1)(F). (a) General Rule.— Subparagraph (F) of section 368(a)( 1) (defining 26 USC 368. reorganization) is amended by inserting “of one corporation” after “place of organization”. (b) Effective Date.— (1) In general.— Except as provided in paragraph (2), the amendment made by subsection (a) shall apply with respect to transactions occurring after August 31, 1982. (2) Plans adopted on or before august 31, 1982.— The amendment made by subsection (a) shall not apply with respect to plans of reorganization adopted on or before August 31, 1982, but only if the transaction occurs before January 1, 1983. SEC. 226. AMENDMENTS RELATING TO BAILOUTS THROUGH USE OF HOLDING COMPANIES. (a) Amendments to Section 304.— (1) Coordination of sections 304 and 351.— (A) Subsection (b) of section 304 (relating to special rules 26 USC 304. for application of subsection (a)) is amended by adding at the end thereof the following new paragraph: “(3) Coordination with section 351.— “(A) Property treated as received in redemption.— Except as otherwise provided in this paragraph, subsection (a) (and not part III) shall apply to any property received in a distribution described in subsection (a). “(B) Certain assumptions of liability, etc.— “(i) In general.— Subsection (a) shall not apply to any liability— “(I) assumed by the acquiring corporation, or “(II) to which the stock is subject, if such liability was incurred by the transferor to acquire the stock. For purposes of the preceding sentence, “Stock.” the term ‘stock’ means stock referred to in paragraph (1)(B) or (2)(A) of subsection (a). “(ii) Extension of obligations, etc.— For purposes of clause (i), an extension, renewal, or refinancing of a liability which meets the requirements of clause (i) shall be treated as meeting such requirements. “(C) Distributions incident to formation of bank holding companies.— If— “(i) pursuant to a plan, control of a bank is acquired and within 2 years after the date on which such control is acquired, stock constituting control of such bank is transferred to a BHC in connection with its formation, “(ii) incident to the formation of the BHC there is a distribution of property described in subsection (a), and “(iii) the shareholders of the BHC who receive distributions of such property do not have control of such BHC, then, subsection (a) shall not apply to any securities received by a qualified minority shareholder incident to the formation of such BHC. “(D) Definitions and special rule.— For purposes of subparagraph (C) and this subparagraph— “(i) Qualified minority shareholder.— The term ‘qualified minority shareholder’ means any shareholder who owns less than 10 percent (in value) of the stock of the BHC. For purposes of the preceding sentence, the rules of paragraph (3) of subsection (c) shall apply. “(ii) BHC—The term ‘BHC’ means a bank holding company (within the meaning of section 2(a) of the Bank Holding Company Act of 1956). 12 USC 1841. “(iii) Special rule in case of bhc’s formed before 1985.— In the case of a BHC which is formed before 1985, clause (i) of subparagraph (C) shall not apply.” (B) Subsection (f) of section 351 (relating to cross references) 26 USC 351. is amended by adding at the end thereof the following new paragraph: For coordination of this section with section 304, see section 304(b)(3).” (2) Application of section 304 where stock is acquired in the transaction.— (A) Subsection (c) of section 304 is amended by redesignating paragraph (2) as paragraph (3) and by inserting after paragraph (1) the following new paragraph: For purposes of subsection (a)(1)— “(A) General rule.— Where 1 or more persons in control 26 USC 304. of the issuing corporation transfer stock of such corporation in exchange for stock of the acquiring corporation, the stock of the acquiring corporation received shall be taken into account in determining whether such person or persons are in control of the acquiring corporation. “(B) Definition of control group.— Where 2 or more persons in control of the issuing corporation transfer stock of such corporation to the acquiring corporation and, after the transfer, the transferors are in control of the acquiring corporation, the person or persons in control of each corporation shall include each of the persons who so transfer stock.” (B) Paragraph (3) of section 304(c) (as redesignated by paragraph (D) is amended by striking out “paragraph (1)” and inserting in lieu thereof “this section”. (3) Determination of earnings and profits.— Subparagraph (A) of section 304(b)(2) (relating to amount constituting dividend) is amended to read as follows: “(A) Where subsection (a)(1) applies.— In the case of any acquisition of stock to which paragraph (1) (and not paragraph (2)) of subsection (a) of this section applies, the determination of the amount which is a dividend shall be made as if the property were distributed by the issuing corporation to the acquiring corporation and immediately thereafter distributed by the acquiring corporation.” (b) Application of Section 306 to Certain Stock Acquired in Section 351 Exchanges.— Subsection (c) of section 306 (defining 26 USC 306. section 306 stock) is amended by adding at the end thereof the following new paragraph: “(3) Certain stock acquired in section 351 exchange.— The term ‘section 306 stock’ also includes any stock which is not common stock acquired in an exchange to which section 351 applied if receipt of money (in lieu of the stock) would have been treated as a dividend to any extent. In the case of such stock, rules similar to the rules of section 304(b)(2) shall apply for purposes of this section.” (c) Effective Date.— (1) In general.— Except as provided in paragraph (2), the amendments made by this section shall apply to transfers occurring after August 31, 1982, in taxable years ending after such date. (2) Approval by federal reserve board.— The amendments made by this section shall not apply to transfers pursuant to an application to form a BHC filed with the Federal Reserve Board before August 16, 1982, if the BHC was formed not later than the later of— (A) the 90th day after the date of the last required approval of any regulatory authority to form such BHC, or (B) January 1, 1983. For purposes of this paragraph, the term “BHC” means a bank holding company (within the meaning of section 2(a) of the Bank Holding Company Act of 1956). 12 USC 1841. SEC. 227. APPLICATION OF ATTRIBUTION RULES FOR PURPOSES OF SECTIONS 306 AND 356(a)(2). (a) Application for purposes of section 306.— Subsection (c) of section 306 is amended by adding at the end thereof the following 26 USC 306. new paragraph: “(4) Application of attribution rules for certain purposes.— For purposes of paragraphs (l)(B)(ii) and (3), section 318(a) shall apply. For purposes of applying the preceding sentence to paragraph (3), sections 318(a)(2)(C) and 318(a)(3)(C) shall be applied without regard to the 50 percent l imitation contained there in.” (b) Application for purposes of section 356(a)(2).— Paragraph (2) of section 356(a) (relating to treatment as dividend) is amended by 26 USC 356. inserting “(determined with the application of section 318(a)” after “distribution of a dividend” (c) Effective Dates.— (1) Section 306.— The amendment made by subsection (a) 26 USC 306 note. shall apply to stock received after August 31, 1982, in taxable years ending after such date. (2) Section 356.— The amendment made by subsection (b) 26 USC 356 note. shall apply to distributions after August 31, 1982, in taxable years ending after such date. SEC. 228. WAIVER OF FAMILY ATTRIBUTION BY ENTITIES. (a) General Rule.— Paragraph (2) of section 302(c) (relating to 26 USC 302. constructive ownership of stock) is amended by adding at the end thereof the following new subparagraph: “(C) Special rule for waivers by entities.— “(i) In general.— Subparagraph (A) shall not apply to a distribution to any entity unless— “(I) such entity and each related person meet the requirements of clauses (i), (ii), and (iii) of subparagraph (A), and “(II) each related person agrees to be jointly and severally liable for any deficiency (including interest and additions to tax) resulting from an acquisition described in clause (ii) of subparagraph (A). In any case to which the preceding sentence applies, the second sentence of subparagraph (A) and subparagraph (B)(ii) shall be applied by substituting ‘distributee or any related person’ for ‘distributee’ each place it appears. “(ii) Definitions.— For purposes of this subparagraph— “(I) the term ‘entity’ means a partnership, estate, trust, or corporation; and “(II) the term ‘related person’ means any person to whom ownership of stock in the corporation is (at the time of the distribution) attributable under section 318(a)(1) if such stock is further attributable to the entity under section 318(a)(3).”. (b) Effective Date.— The amendment made by subsection (a) 26 USC 302 note. shall apply with respect to distributions after August 31, 1982, in taxable years ending after such date. PART VI— METHODS OF ACCOUNTING SEC. 229. MODIFICATION OF REGULATIONS ON THE COMPLETED CONTRACT METHOD OF ACCOUNTING. (a) In general.— The Secretary of the Treasury shall modify the income tax regulations relating to accounting for long-term contracts to— (1) clarify the time at which a contract is to be considered completed, (2) clarify when— (A) one agreement will be treated as more than one contract, and (B) two or more agreements will be treated as one contract, and (3) properly allocate all costs which directly benefit, or are incurred by reason of, the extended period long-term contract activities of the taxpayer. (b) Extended Period Long-Term Contracts Defined.— For purposes of this section— (1) In general.— The term “extended period long-term contract” means any long-term contract which the taxpayer estimates (at the time such contract is entered into) will not be completed within the 2-year period beginning on the contract commencement date of such contract. (2) Certain Construction Contracts.— (A) In general.— The term “extended period long-term contract” does not include any construction contract entered into by a taxpayer— (i) who estimates (at the time such contract is entered into) that such contract will be completed within the 3-year period beginning on the contract commencement date of such contract, or (ii) whose average annual gross receipts over the 3 taxable years preceding the taxable year in which such contract is entered into do not exceed $25,000,000. (B) Determination of taxpayer’s gross receipts.— For purposes of subparagraph (A), the gross receipts of— (i) all trades or businesses (whether or not incorporated) which are under common control with the taxpayer (within the meaning of section 52(b)), and 26 USC 52. (ii) all members of any controlled group of corporations of which the taxpayer is a member, for the 3 taxable years of such persons preceding the taxable year in which the contract described in subparagraph (A) is entered into shall be included in the gross receipts of the taxpayer for the period described in subparagraph (A). The Secretary shall prescribe regulations which provide Regulations. attribution rules that take into account, in addition to the persons and entities described in the preceding sentence, taxpayers who engage in construction contracts through partnerships, joint ventures, and corporations. (C) Controlled group of corporations.— The term “controlled group of corporations” has the meaning given to such term by section 1563(a), except that— (i) “more than 50 percent” shall be substituted for “at least 80 percent” each place it appears in section 15()3(a)(1), and (ii) the determination shall be made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. (3) Construction contract.— The term “construction contract” means any contract for the building, construction, reconstruction, or rehabilitation of, or the installation of any integral component to, improvements to real property. (4) Contract commencement date.— The term “contract commencement date” means, with respect to any contract, the first date on which any costs (other than costs such as bidding expenses or expenses incurred in connection with negotiating the contract) allocable to such contract are incurred. (c) Effective Dates; Special Rules.— (1) In general.— The modifications to regulations which are required to be made under paragraphs (1) and (2) of subsection (a) shall apply with respect to taxable years ending after December 31, 1982. (2) Cost Allocation.— (A) In general.— Any modification to Income Tax Regulation 1.451–3 made under subsection (a)(3) which requires additional costs to be allocated to a contract shall apply only to the applicable percentage of such additional costs incurred in taxable years beginning after December 31, 1982, with respect to contracts entered into after such date. (B) Applicable percentage.— For purposes of subparagraph (A), the applicable percentage shall be determined in accordance with the following table: “If the taxable year begins in calendar year: The applicable percentage is: 1983 33⅓ 1984 66⅔ 1985 or thereafter 100.”. (3) Special rules.— (A) Time of completion.— Any contract of a taxpayer which would (but for this paragraph) be treated as having been completed prior to the first taxable year of such taxpayer ending after December 31, 1982, solely by reason of any modification to regulations made under subsection (a)(1), shall be treated as having been completed on the first day of such taxable year. (B) Aggregation and severance.— Any contract of a taxpayer which would (but for this paragraph) be treated as having been completed prior to the first taxable year of such taxpayer ending after December 31, 1982— (i) solely by reason of any modification to regulations made under subsection (a)(2), or (ii) solely by reason of any modifications to regulations made under both paragraphs (1) and (2) of subsection (a), shall be treated as having been completed on the first day after December 31, 1982, on which any contract which was severed from such contract (by reason of the modifications made by subsection (a)(2)) is completed (determined after the application of any modifications to regulations made under subsection (a)(1)). SEC. 230. ANNUAL ACCRUAL METHOD OF ACCOUNTING EXTENDED TO CERTAIN PARTNERSHIPS. (a) In General.— Section 447(g) (relating to certain annual 26 USC 447. accrual accounting methods) is amended— (1) by inserting “or qualified partnership” after “corporation” each place it appears in paragraph (1), (2) by amending paragraph (3) to read as follows: “(3) Certain nonrecognition transfers.— For purposes of this subsection, if— “(A) a corporation acquired substantially all the assets of a qualified farming trade or business from another corporation in a transaction in which no gain or loss was recognized to the transferor or transferee corporation, or “(B) a qualified partnership acquired substantially all the assets of a qualified farming trade or business from one of its partners in a transaction to which section 721 applies, the transferee corporation or qualified partnership shall be deemed to have computed its taxable income on an annual accrual method of accounting during the period for which the transferor corporation or partnership computed its taxable income from such trade or business on an annual accrual method.”, and (3) by adding at the end thereof the following new paragraph: “(4) Qualified partnership defined.— For purposes of this subsection— “(A) Qualified partnership.— The term ‘qualified partnership’ means a partnership which is engaged in a qualified farming trade or business and each of the partners of which is a corporation other than— “(i) an electing small business corporation (within the meaning of section 1371(b)), or 26 USC 1371. “(ii) a personal holding company (within the meaning of section 542(a)). “(B) Qualified farming trade or business.— The term ‘qualified farming trade or business’ means the trade or business of farming sugar cane.”. (b) Effective Date.— The amendments made by this section shall 26 USC 447 note. apply to taxable years beginning after December 31, 1981. PART VII— ORIGINAL ISSUE DISCOUNT SEC. 231. ORIGINAL ISSUE DISCOUNT TAKEN INTO ACCOUNT ON BASIS OF CONSTANT INTEREST RATE. (a) In General.— Part IV of subchapter P of chapter 1 (relating to special rules for determining capital gains and losses) is amended by inserting after section 1232 the following new section: “SEC. 1232A. ORIGINAL ISSUE DISCOUNT. “(a) Original Issue Discount on Bonds Issued After July 1, 1982, Included in Income on Basis of Constant Interest Rate.— “(1) General rule.— For purposes of this subtitle, there shall be included in the gross income of the holder of any bond having an original issue discount issued after July 1, 1982 (and which is a capital asset in the hands of the holder) an amount equal to the sum of the daily portions of the original issue discount for each day during the taxable year on which such holder held such bond. “(2) Exceptions.— Paragraph (1) shall not apply to— “(A) Natural persons.— Any obligation issued by a natural person. “(B) Tax-exempt obligations.— Any obligation if— “(i) the interest on such obligation is not includible in gross income under section 103, or “(ii) the interest on such obligation is exempt from tax (without regard to the identity of the holder) under any other provision of law. “(C) Short-term government obligations.— Any short-term Government obligation (within the meaning of section 1232(a)(3)). “(D) United states savings bonds.— Any United States savings bond. “(3) Determination of daily portions.— For purposes of paragraph (1), the daily portion of the original issue discount on any bond shall be determined by allocating to each day in any bond period its ratable portion of the increase during such bond period in the adjusted issue price of the bond. For purposes of the preceding sentence, the increase in the adjusted issue price for any bond period shall be an amount equal to the excess (if any) of— “(A) the product of— “(i) the adjusted issue price of the bond at the beginning of such bond period, and “(ii) the yield to maturity (determined on the basis of compounding at the close of each bond period), over “(B) the sum of the amounts payable as interest on such bond during such bond period. “(4) Adjusted issue price.— For purposes of this subsection, the adjusted issue price of any bond at the beginning of any bond period is the sum of— “(A) the issue price of such bond, plus “(B) the adjustments under this subsection to such issue price for all periods before the first day of such bond period. “(5) Bond period.— Except as otherwise provided in regulations prescribed by the Secretary, the term ‘bond period’ means a 1-year period (or the shorter period to maturity) beginning on the day in the calendar year which corresponds to the date of original issue of the bond. “(6) Reduction in case of certain subsequent holders.— For purposes of this subsection, in the case of any purchase of a bond to which this subsection applies after its original issue, the daily portion shall not include an amount (determined at the time of purchase) equal to the excess (if any) of— “(A) the cost of such bond incurred by the purchaser, over “(B) the issue price of such bond, increased by the sum of the daily portions for such bond for all days before the date of purchase (computed without regard to this paragraph), divided by the number of days beginning on the date of such purchase and ending on the day before the stated maturity date. “(7) Regulation authority.— The Secretary may prescribe regulations providing that where, by reason of varying rates of interest, put or call options, or other circumstances, the inclusion under paragraph (1) for the taxable year does not accurately reflect the income of the holder, the proper amount of income shall be included for such taxable year (and appropriate adjustments shall be made in the amounts included for subsequent taxable years). “(b) Ratable Inclusion Retained for Corporate Bonds Issued Before July 2, 1982.— “(1) General rule.— There shall be included in the gross income of the holder of any bond issued by corporation after May 27, 1969, and before July 2, 1982 (and which is a capital asset in the hands of the holder)— “(A) the ratable monthly portion of original issue discount, multiplied by “(B) the number of complete months (plus any fractional part of a month determined under paragraph (3)) such holder held such bond during the taxable year. “(2) Determination of ratable monthly portion.— Except as provided in paragraph (4), the ratable monthly portion of original issue discount shall equal— “(A) the original issue discount, divided by “(B) the number of complete months from the date of original issue to the stated maturity date of the bond. “(3) Month defined.— For purposes of this subsection, a complete month commences with the date of original issue and the corresponding day of each succeeding calendar month (or the last day of a calendar month in which there is no corresponding day). In any case where a bond is acquired on any day other than a day determined under the preceding sentence, the rat-able monthly portion of original issue discount for the complete month (or partial month) in which such acquisition occurs shall be allocated between the transferor and the transferee in accordance with the number of days in such complete (or partial) month each held the bond. “(4) Reduction in case of certain subsequent holders.— For purposes of this subsection, the ratable monthly portion of original issue discount shall not include an amount , determined at the time of any purchase after the original issue of the bond, equal to the excess of— “(A) the cost of such bond incurred by the holder, over “(B) the issue price of such bond, increased by the portion of original discount previously includible in the gross income of any holder (computed without regard to this paragraph), divided by the number of complete months (plus any fractional part of a month) from the date of such purchase to the stated maturity date of such bond. “(c) Definitions and Special Rules.— “(1) Bond includes other evidences of indebtedness.— For purposes of this section, the term ’bond’ means a bond, debenture, note, or certificate or other evidence of indebtedness. “(2) Purchase defined.— For purposes of this section, the term ‘purchase’ means any acquisition of a bond, but only if the basis of the bond is not determined in whole or in part by reference to the adjusted basis of such bond in the hands of the person from whom acquired, or under section 1014(a) (relating 26 USC 1014. to property acquired from a decedent). “(3) Original issue discount, etc.— For purposes of this section, the terms ‘original issue discount’, ‘issue price’, and ‘date of original issue’ shall have the respective meanings given to such terms by section 1232(b). “(4) Exceptions.— This section shall not apply to any holder— “(A) who has purchased the bond at a premium, or “(B) which is a life insurance company to which section 818(b) applies. “(5) Basis adjustments.— The basis of any bond in the hands of the holder thereof shall be increased by the amount included in his gross income pursuant to this section.” (b) Deduction Determined on Basis of Constant Interest Rate.— Section 163 (relating to deduction for interest) is amended by 26 USC 163. redesignating subsection (e) as subsection (0 and by inserting after subsection (d) the following new subsection: “(e) Original Issue Discount.— “(1) In general.— In the case of any bond issued after July 1, 1982, by an issuer (other than a natural person), the portion of the original issue discount with respect to such bond which is allowable as a deduction to the issuer for any taxable year shall be equal to the aggregate daily portions of the original issue discount for days during such taxable year. “(2) Definitions and special rules.— For purposes of this section— “(A) Bond.— The term ‘bond’ has the meaning given to such term by section 1232A(c)(1). “(B) Daily portions.— The daily portion of the original issue discount for any day shall be determined under section 1232A(a) (without regard to paragraphs (2)(B) and (6) thereof and without regard to the second sentence of section 1232(b)(1)).” (c) Conforming Amendments.— (1) Subparagraph (A) of section 1232(a)(2) is amended— 26 USC 1232. (A) by striking out “by a corporation after May 27, 1969” and inserting in lieu thereof “by a corporation after May 27, 1969, or by a government or political subdivision thereof after July 1, 1982”, (B) by striking out “as provided in paragraph (3)(B)” and inserting in lieu thereof “without regard to subsection (a)(6) or (b)(4) of section 1232A (or the corresponding provisions of prior law)”, and (C) by striking out the subparagraph heading and inserting in lieu thereof the following: “(A) Corporate bonds issued after may 27, 1969, and government bonds issued after july 1, 1982.—”. (2) Subparagraph (B) of section 1232(a)(2) is amended— (A) by striking out “by a government or political subdivision thereof after December 31, 1954” and inserting in lieu thereof “by a government or political subdivision thereof after December 31, 1954, and on or before July 1, 1982,”, and (B) by striking out “government bonds” in the subparagraph heading and inserting in lieu thereof “government bonds issued on or before july 1, 1982”. (3) Subparagraph (D) of section 1232(a)(2) is amended by striking out “This section” and inserting in lieu thereof “This section and sections 1232A and 1232B”. (4) Subsection (a) of section 1232 is amended by striking out paragraph (3) and by redesignating paragraph (4) as paragraph (3). (d) Clerical Amendment.— The table of sections for such part IV is amended by inserting after the item relating to section 1232 the following: “Sec. 1232A. Original issue discount.” (e) Transitional Rule.— For purposes of the amendments made 26 USC 1232A note. by this section, any evidence of indebtedness issued pursuant to a written commitment which was binding on July 1, 1982, and at all times thereafter shall be treated as issued on July 1, 1982. SEC. 232. TAX TREATMENT OF STRIPPED BONDS. (a) In general.— Part IV of subchapter P of chapter 1 (relating to special rules for determining capital gains and losses) is amended by inserting after section 1232A the following new section: “SEC. 1232B. TAX TREATMENT OF STRIPPED BONDS. “(a) Inclusion in Income as if Bond and Coupons Were Original Issue Discount Bonds.— If any person purchases after July 1, 1982, a stripped bond or a stripped coupon, then such bond or coupon while held by such purchaser (or by any other person whose basis is determined by reference to the basis in the hands of such purchaser) shall be treated for purposes of section 1232A(a) as a Ante, p. 496. bond originally issued by a corporation on the purchase date and having an original issue discount equal to the excess (if any) of— “(1) the stated redemption price at maturity (or, in the case of a coupon, the amount payable on the due date of such coupon), over “(2) such bond’s or coupon’s ratable share of the purchase price. For purposes of paragraph (2), ratable shares shall be determined on the basis of their respective fair market values on the date of purchase. “(b) Tax Treatment of Person Stripping Bond.— For purposes of this subtitle, if any person strips 1 or more coupons from a bond and after July 1, 1982, disposes of the bond or such coupon— “(1) such person shall include in gross income an amount equal to the interest accrued on such bond before the time that such coupon or bond was disposed of (to the extent such interest has not theretofore been included in such person’s gross income), “(2) the basis of the bond and coupons shall be increased by the amount of the accrued interest described in paragraph (1), “(3) the basis of the bond and coupons immediately before the disposition (as adjusted pursuant to paragraph (2)) shall be allocated among the items retained by such person and the items disposed of by such person on the basis of their respective fair market values, and “(4) for purposes of subsection (a), such person shall be treated as having purchased on the date of such disposition each such item which he retains for an amount equal to the basis allocated to such item under paragraph (3). A rule similar to the rule of paragraph (4) shall apply in the case of any person whose basis in any bond or coupon is determined by reference to the basis of the person described in the preceding sentence. “(c) Retention of Existing Law for Stripped Bonds Purchased Before July 2, 1982.— If a bond issued at any time with interest coupons— “(1) is purchased after August 16, 1954, and before January 1, 1958, and the purchaser does not receive all the coupons which first become payable more than 12 months after the date of the purchase, or “(2) is purchased after December 31, 1957, and before July 2, 1982, and the purchaser does not receive all the coupons which first become payable after the date of the purchase, then the gain on the sale or other disposition of such bond by such purchaser (or by a person whose basis is determined by reference to the basis in the hands of such purchaser) shall be considered as ordinary income to the extent that the fair market value (determined as of the time of the purchase) of the bond with coupons attached exceeds the purchase price. If this subsection and section 1232(a)(2)(A) apply with respect to gain realized on the sale or 26 USC 1232. exchange of any evidence of indebtedness, then section 1232(a)(2)(A) shall apply with respect to that part of the gain to which this subsection does not apply. “(d) Special Rules for Tax-Exempt Obligations.— In the case of any obligation the interest on which is not includible in gross income under section 103 or is exempt from tax (without regard to the identity of the holder) under any other provision of law— “(1) subsections (a) and (b)(1) shall not apply, “(2) the rules of subsection (b)(4) shall apply for purposes of subsection (c), and “(3) subsection (c) shall be applied without regard to the requirement that the bond be purchased before July 2, 1982. “(e) Definitions and Special Rules.— For purposes of this section— “(1) Bond.— The term ‘bond’ means a bond, debenture, note, or certificate or other evidence of indebtedness. “(2) Stripped bond.— The term ‘stripped bond’ means a bond issued at any time with interest coupons where there is a separation in ownership between the bond and any coupon which has not yet become payable. “(3) Stripped coupon.— The term ‘stripped coupon’ means any coupon relating to a stripped bond. “(4) Stated redemption price at maturity.— The term ‘stated redemption price at maturity’ has the meaning given such term by the third sentence of section 1232(b)(1). “(5) Coupon.— The term ‘coupon’ includes any right to receive interest on a bond (whether or not evidenced by a coupon). This paragraph shall apply for purposes of subsection (c) only in the case of purchases after July 1, 1982. “(f) Regulation Authority.— The Secretary may prescribe regulations providing that where, by reason of varying rates of interest , put or call options, extendable maturities, or other circumstances, the tax treatment under this section does not accurately reflect the income of the bolder of a stripped coupon or stripped bond, or of the person disposing of such bond or coupon, as the case may be, for any period, such treatment shall be modified to require that the proper amount of income be included for such period.” (b) Conforming Amendment.— Section 1232 is amended by striking 26 USC 1232. out subsections (c) and (d). (c) Clerical Amendment.— The table of sections for such part IV is amended by inserting after the item relating to section 1232A the following: “Sec. 1232B. Tax treatment of stripped bonds.” PART VIII— OTHER BUSINESS PROVISIONS SEC. 233. TARGETED JOBS TAX CREDIT. (a) 2-Year Extension.— Paragraph (3) of section 51(c) (relating to 95 Stat. 260. termination of credit for employment of certain new employees) is amended by striking out “1982” and inserting in lieu thereof “1984”. (b) Qualified Summer Youth Employee.— Subsection (d) of section 51 (defining members of targeted groups) is amended— (1) by striking out “or” at the end of subparagraph (H), (2) by striking out the period at the end of subparagraph (I) and inserting in lieu thereof “, or”, (3) by inserting after subparagraph (I) the following new subparagraph: “(J) a qualified summer youth employee.”, (4) by redesignating paragraphs (12), (13), (14), and (15) as paragraphs (13), (14), (15), and (16), respectively, and (5) by inserting after paragraph (11) the following new paragraph: “(12) Qualified summer youth employee.— “(A) In general.— The term ‘qualified summer youth employee’ means an individual— “(i) who performs services for the employer between May 1 and September 15, “(ii) who is certified by the designated local agency as having attained age 16 but not 18 on the hiring date (as defined in paragraph (14)), “(iii) who has not been an employee of the employer during any period prior to the 90-day period described in subparagraph (B)(iii), and “(iv) who is certified by the designated local agency as being a member of an economically disadvantaged family (as determined under paragraph (11)). “(B) Special rules for determining amount of credit.— For purposes of applying this subpart to wages paid or incurred to any qualified summer youth employee— “(i) subsection (a)(1) shall be applied by substituting ‘85 percent’ for ‘50 percent’, “(ii) subsections (a)(2) and (b)(3) shall not apply, “(iii) subsection (b)(2) shall be applied by substituting ‘any 90-day period between May 1 and September 15’ for ‘the 1-year period beginning with the day the individual begins work for the employer’, and “(iv) subsection (b)(4) shall be applied by substituting ‘$3,000’ for ‘$6,000’. “(C) Special rule for continued employment for same employer.— In the case of an individual who, with respect to the same employer, is certified as a member of another targeted group after such individual has been a qualified summer youth employee, paragraph (14) shall be applied by substituting ‘certified’ for ‘hired by the employer’.” (c) Termination of Involuntarily Terminated CETA Employee as Member of Targeted Group.— Paragraph (10) of section 51(d) 26 USC 51. (relating to involuntarily terminated CETA employee) is amended by adding at the end thereof the following new sentence: “This paragraph shall not apply to any individual who begins work for the employer after December 31, 1982.” (d) Voucher or Scrip Payments to General Recipients in Qualified General Assistance Programs.— Subclause (II) of section 51(d)(6)(B)(i) (defining qualified general assistance programs) is amended by inserting before the comma the following: “or voucher or scrip”. (e) Additional Authorization of Appropriations; Reports.— Paragraph (2) of section 261(f) of the Economic Recovery Tax Act of 1981 is amended— (1) by inserting after “for fiscal year 1982 the sum of $30,000,000” the following: “, and for fiscal years 1983 and 1984 such sums as may be necessary,”; and (2) by inserting at the end thereof the following new sentence: “The Secretary of Labor shall each calendar year beginning with calendar year 1983 report to the Committee on Ways and Means of the House of Representatives and to the Committee on Finance of the Senate with respect to the results of the testing conducted under subparagraph (A) during the preceding calendar year.” (f) Certifications.— Effective only with respect to individuals who begin work for the taxpayer after May 11, 1982, subparagraph (A) of section 51(d)(15) (relating to special rules for certifications), as in 95 Stat. 260. effect before the amendments made by this Act, is amended by striking out “before the day” and inserting in lieu thereof “on or before the day”. (g) Effective Dates.— (1) Subsection (b).— The amendments made by subsection (b) shall apply to amounts paid or incurred after April 30, 1983, to individuals beginning work for the employer after such date. (2) Subsection (d).— The amendments made by subsection (d) shall apply to amounts paid or incurred after July 1, 1982, to individuals beginning work for the employer after such date. SEC. 234. ACCELERATED PAYMENT OF INCOME TAX BY CORPORATIONS. (a) Increase in Amount of Estimated Tax Required To Be Paid.— (1) In general.— Paragraph (1) of section 6655(b) (relating to 26 USC 6655. amount of underpayment) is amended by striking out “80” each place it appears and inserting in lieu thereof “90”. (2) Conforming Amendment.— Paragraph (3) of section 6655(d) (relating to exception to imposition of additional tax) is amended by striking out “80” and inserting in lieu thereof “90”. (b) Elimination of Election With Respect to Payment of Unpaid Taxes.— (1) In general.— Section 6152 (relating to installment payments 26 USC 6152. of tax) is amended by striking out subsections (a) and (b) and inserting in lieu thereof the following new subsections: “(a) Privilege to Elect to Make Four Installment Payments by Decedent’s Estate.— A decedent’s estate subject to the tax imposed by chapter 1 may elect to pay such tax in four equal installments. “(b) Dates Prescribed for Payment of Four Installments.— In any case (other than payment of estimated income tax) in which the tax may be paid in four installments, the first installment shall be paid on the date prescribed for the payment of the tax, the second installment shall be paid on or before 3 months, the third installment on or before 6 months, and the fourth installment on or before 9 months, after such date.”. (2) Conforming amendments.— (A) Paragraph (2) of section 832(e) is amended by striking 26 USC 832. out “, as if no election to make installment payments under section 6152 is made”. (B) Subsection (b) of section 6081 is amended by striking 26 USC 6081. out “or the first installment thereof required under section 6152”. (C) Section 6164 is amended— 26 USC 6164. (i) by striking out the last sentence of subsection (c) and inserting in lieu thereof the following new sentence: “If an extension of time under this section relates to only a part of the tax, the time for payment of the remainder shall be the date on which payment would have been required if such remainder had been the tax.”; and (ii) by striking out paragraph (2) of subsection (g) and inserting in lieu thereof the following new paragraph: “(2) the time for payment of such amount shall be considered to be the date on which payment would have been required if there had been no extension with respect to such amount.”. (c) Amount of Addition to Tax.— Subsection (a) of section 6655 26 USC 6655. (relating to addition to tax) is amended to read as follows: “(a) Addition to Tax.— Except as provided in subsections (d) and (e), in the case of any underpayment of tax by a corporation— “(1) In general.— There shall be added to the tax under chapter 1 for the taxable year an amount determined at the rate established under section 6621 on the amount of the underpayment for the period of the underpayment . “(2) Special rule where corporation paid 80 percent or more of tax.— In any case in which there would be no underpayment if subsection (b) were applied by substituting ‘80 percent’ for ‘90 percent’ each place it appears , the addition to tax under paragraph (1) shall be equal to 75 percent of the amount otherwise determined under paragraph (1).” (d) Additional Exception from Penalty for Underpayments Of Estimated Income Tax Where a Corporation has a Recurring Pattern of Seasonal Income.— (1) In general.— Section 6655 (relating to failure by corporation 26 USC 6655. to pay estimated income tax) is amended by redesignating subsections (e), (f), (g), and (h) as subsections (f), (g), (h), and (i), respectively, and by inserting after subsection (d) the following new subsection: “(e) Additional Exception for Recurring Seasonal Income.— “(1) In general.— Notwithstanding the preceding subsections, the addition to the tax with respect to any underpayment of any installment shall not be imposed if the total amount of all payments of estimated tax made on or before the last date prescribed for the payment of such installment equals or exceeds 90 percent of the amount determined under paragraph (2). “(2) Determination of amount.— The amount determined under this paragraph for any installment shall be determined in the following manner— “(A) take the taxable income for all months during, the taxable year preceding the filing month, “(B) divide such amount by the base period percentage for all months during the taxable year preceding the filing month, “(C) determine the tax on the amount determined under subparagraph (B), and “(D) multiply the tax computed under subparagraph (C) by the base period percentage for the filing month and all months during the taxable year preceding the filing month. “(3) Definitions and special rules.— For purposes of this subsection— “(A) Base period percentage.— The base period percentage for any period of months shall be the average percent which the taxable income for the corresponding months in each of the 3 preceding taxable years bears to the taxable income for the 3 preceding taxable years. “(B) Filing month.— The term ‘filing month’ means the month in which the installment is required to be paid. “(C) Limitation on application of subsection.— This subsection shall only apply if the base period percentage for any 6 consecutive months of the taxable year equals or exceeds 70 percent. “(D) Reorganizations, etc.— The Secretary may by regulations provide for the determination of the base period percentage in the case of reorganizations, new corporations, and other similar circumstances.” (2) Technical amendment.— Subsection (f) of section 6655 (as 26 USC 6655. redesignated by paragraph (D) is amended by striking out “(d), and (h)” and inserting in lieu thereof “(d), (e), and (i)” (e) Effective Date.— The amendments made by this section shall 26 USC 6655 note. apply to taxable years beginning after December 31, 1982. Subtitle C— Pensions PART I— CONTRIBUTION AND LOAN LIMITS SEC. 235. LOWER CONTRIBUTION AND BENEFIT LIMITS FOR CERTAIN ANNUITIES, ETC. (a) Limit on Annual Defined Benefit Lowered From $136,425 To $90,000; Limit on Annual Defined Contribution Lowered From $45,475 to $30,000.— (1) Defined benefit plans.— Subparagraph (A) of section 415(b)(1) (relating to limitation for defined benefit plan) is 26 USC 415. amended by striking out “$75,000” and inserting in lieu thereof “$90,000”. (2) Defined contribution plans.— Subparagraph (A) of section 415(c)(1) (relating to limitation for defined contribution plan) is amended by striking out “$25,000” and inserting in lieu thereof “$30,000”. (3) Conforming amendments.— (A) Subparagraph (C) of section 415(b)(2) is amended by striking out “$75,000” each place it appears and inserting in lieu thereof “$90,000”. (B) The last sentence of paragraph (7) of section 415(b) is amended by striking out “by substituting ‘37,500’ for ‘75,000’” and inserting in lieu thereof “by substituting the greater of $68,212 or one-half the amount otherwise applicable for such year under paragraph (1)(A) for ‘$90,000’”. (b) Cost-of-Living Adjustments.— (1) Adjustment to reflect adjustments made in social security benefit payments rather than primary insurance amounts.— Paragraph (1) of section 415(d) (relating to cost-of-living adjustments) is amended by striking out “primary insurance amounts” and inserting in lieu thereof “benefit amounts”. (2) Freeze on cost-of-living adjustments before january 1, 1986.— (A) In general.— Subsection (d) of section 415 is amended by adding at the end thereof the following new paragraph: “(3) Freeze on adjustment to defined contribution and benefit limits.— The Secretary shall not make any adjustment under subparagraph (A) or (B) of paragraph (1) with respect to any year beginning after December 31, 1982, and before January 1, 1986.” (B) Change in base period to reflect change in limits and freeze.— Paragraph (2) of section 415(d) (relating to base periods) is amended by striking out “1974” and inserting in lieu thereof “1984”. (3) Conforming amendments to decrease in limits.— Paragraph (1) of section 415(d) is amended— (A) by striking out “$75,000” in subparagraph (A) and inserting in lieu thereof “$90,000”, and (B) by striking out “$25,000” in subparagraph (B) and inserting in lieu thereof “$30,000”. (c) Lower Limits Where Individual is Covered by Both Defined Benefit Plan and Defined Contribution Plan.— (1) Sum of defined benefit plan fraction and defined contribution plan fraction cannot exceed 1.25 for dollar limits and 1.4 for percentage limits.— Paragraph (1) of section 415(e) (relating to limitation in case of defined benefit plan and 26 USC 415. defined contribution plan for same employee) is amended by striking out “1.4” and inserting in lieu thereof “1.0”. (2) Defined benefit and contribution plan fractions.— (A) Defined benefit plan fraction.— Subparagraph (B) of section 415(e)(2) (defining defined benefit plan fraction) is amended to read as follows: “(B) the denominator of which is the lesser of— “(i) the product of 1.25, multiplied by the dollar limitation in effect under subsection (b)(1)(A) for such year, or “(ii) the product of— “(I) 1.4, multiplied by “(II) the amount which may be taken into account under subsection (b)(1)(B) with respect to such individual under the plan for such year.” (B) Defined contribution plan fraction.— Subparagraph (B) of section 415(e)(3) (defining defined contribution plan fraction) is amended to read as follows: “(B) the denominator of which is the sum of the lesser of the following amounts determined for such year and for each prior year of service with the employer: “(i) the product of 1.25, multiplied by the dollar limitation in effect under subsection (c)(1)(A) for such year (determined without regard to subsection (c)(6)), or “(ii) the product of— “(I) 1.4, multiplied by— “(II) the amount which may be taken into account under subsection (c)(1)(B) (or subsection (c) (7) or (8), if applicable) with respect to such individual under such plan for such year.” (d) Transition Rules for Defined Contribution Fraction.— Section 415(e) is amended by adding at the end thereof the following new paragraph: “(6) Special transition rule for defined contribution fraction for years ending after december 31, 1982.— “(A) In general.— At the election of the plan administrator, in applying paragraph (3) with respect to any year ending after December 31, 1982, the amount taken into account under paragraph (3)(B) with respect to each participant for all years ending before January 1, 1983, shall be an amount equal to the product of— “(i) the amount determined under paragraph (3)(B) (as in effect for the year ending in 1982) for the year ending in 1982, multiplied by “(ii) the transition fraction. “(B) Transition fraction.— The term ‘transition fraction’ means a fraction— “(i) the numerator of which is the lesser of— “(I) $51,875, or “(II) 1.4, multiplied by 25 percent of the compensation of the participant for the year ending in 1981, and “(ii) the denominator of which is the lesser of— “(I) $41,500, or “(II) 25 percent of the compensation of the participant for the year ending in 1981.” (e) Actuarial Adjustments.— (1) Actuarial adjustments for early retirement made by reference to age 62 (instead of 55).— Subparagraph (C) of section 415(b)(2) (relating to adjustments where benefit begins 26 USC 415. before age 55) is amended by striking out “55” each place it appears and inserting in lieu thereof “62”. (2) $75,000 floor on actuarial adjustment where benefit begins before 62.— Subparagraph (C) of section 415(b)(2) is amended by adding at the end thereof the following new sentence: “The reduction under this subparagraph shall not reduce the limitation of paragraph (1)(A) below— “(i) if the benefit begins at or after age 55, $75,000, or “(ii) if the benefit begins before age 55, the amount which is the equivalent of the $75,000 limitation for age 55.” (3) Actuarial adjustments where benefit begins after age 65.— Paragraph (2) of section 415(b) is amended by adding at the end thereof the following new subparagraph: “(D) ADJUSTMENT TO $90,OOO LIMITATION WHERE BENEFIT BEGINS AFTER AGE 65.—If the retirement income benefit under the plan begins after age 65, the determination as to whether the $90,000 limitation set forth in paragraph (1)(A) has been satisfied shall be made, in accordance with regulations prescribed by the Secretary, by adjusting such benefit so that it is equivalent to such a benefit beginning at age 65.” (4) Limitations on actuarial adjustments under section 415(b)(2).— Paragraph (2) of section 415(b) is amended by adding at the end thereof the following new subparagraph: “(E) Limitation on certain assumptions.— “(i) For purposes of adjusting any benefit under subparagraph (B) or (C), the interest rate assumption shall not be less than the greater of 5 percent or the rate specified in the plan. “(ii) For purposes of adjusting any benefit under subparagraph (D), the interest rate assumption shall not be greater than the lesser of 5 percent or the rate specified in the plan. “(iii) For purposes of adjusting any benefit under subparagraph (B), (C), or (D), no adjustments under subsection (d)(1) shall be taken into account before the year for which such adjustment first takes effect.” (f) Limitations on Deductibility of ContributionS.— Section 404 95 Stat. 293. (relating to contributions of an employer to an employee’s trust , etc.) is amended by adding at the end thereof the following new subsection: “(j) Special Rules Relating to Application With Section 415.— “(1) No deduction in excess of section 415 limitation.— In computing the amount of any deduction allowable under paragraph (1), (2), (3), (4), (7), or (10) of subsection (a) for any year— “(A) in the case of a defined benefit plan, there shall not be taken into account any benefits for any year in excess of any limitation on such benefits under section 415 for such 26 USC 415. year, or “(B) in the case of a defined contribution plan, the amount of any contributions otherwise taken into account shall be reduced by any annual additions in excess of the limitation under section 415 for such year. “(2) No advance funding of cost-of-living adjustments.— For purposes of clause (i), (ii) or (iii) of subsection (a)(1)(A), and in computing the full funding limitation, there shall not be taken into account any adjustments under section 415(d)(1) for any year before the year for which such adjustment first takes effect.” (g) Effective Dates.— (1) In general.— (A) New plans.— In the case of any plan which is not in existence on July 1, 1982, the amendments made by this section shall apply to years ending after July 1, 1982. (B) Existing plans.— (i) In the case of any plan which is in existence on July 1, 1982, the amendments made by this section shall apply to years beginning after December 31, 1982. (ii) Plan requirements.— A plan shall not be treated as failing to meet the requirements of section 401(a)(16) of the Internal Revenue Code of 1954 for any year beginning before January 1, 1984, merely because such plan provides for benefit or contribution limits which are in excess of the limitations under section 415 of such Code, as amended by this section. The preceding sentence shall not apply to any plan which provides such limits in excess of the limitation under section 415 of such Code before such amendments . (2) Amendments related to cost-of-living adjustments.— (A) In general.— Except as provided in subparagraph (B), the amendments made by subsection (b) shall apply to adjustments for years beginning after December 31, 1982. (B) Adjustment procedures.— The amendments made by subsections (b)(1) and (b)(2)(B) shall apply to adjustments for years beginning after December 31, 1985. (3) Transition rule where the sum of defined contribution and defined benefit plan fractions exceeds 1.0.— In the case of a plan which satisfied the requirements of section 415 of the Internal Revenue Code of 1954 for the last year beginning before January 1, 1983, the Secretary of the Treasury or his delegate shall prescribe regulations under which an amount is subtracted from the numerator of the defined contribution plan fraction (not exceeding such numerator) so that the sum of the defined benefit plan fraction and the defined contribution plan fraction computed under section 415(e)(1) of the Internal Revenue Code of 1954 (as amended by the Tax Equity and Fiscal Ante, p. 506. Responsibility Act of 1982) does not exceed 1.0 for such year. (4) Right to higher accrued defined benefit preserved.— (A) In general.— In the case of an individual who is a participant before January 1, 1983, in a defined benefit plan which is in existence on July 1, 1982, and with respect to which the requirements of section 415 of such Code have been met for all years, if such individual’s current accrued benefit under such plan exceeds the limitation of subsection (b) of section 415 of the Internal Revenue Code of 1954 (as amended by this section), then (in the case of such plan) for purposes of subsections (b) and (e) of such section, the limitation of such subsection (b) with respect to such individual shall be equal to such current accrued benefit. (B) Current accrued benefit defined.— (i) In general.— For purposes of this paragraph, the term “current accrued benefit” means the individual’s accrued benefit (at the close of the last year beginning before January 1, 1983) when expressed as an annual benefit (within the meaning of section 415(b)(2) of such 26 USC 415. Code as in effect before the amendments made by this Act). (ii) Special rule.— For purposes of determining the amount of any individual’s current accrued benefit— (I) no change in the terms and conditions of the plan after July 1, 1982, and (II) no cost-of-living adjustment occurring after July 1, 1982, shall be taken into account. (5) Special rule for collective bargaining agreements.— In the case of a plan maintained on the date of the enactment of this Act pursuant to 1 or more collective bargaining agreements between employee representatives and 1 or more employers, the amendments made by this section and section 253 (relating to age 70½) shall not apply to years beginning before the earlier of— (A) the date on which the last of the collective bargaining agreements relating to the plan terminates (determined without regard to any extension thereof agreed to after the date of the enactment of this Act), or (B) January 1, 1986. For purposes of subparagraph (A), any plan amendment made pursuant to a collective bargaining agreement relating to the plan which amends the plan solely to conform to any requirement added by this section and section 253 shall not be treated as a termination of such collective bargaining agreement. SEC. 236. LOANS TREATED AS DISTRIBUTIONS. (a) General Rule.— Section 72 (relating to annuities and certain 95 Stat. 278. proceeds of endowment and life insurance contracts) is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection: “(p) Loans Treated as Distributions.— For purposes of this section — “(1) Treatment as distributions.— “(A) Loans.— If during any taxable year a participant or beneficiary receives (directly or indirectly) any amount as a loan from a qualified employer plan, such amount shall be treated as having been received by such individual as a distribution under such plan. “(B) Assignments or pledges.— If during any taxable year a participant or beneficiary assigns (or agrees to assign) or pledges (or agrees to pledge) any portion of his interest in a qualified employer plan, such portion shall be treated as having been received by such individual as a loan from such plan. “(2) Exception for certain loans.— “(A) General rule.— Paragraph (1) shall not apply to any loan to the extent that such loan (when added to the outstanding balance of all other loans from such plan whether made on, before, or after August 13, 1982), does not exceed the lesser of— “(i) $50,000, or “(ii) ½ of the present value of the nonforfeitable accrued benefit of the employee under the plan (but not less than $10,000). “(B) Requirement that loan be repayable within 5 years.— “(i) In general.— Subparagraph (A) shall not apply to any loan unless such loan, by its terms, is required to be repaid within 5 years. “(ii) Exception for home loans.— Clause (i) shall not apply to any loan used to acquire, construct, reconstruct, or substantially rehabilitate any dwelling unit which within a reasonable time is to be used (determined at the time the loan is made) as a principal residence of the participant or a member of the family (within the meaning of section 267(c)(4)) of the 26 USC 267. participant. “(C) Related employers and related plans.— For purposes of this paragraph— “(i) the rules of subsections (b), (c), and (m) of section 414 shall apply, and “(ii) all plans of an employer (determined after the application of such subsections) shall be treated as 1 plan. “(3) Qualified employer plan, etc.— For purposes of this subsection, the term ‘qualified employer plan’ means any plan which was (or was determined to be) a qualified employer plan (as defined in section 219(e)(3) without regard to subparagraph (D) thereof). For purposes of this subsection, such term includes any government plan (as defined in section 219(e)(4)). “(4) Special rules for loans, etc., from certain contracts.— For purposes of this subsection, any amount received as a loan under a contract purchased under a qualified employer plan (and any assignment or pledge with respect to such a contract) shall be treated as a loan under such employer plan.” (b) Technical Amendments.— (1) Subsection (m) of section 72 is amended by striking out 95 Stat. 284. 26 USC 72. paragraphs (4) and (8). (2) Subparagraph (A) of section 72(o)(3) is amended by striking 95 Stat. 278. out “subsection (m)(4) and (8)” and inserting in lieu thereof “subsection (p)”. (c) Effective Date.— (1) In general.— The amendments made by this section shall apply to loans, assignments, and pledges made after August 13, 1982. For purposes of the preceding sentence, the outstanding balance of any loan which is renegotiated, extended, renewed, or revised after such date shall be treated as an amount received as a loan on the date of such renegotiation, extension, renewal, or revision. (2) Exception for certain loans used to repay outstanding obligations.— (A) In general.— Any qualified refunding loan shall not be treated as a distribution by reason of the amendments made by this section to the extent such loan is repaid before August 14, 1983. (B) Qualified refunding loan.— For purposes of subparagraph (A), the term “qualified refunding loan” means any loan made after August 13, 1982, and before August 14, 1983, to the extent such loan is used to make a required principal payment. (C) Required principal payment.— For purposes of subparagraph (B), the term “required principal payment” means any principal repayment on a loan made under the plan which was outstanding on August 13, 1982, if such repayment is required to be made after August 13, 1982, and before August 14, 1983. PART II— REPEAL OF SPECIAL LIMITATIONS ON PLANS BENEFITING SELF-EMPLOYED INDIVIDUALS OR OWNER-EMPLOYEES SEC. 237. REPEAL OF SPECIAL QUALIFICATION REQUIREMENTS. (a) General Rule.— Subsection (d) of section 401 (relating to 26 USC 401. additional requirements for qualifications of trusts and plans benefiting owner-employees) is amended— (1) by striking out paragraphs (1) through (7), and (2) by redesignating paragraphs (9), (10), and (11) as paragraphs (1), (2), and (3), respectively. (b) Repeal of Limitations on Amount of Compensation Taken Into Account and on Certain Defined Benefit Plans.— Paragraphs (17) and (18) of section 401(a) are hereby repealed. (c) Repeal of Excise Tax on Excess Contributions for Self-Employed Individuals.— (1) Section 4972 (relating to tax on excess contributions for 26 USC 4972. self-employed individuals) is hereby repealed. (2) The table of sections for chapter 43 is amended by striking out the item relating to section 4972. (d) Penalty for Premature Withdrawals Limited to Key Employees in Top-Heavy Plans.— (1) Subparagraph (A) of section 72(m)(5) is amended— 26 USC 72. (A) by striking out “an owner-employee” the first place it appears and inserting in lieu thereof “a key employee”, (B) by striking out “while he was an owner-employee” and inserting in lieu thereof “while he was a key employee in a top-heavy plan”, and (C) by striking, out “an owner-employee” in clause (ii) and inserting in lieu thereof “a key employee”. (2) Paragraph (5) of section 72(m) is amended by adding at the end thereof the following new subparagraph: “(C) For purposes of this paragraph, the terms ‘key employee’ and ‘top-heavy plan’ have the same meanings as when used in section 416.” (3) Paragraph (6) of section 72(m) is amended by striking out 95 Stat. 284. “except in applying paragraph (5),”. (e) Conforming Amendments.— (1) Paragraph (10) of section 401(a) is amended to read as 26 USC 401. follows: “(10) Other requirements.— “(A) Plans benefiting owner-employees.— In the case of any plan which provides contributions or benefits for employees some or all of whom are owner-employees (as defined in subsection (c)(3)), a trust forming part of such plan shall constitute a qualified trust under this section only if the requirements of subsection (d) are also met.” (2) Paragraph (2) of section 404(a) is amended— (A) by striking out “(8), (11)” and inserting in lieu thereof “(8), (9), (11)”, and (B) by striking out “section 401(a)(9), (10), (17), and (18), and of section 401(d) (other than paragraph (1))” and inserting in lieu thereof “section 401(a)(10) and of section 401(d)”. (3) (A) Paragraph (2) of section 408(a) (defining individual 26 USC 408. retirement account) is amended by striking out “as defined in section 401(d)(1)” and inserting in lieu thereof “as defined in subsection (n)”. (B) Section 408 is amended by redesignating the subsection relating to cross references as subsection (o) and by inserting immediately before such subsection the following new subsection: “(n) Bank.— For purposes of subsection (a)(2), the term ‘bank’ means— “(1) any bank (as defined in section 581), “(2) an insured credit union (within the meaning of section 101(6) of the Federal Credit Union Act), and 12 USC 1752. “(3) a corporation which, under the laws of the State of its incorporation, is subject to supervision and examination by the Commissioner of Banking or other officer of such State in charge of the administration of the banking laws of such State.” SEC. 238. REPEAL OF SPECIAL LIMITATIONS ON DEDUCTION FOR SELF-EMPLOYED INDIVIDUALS AND SUBCHAPTER S CORPORATIONS. (a) Repeal of limit of lower of $15,000 or 15 percent of earned income.— Subsection (e) of section 404 (relating to special 26 USC 404. limitations for self-employed individuals) is amended to read as follows: “(e) Contributions Allocable to Life Insurance Protection for Self-Employed Individuals.— In the case of a self-employed individual described in section 401(c)(1), contributions which are allocable (determined under regulations prescribed by the Secretary) to the purchase of life, accident, health, or other insurance shall not be taken into account under this section.” (b) Repeal of Limitations on Defined Benefit Plans.— Subsection (j) of section 401 (relating to defined benefit plans providing 26 USC 401. benefits for self-employed individuals and shareholder-employees) is hereby repealed. (c) Repeal of Limitations Applicable to Subchapter S Corporations.— Section 1379 is amended— 26 USC 1379. (1) by striking out subsections (a) and (b), and (2) by redesignating subsections (c) and (d) as subsections (a) and (b), respectively. (d) Technical Amendments.— (1) Paragraph (1) of section 401(c)(1) (defining employee) is 26 USC 401. amended to read as follows: “(1) Self-employed individual treated as employee.— “(A) In general.— The term ‘employee’ includes, for any taxable year, an individual who is a self-employed individual for such taxable year. “(B) Self-employed individual.— The term ‘self-employed individual’ means, with respect to any taxable year, an individual who has earned income (as defined in paragraph (2)) for such taxable year. To the extent provided in regulations prescribed by the Secretary, such term also includes, for any taxable year— “(i) an individual who would be a self-employed individual within the meaning of the preceding sentence but for the fact that the trade or business carried on by such individual did not have net profits for the taxable year, and “(ii) an individual who has been a self-employed individual within the meaning of the preceding sentence for any prior taxable year.” (2) Subparagraph (A) of section 401(c)(2) (defining earned income) is amended by striking out “and” at the end of clause (iii), by striking out the period at the end of clause (iv) and inserting in lieu thereof “, and”, and by adding at the end thereof the following new clause: “(v) with regard to the deductions allowed by sections 404 and 405(c) to the taxpayer.” (3) Subsection (j) of section 408 is amended to read as follows: 26 USC 408. “(j) Increase in Maximum Limitations for Simplified Employee Pensions.— In the case of any simplified employee pension, subsections (a)(1) and (b)(2) of this section shall be applied by increasing the $2,000 amounts contained therein by the amount of the limitation in effect under section 415(c)(1)(A).” (4) (A) Paragraph (6) of section 408(k) is hereby repealed. (B) Paragraph (1) of section 408(k) is amended by striking out “(5), and (6)” and inserting in lieu thereof “and (5)”. (C) Subparagraph (C) of section 408(k)(3) is amended to read as follows: “(C) Contributions must bear uniform relationship to total compensation.— For purposes of subparagraph (A), employer contributions to simplified employee pensions shall be considered discriminatory unless contributions thereto bear a uniform relationship to the total compensation (not in excess of the first $200,000) of each employee maintaining a simplified employee pension.” (5) Paragraph (5) of section 415(c) (relating to application with 26 USC 415. section 404(e)) is hereby repealed. SEC. 239. ALLOWANCE OF EXCLUSION OF DEATH BENEFIT FOR SELF-EMPLOYED INDIVIDUALS. Paragraph (3) of section 101(b) (relating to self-employed individual 26 USC 101. not considered as employee) is amended to read as follows: “(3) Treatment of self-employed individuals.— For purposes of this subsection— “(A) Self-employed individual not considered employee.— Except as provided in subparagraph (B), the term ‘employee’ does not include a self-employed individual described in section 401(c)(1). “(B) Special rule for certain lump sum distributions.— In the case of any lump sum distribution described in the second sentence of paragraph (2)(B), the term ‘employee’ includes a self-employed individual described in section 401(c)(1).” SEC. 240. SPECIAL RULES FOR TOP-HEAVY PLANS. (a) General Rule.— Subpart B of part I of subchapter D of chapter 1 (relating to special rules) is amended by adding at the end thereof the following new section: “SEC. 416. SPECIAL RULES FOR TOP-HEAVY PLANS. “(a) General Rule.— A trust shall not constitute a qualified trust under section 401(a) for any plan year if the plan of which it is a part is a top-heavy plan for such plan year unless such plan meets— “(1) the vesting requirements of subsection (b), “(2) the minimum benefit requirements of subsection (c), and “(3) the limitation on compensation requirement of subsection (d). “(b) Vesting Requirements.— “(1) In general.— A plan satisfies the requirements of this subsection if it satisfies the requirements of either of the following subparagraphs: “(A) 3-year vesting.— A plan satisfies the requirements of this subparagraph if an employee who has completed at least 3 years of service with the employer or employers maintaining the plan has a nonforfeitable right to 100 percent of his accrued benefit derived from employer contributions. “(B) 6-year graded vesting.— A plan Satisfies the requirements of this subparagraph if an employee has a nonforfeitable right to a percentage of his accrued benefit derived from employer contributions determined under the following table: “Years of service The nonforfeitable percentage is: 2 20 3 40 4 60 5 80 6 or more 100 “(2) Certain rules made applicable.— Except to the extent inconsistent with the provisions of this subsection, the rules of section 411 shall apply for purposes of this subsection. “(c) Plan Must Provide Minimum Benefits.— “(1) Defined benefit plans.— “(A) In general.— A defined benefit plan meets the requirements of this subsection if the accrued benefit derived from employer contributions of each participant who is a non-key employee, when expressed as an annual retirement benefit, is not less than the applicable percentage of the participant’s average compensation for years in the testing period. “(B) Applicable percentage.— For purposes of subparagraph (A), the term ‘applicable percentage’ means the lesser of— “(i) 2 percent multiplied by the number of years of service with the employer, or “(ii) 20 percent. “(C) Years of service.— For purposes of this paragraph— “(i) In general.— Except as provided in clause (ii), years of service shall be determined under the rules of paragraphs (4), (5), and (6) of section 411(a). 26 USC 411. “(ii) Exception for years during which plan was not top-heavy.— A year of service with the employer shall not be taken into account under this paragraph if— “(I) the plan was not a top-heavy plan for any plan year ending during such year of service, or “(II) such year of service was completed in a plan year beginning before January 1, 1984. “(D) Average compensation for high 5 years.— For purposes of this paragraph— “(i) In general.— A participant’s testing period shall be the period of consecutive years (not exceeding 5) during which the participant had the greatest aggregate compensation from the employer. “(ii) Year must be included in year of service.— The years taken into account under clause (i) shall be properly adjusted for years not included in a year of service. “(iii) Certain years not taken into account.— Except to the extent provided in the plan, a year shall not be taken into account under clause (i) if— “(I) such year ends in a plan year beginning before January 1, 1984, or “(II) such year begins after the close of the last year in which the plan was a top-heavy plan. “(E) Annual retirement benefit.— For purposes of this paragraph, the term ‘annual retirement benefit’ means a benefit payable annually in the form of a single life annuity (with no ancillary benefits) beginning at the normal retirement age under the plan. “(2) Defined contribution plans.— “(A) In general.— A defined contribution plan meets the requirements of the subsection if the employer contribution for the year for each participant who is a non-key employee is not less than 3 percent of such participant’s compensation (within the meaning of section 415). “(B) Special rule where maximum contribution less than 3 percent.— “(i) In general.— The percentage referred to in subparagraph (A) for any year shall not exceed the percentage at which contributions are made (or required to be made) under the plan for the year for the key employee for whom such percentage is the highest for the year. “(ii) Determination of percentage.— The determination referred to in clause (i) shall be determined for each key employee by dividing the contributions for such employee by so much of his total compensation for the year as does not exceed $200,000. “(iii) Treatment of aggregation groups.— “(I) For purposes of this subparagraph, all defined contribution plans required to be included in an aggregation group under subsection (g)(2)(A)(i) shall be treated as one plan. “(II) This subparagraph shall not apply to any plan required to be included in an aggregation group if such plan enables a defined benefit plan required to be included in such group to meet the requirements of section 401(a)(4) or 410. 26 USC 401, 410. “(C) Certain amounts not taken into account.— For purposes of this paragraph, any employer contribution attributable to a salary reduction or similar arrangement shall not be taken into account. “(d) Not More Than $200,000 in Annual Compensation Taken Into Account.— “(1) In general.— A plan meets the requirements of this subsection if the annual compensation of each employee taken into account under the plan does not exceed the first $200,000. “(2) Cost-of-living adjustments.— The Secretary shall annually adjust the $200,000 amount contained in paragraph (1) of this subsection and in clause (ii) of subsection (c)(2)(B) in the same manner as he adjusts the dollar amount contained in section 415(c)(1)(A). “(e) Plan Must Meet Requirements Without Taking Into Account Social Security and Similar Contributions and Benefits.— A top-heavy plan shall not be treated as meeting the requirement of subsection (b) or (c) unless such plan meets such requirement without taking into account contributions or benefits under chapter 2 (relating to tax on self-employment income), chapter 26 USC 1401 et seq. 26 USC 3101 et. seq. 21 (relating to Federal Insurance Contributions Act), title II of Social Security Act, or any other Federal or State law. “(f) Coordination Where Employer Has 2 or More Plans.— The Secretary shall prescribe such regulations as may be necessary or 42 USC 401. appropriate to carry out the purposes of this section where the employer has 2 or more plans including (but not limited to) regulations to prevent inappropriate omissions or require duplication of minimum benefits or contributions. “(g) Top-Heavy Plan Defined.— For purposes of this section— “(1) In general.— “(A) Plans not required to be aggregated.— Except as provided in subparagraph (B), the term ‘top-heavy plan’ means, with respect to any plan year— “(i) any defined benefit plan if, as of the determination date, the present value of the cumulative accrued benefits under the plan for key employees exceeds 60 percent of the present value of the cumulative accrued benefits under the plan for all employees, and “(ii) any defined contribution plan if, as of the determination date, the aggregate of the accounts of key employees under the plan exceeds 60 percent of the aggregate of the accounts of all employees under such plan. “(B) Aggregated plans.— Each plan of an employer required to be included in an aggregation group shall be treated as a top-heavy plan if such group is a top-heavy group. “(2) Aggregation.— For purposes of this subsection— “(A) Aggregation group.— “(i) Required aggregation.— The term ‘aggregation group’ means— “(I) each plan of the employer in which a key employee is a participant, and “(II) each other plan of the employer which enables any plan described in subclause (I) to meet the requirements of section 401(a)(4) or 410. 26 USC 401, 410. “(ii) Permissive aggregation.— The employer may treat any plan not required to be included in an aggregation group under clause (i) as being part of such group if such group would continue to meet the requirements of sections 401(a)(4) and 410 with such plan being taken into account. “(B) Top-heavy group.— The term ‘top-heavy group’ means any aggregation group if— “(i) the sum (as of the determination date) of— “(I) the present value of the cumulative accrued benefits for key employees under all defined benefit plans included in such group, and “(II) the aggregate of the accounts of key employees under all defined contribution plans included in such group, “(ii) exceeds 60 percent of a similar sum determined for all employees. “(3) Distributions during last 5 years taken into account.— For purposes of determining— “(A) the present value of the cumulative accrued benefit for any employee, or “(B) the amount of the account of any employee, such present value or amount shall be increased by the aggregate distributions made with respect to such employee under the plan during the 5-year period ending on the determination date. “(4) Other special rules.— For purposes of this subsection— “(A) Rollover contributions to plan not taken into account.— Except to the extent provided in regulations, any rollover contribution (or similar transfer) initiated by the employee and made after December 31, 1983, to a plan shall not be taken into account with respect to the transferee plan for purposes of determining whether such plan is a top-heavy plan (or whether any aggregation group which includes such plan is a top-heavy group). “(B) Benefits not taken into account if employee ceases to be key employee.— If any individual is a non-key employee with respect to any plan for any plan year, but such individual was a key employee with respect to such plan for any prior plan year, any accrued benefit for such employee (and the account of such employee) shall not be taken into account. “(C) Determination date.— The term ‘determination date’ means, with respect to any plan year— “(i) the last day of the preceding plan year, or “(ii) in the case of the first plan year of any plan, the last day of such plan year. “(D) Years.— To the extent provided in regulations, this section shall be applied on the basis of any year specified in such regulations in lieu of plan years. “(h) Adjustments in Section 415 Limits for Top-Heavy Plans.— “(1) In general.— In the case of any top-heavy plan, paragraphs (2)(B) and (3)(B) of section 415(e) shall be applied by Ante, p. 506. substituting ‘1.0’ for ‘1.25’. “(2) Exception where benefits for key employees do not exceed 90 percent of total benefits and additional contributions are made for non-key employees.— Paragraph (1) shall not apply with respect to any top-heavy plan if the requirements of subparagraphs (A) and (B) of this paragraph are met with respect to such plan. “(A) Minimum benefit requirements.— “(i) In general.— The requirements of this subparagraph are met with respect to any top-heavy plan if such plan (and any plan required to be included in an aggregation group with such plan) meets the requirements of subsection (c) as modified by clause (ii). “(ii) Modifications.— For purposes of clause (i)— “(I) paragraph (1)(B) of subsection (c) shall be applied by substituting ‘3 percent’ for ‘2 percent’, and by increasing (but not by more than 10 percentage points) 20 percent by 1 percentage point for each year for which such plan was taken into account under this subsection, and “(II) paragraph (2)(A) shall be applied by substituting ‘4 percent’ for ‘3 percent’. “(B) Benefits for key employees cannot exceed 90 percent of total benefits.— A plan meets the requirements of this subparagraph if such plan would not be a top heavy plan if ‘90 percent’ were substituted for ‘60 percent’ each place it appears in paragraphs (1)(A) and (2)(B) of subsection (g). “(3) Transition rule.— If, but for this paragraph, paragraph (1) would begin to apply with respect to any top-heavy plan, the application of paragraph (1) shall be suspended with respect to any individual so long as there are no— “(A) employer contributions, forfeitures, or voluntary nondeductible contributions allocated to such individual, or “(B) accruals for such individual under the defined benefit plan. “(4) Coordination with transitional rule under section 415.— In the case of any top-heavy plan to which paragraph (1) applies, section 415(e)(6)(B)(i) shall be applied by substituting ‘$41,500’ for ‘$51,875’. “(i) Definitions.— For purposes of this section— “(1) Key employee.— “(A) In general.— The term ‘key employee’ means any participant in an employer plan who, at any time during the plan year or any of the 4 preceding plan years, is— “(i) an officer of the employer, “(ii) 1 of the 10 employees owning (or considered as owning within the meaning of section 318) the largest 26 USC 318. interests in the employer, “(iii) a 5-percent owner of the employer, or “(iv) a 1-percent owner of the employer having an annual compensation from the employer of more than $150,000. For purposes of clause (i), no more than 50 employees (or, if lesser, the greater of 3 or 10 percent of the employees) shall be treated as officers. “(B) Percentage owners.— “(i) 5-percent owner.— For purposes of this paragraph, the term ‘5-percent owner’ means— “(I) if the employer is a corporation, any person who owns (or is considered as owning within the meaning of section 318) more than 5 percent of the outstanding stock of the corporation or stock possessing more than 5 percent of the total combined voting power of all stock of the corporation, or “(II) if the employer is not a corporation, any person who owns more than 5 percent of the capital or profits interest in the employer. “(ii) 1-percent owner.— For purposes of this paragraph, the term ‘1-percent owner’ means any person who would be described in clause (i) if ‘1 percent’ were substituted for ‘5 percent’ each place it appears in clause (i). “(iii) Constructive ownership rules.— For purposes of this subparagraph and subparagraph (A)(ii)((II)— “(I) subparagraph (C) of section 318(a)(2) shall be applied by substituting ‘5 percent’ for ‘50 percent’, and “(II) in the case of any employer which is not a corporation, ownership in such employer shall be determined in accordance with regulations prescribed by the Secretary which shall be based on principles similar to the principles of section 318 (as modified by subclause (I)). “(C) Aggregation rules do not apply for purposes of determining 5-percent or 1-percent owners.— The rules of subsections (b), (c), and (m) of section 414 shall not apply for purposes of determining ownership in the employer. “(2) Non-key employee.— The term ‘non-key employee’ means any employee who is not a key employee. “(3) Self-employed individuals.— In the case of a self-employed individual described in section 401(c)(1)— “(A) such individual shall be treated as an employee, and “(B) such individual’s earned income (within the meaning of section 401(c)(2)) shall be treated as compensation. “(4) Treatment of employees covered by collective bargaining agreements.— The requirements of subsections (b), (c), and (d) shall not apply with respect to any employee included in a unit of employees covered by an agreement which the Secre-tary of Labor finds to be a collective bargaining agreement between employee representatives and 1 or more employers if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representatives and such employer or employers. “(5) Treatment of beneficiaries.— The terms ‘employee’ and ‘key employee’ include their beneficiaries. “(6) Treatment of simplified employee pensions.— “(A) Treatment as defined contribution plans.— A simplified employee pension shall be treated as a defined contribution plan. “(B) Election to have determinations based on employer contributions.— In the case of a simplified employee pension, at the election of the employer, paragraphs (1)(A)(ii) and (2)(B) of subsection (g) shall be applied by taking into account aggregate employer contributions in lieu of the aggregate of the accounts of employees.” (b) Qualification Requirements.— Paragraph (10) of section 401(a) (relating to other requirements) is amended by adding at the Ante, p. 512. end thereof the following new subparagraph: “(B) Top-heavy plans.— “(i) In general.— In the case of any top-heavy plan, a trust forming part of such plan shall constitute a qualified trust under this section only if the requirements of section 416 are met. “(ii) Plans which may become top-heavy.— Except to the extent provided in regulations, a trust forming part of a plan (whether or not a top-heavy plan) shall constitute a qualified trust under this section only if such plan contains provisions— “(I) which will take effect if such plan becomes a top-heavy plan, and “(II) which meet the requirements of section 416.” (c) Technical Amendments.— (1) Subsections (b) and (c) of section 414 (relating to employees 26 USC 414. of controlled groups) are each amended by striking out “and 415” and inserting in lieu thereof “415, and 416”. (2) Paragraph (4) of section 414(m) (relating to employees of an affiliated service group) is amended by striking out “and 415” in subparagraph (B), and inserting in lieu there of “415, and 416”. (d) Clerical Amendment.— The table of sections for subpart B of part I of subchapter D of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 416. Special rules for top-heavy plans.” SEC. 241. EFFECTIVE DATES. (a) General rule.— Except as provided in subsection (b), the amendments made by this part shall apply to years beginning after December 31, 1983. (b) Allowance of exclusion of death benefit for self-employed individuals.— The amendment made by section 239 shall apply with respect to decedents dying after December 31, 1983. PART III— OTHER REQUIREMENTS SEC. 242. REQUIRED DISTRIBUTIONS FOR QUALIFIED PLANS. (a) General Rule.— Paragraph (9) of section 401(a) (relating to 26 USC 401. requirements for qualification) is amended to read as follows: “(9) Required distributions.— “(A) Before death.— A trust forming part of a plan shall not constitute a qualified trust under this section unless the plan provides that the entire interest of each employee— “(i) either will be distributed to him not later than his taxable year in which he attains age 70½ or, in the case of an employee other than a key employee who is a participant in a top-heavy plan, in which he retires, whichever is the later, or “(ii) will be distributed, commencing not later than such taxable year— “(I) in accordance with regulations prescribed by the Secretary, over the life of such employee or over the lives of such employee and his spouse, or “(II) in accordance with such regulations, over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and his spouse. “(B) After death.— A trust forming part of a plan shall not constitute a qualified trust under this section unless the plan provides that if— “(i) an employee dies before his entire interest has been distributed to him, or “(ii) distribution has been commenced in accordance with subparagraph (A)(ii) to his surviving spouse and such surviving spouse dies before his entire interest has been distributed to such surviving spouse, his entire interest (or the remaining part of such interest if distribution thereof has commenced) will be distributed within 5 years after his death (or the death of his surviving spouse). The preceding sentence shall not apply if the distribution of the interest of the employee has commenced and such distribution is for a term certain over a period permitted under subparagraph (A)(ii)(II).” (b) Effective Date.— (1) In general.— The amendment made by subsection (a) shall apply to plan years beginning after December 31, 1983. (2) Transition rule.— A trust forming part of a plan shall not be disqualified under paragraph (9) of section 401(a) of the Internal Revenue Code of 1954, as amended by subsection (a), by reason of distributions under a designation (before January 1, 1984) by any employee of a method of distribution— (A) which does not meet the requirements of such paragraph (9), but (B) which would not have disqualified such trust under paragraph (9) of section 401(a) of such Code as in effect before the amendment made by subsection (a). SEC. 243. REQUIRED DISTRIBUTIONS IN CASE OF INDIVIDUAL RETIREMENT PLANS. (a) Required Distributions After Death.— (1) Individual retirement accounts.— Paragraph (7) of section 408(a) (defining individual retirement account) is amended 26 USC 408. to read as follows: “(7) If— “(A) an individual for whose benefit the trust is maintained dies before his entire interest has been distributed to him, or “(B) distribution has been commenced as provided in paragraph (6) to his surviving spouse and such surviving spouse dies before the entire interest has been distributed to such spouse, the entire interest (or the remaining part of such interest if distribution thereof has commenced) will be distributed within 5 years after his death (or the death of the surviving spouse). The preceding sentence shall not apply if distributions over a term certain commenced before the death of the individual for whose benefit the trust was maintained and the term certain is for a period permitted under paragraph (6).” (2) Individual retirement annuities.— Paragraph (4) of section 408(b) (defining individual retirement annuity) is amended to read as follows: “(4) If— “(A) the owner dies before his entire interest has been distributed to him, or “(B) distribution has been commenced as provided in paragraph (3) to his surviving spouse and such surviving spouse dies before the entire interest has been distributed to such spouse, the entire interest (or the remaining part of such interest if distribution thereof has commenced) will be distributed within 5 years after his death (or the death of his surviving spouse). The preceding sentence shall not apply if distributions over a term certain commenced before the death of the owner and the term certain is for a period permitted under paragraph (3).” (b) Treatment of Inherited Individual Retirement Plans.— (1) Denial of rollover treatment.— (A) Paragraph (3) of section 408(d) (defining rollover contributions) is amended by adding at the end thereof the following new subparagraph: “(C) Denial of rollover treatment for inherited accounts, etc.— “(i) In general.— In the case of an inherited individual retirement account or individual retirement annuity— “(I) this paragraph shall not apply to any amount received by an individual from such an account or annuity (and no amount transferred from such account or annuity to another individual retirement account or annuity shall be excluded from gross income by reason of such transfer), and “(II) such inherited account or annuity shall not be treated as an individual retirement account or annuity for purposes of determining whether any other amount is a rollover contribution. “(ii) Inherited individual retirement account or annuity.— An individual retirement account or indi-vidual retirement annuity shall be treated as inherited if— “(I) the individual for whose benefit the account or annuity is maintained acquired such account by reason of the death of another individual, and “(II) such individual was not the surviving spouse of such other individual.” (B) Subparagraph (C) of section 409(b)(3) (relating to roll-over 26 USC 409. into an individual retirement account or annuity or a qualified plan) is amended by adding at the end thereof the following new sentence: “This subparagraph shall not apply to any retirement bond if such bond is acquired by the owner by reason of the death of another individual and the owner was not the surviving spouse of such other individual.” (2) Denial of deduction for contributions to inherited individual retirement accounts or annuities.— Subsection (d) of section 219 (relating to other limitations and restrictions) 95 Stat. 274. is amended by adding at the end thereof the following new paragraph: “(4) Denial of deduction for amount contributed to inherited annuities or accounts.— No deduction shall be allowed under this section with respect to any amount paid to an inherited individual retirement account or individual retirement annuity (within the meaning of section 408(d)(3)(C)(ii)).” (c) Effective Dates.— (1) Subsection (a).— The amendments made by subsection (a) shall apply in the case of individuals dying after December 31, 1983. (2) Subsection (b).— The amendments made by subsection (b) shall apply to taxable years beginning after December 31, 1983. SEC. 244. LIMITATION ON EXCLUSION FOR GROUP-TERM LIFE INSURANCE PURCHASED FOR EMPLOYEES. (a) General Rule.— Section 79 (relating to group-term life insurance 26 USC 79. purchased for employees) is amended by adding at the end thereof the following new subsection: “(d) Nondiscrimination Requirements.— “(1) In general.— In the case of a discriminatory group-term life insurance plan, paragraph (1) of subsection (a) shall not apply with respect to any key employee. “(2) Discriminatory group-term life insurance plan.— For purposes of this subsection, the term ‘discriminatory group-term life insurance plan’ means any plan of an employer for providing group-term life insurance unless— “(A) the plan does not discriminate in favor of key employees as to eligibility to participate, and “(B) the type and amount of benefits available under the plan do not discriminate in favor of participants who are key employees. “(3) Nondiscriminatory eligibility classification.— “(A) In general.— A plan does not meet requirements of subparagraph (A) of paragraph (2) unless— “(i) such plan benefits 70 percent or more of all employees of the employer, “(ii) at least 85 percent of all employees who are participants under the plan are not key employees, “(iii) such plan benefits such employees as qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of key employees, or “(iv) in the case of a plan which is part of a cafeteria plan, the requirements of section 125 are met. “(B) Exclusion of certain employees.— For purposes of subparagraph (A), there may be excluded from consideration— “(i) employees who have not completed 3 years of service; “(ii) part-time or seasonal employees; “(iii) employees not included in the plan who are included in a unit of employees covered by an agreement between employee representatives and one or more employers which the Secretary finds to be a collective bargaining agreement, if the benefits provided under the plan were the subject of good faith bargaining between such employee representatives and such employer or employers; and “(iv) employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)). “(4) Nondiscriminatory benefits.— A plan does not meet the requirements of paragraph (2)(B) unless all benefits available to participants who are key employees are available to all other participants. “(5) Special rule.— A plan shall not fail to meet the requirements of paragraph (2)(B) merely because the amount of life insurance on behalf of the employees under the plan bears a uniform relationship to the total compensation or the basic or regular rate of compensation of such employees. “(6) Key employee defined.— For purposes of this subsection, the term ‘key employee’ has the meaning given to such term by paragraph (1) of section 416(i), except that Ante, p. 514. subparagraph (A)(iv) of such paragraph shall be applied by not taking into account employees described in paragraph (3)(B) who are not participants in the plan. “(7) Certain controlled groups, etc.— All employees who are treated as employed by a single employer under subsection (b), (c), or (m) of section 414 shall be treated as employed by a single employer for purposes of this section.” (b) Effective Date.— The amendment made by subsection (a) 26 USC 79 note. shall apply to taxable years beginning after December 31, 1983. SEC. 245. LIMITATION ON ESTATE TAX EXCLUSIONS UNDER SECTION 2039. (a) General Rule.— Section 2039 (relating to annuities) is 26 USC 2039. amended by adding at the end thereof the following new subsection: “(g) $100,000 LIMITATION ON EXCLUSIONS UNDER SUBSECTIONS (C) AND (e).—The aggregate amount excluded from the gross estate of any decedent under subsections (c) and (e) of this section shall not exceed $100,000.” (b) Technical Amendments.— Subsections (c) and (e) of section 2039 are each amended by striking out “Notwithstanding the provi-sions of this section” and inserting in lieu thereof “Subject to the limitation of subsection (g), notwithstanding any other provision of this section”. (c) Effective Date.— The amendments made by this section shall 26 USC 2039 note. apply to the estates of decedents dying after December 31, 1982. SEC. 246. ORGANIZATIONS PERFORMING MANAGEMENT FUNCTIONS. (a) General Rule.— Subsection (m) of section 414 (relating to 26 USC 414. employees of an affiliated service group) is amended by redesignating paragraphs (5) and (6) as paragraphs (6) and (7), respectively, and by inserting after paragraph (4) the following new paragraph: “(5) Certain organizations performing management functions.— For purposes of this subsection, the term ‘affiliated service group’ also includes a group consisting of— “(A) an organization the principal business of which is performing, on a regular and continuing basis, management functions for 1 organization (or for 1 organization and other organizations related to such 1 organization), and “(B) the organization (and related organizations) for which such functions are so performed by the organization described in subparagraph (A). For purposes of this paragraph, the term ‘related organizations’ has the same meaning as the term ‘related persons’ when used in section 103(b)(6)(C).” (b) Effective Date.— The amendments made by subsection (a) 26 USC 414 note. shall apply to taxable years beginning after December 31, 1983. SEC. 247. EXISTING PERSONAL SERVICE CORPORATIONS MAY LIQUIDATE UNDER SECTION 333 DURING 1983 OR 1984. (a) In General.— In the case of a complete liquidation of a personal 26 USC 333 note. service corporation (within the meaning of section 535(c)(2)(B) of the Internal Revenue Code of 1954) during 1983 or 1984, the following rules shall apply with respect to any shareholder other than a corporation: (1) The determination of whether section 333 of such Code applies shall be made without regard to whether the corporation is a collapsible corporation to which section 341(a) of such Code applies. (2) No gain or loss shall be recognized by the liquidating corporation on the distribution of any unrealized receivable in such liquidation. (3) (A) Except as provided in subparagraph (C), any disposition by a shareholder of any unrealized receivable received in the liquidation shall be treated as a sale at fair market value of such receivable and any gain or loss shall be treated as ordinary gain or loss. (B) For purposes of subparagraph (A), the term “disposition” includes— (i) failing to hold the property in the trade or business which generated the receivables, and (ii) failing to hold a continuing interest in such trade or business. (C) For purposes of subparagraph (A), the term “disposition” does not include transmission at death to the estate of the decedent or transfer to a person pursuant to the right of such person to receive such property by reason of the death of the decedent or by bequest, devise, or inheritance from the decedent. (4) Unrealized receivables distributed in the liquidation shall be treated as having a zero basis. (5) For purposes of computing earnings and profits, the liquidating corporation shall not treat unrealized receivables distributed in the liquidation as an item of income. (b) Unrealized Receivables Defined.— For purposes of this section, the term “unrealized receivables” has the meaning given such term by the first sentence of section 751(c) of such Code. SEC. 248. EMPLOYEE LEASING. (a) General Rule.— Section 414 (relating to definitions and special 26 USC 414. rules) is amended by adding at the end thereof the following new subsection: “(n) Employee Leasing.— “(1) In general.— For purposes of the pension requirements listed in paragraph (3), except to the extent otherwise provided in regulations, with respect to any person (hereinafter in this subsection referred to as the ‘recipient’) for whom a leased employee performs services— “(A) the leased employee shall be treated as an employee of the recipient, but “(B) contributions or benefits provided by the leasing organization which are attributable to services performed for the recipient shall be treated as provided by the recipient. “(2) Leased employee.— For purposes of paragraph (1), the term ‘leased employee’ means any person who provides services to the recipient if— “(A) such services are provided pursuant to an agreement between the recipient and any other person (in this subsection referred to as the ‘leasing organization’), “(B) such person has performed such services for the recipient (or for the recipient and related persons) on a substantially full-time basis for a period of at least 1 year, and “(C) such services are of a type historically performed, in the business field of the recipient, by employees. “(3) Pension requirements.— For purposes of this subsection, the pension requirements listed in this paragraph are— “(A) paragraphs (3), (4), (7), and (16) of section 401(a), and “(B) sections 408(k), 410, 411, 415, and 416. Ante, p. 514. “(4) Time when leased employee is first considered as employee.— In the case of any leased employee, paragraph (1) shall apply only for purposes of determining whether the pension requirements listed in paragraph (3) are met for periods after the close of the 1-year period referred to in paragraph (2); except that years of service for the recipient shall be determined by taking into account the entire period for which the leased employee performed services for the recipient (or related persons). “(5) Safe harbor.— This subsection shall not apply to any leased employee if such employee is covered by a plan which is maintained by the leasing organization if, with respect to such employee, such plan— “(A) is a money purchase pension plan with a nonintegrated employer contribution rate of at least 7½ percent, and “(B) provides for immediate participation and for full and immediate vesting. “(6) Related persons.— For purposes of this subsection, the term ‘related persons’ has the same meaning as when used in section 103(b)(6)(C).” (b) Effective Date.— The amendment made by subsection (a) 26 USC 414 note. shall apply to taxable years beginning after December 31, 1983. SEC. 249. NONDISCRIMINATORY COORDINATION OF DEFINED CONTRIBUTION PLANS WITH OASDI. (a) In General.— Section 401 (relating to qualified pension, profit-sharing, 26 USC 401. stock bonus plans, etc.) is amended by redesignating subsection (1) as subsection (o), and by inserting after subsection (k) the following new subsection: “(l) NONDISCRIMINATORY COORDINATION OF DEFINED CONTRIBUTION PLANS WITH OASDI.— “(1) In general.— Notwithstanding subsection (a)(5), the coordination of a defined contribution plan with OASDI meets the requirements of subsection (a)(4) only if the total contributions with respect to each participant , when increased by the OASDI contributions, bear a uniform relationship— “(A) to the total compensation of such employee, or “(B) to the basic or regular rate of compensation of such employee. “(2) Definitions.— For purposes of paragraph (1)— “(A) OASDI contributions.— The term ‘OASDI contributions’ means the product of— “(i) so much of the remuneration paid by the employer to the employee during the plan year as— “(I) constitutes wages (within the meaning of section 3121(a) without regard to paragraph (1) thereof), and “(II) does not exceed the contribution and benefit base applicable under OASDI at the beginning of the plan year, multiplied by “(ii) the rate of tax applicable under section 3111(a) (relating to employer’s OASDI tax) at the beginning of the plan year. In the case of an individual who is an employee within the meaning of subsection (c)(1), the preceding sentence shall be applied by taking into account his earned income (as defined in subsection (c)(2)). “(B) OASDI.— The term ‘OASDI’ means the system of old-age, survivors, and disability insurance established under title II of the Social Security Act and the Federal Insurance Contributions Act. “(C) Remuneration.— The term ‘remuneration’ means— “(i) total compensation, or “(ii) basic or regular rate of compensation, whichever is used in determining contributions or benefits under the plan. “(3) Determination of compensation, etc., of self-employed individuals.— For purposes of this subsection, in the case of an individual who is an employee within the meaning of subsection (c)(1)— “(A) his total compensation shall include his earned income (as defined in subsection (c)(2)), and “(B) his basic or regular rate of compensation shall be determined (under regulations prescribed by the Secretary) with respect to that portion of his earned income which bears the same ratio to his earned income as the basic or regular compensation of the employees under the plan (other than employees within the meaning of subsection (c)(1)) bears to the total compensation of such employees.” (b) Effective Date.— The amendments made by this section shall 26 USC 401 note. apply to plan years beginning after December 31, 1983. SEC. 250. AUTHORITY OF SECRETARY TO ALLOCATE INCOME AND DEDUCTIONS IN THE CASE OF CERTAIN CORPORATIONS. (a) In general.— Part IX of subchapter B of chapter 1 (relating to items not deductible) is amended by adding after section 269 the following new section: “SEC. 269A. PERSONAL SERVICE CORPORATIONS FORMED OR AVAILED OF TO AVOID OR EVADE INCOME TAX. “(a) General Rule.— If— “(1) substantially all of the services of a personal service corporation are performed for (or on behalf of) 1 other corporation, partnership, or other entity, and “(2) the principal purpose for forming, or availing of, such personal service corporation is the avoidance or evasion of Federal income tax by reducing the income of, or securing the benefit of any expense, deduction, credit, exclusion, or other allowance for, any employee-owner which would not otherwise be available, then the Secretary may allocate all income, deductions, credits, exclusions, and other allowances between such personal service corporation and its employee-owners, if such allocation is necessary to prevent avoidance or evasion of Federal income tax or clearly to reflect the income of the personal service corporation or any of its employee-owners. “(b) Definitions.— For purposes of this section— “(1) Personal service corporation.— The term ‘personal service corporation’ means a corporation the principal activity of which is the performance of personal services and such services are substantially performed by employee-owners. “(2) Employee-owner.— The term ‘employee-owner’ means any employee who owns, on any day during the taxable year, more than 10 percent of the outstanding stock of the personal service corporation. For purposes of the preceding sentence, section 318 shall apply, except that ‘5 percent’ shall be substituted for ‘50 percent’ in section 318(a)(2)(C). “(3) Related persons.— All related persons (within the meaning of section 103(b)(6)(C)) shall be treated as 1 entity.” (b) Clerical Amendment.— The table of sections for part IX of subchapter 1 is amended by inserting after the item relating to section 269 the following new item: “Sec. 269A. Personal service corporations formed or availed of to avoid or evade income tax.” (c) Effective Date.— The amendments made by this section shall 26 USC 269A note. apply to taxable years beginning after December 31, 1982. PART IV— MISCELLANEOUS SEC. 251. CHURCH PLANS. (a) Exclusion Allowance.— (1) Election to have section 415 rules apply.— Subparagraph (B) of section 403(b)(2) (relating to exclusion allowance) is 26 USC 403. amended by striking out “(under section 415)” and inserting in lieu thereof “(under section 415 without regard to section 415(c)(8))”. (2) Years of service.— Section 403(b)(2) is amended by adding at the end thereof the following new subparagraphs: “(C) Number of years of service for duly ordained, commissioned, or licensed ministers or lay employees.— For purposes of this subsection and section 415(c)(4)(A)— “(i) all years of service by— “(I) a duly ordained, commissioned, or licensed minister of a church, or “(II) a lay person, as an employee of a church, a convention or association of churches, including an organization described in section 414(e)(3)(B)(ii), shall be considered as years of service for 1 employer, and “(ii) all amounts contributed for annuity contracts by each such church (or convention or association of churches) or such organization during such years for such minister or lay person shall be considered to have been contributed by 1 employer. For purposes of the preceding sentence, the terms ‘church’ and ‘convention or association of churches’ have the same meaning as when used in section 414(e). “(D) Alternative exclusion allowance.— “(i) In general.— In the case of any individual described in subparagraph (C), the amount determined under subparagraph (A) shall not be less than the lesser of— “(I) $3,000, or “(II) the includible compensation of such individual, “(ii) Subparagraph not to apply to individuals with adjusted gross income over $17,000.— This Subparagraph shall not apply with respect to any taxable year to any individual whose adjusted gross income for such taxable year (determined separately and without regard to any community property laws) exceeds $17,000. “(iii) Special rule for foreign missionaries.— In the case of an individual described in subparagraph (C)(i) performing services outside the United States, there shall be included as includible compensation for any year under clause (i)(II) any amount contributed during such year by a church (or convention or association of churches) for an annuity contract with respect to such individual.” (b) Retirement Income Accounts Provided by Churches, Etc.— Section 403(b) is amended by adding at the end thereof the following 26 USC 403. new paragraph: “(9) Retirement income accounts provided by churches, etc.— “(A) Amounts paid treated as contributions.— For purposes of this title— “(i) a retirement income account shall be treated as an annuity contract described in this subsection, and “(ii) amounts paid by an employer described in paragraph (1)(A) to a retirement income account shall be treated as amounts contributed by the employer for an annuity contract for the employee on whose behalf such account is maintained. “(B) Retirement income account.— For purposes of this paragraph, the term ‘retirement income account’ means a defined contribution program established or maintained by a church, a convention or association of churches, including an organization described in section 414(e)(3)(A), to provide benefits under section 403(b) for an employee described in paragraph (1) or his beneficiaries.” (c) Contribution Limitations.— (1) Application of section 415 (c)(4) to church plans.— Paragraph (4) of section 415(c) (relating to special election for 26 USC 415. section 403(b) contracts) is amended— (A) by striking out “or a home health service agency” each place it appears and inserting in lieu thereof “a home health service agency, or a church, convention or association of churches, or an organization described in section 414(e)(3)(B)(ii)”, (B) by inserting “(as determined for purposes of section 403(b)(2))” after “service for the employer” in subparagraph (A), (C) by adding at the end of subparagraph (D) the following new clause: “(iv) For purposes of this paragraph, the terms ‘church’ and ‘convention or association of churches’ have the same meaning as when used in section 414(e).”, and (D) by striking out “and home health service agencies” in the heading and inserting in lieu thereof “, home health service agencies, and certain churches, etc.” . (2) Total annual additions.— Section 415(c) (relating to limitation on defined contribution plan) is amended by adding at the end thereof the following paragraph: “(8) Certain contributions by church plans not treated as exceeding limits.— “(A) Alternative exclusion allowance.— Any contribution or addition with respect to any participant, when expressed as an annual addition, which is allocable to the application of section 403(b)(2)(D) to such participant for Ante, p. 529. such year, shall be treated as not exceeding the limitations of paragraph (1). “(B) Contributions not in excess of $40,000 ($10,000 per year).— “(i) In general.— Notwithstanding any other provision of this subsection, at the election of a participant who is an employee of a church, a convention or association of churches, including an organization described in section 414(e)(3)(B)(ii), contributions and other additions for an annuity contract or retirement income account described in section 403(b) with respect to such participant, when expressed as an annual addition to such participant’s account, shall be treated as not exceeding the limitation of paragraph (1) if such annual addition is not in excess of $10,000. “(ii) $40,000 aggregate limitation.— The total amount of additions with respect to any participant which may be taken into account for purposes of this subparagraph for all years may not exceed $40,000. “(iii) No election if paragraph (4) (a) election made.— No election may be made under this subparagraph for any year if an election is made under paragraph (4)(A) for such year. “(C) Annual addition.— For purposes of this paragraph, the term ‘annual addition’ has the meaning given such term by paragraph (2).” (3) Conforming amendment.— Section 403(b)(2)(B) (relating to 26 USC 403. exclusion allowance) is amended by striking out “and home health service agencies” and inserting in lieu thereof “home health service agencies, and certain churches, etc.” (d) Correction period for church plans.— A church plan 26 USC 403 note. (within the meaning of section 414(e) of the Internal Revenue Code of 1954) shall not be treated as not meeting the requirements of section 401 or 403 of such Code if— (1) by reason of any change in any law, regulation, ruling, or otherwise such plan is required to be amended to meet such requirements, and (2) such plan is so amended at the next earliest church convention or such other time as the Secretary of the Treasury or his delegate may prescribe. (e) Effective Dates.— (1) In general.— Except as provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 1981. (2) Retirement income accounts.— The amendments made by subsection (b) shall apply to taxable years beginning after December 31, 1974. (3) Section 415 amendments.— The amendments made by subsection (c) shall apply to years beginning after December 31, 1981. (4) Correction period.— The amendment made by subsection (d) shall take effect on July 1, 1982. (5) Special rule for existing defined benefit arrangements.— Any defined benefit arrangement which is established by a church or a convention or association of churches (including an organization described in section 414(e)(3)(B)(ii) of the Internal Revenue Code of 1954) and which is in effect on the date of the enactment of this Act shall not be treated as failing to meet the requirements of section 403(b)(2) of such Code merely because it is a defined benefit arrangement. SEC. 252. DEFERRED COMPENSATION PLANS FOR STATE JUDGES. Subsection (c) of section 131 of the Revenue Act of 1978 is 26 USC 457 note. amended by adding at the end thereof the following new paragraph: “(3) Deferred compensation plans for state judges.— “(A) In general.— The amendments made by this section shall not apply to any qualified State judicial plan. “(B) Qualified state judicial plan.— For purposes of subparagraph (A), the term ‘qualified State judicial plan’ means any retirement plan of a State for the exclusive benefit of judges or their beneficiaries if— “(i) such plan has been continuously in existence since December 31, 1978, “(ii) under such plan, all judges eligible to benefit under the plan— “(I) are required to participate, and “(II) are required to contribute the same fixed percentage of their basic or regular rate of compensation as judge, “(iii) under such plan, no judge has an option as to contributions or benefits the exercise of which would affect the amount of includible compensation, “(iv) the retirement payments of a judge under the plan are a percentage of the compensation of judges of that State holding similar positions, and “(v) the plan during any year does not pay benefits with respect to any participant which exceed the limitations of section 415(b) of the Internal Revenue Code of 1954.” SEC. 253. PROFIT-SHARING PLAN CONTRIBUTIONS ON BEHALF OF DISABLED. (a) In general.— Paragraph (3) of section 415(c) (defining participant’s 26 USC 415. compensation) is amended to read as follows: “(3) Participant’s compensation.— For purposes of paragraph (1)— “(A) In general.— The term ‘participant’s compensation’ means the compensation of the participant from the employer for the year. “(B) Special rule for self-employed individuals.— In the case of an employee within the meaning of section 401(c)(1), subparagraph (A) shall be applied by substituting ‘the participant’s earned income (within the meaning of section 401(c)(2) but determined without regard to any exclusion under section 911)’ for ‘compensation of the participant from the employer’. “(C) Special rules for permanent and total disability.— In the case of a participant— “(i) who is permanently and totally disabled (as defined in section 105(d)(4)), “(ii) who is not an officer, owner, or highly compensated, and “(iii) with respect to whom the employer elects, at such time and in such manner as the Secretary may prescribe, to have this subparagraph apply, the term ‘participant’s compensation’ means the compensation the participant would have received for the year if the participant was paid at the rate of compensation paid immediately before becoming permanently and totally disabled. This subparagraph shall only apply if contributions made with respect to such participant are nonforfeitable when made.” (b) Deductibility.— Subparagraph (B) of section 404(a)(3) (relating 26 USC 404. to limits on deductible contributions to stock bonus and profit-sharing trusts) is amended by adding at the end thereof the following: “The term ‘compensation otherwise paid or accrued during the taxable year to all employees’ shall include any amount with respect to which an election under section 415(c)(3)(C) is in effect, but only to the extent that any contribution with respect to such amount is nonforfeitable.” (c) Effective Date.— The amendments made by this section shall 26 USC 404 note. apply to taxable years beginning after December 31, 1981. SEC. 254. EXEMPTION FOR TRUSTS WHICH INCLUDE GOVERNMENTAL PLANS. (a) In general.— Section 401(a) (relating to requirements of qualification 26 USC 401. for qualified pension, profit-sharing, and stock bonus plans) is amended by inserting immediately after paragraph (23) the following new paragraph: “(24) Any group trust which otherwise meets the requirements of this section shall not be treated as not meeting such requirements on account of the participation or inclusion in such trust of the moneys of any plan or governmental unit described in section 805(d)(6).” (b) Effective Date.— The amendment made by subsection (a) 26 USC 401 note. shall apply with respect to taxable years beginning after December 31, 1981. Subtitle D— Taxation of Life Insurance Companies and Annuities PART I— COINSURANCE ARRANGEMENTS Subpart A— Modified Coinsurance Contracts SEC. 255. REPEAL OF OPTIONAL TREATMENT OF POLICIES REINSURED UNDER MODIFIED COINSURANCE CONTRACTS. (a) Repeal of Section 820.— Section 820 (relating to optional 26 USC 820. treatment of policies reinsured under modified coinsurance contracts) is repealed. (b) Conforming Amendments.— (1) Section 811 (relating to dividends to policyholders) is 26 USC 811. amended by adding at the end thereof the following new subsection: “(c) Special Rule for Dividends to Policyholders Under Reinsurance Contracts.— If, under the terms of a conventional coinsurance contract, a life insurance company (hereinafter referred to as ‘the reinsurer’) is obligated to reimburse another life insurance company (hereinafter referred to as ‘the reinsured’) for dividends to policyholders on the policies reinsured, the amount of the deduction for dividends reimbursed shall, for purposes of section 809(d)(12), be Post, p. 534. equal to the amount of dividends to policyholders— “(1) which were paid by the reinsured, and “(2) with respect to which the reinsurer reimbursed the reinsured under the terms of such contract. The amount determined under the preceding sentence shall be properly adjusted to reflect the adjustments under subsection (b)(1).” (2) The first sentence of section 809(c)(1) (relating to premiums) 26 USC 809. is amended to read as follows: “The gross amount of premiums and other consideration, including— “(A) advance premiums, “(B) deposits, “(C) fees, “(D) assessments, “(E) consideration in respect of assuming liabilities under contracts not issued by the taxpayer, and “(F) the amount of dividends to policyholders reimbursed to the taxpayer by a reinsurer in respect of reinsured policies, on insurance and annuity contracts (including contracts supplementary thereto); less return premiums, and premiums and other consideration arising out of reinsurance ceded.” (3) Section 809(d)(3) (relating to dividends to policyholders) is amended by inserting “, other than the deduction provided under paragraph (12)” before the period at the end thereof. (4) Section 809(d) (relating to deductions in computing gain and loss from operations) is amended by adding after paragraph (11) thereof the following new paragraph: “(12) Dividends reimbursed.— The deduction for the amount of dividends to policyholders reimbursed by the taxpayer to another insurance company in respect of policies the taxpayer has reinsured (determined under section 811(c)).” Ante, p. 533. (5) The table of sections for subpart E of part I of subchapter L of chapter 1 is amended by striking out the item relating to section 820. Ante, p. 533. (c) Effective Dates.— (1) In general.— Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 1981. (2) Rules applicable to taxable years beginning before january 1, 1982.— (A) In general.— In the case of any taxable year beginning before January 1, 1982— (i) any determination as to whether any contract met the requirements of subsection (b) of section 820 of the Internal Revenue Code of 1954 (as in effect before its repeal by this section) shall be made solely by reference to the terms of the contract, and (ii) the treatment of such contract under subsection (c) of such section 820 shall be made in accordance with the regulations under such section which were in effect on December 31, 1981. (B) Paragraph not to apply if fraud involved.— The provisions of subparagraph (A) shall not apply with respect to any deficiency which the Secretary of the Treasury or his delegate establishes was due to fraud with intent to evade tax. SEC. 256. SPECIAL ACCOUNTING RULES RELATING TO REPEAL OF SECTION 820. (a) In general.— For purposes of subchapter L of chapter 1 of the Internal Revenue Code of 1954, the provisions of this section shall apply to any contract— (1) which was in effect on December 31, 1981, and (2) to which section 820(a)(1) of such Code (as in effect before its repeal by section 255(a)) applied. (b) Treatment of Reserves and Assets.— Except as provided in subsections (c) and (d), the reserves on the contract described in subsection (a) and the assets in relation to such reserves shall— (1) as of the beginning of taxable year 1982, be treated as the reserves and assets of the re insurer (and not the reinsured), and (2) as of the end of taxable year 1982, be treated as the reserves and assets of the reinsured (and not the reinsurer). (c) Allocation of certain section 820(c) items.— Any amount described in paragraphs (1), (2), (4), and (5) of section 820(c) of such Code (as so in effect) with respect to any contract described in subsection (a) shall, beginning with taxable year 1982, be taken into account by the reinsured and the reinsurer in the same manner as such amounts would be taken into account under a modified coinsurance contract to which section 820(a)(1) of such Code (as so in effect) does not apply. (d) Amounts Treated as Returned Under the Contract.— (1) In general.— For taxable year 1982— (A) in the case of the reinsurer , there shall be allowed as a deduction for ordinary and necessary business expenses under section 809(d)(11) of such Code an amount equal to the termination amount (and such amount shall not otherwise be taken into account in determining gain or loss from operations under section 809 of such Code), and (B) in the case of the reinsured, the gross amount under section 809(c)(3) of such Code shall be increased by the termination amount. (2) Adjustment for reserves of reinsured.— For purposes of subsections (a) and (b) of section 810 of such Code, the amount taken into account as of the close of taxable year 1982 by the reinsured shall be reduced for such taxable year (but not for purposes of determining such amount at the beginning of the next succeeding taxable year) by the excess (if any) of— (A) the reserves on the contract as of January 1, 1982 (determined under the reinsured’s method of computing reserves for tax purposes), over (B) the termination amount. This paragraph shall not apply to any portion of any policies with respect to which the taxpayer is both the reinsured and the reinsurer under contracts to which this section applies. (3) Termination amount.— For purposes of this subsection, the term “termination amount” means the amount under the contract which the reinsurer would have returned to the reinsured upon termination of the contract if the contract had been terminated as of January 1, 1982. (4) Certain amounts not taken into account under section 809(d)(5).— Any amount treated as the reserves of the reinsured by reason of subsection (b)(2) shall not be taken into account under section 809(d)(5) of the Internal Revenue Code of 1954. (e) 3-Year Installment Payment of Taxes Owed by Reinsurer Resulting From Repeal of Section 820.— (1) In general.— That portion of any tax imposed under chapter 1 of such Code (reduced by the sum of the credits allowable under subpart A of part IV of such chapter) on a 26 USC 31. re insurer for taxable year 1982 which is attributable to the excess (if any) of— (A) any decrease in reserves for such taxable year by reason of subsection (b), over (B) the amount allowable as a deduction for such taxable year by reason of subsection (d)(1)(A), may, at the election of the reinsurer, be paid in 3 equal annual installments. (2) Time for payments.— (A) In general.— The 3 installments under paragraph (1) shall be paid on March 15 of 1983, 1984, and 1985. (B) First installment may be made in 2 payments.— The reinsurer may elect to pay one-half of the installment due March 15, 1983, on June 15, 1983. (3) Acceleration of payments.— If— (A) an election is made under paragraph (1), and (B) before the tax attributable to such excess is paid in full any installment under this section is not paid on or before the date fixed by this section for its payment, then the extension of time for payment of tax provided in this subsection shall cease to apply, and any portion of the tax payable in installments shall be paid on notice and demand from the Secretary of the Treasury or his delegate. (4) Proration of deficiency to installments.— If an election is made under paragraph (1) and a deficiency attributable to the excess has been assessed, the deficiency shall be prorated to such installments. The part of the deficiency so prorated to any installment the date for payment of which has not arrived shall be collected at the same time as, and as part of, such installment. The part of the deficiency so prorated to any installment the date for payment of which has arrived shall be paid on notice and demand from the Secretary of the Treasury or his delegate. This paragraph shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax. (5) Bond may be required.— If an election is made under this section, section 6165 of the Internal Revenue Code of 1954 shall apply as though the Secretary of the Treasury or his delegate were extending the time for payment of the tax. (6) Extension of period of limitations.— The running of any period of limitations for the collection of the tax with respect to which an election is made under paragraph (1) shall be suspended for the period during which there are any unpaid installments of such tax. (7) Interest on installments.— Rules similar to the rules of section 6601(b)(2) of such Code (without regard to the last sentence thereof) shall apply with respect to any tax for which an election is made under paragraph (1). (f) Special Rule Allowing Reinsured to Revoke an Election Under Section 820.— (1) In general.— In any case in which— (A) a taxpayer is the reinsured under any contract— (i) which took effect in 1980 or 1981, and (ii) with respect to which an election under section 20 of the Internal Revenue Code of 1954 was made, Ante, p. 533. (B) the taxpayer has a loss from operations or its gain from operations (determined without regard to any deduction under paragraphs (3), (5), and (6) of section 809(d) of such Code) for the taxable year in which such contract took effect does not exceed the taxpayer’s taxable investment income for such taxable year, (C) such contract was not a contract with a person who, during the taxable year in which such contract took effect, was a member of the same affiliated group (determined under section 1504 of such Code without regard to subsection (b)) of which the taxpayer is a member, and (D) the taxpayer makes an election under this subsection within 6 months after the date of the enactment of this Act, then the provisions of paragraph (2) shall apply. (2) Rules which apply if this subsection applies.— In any case described in paragraph (1)— (A) the taxpayer shall, for all taxable years, be treated as not having made an election under section 820 of such Code with respect to the contract described in paragraph (1), but (B) all other parties to the contract shall be treated as having made such election with respect to such contract for all taxable years. (g) Taxable Year 1982.— For purposes of this section, the term “taxable year 1982” means, with respect to any taxpayer, the first taxable year of the taxpayer beginning after December 31, 1981. (h) Regulations.— The Secretary of the Treasury or his delegate shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section. Subpart B— Other Reinsurance Agreements SEC. 257. DENIAL OF INTEREST DEDUCTION ON INDEBTEDNESS INCURRED IN CONNECTION WITH REINSURANCE AGREEMENTS. (a) In general.— Section 805(e) (relating to interest paid) is 26 USC 805. amended by adding at the end thereof the following new sentence: “For purposes of this subpart , the interest paid for any taxable year shall not include any interest paid or accrued after December 31, 1981, by a ceding company (or its affiliates) to any person in connection with are insurance agreement (other than interest on account of delay in making periodic settlements of income and expense items under the terms of the agreement).” (b) Special Transitional Rule Where at Least 20 Percent of the Liabilities Reinsured are Paid in Cash, Etc.— The amendment made by subsection (a) shall not apply with respect to any interest paid or incurred by a ceding company to a person who is a member of the same affiliated group (within the meaning of section 1504 of the Internal Revenue Code of 1954) on indebtedness evidenced by a note— (1) which was entered into after December 31, 1981, with respect to a reinsurance contract under the terms of which an amount not less than 20 percent of the amounts reinsured was paid in cash to the reinsurer on the effective date of such contract, (2) at least 40 percent of the principal of which had been paid by the ceding company in cash as of July 1, 1982, and (3) the remaining balance of which is paid in cash before January 1, 1983. SEC. 258. Allocation of Income, Etc. in the Case of Other Reinsurance Agreements. (a) In general.— Section 818 (relating to accounting provisions) is 26 USC 818. amended by adding at the end thereof the following new subsection: “(g) Allocation in Case of Reinsurance Agreement Involving Tax Avoidance or Evasion.— In the case of 2 or more related persons (within the meaning of section 1239(b)) who are parties to a reinsurance agreement, the Secretary may— “(1) allocate between or among such persons income (whether investment income, premium, or otherwise), deductions, assets, reserves, credits, and other items related to such agreement, or “(2) recharacterize any such items, if he determines that such allocation or recharacterization is necessary to reflect the proper source and character of the taxable income (or any item described in paragraph (1) relating to such taxable income) of each such person.”. (b) Effective Date.— The amendment made by subsection (a) 26 USC 818 note. shall apply to agreements entered into after the date of the enactment of this Act. PART II— 2-YEAR TEMPORARY PROVISIONS RELATING TO TAXATION OF LIFE INSURANCE COMPANIES SEC. 259. INCREASE IN AMOUNT OF DIVIDEND DEDUCTION ALLOWED; PENSION PLAN RESERVES. (a) Increase in Limitation.— Section 809(f) (relating to limitation 26 USC 809. on certain deductions) is amended to read as follows: “(f) Limitation on Certain Deductions.— “(1) In general.— The amount of the deductions under paragraphs (3), (5), and (6) of subsection (d) shall not exceed the greater of— “(A) $1,000,000, plus the amount (if any) by which— “(i) the gain from operations for the taxable year (computed without regard to such deductions), exceeds “(ii) the taxable investment income for the taxable year, or “(B) if the taxpayer elects for any taxable year, the amount determined under paragraph (2). “(2) Alternative limitation.— The amount determined under this paragraph for any taxable year shall be equal to the sum of— “(A) that portion of the deduction under subsection (d)(3) which is allocable to any contract described in section 805(d), and “(B) an amount equal to the sum of— “(i) so much of the base amount as does not exceed $1,000,000, plus “(ii) in the case of— “(I) a mutual life insurance company, 77.5 percent of the base amount, or “(II) a stock life insurance company, 85 percent of the base amount. “(3) Reduction in $1,000,000 amount for large insurers.— If the sum of the deductions under paragraphs (3), (5), and (6) of subsection (d) exceeds $4,000,000, then each of the $1,000,000 amounts in paragraphs (1) and (2) shall be reduced (but not below zero) by the amount which bears the same ratio to $1,000,000 as— “(A) the amount of such excess bears to, “(B) $4,000,000. “(4) Base Amount.— For purposes of paragraph (2)(B), the term ‘base amount’ means the excess of— “(A) the amount of the deductions under paragraphs (3) and (5) of subsection (d) for the taxable year, over “(B) the amount determined under paragraph (2)(A) for such taxable year. “(5) Application of limitation.— The limitation provided by paragraph (1) shall apply first to the amount of the deduction under subsection (d)(3), then to the amount of the deduction under subsection (d)(5), and finally to the amount of the deduction under subsection (d)(6).” (b) $1,000,000 Limitation to be Apportioned Among Members of Same Controlled Group.— Section 1561(a) (relating to limitations 26 USC 1561. on certain multiple tax benefits in the case of certain controlled corporations) is amended— (1) by striking out “and” at the end of paragraph (2), (2) by striking out the period at the end of paragraph (3) and inserting in lieu thereof a comma and “and”, (3) by inserting after paragraph (3) the following new paragraph: “(4) one $1,000,000 amount (adjusted as provided in section 809(f)(3)) for purposes of computing the limitation under paragraph (1) or (2) of section 809(f).”, and (4) by striking out “(2) and (3)” and inserting in lieu thereof “(2), (3), and (4)”. (c) Conforming Amendments.— Section 1561(b) (relating to certain short taxable years) is amended— (1) by striking out “and” at the end of paragraph (2), (2) by striking out the comma at the end of paragraph (3) and inserting in lieu thereof a comma and “and”, (3) by inserting after paragraph (3) the following new paragraph: “(4) the amount (adjusted as provided in section 809(f)(3)) to be used in computing the limitation under paragraph (1) or (2) of section 809(f),”, and (4) by striking out “(2), or (3)” and inserting in lieu thereof “(2), (3), or (4)”. SEC. 260. COMPUTATION OF AMOUNT OF LIFE INSURANCE RESERVES. (a) Reserves on Contracts on Which Certain Interest is Guaranteed Beyond the End of the Taxable Year.— Section 818 (relating Ante, p. 538. to accounting provisions), as amended by section 258(a), is amended by adding at the end thereof the following new subsection: “(h) Method of Computing Reserves on Contract Where Interest is Guaranteed Beyond End of Taxable Year.— For purposes of this part (other than section 801), interest payable under any contract which is computed at a rate which— “(1) is in excess of the lowest rates which are assumed under such contract for any period in calculating the reserves under section 810(c) for the contract under which such interest is payable, and “(2) is guaranteed beyond the end of the taxable year on which the reserves are being computed, shall be taken into account in computing the reserves with respect to such contract as if such interest were guaranteed only up to the end of the taxable year.” (b) Prohibition Against Deduction of Interest in Excess of Amount Credited to Group Pension Policyholders.— Section 805 26 USC 805. (relating to the determination of policy and other contract liability requirements) is amended by adding at the end thereof the following: “(g) Special Limitation for Group Pension Contracts.— The amount determined under paragraphs (2) and (3) of subsection (a) for policy and other contract liability requirements for group pension contracts shall not exceed the amount actually credited to the policyholders whether such crediting is through premium rate computations, reserve increases, excess interest , experience rate credits, policyholder dividends or otherwise. The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection.” (c) Prohibition Against Changing the Qualification Status of Life Insurance Companies.— For any taxable year ending before January 1, 1984, a taxpayer shall not be treated as other than a life insurance company (as defined in section 801(a) of such Code) because of the effect of amounts held under contracts which would be described in section 805(d) of the Internal Revenue Code of 1954, except for the fact that such contracts do not contain permanent annuity purchase rate guarantees. SEC. 261. MODIFICATION OF MENGE FORMULA. Subparagraph (B) of section 805(c)(1) (defining adjusted life insurance 26 USC 805. reserves rate) is amended to read as follows: “(B) 0.9 raised to the power of n where n is the number (positive or negative) determined by subtracting— “(i) 100 times the average rate of interest assumed by the taxpayer in calculating such reserves, from “(ii) 100 times the adjusted reserves rate.” SEC. 262. CONSOLIDATED RETURNS TO BE COMPUTED ON A BOTTOM LINE BASIS. Subsection (f) of section 818 (relating to computation on consolidated 26 USC 818. returns of policyholders’ share of investment yield) is amended to read as follows: “(f) Special Rules for Consolidated Return Computations.— For purposes of this part, in the case of a life insurance company filing or required to file a consolidated return under section 1501 for a taxable year, the following rules shall apply: “(1) Policyholders’ share of investment yield.— The computation of the policyholders’ share of investment yield under subparts B and C (including all determinations and computations incident thereto) shall be made as if such company were not filing a consolidated return. “(2) Life Insurance Company Taxable Income.— “(A) In general.— The amount of the consolidated life insurance company taxable income under paragraphs (1) and (2) of section 802(b) shall be determined by taking into 26 USC 802. account the life insurance company taxable income (including any case where deductions exceed income) of each life insurance company which is a member of the group (as computed separately under such paragraphs). “(B) Certain amounts computed separately.— For purposes of subparagraph (A), the determination of a life insurance company’s taxable investment income and gain or loss from operations (after applying the limitation provided by section 809(f)) shall be made without regard to the taxable investment income or gain or loss from operations of any other such company. “(3) Consolidated net capital gain.— If there is a consolidated net capital gain, then the partial tax referred to in section 802(a)(2)(A) shall be computed on— “(A) the consolidated life insurance company taxable income, reduced (but not below the sum of the amounts determined under section 802(b)(3)) by “(B) the amount of such consolidated net capital gain.” SEC. 263. EFFECTIVE DATES; SPECIAL RULES APPLICABLE TO TRANSACTIONS BEFORE EFFECTIVE DATE. (a) Effective Dates.— (1) In general.— Except as provided in this subsection, the amendments made by this part shall apply to taxable years beginning after December 31, 1981, and before January 1, 1984. (2) Group pension contracts.— The amendments made by section 260(b) shall apply to taxable years beginning after December 31, 1982, and before January 1, 1984. (3) Reserves on contracts where interest guaranteed for extended periods.— (A) In general.— The amendment made by section 260(a) shall apply to reserves computed for taxable years beginning after December 31, 1981, and before January 1, 1984, with respect to guarantees made after July 1, 1982, and before January 1, 1984. (B) Special rule relating to reserves.— If, for any taxable year beginning before January 1, 1982— (i) a taxpayer increased reserves pursuant to section 810(c)(4) of the Internal Revenue Code of 1954 to reflect interest guaranteed beyond the end of such taxable year, and (ii) the Federal income tax liability of such taxpayer for all taxable years would be the same if such liability was computed with or without regard to such reserves, then such reserves shall, as of the beginning of the first taxable year of the taxpayer beginning after December 31, 1981, be recomputed as if section 818(h) of such Code (as Ante, p. 539. added by this Act) applied to such reserves. If this subparagraph applies to any taxpayer, subparagraph (A) shall be applied with respect to such taxpayer by striking out “after July 1, 1982, and”. (b) Special Rules for Certain Transactions in Taxable Years Beginning Before January 1, 1982.— (1) Certain interest and premiums.— (A) In general.— In the case of any taxable year beginning before January 1, 1982, if a taxpayer, on his return of tax for such taxable year, treated— (i) any amount described in subparagraph (B) as an amount which was not a dividend to policyholders (within the meaning of section 811 of the Internal Revenue Code of 1954), or 26 USC 811. (ii) any amount described in subparagraph (C) as not described in section 809(c)(1), Ante, p. 534. then such amounts shall be so treated for purposes of the Internal Revenue Code of 1954. (B) Certain interest.— An amount is described in this subparagraph if such amount is in the nature of interest accrued for the taxable year on an insurance or annuity contract pursuant to— (i) an interest rate guaranteed or fixed before the period of payment of such amount begins, or (ii) any other method (fixed before such period begins) the terms of which during the period are beyond the control and are independent of the experience of the company, whether or not the interest rate or other method was guaranteed or fixed for any specified period of time. (C) Amounts not treated as premiums.— An amount is described in this subparagraph if such amount represents the difference between— (i) the amount of premiums received or mortality charges made under rates fixed in advance of the premium or mortality charge due date, and (ii) the maximum premium or mortality charge which could be charged under the terms of the insurance or annuity contract. (D) No inference.— The provisions of this paragraph shall constitute no inference with respect to the treatment of any item in taxable years beginning after December 31, 1981. (2) Consolidated returns.— The provisions of section 818(f) of such Code, as amended by section 262, shall apply to any taxable year beginning before January 1, 1982, if the taxpayer filed a consolidated return before July 1, 1982 for such taxable year under section 1501 of such Code which, on such date (determined without regard to any amended return filed after June 30, 1982), was consistent with the provisions of section 818(f) of such Code, as so amended. In the case of a taxable year beginning in 1981, the preceding sentence shall be applied by substituting “September 16” for “July 1” and “September 15” for “June 30”. (3) Taxable years where period of limitation has run.— This subsection shall not apply to any taxable year with respect to which the statute of limitations for filing a claim for credit or refund has expired under any provision of law or by operation of law. PART III— EXCESS INTEREST; AMOUNTS RECEIVED UNDER ANNUITY CONTRACTS; FLEXIBLE PREMIUM CONTRACTS; COMPUTATION OF RESERVES SEC. 264. ALLOWANCE OF DEDUCTION FOR EXCESS INTEREST. (a) In General.— Subsection (e) of section 805 (defining interest 26 USC 805. paid) is amended by adding at the end thereof the following new paragraph: “(5) Qualified guaranteed interest.— Qualified guaranteed interest (within the meaning of subsection (f))”. (b) Qualified Guaranteed Interest Defined.— Section 805 (relating to policy and other contract liability requirements) is amended by adding at the end thereof the following new subsection: “(f) Qualified Guaranteed Interest and Qualified Contracts.— For purposes of this section— “(1) In general.— The term ‘qualified guaranteed interest’ means any amount in the nature of interest for the taxable year on qualified contracts, but only if such amount is determined pursuant to— “(A) a stated rate of interest which is guaranteed— “(i) before the beginning of the period for which the interest accrues, and “(ii) for a period of not less than 12 months (or for a period ending not earlier than the close of the taxable year in which the contract was issued), or “(B) a rate or rates of interest which— “(i) meet the requirements of clause (i) of subparagraph (A), and “(ii) is determined under a formula or other method the terms of which— “(I) during the period referred to in subparagraph (A)(ii) may not be changed by the taxpayer, and “(II) are independent of the experience of the taxpayer. “(2) Qualified contract.— The term ‘qualified contract’ means any annuity contract (other than any contract described in subsection (d)) which— “(A) involves (at the time the qualified interest is credited under the contract) life contingencies, “(B) provides no right under State law for the policyholder to participate in the divisible surplus of the taxpayer, and “(C) provides that the taxpayer may from time to time credit amounts in the nature of interest in excess of amounts computed on the basis of any rate or rates guaranteed in the contractat the time it was entered into. “(3) Special rule for participating contracts.— “(A) In general.— In the case of an annuity contract which is not a qualified contract solely because it fails to satisfy the requirements of subparagraph (B) of paragraph (2), such contract shall be treated as a qualified contract and the amount taken into account as qualified guaranteed interest with respect to such contract shall be equal to the sum of— “(i) the amount of interest which would be assumed in calculating reserves with respect to such contract under section 810(c) if such interest were not taken into account under subsection (e), plus “(ii) 92.5 percent of the excess of— “(I) the amount of qualified guaranteed interest (determined without regard to this paragraph and as if such contract were a qualified contract), over “(II) the amount determined under clause (i). “(B) Interest not otherwise taken into account.— No deduction shall be allowed under any other provision of this part for the 7.5 percent of the excess described in subparagraph (A)(ii) which is not treated as qualified guaranteed interest.” (c) Conforming Amendments.— (1) Subparagraph (A) of section 805(c)(1) (defining adjusted life 26 USC 805. insurance reserves) is amended by inserting “or reserves on any qualified contract” after “pension plan reserves”. (2) Paragraph (2) of section 809(a) (defining required interest) 26 USC 809. is amended— (A) by inserting “the amount of qualified guaranteed interest (within the meaning of section 805(D(1)) and” after Ante, p. 543. “the sum of”; and (B) by adding at the end thereof the following new sentence: “For purposes of subparagraphs (A) and (B), reserves on qualified contracts (within the meaning of section 805(f)(2)) shall not Ante, p. 543. be taken into account.” (3) Paragraph (1) of section 809(e) (relating to modification of interest deduction) is amended by inserting “qualified guaranteed interest (within the meaning of section 805(0(1) or” after “allowed for”. (d) Effective Dates.— (1) In general.— The amendments made by this section shall apply to taxable years beginning after December 31, 1981. (2) Guarantees for less than 12 months.— (A) Moneys held before august 14, 1982.— The requirements of subparagraph (A)(ii) or (B)(ii)(I) of section 805(f)(1) of the Internal Revenue Code of 1954 (as added by subsection (b)) shall not apply to any moneys held under any contract on August 13, 1982 (and any interest on such moneys after such date). (B) Contracts entered into after august 13, 1982, and before january 1, 1983.— A Contract entered into after August 13, 1982, and before January 1, 1983, shall be treated as meeting the requirements of subparagraph (A)(ii) or (B)(ii)(I) of such Code if it meets such requirements on the first contract anniversary date. SEC. 265. TREATMENT OF AMOUNTS RECEIVED UNDER ANNUITY CONTRACTS BEFORE ANNUITY STARTING DATE. (a) In General.— Subsection (e) of section 72 (relating to amounts 26 USC 72. not received as annuities) is amended to read as follows: “(e) Amounts Not Received as Annuities.— “(1) Application of subsection.— “(A) In general.— This subsection shall apply to any amount which— “(i) is received under an annuity, endowment, or life insurance contract, and “(ii) is not received as an annuity, if no provision of this subtit le (other than this subsection) applies with respect to such amount. “(B) Dividends.— For purposes of this section, any amount received which is in the nature of a dividend or similar distribution shall be treated as an amount not received as an annuity. “(2) General rule.— Any amount to which this subsection applies— “(A) if received on or after the annuity starting date, shall be included in gross income, or “(B) if received before the annuity starting date— “(i) shall be included in gross income to the extent allocable to income on the contract, and “(ii) shall not be included in gross income to the extent allocable to the investment in the contract. “(3) Allocation of amounts to income and investment.— For purposes of paragraph (2)(B)— “(A) Allocation to income.— Any amount to which this subsection applies shall be treated as allocable to income on the contract to the extent that such amount does not exceed the excess (if any) of— “(i) the cash value of the contract (determined without regard to any sur render charge) immediately before the amount is received, over “(ii) the investment in the contract at such time. “(B) Allocation to investment.— Any amount to which this subsection applies shall be treated as allocable to investment in the contract to the extent that such amount is not allocated to income under subparagraph (A). “(4) Special rules for application of paragraph (2)(b).— For purposes of paragraph (2)(B)— “(A) Loans treated as distributions.— If, during any taxable year, an individual— “(i) receives (directly or indirectly) any amount as a loan under any contract to which this subsection applies, or “(ii) assigns or pledges (or agrees to assign or pledge) any portion of the value of any such contract, such amount or portion shall be treated as received under the contract as an amount not received as an annuity. “(B) Treatment of policyholder dividends.— Any amount described in paragraph (1)(B) shall not be included in gross income under paragraph (2)(B)(i) to the extent such amount is retained by the insurer as a premium or other consideration paid for the contract. “(5) Retention of existing rules in certain cases.— “(A) In general.— In any case to which this paragraph applies— “(i) paragraphs (2)(B) and (4)(A) shall not apply, and “(ii) if paragraph (2)(A) does not apply, the amount shall be included in gross income, but only to the extent it exceeds the investment in the contract. “(B) Existing contracts.— This paragraph shall apply to contracts entered into before August 14, 1982. Any amount allocable to investment in the contract after August 13, 1982, shall be treated as from a contract entered into after such date. “(C) Certain life insurance and endowment contracts.— Except to the extent prescribed by the Secretary by regulations, this paragraph shall apply to any amount not received as an annuity which is received under a life insurance or endowment contract. “(D) Contracts under qualified plans.— This paragraph shall apply to any amount received— “(i) from a trust described in section 401(a) which is exempt from tax under section 501(a), “(ii) from a contract— “(I) purchased by a trust described in clause (i), “(II) purchased as part of a plan described in section 403(a), “(III) described in section 403(b), or “(IV) provided for employees of a life insurance company under a plan described in section 805(d)(3), or “(iii) from an individual retirement account or an individual retirement annuity. “(E) Full refunds, surrenders, redemptions, and maturities.— This paragraph shall apply to— “(i) any amount received, whether in a single sum or otherwise, under a contract in full discharge of the obligation under the contract which is in the nature of a refund of the consideration paid for the contract, and “(ii) any amount received under a contract on its complete surrender, redemption, or maturity. In the case of any amount to which the preceding sentence applies, the rule of paragraph (2)(A) shall not apply. “(6) Investment in the contract.— For purposes of this subsection, the investment in the contract as of any date is— “(A) the aggregate amount of premiums or other consideration paid for the contract before such date, minus “(B) the aggregate amount received under the contract before such date, to the extent that such amount was excludable from gross income under this subtitle or prior income tax laws.” (b) 5-Percent Penalty for Certain Premature Distributions.— (1) In general.— Section 72 (relating to annuities; certain 95 Stat. 278. proceeds of endowment and life insurance contracts) is amended by redesignating subsection (q) as subsection (r) and by adding after subsection (p) the following new subsection: “(q) 5-Percent Penalty for Premature Distributions from Annuity Contracts.— “(1) Imposition of penalty.— “(A) In general.— If any taxpayer receives any amount under an annuity contract, the taxpayer’s tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 5 percent of the portion of such amount includible in gross income which is properly allocable to any investment in the annuity contract made during the 10-year period ending on the date such amount was received by the taxpayer. “(B) Allocation on first-in, first-out basis.— For purposes of subparagraph (A), the amount includible in gross income shall be allocated to the earliest investment in the contract with respect to which amounts have not been previously fully allocated under this paragraph. “(2) Subsection not to apply to certain distributions.— This subsection shall not apply to any distribution— “(A) made on or after the date on which the taxpayer attains age 59½, “(B) made to a beneficiary (or to the estate of an annuitant) on or after the death of an annuitant, “(C) attributable to the taxpayer’s becoming disabled within the meaning of subsection (m)(7), “(D) which is one of a series of substantially equal periodic payments made for the life of a taxpayer or over a period extending for at least 60 months after the annuity starting date, “(E) from a plan, contract, account, trust, or annuity described in subsection (e)(5)(D), or “(F) allocable to investment in the contract before August 14, 1982.” (2) Conforming amendments.— (A) Each of the following provisions are amended by inserting “section 72(q)(1) (relating to 5-percent tax on premature Ante, p. 546. distributions under annuity contracts),” after “owner-employees)”: (i) Section 46(a)(4), 26 USC 46. (ii) Section 50A(a)(3), 26 USC 50A. (iii) Section 53(a), 26 USC 53. (iv) Section 901(a). 26 USC 901. (B) Subparagraph (A) of section 1302(a)(2) is amended by 26 USC 1302. inserting “or (q)(1)” after “section 72(m)(5)”. (C) Paragraph (1) of section 1304(e) is amended— 26 USC 1304. (i) by inserting “or section 72(q)(1) (relating to 5-percent tax on premature distributions under annuity p contracts)” after “owner-employees)”, and (ii) by inserting “or (q)(1)” after “Section 72(m)(5)” in the heading thereof, (c) Effective Dates.— (1) Subsection (a).— The amendments made by subsection (a) shall take effect on August 13, 1982. (2) Subsection (b).— The amendments made by subsection (b) shall apply to distributions after December 31, 1982. SEC. 266. FLEXIBLE PREMIUM CONTRACTS. (a) In General.— Section 101 (relating to exclusion from gross 26 USC 101. income for certain death benefits) is amended by adding at the end thereof the following new subsection: “(f) Proceeds of Flexible Premium Contracts Payable by Reason of Death.— “(1) In general.— Any amount paid by reason of the death of the insured under a flexible premium life insurance contract shall be excluded from gross income only if— “(A) under such contract— “(i) the sum of the premiums paid under such contract does not at any time exceed the guideline premium limitation as of such time, and “(ii) any amount payable by reason of the death of the insured (determined without regard to any qualified additional benefit) is not at any time less than the applicable percentage of the cash value of such contract at such time, or “(B) by the terms of such contract, the cash value of such contract may not at any time exceed the net single premium with respect to the amount payable by reason of the death of the insured (determined without regard to any qualified additional benefit) at such time. “(2) Guideline premium limitation.— For purposes of this subsection— “(A) Guideline premium limitation.— The term ‘guideline premium limitation’ means, as of any date, the greater of— “(i) the guideline single premium, or “(ii) the sum of the guideline level premiums to such date. “(B) Guideline single premium.— The term ‘guideline single premium’ means the premium at issue with respect to future benefits under the contract (without regard to any qualified additional benefit), and with respect to any charges for qualified additional benefits, at the time of a determination under subparagraph (A) or (E) and which is based on— “(i) the mortality and other charges guaranteed under the contract, and “(ii) interest at the greater of an annual effective rate of 6 percent or the minimum rate or rates guaranteed upon issue of the contract. “(C) Guideline level premium.— The term ‘guideline level premium’ means the level annual amount, payable over the longest period permitted under the contract (but ending not less than 20 years from date of issue or not later than age 95, if earlier), computed on the same basis as the guideline single premium, except that subparagraph (B)(ii) shall be applied by substituting ‘4 percent’ for ‘6 percent’. “(D) Computational rules.— In computing the guideline single premium or guideline level premium under subparagraph (B) or (C)— “(i) the excess of the amount payable by reason of the death of the insured (determined without regard to any qualified additional benefit) over the cash value of the contract shall be deemed to be not greater than such excess at the time the contract was issued, “(ii) the maturity date shall be the latest maturity date permitted under the contract, but not less than 20 years after the date of issue or (if earlier) age 95, and “(iii) the amount of any endowment benefit (or sum of endowment benefits) shall be deemed not to exceed the least amount payable by reason of the death of the insured (determined without regard to any qualified additional benefit) at any time under the contract. “(E) Adjustments.— The guideline single premium and guideline level premium shall be adjusted in the event of a change in the future benefits or any qualified additional benefit under the contract which was not reflected in any guideline single premiums or guideline level premium previously determined. “(3) Other definitions and special rules.— For purposes of this subsection— “(A) Flexible premium life insurance contract.— The terms ‘flexible premium life insurance contract’ and ‘contract’ mean a life insurance contract (including any qualified additional benefits) which provides for the payment of one or more premiums which are not fixed by the insurer as to both timing and amount. Such terms do not include that portion of any contract which is treated under State law as providing any annuity benefits other than as a settlement option. “(B) Premiums paid.— The term ‘premiums paid’ means the premiums paid under the contract less any amounts (other than amounts includible in gross income) to which section 72(e) applies. If, in order to comply with the requirements of paragraph (1)(A), any portion of any premium paid during any contract year is returned by the insurance company (with interest) within 60 days after the end of a contract year— “(i) the amount so returned (excluding interest) shall be deemed to reduce the sum of the premiums paid under the contract during such year, and “(ii) notwithstanding the provisions of section 72(e), the amount of any interest so returned shall be includible in the gross income of the recipient. “(C) Applicable percentage.— The term ‘applicable percentage’ means— “(i) 140 percent in the case of an insured with an attained age at the beginning of the contract year of 40 or less, and “(ii) in the case of an insured with an attained age of more than 40 as of the beginning of the contract year, 140 percent reduced (but not below 105 percent) by one percent for each year in excess of 40. “(D) Cash value.— The cash value of any contract shall be determined without regard to any deduction for any surrender charge or policy loan. “(E) Qualified additional benefits.— The term ‘qualified additional benefits’ means any— “(i) guaranteed insurability, “(ii) accidental death benefit, “(iii) family term coverage, or “(iv) waiver of premium. “(F) Premium payments not disqualifying contract.— The payment of a premium which would result in the sum of the premiums paid exceeding the guideline premium limitation shall be disregarded for purposes of paragraph (1)(A)(i) if the amount of such premium does not exceed the amount necessary to prevent the termination of the contract without cash value on or before the end of the contract year. “(G) Net single premium.— In computing the net single premium under paragraph (1)(B)— “(i) the mortality basis shall be that guaranteed under the contract (determined by reference to the most recent mortality table allowed under all State laws on the date of issuance), “(ii) interest shall be based on the greater of— “(I) an annual effective rate of 4 percent (3 percent for contracts issued before July 1, 1983), or “(II) the minimum rate or rates guaranteed upon issue of the contract, and “(iii) the computational rules of paragraph (2)(D) shall apply, except that the maturity date referred to in clause (ii) thereof shall not be earlier than age 95. “(H) Correction of errors.— If the taxpayer establishes to the satisfaction of the Secretary that— “(i) the requirements described in paragraph (1) for any contract year was not satisfied due to reasonable error, and “(ii) reasonable steps are being taken to remedy the error, the Secretary may waive the failure to satisfy such requirements. “(I) Regulations.— The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection.” (b) Conforming Amendment.— Paragraph (1) of section 101(a) 26 USC 101. (relating to proceeds of life insurance contracts payable by reason of death) is amended by striking out “and in subsection (d)” and inserting in lieu thereof “, subsection (d), and subsection (f)”. (c) Effective Dates.— (1) In general.— The amendments made by this section shall apply to contracts entered into before January 1, 1984. (2) Special rule for contracts entered into before january 1, 1983.— Any contract entered into before January 1, 1983, which meets the requirements of section 101(f) of the Internal Revenue Code of 1954 on the date which is 1 year after the date Ante, p. 547. of the enactment of this Act shall be treated as meeting the requirements of such section for any period before the date on which such contract meets such requirements. Any death benefits paid under a flexible premium life insurance contract (within the meaning of section 101(f)(3)(A) of such Code) before the date which is 1 year after such date of enactment shall be excluded from gross income. (3) Special rule for certain contracts.— Any contract entered into before January 1, 1983, shall be treated as meeting the requirements of subparagraph (A) of section 101(f)(1) of such Code if such contract would meet such requirements if section 103(0(2)(C) of such Code were applied by substituting “3 percent” for “4 percent”. SEC. 267. REDUCTION IN APPROXIMATE REVALUATION METHOD OF COMPUTING RESERVES. (a) Reduction from $21 Per $1,000 To $19 Per $1,000 in Determining Approximate Revaluation of Certain Reserves Computed on Preliminary Term Basis.— (1) In general.— Subparagraph (A) of section 818(c)(2) (relating 26 USC 818. to approximate revaluation of reserves computed on preliminary term basis) is amended— (A) by striking out “$21” and inserting in lieu thereof “$19”, and (B) by striking out “2.1 percent” and inserting in lieu thereof “1.9 percent”. (2) Taxpayer allowed to elect out of approximate revaluation.— The last sentence of section 818(c) (relating to life 26 USC 818. insurance reserves computed on preliminary term basis) is amended— (A) by inserting “or in effect for a taxable year beginning in 1981” after “1958” the first place it appears, and (B) by inserting “or 1981, whichever is applicable” after “1958” the second place it appears. (b) Effective Date.— The amendments made by this section shall 26 USC 818 note. apply to taxable years beginning after December 31, 1981, but only with respect to reserves established under contracts entered into after March 31, 1982. PART IV— UNDERPAYMENTS OF ESTIMATED TAX FOR 1982 SEC. 268. UNDERPAYMENTS OF ESTIMATED TAX FOR 1982. No addition to the tax shall be made under section 6655 of the Internal Revenue Code of 1954 (relating to failure by corporation to pay estimated income tax) for any period before December 15, 1982, with respect to any underpayment of estimated tax by a taxpayer with respect to any tax imposed by section 802(a), to the extent that such underpayment was created or increased by any provisions of this subtitle. Subtitle E— Employment Taxes PART I— IN GENERAL SEC. 269. TREATMENT OF REAL ESTATE AGENTS AND DIRECT SELLERS. (a) General Rule.— Chapter 25 of the Internal Revenue Code of 1954 is amended by adding at the end thereof the following new section: “SEC. 3508. TREATMENT OF REAL ESTATE AGENTS AND DIRECT SELLERS. “(a) General Rule.— For purposes of this title, in the case of services performed as a qualified real estate agent or as a direct seller— “(1) the individual performing such services shall not be treated as an employee, and “(2) the person for whom such services are performed shall not be treated as an employer. “(b) Definitions.— For purposes of this section— “(1) Qualified real estate agent.— The term ‘qualified real estate agent’ means any individual who is a sales person if— “(A) such individual is a licensed real estate agent, “(B) substantially all of the remuneration (whether or not paid in cash) for the services performed by such individual as a real estate agent is directly related to sales or other output (including the performance of services) rather than to the number of hours worked, and “(C) the services performed by the individual are performed pursuant to a written contract between such individual and the person for whom the services are performed and such contract provides that the individual will not be treated as an employee with respect to such services for Federal tax purposes. “(2) Direct seller.— The term ‘direct seller’ means any person if— “(A) such person— “(i) is engaged in the trade or business of selling (or soliciting the sale of) consumer products to any buyer on a buy-sell basis, a deposit-commission basis, or any similar basis which the Secretary prescribes by regulations, for resale (by the buyer or any. other person) in the home or otherwise than in a permanent retail establishment, or “(ii) is engaged in the trade or business of selling (or soliciting the sale of) consumer products in the home or otherwise than in a permanent retail establishment, “(B) substantially all the remuneration (whether or not paid in cash) for the performance of the services described in subparagraph (A) is directly related to sales or other output (including the performance of services) rather than to the number of hours worked, and “(C) the services performed by the person are performed pursuant to a written contract between such person and the person for whom the services are performed and such contract provides that the person will not be treated as an employee with respect to such services for Federal tax purposes. “(3) Coordination with retirement plans for self-employed.— This section shall not apply for purposes of subtitle A to the extent that the individual is treated as an employee under section 401(c)(1) (relating to self-employed individuals).” (b) Amendment of Social Security Act.— Section 210 of the Social Security Act is amended by adding at the end thereof the 42 USC 410. following new subsection: “Treatment of Real Estate Agents and Direct Sellers “(p) Notwithstanding any other provision of this title, the rules of section 3508 of the Internal Revenue Code of 1954 shall apply for Ante, p. 551. purposes of this title.” (c) Indefinite Extension of Provisions Relating to Employment Status for Employment Taxes.— (1) Termination of certain employment tax liability.— (A) Subparagraph (A) of section 530(a)(1) of the Revenue Act of 1978 (relating to termination of certain employment 26 USC 3401 note. tax liability for periods before July 1, 1982) is amended by striking out “ending before July 1, 1982”. (B) Paragraph (3) of section 530(a) of such Act is amended by striking out “and before July 1, 1982,”. (C) The subsection heading of subsection (a) of section 530 of such Act is amended by striking out “For Periods Before July 1, 1982”. (2) Prohibition against regulations and rulings on employment status.— Subsection (b) of section 530 of such Act is amended— (A) by striking out “July 1, 1982 (or, if earlier,”, and (B) by striking out “taxes)” and inserting in lieu thereof “taxes”. (3) Certain regulations, etc., permitted.— Nothing in section 26 USC 3508 note. 530 of the Revenue Act of 1978 shall be construed to prohibit the implementation of the amendments made by this 26 USC 3401 note. section. (d) Clerical Amendment.— The table of sections for chapter 25 of such Code is amended by adding at the end thereof the following new item: “Sec. 3508. Treatment of real estate agents and direct sellers.” (e) Effective Dates.— (1) In general.— Except as provided in paragraph (2), the amendments made by this section shall apply to services performed after December 31, 1982. (2) Subsection (c).— The amendments made by subsection (c) shall take effect on July 1, 1982. SEC. 270. SIMPLIFIED PROCEDURE FOR DETERMINING AMOUNT OF EMPLOYMENT TAXES. (a) In General.— Chapter 25 (relating to general provisions relating to employment taxes), as amended by section 271, is amended by adding at the end thereof the following new section: “SEC. 3509. DETERMINATION OF EMPLOYERS LIABILITY FOR CERTAIN EMPLOYMENT TAXES. “(a) In General.— If any employer fails to deduct and withhold any tax under chapter 24 or subchapter A of chapter 21 with respect 26 USC 3401 et seq. 3101. to any employee by reason of treating such employee as not being an employee for purposes of such chapter or subchapter, the amount of the employer’s liability for— “(1) Withholding taxes.— Tax under chapter 24 for such year with respect to such employee shall be determined as if the amount required to be deducted and withheld were equal to 1.5 percent of the wages (as defined in section 3401) paid to such employee. “(2) Employee social security tax.— Taxes under subchapter A of chapter 21 with respect to such employee shall be determined as if the taxes imposed under such subchapter were 20 percent of the amount imposed under such subchapter without regard to this subparagraph. “(b) Employer’s Liability Increased Where Employer Disregards Reporting Requirements.— “(1) In general.— In the case of an employer who fails to meet the applicable requirements of section 6041(a), 6041A, or Post, p. 601. 6051 with respect to any employee, unless such failure is due to reasonable cause and not willful neglect, subsection (a) shall be applied with respect to such employee— “(A) by substituting ‘3 percent’ for ‘1.5 percent’ in paragraph (1); and “(B) by substituting ‘40 percent’ for ‘20 percent’ in paragraph (2). “(2) Applicable requirements.— For purposes of paragraph (1), the term ‘applicable requirements’ means the requirements described in paragraph (1) which would be applicable consistent with the employer’s treatment of the employee as not being an employee for purposes of chapter 24 or subchapter A of chapter 21. “(c) Section No to Apply In Cases of Intentional Disregard.— This section shall not apply to the determination of the employer’s liability for tax under chapter 24 or subchapter A of chapter 21 if such liability is due to the employer’s intentional 26 USC 3401 et seq. 3101. disregard of the requirement to deduct and withhold such tax. “(d) Special Rules.— For purposes of this section— “(1) Determination of liability.— If the amount of any liability for tax is determined under this section— “(A) the employee’s liability for tax shall not be affected by the assessment or collection of the tax so determined, “(B) the employer shall not be entitled to recover from the employee any tax so determined, and “(C) sections 3402(d) and section 6521 shall not apply. “(2) Section not to apply where employer deducts wage but not social security taxes.— This section shall not apply to any employer with respect to any wages if— “(A) the employer deducted and withheld any amount of the tax imposed by chapter 24 on such wages, but “(B) failed to deduct and withhold the amount of the tax imposed by subchapter A of chapter 21 with respect to such wages. “(3) Section not to apply to certain statutory employees.— This section shall not apply to any tax under subchapter A of chapter 21 with respect to an individual described in subsection (d)(3) of section 3121 (without regard to whether such individual is described in paragraph (1) or (2) of such subsection).”. (b) Conforming Amendment.— The table of sections for chapter 25 is amended by adding at the end thereof the following new item: “Sec. 3509. Determination of employer’s liability for certain employment taxes.” (c) Effective Date.— The amendment made by this section shall 26 USC 3509 note. take effect on the date of the enactment of this Act, except that such amendments shall not apply to any assessment made before January 1, 1983. PART II— FEDERAL UNEMPLOYMENT TAX Subpart A— Increase in Federal Unemployment Tax SEC. 271. INCREASE IN FEDERAL UNEMPLOYMENT TAX WAGE BASE AND RATE. (a) Increase in wage base.— Paragraph (1) of section 3306(b) 26 USC 3306. (defining wages) is amended by striking out “$6,000” each place it appears and inserting in lieu thereof “$7,000”. (b) Increase in Rate.— (1) In general.— Paragraph (1) of section 3301 (relating to 26 USC 3301. rate of unemployment tax) is amended by striking out “3.4 percent” and inserting in lieu thereof “3.5 percent”. (2) Technical amendments.— (A) Subparagraph (C) of section 901(c)(3) of the Social Security Act is amended to read as follows: 42 USC 1101. “(C) Each estimate of net receipts under this paragraph shall be based upon (i) a tax rate of 0.5 percent in the case of any calendar year for which the rate of tax under section 3301 of the Federal Unemployment Tax Act is 3.2 percent, and (ii) a tax rate of 0.8 26 USC 3301. percent in the case of any calendar year for which the rate of tax under such section is 3.5 percent.” (B) Paragraph (1) of section 905(b) of such Act is amended 42 USC 1105. by amending the last sentence to read as follows: “In the case of any month after March 1983 and before April 1 of the first calendar year to which paragraph (2) of section 3301 of the Federal Unemployment Tax Act applies, the 26 USC 3301. first sentence of this paragraph shall be applied by substituting ‘40 percent’ for ‘one-tenth’.” (C) Subsection (b) of section 6157 is amended by striking 26 USC 6157. out “0.7 percent” and inserting in lieu thereof “0.8 percent”. (c) Increase in Rate For 1985 and Thereafter.— (1) In general.— Section 3301 (as amended by subsection (b)) is amended— (A) by striking out “3.5 percent” and inserting in lieu thereof “6.2 percent”, and (B) by striking out “3.2 percent” and inserting in lieu thereof “6.0 percent”. (2) Increase in amount of state credit.— (A) Subsection (b) of section 3302 (relating to additional 26 USC 3302. credit) is amended by striking out “2.7%” and inserting in lieu thereof “5.4%”. (B) Paragraph (1) of section 3302(d) (relating to rate of tax deemed to be 3 percent) is amended by striking out “3 percent” each place it appears and inserting in lieu thereof “6 percent”. (3) Technical amendments.— (A) Paragraph (2) of section 3302(c) is amended by striking out “10 percent” each place it appears in subparagraph (A) and inserting in lieu thereof “5 percent”. (B) Paragraph (3) of section 3302(c) is amended by striking out “15 percent” and inserting in lieu thereof “7½ percent”. (C) Subsection (b) of section 6157 is amended by striking 26 USC 6157. out “0.5 percent” each place it appears and inserting in lieu thereof “0.6 percent”. (D) Subparagraph (C) of section 901(c)(3) of the Social Security Act (as amended by subsection (b)) is amended— Ante, p. 554. (i) by striking out “0.5 percent” and inserting in lieu thereof “0.6 percent”; (ii) by striking out “3.2 percent” and inserting in lieu thereof “6.0 percent”; and (iii) by striking out “3.5 percent” and inserting in lieu thereof “6.2 percent”. (b) Effective Dates.— (1) Subsections (a) and (b).— The amendments made by subsections 26 USC 3301 note. (a) and (b) shall apply to remuneration paid after December 31, 1982. (2) Subsection (c).— The amendments made by subsection (c) 26 USC 3301 note. shall apply to remuneration paid after December 31, 1984. (3) Transitional rule for certain employees.— (A) In general.— Notwithstanding section 3303 of the Internal Revenue Code of 1954, in the case of taxable years beginning after December 31, 1984, and before January 1, 1989, a taxpayer shall be allowed the additional credit under section 3302(b) of such Code with respect to any Supra. employee covered by a qualified specific industry provision if the requirements of subparagraph (B) are met with respect to such employee. (B) Requirements.— The requirements of this subparagraph are met for any taxable year with respect to any employee covered by a specific industry provision if the amount of contributions required to be paid for the taxable year to the unemployment fund of the State with respect to such employee are not less than the product of the required rate multiplied by the wages paid by the employer during the taxable year. (C) Required rate.— For purposes of subparagraph (B), the required rate for any taxable year is the sum of— (i) the rate at which contributions were required to be made under the specific industry provision as in effect on August 10, 1982, and (ii) the applicable percentage of the excess of 5.4 percent over the rate described in clause (i). (D) Applicable percentage.— For purposes of subparagraph (C), the term “applicable percentage” means— (i) 20 percent in the case of taxable year 1985, (ii) 40 percent in the case of taxable year 1986, (iii) 60 percent in the case of taxable year 1987, and (iv) 80 percent in the case of taxable year 1988. (E) Qualified specific industry provision.— For purposes of this paragraph, the term, “qualified specific industry provision” means a provision contained in a State unemployment compensation law (as in effect on August 10, 1982)— (i) which applies to employees in a specific industry or to an otherwise defined type of employees, and (ii) under which employers may elect to make contributions at a specified rate (without experience rating) which exceeds 2.7 percent. Subpart B— Other Financing Provisions SEC. 272. CREDIT REDUCTION NOT TO APPLY WHEN STATE MAKES CERTAIN REPAYMENTS. (a) General Rule.— Section 3302 (relating to credits against 95 Stat. 876. unemployment tax) is amended by adding at the end thereof the following new subsection: “(g) Credit Reduction Not To Apply When State Makes Certain Repayments.— “(1) In general.— In the case of any State which meets requirements of paragraph (2) with respect to any taxable year, subsection (c)(2) shall not apply to such taxable year; except that such taxable year (and January 1 of such taxable year) shall (except as provided in subsection (f)(3)) be taken into account for purposes of applying subsection (c)(2) to succeeding taxable years. “(2) Requirements.— The requirements of this paragraph are met by any State with respect to any taxable year if the Secretary of Labor determines that— “(A) the repayments during the 1-year period ending on November 9 of such taxable year made by such State of advances under title XII of the Social Security Act are not 42 USC 1321. less than the sum of— “(i) the potential additional taxes for such taxable year, and “(ii) any advances made to such State during such 1-year period under such title XII, “(B) there will be sufficient amounts in the State unemployment fund to pay all compensation during the 3-month period beginning on November 1 of such taxable year without receiving any advance under title XII of the Social Security Act, and “(C) there is a net increase in the solvency of the State unemployment compensation system for the taxable year attributable to changes made in the State law after the date on which the first advance taken into account in determining the amount of the potential additional taxes was made (or, if later, after the date of the enactment of this subsection) and such net increase equals or exceeds the potential additional taxes for such taxable year. “(3) DEFINITIONS.—For purposes of paragraph (2)— “(A) Potential additional taxes.— The term ‘potential additional taxes’ means, with respect to any State for any taxable year, the aggregate amount of the additional tax which would be payable under this chapter for such taxable year by all taxpayers subject to the unemployment compensation law of such State for such taxable year if paragraph (2) of subsection (c) had applied to such taxable year and any preceding taxable year without regard to this subsection but with regard to subsection (f). “(B) Treatment of certain reductions.— Any reduction in the State’s balance under section 901(d)(1) of the Social Security Act shall not be treated as a repayment made by 42 USC 1101. such State. “(4) Reports.— The Secretary of Labor may require a State to furnish such information at such time and in such manner as may be necessary for purposes of paragraph (2).” (b) Effective Date.— The amendment made by subsection (a) 26 USC 3302 note. shall apply to taxable years beginning after December 31, 1982. SEC. 273. LIMITATION ON FIFTH YEAR CREDIT REDUCTION. (a) General Rule.— Paragraph (2) of section 3302(c) (relating to 26 USC 3302. limit on total credits) is amended by adding at the end thereof the following new sentence: “Subparagraph (C) shall not apply with respect to any taxable year to which it would otherwise apply (but subparagraph (B) shall apply to such taxable year) if the Secretary of Labor determines (on or before November 10 of such taxable year) that the State meets the requirements of subsection (f)(2)(B) for such taxable year.” (b) Effective Date.— The amendment made by subsection (a) 26 USC 3302 note. shall apply to taxable years beginning after December 31, 1982. SEC. 274. DEFERRAL OF INTEREST IN CASE OF CERTAIN STATES WITH HIGH UNEMPLOYMENT RATES. (a) General Rule.— Paragraph (3) of section 1202(b) of the Social Security Act is amended by adding at the end thereof the following 95 Stat. 879. 42 USC 1322. new subparagraph: “(C) (i) In the case of any State which meets the requirements of clause (ii) for any calendar year, any interest otherwise required to be paid under this subsection during such calendar year shall be paid as follows— “(I) 25 percent of the amount otherwise required to be paid on or before any day during such calendar year shall be paid on or before such day; and “(II) 25 percent of the amount otherwise required to be paid on or before such day shall be paid on or before the corresponding day in each of the 3 succeeding calendar years. Any interest the time for payment of which is deferred under this subparagraph shall bear interest in the same manner as if it were an advance made on the day on which it would have been required to be paid but for this subparagraph. “(ii) A State meets the requirements of this clause for any calendar year if the rate of insured unemployment (as determined for purposes of section 203 of the Federal-State Extended Unemployment Compensation Act of 1970) under the State law of the period 26 USC 3304 note. consisting of the first 6 months of the preceding calendar year equaled or exceeded 7.5 percent.” (b) Effective Date.— The amendment made by subsection (a) 42 USC 1322 note. shall apply to interest required to be paid after December 31, 1982. SEC. 275. REQUIRED REPAYMENTS FROM EXTENDED UNEMPLOYMENT COMPENSATION ACCOUNT. Subsection (d) of section 905 of the Social Security Act is amended 42 USC 1105. by inserting after the second sentence the following new sentence: “Repayments under the preceding sentence shall be made whenever the Secretary of the Treasury (after consultation with the Secretary of Labor) determines that the amount then in the account exceeds the amount necessary to meet the anticipated payments from the account during the next 3 months.” SEC. 276. TREATMENT OF CERTAIN SERVICES PERFORMED BY STUDENTS. (a) Student Interns.— (1) In general.— Subparagraph (C) of section 3306(c)(10) 26 USC 3306. (defining employment) is amended by striking out “under the age of 22”. (2) Effective date.— The amendment made by paragraph (1) 26 USC 3306 note. shall apply with respect to services performed after the date of the enactment of this Act. (b) Full Time Students Employed By Summer Camps.— (1) Service by full time students.— Subsection (c) of section 3306 (defining employment) is amended— 26 USC 3306. (A) by striking out “or” at the end of paragraph (18), (B) by striking out the period at the end of paragraph (19) and inserting in lieu thereof “; or”, and (C) by adding at the end thereof the following new paragraph: “(20) service performed by a full time student (as defined in subsection (q)) in the employ of an organized camp— “(A) if such camp— “(i) did not operate for more than 7 months in the calendar year and did not operate for more than 7 months in the preceding calendar year, or “(ii) had average gross receipts for any 6 months in the preceding calendar year which were not more than 33⅓ percent of its average gross receipts for the other 6 months in the preceding calendar year; and “(B) if such full time student performed services in the employ of such camp for less than 13 calendar weeks in such calendar year.” (2) Full time student defined.— Section 3306 is amended by 26 USC 3306. adding at the end thereof the following new subsection: “(q) Full time student.— For purposes of subsection (c)(20), an individual shall be treated as a full time student for any period— “(1) during which the individual is enrolled as a full time student at an educational institution, or “(2) which is between academic years or terms if— “(A) the individual was enrolled as a full time student at an educational institution for the immediately preceding academic year or term, and “(B) there is a reasonable assurance that the individual will be so enrolled for the immediately succeeding academic year or term after the period described in subparagraph (A).” (3) Effective date.— The amendments made by this subsection 26 USC 3306. shall apply to remuneration paid after December 31, 1982, and before January 1, 1984. SEC. 277. TREATMENT OF CERTAIN ALIEN FARM WORKERS. Subparagraph (B) of section 3306(c)(1) (defining employment) is 26 USC 3306. amended by striking out “January 1, 1982” and inserting in lieu thereof “January 1, 1984”. PART III— MEDICARE COVERAGE SEC. 278. MEDICARE COVERAGE OF, AND APPLICATION OF HOSPITAL INSURANCE TAX TO, FEDERAL EMPLOYMENT. (a) Application of Hospital Insurance Tax to Federal Employment.— (1) In general.— Section 3121 (relating to definitions for purposes 26 USC 3121. of the Federal Insurance Contributions Act) is amended by adding at the end thereof the following new subsection: “(u) Application of Hospital Insurance Tax to Federal Employment.— “(1) In general.— For purposes of the taxes imposed by sections 3101(b) and 3111(b)— “(A) paragraph (6) of subsection (b) shall be applied without regard to subparagraphs (A), (B), and (C)(i), (ii), and (vi) thereof, and “(B) paragraph (5) of subsection (b) (and the provisions of law referred to therein) shall not apply. “(2) Medicare qualified federal employment.— For purposes of this chapter, the term ‘medicare qualified Federal employment’ means service which— “(A) is employment (as defined in subsection (b)) with the application of paragraph (1), but “(B) would not be employment (as so defined) without the application of paragraph (1).” (2) Conforming amendment to self-employment tax.— Section 1402(b) (relating to self-employment income) is amended in 26 USC 1402. the second sentence by striking out “and” before “(B)” and by inserting before the period the following: “, and (C) includes, but only with respect to the tax imposed by section 1401(b), remuneration paid for medicare qualified Federal employment (as defined in section 3121(u)(2)) which is subject to the taxes Ante, p. 559. imposed by sections 3101(b) and 3111(b)”. (3) Conforming amendment to federal service.— Section 3122 (relating to federal service) is amended in the first sentence by inserting “including service which is medicare qualified Federal employment (as defined in section 3121(u)(2)),” after “wholly owned by the United States,”. (b) Entitlement to Hospital Insurance Benefits.— (1) Definition of medicare qualified federal employment.— Section 210 of the Social Security Act is amended by 42 USC 410. adding at the end thereof the following new subsection: “Medicare Qualified Federal Employment “(p) For purposes of sections 226 and 226A, the term ‘medicare 42 USC 426, 426–1. qualified Federal employment’ means any service which would constitute ‘employment’ as defined in subsection (a) of this section but for the application of the provisions of— “(1) subparagraph (A), (B), or (C)(i), (ii), or (vi) of subsection (a)(6), or “(2) subsection (a)(5).”. (2) Entitlement to hospital insurance benefits.— (A) For individuals age 65 or older.— Section 226(a)(2) of the the Social Security Act is amended— 42 USC 426. (i) by inserting “(A)” after “(2)”; (ii) by striking out “or is a qualified railroad retirement beneficiary,” at the end of subparagraph (A); and (iii) by inserting after subparagraph (A) the following new subparagraphs: “(B) is a qualified railroad retirement beneficiary, or “(C) (i) would meet the requirements of subparagraph (A) upon filing application for the monthly insurance benefits involved if medicare qualified Federal employment (as defined in section 210(p)) were treated as employment (as defined in section 210(a)) Supra. for purposes of this title, and (ii) files an application, in conformity with regulations of the Secretary, for hospital insurance benefits under part A of title XVIII,”. 42 USC 1395c. (B) Entitlement for disabled individuals.— (i) In general.— Section 226(b)(2) of the Social Security Act is amended by striking out “(B)” and all that follows through “1974,” and adding at the end the following: “(B) is, and has been for not less than 24 months, a disabled qualified railroad retirement beneficiary, within the meaning of section 7(d) of the Railroad Ret i rement Act of 1974, or 45 USC 231f. “(C) (i) has filed an application, in conformity with regulations of the Secretary, for hospital insurance benefits under part A of title XVIII pursuant to this subparagraph, and “(ii) would meet the requirements of subparagraph (A) (as determined under the disability criteria, including reviews, applied under this title), including the requirement than the has been entitled to the specified benefits for 24 months, if— “(I) medicare qualified Federal employment (as defined in section 210(p)) were treated as employment (as defined in section 210(a)) for purposes of this title, and “(II) the filing of the application under clause (i) of this subparagraph were deemed to be the filing of an application for the disability-related benefits referred to in clause (i), (ii), or (iii) of subparagraph (A),”. (ii) Clarification of period of entitlement.— Section 226(b) of such Act is further amended by adding 42 USC 426. after the first sentence the following new sentence: “In applying the previous sentence in the case of an individual described in paragraph (2)(C), the ‘twenty-fifth month of his entitlement’ refers to the first month after the twenty-fourth month of entitlement to specified benefits referred to in paragraph (2)(C) and ‘notice of termination of such entitlement’ refers to a notice that the individual would no longer be determined to be entitled to such specified benefits under the conditions described in that paragraph.”. (C) Entitlement for individuals with end-stage renal disease.— Paragraph (1) of section 226A(a) of the Social Security Act is amended to read as follows: 42 USC 426–1. “(1) (A) is fully or currently insured (as such terms are defined in section 214), or would be fully or currently insured if (i) his service as an employee (as defined in the Railroad Ret i rement Act of 1974) after December 31, 1936, were included within the 45 USC 231t. meaning of the term ‘employment’ for purposes of this title, and (ii) his medicare qualified Federal employment (as defined in section 210(p)) were included within the meaning of the term Ante, p. 560. ‘employment’ for purposes of this title; “(B) (i) is entitled to monthly insurance benefits under this title, (ii) is entitled to an annuity under the Railroad Retirement Act of 1974, or (iii) would be entit led to a monthly insurance benefit under this title if medicare qualified Federal employment (as defined in 210(p)) after December 31, 1982, were included within the meaning of the term ‘employment’ for purposes of this title; or “(C) is the spouse or dependent child (as defined in regulations) of an individual described in subparagraph (A) or (B);”. (3) Conforming amendment.— Section 1811 of the Social Security Act is amended— 42 USC 1395c. (A) by inserting “(or would be eligible for such benefits if certain Federal employment were covered employment under such title)” after “title II of this Act” in clause (1), and (B) by inserting “(or would have been so entitled to such benefits if certain Federal employment were covered employment under such title)” after “title II of this Act” in clause (2). (4) Notice to individuals who are prospective medicare beneficiaries based on federal employment.— Section 226 of such Act is amended by redesignating subsection (g) as subsection 42 USC 426. (h) and by inserting after subsection (f) the following new subsection: “(g) The Secretary and Director of the Office of Personnel Management shall jointly prescribe and carry out procedures designed to assure that all individuals who perform medicare qualified Federal employment are fully informed with respect to (1) their eligibility or potential eligibility for hospital insurance benefits (based on such employment) under part A of title XVIII, (2) the requirements for 42 USC 1395c. and conditions of such eligibility, and (3) the necessity of timely application as a condition of entitlement under subsection (b)(2)(C), giving particular attention to individuals who apply for an annuity under chapter 83 of title 5, United States Code, or under another 5 USC 8301 et seq. similar Federal retirement program, and whose eligibility for such an annuity is or would be based on a disability.”. (c) Effective Dates.— (1) Hospital insurance taxes.— The amendments made by 26 USC 3121 note. subsection (a) shall apply to remuneration paid after December 31, 1982. (2) Medicare coverage.— (A) In general.— The amendments made by subsection (b) are effective on and after January 1, 1983, and the amendments made by paragraph (3) of that subsection apply to remuneration (for medicare qualified Federal employment) paid after December 31, 1982. (B) Treatment of current disabilities.— For purposes of establishing entitlement to hospital insurance benefits under part A of title XVIII of the Social Security Act 42 USC 1395c. pursuant to the amendments made by subsection (b) or the provisions of subsection (d), no individual may be considered to be under a disability for any period before January 1, 1983. (d) Transitional Provisions.— (1) In general.— For purposes of sections 226, 226A, and 1811 of the Social Security Act, in the case of any individual— 42 USC 426, 426–1, 1395c. (A) who performs service both during January 1983, and before January 1, 1983, which constitutes medicare qualified Federal employment (as defined in section 210(p) of such Act) and (B) who would be entitled, under section 226(a)(2)(C), 226(b)(2)(C), 226A(a)(l)(A)(ii), or 226A(a)(l)(B)(iii) of such Act, Ante, pp. 560, 561. to hospital insurance benefits under part A of title XVIII of such Act but for the failure to include medicare qualified Federal employment (as so defined) within the meaning of the term “employment” for purposes of title II of such Act 42 USC 401. for remuneration paid before January 1, 1983, the individual’s medicare qualified Federal employment (as so defined) performed before January 1, 1983, for which remuneration was paid before such date, shall be considered to be “employment” (as so defined), but only for the purpose of providing such entitlement. (2) Eligibility of other persons.— Any individual who is entitled to hospital insurance benefits under part A of title XVIII of the Social Security Act by reason of the application of paragraph (1) of this subsection, shall be deemed to be entitled to an old-age benefit under section 202 of such Act, or a disability 42 USC 402. 42 USC 423. benefit under section 223 of such Act, for purposes of determining eligibility for such hospital insurance benefits for any other person. In applying this paragraph, any such other person who would be entitled to a monthly benefit under section 202 of such Act if such individual (to whom paragraph (1) applies) were entitled to such old-age or disability benefit, shall be deemed to be entitled to such monthly benefit, but only for purposes of determining such person’s eligibility for hospital insurance benefits. (3) Appropriations.— There are authorized to be appropriated to the Federal Hospital Insurance Trust Fund from time to time such sums as the Secretary of Health and Human Services deems necessary for any fiscal year, on account of— (A) payments made or to be made during such fiscal year from such Trust Fund with respect to individuals who are entitled to benefits under title XVIII of the Social Security Act solely by reason of paragraph (1) or (2) of this 42 USC 1395. subsection, (B) the additional adminstrative expenses resulting or expected to result therefrom, and (C) any loss in interest to such Trust Fund resulting from the payment of those amounts, in order to place such Trust Fund in the same position at the end of such fiscal year as it would have been in if this subsection had not been enacted. Subtitle F— Excise Taxes PART I— AIRPORT AND AIRWAY SEC. 279. TAX ON FUEL USED IN NONCOMMERCIAL AVIATION. (a) Imposition of Tax.— (1) Gasoline fuels.— Paragraph (3) of subsection 4041(c) 26 USC 4041. (relating to rate of tax) is amended by striking out “3 cents a gallon” and inserting in lieu thereof “8 cents a gallon (10½ cents a gallon in the case of any gasoline with respect to which a tax is imposed under section 4081 at the rate set forth in subsection (b) thereof)”. (2) Nongasoline fuels.— Paragraph (1) of subsection 4041(c) (relating to tax on fuel used in noncommercial aviation) is amended by striking out “7 cents” and inserting in lieu thereof “14 cents”. (3) Termination.— Paragraph (5) of section 4041(c) is amended to read as follows: “(5) Termination.— The taxes imposed by paragraphs (1) and (2) shall apply during the period beginning on September 1, 1982, and ending on December 31, 1987.” (b) Certain helicopters.— (1) Exemption.— Section 4041 (relating to tax on special fuels) is amended by adding at the end thereof the following new subsection: “(l) Exemption for certain helicopter uses.— No tax shall be imposed under this section on any liquid sold for use in, or used in, a helicopter for the purpose of— “(1) transporting individuals, equipment, or supplies in the exploration for, or the development or removal of, hard minerals, or “(2) the planting, cultivation, cutting or transportation of, or caring for, trees (including logging operation), but only if the helicopter does not take off from, or land at, a facility eligible for assistance under the Airport and Airway Development Act of 1970, or otherwise use services provided pursuant to the 49 USC 1701 note. Airport and Airway Improvement Act of 1982 during such use.” (2) Refund of tax.— Subsection (d) of section 6427 (relating to Post, p. 671. 26 USC 6427. fuels not used for taxable purposes) is amended— (A) by inserting “or is used in a helicopter for a purpose described in section 4041(1),” after “section 4041(h)(2)(C),”; and (B) by inserting “or in Certain Helicopters” after “Museums” in the caption thereof. (c) Effective Date.— The amendments made by this section shall 26 USC 4041 note. take effect on September 1, 1982. SEC. 280. TAX ON TRANSPORTATION BY AIR. (a) Transportation of Persons.— Section 4261 (relating to imposition 26 USC 4261. of tax) is amended by striking out subsection (e) and inserting in lieu thereof the following new subsections: “(e) Exemption for Certain Helicopter Uses.— No tax shall be imposed under subsection (a) or (b) on air transportation by helicopter for the purpose of— “(1) transporting individuals, equipment, or supplies in the exploration for, or the development or removal of, hard minerals, or “(2) the planting, cultivation, cutting, or transportation of, or caring for, trees (including logging operations), but only if the helicopter does not take off from, or land at, a facility eligible for assistance under the Airport and Airway Development Act of 1970, or otherwise use services provided pursuant to the 49 USC 1701 note. Post, p 671. Airport and Airway Improvement Act of 1982 during such use. “(f) Termination.— The taxes imposed by this section shall apply with respect to transportation beginning after August 31, 1982, and before January 1, 1988.” (b) Transportation of Property.— Subsection (d) of section 4271 26 USC 4271. is amended to read as follows: “(d) Termination.— The tax imposed by subsection (a) shall apply with respect to transportation beginning after August 31, 1982, and before January 1, 1988.” (c) Repeal of Certain Terminated Taxes.— (1) In general.— Subchapter E of chapter 36 is hereby 26 USC 4491–4494. repealed. (2) Conforming amendments.— (A) The table of subchapters for chapter 36 is amended by striking out the item relating to subchapter E. (B) Section 4281 (relating to small aircraft on nonestablished 26 USC 4281. lines) is amended— (i) by striking out “(as defined in section 4492(b))”, and (ii) by adding at the end thereof the following new sentence: “For purposes of the preceding sentence, the term ‘maximum certificated takeoff weight’ means the maximum such weight contained in the type certificate or airworthiness certificate.” (C) Subsection (a) of section 6156 is amended by striking 26 USC 6156. out “or 4491”. (D) Paragraph (2) of section 6156(e) is amended by striking out “in the case of the tax imposed by section 4481”. (E) The section heading for section 6156 is amended by striking out “and civil aircraft”. (F) The table of sections for subchapter A of chapter 62 is amended by striking out “and civil aircraft” in the item relating to section 6156. (G) Section 6426 is hereby repealed. Repeal. 26 USC 6426. (H) The table of sections for subchapter B of chapter 65 is amended by striking out the item relating to section 6426. (d) Effective Date.— The amendments made by this section shall 26 USC 4261 note. apply with respect to transportation beginning after August 31, 1982; except that such amendments shall not apply to any amount paid on or before such date. SEC. 281. EXTENSION OF AIRPORT AND AIRWAY TRUST FUND. (a) General Rule.— Subchapter A of chapter 98 (relating to Trust Fund Code) is amended by adding at the end thereof the following new section: “SEC. 9302. AIRPORT AND AIRWAY TRUST FUND. “(a) Creation of Trust Fund.— There is established in the Treasury of the United States a trust fund to be known as the ‘Airport and Airway Trust Fund’, consisting of such amounts as may be appropriated or credited to the Airport and Airway Trust Fund as provided in this section or section 9602(b). “(b) Transfer to Airport and Airway Trust Fund of Amounts Equivalent to Certain Taxes.— There is hereby appropriated to the Airport and Airway Trust Fund— “(1) amounts equivalent to the taxes received in the Treasury after August 31, 1982, and before January 1, 1988, under subsections (c) and (d) of section 4041 (taxes on aviation fuel) and under sections 4261 and 4271 (taxes on transportation by air); “(2) amounts determined by the Secretary of the Treasury to be equivalent to the taxes received in the Treasury after August 31, 1982, and before January 1, 1988, under section 4081, with respect to gasoline used in aircraft; and “(3) amounts determined by the Secretary of the Treasury to be equivalent to the taxes received in the Treasury after August 31, 1982, and before January 1, 1988, under paragraphs (2) and (3) of section 4071(a), with respect to tires and tubes of the types used on aircraft. “(c) Appropriation of additional sums.— There are hereby authorized to be appropriated to the Airport and Airway Trust Fund such additional sums as may be required to make the expenditures referred to in subsection (d) of this section. “(d) Expenditures from Airport and Airway Trust Fund.— “(1) Airport and airway program.— Amounts in the Airport and Airway Trust Fund shall be available, as provided by appropriation Acts, for making expenditures before October 1, 1987, to meet those obligations of the United States— “(A) incurred under title I of the Airport and Airway Development Act of 1970 or of the Airport and Airway 49 USC 1701. 49 USC 1701 note. 49 USC 2101 note. 95 Stat. 622. Post, p. 671. Development Act Amendments of 1976 or of the Aviation Safety and Noise Abatement Act of 1979 or under the Fiscal Year 1981 Airport Development Authorization Act or the provisions of the Airport and Airway Improvement Act of 1982 (as such Acts were in effect on the date of the enactment of the Airport and Airway Improvement Act of 1982); “(B) heretofore or hereafter incurred under the Federal Aviation Act of 1958, as amended (49 U.S.C. 1301 et seq.), which are attributable to planning, research and development, construction, or operation and maintenance of— “(i) air traffic control, “(ii) air navigation. “(iii) communications, or “(iv) supporting services, for the airway system; or “(C) for those portions of the administrative expenses of the Department of Transportation which are attributable to activities described in subparagraph (A) or (B). “(2) Transfers from airport and airway trust fund on account of certain refunds.— The Secretary of the Treasury shall pay from time to time from the Airport and Airway Trust Fund into the general fund of the Treasury amounts equivalent to the amounts paid after August 31, 1982, in respect of fuel used in aircraft, under section 6420 (relating to amounts paid in respect of gasoline used on farms, 6421 (relating to amounts paid in respect of gasoline used for certain nonhighway purposes), or 6427 (relating to fuels not used for taxable purposes). “(3) Transfers from the airport and airway trust fund on account of certain section 39 credits.— The Secretary of the Treasury shall pay from time to time from the Airport and Airway Trust Fund into the general fund of the Treasury amounts equivalent to the credits allowed under section 39 with respect to fuel used after August 31, 1982. Such amounts shall be transferred on the basis of estimates by the Secretary of the Treasury, and proper adjustments shall be made in amounts subsequently transferred to the extent prior estimates were in excess of or less than the credits allowed.”. (b) Repeal of Section 208 of the Airport and Airway Revenue Act of 1970.— Section 208 of the Airport and Airway Revenue Act of 1970 is hereby repealed. 49 USC 1742. (c) Conforming Amendments.— (1) The table of sections for subchapter A of chapter 98 is amended to read as follows: “Sec. 9501. Black Lung Disability Trust Fund. “Sec. 9502. Airport and Airway Trust Fund.”. (2) The section heading for section 9501 (relating to establishment 26 USC 9501. of Black Lung Disability Trust Fund) is amended to read as follows: “SEC. 9501. BLACK LUNG DISABILITY TRUST FUND.”. (d) Effective Date.— (1) In General.— The amendments made by this section shall take effect on September 1, 1982. (2) Savings Provisions.— The Airport and Airway Trust Fund established by the amendments made by this section shall be treated for all purposes of law as the continuation of the Airport and Airway Trust Fund established by section 208 of the Airport and Airway Revenue Act of 1970. Any reference in any law Supra. to the Airport and Airway Trust Fund established by such section 208 shall be deemed to include a reference to the Airport and Airway Trust Fund established by the amendments made by this section. SEC. 281A. TECHNICAL PROVISIONS RELATING TO TAX ON TRANSPORTATION OF PERSONS BY AIR. (a) Technical Modifications to Transportation of Passengers By Air.— (1) Longer layover permitted to qualify as uninterrupted international air transportation.— Paragraph (3) of section 4262(c) (defining uninterrupted international air transportation) 26 USC 4262. is amended by striking out “6 hours” each place it appears and inserting in lieu thereof “12 hours”. (2) Authority to waive 225-mile zone provisions.— Section 4262 (defining taxable transportation) is amended by adding at 26 USC 4262. the end thereof the following new subsection: “(e) Authority to Waive 225-Mile Zone Provisions.— “(1) In general.— If the Secretary of the Treasury determines that Canada or Mexico has entered into a qualified agreement— “(A) the Secretary shall publish a notice of such determination Publication in Federal Register. in the Federal Register, and “(B) effective with respect to transportation beginning after the date specified in such notice, to the extent provided in the agreement, the term ‘225-mile zone’ shall not include part or all of the country with respect to which such determination is made. “(2) Termination of waiver.— If a determination was made under paragraph (1) with respect to any country and the Secretary of the Treasury subsequently determines that the agreement is no longer in effect or that the agreement is no longer a qualified agreement— “(A) the Secretary shall publish a notice of such determination Publication in Federal Register. in the Federal Register, and “(B) subparagraph (B) of paragraph (1) shall cease to apply with respect to transportation beginning after the date specified in such notice. “(3) Qualified agreement.— For purposes of this subsection, the term ‘qualified agreement’ means an agreement between the United States and Canada or Mexico (as the case may be)— “(A) setting forth that portion of such country which is not to be treated as within the 225-mile zone, and “(B) providing that the tax imposed by such country on transportation described in subparagraph (A) will be at a level which the Secretary of the Treasury determines to be appropriate. “(4) Requirement that agreement be submitted to congress.— No notice may be published under paragraph (1)(A) with respect to any qualified agreement before the date 90 days after the date on which a copy of such agreement was furnished to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate.” (3) Effective Date.— The amendments made by this subsection 26 USC 4262 note. shall apply to transportation beginning after August 31, 1982. (b) Manner in Which Tax on Transportation by Air is Required to be Shown on Airline Tickets.— (1) General rule.— Subsection (a) of section 7275 (relating to 26 USC 7275. penalty for offenses relating to certain airline tickets and advertising) is amended to read as follows: “(a) Tickets.— In the case of transportation by air all of which is taxable transportation (as defined in section 4262), the ticket for such transportation shall show the total of— “(1) the amount paid for such transportation, and “(2) the taxes imposed by subsections (a) and (b) of section 4261.”. (2) Effective Date.— The amendment made by subsection (a) 26 USC 7275 note. shall apply with respect to transportation beginning after the date of the enactment of this Act. PART II— COMMUNICATIONS SERVICES SEC. 282. EXTENSION OF EXCISE TAX ON COMMUNICATIONS SERVICES. (a) In General.— Section 4251 (relating to imposition of tax on 26 USC 4251. communications services) is amended by striking out subsections (a) and (b) and inserting the following new subsections: “(a) Tax Imposed.— “(1) In general.— There is hereby imposed on amounts paid for communications services a tax equal to the applicable percentage of amounts so paid. “(2) Payment of tax.— The tax imposed by this section shall be paid by the person paying for such services. “(b) Definitions.— “For purposes of subsection (a)— “(1) Communications services.— “The term ‘communications services’ means— “(A) local telephone service; “(B) toll telephone service; and “(C) teletypewriter exchange service. “(2) Applicable percentage.— “The term ‘applicable percentage’ means— “With respect to amounts paid pursuant to bills first rendered— The percentage is— During 1983, 1984, or 1985 3 During 1986 or thereafter 0.”. (b) Effective Date.— “The amendment made by subsection (a) 26 USC 4251 note. shall apply with respect to amounts paid for communications services pursuant to bills first rendered after December 31, 1982. PART III— CIGARETTES SEC. 283. INCREASE IN TAX ON CIGARETTES. (a) Rate of Tax.— Subsection (b) of section 5701 (relating to rate of 26 USC 5701. tax on cigarettes) is amended— (1) by striking out “$4” in paragraph (1) and inserting in lieu thereof “$8”; and (2) by striking out “$8.40” in paragraph (2) and inserting in lieu thereof “$16.80”. (b) Floor Stocks.— (1) Imposition of Tax.— On cigarettes manufactured in or imported into the United States which are removed before January 1, 1983, and held on such date for sale by any person, there shall be imposed the following taxes: (A) Small cigarettes.— On cigarettes, weighing not more than 3 pounds per thousand, $4 per thousand; (B) Large cigarettes.— On cigarettes, weighing more than 3 pounds per thousand, $8.40 per thousand; except that , if more than 6½ inches in length, they shall be taxable at the rate prescribed for cigarettes weighing not more than 3 pounds per thousand, counting each 2¾ inches, or fraction thereof, of the length of each as one cigarette. (2) Liability for tax and method of payment.— (A) Liability for tax.— A person holding cigarettes on January 1, 1983, to which any tax imposed by paragraph (1) applies shall be liable for such tax. (B) Method of payment.— The tax imposed by paragraph (1) shall be treated as a tax imposed under section 5701 and shall be due and payable on January 18, 1983 in the same manner as the tax imposed under such section is payable with respect to cigarettes removed on January 1, 1983. (3) Cigarette.— For purposes of this subsection, the term “cigarette” shall have the meaning given to such term by subsection (b) of section 5702 of the Internal Revenue Code of 1954. (4) Exception for retailers.— The taxes imposed by paragraph (1) shall not apply to cigarettes in retail stocks held on January 1, 1983, at the place where intended to be sold at retail. (c) Effective Date.— The amendment made by subsection (a) shall 26 USC 5701 note. apply with respect to cigarettes removed after December 31, 1982 and before October 1, 1985. PART IV— TAPS ADJUSTMENT ELIMINATED SEC. 284. ELIMINATION OF THE TAPS ADJUSTMENT. (a) In General. Subsection (d) of section 4996 (relating to Alaskan 26 USC 4996. oil from Sadlerochit reservior) is amended to read as follows: “(d) Alaskan Oil From Sadlerochit Reservoir.— For purposes of this chapter— “(1) Removal price determined on monthly basis.— The removal price of Sadlerochit oil removed during any calendar month shall be the average of the producer’s removal prices for such month. “(2) Sadlerochit oil defined.— The term ‘Sadlerochit oil’ means crude oil produced from the Sadlerochit reservoir in the Prudhoe Bay oilfield.”. (b) Effective Date.— The amendment made by this section shall 26 USC 4996 note. apply with respect to oil removed after December 31, 1982. Subtitle G— Miscellaneous SEC. 285. TWO-YEAR EXTENSION OF EXCLUSION FROM GROSS INCOME OF NATIONAL RESEARCH SERVICE AWARDS. Paragraph (2) of section 161(b) of the Revenue Act of 1978 (relating 26 USC 117 note. to exclusion from gross income for national research service awards) is amended by striking out “1981” and inserting in lieu thereof “1983”. SEC. 286. SPECIAL RULES FOR CERTAIN AMATEUR SPORTS ORGANIZATIONS. (a) SPECIAL RULES.— Section 501 is amended by redesignating subsection 26 USC 501. (j) as subsection (k) and by inserting after subsection (i) the following new subsection: “(j) Special Rules for Certain Amateur Sports Organizations.— “(1) In general.— In the case of a qualified amateur sports organization— “(A) the requirement of subsection (c)(3) that no part of its activities involve the provision of athletic facilities or equipment shall not apply, and “(B) such organization shall not fail to meet the requirements of subsection (c)(3) merely because its membership is local or regional in nature. “(2) Qualified amateur sports organization defined.— For purposes of this subsection, the term ‘qualified amateur sports organization’ means any organization organized and operated exclusively to foster national or international amateur sports competition if such organization is also organized and operated primarily to conduct national or international competition in sports or to support and develop amateur athletes for national or international competition in sports.” (b) Definition of Charitable Contribution.— (1) Subsection (c) of section 170 (defining charitable contribution) is amended by adding 26 USC 170. at the end of paragraph (2) the following new sentence: “Rules similar to the rules of section 501(j) shall apply for purposes of this Ante, p. 569. paragraph.”. (2) Subsection (a) of section 2055 (relating to transfers for public, 26 USC 2055. charitable, and religious uses) is amended by adding at the end thereof the following new sentence: “Rules similar to the rules of section 501(j) shall apply for purposes of paragraph (2).”. (3) Subsection (a) of section 2522 (relating to charitable and similar 26 USC 2522. gifts) is amended by adding at the end thereof the following new sentence: “Rules similar to the rules of section 501(j) shall apply for purposes of paragraph (2).”. (c) Effective Date.— The amendments made by this section shall 26 USC 501 note. take effect on October 5, 1976. SEC. 287. NEW JERSEY GENERAL REVENUE SHARING ALLOCATION. (a) In General.— Subsection (e) of section 109 of the State and Local Fiscal Assistance Act of 1972 (31 U.S.C. 1228) (defining general tax effort factor) is amended by inserting at the end thereof the following new paragraph: “(3) New jersey franchise and gross receipts taxes.— “(A) The New Jersey Franchise and Gross Receipts Taxes (N.J. Rev. Stat. 54:30A–18.1) transferred to a unit of local government within the State in the years beginning January 1 of 1980, 1981, and 1982 shall be deemed to be an adjusted tax of such units for purposes of paragraph (2)(A)(i). “(B) The provisions of subparagraph (A) shall be given effect for quarterly payments made for quarters beginning after December 31, 1982, only if the Governor of the State of New Jersey notifies the Secretary that, prior to January 1, 1983, the State amended the New Jersey Franchise and Gross Receipts Taxes statute to provide for collection and retention of such taxes by units of local government for years beginning as of January 1, 1983. “(C) Notwithstanding the limitation in subparagraph (B), the provisions of subparagaph (A) shall be given effect with respect to the quarterly payment to be made for the quarter beginning October 1, 1982.”. (b) Effective Date.— The amendment made by this section shall 31 USC 1228 note. be effective after September 30, 1982. SEC. 288. ILLEGAL PAYMENTS TO GOVERNMENT OFFICIALS OR EMPLOYEES. (a) In General.— Paragraph (1) of section 162(c) (relating to illegal 26 USC 162. payments to Government officials or employees) is amended— (1) by striking out “would be unlawful under the laws of the United States if such laws were applicable to such payment and to such official or employee” and inserting in lieu thereof “is unlawful under the Foreign Corrupt Practices Act of 1977”, and 15 USC 78a note. (2) by striking out “(or would be unlawful under the laws of the United States)” and inserting in lieu thereof “(or is unlawful under the Foreign Corrupt Practices Act of 1977)”. (b) Coordination With Subpart F.— (1) Subsection (a) of section 952 is amended by adding at the 26 USC 952. end thereof the following new sentence: “The payments referred to in paragraph (4) are payments which would be unlawful under the Foreign Corrupt Practices Act of 1977 if the payor were a United States person.” (2) Subsection (a) of section 964 is amended by adding at the 26 USC 964. end thereof the following new sentence: “The payments referred to in the preceding sentence are payments which would be unlawful under the Foreign Corrupt Practices Act of 1977 if the payor were a United States person.” (c) Effective Date.— The amendments made by this section shall 26 USC 162 note. apply to payments made after the date of the enactment of this Act. SEC. 289. DEBT MANAGEMENT PROVISIONS. (a) Determination by Secretary of Investment Yield on United States Savings Bond.— (1) Subsection (b) of section 22 of the Second Liberty Bond Act (31 U.S.C. 757c) is amended— (A) by amending paragraph (3) to read as follows: “(3) The Secretary of the Treasury, with the approval of the President, may fix the investment yield on any United States savings bond. The Secretary of the Treasury, with the approval of the President, may provide for increases and decreases in the investment yield on any outstanding United States savings bond; except that the investment yield on any bond for the period held may not be decreased below the minimum yield for such period guaranteed at the time of its issuance.”; (B) by striking out “the Secretary of the Treasury may prescribe: Provided” and all that follows down through the end of the second sentence of paragraph (1) of such subsection and inserting in lieu thereof “the Secretary of the Treasury may prescribe.”; (C) by striking out “and shall be expressed in terms of their maturity value” in the third sentence of paragraph (1) of such subsection; and (D) by striking out “higher rates which are consistent” and inserting in lieu thereof “rates which are consistent” in subparagraph (B) of paragraph (2) of such subsection. (2) The second sentence of section 22A(b)(l) of such Act is 31 USC 757C-2. amended by striking out “the Secretary of the Treasury may prescribe” and all that follows down through the end thereof and inserting in lieu thereof “the Secretary of the Treasury may prescribe.”. (b) Transitional Rule.— In the case of any savings bond issued 31 USC 757c note. before the 30th day after the date of the enactment of this Act, for purposes of sections 22 and 22A of the Second Liberty Bond Act, the 31 USC 757c, 757c-2. minimum yield guaranteed for the period held shall be the scheduled investment yield for such period as in effect on such 30th day. (c) Limit on Outstanding Bonds.— Effective on the date of the enactment of this Act, the last sentence of the second paragraph of the first section of the Second Liberty Bond Act (31 U.S.C. 752) is amended by striking out “$70,000,000,000” and inserting in lieu thereof “$110,000,000,000”. SEC. 290. JEFFERSON COUNTY MENTAL HEALTH CENTER. (a) In General.— The Secretary is authorized and directed to pay, out of any money in the Treasury not otherwise appropriated, to the Jefferson County Mental Health Center, Incorporated, of Lakewood, Colorado, the sum of $50,000 in full settlement of all claims of the center against the United States for repayment of amounts the center erroneously refunded to its employees for social security contributions in the period after December 31, 1971, and prior to May 14, 1975, pursuant to instructions by the Internal Revenue Service. (b) Limitation.— No part of the amount appropriated in subsection (a) in excess of 10 per centum shall be paid, delivered to, or received by any agent or attorney on account of services rendered in connection with this claim, and the same shall be unlawful, any contract to the contrary notwithstanding. Any person violating the provisions of this subsection shall be guilty of a misdemeanor and, upon conviction thereof be fined any sum not exceeding $1,000. SEC. 291. ALASKA NATIVE CORPORATIONS. Paragraph (2) of subsection (d) of section 4994 of subpart B of chapter 45 (relating to windfall profit tax on domestic crude oil; 26 USC 4994. categories of oil) is amended by striking “under” the first time it appears and inserting in lieu thereof “pursuant to”. SEC. 292. AWARDING OF COSTS AND CERTAIN FEES. (a) In General.— Subchapter B of chapter 76 (relating to proceedings by taxpayers and third parties) is amended by redesignating section 7430 as section 7431 and by inserting after section 7429 the 26 USC 7431. following new section: “SEC. 7430. AWARDING OF COURT COSTS AND CERTAIN FEES. “(a) In General.— In the case of any civil proceeding which is— “(1) brought by or against the United States in connection with the determination, collection, or refund of any tax, interest, or penalty under this title, and “(2) brought in a court of the United States (including the Tax Court), the prevailing party may be awarded a judgment for reasonable litigation costs incurred in such proceeding. “(b) Limitations.— “(1) Maximum dollar amount.— The amount of reasonable litigation costs which may be awarded under subsection (a) with respect to any prevailing party in any civil proceeding shall not exceed $25,000. “(2) Requirement that administrative remedies be exhausted.— A judgment for reasonable litigation costs shall not be awarded under subsection (a) unless the court determines that the prevailing party has exhausted the administrative remedies available to such party within the Internal Revenue Service. “(3) Only costs allocable to the united states.— An award under subsection (a) shall be made only for reasonable litigation costs which are allocable to the United States and not to any other party to the action or proceeding. “(4) Exclusion of declaratory judgment proceedings.— “(A) In General.— No award for reasonable litigation costs may be made under subsection (a) with respect to any declaratory judgment proceeding. “(B) Exception for section 501 (c) (3) determination revocation proceedings.— Subparagraph (A) shall not apply to any proceeding which involves the revocation of a determination that the organization is described in section 501(c)(3). “(c) Definitions.— For purposes of this section— “(1) Reasonable litigation costs.— “(A) In general.— The term ‘reasonable litigation costs’ includes— “(i) reasonable court costs, “(ii) the reasonable expenses of expert witnesses in connection with the civil proceeding, “(iii) the reasonable cost of any study, analysis, engineering report, test, or project which is found by the court to be necessary for the preparation of the party’s case, and “(iv) reasonable fees paid or incurred for the services of attorneys in connection with the civil proceeding. “(B) Attorney’s fees.— In the case of any proceeding in the Tax Court, fees for the services of an individual (whether or not an attorney) who is authorized to practice before the Tax Court shall be treated as fees for the services of an attorney. “(2) Prevailing party.— “(A) In general.— The term ‘prevailing party’ means any party to any proceeding described in subsection (a) (other than the United States or any creditor of the taxpayer involved) which— “(i) establishes that the position of the United States in the civil proceeding was unreasonable, and “(ii) (I) has substantially prevailed with respect to the amount in controversy, or “(II) has substantially prevailed with respect to the most significant issue or set of issues presented. “(B) Determination as to prevailing party.— Any determination under subparagraph (A) as to whether a party is a prevailing party shall be made— “(i) by the court, or “(ii) by agreement of the parties. “(3) Civil actions.— The term ‘civil proceeding’ includes a civil action. “(d) Multiple Actions.— For purposes of this section, in the case of— “(1) multiple actions which could have been joined or consolidated, or “(2) a case or cases involving a return or returns of the same taxpayer (including joint returns of married individuals) which could have been joined in a single proceeding in the same court, such actions or cases shall be treated as one civil proceeding regardless of whether such joinder or consolidation actually occurs, unless the court in which such action is brought determines, in its discretion, that it would be inappropriate to treat such actions or cases as joined or consolidated for purposes of this section. “(e) Right of Appeal.— An order granting or denying an award for reasonable litigation costs under subsection (a), in whole or in part, shall be incorporated as a part of the decision or judgment in the case and shall be subject to appeal in the same manner as the decision or judgment. “(f) Termination.— This section shall not apply to any proceeding commenced after December 31, 1985.” (b) Penalty for Using Tax Court Proceedings for Delay; Penalty for Frivolous or Groundless Proceeding.— The first sentence of section 6673 (relating to damages assessable by instituting 26 USC 6673. proceedings before the Tax Court merely for delay) is amended to read as follows: “Whenever it appears to the Tax Court that proceedings before it have been instituted or maintained by the taxpayer primarily for delay or that the taxpayer’s position in such proceedings is frivolous or groundless, damages in an amount not in excess of $5,000 shall be awarded to the United States by the Tax Court in its decision.”. (c) Application With Title 28.— Section 2412 of title 28, United States Code, is amended by adding at the end thereof the following new subsection: “(e) The provisions of this section shall not apply to any costs, fees, and other expenses in connection with any proceeding to which section 7430 of the Internal Revenue Code of 1954 applies (determined without regard to subsections (b) and (f) of such section). Nothing in the preceding sentence shall prevent the awarding under subsection (a) of section 2412 of title 28, United States Code, of costs enumerated in section 1920 of such title (as in effect on October 1, 1981).”. (d) Conforming Amendments.— (1) The table of sections for subchapter B of chapter 76 is amended by striking out the item relating to section 7430 and inserting the following new items: “Sec. 7430. Awarding of court costs and certain fees. “Sec. 7431. Cross references.”. (2) (A) The section heading of section 6673 is amended by 26 USC 6673. striking out “merely for delay.” and inserting in lieu thereof “primarily for delay, etc.”. (B) The table of sections for subchapter B of chapter 68 is amended by striking out “merely for delay.” in the item relating to section 6673 and inserting in lieu thereof “primarily for delay, etc.”. (e) Effective Dates.— (1) General.— The amendments made by this section shall apply to civil actions or proceedings commenced after February 28, 1983. (2) Penalty.— The amendments made by subsections (b) and (d)(2) shall apply to any action or proceeding in the Tax Court commenced after December 31, 1982. SEC. 293. TREATMENT OF CERTAIN LENDING OR FINANCE BUSINESSES FOR PURPOSES OF THE TAX ON PERSONAL HOLDING COMPANIES. (a) Removal of Limitation on Amount of Ordinary Gross Income from Lending or Finance Business Taken Into Account.— Clause (ii) of section 542(c)(6)(C) (relating to exceptions 26 USC 542. from definition of personal holding company) is amended by striking out “but not $1,000,000”. (b) Changes in Definition of Lending or Finance Business.— Clause (i) of section 542(d)(1)(B) (relating to exceptions from definition of lending or finance business) is amended to read as follows: “(i) making loans, or purchasing or discounting accounts receivable, notes, or installment obligations, if (at the time of the loan, purchase, or discount) the remaining maturity exceeds 144 months; unless— “(I) the loans, notes, or installment obligations are evidenced or secured by contracts of conditional sale, chattel mortgages, or chattel lease agreements arising out of the sale of goods or services in the course of the borrower’s or transferor’s trade or business, or “(II) the loans, notes, or installment obligations are made or acquired by the taxpayer and meet the requirements of subparagraph (C), or”. (c) Indefinite Maturity Credit Transactions.— Paragraph (1) of section 542(d) (relating to special rules) is amended by adding at the end thereof the following new subparagraph: “(C) Indefinite maturity credit transactions.— For purposes of subparagraph (B)(i), a loan, note, or installment obligation meets the requirements of this subparagraph if it is made under an agreement— “(i) under which the creditor agrees to make loans or advances (not in excess of an agreed upon maximum amount) from time to time to or for the account of the debtor upon request, and “(ii) under which the debtor may repay the loan or advance in full or in installments.” (d) Effective Dates.— (1) Subsection (a).— The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1981. (2) Subsections (b) and (c).— The amendments made by subsections (b) and (c) shall apply to taxable years beginning after December 31, 1980. SEC. 294. ADDITIONAL REFUNDS RELATING TO REPEAL OF EXCISE TAX ON BUSES. (a) Time For Filing Claim.— Subparagraph (C) of section 231(c)(2) of the Energy Tax Act of 1978 (relating to refunds with respect to 26 USC 4063 note. certain consumer purchases) is amended by striking out “the first day of such 10th calendar month” and inserting in lieu thereof “December 31, 1982”. (b) Procedure for Passing Through Refund.— Subparagraph (A) of section 231(c)(2) of such Act is amended by inserting before the semicolon “, or, in lieu of evidence of reimbursement, he makes such reimbursement simultaneously with the receipt of such a refund under an arrangement satisfactory to such Secretary which assures such simultaneous reimbursement” .

43. 1982

    Pub. L. 97–248 § 217(a)(3) · 96 Stat. 324

    Substituted · 26 U.S.C. § 103(b)(6)(C)

    Pub. L. 97–248, § 217(a)(3), substituted “paragraph (13)” for “paragraph (7)”

    Source evidence

    Code amendment note
    Subsec. (b)(6)(C). Pub. L. 97–248, § 217(a)(3), substituted “paragraph (13)” for “paragraph (7)”.

    Enacted provision · exact public law section
    (3) Conforming amendment.— Subparagraph (C) of section 103(b)(6) is amended by striking out “paragraph (7)” and inserting 26 USC 103. in lieu thereof “paragraph (13)”.

44. 1982

    Pub. L. 97–248 § 214(d) · 96 Stat. 324

    Added · 26 U.S.C. § 103(b)(6)(F)(iv)

    Pub. L. 97–248, § 214(d), added cl. (iv)

    Source evidence

    Code amendment note
    Subsec. (b)(6)(F)(iv). Pub. L. 97–248, § 214(d), added cl. (iv).

    Enacted provision · exact public law section
    (d) Exclusion of Certain Research Expenditures from the Limitation on Certain Industrial Development Bonds.— Subparagraph (F) of section 103(b)(6) (relating to exclusion of certain capital expenditures) is amended— (1) by striking out “or” at the end of clause (ii), (2) by adding “or” at the end of clause (iii), and (3) by adding at the end thereof the following new clause: “(iv) described in clause (i) or (ii) of section 44F(b)(2)(A) for which a deduction was allowed under 95 Stat. 241. section 174(a),”.

45. 1982

    Pub. L. 97–248 § 214(a) · 96 Stat. 324

    Added · 26 U.S.C. § 103(b)(6)(K)(O)

    Pub. L. 97–248, § 214(a)–(c), (e), added subpars. (K) to (O)

    Source evidence

    Code amendment note
    Subsec. (b)(6)(K) to (O). Pub. L. 97–248, § 214(a)–(c), (e), added subpars. (K) to (O).

    Enacted provision · exact public law section
    (a) Composite Issues.— Paragraph (6) of section 103(b) (relating to 26 USC 103. exemption for certain small issues) is amended by adding at the end thereof the following new subparagraphs: “(K) Limitations on treatment of obligations as part of the same issue.— For purposes of this paragraph, separate lots of obligations which (but for this subparagraph) would be treated as part of the same issue shall be treated as separate issues unless the proceeds of such lots are to be used with respect to 2 or more facilities— “(i) which are located in more than 1 State, or “(ii) which have, or will have, as the same principal user the same person or related persons. “(L) Franchises.— For purposes of subparagraph (K), a person (other than a governmental unit) shall be considered a principal user of a facility if such person (or a group of related persons which includes such person)— “(i) guarantees, arranges, participates in, or assists with the issuance (or pays any portion of the cost of issuance) of any obligation the proceeds of which are to be used to finance or refinance such facility, and “(ii) provides any property, or any franchise, trademark, or tradename (within the meaning of section 1253), which is to be used in connection with such facility.”

46. 1982

    Pub. L. 97–248 § 217(c) · 96 Stat. 324

    1. Inserted · 26 U.S.C. § 103(b)(9)(A)

       Pub. L. 97–248, § 217(c), inserted “ferry,” after “rail car” in provisions preceding cl. (i), and in cl. (ii)

    2. Inserted · 26 U.S.C. § 103(b)(9)(A)

       Pub. L. 97–248, § 217(c), inserted “(or, in the case of a ferry, mass transportation services)” after “mass commuting services”

    Source evidence

    Code amendment note
    Subsec. (b)(9)(A). Pub. L. 97–248, § 217(c), inserted “ferry,” after “rail car” in provisions preceding cl. (i), and in cl. (ii), inserted “(or, in the case of a ferry, mass transportation services)” after “mass commuting services”.

    Enacted provision · exact public law section
    (c) Qualified Mass Commuting Vehicle.— Subparagraph (A) of section 103(b)(9) (defining qualified mass commuting vehicle) is 95 Stat. 349. amended— (1) by inserting “ferry,” after “rail car”, and (2) by inserting after “mass commuting services” in clause (ii) the phrase “(or, in the case of a ferry, mass transportation services)”.

47. 1982

    Pub. L. 97–248 § 217(a)(2) · 96 Stat. 324

    Redesignated · 26 U.S.C. § 103(b)(10)

    Pub. L. 97–248, § 217(a)(2), added par. (10). Former par. (10) redesignated (13)

    Source evidence

    Code amendment note
    Subsec. (b)(10). Pub. L. 97–248, § 217(a)(2), added par. (10). Former par. (10) redesignated (13).

    Enacted provision · exact public law section
    (2) Local district heating or cooling facilities defined.— Subsection (b) of section 103 is amended by redesignating paragraph 95 Stat. 349. (10) as paragraph (13) and by inserting after paragraph (9) the following new paragraph: “(10) Local district heating or cooling facility.— For purposes of this section— “(A) In general.— The term ‘local district heating or cooling facility’ means property used as an integral part of a local district heating or cooling system. “(B) Local district heating or cooling system.— “(i) In general.— The term ‘local district heating or cooling system’ means any local system consisting of a pipeline or network (which may be connected to a heating or cooling source) providing hot water, chilled water, or steam to 2 or more users for— “(I) residential, commercial, or industrial heating or cooling, or “(II) process steam. “(ii) Local system.— For purposes of this subparagraph, a local system includes facilities furnishing heating and cooling to an area consisting of a city and one contiguous county.”

48. 1982

    Pub. L. 97–248 § 217(d) · 96 Stat. 324

    Added · 26 U.S.C. § 103(b)(11)

    Pub. L. 97–248, § 217(d), added par. (11)

    Source evidence

    Code amendment note
    Subsec. (b)(11). Pub. L. 97–248, § 217(d), added par. (11).

    Enacted provision · exact public law section
    (d) Pollution Control Facilities Acquired by Regional Pollution Control Authority.— Subsection (b) of section 103 is amended by inserting after paragraph (10) (as added by subsection (a)) the following new paragraph: “(11) Pollution control facilities acquired by regional pollution control authorities.— “(A) In general.— For purposes of subparagraph (F) of paragraph (4), an obligation shall be treated as described in such subparagraph if it is part of an issue substantially all of the proceeds of which are used by a qualified regional pollution control authority to acquire existing air or water pollution control facilities which the authority itself will operate in order to maintain or improve the control of pollutants. “(B) Restrictions.— Subparagraph (A) shall apply only if— “(i) the amount paid, directly or indirectly, for the facilities does not exceed their fair market value, “(ii) the fees or charges imposed, directly or indirectly, on the seller for any use of the facilities after the sale are not less than the amounts that would be charged if the facilities were financed with obligations the interest on which is not exempt from tax, and “(iii) no person other than the qualified regional pollution control authority is considered after the sale as the owner of the facilities for purposes of Federal income taxes. “(C) Qualified regional pollution control authority defined.— For purposes of this paragraph, the term ‘qualified regional pollution control authority‘ means an authority which— “(i) is a political subdivision created by State law to control air or water pollution, “(ii) has within its jurisdictional boundaries all or part of at least 2 counties (or equivalent political subdivisions), and “(iii) operates air or water pollution control facilities.”

49. 1982

    Pub. L. 97–248 § 221(b) · 96 Stat. 324

    Added · 26 U.S.C. § 103(b)(12)

    Pub. L. 97–248, § 221(b), added par. (12). [Provisions of par. (12)(A) were formerly contained, as undesignated provisions, in par. (4).]

    Source evidence

    Code amendment note
    Subsec. (b)(12). Pub. L. 97–248, § 221(b), added par. (12). [Provisions of par. (12)(A) were formerly contained, as undesignated provisions, in par. (4).]

    Enacted provision · exact public law section
    (b) Definitions.— Subsection (b) of section 103 (relating to industrial development bonds) is amended by inserting after paragraph (11) the following new paragraph: Ante, p. 473. “(12) Projects for residential rental property.— For purposes of paragraph (4)(A)— “(A) Targeted area project.— The term ‘targeted area project’ means— “(i) a project located in a qualified census tract (within the meaning of section 103A(k)(2)), or “(ii) an area of chronic economic distress (within the meaning of section 103A(k)(3)). “(B) Qualified project period.— The term ‘qualified project period’ means the period beginning on the first day on which 10 percent of the units in the project are occupied and ending on the later of— “(i) the date which is 10 years after the date on which 50 percent of the units in the project are occupied, “(ii) the date which is a qualified number of days after the date on which any of the units in the project are occupied, or “(iii) the date on which any assistance provided with respect to the project under section 8 of the United States Housing Act of 1937 terminates. 42 USC 1437f. For purposes of clause (ii), the term ‘qualified number’ “Qualified number.” means, with respect to an obligation described in paragraph (4)(A), 50 percent of the number of days which comprise the term of the obligation with the longest maturity. “(C) Individuals of low and moderate income.— Individuals of low and moderate income shall be determined by the Secretary in a manner consistent with determinations of lower income families under section 8 of the United States Housing Act of 1937 (or if such program is terminated, 42 USC 1437f. under such program as in effect immediately before such termination), except that the percentage of median gross income which qualifies as low or moderate income shall be 80 percent.”

50. 1982

    Pub. L. 97–248 § 217(a)(2) · 96 Stat. 324

    Redesignated · 26 U.S.C. § 103(b)(13)

    Pub. L. 97–248, § 217(a)(2), redesignated former par. (10) as (13)

    Source evidence

    Code amendment note
    Subsec. (b)(13). Pub. L. 97–248, § 217(a)(2), redesignated former par. (10) as (13).

    Enacted provision · exact public law section
    (2) Local district heating or cooling facilities defined.— Subsection (b) of section 103 is amended by redesignating paragraph 95 Stat. 349. (10) as paragraph (13) and by inserting after paragraph (9) the following new paragraph: “(10) Local district heating or cooling facility.— For purposes of this section— “(A) In general.— The term ‘local district heating or cooling facility’ means property used as an integral part of a local district heating or cooling system. “(B) Local district heating or cooling system.— “(i) In general.— The term ‘local district heating or cooling system’ means any local system consisting of a pipeline or network (which may be connected to a heating or cooling source) providing hot water, chilled water, or steam to 2 or more users for— “(I) residential, commercial, or industrial heating or cooling, or “(II) process steam. “(ii) Local system.— For purposes of this subparagraph, a local system includes facilities furnishing heating and cooling to an area consisting of a city and one contiguous county.”

51. 1982

    Pub. L. 97–248 § 219(a) · 96 Stat. 324

    Added · 26 U.S.C. § 103(b)(14)

    Pub. L. 97–248, § 219(a), added par. (14)

    Source evidence

    Code amendment note
    Subsec. (b)(14). Pub. L. 97–248, § 219(a), added par. (14).

    Enacted provision · exact public law section
    (a) General rule.— Subsection (b) of section 103 (relating to industrial development bonds) is amended by adding at the end thereof the following new paragraph: “(14) Maturity may not exceed 120 percent of economic life.— “(A) General rule.— Paragraphs (4), (5), (6), and (7) shall Ante, p. 472. not apply to any obligation issued as part of an issue if— “(i) the average maturity of the obligations which are part of such issue, exceeds “(ii) 120 percent of the average reasonably expected economic life of the facilities being financed with the proceeds of such issue. “(B) Determination of averages.— For purposes of subparagraph (A)— “(i) the average maturity of any issue shall be determined by taking into account the respective issue prices of the obligations which are issued as part of such issue, and “(ii) the average reasonably expected economic life of the facilities being financed with any issue shall be determined by taking into account the respective cost of such facilities. “(C) Special rules.— “(i) Determination of economic life.— For purposes of this paragraph, the reasonably expected economic life of any facility shall be determined as of the later of— “(I) the date on which the obligations are issued, or “(II) the date on which the facility is placed in service (or expected to be placed in service), “(ii) Treatment of land.— “(I) Land not taken into account.— Except as provided in subclause (II), land shall not be taken into account under subparagraph (A)(ii). “(II) Issues where 25 percent or more of proceeds used to finance land.— If 25 percent or more of the proceeds of any issue is used to finance land, such land shall be taken into account under subparagraph (A)(ii) and shall be treated as having an economic life of 50 years.”

52. 1982

    Pub. L. 97–248 § 310(c)(2) · 96 Stat. 324

    1. Substituted · 26 U.S.C. § 103(h)

       Pub. L. 97–248, § 310(c)(2), substituted “must not be guaranteed or subsidized” for “must be in registered form and not guaranteed or subsidized” in heading, and in par. (1) struck out subpar. (A) reading “such obligation is not issued in registered form”

    2. Redesignated · 26 U.S.C. § 103(h)

       Pub. L. 97–248, § 310(c)(2), redesignated subpars. (B) and (C) as (A) and (B), respectively

    Source evidence

    Code amendment note
    Subsec. (h). Pub. L. 97–248, § 310(c)(2), substituted “must not be guaranteed or subsidized” for “must be in registered form and not guaranteed or subsidized” in heading, and in par. (1) struck out subpar. (A) reading “such obligation is not issued in registered form”, and redesignated subpars. (B) and (C) as (A) and (B), respectively.

    Enacted provision · exact public law section
    (2) (A) Paragraph (1) of section 103(h) (relating to certain obligations must be in registered form and not guaranteed or subsidized under an energy program) is amended by striking out subparagraph (A) and by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively. (B) The subsection heading for subsection (h) of section 103 is amended by striking out “Must Be in Registered Form and Not” and inserting in lieu thereof “Must Not Be”.

53. 1982

    Pub. L. 97–248 § 310(b)(1) · 96 Stat. 324

    1. Added · 26 U.S.C. § 103(j)

       Pub. L. 97–248, § 310(b)(1), added subsec. (j). Former subsec. (j), relating to cross references

    2. Redesignated · 26 U.S.C. § 103(j)

       Pub. L. 97–248, § 310(b)(1), redesignated (m)

    Source evidence

    Code amendment note
    Subsec. (j). Pub. L. 97–248, § 310(b)(1), added subsec. (j). Former subsec. (j), relating to cross references, redesignated (m).

    Enacted provision · exact public law section
    (1) Obligations must be in registered form to be tax-exempt.— Section 103 (relating to interest on certain governmental 95 Stat. 350. obligations) is amended by redesignating subsection (j) as subsection (k) and by inserting after subsection (i) the following new subsection:

54. 1982

    Pub. L. 97–248 § 215(a) · 96 Stat. 324

    Added · 26 U.S.C. § 103(k)

    Pub. L. 97–248, § 215(a), added subsec. (k)

    Source evidence

    Code amendment note
    Subsec. (k). Pub. L. 97–248, § 215(a), added subsec. (k).

    Enacted provision · exact public law section
    (a) Public Approval.— Section 103 (relating to interest on certain Post, p. 596. governmental obligations) is amended by redesignating subsection (k) as subsection (1) and by inserting after subsection (j) the following new subsection: “(k) Public Approval for Industrial Development Bonds.— “(1) In general.— Notwithstanding subsection (b), an industrial development bond shall be treated as an obligation not described in subsection (a) unless the requirements of paragraph (2) of this subsection are satisfied. “(2) Public approval requirement.— “(A) In general.— An obligation shall satisfy the requirements of this paragraph if such obligation is issued as a part of an issue which has been approved by— “(i) the governmental unit— “(I) which issued such obligation, or “(II) on behalf of which such obligation was issued, and “(ii) each governmental unit having jurisdiction over the area in which any facility, with respect to which financing is to be provided from the proceeds of such issue, is located (except that if more than 1 governmental unit within a State has jurisdiction over the entire area within such State in which such facility is located, only 1 such unit need approve such issue). “(B) Approval by a governmental unit.— For purposes of subparagraph (A), an issue shall be treated as having been approved by any governmental unit if such issue is approved— “(i) by the applicable elected representative of such governmental unit after a public hearing following reasonable public notice, or “(ii) by voter referendum of such governmental unit. “(C) Special rules for approval of facility.— If there has been public approval under subparagraph (A) of the plan of financing a facility, such approval shall constitute approval under subparagraph (A) for any issue— “(i) which is issued pursuant to such plan within 3 years after the date of the first issue pursuant to the approval, and “(ii) all or substantially all of the proceeds of which are to be used to finance such facility or to refund previous financing under such plan. “(D) Refunding obligations.— No approval under subparagraph (A) shall be necessary with respect to any obligation which is issued to refund an obligation approved under subparagraph (A) (or treated as approved under subparagraph (C)) unless the maturity date of such obligation is later than the maturity date of the obligation to be refunded. “(E) Applicable elected representative.— For purposes of this paragraph— “(i) In general.— The term ‘applicable elected representative’ means with respect to any governmental unit— “(I) an elected legislative body of such unit, or “(II) the chief elected executive officer, the chief elected State legal officer of the executive branch, or any other elected official of such unit designated for purposes of this paragraph by such chief elected executive officer or by State law. “(ii) No applicable elected representative.— If (but for this clause) a governmental unit has no applicable elected representative, the applicable elected representative for purposes of clause (i) shall be the applicable elected representative of the governmental unit— “(I) which is the next higher governmental unit with such a representative, and “(II) from which the authority of the governmental unit with no such representative is derived.”

55. 1982

    Pub. L. 97–248 § 215(b)(1) · 96 Stat. 324

    Added · 26 U.S.C. § 103(l)

    Pub. L. 97–248, § 215(b)(1), added subsec. (l)

    Source evidence

    Code amendment note
    Subsec. (l). Pub. L. 97–248, § 215(b)(1), added subsec. (l).

    Enacted provision · exact public law section
    (1) In general.— Section 103 is amended by redesignating 26 USC 103. subsection (1) as subsection (m) and by adding at the end thereof the following new subsection:

56. 1982

    Pub. L. 97–248 title II · 96 Stat. 324

    Redesignated · 26 U.S.C. § 103(m)

    Pub. L. 97–248, §§ 215(a), (b)(1), 310(b)(1), redesignated former subsec. (j), relating to cross references, as (m)

    Source evidence

    Code amendment note
    Subsec. (m). Pub. L. 97–248, §§ 215(a), (b)(1), 310(b)(1), redesignated former subsec. (j), relating to cross references, as (m).

    Enacted provision · exact public law
    TITLE II— REVENUE MEASURES Subtitle A— Provisions Relating to Individuals SEC. 201. ALTERNATIVE MINIMUM TAX ON TAXPAYERS OTHER THAN CORPORATIONS. (a) In General.— Section 55 (relating to alternative minimum tax 26 USC 55. for taxpayers other than corporations) is amended to read as follows: “SEC. 55. ALTERNATIVE MINIMUM TAX FOR TAXPAYERS OTHER THAN CORPORATIONS. “(a) Tax Imposed.— In the case of a taxpayer other than a corporation, there is imposed (in addition to any other tax imposed by this subtitle) a tax equal to the excess (if any) of— “(1) an amount equal to 20 percent of so much of the alternative minimum taxable income as exceeds the exemption amount, over “(2) the regular tax for the taxable year. “(b) Alternative Minimum Taxable Income.— For purposes of this title, the term ‘alternative minimum taxable income’ means the adjusted gross income (determined without regard to the deduction allowed by section 172) of the taxpayer for the taxable year— “(1) reduced by the sum of— “(A) the alternative tax net operating loss deduction, plus “(B) the alternative tax itemized deductions, plus “(C) any amount included in income under section 667, 26 USC 667. and “(2) increased by the amount of items of tax preference. “(c) Credits.— “(1) In general.— For purposes of determining any credit allowable under subpart A of part IV of this subchapter (other 26 USC 31. than the foreign tax credit allowed under section 33(a))— “(A) the tax imposed by this section shall not be treated as a tax imposed by this chapter, and “(B) the amount of the foreign tax credit allowed by section 33(a) shall be determined without regard to this section. “(2) Foreign tax credit allowed against alternative minimum tax.— “(A) Determination of foreign tax credit.— The total amount of the foreign tax credit which can be taken against the tax imposed by subsection (a) shall be determined under subpart A of part III of subchapter N (section 901 and following). “(B) Increase in amount of foreign taxes taken into account.— For purposes of the determination provided by subparagraph (A), the amount of the taxes paid or accrued to foreign countries or possessions of the United States during the taxable year shall be increased by an amount equal to the lesser of— “(i) the foreign tax credit allowable under section 33(a) in computing the regular tax for the taxable year, or “(ii) the tax imposed by subsection (a). “(C) Section 904(a) limitation.— For purposes of the determination provided by subparagraph (A), the limitation of section 904(a) shall be an amount equal to the same proportion of the sum of the tax imposed by subsection (a) against which such credit is taken and the regular tax as— “(i) the taxpayer’s alternative minimum taxable income from sources without the United States (but not in excess of the taxpayer’s entire alternative minimum taxable income), bears to “(ii) his entire alternative minimum taxable income. For such purpose, the amount of the limitation of section 904(a) shall not exceed the tax imposed by subsection (a). “(D) Definition of alternative minimum taxable income from sources without the united states.— For purposes of subparagraph (C), the term ‘alternative minimum taxable income from sources without the United States’ means adjusted gross income from sources without the United States, adjusted as provided in paragraphs (1) and (2) of subsection (b) (taking into account in such adjustment only items described in such paragraphs which are properly attributable to items of gross income from sources without the United States). “(E) Special rule for applying section 904(c).— In determining the amount of foreign taxes paid or accrued during the taxable year which may be deemed to be paid or accrued in a preceding or succeeding taxable year under section 904(c)— “(i) the limitation of section 904(a) shall be increased 26 USC 904. by the amount of the limitation determined under subparagraph (C), and “(ii) any increase under subparagraph (B) shall be taken into account. “(3) Carryover and carryback of certain credits.— “(A) In general.— In the case of any taxable year in which a tax is imposed by this section, for purposes of determining the amount of any carryback or carryover of any applicable credit to any other taxable year, the amount of the applicable credit limitation for such taxable year shall be deemed to be— “(i) the amount of the applicable credit allowable for such taxable year (determined without regard to this paragraph), reduced (but not below zero) by “(ii) the amount of the tax imposed by this section for the taxable year, reduced by— “(I) the amount of the credit allowable under section 33(a), and “(II) the amount of such tax taken into account under this clause with respect to any applicable credit having a lower number or letter designation. “(B) Applicable credits, etc.— For purposes of this paragraph— “(i) Applicable credit.— The term ‘applicable credit’ means any credit allowable under section 38, 40, 44B, 44C, 44E, or 44F. “(ii) Applicable credit limitation.— The term ‘applicable credit limitation’ means, with respect to any applicable credit, the limitation under section 46(a)(3), 53(a), 44C(b)(5), 44E(e)(1), 44F(g)(1), or 50A(a)(2), whichever is appropriate. “(d) Alternative tax net operating loss deduction defined.— For purposes of this section— “(1) In general.— The term ‘alternative tax net operating loss deduction’ means the net operating loss deduction allowable for the taxable year under section 172, except that in determining the amount of such deduction— “(A) in the case of taxable years beginning after December 31, 1982, section 172(b)(2) shall be applied by substituting ‘alternative minimum taxable income’ for ‘taxable income’ each place it appears, and “(B) the net operating loss (within the meaning of section 172(c)) for any loss year shall be adjusted as provided in paragraph (2). “(2) Adjustments to net operating loss computation.— “(A) Post-1982 loss years.— In the case of a loss year beginning after December 31, 1982, the net operating loss for such year under section 172(c) shall— “(i) be reduced by the amount of the items of tax preference arising in such year which are taken into account in computing the net operating loss, and “(ii) be computed by taking into account only itemized deductions which are alternative tax itemized deductions for the taxable year and which are otherwise described in section 172(c). “(B) Pre-1983 years.— In the case of loss years beginning before January 1, 1983, the amount of the net operating loss which may be carried over to taxable years beginning after December 31, 1982, for purposes of subparagraph (A), shall be equal to the amount which may be carried from the loss year to the first taxable year of the taxpayer beginning after December 31, 1982. “(e) Alternative tax itemized deductions.— For purposes of this section— “(1) In general.— The term ‘alternative tax itemized deductions’ means an amount equal to the sum of any amount allowable as a deduction for the taxable year (other than a deduction allowable in computing adjusted gross income) under— “(A) section 165(a) for losses described in subsection (c)(3) 26 USC 165. or (d) of section 165, “(B) section 170 (relating to charitable deductions), “(C) section 213 (relating to medical deductions), “(D) this chapter for qualified interest, or “(E) section 691(c) (relating to deduction for estate tax). “(2) Amounts which may be carried over.— No amount shall be taken into account under paragraph (1) to the extent such amount may be carried to another taxable year for purposes of the regular tax. “(3) Qualified interest.— The term ‘qualified interest’ means the sum of— “(A) any qualified housing interest, and “(B) any amount allowed as a deduction for interest (other than qualified housing interest) to the extent such amount does not exceed the qualified net investment income of the taxpayer for the taxable year. “(4) Qualified housing interest.— “(A) In general.— The term ‘qualified housing interest’ means interest which is paid or accrued during the taxable year on indebtedness which is incurred in acquiring, constructing, or substantially rehabilitating any property which— “(i) is the principal residence (within the meaning of section 1034) of the taxpayer at the time such interest accrues or is paid, or “(ii) is a qualified dwelling used by the taxpayer (or any member of his family within the meaning of section 267(c)(4)) during the taxable year. “(B) Qualified dwelling.— The term ‘qualified dwelling’ means any— “(i) house, “(ii) apartment, “(iii) condominium, or “(iv) mobile home not used on a transient basis (within the meaning of section 7701(a)(19)(C)(v)), including all structures or other property appurtenant thereto. “(C) Special rule for indebtedness incurred before july 1, 1982.— The term ‘qualified housing interest’ includes interest paid or accrued on indebtedness which— “(i) was incurred by the taxpayer before July 1, 1982, and “(ii) is secured by property which, at the time such indebtedness was incurred, was— “(I) the principal residence (within the meaning of section 1034) of the taxpayer, or 26 USC 1034. “(II) a qualified dwelling used by the taxpayer (or any member of his family (within the meaning of section 267(c)(4))). “(5) Qualified net investment income.— For purposes of this subsection— “(A) In general.— The term ‘qualified net investment income’ means the excess of— “(i) qualified investment income, over “(ii) qualified investment expenses. “(B) Qualified investment income.— The term ‘qualified investment income’ means the sum of— “(i) investment income (within the meaning of section 163(d)(3)(B) other than clause (ii) thereof), “(ii) any net capital gain attributable to the disposition of property held for investment, and “(iii) the amount of items of tax preference described in paragraph (1) of section 57(a). “(C) Qualified investment expenses.— The term ‘qualified investment expenses’ means the deductions directly connected with the production of qualified investment income to the extent that— “(i) such deductions a reallowable in computing adjusted gross income, and “(ii) such deductions are not items of tax preference. “(6) Special rules for estates and trusts.— “(A) In general.— In the case of an estate or trust, the alternative tax itemized deductions for any taxable year includes the deductions allowable under sections 642(c), 651(a), and 661(a). “(B) Determination of adjusted gross income.— The adjusted gross income of an estate or trust shall be computed in the same manner as in the case of an individual, except that the deductions for costs paid or incurred in connection with the administration of the estate or trust shall be treated as allowable in arriving at adjusted gross income. “(7) Limitation on medical deduction.— In applying subparagraph (C) of paragraph (1), the amount allowable as a deduction under section 213 shall be determined by substituting ‘10 percent’ for ‘5 percent’ in section 213(a). Post, p. 421. “(8) Treatment of interests in limited partnerships and subchapter s corporations.— “(A) Certain interest treated as not allowable in computing adjusted gross income.— Any amount allowable as a deduction for interest on indebtedness incurred or continued to purchase or carry a limited business interest shall be treated as not allowable in computing adjusted gross income. “(B) Income treated as qualified investment income.— Any income derived from a limited business interest shall be treated as qualified investment income. “(C) Limited business interest.— The term ‘limited business interest’ means an interest— “(i) as a limited partner in a partnership, or “(ii) as a shareholder in an electing small business corporation (as defined in section 1371(b)) if the taxpayer does not actively participate in the management of such corporation. “(f) Other definitions.— For purposes of this section— “(1) Exemption amount.— The term ‘exemption amount’ means— “(A) $40,000 in the case of— “(i) a joint return, or “(ii) a surviving spouse (as defined in section 2(a)), “(B) $30,000 in the case of an individual who— “(i) is not a married individual (as defined in section 143), and “(ii) is not a surviving spouse (as so defined), and “(C) $20,000 in the case of— “(i) a married individual (as so defined) who files a separate return, or “(ii) an estate or trust. “(2) Regular tax.— The term ‘regular tax’ means the taxes imposed by this chapter for the taxable year (computed without regard to this section and without regard to the taxes imposed by sections 72(m)(5)(B), 72(q), 402(e), 408(f), 409(c), and 667(b)) Post, pp. 509, 546. Post, p. 585. reduced by the sum of the credits allowable under subpart A of part IV of this subchapter (other than under sections 31, 39, and 43). For purposes of this paragraph, the amount of the credits allowable under such subpart shall be determined without regard to this section.” (b) Items of Tax Preference.— (1) In general.— Subsection (a) of section 57 (relating to items 26 USC 57. of tax preference) is amended— (A) by striking out paragraph (1) and inserting in lieu thereof the following new paragraph: “(1) Exclusion of interest and dividends.— Any amount excluded from gross income for the taxable year under section 116 or 128.”, (B) by striking out paragraphs (5) and (6) and inserting in lieu thereof the following new paragraphs: “(5) Mining exploration and development costs.— With respect to each mine or other natural deposit (other than an oil or gas well) of the taxpayer, an amount equal to the excess of— “(A) the amount allowable as a deduction under section 616(a) or 617, over “(B) the amount which would have been allowable if the expenditures had been capitalized and amortized ratably over the 10-year period beginning with the taxable year in which such expenditures were made. “(6) Circulation and research and experimental expenditures.— An amount equal to the excess of— “(A) the amount allowable as a deduction under section 173 or 174(a) for the taxable year, over “(B) the amount which would have been allowable for the taxable year if the circulation expenditures described in section 173 or the research and experimental expenditures described in section 174 had been capitalized and amortized ratably over the 10-year period beginning with the taxable year in which such expenditures were made.”, and (C) by striking out paragraph (10) and inserting in lieu thereof the following: “(10) Incentive stock options.— With respect to the transfer of a share of stock pursuant to the exercise of an incentive stock option (as defined in section 422A), the amount by which the fair market value of the share at the time of exercise exceeds the option price.” (2) Conforming amendments.— (A) The next to last sentence of section 57(a) is amended 95 Stat. 224. 26 USC 57. by striking out “(3), (11), and (12)” and inserting in lieu thereof “(1), (3), (5), (6), (11), and (12)(A)”. (B) Section 57(a) is amended by striking out the last sentence. (c) Optional 10-year writeoff of certain tax preferences— (1) Section 58 (relating to rules for application of minimum 26 USC 58. tax) is amended by adding at the end thereof the following new subsection: “(i) Optional 10-year writeoff of certain tax preferences.— “(1) In general.— For purposes of this title, in the case of an individual, any qualified expenditure to which an election under this paragraph applies shall be allowed as a deduction ratably over the 10-year period beginning with the taxable year in which such expenditure was made. “(2) Qualified expenditure.— For purposes of this subsection, the term ‘qualified expenditure’ means any amount which, but for an election under this subsection, would have been allowable as a deduction for the taxable year in which paid or incurred under— “(A) section 173 (relating to circulation expenditures), “(B) section 174(a) (relating to research and experimental expenditures), “(C) section 263(c) (relating to intangible drilling and development expenditures), “(D) section 616(a) (relating to development expenditures), or “(E) section 617 (relating to deduction of certain mining exploration expenditures). “(3) Other sections not applicable.— Except as provided in this subsection, no deduction shall be allowed under any other section for any qualified expenditure to which an election under this subsection applies. “(4) Special election for intangible drilling and development costs not allocable to interest as limited partner.— “(A) In general.— In the case of any nonlimited partnership intangible drilling costs to which an election under this paragraph applies— “(i) the applicable percentage of such costs (adjusted as provided in section 48(q)) shall be allowed as a Post, p. 427. deduction for the taxable year in which paid or incurred and for each of the 4 succeeding taxable years, and “(ii) such costs shall be treated, for purposes of determining the amount of the credit allowable under section 38 for the taxable year in which paid or incurred, as qualified investment (within the meaning of subsections (c) and (d) of section 46) with respect to property placed in service during such year. “(B) Applicable percentage.— For purposes of subparagraph (A), the term ‘applicable percentage’ means the percentage determined in accordance with the following table: “Taxable Year: Applicable percentage: 1 15 2 22 3 21 4 21 5 21 “(C) Nonlimited partnership intangible drilling costs.— For purposes of this paragraph, the term ‘non-limited partnership intangible drilling costs’ means any qualified expenditure described in paragraph (2)(C) of an individual which is not allocable to such individual’s interest as a limited partner in a limited partnership. “(5) Election.— “(A) In general.— An election may be made under this subsection with respect to any qualified expenditure. “(B) Revocable only with consent.— An election under this subsection with respect to any qualified expenditure may be revoked only with the consent of the Secretary. “(C) Time and manner.— An election under this subsection shall be made at such time and in such manner as the Secretary shall by regulations prescribe. “(D) Partners.— In the case of a partnership, any election under this subsection shall be made separately by each partner with respect to the partner’s allocable share of any qualified expenditure. “(6) Dispositions.— “(A) Oil, gas, and geothermal property.— In the case of any disposition of any oil, gas, or geothermal property to which section 1254 applies (determined without regard to this section)— “(i) any deduction under paragraph (1) or (4)(A) with respect to costs which are allocable to such property shall, for purposes of section 1254, be treated as a deduction allowable under section 263(c), and “(ii) in the case of any credit allowable under section 38 by reason of paragraph (4XB) which is allocable to such property, such disposition shall, for purposes of section 47, be treated as a disposition of section 38 recovery property which is not 3-year property. “(B) Application of section 617(d).— In the case of any disposition of mining property to which section 617(d) applies (determined without regard to this subsection), any amount allowable as a deduction under paragraph (1) which is allocable to such property shall, for purposes of section 617(d), be treated as a deduction allowable under section 617(a). “(7) Amounts to which election apply not treated as tax preference.— Any qualified expenditure to which an election under paragraph (1) or (4) applies shall not be treated as an item of tax preference under section 57(a).” (2) Subsection (a) of section 1016 (relating to adjustments to 95 Stat. 239. 26 USC 1016. basis) is amended by striking out “and” at the end of paragraph (23), by striking out the period at the end of paragraph (24) and inserting in lieu thereof “, and”, and by adding at the end thereof the following new paragraph: “(25) for amounts allowed as deductions under section 58(i) (relating to optional 10-year writeoff of certain tax preferences).” (c) Conforming Amendments.— (1) Section 56 (relating to corporate minimum tax) is 26 USC 56. amended— (A) by striking out “person” each place it appears and inserting in lieu thereof “corporation”, (B) by striking out “one-half (or in the case of a corporation, an amount equal to)” in subsection (c), (C) by striking out “sections 72(m)(5)(B), 402(e), 408(f), 531, and 541” in subsection (c) and inserting in lieu thereof “sections 531 and 541” (D) by striking out “31, 39, 43, and 440” in subsection (c) 95 Stat. 293. and inserting in lieu thereof “39 and 44G”, and (E) by striking out the section heading and inserting in lieu thereof the following: “SEC. 56. CORPORATE MINIMUM TAX.” (2) The table of sections for part IV of subchapter A of chapter 1 is amended by striking out the item relating to section 56 and inserting in lieu thereof the following: “Sec. 56. Corporate minimum tax.” (3) Section 58 (relating to rules for application of minimum 26 USC 58. taxes) is amended— (A) by striking out subsection (a), (B) by striking out subsection (c) and inserting in lieu thereof the following: “(c) Estates and Trusts.— In the case of an estate or trust, the items of tax preference for any taxable year shall be apportioned between the estate or trust and the beneficiaries in accordance with regulations prescribed by the Secretary.”, and (C) in subsection (g)— (i) by striking out “paragraphs (6) and” in paragraph (1) and inserting in lieu thereof “paragraph”, and (ii) by striking out so much of paragraph (2) as precedes the last two sentences thereof and inserting in lieu thereof the following: For purposes of section 56, the items of tax preference set forth in section 57(a)(9) which are attributable to sources within any foreign country or possession of the United States shall not be taken into account if preferential treatment is not accorded gain from the sale or exchange of capital assets (or property treated as capital assets).” (4) Section 5(a)(4) is amended by striking out “sections 55 and 26 USC 5. 56” and inserting in lieu thereof “section 55”. (5) Section 511(d)(2) is amended by striking out “and section 56 26 USC 511. (as the case may be)”. (6) Subparagraph (A) of section 897(a)(2) (relating to 20-percent 26 USC 897. minimum tax on nonresident alien individuals) is amended to read as follows: “(A) In general.— In the case of any nonresident alien individual, the amount determined under section 55(a)(1) for the taxable year shall not be less than 20 percent of the lesser of— “(i) the individual’s alternative minimum taxable income (as defined in section 55(b)) for the taxable year, or “(ii) the individual’s net United States real property gain for the taxable year.” (7) Sections 6015(d)(1), 6362(b)(2)(A), and 6654(g)(1) are each 26 USC 6015, 6362, 6654. amended by striking out “or 56”. (8) (A) Sections 46(a)(4), 53(a), and 901(a) are each amended by 26 USC 46, 53, 901. striking out “(relating to minimum tax for tax preferences)” and inserting in lieu thereof “(relating to corporate minimum tax)”. (B) Subparagraph (A) of section 936(a)(3) is amended by striking 26 USC 936. out “(relating to minimum tax)” and inserting in lieu thereof “(relating to corporate minimum tax)”. (9) (A) Section 173 (relating to circulation expenditures) is 26 USC 173. amended— (i) by striking out “Notwithstanding section 263” and inserting in lieu thereof Notwithstanding section 263”, and (ii) by adding at the end thereof the following new subsection: “(b) Cross Reference.— “For election of 10-year amortization of expenditures allowable as a deduction under subsection (a), see section 58(i).” (B) Subsection (e) of section 174 (relating to research and 26 USC 174. experimental expenditures) is amended— (i) by striking out “For adjustments” and inserting in lieu thereof “(1) For adjustments”, (ii) by adding at the end thereof the following new paragraph: “(2) For election of 10-year amortization of expenditures allowable as a deduction under subsection (a), see section 58(i).”, and (iii) by striking out “Cross Reference” and inserting in lieu thereof “Cross References”. (C) Section 616 (relating to development expenditures) is 26 USC 616. amended by adding at the end thereof the following new subsection: “(d) Cross Reference.— “For election of 10-year amortization of expenditures allowable as a deduction under subsection (a), see section 58(i).” (D) Section 617 (relating to deduction of certain mining exploration 26 USC 617. expenditures) is amended by adding at the end thereof the following new subsection: “(j) Cross Reference.— “For election of 10-year amortization of expenditures allowable as a deduction under this section, see section 58(i).” (10) Subsection (a) of section 7701 (relating to definitions) is 26 USC 7701. amended by adding at the end thereof the following new paragraph: “(38) Joint return.— The term ‘joint return’ means a single return made jointly under section 6013 by a husband and wife.” (e) Effective Date.— (1) In general.— The amendments made by this section shall 26 USC 55 note. apply to taxable years beginning after December 31, 1982. (2) Special rule for pre-1983 section 56 (b) tax deferrals.— The amendments made by subsection (c)(1) of this section to section 56(b) of the Internal Revenue Code of 1954 shall not apply to any net operating loss carryover from any taxable year beginning before January 1, 1983, which is attributable to any excess described in section 56(b)(1)(B) of such Code for such taxable year. SEC. 202. LIMITATION ON MEDICAL DEDUCTION. (a) General Rule.— Subsection (a) of section 213 (relating to 26 USC 213. deduction for medical, dental, etc., expenses) is amended to read as follows: “(a) Allowance of Deduction.— There shall be allowed as a deduction the expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, his spouse, or a dependent (as defined in section 152), to the extent that such expenses exceed 5 percent of adjusted gross income.” (b) Treatment of Medicine and Drugs.— (1) In general.— Subsection (b) of section 213 (relating to limitation with respect to medicine and drugs) is amended to read as follows: “(b) Limitation with respect to medicine and drugs.— An amount paid during the taxable year for medicine or a drug shall be taken into account under subsection (a) only if such medicine or drug is a prescribed drug or is insulin.” (2) Definition of prescribed drug.— Subsection (e) of section 213 is amended by inserting after paragraph (1) the following new paragraphs: “(2) Prescribed drug.— The term ‘prescribed drug’ means a drug or biological which requires a prescription of a physician for its use by an individual. “(3) Physician.— The term ‘physician’ has the meaning given to such term by section 1861(r) of the Social Security Act (42 U.S.C. 1395x(r)).” (3) Conforming amendments.— (A) Subsection (e) of section 213 (as in effect before the amendment made by paragraph (2)) is amended by redesignating paragraphs (2), (3), and (4) as paragraphs (4), (5), and (6), respectively. (B) Subsections (d), (e), and (f) of section 213 are redesignated as subsections (c), (d), and (e), respectively. (C) Subsection (b) of section 105 is amended by striking 26 USC 105. out “section 213(e)” and inserting in lieu thereof “section 213(d)”. (c) Effective Dates.— (1) Subsection (a).— The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1982. (2) Subsection (b).— The amendments made by subsection (b) shall apply to taxable years beginning after December 31, 1983. SEC. 203. LIMITATION ON DEDUCTION FOR NONBUSINESS CASUALTY LOSSES. (a) General Rule.— Section 165 (relating to losses) is amended by 26 USC 165. striking out subsection (h), by redesignating subsection (i) as subsection (j). and by inserting after subsection (g) the following new subsections: “(h) Casualty and Theft Losses.— “(1) General rule.— Any loss of an individual described in subsection (c)(3) shall be allowed for any taxable year only to the extent that— “(A) the amount of loss to such individual arising from each casualty, or from each theft, exceeds $100, and “(B) the aggregate amount of all such losses sustained by such individual during the taxable year (determined after application of subparagraph (A)) exceeds 10 percent of the adjusted gross income of the individual. “(2) Special rules.— “(A) Joint returns.— For purposes of the $100 and 10 percent limitations described in paragraph (1), a husband and wife making a joint return for the taxable year shall be treated as one individual. “(B) Coordination with estate tax.— No loss described in subsection (c)(3) shall be allowed if, at the time of filing the return, such loss has been claimed for estate tax purposes in the estate tax return. “(i) Disaster Losses.— “(1) Election to take deduction for preceding year.— Notwithstanding the provisions of subsection (a), any loss attributable to a disaster occurring in an area subsequently determined by the President of the United States to warrant assistance by the Federal Government under the Disaster Relief Act of 1974 may, at the election of the taxpayer, be taken into account for the taxable year immediately preceding the taxable year in which the disaster occurred. “(2) Year of loss.— If an election is made under this subsection, the casualty resulting in the loss shall be treated for purposes of this title as having occurred in the taxable year for which the deduction is claimed. “(3) Amount of loss.— The amount of the loss taken into account in the preceding taxable year by reason of paragraph (1) shall not exceed the uncompensated amount determined on the basis of the facts existing at the date the taxpayer claims the (b) Conforming Amendment.— Subsection (c) of section 165 (relating to limitation on losses of individuals) is amended— (1) by inserting “except as provided in subsection (h),” before “losses” the first place it appears in paragraph (3) thereof, and (2) by striking out the last three sentences. (c) Effective Date.— The amendments made by this section shall 26 USC 165 note. apply to taxable years beginning after December 31, 1982. Such amendments shall also apply to the taxpayer’s last taxable year beginning before January 1, 1983, solely for purposes of determining the amount allowable as a deduction with respect to any loss taken into account for such year by reason of an election under section 165(i) of the Internal Revenue Code of 1954 (as amended by this section). Subtitle B— Provisions Primarily Relating to Business PART I— REDUCTION IN CERTAIN DEDUCTIONS AND CREDITS SEC. 204. 15 PERCENT REDUCTION IN CERTAIN CORPORATE PREFERENCE ITEMS. (a) In General.— Subchapter B of chapter 1 (relating to computation of taxable income) is amended by adding at the end thereof the following new part: “PART XI— SPECIAL RULES RELATING TO CORPORATE PREFERENCE ITEMS “Sec. 291. Special rules relating to corporate preference items. “SEC. 291. SPECIAL RULES RELATING TO CORPORATE PREFERENCE ITEMS. “(a) 15-Percent Reduction In Certain Preference Items, Etc.— For purposes of this subtitle, in the case of an applicable corporation— “(1) Section 1250 capital gain treatment.— In the case of section 1250 property which is disposed of during the taxable year, 15 percent of the excess (if any) of— “(A) the amount which would be treated as ordinary income if such property was section 1245 property or section 1245 recovery property, over “(B) the amount treated as ordinary income under section 1250, shall be treated as gain which is ordinary income and shall be recognized notwithstanding any other provision of this title. “(2) Reduction in percentage depletion.— In the case of iron ore and coal (including lignite), the amount allowable as a deduction under section 613 with respect to any property (as defined in section 614) shall be reduced by 15 percent of the amount of the excess (if any) of— “(A) the amount of the deduction allowable under section 613 for the taxable year (determined without regard to this paragraph), over “(B) the adjusted basis of the property at the close of the taxable year (determined without regard to the depletion deduction for the taxable year). “(3) Certain financial institution preference items.— The amount allowable as a deduction under this chapter (determined without regard to this section) with respect to any financial institution preference item shall be reduced by 15 percent. “(4) Certain deferred disc income.— If an applicable corporation is a shareholder of a DISC, in the case of taxable years beginning after December 31, 1982, section 995(b)(1)(F)(i) shall be applied with respect to such corporation by substituting ‘57.5 percent’ for ‘one-half’. “(5) Amortization of pollution control facilities.— If an election is made under section 169 with respect to any certified 26 USC 169. pollution control facility, the amortizable basis of such facility for purposes of such section shall be reduced by 15 percent. “(b) Special Rules for Treatment of Intangible Drilling Costs and Mineral Exploration and Development Costs.— For purposes of this subtitle, in the case of an applicable corporation— “(1) In general.— The amount allowable as a deduction for any taxable year (determined without regard to this section)— “(A) under section 263(c) in the case of an integrated oil company, or “(B) under section 616(a) or 617, shall be reduced by 15 percent. “(2) Special rule for amounts not allowable as deductions under paragraph (1).— “(A) Intangible drilling costs.— The amount not allowable as a deduction under section 263(c) for any taxable year by reason of paragraph (1) shall be allowable as a deduction ratably over the 36-month period beginning with the month in which the costs are paid or incurred. “(B) Mineral exploration and development costs.— In the case of any amount not allowable as a deduction under section 616(a) or 617 for any taxable year by reason of paragraph (1)— “(i) the applicable percentage of the amount not so allowable as a deduction shall be allowable as a deduction for the taxable year in which the costs are paid or incurred and in each of the 4 succeeding taxable years, and “(ii) such costs shall be treated, for purposes of determining the amount of the credit allowable under section 38 for the taxable year in which paid or incurred, as qualified investment (within the meaning of subsections (c) and (d) of section 46) with respect to property placed in service during such year. “(3) Applicable percentage.— For purposes of paragraph (2)(B), the term ‘applicable percentage’ means the percentage determined in accordance with the following table: “Taxable Year: Applicable percentage: 1 15 2 22 3 21 4 21 5 21. “(4) Dispositions.— “(A) Oil, gas, and geothermal property.— In the case of any disposition of any oil, gas, or geothermal property to which section 1254 applies (determined without regard to this section) any deduction under paragraph (2)(A) with respect to intangible drilling and development costs under section 263(c) which are allocable to such property shall, for purposes of section 1254, be treated as a deduction allowable under section 263(c). “(B) Application of section 617(d).— In the case of any disposition of mining property to which section 617(d) 26 USC 617. applies (determined without regard to this section), any amount allowable as a deduction under paragraph (2)(B) which is allocable to such property shall, for purposes of section 617(d), be treated as a deduction allowable under section 617(a). “(C) Recapture of investment credit.— In the case of any disposition of any property to which the credit allowable under section 38 by reason of pa ragraph (2)(B) is allocable, such disposition shall , for purposes of section 47, be treated as a disposition of section 38 recovery property which is not 3-year property. “(5) Integrated oil company defined.— For purposes of this subsection, the term ‘integrated oil company’ means, with respect to any taxable year, any producer (within the meaning of section 4996(a)(1)) of crude oil other than an independent producer (within the meaning of section 4992(b)). “(6) Coordination with cost depletion.— The portion of the adjusted basis of any property which is attributable to intangible drilling and development costs or mining exploration and development costs shall not be taken into account for purposes of determining depletion under section 611. “(c) Special Rules Relating to Pollution Control Facilities.— For purposes of this subtitle— “(1) Accelerated cost recovery deduction.— For purposes of subclause (I) of section 168(d)(1)(A)(ii), a taxpayer shall not be 95 Stat. 204. treated as electing the amortization deduction under section 169 with respect to that portion of the basis not taken into account under section 169 by reason of subsection (a)(5). “(2) 1250 recapture.— Subsection (a)(1) shall not apply to any section 1250 property which is part of a certified pollution control facility (within the meaning of section 169(d)(1)) with respect to which an election under section 169 was made. “(d) Special Rule for Real Estate Investment Trusts.— In the case of a real estate investment trust (as defined in section 856), the difference between the amounts described in subparagraphs (A) and (B) of subsection (a)(1) shall be reduced to the extent that a capital gain dividend (as defined in section 857(b)(3)(C), applied without regard to this section) is treated as paid out of such difference. Any capital gain dividend treated as having been paid out of such difference to a shareholder which is an applicable corporation retains its character in the hands of the shareholder as gain from the disposition of section 1250 property for purposes of applying subsection (a)(1) to such shareholder . For purposes of this section— “(1) Financial institution preference item.— The term ‘financial institution preference item’ includes the following: “(A) Excess reserves for losses on bad debts of financial institutions.— In the case of a financial institution to which section 585 or 593 applies, the excess of— “(i) the amount which would, but for this section, be allowable as a deduction for the taxable year for a reasonable addition to a reserve for bad debts, over “(ii) the amount which would have been allowable had such institution maintained its bad debt reserve for all taxable years on the basis of actual experience. “(B) Interest on debt to carry tax-exempt obligations acquired after december 31, 1982.— “(i) In general.— In the case of a financial institution to which section 585 or 593 applies, the amount of interest on indebtedness incurred or continued to purchase or carry obligations acquired after December 31, 1982, the interest on which is exempt from taxes for the taxable year, to the extent that a deduction would (but for this paragraph) be allowable with respect to such interest for such taxable year. “(ii) Determination of interest allocable to indebtedness on tax-exempt obligations.— Unless the taxpayer (under regulations prescribed by the Secretary) establishes otherwise, the amount determined under clause (i) shall be an amount which bears the same ratio to the aggregate amount allowable (determined without regard to this section) to the taxpayer as a deduction for interest for the taxable year as— “(I) the taxpayer’s average adjusted basis (within the meaning of section 1016) of obligations described in clause (i), bears to “(II) such average adjusted basis for all assets of the taxpayer. “(2) Applicable corporation.— For purposes of this section, the term ‘applicable corporation’ means any corporation other than an electing small business corporation (as defined in section 1371(b)). “(3) Section 1245 and 1250 property.— The terms ‘section 1245 property’, ‘section 1245 recovery property’, and ‘section 1250 property’ have the meanings given such terms by sections 1245(a)(3), 1245(a)(5), and 1250(c), respectively.” 95 Stat. 222. (b) Coordination With Minimum Tax.— Section 57(b) (relating to 26 USC 1245. 26 USC 57. adjusted itemized deductions) is amended to read as follows: “(b) Application With Section 291.— “(1) In general.— In the case of any item of tax preference of an applicable corporation described in— “(A) paragraph (4) or (7) of subsection (a), or “(B) paragraph (8) of subsection (a) (but only to the extent such item is allocable to a deduction for depletion for iron ore and coal (including lignite)), only 71.6 percent of the amount of such item of tax preference (determined without regard to this subsection) shall be taken into account as an item of tax preference. “(2) Certain capital gains.— In determining the net capital gain of any applicable corporation for purposes of paragraph (9)(B) of subsection (a), there shall be taken into account only 71.6 percent of any gain from the sale or exchange of section 1250 property which is equal to 85 percent of the excess determined under section 291(a)(1) with respect to such property. Ante, p. 423. “(3) Applicable corporation defined.— For purposes of this subsection, the term ‘applicable corporation’ has the meaning given such term by section 291(e)(2).” (c) Conforming Amendments.— (1) Subsection (c) of section 263 (relating to intangible drilling 26 USC 263. and development costs) is amended by adding at the end thereof the following new sentence: “This subsection shall not apply with respect to any costs to which any deduction is allowed under section 58(i) or 291.” Ante, pp. 417, 423. (2) The table of parts for subchapter B of chapter 1 is amended by adding at the end thereof the following: “Part XI. Special rules relating to corporate preference items.” (d) Effective Dates.— (1) In general.— Except as provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 1982. (2) 1250 gain.— Section 291(a)(1) of the Internal Revenue Code Ante, p. 423. of 1954 shall apply to sales or other dispositions after December 31, 1982, in taxable years ending after such date. (3) Pollution control facilities.— Section 291(a)(5) of such Code shall apply to property placed in service after December 31, 1982, in taxable years ending after such date. (4) Drilling and mining costs.— Section 291(b) of such Code shall apply to expenditures after December 31, 1982, in taxable years ending after such date. (5) Reduction in percentage depletion for coal and iron ore.— Section 291(a)(2) of such Code shall apply to taxable years beginning after December 31, 1983. (6) Minimum tax.— The amendment made by subsection (b) shall apply to taxable years ending after December 31, 1982, with respect to items of tax preference described in section 57(b) Ante, p. 426. of such Code to which section 291 of such Code applies; except that in the case of an item described in section 291(a)(2) of such Code, such amendment shall apply to taxable years beginning after December 31, 1983. SEC. 205. AMENDMENTS TO INVESTMENT CREDIT. (a) Basis Adjustment to Reflect Investment Tax Credit.— (1) In general.— Section 48 (relating to definitions and special 26 USC 48. rules involving section 38 property) is amended by redesignating subsection (q) as subsection (r) and by inserting after subsection (p) the following new subsection: “(q) Basis Adjustment to Section 38 Property.— “(1) In general.— For purposes of this subtitle, if a credit is determined under section 46(a)(2) with respect to section 38 property, the basis of such property shall be reduced by 50 percent of the amount of the credit so determined. “(2) Certain dispositions.— If during any taxable year there is a recapture amount determined with respect to any section 38 property the basis of which was reduced under paragraph (1), the basis of such property (immediately before the event resulting in such recapture) shall be increased by an amount equal to 50 percent of such recapture amount. For purposes of the “Recapture amounts.” preceding sentence, the term ‘recapture amount’ means any increase in tax (or adjustment in carrybacks or carryovers) determined under section 47. “(3) Special rule for qualified rehabilitated buildings.— In the case of any credit determined under section 46(a)(2) for any qualified rehabilitation expenditure in connection with a qualified rehabilitated building other than a certified historic structure, paragraphs (1) and (2) shall be applied without regard to the phrase ‘50 percent of’. “(4) Election of reduced credit in lieu of basis adjustment for regular percentage.— “(A) In general.— If the taxpayer elects to have this paragraph apply with respect to any recovery property— “(i) paragraphs (1) and (2) shall not apply to so much of the credit determined under section 46(a)(2) with 26 USC 46. respect to such property as is attributable to the regular percentage set forth in section 46(a)(2)(B); and “(ii) the amount of the credit allowable under section 38 with respect to such property shall be determined under subparagraph (B). “(B) Reduction in credit.— In the case of any recovery property to which an election under subparagraph (A) applies— “(i) solely for the purposes of applying the regular percentage, the applicable percentage under subsection (c) or (d) of section 46 shall be deemed to be 100 percent, and “(ii) notwithstanding section 46(a)(2)(B), the regular percentage shall be— “(I) 8 percent in the case of recovery property other than 3-year property, or “(II) 4 percent in the case of recovery property which is 3-year property. For purposes of the preceding sentence, RRB replacement property (within the meaning of section 168(f)(3)(B)) shall be 95 Stat. 204. treated as property which is not 3-year property. “(C) Time and manner of making election.— “(i) In general.— An election under this subsection with respect to any property shall be made on the taxpayer’s return of the tax imposed by this chapter for the taxpayer’s taxable year in which such property is placed in service (or in the case of property to which an election under section 46(d) applies, for the first taxable year for which qualified progress expenditures were taken into account with respect to such property). “(ii) Revocable only with consent.— An election under this subsection with respect to any property, once made, may be revoked only with the consent of the Secretary. “(5) Recapture of reductions.— “(A) In general.— For purposes of sections 1245 and 1250, any reduction under this subsection shall be treated as a deduction allowed for depreciation. “(B) Special rule for section 1250.— For purposes of section 1250(b), the determination of what would have been the depreciation adjustments under the straight line method shall be made as if the re had been no reduction under this section.” (2) Allowance of deduction for certain unused investment credits.— Part VI of subchapter B of chapter 1 (relating to itemized deductions for individuals and corporations) is amended by adding at the end thereof the following new section: “SEC. 196. DEDUCTION FOR CERTAIN UNUSED INVESTMENT CREDITS. “(a) Allowance of Deductions.— If— “(1) the amount of the credit determined under section 46(a)(2) for any taxable year exceeds the limitation provided by 26 USC 46. section 46(a)(3) for such taxable year, and “(2) the amount of such excess has not, after the application of section 46(b), been allowed to the taxpayer as a credit under section 38 for any taxable year, then an amount equal to 50 percent of the amount of such excess (to the extent attributable to property the basis of which is reduced under section 48(q)) not so allowed as a credit shall be allowed to the Ante, p. 427. taxpayer as a deduction for the first taxable year following the last taxable year in which such excess could under section 46(b) have been allowed as a credit. “(b) Taxpayers Dying or Ceasing to Exist.— If a taxpayer dies or ceases to exist prior to the first taxable year following the last taxable year in which the excess described in subsection (a) could under section 46(b) have been allowed as a credit, the amount described in subsection (a), or the proper portion thereof, shall, under regulations prescribed by the Secretary, be allowed to the taxpayer as a deduction for the taxable year in which such death or cessation occurs. “(c) Special rule for qualified rehabilitated buildings.— In the case of any credit to which section 48(q)(3) applies, subsection (a) shall be applied without regard to the phrase ‘50 percent of’.” (3) Basis adjustment not taken into account for purposes of earnings and profits.— Section 312(k) (relating to effect of 26 USC 312. depreciation on earnings and profits) is amended by adding at the end thereof the following new paragraph: “(5) Basis adjustment not taken into account.— In computing the earnings and profits of a corporation for any taxable year, the allowance for depreciation (and amortization, if any) shall be computed without regard to any basis adjustment under section 48(q).” (4) Special rules for certain leased property.— Section 48(d) (relating to certain leased property) is amended by adding 26 USC 48. at the end thereof the following new paragraph: “(5) Coordination with basis adjustment.— In the case of any property with respect to which an election is made under this subsection— “(A) subsection (q) (other than paragraph (4)) shall not apply with respect to such property, “(B) the lessee of such property shall include ratably in gross income over the shortest recovery period which could be applicable under section 168 with respect to such property an amount equal to 50 percent of the amount of the credit allowable under section 38 to the lessee with respect to such property, and “(C) in the case of a disposition of such property to which section 47 applies, this paragraph shall be applied in accordance with regulations prescribed by the Secretary.” (5) Conforming amendments.— (A) Section 48(g) (relating to special rules for qualified rehabilitated buildings) is amended by striking out paragraph (5). (B) Paragraph (24) of section 1016(a) (relating to adjustments 95 Stat. 239. to basis) is amended by striking out “section 48(g)(5)” and inserting in lieu thereof “section 48(q)” (C) The table of sections for part VI of subchapter B of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 196. Deduction for certain unused investment credits.” (b) Investment Credit Limited to 85 Percent of Tax Liability Instead of 90 Percent.— (1) In general.— Subparagraph (B) of section 46(a)(3) (relating 26 USC 46. to limitation based on amount of tax) is amended to read as follows: “(B) 85 percent of so much of the liability for tax for the taxable year as exceeds $25,000.” (2) Technical amendments.— (A) Subsection (a) of section 46 is amended by striking out paragraphs (7) and (8) and by redesignating paragraph (9) as paragraph (7). (B) Clause (i) of section 46(a)(7)(B), as redesignated by subparagraph (A), is amended to read as follows: “(i) paragraph (3)(B) shall be applied by substituting ‘100 percent’ for ‘85 percent’, and”. (C) Subparagraph (B) of section 46(a)(7), as redesignated by subparagraph (A), is amended by striking clause (ii) and by redesignating clause (iii) as clause (ii). (c) Effective Dates.— (1) Subsection (a). — (A) General rule.— Except as otherwise provided in this paragraph, the amendments made by subsection (a) shall apply to periods after December 31, 1982, under rules similar to the rules of section 48(m) of the Internal Revenue Code of 1954. (B) Exception.— The amendments made by subsection (a) shall not apply to any property which— (i) is constructed, reconstructed, erected, or acquired pursuant to a contract which was entered into after August 13, 1981, and was, on July 1, 1982, and at all times thereafter, binding on the taxpayer, (ii) is placed in service after December 31, 1982, and before January 1, 1986, (iii) with respect to which an election under section 168(f)(8)(A) of such Code is not in effect at any time, and Post, p. 442. (iv) is not described in section 167(1)(3)(A) of such Code. (C) Special rule for integrated manufacturing facilities.— (i) In general.— In the case of any integrated manufacturing facility, the requirements of clause (i) of subparagraph (B) shall be treated as met if— (I) the on-site construction of the facility began before July 1, 1982, and (II) during the period beginning after August 13, 1981, and ending on July 1, 1982, the taxpayer constructed (or entered into binding contracts for the construction of) more than 20 percent of the cost of such facility. (ii) Integrated manufacturing facility.— For purposes of clause (i), the term ‘integrated manufacturing facility’ means 1 or more facilities— (I) located on a single site, (II) for the manufacture of 1 or more manufactured products from raw materials by the application of 2 or more integrated manufacturing processes. (D) Special rule for historic structures.— In the case of any certified historic structure (as defined in section 48(g)(3) of the Internal Revenue Code of 1954), clause (i) of 26 USC 48. subparagraph (B) shall be applied by substituting “December 31, 1980” for “August 13, 1981.” (E) Certain projects with respect to historic structures.— In the case of any certified historic structure (as so defined), the requirements of clause (i) of subparagraph (B) shall be treated as met with respect to such property— (i) if the rehabilitation begins after December 31, 1980, and before July 1, 1982, or (ii) if— (I) before July 1, 1982, a public offering with respect to interests in such property was registered with the Securities and Exchange Commission, (II) before such date an application with respect to such property was filed under section 8 of the United States Housing Act of 1937, and 42 USC 1437f. (III) such property is placed in service before July 1, 1984. (2) Subsection (b).— The amendments made by subsection (b) 26 USC 46 note. shall apply to taxable years beginning after December 31, 1982. SEC. 206. REPEAL OF 1985 AND 1986 INCREASES IN ACCELERATED COST RECOVERY DEDUCTIONS. (a) IN GENERAL.— Paragraph (1) of section 168(b) (relating to 95 Stat. 204. amount of accelerated cost recovery deduction) is amended— (1) by striking out “tables” and inserting in lieu thereof “table”; (2) by striking out: “(A) For property placed in service after december 31, 1980, and before january 1, 1985.—”; and (3) by striking out subparagraphs (B) and (C). (b) Conforming Amendments.— Paragraph (4) of section 168(e) (relating to property excluded from application of section) is amended— (1) by striking out subparagraph (H); and (2) by striking out “l986” in the heading thereof and inserting in lieu thereof “1981”. SEC. 207. SECTION 189 MADE APPLICABLE TO CERTAIN CORPORATIONS FOR NONRESIDENTIAL REAL PROPERTY. (a) In General.— Subsection (a) of section 189 is amended to read 26 USC 189. as follows: “(a) Capitalization of Construction Period Interest and Taxes.— Except as otherwise provided in this section or in section 266 (relating to carrying charges), no deduction shall be allowed for real property construction period interest and taxes.” (b) Exclusion of Certain Property.— Subsection (d) of section 95 Stat. 264. 189 (relating to certain property excluded) is amended— (1) by striking out “or” at the end of paragraph (1), (2) by redesignating paragraph (2) as paragraph (3), and (3) by inserting after pa ragraph (1) the following new paragraph: “(2) residential real property (other than low income housing) acquired, constructed, or carried by a corporation other than an electing small business corporation (within the meaning of section 1371(b)), a personal holding company (within the meaning of section 542), or a foreign personal holding company (within the meaning of section 552), or”. (c) Allocation of Interest.— Paragraph (1) of section 189(e) 26 USC 189. (relating to construction period interest and taxes) is amended by adding at the end thereof the following sentence: “The Secretary shall prescribe regulations which provide for the allocation of interest to real property under construction.” (d) Conforming Amendment.— Paragraph (1) of section 189(e) (relating to construction period interest and taxes) is amended— (1) by striking out “construction period interest and taxes” and inserting in lieu thereof “real property construction period interest and taxes”, and (2) by striking out the caption thereof and inserting in lieu thereof: “(1) Real property construction period interest and taxes.—”. (e) Effective Date.— (1) In general.— Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 1982, with respect to construction which commences after such date. (2) Certain planned construction.— The amendments made by this section shall not apply with respect to construction of property which is used in a trade or business described in section 48(a)(3)(B) of the Internal Revenue Code of 1954 or which is a hospital or nursing home if— (A) such construction is conducted pursuant to a written plan of the taxpayer which was in existence on July 1, 1982, and as to which approval from a governmental unit has been requested in writing, and (B) such construction commences before January 1, 1984, and shall not apply to the Alaska Natural Gas Transportation System (15 U.S.C. 719) and its related facilities. PART II— LEASING SEC. 208. LIMITATIONS AND ADDITIONAL REQUIREMENTS ON LEASES UNDER THE ACCELERATED COST RECOVERY SYSTEM. (a) Limitations on Leases Under the Accelerated Cost Recovery System.— (1) In general.— Section 168 (relating to the accelerated cost 95 Stat. 204. Post, p. 445. recovery system) is amended by redesignating subsection (i) as subsection (j) and by inserting after subsection (h) the following new subsection: “(i) Limitations Relating to Leases of Qualified Leased Property.— For purposes of this subtitle, in the case of safe harbor lease property, the following limitations shall apply: “(1) Lessor may not reduce tax liability by more than 50 percent.— “(A) In general.— The aggregate amount allowable as deductions or credits for any taxable year which are allocable to all safe harbor lease property with respect to which the taxpayer is the lessor may not reduce the liability for tax of the taxpayer for such taxable year (determined without regard to safe harbor lease items) by more than 50 percent of such liability. “(B) Carryover of amounts not allowable as deductions or credits.— Any amount not allowable as a deduction or credit under subparagraph (A)— “(i) may be carried over to any subsequent taxable year, and “(ii) shall be treated as a deduction or credit allocable to safe harbor lease property in such subsequent taxable year. “(C) Allocation among deductions and credits.— The Secretary shall prescribe regulations for determining the amount— “(i) of any deduction or credit allocable to safe harbor lease property for any taxable year to which subparagraph (A) applies, and “(ii) of any carryover of any such deduction or credit under subparagraph (B) to any subsequent taxable year. “(D) Liability for tax and safe harbor lease items defined.— For purposes of this paragraph— “(i) Liability for tax defined.— Except as provided in this subparagraph, the term ‘liability for tax’ means the tax imposed by this chapter, reduced by the sum of the credits allowable under subpart A of part IV of subchapter A of this chapter. “(ii) Safe harbor lease items defined.— The term ‘safe harbor lease items’ means any of the following items which are properly allocable to safe harbor lease property with respect to which the taxpayer is the lessor: “(I) Any deduction or credit allowable under this chapter (other than any deduction for interest). “(II) Any rental income received by the taxpayer from any lessee of such property. “(III) Any interest allowable as a deduction under this chapter on indebtedness of the taxpayer (or any related person within the meaning of subsection (e)(4)(D)) which is paid or incurred to the lessee of such property (or any person so related to the lessee), “(iii) Certain taxes not included.— The term ‘tax imposed by this chapter’ shall not include any tax treated as not imposed by this chapter under the last sentence of section 53(a) (other than the tax imposed by 26 USC 53. section 56). “(2) Method of cost recovery.— The deduction allowable under subsection (a) with respect to any safe harbor lease property shall be determined by using the 150 percent declining balance method, switching to the straight-line method at a time to maximize the deduction (with a half-year convention in the first recovery year and without regard to salvage value) and a recovery period determined in accordance with the following table: “In the case of: The recovery period is: 3-year property 5 years. 5-year property 8 years. 10-year property 15 years. “(3) Investment credit allowed only over 5-year period.— In the case of any credit which would otherwise be allowable under section 38 with respect to any safe harbor lease property for any taxable year (determined without regard to this paragraph), only 20 percent of the amount of such credit shall be allowable in such taxable year and 20 percent of such amount shall be allowable in each of the succeeding 4 taxable years. “(4) No carrybacks of credit or net operating loss allocable to elected qualified leased property.— “(A) Credit carrybacks.— In determining the amount of any credit allowable under subpart A of part IV of subchapter A of this chapter which may be carried back to any preceding taxable year— “(i) the liability for tax for the taxable year from which any such credit is to be carried shall be reduced first by any credit not properly allocable to safe harbor lease property, and “(ii) no credit which is properly allocable to safe harbor lease property shall be taken into account in determining the amount of any credit which may be carried back. “(B) Net operating loss carrybacks.— The net operating loss carryback provided in section 172(b) for any taxable 26 USC 172. year shall be reduced by that portion of the amount of such carryback which is properly allocable to the items described in paragraph (1)(I)(ii) with respect to all safe harbor lease property with respect to which the taxpayer is the lessor. “(5) Limitation on deduction for interest paid by the lessor to the lessee.— In the case of interest described in paragraph (1)(D)(ii)(III), the amount allowable as a deduction for any taxable year with respect to such interest shall not exceed the amount which would have been computed if the rate of interest under the agreement were equal to the rate of interest in effect under section 6621 at the time the agreement was entered into. “(6) Computation of taxable income of lessee for purposes of percentage depletion.— “(A) In general.— For purposes of section 613 or 613A, the taxable income of any taxpayer who is a lessee of any safe harbor lease property shall be computed as if the taxpayer was the owner of such property, except that the amount of the deduction under subsection (a) of this section shall be determined after application of paragraph (2) of this subsection. “(B) Coordination with crude oil windfall profit tax.— Section 4988(b)(3)(A) shall be applied without regard to subparagraph (A). “(7) Transitional rule for application of paragraph (i) to certain transactions.— In the case of any deduction or credit with respect to— “(A) any transitional safe harbor lease property (within the meaning of section 208(d)(3) of the Tax Equity and Fiscal Responsibility Act of 1982), or “(B) any other safe harbor lease property placed in service during 1982 and to which paragraph (1) does not apply, paragraph (1) shall not operate to disallow any such deduction or credit for the taxable year for which such deduction or credit would otherwise be allowable but deductions and credits with respect to such property shall be taken into account first in determining whether any deduction or credit is allowable under paragraph (1) with respect to any other safe harbor lease property. “(8) Safe harbor lease property.— For purposes of this section, the term ‘safe harbor lease property’ means qualified leased property with respect to which an election under section 168(f)(8) is in effect.” (2) Conforming amendment.— (A) Subparagraph (A) of section 168(0(8) (relating to special 95 Stat. 204. rules for leases) is amended by inserting “except as provided in subsection (i),” before “for purposes of this subtitle”. (B) Subparagraph (D) of section 47(a)(5) (relating to certain 26 USC 47. dispositions, etc., of section 38 property) is amended by adding at the end thereof the following new sentence: “If, prior to a disposition to which this subsection applies, any portion of any credit is not allowable with respect to any property by reason of section 168(i)(3), such portion shall be treated (for purposes of this subparagraph) as not having been used to reduce tax liability.” (b) Additional Requirements to Qualify as Lease for Purposes of Accelerated Cost Recovery.— (1) Related persons may not qualify as lessors.— Subclause (I) of section 168(f)(8)(B)(i) (relating to qualified lessors) is amended by inserting “which is not a related person with respect to the lessee” before the comma at the end thereof. (2) Maximum lease term reduced.— Clause (iii) of section 168(f)(8)(B) (relating to term of lease) is amended to read as follows: “(iii) the term of the lease (including any extensions) does not exceed the greater of— “(I) 120 percent of the present class life of the property, or “(II) the period equal to the recovery period determined with respect to such property under subsection (i)(2).” (3) Definition of qualified leased property.— Subparagraph (D) of section 168(f)(8) (defining qualified leased property) is amended to read as follows: “(D) Qualified leased property defined.— For purposes of this section— “(i) In general.— The term ‘qualified leased property’ means recovery property— “(I) which is new section 38 property of the lessor, which is leased within 3 months after such property was placed in service, and which, if acquired by the lessee, would have been new section 38 property of the lessee, or “(II) which was new section 38 property of the lessee, which is leased within 3 months after such property is placed in service by the lessee, and with respect to which the adjusted basis of the lessor does not exceed the adjusted basis of the lessee at the time of the lease. “(ii) Only 45 percent of the lessee’s property may be treated as qualified.— The cost basis of all Safe harbor lease property (determined without regard to this clause)— “(I) which is placed in service during any calendar year, and “(II) with respect to which the taxpayer is a lessee, shall not exceed an amount equal to the 45 percent of the cost basis of the taxpayer’s qualified base property placed in service during such calendar year. “(iii) Allocation of disqualified basis.— The cost basis not treated as qualified leased property under clause (ii) shall be allocated to safe harbor lease property for such calendar year (determined without regard to clause (ii)) in reverse order to when the agreement described in subparagraph (A) with respect to such property was entered into. “(iv) Certain property may not be treated as qualified leased property.— The term ‘qualified leased property’ shall not include recovery property— “(I) which is a qualified rehabilitated building (within the meaning of section 48(g)(1)), 26 USC 48. “(II) which is public utility property (within the meaning of section 167(1)(3)(A)), “(III) which is property with respect to which a deduction is allowable by reason of section 291(b), Ante, p. 423. “(IV) with respect to which the lessee of the property (other than property described in clause (v)) under the agreement described in subparagraph (A) is a nonqualified tax-exempt organization, or “(V) property with respect to which the user of such property is a person (other than a United States person) not subject to United States tax on income derived from the use of such property. “(v) Qualified mass commuting vehicles included.— The term ‘qualified leased property’ includes recovery property which is a qualified mass commuting vehicle (as defined in section 103(b)(9)) which is financed in whole or in part by obligations the interest on which is excludable under section 103(a). “(vi) Qualified base property.— For purposes of this subparagraph, the term ‘qualified base property’ means property placed in service during any calendar year which— “(I) is new section 38 property of the taxpayer, “(II) is safe harbor lease property (not described in subclause (I)) with respect to which the taxpayer is the lessee, or “(III) is designated leased property (other than property described in subclause (I) or (II)) with respect which the taxpayer is the lessee. Any designated leased property taken into account by any lessee under the preceding sentence shall not be taken into account by the lessor in determining the lessor’s qualified base property. The lessor shall provide the lessee with such information with respect to the cost basis of such property as is necessary to carry out the purposes of this clause. “(vii) Definition of designated leased property.— For purposes of this subparagraph, the term ‘designated leased property’ means property— “(I) which is new section 38 property, “(II) which is subject to a lease with respect to which the lessor of the property is treated (without regard to this paragraph) as the owner of the property for Federal tax purposes, “(III) with respect to which the term of the lease to which such property is subject is more than 50 percent of the present class life (or, if no present class life, the recovery period used in subsection (i)(2)) of such property, and “(IV) which the lessee designates on his return as designated leased property, “(viii) Definition; special rule.— For purposes of this subparagraph— “(I) New section 38 property.— The term ‘new section 38 property’ has the meaning given such term by section 48(b). “(II) Property placed in service.— For purposes of this title (other than clause (i)), any property described in clause (i) to which subparagraph (A) applies shall be deemed originally placed in service not earlier than the date such property is used under the lease.” (4) Definitions and special rules.— Paragraph (8) of section 168(f) (relating to special rules for leases) is amended by redesignating 95 Stat. 204. subparagraph (H) as subparagraph (K) and by inserting after subparagraph (G) the following new subparagraphs: “(H) Definitions.— For purposes of this paragraph— “(i) Related person.— A person is related to another person if both persons are members of the same affiliated group (within the meaning of subsection (a) of section 1504 and determined without regard to subsection (b) of section 1504). “(ii) Nonqualified tax-exempt organization.— “(I) In general.— The term ‘nonqualified tax-exempt organization’ means, with respect to any agreement to which subparagraph (A) applies, any organization (or predecessor organization which was engaged in substantially similar activities) which was exempt from taxation under this title at any time during the 5-year period ending on the date such agreement was entered into. “(II) Special rule for farmers’ cooperatives.— The term ‘nonqualified tax-exempt organization’ shall not include any farmers’ cooperative organization described in section 521 whether or not 26 USC 521. exempt from taxation under section 521. “(III) Special rule for property used in unrelated trade or business.— An Organization shall not be treated as a nonqualified tax-exempt organization with respect to any property if such property is used in an unrelated trade or business (within the meaning of section 513) of such organization which is subject to tax under section 511. “(I) Transitional rules for certain transactions.— “(i) In general.— Except as provided in clause (ii), clause (ii) of subparagraph (D) shall not apply to any transitional safe harbor lease property (within the meaning of section 208(d)(3) of the Tax Equity and Fiscal Responsibility Act of 1982). “(ii) Special rules.— For purposes of subparagraph (D)(ii)— “(I) Determination of qualified base property.— The cost basis of property described in clause (i) (and other property placed in service during 1982 to which subparagraph (D)(ii) does not apply) shall be taken into account in determining the qualified base property of the taxpayer for the taxable year in which such property was placed in service. “(II) Reduction in qualified leased property.— The cost basis of property which may be treated as qualified leased property under subparagraph (D)(ii) for the taxable year in which such property was placed in service (determined without regard to this subparagraph) shall be reduced by the cost basis of the property taken into account under subclause (I). “(J) Coordination with at risk rules.— “(i) In general.— For purposes of section 465, in the case of property placed in service after the date of the enactment of this subparagraph, if— “(I) an activity involves the leasing of section 1245 property which is safe harbor lease property, and “(II) the lessee of such property (as determined under this paragraph) would, but for this paragraph, be treated as the owner of such property for purposes of this title, then the lessor (as so determined) shall be considered to be at risk with respect to such property in an amount equal to the amount the lessee is considered at risk with respect to such property (determined under section 465 without regard to this paragraph). “(ii) Subparagraph not to apply to certain service corporations.— Clause (i) shall not apply to any lessor which is a corporation the principal function of which is the performance of services in the field of health, law, engineering, architecture, accounting, actuarial science, performing arts, athletics, or consulting. “(iii) Special rule for property placed in service before date of enactment of this subparagraph.— This subparagraph shall apply to property placed in service before the date of enactment of this subparagraph if the provisions of section 465 did not apply to the lessor before such date but become applicable to such lessor after such date.” (c) Certain Leases Before October 20, 1981, Treated as Qualified Leases.— Nothing in paragraph (8) of section 168(f) of the Internal Revenue Code of 1954, or in any regulations prescribed Post, p. 442. thereunder, shall be treated as making such paragraph inapplicable to any agreement entered into before October 20, 1981, solely because under such agreement 1 party to such agreement is entitled to the credit allowable under section 38 of such Code with respect to property and another party to such agreement is entitled to the deduction allowable under section 168 of such Code with respect to such property. Section 168(f)(8)(B)(ii) of such Code shall not apply to the party entitled to such credit. (d) Effective Dates.— (1) In general.— Except as otherwise provided in this subsection, the amendments made by subsections (a) and (b) of this section shall apply to agreements entered into after July 1, 1982, or to property placed in service after July 1, 1982. (2) Transitional rule for certain safe harbor lease property.— (A) In general.— The amendments made by subsections (a) and (b) shall not apply to transitional safe harbor lease property. (B) Special rule for certain provisions.— Subparagraph (A) shall not apply with respect to the provisions of paragraph (6) of section 168(i) of the Internal Revenue Code of 1954 (as added by subsection (a)(1), to the provisions of Ante. p. 432. Ante, p. 437. section 168(f)(8)(J) of such Code (as added by subsection (b)(4)), or to the amendment made by subsection (b)(1). (3) Transitional safe harbor lease property.— For purposes of this subsection, the term “transitional safe harbor lease property” means property described in any of the following subparagraphs: (A) In general.— Property is described in this subparagraph if such property is placed in service before January 1, 1983, if— (i) with respect to such property a binding contract to acquire or to construct such property was entered into by the lessee after December 31, 1980, and before July 2, 1982, or (ii) such property was acquired by the lessee, or construction of such property was commenced by or for the lessee, after December 31, 1980, and before July 2, 1982. (B) Certain qualified lessees.— Property is described in this subparagraph if such property is placed in service before July 1, 1982, and with respect to which— (i) an agreement to which section 168(f)(8)(A) of the Post, p. 442. Internal Revenue Code of 1954 applies was entered into before August 15, 1982, and (ii) the lessee under such agreement is a qualified lessee (within the meaning of paragraph (6)). (C) Manufacturers of certain products.— Property is described in this subparagraph if such property— (i) is used to produce a class of products (within the meaning of paragraph (6)(B)) in an industry described in paragraph (6)(A)(ii)(II) (determined without regard to the phrase “other than the taxpayer”), and (ii) would be described in subparagraph (A) if “October 1” were substituted for “January 1”. (D) Certain aircraft.— Property is described in this subparagraph if such property— (i) is a commercial passenger aircraft (other than a helicopter), and (ii) would be described in subparagraph (A) if “January 1, 1984” were substituted for “January 1, 1983”. For purposes of determining whether property described in this subparagraph is described in subparagraph (A), subparagraph (A)(ii) shall be applied by substituting “June 25, 1981” for “December 31, 1980” and by substituting “February 20, 1982” for “July 2, 1982” and construction of the aircraft shall be treated as having been begun during the period referred to in subparagraph (A)(ii) if during such period construction or reconstruction of a subassembly was commenced, or the stub wing join occurred. (E) Turbines and boilers.— Property is described in this subparagraph if such property— (i) is a turbine or boiler of a cooperative organization 26 USC 1381. described in section 1381(a), and (ii) would be property described in subparagraph (A) if “July 1” were substituted for “January 1”. For purposes of determining whether property described in this subparagraph is described in subparagraph (A), such property shall be treated as having been acquired during the period referred to in subparagraph (A)(ii) if at least 20 percent of the cost of such property is paid during such period. (F) Property used in the production of steel.— Property is described in this subparagraph if such property— (i) is used by the taxpayer directly in connection with the trade or business of the taxpayer of the manufacture or production of steel, and (ii) would be described in subparagraph (A) if “January 1, 1984” were substituted for “January 1, 1983”. (4) Special rule for antiavoidance provisions.— The provisions of paragraph (6) of section 168(i) of such Code (as added by subsection (a)(1)), and the amendment made by subsection (b)(1), Ante, p. 432. shall apply to leases entered into after February 19, 1982, in taxable years ending after such date. (5) Special rule for mass commuting vehicles.— The amendments made by this section (other than section 168(i)(1) and (7) of such Code, as added by subsection (a)(1)) and section 209 shall not apply to qualified leased property described in section 168(f)(8)(D)(V) of such Code (as in effect after the amendments Ante, p. 435. made by this section) which— (A) is placed in service before January 1, 1988, or (B) is placed in service after such date— (i) pursuant to a binding contract or commitment entered into before April 1, 1983, and (ii) solely because of conditions which, as determined by the Secretary of the Treasury or his delegate, are not within the control of the lessor or lessee. (6) Qualified lessee defined.— (A) In general.— The term “qualified lessee” means a taxpayer which is a lessee of an agreement to which section 168(f)(8)(A) of such Code applies and which— Post, p. 442. (i) had net operating losses in each of the three most recent taxable years ending before July 1, 1982, and had an aggregate net operating loss for the five most recent taxable years ending before July 1, 1982, and (ii) which uses the property subject to the agreement to manufacture and produce within the United States a class of products in an industry with respect to which— (I) the taxpayer produced less than 5 percent of the total number of units (or value) of such products during the period covering the three most recent taxable years of the taxpayer ending before July 1, 1982, and (II) four or fewer United States persons (including as one person an affiliated group as defined in section 1504(a)) other than the taxpayer manufactured 26 USC 1504. 85 percent or more of the total number of all units (or value) within such class of products manufactured and produced in the United States during such period. (B) Class of products.— For purposes of subparagraph (A)— (i) the term “class of products” means any of the categories designated and numbered as a “class of products” in the 1977 Census of Manufacturers compiled and published by the Secretary of Commerce under title 13 of the United States Code, and (ii) information— (I) compiled or published by the Secretary of Commerce, as part of or in connection with the Statistical Abstract of the United States or the Census of Manufacturers, regarding the number of units (or value) of a class of products manufactured and produced in the United States during any period, or (II) if information under subclause (I) is not available, so compiled or published with respect to the number of such units shipped or sold by such manufacturers during any period, shall constitute prima facie evidence of the total number of all units of such class of products manufactured and produced in the United States in such period. (6) Underpayments of tax for 1982.— No addition to the tax shall be made under section 6655 of the Internal Revenue Code of 1954 (relating to failure by corporation to pay estimated 26 USC 6655. income tax) for any period before October 15, 1982, with respect to any underpayment of estimated tax by a taxpayer with respect to any tax imposed by chapter 1 of such Code, to the extent that such underpayment was created or increased by any provision of this section. SEC. 209. REPEAL OF LEASING; SPECIAL RULE FOR LEASES WITH ECONOMIC SUBSTANCE. (a) Special Rule for Leases With Economic Substance.— Paragraph (8) of section 168(f) (relating to special rules for leasing) is 95 Stat. 204. amended to read as follows: “(8) Special rules for finance leases.— “(A) In general.— For purposes of this title, except as provided in subsection (i), in the case of any agreement with respect to any finance lease property, the fact that— “(i) a lessee has the right to purchase the property at a fixed price which is not less than 10 percent of the original cost of the property to the lessor, or “(ii) the property is of a type not readily usable by any person other than the lessee, shall not be taken into account in determining whether such agreement is a lease. “(B) Finance lease property defined.— For purposes of this section— “(i) In general.— The term ‘finance lease property’ means recovery property which is subject to an agreement which meets the requirements of subparagraph (C) and— “(I) which is new section 38 property of the lessor, which is leased within 3 months after such property was placed in service, and which, if acquired by the lessee, would have been new section 38 property of the lessee, or “(II) which was new section 38 property of the lessee, which is leased within 3 months after such property is placed in service by the lessee, and with respect to which the adjusted basis of the lessor does not exceed the adjusted basis of the lessee at the time of the lease. “(ii) Only 40 percent of the lessee’s property may be treated as qualified.— The cost basis of all finance lease property (determined without regard to this clause)— “(I) which is placed in service during any calendar year beginning before January 1, 1986, and “(II) with respect to which the taxpayer is a lessee, shall not exceed an amount equal to 40 percent of the cost basis of the taxpayer’s qualified base property placed in service during such calendar year. “(iii) Allocation of disqualified basis.— The cost basis not treated as finance lease property under clause (ii) shall be allocated to finance lease property for such calendar year (determined without regard to clause (ii)) in reverse order to when the agreement described in subparagraph (A) with respect to such property was entered into. “(iv) Certain property may not be treated as finance lease property.— The term ‘finance lease property’ shall not include recovery property— “(I) which is a qualified rehabilitated building (within the meaning of section 48(g)(1)), 26 USC 48. “(II) which is public utility property (within the meaning of section 167(1)(3)(A)), “(III) which is property with respect to which a deduction is allowable by reason of section 291(b), “(IV) with respect to which the lessee of the property under the agreement described in subparagraph (A) is a nonqualified tax-exempt organization, or “(V) property with respect to which the user of such property is a person (other than a United States person) not subject to United States tax on income derived from the use of such property. “(v) Qualified base property.— For purposes of this subparagraph, the term ‘qualified base property’ means property placed in service during any calendar year which— “(I) is new section 38 property of the taxpayer, “(II) is finance lease property (not described in subclause (I)) with respect to which the taxpayer is the lessee, or “(III) is designated leased property (other than property described in subclause (I) or (ID) with respect to which the taxpayer is the lessee. Any designated leased property taken into account by any lessee under the preceding sentence shall not be taken into account by the lessor in determining the lessor’s qualified base property. The lessor shall provide the lessee with such information with respect to the cost basis of such property as is necessary to carry out the purposes of this clause. “(vi) Definition of designated leased property.— For purposes of this subparagraph, the term ‘designated leased property’ means property— “(I) which is new section 38 property, “(II) which is subject to a lease with respect to which the lessor of the property is treated (without regard to this paragraph) as the owner of the property for Federal tax purposes, “(III) with respect to which the term of the lease to which such property is subject is more than 50 percent of the present class life (or, if no present class life, the recovery period under subsection (a)) of such property, and “(IV) which the lessee designates on his return as designated leased property, “(vii) Definition; special rules.— For purposes of this subparagraph— “(I) New section 38 property defined.— The term ‘new section 38 property’ has the meaning given such term by section 4803). “(II) Lessee limitation not to apply to certain farm property.— Clause (ii) shall not apply to any property which is used for farming purposes (within the meaning of section 2032A(e)(5)) and 26 USC 2032A. which is placed in service during the calendar year but only if the cost basis of such property, when added to the cost basis of other finance lease property used for such purpose does not exceed $150,000 (determined under rules similar to the rules of section 209(d)(1)(B) of the Tax Equity and Fiscal Responsibility Act of 1982). “(III) Property placed in service.— For purposes of this title (other than clause (i), any finance lease property shall be deemed originally placed in service not earlier than the date such property is used under the lease. “(C) Agreements must meet certain requirements.— The requirements of this subparagraph are met with respect to any agreement if— “(i) Lessor requirement.— Any lessor under the agreement must be— “(I) a corporation (other than an electing small business corporation within the meaning of section 1371(b) or a personal holding company within the meaning of section 542(a)), “(II) a partnership all of the partners of which are corporations described in subclause (I), or “(III) a grantor trust with respect to which the grantor and all the beneficiaries of the trust are described in subclause (I) or (II). “(ii) Characterization of agreement.— The parties to the agreement characterize such agreement as a lease. “(iii) Agreement contains certain provisions.— The agreement contains the provision described in clause (i) or (ii) of subparagraph (A), or both. “(iv) Agreement otherwise lease, etc.— For purposes of this title (determined without regard to the provisions described in clause (iii)), the agreement would be treated as a lease and the lessor under the agreement would be treated as the owner of the property. “(D) Paragraph not to apply to agreements between related persons.— This paragraph shall not apply to any agreement if the lessor and lessee are both persons who are members of the same affiliated group (within the meaning of subsection (a) of section 1504 and determined without regard to subsection (b) of section 1504). “(E) Nonqualified tax-exempt organization.— “(i) In general.— The term ‘nonqualified tax-exempt organization’ means, with respect to any agreement to which subparagraph (A) applies, any organization (or predecessor organization which was engaged in substantially similar activities) which was exempt from taxation under this title at any time during the 5-year period ending on the date such agreement was entered into. “(ii) Special rule for farmers’ cooperatives.— The term ‘nonqualified tax-exempt organization’ shall not include any farmers’ cooperative organization which is described in section 521 whether or not exempt from 26 USC 521. taxation under section 521. “(iii) Special rule for property used in unrelated trade or business.— An organization shall not be treated as a nonqualified tax-exempt organization with respect to any property if such property is used in an unrelated trade or business (within the meaning of section 513) of such organization which is subject to taxation under section 511. “(F) Cross reference.— “For special recapture in case where lessee acquires financed recovery property, see section 1245.” (b) Special Limitations on Finance Lease Property.— Subsection (i) of section 168 (relating to limitations and additional requirements Ante, p. 432. with respect to leases) is amended to read as follows: “(i) Limitations Relating to Leases of Finance Lease Property.— For purposes of this subtitle, in the case of finance lease property, the following limitations shall apply: “(1) Lessor may not reduce tax liability by more than 50 percent.— “(A) In general.— The aggregate amount allowable as deductions or credits for any taxable year which are allocable to all finance lease property with respect to which the taxpayer is the lessor may not reduce the liability for tax of the taxpayer for such taxable year (determined without regard to finance lease items) by more than 50 percent of such liability. “(B) Carryover of Amounts Not Allowable as Deductions or Credits.— Any amount not allowable as a deduction or credit under subparagraph (A)— “(i) may be carried over to any subsequent taxable year, and “(ii) shall be treated as a deduction or credit allocable to finance lease property in such subsequent taxable year. “(C) Allocation among deductions and credits.— The Secretary shall prescribe regulations for determining the amount— “(i) of any deduction or credit allocable to finance lease property for any taxable year to which subparagraph (A) applies, and “(ii) of any carryover of any such deduction or credit under subparagraph (B) to any subsequent taxable year. “(D) Liability for tax and finance lease items defined.— For purposes of this paragraph— “(i) Liability for tax defined.— Except as provided in this subparagraph, the term ‘liability for tax’ means the tax imposed by this chapter, reduced by the sum of the credits allowable under subpart A of part IV of subchapter A of this chapter. “(ii) Finance lease items defined.— The term ‘finance lease items’ means any of the following items which are properly allocable to finance lease property with respect to which the taxpayer is the lessor: “(I) Any deduction or credit allowable under this chapter. “(II) Any rental income received by the taxpayer from any lessee of such property. “(iii) Certain taxes not included.— The term ‘tax imposed by this chapter’ shall not include any tax treated as not imposed by this chapter under the last sentence of section 53(a) (other than the tax imposed by 26 USC 53. section 56). “(E) Certain safe harbor lease property taken into account.— Under regulations prescribed by the Secretary, deductions and credits and safe harbor lease items which are allocable to safe harbor lease property to which this paragraph (as in effect for taxable years beginning in 1983) applies shall be taken into account for purposes of applying this paragraph. “(2) Investment credit allowed only over 5-year period.— In the case of any credit which would otherwise be allowable under section 38 with respect to any finance lease property for any taxable year (determined without regard to this paragraph), only 20 percent of the amount of such credit shall be allowable in such taxable year and 20 percent of such amount shall be allowable in each of the succeeding 4 taxable years. “(3) Computation of taxable income of lessee for purposes of percentage depletion.— “(A) In general.— For purposes of section 613 or 613A, the taxable income of any taxpayer who is a lessee of any financed recovery property shall be computed as if the taxpayer was the owner of such property, except that the amount of the deduction under subsection (a) of this section shall be determined after application of paragraph (2) of this subsection. “(B) Coordination with crude oil windfall profit tax.— Section 4988(b)(3)(A) shall be applied without regard to subparagraph (A). “(4) Limitations.— “(A) Termination of certain provisions.— “(i) Paragraph (1).— Paragraph (1) shall not apply to property placed in service after September 30, 1985, in taxable years beginning after such date. “(ii) Paragraph (2) shall not apply to property placed in service after September 30, 1985. “(B) Certain farm property.— This subsection shall not apply to property which is used for farming purposes (within the meaning of section 2032A(e)(5)) and which is placed in service during the taxable year but only if the cost basis of such property, when added to the cost basis of other finance lease property used for such purpose, does not exceed $150,000 (determined under rules similar to the rules of section 209(d)(1)(B) of the Tax Equity and Fiscal Ante, p. 442. Responsibility Act of 1982).” (c) Definition of New Section 38 Property.— Subsection (b) of section 48 (defining new section 38 property) is amended by adding 26 USC 48. at the end thereof the following new sentence: “For purposes of determining whether section 38 property subject to a lease is new section 38 property, such property shall be treated as originally placed in service not earlier than the date such property is used under the lease but only if such property is leased within 3 months after such property is placed in service.” (d) Effective Dates.— (1) Subsection (a).— (A) In general.— Except as provided in subparagraph (B) and paragraph (2), the amendments made by this section shall apply to agreements entered into after December 31, 1983. (B) Special rule for farm property aggregating $150,000 or less.— (i) In general.— The amendments made by subsection (a) shall also apply to any agreement entered into after July 1, 1982, and before January 1, 1984, if the property subject to such agreement is section 38 property which is used for farming purposes (within the meaning of section 2032A(e)(5)). (ii) $150,000 limitation.— The provisions of clause (i) shall not apply to any agreement if the sum of— (I) the cost basis of the property subject to the agreement, plus (II) the cost basis of any property subject to an agreement to which this subparagraph previously applied, which was entered into during the same calendar year, and with respect to which the lessee was the lessee of the agreement described in subclause (I) (or any related person within the meaning of section 168(e)(4)(D)), exceeds $150,000. For purposes of subclause (II), in the case of an individual, there shall not be taken into account any agreement of any individual who is a related person involving property which is used in a trade or business of farming of such related person which is separate from the trade or business of farming of the lessee described in subclause (II). (2) Special rule for definition of new section 38 property.— The amendment made by subsection (c) shall apply to property placed in service after December 31, 1983. SEC. 210. MOTOR VEHICLE OPERATING LEASES. (a) In general.— In the case of any qualified motor vehicle agreement, the fact that such agreement contains a terminal rental adjustment clause shall not be taken into account in determining whether such agreement is a lease. (b) Definitions.— For purposes of this section— (1) Qualified motor vehicle agreement.— The term “qualified motor vehicle agreement” means any agreement with respect to a motor vehicle (including a trailer)— (A) which was entered into before— (i) the enactment of any law, or (ii) the publication by the Secretary of the Treasury or his delegate of any regulation, which provides that any agreement with a terminal rental adjustment clause is not a lease, (B) with respect to which the lessor under the agreement— (i) is personally liable for the repayment of, or (ii) has pledged property (but only to the extent of the net fair market value of the lessor’s interest in such property), other than property subject to the agreement or property directly or indirectly financed by indebtedness secured by property subject to the agreement, as security for, all amounts borrowed to finance the acquisition of property subject to the agreement, and (C) with respect to which the lessee under the agreement uses the property subject to the agreement in a trade or business or for the production of income. (2) Terminal rental adjustment clause.— The term “terminal rental adjustment clause” means a provision of an agreement which permits or requires the rental price to be adjusted upward or downward by reference to the amount realized by the lessor under the agreement upon sale or other disposition of such property. PART III— FOREIGN TAX SEC. 211. FOREIGN TAX CREDIT FOR TAXES ON OIL AND GAS INCOME. (a) Amendment of Section 907(C)(4) to Recapture Foreign Oil and Gas Extraction Losses by Recharacterizing Later Extraction Income.— Paragraph (4) of section 907(c) (relating to certain 26 USC 907. losses) is amended to read as follows: “(4) Recapture of foreign oil and gas extraction losses by recharacterizing later extraction income.— “(A) In general.— That portion of the income of the taxpayer for the taxable year which (but for this paragraph) would be treated as foreign oil and gas extraction income shall be treated as income (from sources without the United States) which is not foreign oil and gas extraction income to the extent of the excess of— “(i) the aggregate amount of foreign oil extraction losses for preceding taxable years beginning after December 31, 1982, over “(ii) so much of such aggregate amount as was recharacterized under this subparagraph for preceding taxable years beginning after December 31, 1982. “(B) Foreign oil extraction loss defined.— “(i) In general.— For purposes of this paragraph, the term ‘foreign oil extraction loss’ means the amount by which— “(I) the gross income for the taxable year from sources without the United States and its possessions (whether or not the taxpayer chooses the benefits of this subpart for such taxable year) taken into account in determining the foreign oil and gas extraction income for such year, is exceeded by “(II) the sum of the deductions properly apportioned or allocated thereto. “(ii) Net operating loss deduction not taken into account.— For purposes of clause (i), the net operating loss deduction allowable for the taxable year under section 172(a) shall not be taken into account. 26 USC 172. “(iii) Expropriation and casualty losses not taken into account.— For purposes of clause (i), there shall not be taken into account— “(I) any foreign expropriation loss (as defined in section 172(h)) for the taxable year, or “(II) any loss for the taxable year which arises from fire, storm, shipwreck, or other casualty, or from theft, to the extent such loss is not compensated for by insurance or otherwise.” (b) Extraction income removed from foreign oil related income.— Paragraph (2) of section 907(c) (defining foreign oil related 26 USC 907. income) is amended to read as follows: “(2) Foreign oil related income.— The term ‘foreign oil related income’ means the taxable income derived from sources outside the United States and its possessions from— “(A) the processing of minerals extracted (by the taxpayer or by any other person) from oil or gas wells into their primary products, “(B) the transportation of such minerals or primary products, “(C) the distribution or sale of such minerals or primary products, “(D) the disposition of assets used by the taxpayer in the trade or business described in subparagraph (A), (B), or (C), or “(E) the performance of any other related service.” (c) Repeal of Separate Application of Section 904 to Foreign Oil Related Income; Amounts Treated as Foreign Taxes on Such Income.— (1) In general.— Subsection (b) of section 907 (relating to special rules in case of foreign oil and gas income) is amended to read as follows: “(b) Foreign Taxes on Foreign Oil Related Income.— For purposes of this subtitle, in the case of taxes paid or accrued to any foreign country with respect to foreign oil related income, the term ‘income, war profits, and excess profits taxes’ shall not include any amount paid or accrued after December 31, 1982, to the extent that the Secretary determines that the foreign law imposing such amount of tax is structured, or in fact operates, so that the amount of tax imposed with respect to foreign oil related income will generally be materially greater, over a reasonable period of time, than the amount generally imposed on income that is neither foreign oil related income nor foreign oil and gas extraction income. In computing the amount not treated as tax under this subsection, such amount shall be treated as a deduction under the foreign law.” (2) Repeal of separate treatment of foreign oil related loss.— Subsection (f) of section 904 (relating to recapture of 26 USC 904. overall foreign loss) is amended by striking out paragraph (4) and redesignating paragraphs (5) and (6) as paragraphs (4) and (5), respectively. (d) Carryback and Carryover of Disallowed Credits; Transitional Rules.— (1) Transitional rules.— Subsection (e) of section 907 (relating 26 USC 907. to transitional rules) is amended to read as follows: “(e) Transitional Rules.— “(1) Credits arising in taxable years beginning before january 1, 1983.— The amount of taxes paid or accrued in any taxable year beginning before January 1, 1983 (hereinafter in this paragraph referred to as the ‘excess credit year’) which under section 904(c) or 907(f) may be deemed paid or accrued in a taxable year beginning after December 31, 1982, shall not exceed the amount which could have been deemed paid or accrued if sections 907(b), 907(f), and 904(f)(4) (as in effect on the day before the date of the enactment of the Tax Equity and Fiscal Responsibility Act of 1982) remained in effect for taxable Ante, p. 324. years beginning after December 31, 1982. “(2) Carryback of credits arising in taxable years beginning after december 31, 1982.— The amount of the taxes paid or accrued in a taxable year beginning after December 31, 1982, which may be deemed paid or accrued under section 904(c) or 907(f) in a taxable year beginning before January 1, 1983, shall not exceed the amount which could have been deemed paid or accrued if sections 907(b), 907(f), and 904(f)(4) (as in effect on the day before the date of the enactment of the Tax Equity and Fiscal Responsibility Act of 1982) remained in effect for taxable years beginning after December 31, 1982.” (2) Repeal of 2-percent limitation on carryback and carryover of disallowed extraction taxes.— (A) In general.— Paragraph (1) of section 907(f) (relating to carryback and carryover of disallowed credits) is amended— (i) by striking out “so much of such excess as does not exceed 2 percent of foreign oil and gas extraction income for such taxable year” and inserting in lieu thereof “such excess”, (ii) by striking out the last sentence. (B) Technical amendments.— (i) Subparagraph (B) of section 907(f)(2) is amended— (I) by striking out “on taxes paid or accrued with respect to foreign oil related income”, and (II) by striking out “with respect to such income” in clause (i). (ii) Subparagraph (A) of section 907(f)(3) is amended by striking out “with respect to oil-related income”. (iii) Subparagraph (B) of section 907(f)(3) is amended by striking out “oil-related”. (e) Effective Date.— (1) In general.— Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 1982. (2) Retention of old sections 907(b) and 904(f) (4) where taxpayer had foreign loss from an activity not related to oil and gas.— If, after applying old sections 907(b) and 904(f)(4) to a taxable year beginning before January 1, 1983, the taxpayer had a foreign loss attributable to activities not taken into account in determining foreign oil related income (as defined in old section 907(c)(2)), such loss shall not be recaptured from foreign oil related income more rapidly than ratably over the 8-year period beginning with the first taxable year beginning after December 31, 1982. For purposes of the preceding sentence, an “old” section is such section as in effect on the day before the date of the enactment of this Act. SEC. 212. CURRENT TAXATION OF FOREIGN OIL RELATED INCOME OF CONTROLLED FOREIGN CORPORATIONS. (a) Foreign Oil Related Income Added to Currently Taxed Amounts.— Subsection (a) of section 954 (defining foreign base company 26 USC 954. income) is amended by adding at the end thereof the following new paragraph: “(5) the foreign base company oil related income for the taxable year (determined under subsection (h) and reduced as provided in subsection (b)(5)).” (b) Special Rules.— (1) Allowance of deductions against foreign base company oil related income.— Paragraph (5) of section 954(b) is amended by striking out “and the foreign base company shipping income” and inserting in lieu thereof “, the foreign base company shipping income, and the foreign base company oil related income”. (2) Preemption of foreign base company oil related income.— Subsection (b) of section 954 is amended by adding at the end thereof the following new paragraph: “(8) Foreign base company oil related income not treated as another kind of base company income.— Income of a Corporation which is foreign base company oil related income shall not be considered foreign base company income of such corporation under paragraph (1), (2), or (3) of subsection (a).” (c) Definition of Foreign Base Company Oil Related Income.— Section 954 (relating to foreign base company income) is amended by adding at the end thereof the following new subsection: “(h) Foreign Base Company Oil Related Income.— For purposes of this section— “(1) In general.— Except as otherwise provided in this subsection, the term ‘foreign base company oil related income’ means foreign oil related income (within the meaning of section 907(c)(2)) other than income derived from a source within a foreign country in connection with— “(A) oil or gas which was extracted from an oil or gas well located in such foreign country, or “(B) oil, gas, or a primary product of oil or gas which is sold by the foreign corporation or a related person for use or consumption within such country or is loaded in such country on a vessel or aircraft as fuel for such vessel or aircraft. “(2) Paragraph (i) applies only where corporation has produced 1,000 barrels per day or more.— “(A) In general.— The term ‘foreign base company oil related income’ shall not include any income of a foreign corporation if such corporation is not a large oil producer for the taxable year. “(B) Large oil producer.— For purposes of subparagraph (A), the term ‘large oil producer’ means any corporation if, for the taxable year or for the preceding taxable year, the average daily production of foreign crude oil and natural gas of the related group which includes such corporation equaled or exceeded 1,000 barrels. “(C) Related group.— The term ‘related group’ means a group consisting of the foreign corporation and any other person who is a related person with respect to such corporation. “(D) Average daily production of foreign crude oil and natural gas.— For purposes of this paragraph, the average daily production of foreign crude oil or natural gas of any related group for any taxable year (and the conversion of cubic feet of natural gas into barrels) shall be determined under rules similar to the rules of section 613A except that only crude oil or natural gas from a well located outside the United States shall be taken into account.” (d) Exception from Foreign Base Company Income for Certain Foreign Corporations Not to Apply.— Paragraph (4) of section 954(b) is amended by adding at the end thereof the following new 26 USC 954. sentence: “The preceding sentence shall not apply to foreign base company oil related income described in subsection (a)(5).” (e) Conforming Amendments.— Subsection (a) of section 954 is amended by striking out “and” at the end of paragraph (3), and by striking out the period at the end of paragraph (4) and inserting in lieu thereof”, and”. (f) Effective Date.— The amendments made by this section shall 26 USC 954 note. apply to taxable years of foreign corporations beginning after December 31, 1982, and to taxable years of United States shareholders in which, or with which, such taxable years of foreign corporations end. SEC. 213. POSSESSION TAX CREDIT; INCOME TAX LIABILITY INCURRED TO THE VIRGIN ISLANDS. (a) Possession Tax Credit.— (1) Active trade or business requirement.— Paragraph (2) of section 936(a) (relating to conditions which must be satisfied) is 26 USC 936. amended— (A) by striking out “50 percent” in subparagraph (B) and inserting in lieu thereof “65 percent”, and (B) by adding at the end thereof the following new subparagraph: “(C) Transitional rule.— In applying subparagraph (B) with respect to taxable years beginning after December 31, 1982, and before January 1, 1985, the following percentage shall be substituted for “65 percent”: “For taxable years beginning in calendar year: The percentage tax is: 1983 55 1984 60”. (2) Income attributable to certain intangible property.— Section 936 (relating to Puerto Rico and possession tax credit) is amended by adding at the end thereof the following new subsection: “(h) Tax Treatment Of Intangible Property Income.— “(1) In general.— “(A) Income attributable to shareholders.— The intangible property income of a corporation electing the application of this section for any taxable year shall be included on a pro rata basis in the gross income of all shareholders of such electing corporation at the close of the taxable year of such electing corporation as income from sources within the United States for the taxable year of such shareholder in which or with which the taxable year of such electing corporation ends. “(B) Exclusion from the income of an electing corporation.— Any intangible property income of a corporation electing the application of this section which is included in the gross income of a shareholder of such corporation by reason of subparagraph (A) shall be excluded from the gross income of such corporation. “(2) Foreign shareholders; shareholders not subject to tax.— “(A) In general.— Paragraph (1)(A) shall not apply with respect to any shareholder— “(i) who is not a United States person, or “(ii) who is not subject to tax under this title on intangible property income which would be allocated to such shareholder (but for this subparagraph). “(B) Treatment of nonallocated intangible property income.— For purposes of this subtitle, intangible property income of a corporation electing the application of this section which is not included in the gross income of a shareholder of such corporation by reason of subparagraph (A)— “(i) shall be treated as income from sources within the United States, and “(ii) shall not be taken into account under subsection (a)(2). “(3) Intangible property income.— For purposes of this subsection— “(A) In general.— The term ‘intangible property income’ means the gross income of a corporation attributable to any intangible property other than intangible property which has been licensed to such corporation since prior to 1948 and is in use by such corporation on the date of the enactment of this subparagraph. “(B) Intangible property.— The term ‘intangible property’ means any— “(i) patent, invention, formula, process, design, pattern, or know-how; “(ii) copyright, literary, musical, or artistic composition; “(iii) trademark, trade name, or brand name; “(iv) franchise, license, or contract; “(v) method, program, system, procedure, campaign, survey, study, forecast, estimate, customer list, or technical data; or “(vi) any similar item, which has substantial value independent of the services of any individual. “(C) Exclusion of reasonable profit.— The term ‘intangible property income’ shall not include any portion of the income from the sale, exchange or other disposition of any product, or from the rendering of services, by a corporation electing the application of this section which is determined by the Secretary to be a reasonable profit on the direct and indirect costs incurred by such electing corporation which are attributable to such income. “(D) Related person.— “(i) In general.— A person (hereinafter referred to as the ‘related person’) is related to any person if— “(I) the related person bears a relationship to such person specified in section 267(b) or section 26 USC 267. 707(b)(1), or “(II) the related person and such person are members of the same controlled group of corporations, “(ii) Special rules.— For purposes of clause (i)— “(I) section 267(b) and section 707(b)(1) shall be applied by substituting ‘10 percent’ for ‘50 percent’, and “(II) section 267(b)(3) shall be applied without regard to whether a person was a personal holding company or a foreign personal holding company, “(E) Controlled group of corporations.— The term ‘controlled group of corporations’ has the meaning given to such term by section 1563(a), except that— “(i) ‘more than 10 percent’ shall be substituted for ‘at least 80 percent’ and ‘more than 50 percent’ each place either appears in section 1563(a), and “(ii) the determination shall be made without regard to subsections (a)(4), (b)(2), and (e)(3)(C) of section 1563. “(4) Distributions to meet qualification requirements.— “(A) In general.— If the Secretary determines that a corporation does not satisfy a condition specified in subparagraph (A) or (B) of subsection (a)(2) for any taxable year by reason of the exclusion from gross income under paragraph (1)(B), such corporation shall nevertheless be treated as satisfying such condition for such year if it makes a pro rata distribution of property after the close of such taxable year to its shareholders (designated at the time of such distribution as a distribution to meet qualification requirements) with respect to their stock in an amount which is equal to— “(i) if the condition of subsection (a)(2)(A) is not satisfied, that portion of the gross income for the period described in subsection (a)(2)(A)— “(I) which was not derived from sources within a possession, and “(II) which exceeds the amount of such income for such period which would enable such corporation to satisfy the condition of subsection (a)(2)(A), “(ii) if the condition of subsection (a)(2)(B) is not satisfied, that portion of the gross income for such period— “(I) which was not derived from the active conduct of a trade or business within a possession, and “(II) which exceeds the amount of such income for such period which would enable such corporation to satisfy the conditions of subsection (a)(2)(B), or “(iii) if neither of such conditions is satisfied, that portion of the gross income which exceeds the amount of gross income for such period which would enable such corporation to satisfy the conditions of subparagraphs (A) and (B) of subsection (a)(2). “(B) Effectively connected income.— In the case of a shareholder who is a nonresident alien individual or a foreign corporation, trust, or estate, any distribution described in subparagraph (A) shall be treated as income which is effectively connected with the conduct of a trade or business conducted through a permanent establishment of such shareholder within the United States. “(C) Distribution denied in case of fraud or willful neglect.— Subparagraph (A) shall not apply to a corporation if the determination of the Secretary described in subparagraph (A) contains a finding that the failure of such corporation to satisfy the conditions in subsection (a)(2) was due in whole or in part to fraud with intent to evade tax or willful neglect on the part of such corporation. “(5) Election out.— “(A) In general.— The rules contained in paragraphs (1) through (4) do not apply for any taxable year if an election pursuant to subparagraph (F) is in effect to use one of the methods specified in subparagraph (C). “(B) Eligibility.— “(i) Requirement of significant business presence.— An election may be made to use one of the methods specified in subparagraph (C) with respect to a product or type of service only if an electing corporation has a significant business presence in a possession with respect to such product or type of service. An election may remain in effect with respect to such product or type of service for any subsequent taxable year only if such electing corporation maintains a significant business presence in a possession with respect to such product or type of service in such subsequent taxable year. If an election is not in effect for a taxable year because of the preceding sentence, the electing corporation shall be deemed to have revoked the election on the first day of such taxable year. “(ii) Definition.— For purposes of this subparagraph, an electing corporation has a ‘significant business presence’ in a possession for a taxable year with respect to a product or type of service if: “(I) the total production costs (other than direct material costs and other than interest excluded by regulations prescribed by the Secretary) incurred by the electing corporation in the possession in producing units of that product sold or otherwise disposed of during the taxable year by the affiliated group to persons who are not members of the affiliated group are not less than 25 percent of the difference between (a) the gross receipts from sales or other dispositions during the taxable year by the affiliated group to persons who are not members of the affiliated group of such units of the product produced, in whole or in part, by the electing corporation in the possession, and (b) the direct material costs of the purchase of materials for such units of that product by all members of the affiliated group from persons who are not members of the affiliated group; or “(II) no less than 65 percent of the direct labor costs of the affiliated group for units of the product produced during the taxable year in whole or in part by the electing corporation or for the type of service rendered by the electing corporation during the taxable year, is incurred by the electing corporation and is compensation for services performed in the possession; or “(III) with respect to purchases and sales by an electing corporation of all goods not produced in whole or in part by any member of the affiliated group and sold by the electing corporation to persons other than members of the affiliated group, no less than 65 percent of the total direct labor costs of the affiliated group in connection with all purchases and sales of such goods sold during the taxable year by such electing corporation is incurred by such electing corporation and is compensation for services performed in the possession. Notwithstanding satisfaction of one of the foregoing tests, an electing corporation shall not be treated as having a significant business presence in a possession with respect to a product produced in whole or in part by the electing corporation in the possession, for purposes of an election to use the method specified in subparagraph (C)(ii), unless such product is manufactured or produced in the possession by the electing corporation within the meaning of subsection (d)(1)(A) of section 954. 26 USC 954. “(iii) Special rules.— “(I) An electing corporation which produces a product or renders a type of service in a possession on the date of the enactment of this clause is not required to meet the significant business presence test in a possession with respect to such product or type of service for its taxable years beginning before January 1, 1986. “(II) For purposes of this subparagraph, the costs incurred by an electing corporation or any other member of the affiliated group in connection with contract manufacturing by a person other than a member of the affiliated group, or in connection with a similar arrangement thereto, shall be treated as direct labor costs of the affiliated group and shall not be treated as production costs incurred by the electing corporation in the possession or as direct material costs or as compensation for services performed in the possession, except to the extent as may be otherwise provided in regulations prescribed by the Secretary, “(iv) Regulations.— The Secretary may prescribe regulations setting forth: “(I) an appropriate transitional (but not in excess of three taxable years) significant business pres-ence test for commencement in a possession of operations with respect to products or types of service after the date of the enactment of this clause and not described in subparagraph (B)(iii)(I), “(II) a significant business presence test for other appropriate cases, consistent with the tests specified in subparagraph (B)(ii), “(III) rules for the definition of a product or type of service, and “(IV) rules for treating components produced in whole or in part by a related person as materials, and the costs (including direct labor costs) related thereto as a cost of materials, where there is an independent resale price for such components or where otherwise consistent with the intent of the substantial business presence tests. “(C) Methods of computation of taxable income.— If an election of one of the following methods is in effect pursuant to subparagraph (F) with respect to a product or type of service, an electing corporation shall compute its income derived from the active conduct of a trade or business in a possession with respect to such product or type of service in accordance with the method which is elected. “(i) Cost sharing.— “(I) Payment of cost sharing.— If an election of this method is in effect, the electing corporation must make a payment for its share of the cost (if any) of product area research which is paid or accrued by the affiliated group during that taxable year. Such share shall not be less than the same proportion of the cost of such product area research which the amount of ‘possession sales’ bears to the amount of ‘total sales‘ of the affiliated group. The cost of product area research paid or accrued solely by the electing corporation in a taxable year (excluding amounts paid directly or indirectly to or on behalf of related persons and excluding amounts paid under any cost sharing agreements with related persons) will reduce (but not below zero) the amount of the electing corporation’s cost sharing payment under this method for that year. “(a) Product area research.— For purposes of this section, the term ‘product area research’ includes (notwithstanding any provision to the contrary) the research, development and experimental costs, losses, expenses and other related deductions—including amounts paid or accrued for the performance of research or similar activities by another person; qualified research expenses within the meaning of section 44F(b); amounts paid or 95 Stat. 241. accrued for the use of, or the right to use, research or any of the items specified in subsection (h)(3)(B)(i); and a proper allowance for amounts incurred for the acquisition of any of the items specified in subsection (h)(3)(B)(i)— which are properly apportioned or allocated to the same product area as that in which the electing corporation conducts its activities, and a ratable part of any such costs, losses, expenses and other deductions which cannot definitely be allocated to a particular product area. “(b) Affiliated group.— For purposes of this subsection, the term ‘affiliated group’ shall mean the electing corporation and all other organizations, trades or businesses (whether or not incorporated, whether or not organized in the United States, and whether or not affiliated) owned or controlled directly or indirectly by the same interests, within the meaning of section 482. 26 USC 482. “(c) Possession sales.— For purposes of this section, the term ‘possession sales’ means the aggregate sales or other dispositions for the taxable year to persons who are not members of the affiliated group by members of the affiliated group of products produced, in whole or in part, by the electing corporation in the possession which are in the same product area as is used for determining the amount of product area research, and of services rendered, in whole or in part, in the possession in such product area to persons who are not members of the affiliated group. “(d) Total sales.— For purposes of this section, the term ‘total sales’ means the aggregate sales or other dispositions for the taxable year to persons who are not members of the affiliated group by members of the affiliated group of all products in the same product area as is used for determining the amount of product area research, and of services rendered in such product area to persons who are not members of the affiliated group. “(e) Product area.— For purposes of this section, the term ‘product area’ shall be defined by reference to the three-digit classification of the Standard Industrial Classification code. The Secretary may provide for the aggregation of two or more three-digit classifications where appropriate, and for a classification system other than the Standard Industrial Classification code in appropriate cases. “(II) Effect of election.— For purposes of determining the amount of its gross income derived from the active conduct of a trade or business in a possession with respect to a product produced by, or type of service rendered by, the electing corporation for a taxable year, if an election of this method is in effect, the electing corporation shall be treated as the owner (for purposes of obtaining a return thereon) of intangible property described in subsection (h)(3)(B)(i) which is related to the units of the product produced, or type of service rendered, by the electing corporation. Such electing corporation shall not be treated as the owner (for purposes of obtaining a return thereon) of any intangible property described in subsection (h)(3)(B)(ii) through (v) (to the extent not described in subsection (h)(3)(B)(i)) or of any other nonmanufacturing intangible. Notwithstanding the preceding sentence, an electing corporation shall be treated as the owner (for purposes of obtaining a return thereon) of (a) intangible property which was developed solely by such corporation in a possession and is owned by such corporation, (b) intangible property described in subsection (h)(3)(B)(i) acquired by such corporation from a person who was not related to such corporation (or to any person related to such corporation) at the time of, or in connection with, such acquisition, and (c) any intangible property described in subsection (h)(3)(B)(ii) through (v) (to the extent not described in subsection (h)(3)(B)(i)) and other nonmanufacturing intangibles which relate to sales of units of products, or services rendered, to unrelated persons for ultimate consumption or use in the possession in which the electing corporation conducts its trade or business. “(III) Payment provisions.— “(a) The cost sharing payment determined under subparagraph (C)(i)(I) for any taxable year shall be made to the person or persons specified in subparagraph (C)(i)(IV)(a) not later than the time prescribed by law for filing the electing corporation’s return for such taxable year (including any extensions thereof). If all or part of such payment is not timely made, the amount of the cost sharing payment required to be paid shall be increased by the amount of interest that would have been due under section 6601(a) had the portion of the 26 USC 6601. cost sharing payment that is not timely made been an amount of tax imposed by this title and had the last date prescribed for payment been the due date of the electing corporations return (determined without regard to any extension thereof). The amount by which a cost sharing payment determined under subparagraph (C)(i)(I) is increased by reason of the preceding sentence shall not be treated as a cost sharing payment or as interest. If failure to make timely payment is due in whole or in part to fraud or willful neglect, the electing corporation shall be deemed to have revoked the election made under subparagraph (A) on the first day of the taxable year for which the cost sharing payment was required. “(b) For purposes of this title, any tax of a foreign country or possession of the United States which is paid or accrued with respect to the payment or receipt of a cost sharing payment determined under subparagraph (C)(i)(I) or of an amount of increase referred to in subparagraph (C)(i)(III)(a) shall not be treated as income, war profits, or excess profits taxes paid or accrued to a foreign country or possession of the United States, and no deduction shall be allowed under this title with respect to any amounts of such tax so paid or accrued. “(IV) Special rules.— “(a) The amount of the cost sharing payment determined under subparagraph (C)(i)(I), and any increase in the amount thereof in accordance with subparagraph (C)(i)(III)(a), shall not be treated as income of the recipient, but shall reduce the amount of the deductions (and the amount of reductions in earnings and profits) otherwise allowable to the appropriate domestic member or members (other than an electing corporation) of the affiliated group, or, if there is no such domestic member, to the foreign member or members of such affiliated group as the Secretary may provide under regulations. “(b) If an election of this method is in effect, the electing corporation shall determine its intercompany pricing under the appropriate section 482 method, provided, however, that an 26 USC 482. electing corporation shall not be denied use of the resale price method for purposes of such intercompany pricing merely because the reseller adds more than an insubstantial amount to the value of the product by the use of intangible property. “(c) The amount of qualified research expenses, within the meaning of section 44F, of 95 Stat. 241. any member of the controlled group of corporations (as defined in section 44F(f)) of which the electing corporation is a member shall not be affected by the cost sharing payment required under this method. “(ii) Profit split.— “(I) General rule.— If an election of this method is in effect, the electing corporation’s taxable income derived from the active conduct of a trade or business in a possession with respect to units of a product produced or type of service rendered, in whole or in part, by the electing corporation shall be equal to 50 percent of the combined taxable income of the affiliated group (other than foreign affiliates) derived from covered sales of units of the product produced or type of service rendered, in whole or in part, by the electing corporation in a possession. “(II) Computation of combined taxable income.— Combined taxable income shall be computed separately for each product produced or type of service rendered, in whole or in part, by the electing corporation in a possession. Combined taxable income shall be computed (notwithstanding any provision to the contrary) for each such product or type of service rendered by deducting from the gross income of the affiliated group (other than foreign affiliates) derived from covered sales of such product or type of service all expenses, losses, and other deductions properly apportioned or allocated to gross income from such sales or services, and a ratable part of all expenses, losses, or other deductions which cannot definitely be allocated to some item or class of gross income, which are incurred by the affiliated group (other than foreign affiliates). Notwithstanding any other provision to the contrary, in computing the combined taxable income for each such product or type of service rendered, the research, development, and experimental costs, expenses and related deductions for the taxable year which would otherwise be apportioned or allocated to the gross income of the affiliated group (other than foreign affiliates) derived from covered sales of such product produced or type of service rendered, in whole or in part, by the electing corporation in a possession, shall not be less than the same proportion of the amount of the share of product area research determined under subparagraph (C)(i)(I) (without regard to the third sentence thereof) in the product area which includes such product or type of service, that such gross income from the product or type of service bears to such gross income from all products produced and types of service rendered, in whole or part, by the electing corporation in a possession. “(III) Division of combined taxable income.— 50 percent of the combined taxable income computed as provided in subparagraph (C)(ii)(II) shall be allocated to the electing corporation. Combined taxable income, computed without regard to the last sentence of subparagraph (C)(ii)(II), less the amount allocated to the electing corporation under the preceding sentence, shall be allocated to the appropriate domestic member or members (other than any electing corporation) of the affiliated group and shall be treated as income from sources within the United States, or, if there is no such domestic member, to a foreign member or members of such affiliated group as the Secretary may provide under regulations. “(IV) Covered sales.— For purposes of this paragraph, the term ‘covered sales’ means sales by members of the affiliated group (other than foreign affiliates) to persons who are not members of the affiliated group or to foreign affiliates. “(D) Unrelated person.— For purposes of this paragraph, the term ‘unrelated person’ means any person other than a person related within the meaning of paragraph (3)(D) to the electing corporation. “(E) Electing corporation.— For purposes of this subsection, the term ‘electing corporation’ means a domestic corporation for which an election under this section is in effect. “(F) Time and manner of election; revocation.— “(i) In general.— An election under subparagraph (A) to use one of the methods under subparagraph (C) shall be made only on or before the due date prescribed by law (including extensions) for filing the tax return of the electing corporation for its first taxable year beginning after December 31, 1982. If an election of one of such methods is made, such election shall be binding on the electing corporation and such method must be used for each taxable year thereafter until such election is revoked by the electing corporation under subparagraph (F)(iii). If any such election is revoked by the electing corporation under subparagraph (F)(iii), such electing corporation may make a subsequent election under subparagraph (A) only with the consent of the Secretary. “(ii) Manner of making election.— An election under subparagraph (A) to use one of the methods under subparagraph (C) shall be made by filing a statement to such effect with the return referred to in subparagraph (F)(i) or in such other manner as the Secretary may prescribe by regulations, “(iii) Revocation.— “(I) Except as provided in subparagraph (F)(iii) (II), an election may be revoked for any taxable year only with the consent of the Secretary. “(II) An election shall be deemed revoked for the year in which the electing corporation is deemed to have revoked such election under subparagraph (B)(i) or (C) (i)(III) (a), “(iv) Aggregation.— “(I) Where more than one electing corporation in the affiliated group produces any product or renders any services in the same product area, all such electing corporations must elect to compute their taxable income under the same method under subparagraph (C). “(II) All electing corporations in the same affiliated group that produce any products or render any services in the same product area may elect, subject to such terms and conditions as the Secretary may prescribe by regulations, to compute their taxable income from export sales under a different method from that used for all other sales and services. For this purpose, export sales means all sales by the electing corporation of products to foreign persons for use or consumption outside the United States and its possessions, provided such products are manufactured or produced in the pos-session within the meaning of subsection (d)(1)(A) of section 954, and further provided (except to the 26 USC 954. extent otherwise provided by regulations) the income derived by such foreign person on resale of such products (in the same state or in an altered state) is not included in foreign base company income for purposes of section 954(a). “(III) All members of an affiliated group must consent to an election under this subsection at such time and in such manner as shall be prescribed by the Secretary by regulations. “(6) Treatment of certain sales made after july 1, 1982.— “(A) In general.— For purposes of this section, in the case of a disposition of intangible property made by a corporation after July 1, 1982, any gain or loss from such disposition shall be treated as gain or loss from sources within the United States to which paragraph (5) does not apply. “(B) Exception.— Subparagraph (A) shall not apply to any disposition by a corporation of intangible property if such disposition is to a person who is not a related person to such corporation. “(C) Paragraph does not affect eligibility.— This paragraph shall not apply for purposes of determining whether the corporation meets the requirements of subsection (a)(2). “(7) Regulations.— The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including rules for the application of this subsection to income from leasing of products to unrelated persons.” (b) Income Tax Liability Incurred to the Virgin Islands.— Section 934 (relating to limitation on reduction in income tax liability 26 USC 934. incurred to the Virgin Islands) is amended— (1) by striking out “50 percent” in subsection (b)(2) and inserting in lieu thereof “65 percent”, and (2) by adding at the end thereof the following new subsections: “(e) Tax Treatment of Intangible Property Income of Certain Domestic Corporations.— “(1) In general.— “(A) Income attributable to shareholder.— The intangible property income (within the meaning of section 936(h)(3)) for any taxable year of any domestic corporation Ante, p. 452. which is described in subsection (b) and which is an inhabitant of the Virgin Islands (within the meaning of section 28(a) of the Revised Organic Act of the Virgin Islands (48 U.S.C. 1642)), shall be included on a pro rata basis in the gross income of all shareholders of such corporation at the close of the taxable year of such corporation as income from sources within the United States for the taxable year of such shareholder in which or with which the taxable year of such corporation ends. “(B) Exclusion from the income of the corporation.— Any intangible property income of a corporation described in subparagraph (A) which is included in the gross income of a shareholder of such corporation by reason of subparagraph (A) shall be excluded from the gross income of such corporation. “(2) Foreign shareholders; shareholders not subject to tax; inhabitants of the virgin islands.— “(A) In general.— Paragraph (1)(A) shall not apply with respect to any shareholder— “(i) who is not a United States person, “(ii) who is not subject to tax under this title on intangible property income which would be allocated to such shareholder (but for this subparagraph), or “(iii) who is an inhabitant of the Virgin Islands. “(B) Treatment of nonallocated intangible property income.— For purposes of this subtitle, intangible property income of a corporation described in paragraph (1)(A) which is not included in the gross income of a shareholder of such corporation by reason of subparagraph (A)— “(i) shall be treated as income from sources within the United States, and “(ii) shall not be taken into account for purposes of determining whether the conditions specified in paragraph (1) or (2) of subsection (b) are satisfied. “(3) Distribution to meet qualification requirements.— “(A) In general.— If the Secretary determines that a corporation does not satisfy a condition specified in paragraph (1) or (2) of subsection (b) for any taxable year by reason of the exclusion from gross income under paragraph (1)(B), such corporation shall nevertheless be treated as satisfying such condition for such year if it makes a pro rata distribution of property after the close of such taxable year to its shareholders (designated at the time of such distribution as a distribution to meet qualification requirements) with respect to their stock in an amount which is equal to— “(i) if the condition of subsection (b)(1) is not satisfied, that portion of the gross income for the period described in subsection (b)(1)— “(I) which was not derived from sources within the Virgin Islands, and “(II) which exceeds the amount of such income for such period which would enable such corporation to satisfy the condition of subsection (b)(1), “(ii) if the condition of subsection (b)(2) is not satisfied, that portion of the aggregate gross income for such period— “(I) which was not derived from the active conduct of a trade or business within the Virgin Islands, and “(II) which exceeds the amount of such income for such period which would enable such corporation to satisfy the conditions of subsection (b)(2), or “(iii) if neither of such conditions is satisfied, that portion of the gross income which exceeds the amount of gross income for such period which would enable such corporation to satisfy the conditions of paragraphs (1) and (2) of subsection (b). “(B) Effectively connected income.— In the case of a shareholder who is a nonresident alien individual, an inhabitant of the Virgin Islands, or a foreign corporation, trust, or estate, any distribution described in subparagraph (A) shall be treated as income which is effectively connected with the conduct of a trade or business conducted through a permanent establishment of such shareholder within the United States. “(C) Distribution denied in case of fraud or willful neglect.— Subparagraph (A) shall not apply to a corporation if the determination of the Secretary described in subparagraph (A) contains a finding that the failure of such corporation to satisfy the conditions in subsection (b) was due in whole or in part to fraud with intent to evade tax or willful neglect on the part of such corporation. “(4) Certain provisions of section 936 to apply.— “(A) In general.— The rules contained in paragraphs (5), (6), and (7) of section 936(h) shall apply to a domestic Ante, p. 452. corporation described in paragraph (1)(A) of this subsection. “(B) Certain modifications.— For purposes of subparagraph (A), section 936(h) shall be applied by substituting wherever appropriate— “(i) ‘Virgin Islands’ for ‘possession’, and “(ii) qualification under paragraphs (1) and (2) of subsection (b) for qualification under section 936(a)(2). “(f) Transitional Rule.— In applying subsection (b)(2) with respect to taxable years beginning after December 31, 1982, and before January 1, 1985, the following percentage shall be substituted for ‘65 percent’: “For taxable years beginning in calendar year: The percentage is: 1983 55 1984 60“. (c) Denial of Dividend Received Deduction in Case of a Distribution to Meet Qualification Requirements.— Section 246 (relating 26 USC 246. to rules applying to deduction for dividends received) is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection: “(e) Certain Distributions to Satisfy Requirements.— No deduction shall be allowed under section 243(a) with respect to a dividend received pursuant to a distribution described in section 936(h)(4) or 934(e)(3).” Ante, pp. 452, 463. (d) Transfer of Intangibles by Possession Corporation Treated as Transfer to Avoid Taxes.— Section 367 (relating to 26 USC 367. foreign corporations) is amended by redesignating subsection (d) as subsection (e) and by inserting after subsection (c) the following new subsection: “(d) Special Rule Relating to Transfer of Intangibles by Possession Corporations.— “(1) In general.— If, after August 14, 1982, any possession corporation transfers, directly or indirectly, any intangible property (within the meaning of section 936(h)(3)(B)) to any foreign corporation, such transfer shall be treated for purposes of subsection (a) as pursuant to a plan having as one of its principal purposes the avoidance of Federal income taxes. “(2) Possession corporation.— “(A) In general.— The term ‘possession corporation’ means any corporation— “(i) to which an election under section 936 applies, or “(ii) which is described in subsection (b) of section 934 26 USC 934. and which is an inhabitant of the Virgin Islands (within the meaning of section 28(a) of the Revised Organic Act of the Virgin Islands). 48 USC 1642. “(B) Former possession corporation.— A corporation shall be treated as a possession corporation with respect to any transfer if such corporation was a possession corporation (within the meaning of subparagraph (A)) at any time during the 5-year period ending on the date of such transfer. “(3) Transfer by united states affiliates.— A rule similar to the rule of paragraph (1) shall apply in the case of a direct or indirect transfer by a United States affiliate to a foreign person of intangible property which, after August 14, 1982, was being used (or held for use) by a possession corporation under an arrangement with a United States affiliate. For purposes of the preceding sentence, the term “United States affiliate” means any United States person who is a member of an affiliated group (within the meaning of section 936(h)(5)(C)(i)(I)(b)) which Ante, p. 452. includes the possession corporation. “(4) Waiver authority.— Subject to such terms and conditions as the Secretary may provide, paragraph (1) or (3) shall not apply to any case where the Secretary is satisfied that the transfer will not result in the reduction of current or future Federal income taxes.” (e) Effective Dates.— (1) In general.— Except as provided in paragraphs (2) and (3), the amendments made by this section shall apply to taxable years beginning after December 31, 1982. (2) Certain sales made after july 1, 1982.— Paragraph (6) of section 936(h) of the Internal Revenue Code of 1954, and so much of section 934 to which such paragraph applies by reason of section 934(e)(4) of such Code, shall apply to taxable years Ante, p. 463. ending after July 1, 1982. (3) Certain transfers of intangibles made after august 14, 1982.— Subsection (d) shall apply to taxable years ending after August 14, 1982. PART IV— TAX-EXEMPT OBLIGATIONS SEC. 214. MODIFICATION OF EXEMPTION FOR SMALL ISSUES. (a) Composite Issues.— Paragraph (6) of section 103(b) (relating to 26 USC 103. exemption for certain small issues) is amended by adding at the end thereof the following new subparagraphs: “(K) Limitations on treatment of obligations as part of the same issue.— For purposes of this paragraph, separate lots of obligations which (but for this subparagraph) would be treated as part of the same issue shall be treated as separate issues unless the proceeds of such lots are to be used with respect to 2 or more facilities— “(i) which are located in more than 1 State, or “(ii) which have, or will have, as the same principal user the same person or related persons. “(L) Franchises.— For purposes of subparagraph (K), a person (other than a governmental unit) shall be considered a principal user of a facility if such person (or a group of related persons which includes such person)— “(i) guarantees, arranges, participates in, or assists with the issuance (or pays any portion of the cost of issuance) of any obligation the proceeds of which are to be used to finance or refinance such facility, and “(ii) provides any property, or any franchise, trademark, or tradename (within the meaning of section 1253), which is to be used in connection with such facility.” (b) Small issue exemption not allowed where obligations issued as part of issue exempt from tax other than as a small issue.— Paragraph (6) of section 103(b), as amended by subsection 26 USC 103. (a), is amended by adding at the end thereof the following new subparagraph: “(M) Paragraph not to apply if obligations issued with certain other tax-exempt obligations.— This paragraph shall not apply to any obligation which is issued as part of an issue (other than an issue to which subparagraph (D) applies) if the interest on any other obligation which is part of such issue is excluded from gross income under any provision of law other than this paragraph.” (c) Termination of Small Issue Exemption After December 31, 1986.— Paragraph (6) of section 103(b), as amended by subsections (a) and (b), is amended by adding at the end thereof the following new subparagraph: “(N) Paragraph not to apply to obligations issued after december 31, 1986.— This paragraph shall not apply to any obligation issued after December 31, 1986 (including any obligation issued to refund an obligation issued on or before such date).” (d) Exclusion of Certain Research Expenditures from the Limitation on Certain Industrial Development Bonds.— Subparagraph (F) of section 103(b)(6) (relating to exclusion of certain capital expenditures) is amended— (1) by striking out “or” at the end of clause (ii), (2) by adding “or” at the end of clause (iii), and (3) by adding at the end thereof the following new clause: “(iv) described in clause (i) or (ii) of section 44F(b)(2)(A) for which a deduction was allowed under 95 Stat. 241. section 174(a),”. (e) Restrictions on Financing Certain Facilities.— Paragraph (6) of section 103(b) is amended by adding at the end thereof the following new subparagraph: “(O) Restrictions on financing certain facilities.— This paragraph shall not apply to an issue if— “(i) more than 25 percent of the proceeds of the issue are used to provide a facility the primary purpose of which is one of the following: retail food and beverage services, automobile sales or service, or the provision of recreation or entertainment; or “(ii) any portion of the proceeds of the issue is to be used to provide the following: any private or commercial golf course, country club, massage parlor, tennis club, skating facility (including roller skating, skateboard, and ice skating), racquet sports facility (includ-ing any handball or racquetball court), hot tub facility, suntan facility, or racetrack.” (f) Effective Dates.— (1) Composite issues; small issue exemption.— The amendments made by subsections (a) and (b) shall apply to obligations issued after the date of the enactment of this Act. (2) Termination.— The amendment made by subsection (c) shall take effect on the date of the enactment of this Act. (3) Research expenditures.— The amendment made by subsection (d) shall apply with respect to expenditures made after the date of the enactment of this Act. (4) Certain facilities.— The amendment made by subsection (e) shall apply to obligations issued after December 31, 1982. SEC. 215. PUBLIC APPROVAL AND INFORMATION REPORTING REQUIREMENTS APPLICABLE TO PRIVATE ACTIVITY BONDS. (a) Public Approval.— Section 103 (relating to interest on certain Post, p. 596. governmental obligations) is amended by redesignating subsection (k) as subsection (1) and by inserting after subsection (j) the following new subsection: “(k) Public Approval for Industrial Development Bonds.— “(1) In general.— Notwithstanding subsection (b), an industrial development bond shall be treated as an obligation not described in subsection (a) unless the requirements of paragraph (2) of this subsection are satisfied. “(2) Public approval requirement.— “(A) In general.— An obligation shall satisfy the requirements of this paragraph if such obligation is issued as a part of an issue which has been approved by— “(i) the governmental unit— “(I) which issued such obligation, or “(II) on behalf of which such obligation was issued, and “(ii) each governmental unit having jurisdiction over the area in which any facility, with respect to which financing is to be provided from the proceeds of such issue, is located (except that if more than 1 governmental unit within a State has jurisdiction over the entire area within such State in which such facility is located, only 1 such unit need approve such issue). “(B) Approval by a governmental unit.— For purposes of subparagraph (A), an issue shall be treated as having been approved by any governmental unit if such issue is approved— “(i) by the applicable elected representative of such governmental unit after a public hearing following reasonable public notice, or “(ii) by voter referendum of such governmental unit. “(C) Special rules for approval of facility.— If there has been public approval under subparagraph (A) of the plan of financing a facility, such approval shall constitute approval under subparagraph (A) for any issue— “(i) which is issued pursuant to such plan within 3 years after the date of the first issue pursuant to the approval, and “(ii) all or substantially all of the proceeds of which are to be used to finance such facility or to refund previous financing under such plan. “(D) Refunding obligations.— No approval under subparagraph (A) shall be necessary with respect to any obligation which is issued to refund an obligation approved under subparagraph (A) (or treated as approved under subparagraph (C)) unless the maturity date of such obligation is later than the maturity date of the obligation to be refunded. “(E) Applicable elected representative.— For purposes of this paragraph— “(i) In general.— The term ‘applicable elected representative’ means with respect to any governmental unit— “(I) an elected legislative body of such unit, or “(II) the chief elected executive officer, the chief elected State legal officer of the executive branch, or any other elected official of such unit designated for purposes of this paragraph by such chief elected executive officer or by State law. “(ii) No applicable elected representative.— If (but for this clause) a governmental unit has no applicable elected representative, the applicable elected representative for purposes of clause (i) shall be the applicable elected representative of the governmental unit— “(I) which is the next higher governmental unit with such a representative, and “(II) from which the authority of the governmental unit with no such representative is derived.” (b) Information Reporting.— (1) In general.— Section 103 is amended by redesignating 26 USC 103. subsection (1) as subsection (m) and by adding at the end thereof the following new subsection: “(l) Information Reporting Requirements for Certain Bonds.— “(1) In general.— Notwithstanding subsection (b), any industrial development bond or any other obligation which is issued as part of an issue all or a major portion of the proceeds of which are to be used directly or indirectly— “(A) to finance loans to individuals for educational expenses, or “(B) by an organization described in section 501(c)(3) which is exempt from taxation by reason of section 501(a), shall be treated as an obligation not described in paragraph (1) or (2) of subsection (a) unless such bond satisfies the requirements of paragraph (2). “(2) Information reporting requirement.— An obligation satisfies the requirement of this paragraph if the issuer submits to the Secretary, not later than the 15th day of the 2nd calendar month after the close of the calendar quarter in which the obligation is issued, a statement concerning the issue of which the obligation is a part which contains— “(A) the name and address of the issuer, “(B) the date of issue, the amount of lendable proceeds of the issue, and the stated interest rate, term, and face amount of each obligation which is part of the issue, “(C) where required, the name of the applicable elected representative who approved the issue, or a description of the voter referendum by which the issue was approved, “(D) the name, address, and employer identification number of— “(i) each initial principal user of any facilities provided with the proceeds of the issue, “(ii) the common parent of any affiliated group of corporations (Within the meaning of section 1504(a)) of which such initial principal user is a member, and “(iii) if the issue is treated as a separate issue under subsection (b)(6)(K), any person treated as a principal user under subsection (b)(6)(L), and “(E) a description of any property to be financed from the proceeds of the issue. “(3) Extension of time.— The Secretary may grant an extension of time for the filing of any statement required under paragraph (2) if there is reasonable cause for the failure to file such statement in a timely fashion.” (2) Conforming amendment.— Paragraph (2) of section 103(b) 26 USC 103. (defining industrial development bond) is amended by striking out “For purposes of this subsection” and inserting in lieu thereof “For purposes of this section”. (c) Effective Dates.— (1) Public approval.— The amendment made by subsection (a) shall apply to obligations issued after December 31, 1982, other than obligations issued solely to refund any obligation which— (A) was issued before July 1, 1982, and (B) has a maturity which does not exceed 3 years. (2) Information reporting.— The amendments made by subsection (b) shall apply to obligations issued after December 31, 1982 (including any obligation issued to refund an obligation issued before such date). SEC. 216. COST RECOVERY FOR CERTAIN PROPERTY FINANCED WITH TAX-EXEMPT BONDS. (a) Cost Recovery Method.— Subsection (f) of section 168 (relating 95 Stat. 204. to special rules for the accelerated cost recovery system) is amended by adding at the end thereof the following new paragraph: “(12) Limitations on property financed with tax-exempt bonds.— “(A) In general.— Notwithstanding any other provision of this section, to the extent that any property is financed by the proceeds of an industrial development bond (within the meaning of section 10303)(2)) the interest of which is exempt from taxation under section 103(a), the deduction allowed under subsection (a) (and any deduction allowable in lieu of the deduction allowable under subsection (a)) for any taxable year with respect to such property shall be determined under subparagraph (B). “(B) Recovery method.— “(i) In general.— Except as provided in clause (ii), the amount of the deduction allowed with respect to property described in subparagraph (A) shall be determined by using the straight-line method (with a half-year convention and without regard to salvage value) and a recovery period determined in accordance with the following table: “In the case of: The recovery period is: 3-year property 3 years. 5-year property 5 years. 10-year property 10 years. 15-year public utility property 15 years. “(ii) 15-year real property.— In the case of 15-year real property, the amount of the deduction allowed shall be determined by using the straight-line method (determined on the basis of the number of months in the year in which such property was in service and without regard to salvage value) and a recovery period of 15 years. “(C) Exceptions.— Subparagraph (A) shall not apply to any recovery property which is placed in service— “(i) in connection with projects for residential rental property financed by the proceeds of obligations described in section 103(b)(4)(A), Post, pp. 477, 599. “(ii) in connection with a sewage or solid waste disposal facility— “(I) which provides sewage or solid waste disposal services for the residents of part or all of 1 or more governmental units, and “(II) with respect to which substantially all of the sewage or solid waste processed is collected from the general public, “(iii) as an air or water pollution control facility which is— “(I) installed in connection with an existing facility, or “(II) installed in connection with the conversion of an existing facility which uses oil or natural gas (or any product of oil or natural gas) as a primary fuel to a facility which uses coal as a primary fuel, or “(iv) in connection with a facility with respect to which an urban development action grant has been made under section 119 of the Housing and Community Development Act of 1974. 42 USC 5318. “(D) Existing facility.— For purposes of this paragraph, the term ‘existing facility’ means a plant or property in operation before July 1, 1982. “(E) Exception where longer recovery period applicable.— Subparagraph (A) shall not apply to any recovery property if the recovery period which would be applicable to such property by reason of an election under subsection (b)(3) exceeds the recovery period for such property determined under subparagraph (B).” (b) Effective Dates.— (1) In general.— Except as otherwise provided in this subsection, the amendments made by this section shall apply with respect to property placed in service after December 31, 1982, to the extent such property is financed by the proceeds of an obligation (including a refunding obligation) issued after June 30, 1982. (2) Exceptions.— (A) Construction or binding agreement.— The amendments made by this section shall not apply with respect to facilities the original use of which commences with the taxpayer and— (i) the construction, reconstruction, or rehabilitation of which began before July 1, 1982, or (ii) with respect to which a binding agreement to incur significant expenditures was entered into before July 1, 1982. (B) Refunding.— (i) In general.— Except as provided in clause (ii), in the case of property placed in service after December 31, 1982 which is financed by the proceeds of an obligation which is issued solely to refund another obligation which was issued before July 1, 1982, the amendments made by this section shall apply only with respect to the basis in such property which has not been recovered before the date such refunding obligation is issued, (ii) Significant expenditures.— In the case of facilities the original use of which commences with the taxpayer and with respect to which significant expenditures are made before January 1, 1983, the amendments made by this section shall not apply with respect to such facilities to the extent such facilities are financed by the proceeds of an obligation issued solely to refund another obligation which was issued before July 1, 1982. In the case of an inducement resolution adopted by an issuing authority before July 1, 1982, for purposes of applying subparagraphs (A)(i) and (B)(ii) with respect to obligations described in such resolution, the term “facilities” means the facilities described in such resolution. (3) Certain projects for residential real property.— For purposes of clause (i) of section 168(f)(12)(C) of the Internal Revenue Code of 1954 (as added by this section), any obligation Ante, p. 470. issued to finance a project described in the table contained in paragraph (1) of section 1104(n) of the Mortgage Subsidy Bond Tax Act of 1980 shall be treated as an obligation described in 26 USC 103A note. Post, pp. 477, 599. section 103(b)(4)(A) of the Internal Revenue Code of 1954. SEC. 217. MISCELLANEOUS. (a) Exempt Obligations for Local District Heating and Cooling Facilities.— (1) In general.— Paragraph (4) of section 103(b) (relating to 95 Stat. 349. certain exempt activities) is amended— (A) by striking out “or” at the end of subparagraph (H), (B) by striking out the period at the end of subparagraph (I), and inserting in lieu thereof “, or”, and (C) by inserting after subparagraph (I) the following new subparagraph: “(J) local district heating or cooling facilities.” (2) Local district heating or cooling facilities defined.— Subsection (b) of section 103 is amended by redesignating paragraph 95 Stat. 349. (10) as paragraph (13) and by inserting after paragraph (9) the following new paragraph: “(10) Local district heating or cooling facility.— For purposes of this section— “(A) In general.— The term ‘local district heating or cooling facility’ means property used as an integral part of a local district heating or cooling system. “(B) Local district heating or cooling system.— “(i) In general.— The term ‘local district heating or cooling system’ means any local system consisting of a pipeline or network (which may be connected to a heating or cooling source) providing hot water, chilled water, or steam to 2 or more users for— “(I) residential, commercial, or industrial heating or cooling, or “(II) process steam. “(ii) Local system.— For purposes of this subparagraph, a local system includes facilities furnishing heating and cooling to an area consisting of a city and one contiguous county.” (3) Conforming amendment.— Subparagraph (C) of section 103(b)(6) is amended by striking out “paragraph (7)” and inserting 26 USC 103. in lieu thereof “paragraph (13)”. (b) Facilities for the Local Furnishing of Gas.— Paragraph (4) of section 103(b) is amended by striking out “electric energy from” in the last sentence and inserting in lieu thereof “electric energy or gas from”. (c) Qualified Mass Commuting Vehicle.— Subparagraph (A) of section 103(b)(9) (defining qualified mass commuting vehicle) is 95 Stat. 349. amended— (1) by inserting “ferry,” after “rail car”, and (2) by inserting after “mass commuting services” in clause (ii) the phrase “(or, in the case of a ferry, mass transportation services)”. (d) Pollution Control Facilities Acquired by Regional Pollution Control Authority.— Subsection (b) of section 103 is amended by inserting after paragraph (10) (as added by subsection (a)) the following new paragraph: “(11) Pollution control facilities acquired by regional pollution control authorities.— “(A) In general.— For purposes of subparagraph (F) of paragraph (4), an obligation shall be treated as described in such subparagraph if it is part of an issue substantially all of the proceeds of which are used by a qualified regional pollution control authority to acquire existing air or water pollution control facilities which the authority itself will operate in order to maintain or improve the control of pollutants. “(B) Restrictions.— Subparagraph (A) shall apply only if— “(i) the amount paid, directly or indirectly, for the facilities does not exceed their fair market value, “(ii) the fees or charges imposed, directly or indirectly, on the seller for any use of the facilities after the sale are not less than the amounts that would be charged if the facilities were financed with obligations the interest on which is not exempt from tax, and “(iii) no person other than the qualified regional pollution control authority is considered after the sale as the owner of the facilities for purposes of Federal income taxes. “(C) Qualified regional pollution control authority defined.— For purposes of this paragraph, the term ‘qualified regional pollution control authority‘ means an authority which— “(i) is a political subdivision created by State law to control air or water pollution, “(ii) has within its jurisdictional boundaries all or part of at least 2 counties (or equivalent political subdivisions), and “(iii) operates air or water pollution control facilities.” (e) Effective Date.— The amendments made by this section shall 26 USC 103 note. apply to obligations issued after the date of the enactment of this Act. SEC. 218. TREATMENT OF CERTAIN REFUNDING OBLIGATIONS. (a) General Rule.— Paragraph (1) of section 103(b) of the Internal 26 USC 103. Revenue Code of 1954 shall not apply to any qualified refunding obligation issued by a qualified issuer after the date of the enactment of this Act. (b) Qualified Refunding Obligation.— For purposes of subsection (a), a qualified refunding obligation is any obligation issued as part of an issue if— (1) substantially all of the proceeds of such issue are used to defease refunded bonds which were issued under a pooled security arrangement pursuant to a bond resolution which was adopted in 1974 and under which at least 20 facilities have been financed before 1978, and (2) each refunded bond is to be retired within 6 months after the first date on which there is no premium for early retirement of such bond. (c) Qualified Issuer.— For purposes of subsection (a), a qualified issuer is a political subdivision created by a State in 1932 which is engaged primarily in promoting economic development. SEC. 219. LIMITATION ON MATURITY OF INDUSTRIAL DEVELOPMENT BONDS. (a) General rule.— Subsection (b) of section 103 (relating to industrial development bonds) is amended by adding at the end thereof the following new paragraph: “(14) Maturity may not exceed 120 percent of economic life.— “(A) General rule.— Paragraphs (4), (5), (6), and (7) shall Ante, p. 472. not apply to any obligation issued as part of an issue if— “(i) the average maturity of the obligations which are part of such issue, exceeds “(ii) 120 percent of the average reasonably expected economic life of the facilities being financed with the proceeds of such issue. “(B) Determination of averages.— For purposes of subparagraph (A)— “(i) the average maturity of any issue shall be determined by taking into account the respective issue prices of the obligations which are issued as part of such issue, and “(ii) the average reasonably expected economic life of the facilities being financed with any issue shall be determined by taking into account the respective cost of such facilities. “(C) Special rules.— “(i) Determination of economic life.— For purposes of this paragraph, the reasonably expected economic life of any facility shall be determined as of the later of— “(I) the date on which the obligations are issued, or “(II) the date on which the facility is placed in service (or expected to be placed in service), “(ii) Treatment of land.— “(I) Land not taken into account.— Except as provided in subclause (II), land shall not be taken into account under subparagraph (A)(ii). “(II) Issues where 25 percent or more of proceeds used to finance land.— If 25 percent or more of the proceeds of any issue is used to finance land, such land shall be taken into account under subparagraph (A)(ii) and shall be treated as having an economic life of 50 years.” (b) Effective Date.— The amendment made by subsection (a) 26 USC 103 note. shall apply to obligations issued after December 31, 1982. SEC. 220. MORTGAGE SUBSIDY BONDS. (a) Increase in Amount of Mortgage Interest Limitation.— (1) In general.— Subparagraph (A) of section 103A(i)(2) (relating 26 USC 103A. to effective rate of mortgage interest) is amended by striking out “1 percentage point” and inserting in lieu thereof “1.125 percentage points”. (2) Clarification of prepayment assumptions.— Clause (iv) of section 103A(i)(2)(B) (relating to prepayment assumptions) is amended to read as follows: “(iv) Prepayment assumptions.— In determining the effective rate of interest— “(I) it shall be assumed that the mortgage prepayment rate will be the rate set forth in the most recent mortgage maturity experience table published by the Federal Housing Administration for the State (or, if available, the area within the State) in which the residences are located, and “(II) prepayments of principal shall be treated as received on the last day of the month in which the issuer reasonably expects to receive such prepayments.” (3) Conforming amendments.— (A) The paragraph heading of paragraph (2) of section 103A(i) is amended by striking out “1 percentage point” and inserting in lieu thereof “1.125 percentage points”. (B) Subparagraph (C) of section 103A(i)(4) is amended— (i) by striking out “1 percentage point” in clause (ii) and inserting in lieu thereof “1.125 percentage points”, and (ii) by striking out “1 percentage point” in the caption and inserting in lieu thereof “1.125 percentage points”. (b) Disposition of Nonmortgage Investment in Case of Loss.— Paragraph (3) of section 103A(i) (relating to nonmortgage investment 26 USC 103A. requirements) is amended by adding at the end thereof the following new subparagraph: “(D) No disposition in case of loss.— This pa ragraph shall not require the sale or disposition of any investment if such sale or disposition would result in a loss which exceeds the amount which would be paid or credited to the mortgagors under paragraph (4)(A) (but for such sale or disposition) at the time of such sale or disposition.” (c) Requirement That Mortgagors be First Time Homebuyers.— Subsection (e) of section 103A (relating to 3-year requirement) is amended to read as follows: “(e) 3-Year Requirement.— “(1) In general.— An issue meets the requirements of this subsection only if 90 percent or more of the lendable proceeds of such issue are used to finance the residences of mortgagors who had no present ownership interest in their principal residences at any time during the 3-year period ending on the date their mortgage is executed. “(2) Exceptions.— For purposes of paragraph (1), the proceeds of an issue which are used— “(A) to provide financing with respect to targeted area residences, “(B) to provide qualified home improvement loans, and “(C) to provide qualified rehabilitation loans, shall not be taken into account. “(3) Mortgagor’s interest in residence being financed.— For purposes of paragraph (1), a mortgagor’s interest in the residence with respect to which the financing is being provided shall not be taken into account.” (d) Increase in Maximum Purchase Price.— Subsection (f) of section 103A (relating to purchase price requirement) is amended— (1) by striking out “90 percent” each place it appears and inserting in lieu thereof “110 percent” and (2) by striking out “110 percent” in paragraph (5) and inserting in lieu thereof “120 percent”. (e) Treatment of Cooperative Housing Corporations.— Subsection (1) of section 103A (relating to other definitions and special rules) is amended by adding at the end thereof the following new paragraph: “(10) Cooperative housing corporations.— “(A) In general.— In the case of any cooperative housing corporation— “(i) each dwelling unit shall be treated as if it were actually owned by the person entitled to occupy such dwelling unit by reason of his ownership of stock in the corporation, and “(ii) any indebtedness of the corporation allocable to the dwelling unit shall be treated as if it were indebtedness of the shareholder entitled to occupy the dwelling unit. “(B) Adjustment to targeted area requirement.— In the case of any issue to provide financing to a cooperative housing corporation with respect to cooperative housing not located in a targeted area, to the extent provided in regulations, such issue may be combined with 1 or more other issues for purposes of determining whether the requirements of subsection (h) are met. “(C) Cooperative housing corporation.— The term ‘cooperative housing corporation’ has the meaning given to such term by section 216(b)(l).” 26 USC 216. (f) Effective Dates.— (1) In general.— The amendments made by this section shall apply to obligations issued after the date of the enactment of this Act. (2) First time homebuyer requirement.— The amendments made by subsection (c) shall also apply to obligations issued after April 24, 1979, and before the date of the enactment of this Act but only to the extent that the proceeds of such obligations are not committed as of the date of the enactment of this Act. SEC. 221. INDUSTRIAL DEVELOPMENT BONDS FOR CERTAIN RESIDENTIAL RENTAL PROPERTY. (a) In General.— Subparagraph (A) of section 103(b)(4) (relating to Post, p. 599. certain exempt activities) is amended to read as follows: “(A) projects for residential rental property if each obligation issued pursuant to the issue is in registered form and if at all times during the qualified project period— “(i) 15 percent or more in the case of targeted area projects, or “(ii) 20 percent or more in the case of any other project, of the units in each project are to be occupied by individuals of low or moderate income,”. (b) Definitions.— Subsection (b) of section 103 (relating to industrial development bonds) is amended by inserting after paragraph (11) the following new paragraph: Ante, p. 473. “(12) Projects for residential rental property.— For purposes of paragraph (4)(A)— “(A) Targeted area project.— The term ‘targeted area project’ means— “(i) a project located in a qualified census tract (within the meaning of section 103A(k)(2)), or “(ii) an area of chronic economic distress (within the meaning of section 103A(k)(3)). “(B) Qualified project period.— The term ‘qualified project period’ means the period beginning on the first day on which 10 percent of the units in the project are occupied and ending on the later of— “(i) the date which is 10 years after the date on which 50 percent of the units in the project are occupied, “(ii) the date which is a qualified number of days after the date on which any of the units in the project are occupied, or “(iii) the date on which any assistance provided with respect to the project under section 8 of the United States Housing Act of 1937 terminates. 42 USC 1437f. For purposes of clause (ii), the term ‘qualified number’ “Qualified number.” means, with respect to an obligation described in paragraph (4)(A), 50 percent of the number of days which comprise the term of the obligation with the longest maturity. “(C) Individuals of low and moderate income.— Individuals of low and moderate income shall be determined by the Secretary in a manner consistent with determinations of lower income families under section 8 of the United States Housing Act of 1937 (or if such program is terminated, 42 USC 1437f. under such program as in effect immediately before such termination), except that the percentage of median gross income which qualifies as low or moderate income shall be 80 percent.” (c) Conforming Amendments.— (1) Paragraph (4) of section 103(b) is amended by striking out 26 USC 103. the second sentence thereof. (2) Subsection (k) of section 1104 of the Mortgage Subsidy Bond Tax Act of 1980 is hereby repealed. 26 USC 103A note. (d) Effective Dates.— (1) In general.— Except as provided in paragraph (2), the 26 USC 103 note. amendments made by this section shall apply to obligations issued after the date of the enactment of this Act. (2) Exception.— The amendments made by this section shall not apply with respect to any obligation to which the amendments made by section 1103 of the Mortgage Subsidy Bond Tax Act of 1980 do not apply by reason of section 1104 of such Act. 26 USC 103. PART V— MERGERS AND ACQUISITIONS Subpart A— Changes in Tax Treatment of Partial Liquidations and of Certain Distributions of Appreciated Property SEC. 222. PARTIAL LIQUIDATIONS. (a) Section 331 (Which Provides Capital Gain or Loss Treatment for Shareholders in Liquidations) Limited to Complete Liquidations.— Subsection (a) of section 331 (relating to gain or loss 26 USC 331. to shareholders in corporate liquidations) is amended to read as follows: “(a) Distributions in Complete Liquidation Treated as Exchanges.— Amounts received by a shareholder in a distribution in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock.” (b) Section 336 (Which Provides Nonrecognition of Gain and Loss on Distributions by Liquidating Corporation) Limited to Complete Liquidations.— Subsection (a) of section 336 (relating to 26 USC 336. distributions of property in liquidation) is amended by striking out “partial or complete liquidation” and inserting in lieu thereof “complete liquidation”. (c) Distributions to Noncorporate Shareholders Which Qualify as Partial Liquidations Under Existing Law Treated as Redemptions.— (1) Subsection (b) of section 302 (relating to redemptions 26 USC 302. treated as exchanges) is amended by redesignating paragraph (4) as paragraph (5) and by inserting after paragraph (3) the following new paragraph: “(4) Redemption from noncorporate shareholder in partial liquidation.— Subsection (a) shall apply to a distribution if such distribution is— “(A) in redemption of stock held by a shareholder who is not a corporation, and “(B) in partial liquidation of the distributing corporation.” (2) Section 302 is amended by redesignating subsection (e) as 26 USC 302. subsection (f) and by inserting after subsection (d) the following new subsection: “(e) Partial Liquidation Defined.— “(1) In general.— For purposes of subsection (b)(4), a distribution shall be treated as in partial liquidation of a corporation if— “(A) the distribution is not essentially equivalent to a dividend (determined at the corporate level rather than at the shareholder level), and “(B) the distribution is pursuant to a plan and occurs within the taxable year in which the plan is adopted or within the succeeding taxable year. “(2) Termination of business.— The distributions which meet the requirements of paragraph (1)(A) shall include (but shall not be limited to) a distribution which meets the requirements of subparagraphs (A) and (B) of this paragraph: “(A) The distribution is attributable to the distributing corporation’s ceasing to conduct, or consists of the assets of, a qualified trade or business. “(B) Immediately after the distribution, the distributing corporation is actively engaged in the conduct of a qualified trade or business. “(3) Qualified trade or business.— For purposes of paragraph (2), the term ‘qualified trade or business’ means any trade or business which— “(A) was actively conducted throughout the 5-year period ending on the date of the redemption, and “(B) was not acquired by the corporation within such period in a transaction in which gain or loss was recognized in whole or in part. “(4) Redemption may be pro rata.— Whether or not a redemption meets the requirements of subparagraphs (A) and (B) of paragraph (2) shall be determined without regard to whether or not the redemption is pro rata with respect to all of the shareholders of the corporation. “(5) Treatment of certain pass-thru entities.— For purposes of determining under subsection (b)(4) whether any stock is held by a shareholder who is not a corporation, any stock held by a partnership, estate, or trust shall be treated as if it were actually held proportionately by its partners or beneficiaries.” (3) Subsection (a) of section 302 is amended by striking out “paragraph (1), (2), or (3)” and inserting in lieu thereof “paragraph (1), (2), (3), or (4)”. (4) Paragraph (5) of section 302(b) (as redesignated by paragraph (1)) is amended— (A) by striking out “paragraph (2) or (3)” and inserting in lieu thereof “paragraph (2), (3), or (4)”, and (B) by striking out “paragraph (1) or (2)” and inserting in lieu thereof “paragraph (1), (2), or (4)”. (d) Definition and special rule.— Section 346 (defining partial 26 USC 346. liquidation) is amended to read as follows: “SEC. 346. DEFINITION AND SPECIAL RULE. “(a) Complete Liquidation.— For purposes of this subchapter, a distribution shall be treated as in complete liquidation of a corpora-tion if the distribution is one of a series of distributions in redemption of all of the stock of the corporation pursuant to a plan. “(b) Transactions Which Might Reach Same Result as Partial Liquidations.— The Secretary shall prescribe such regulations as may be necessary to ensure that the purposes of subsections (a) and (b) of section 222 of the Tax Equity and Fiscal Responsibility Act of 1982 (which repeal the special tax treatment for partial liquidations) Ante, p. 478. 26 USC 355, 351, 337. may not be circumvented through the use of section 355, 351, 337, or any other provision of law or regulations (including the consolidated return regulations).” (e) Technical and Conforming Amendments.— (1) The following provisions are each amended by striking out “partial or complete liquidation” and inserting in lieu thereof “complete liquidation”: (A) Paragraph (2) of section 306(b) (relating to exceptions). 26 USC 306. (B) Subsection (b) of section 331 (relating to nonapplication 26 USC 331. of section 301). (C) Subsection (a) of section 334 (relating to basis of 26 USC 334. property received in liquidations). (D) Paragraph (1) of section 336(b) (relating to distributions 26 USC 336. of LIFO inventory). (2) Subparagraph (B) of section 306(b)(1) (relating to exception 26 USC 306. for redemptions) is amended by striking out “section 302(b)(3)” and inserting in lieu thereof “paragraph (3) or (4) of section 302(b)”. (3) Subsection (e) of section 312 (relating to special rule for 26 USC 312. partial liquidation and certain redemptions) is amended— (A) by striking out “in partial liquidation (whether before, on, or after June 22, 1954) or”; and (B) by striking out “Partial Liquidations and” in the heading thereof. (4) Section 338 (as in effect on the day before the date of the 26 USC 338. enactment of this Act) is hereby repealed. (5) Paragraph (2) of section 341(a) (relating to collapsible 26 USC 341. corporations) is amended to read as follows: “(2) a distribution— “(A) in complete liquidation of a collapsible corporation if such distribution is treated under this part as in part or full payment in exchange for stock, or “(B) in partial liquidation (within the meaning of section 302(e)) of a collapsible corporation if such distribution is Ante, p. 479. Ante, p. 478. treated under section 302(b)(4) as in part or full payment in exchange for the stock, and”. (6) Paragraph (1) of section 543(a) (relating to personal holding 26 USC 543. company income) is amended— (A) by striking out “and” at the end of subparagraph (A), (B) by striking out the period at the end of subparagraph (B) and inserting in lieu thereof “, and”, and (C) by adding at the end thereof the following new subparagraph: “(C) dividends to which section 302(b)(4) would apply if the corporation were an individual.” (7) Paragraph (1) of section 562(b) (relating to distributions in 26 USC 562. liquidation) is amended by adding at the end thereof the following new sentence: “For purposes of subparagraph (A), a liquidation includes a redemption of stock to which section 302 applies.” (8) (A) The heading and table of sections for subpart D of part II of subchapter C of chapter 1 are amended to read as follows: “Subpart D— Definition and Special Rule “Sec. 346. Definition and special rule.” (B) The item relating to subpart D in table of subparts for such part II is amended to read as follows: “Subpart D— Definition and special rule.” (f) Effective Dates.— (1) In general.— The amendments made by this section shall apply to distributions after August 31, 1982. (2) Exceptions.— (A) Ruling requests.— The amendments made by this section shall not apply to distributions made by any corporation if— (i) (I) on July 22, 1982, there was a ruling request by such corporation pending with the Internal Revenue Service as to whether such distributions would qualify as a partial liquidation, or (II) within the period beginning on July 12, 1981, and ending on July 22, 1982, the Internal Revenue Service granted a ruling to such corporation that the distributions would qualify as a partial liquidation, and (ii) such distributions are pursuant to a plan of partial liquidation adopted before October 1, 1982 (or, if later, 90 days after the date on which the Internal Revenue Service granted a ruling pursuant to the request described in clause (i)(I)). (B) Plans adopted before july 23, 1982.— The amendments made by this section shall not apply to distributions made pursuant to a plan of partial liquidation adopted before July 23, 1982. (C) Control acquired after 1981 and before july 23, 1982.— The amendments made by this section shall not apply to distributions made pursuant to a plan of partial liquidation adopted before October 1, 1982, where control of the corporation making the distributions was acquired after December 31, 1981, and before July 23, 1982. (D) Tender offer or binding contract outstanding on july 22, 1982.— (i) In general.— The amendments made by this section shall not apply to distributions made by a corporation if— (I) such distributions are pursuant to a plan of liquidation adopted before October 1, 1982, and (II) control of such corporation was acquired after July 22, 1982, pursuant to a tender offer or binding contract outstanding on such date. (ii) Extension of time for adopting plan where acquisition subject to federal regulatory approval.— If the acquisition described in clause (i)(II) is subject to approval by a Federal regulatory agency, clause (i) shall be applied by substituting for “October 1, 1982” the date which is 90 days after the date on which approval by the Federal regulatory agency of such acquisition becomes final. (iii) Special rule where offer subject to approval by foreign regulatory body.— In any case where an offer to acquire stock in a corporation was subject to intervention by a foreign regulatory body and a public announcement of such an offer resulted in the intervention by such foreign regulatory body before July 23, 1982— (I) such public announcement shall be treated as a tender offer, and (II) clause (i) shall be applied by substituting for “October 1, 1982” the date which is 90 days after the date on which such regulatory body approves a public offer to acquire stock in such corporation. (iv) Special rule where one-third of shares acquired during march and april 1982.— If— (I) one-third or more of the shares of a corporation were acquired by another corporation during March and April 1982, and (II) during March or April 1982, the acquiring corporation filed with the Federal Trade Commission notification of its intent to acquire control of the acquired corporation, subclause (II) of clause (i) shall not apply with respect to distributions made by the acquired corporation. (E) Insurance companies.— The amendments made by this section shall not apply to distributions made by an insurance company pursuant to a plan of partial liquidation adopted before October 1, 1982, where control was acquired by the distributee or its parent after December 31, 1980, and before July 23, 1982, and the conduct of the insurance business by the distributee is conditioned on approval by a State regulatory authority. For purposes of this paragraph, the term “control” has the “Control.” meaning given to such term by section 368(c) of the Internal Revenue Code of 1954. 26 USC 368. (3) Approval of plan by board of directors.— For purposes of— (A) paragraph (2), and (B) applying section 346(a)(2) of the Internal Revenue Code of 1954 (as in effect on the day before the date of the enactment of this Act) to distributions to which (but for paragraph (2)) the amendments made by this section would apply, a plan of liquidation shall be treated as adopted when approved by the corporation’s board of directors. (4) Coordination with amendments made by section 224.— For purposes of section 338(e)(2)(C) of the Internal Revenue Code Post, p. 485. of 1954 (as added by section 224), any property acquired in a distribution to which the amendments made by this section do not apply by reason of paragraph (2) shall be treated as acquired before September 1, 1982. SEC. 223. DISTRIBUTION OF APPRECIATED PROPERTY IN REDEMPTION OF STOCK. (a) Amendments to Certain Exceptions to Recognition of Gain.— (1) In general.— Subparagraphs (A), (B), and (C) of section 311(d)(2) (relating to appreciated property used to redeem stock) 26 USC 311. are amended to read as follows: “(A) a distribution to a corporate shareholder if the basis of the property distributed is determined under section 301(d)(2); “(B) a distribution to which section 302(b)(4) applies and Ante, p. 478. which is made with respect to qualified stock; “(C) a distribution of stock or an obligation of a corporation if the requirements of paragraph (2) of subsection (e) are met with respect to the distribution;”. (2) Definitions and special rules.— Section 311 is amended 26 USC 311. by adding at the end thereof the following new subsection: “(e) Definitions and Special Rules for Subsection (d)(2).— For purposes of subsection (d)(2) and this subsection— “(1) Qualified stock.— “(A) In general.— The term ‘qualified stock’ means stock held by a person (other than a corporation) who at all times during the lesser of— “(i) the 5-year period ending on the date of distribution, or “(ii) the period during which the distributing corporation (or a predecessor corporation) was in existence, held at least 10 percent in value of the outstanding stock of the distributing corporation (or predecessor corporation). “(B) Determination of stock held.— Section 318 shall apply in determining ownership of stock under subparagraph (A); except that, in applying section 318(a)(1), the term ‘family’ includes any individual described in section 267(c)(4) and any spouse of any such individual. “(2) Distributions of stock or obligations of controlled corporations.— “(A) Requirements.— A distribution of stock or an obligation of a corporation (hereinafter in this paragraph referred to as the ‘controlled corporation’) meets the requirements of this paragraph if— “(i) such distribution is made with respect to qualified stock, “(ii) substantially all of the assets of the controlled corporation consists of the assets of 1 or more qualified businesses, “(iii) no substantial part of the controlled corporation’s nonbusiness assets were acquired from the distributing corporation, in a transaction to which section 351 applied or as a contribution to capital, within the 5-year period ending on the date of the distribution, and “(iv) more than 50 percent in value of the outstanding stock of the controlled corporation is distributed by the distributing corporation with respect to qualified stock. “(B) Definitions.— For purposes of subparagraph (A)— “(i) Qualified business.— The term ‘qualified business’ means any trade or business which— “(I) was actively conducted throughout the 5-year period ending on the date of the distribution, and “(II) was not acquired by any person within such period in a transaction in which gain or loss was recognized in whole or in part. “(ii) Nonbusiness asset.— The term ‘nonbusiness asset’ means any asset not used in the active conduct of a trade or business.” (3) Conforming amendment.— Section 311(d)(2) is amended— (A) by inserting “and” at the end of subparagraph (E), (B) by striking out the semicolon and “and” at the end of subparagraph (F) and inserting in lieu thereof a period, and (C) by striking out subparagraph (G). (b) Effective Dates.— (1) In general.— Except as otherwise provided in this subsection, the amendments made by this section shall apply to distributions after August 31, 1982. (2) Distributions pursuant to ruling requests before july 23, 1982.— In the case of a ruling request under section 311(d)(2)(A) of the Internal Revenue Code of 1954 (as in effect before the amendments made by this section) made before July 23, 1982, the amendments made by this section shall not apply to distributions made— (A) pursuant to a ruling granted pursuant to such request, and (B) within 90 days after the date of such ruling. (3) Distributions pursuant to final judgments of court.— In the case of a final judgment described in section 311(d)(2)(C) of such Code (as in effect before the amendments made by this section) rendered before July 23, 1982, the amendments made by this section shall not apply to distributions made before January 1, 1986, pursuant to such judgment. (4) Certain distributions with respect to stock acquired before may 1982.— The amendments made by this section shall not apply to distributions— (A) which meet the requirements of section 311(d)(2)(A) of such Code (as in effect on the day before the date of the enactment of this Act), (B) which are made on or before August 31, 1983, and (C) which are made with respect to stock acquired after 1980 and before May 1982. (5) Distributions of timberland with respect to stock of forest products company.— If— (A) a forest products company distributes timberland to a shareholder in redemption of the common and preferred stock in such corporation held by such shareholder, (B) section 311(d)(2)(A) of the Internal Revenue Code of 1954 (as in effect before the amendments made by this section) would have applied to such distributions, and (C) such distributions are made pursuant to 1 of 2 options contained in a contract between such company and such shareholder which is binding on August 31, 1982, and at all times thereafter, then such distributions of timberland having an aggregate fair market value on August 31, 1982, not in excess of $10,000,000 shall be treated as distributions to which section 311(d)(2)(A) of such Code (as in effect before the date of the enactment of this Act) applies. Subpart B— Certain Stock Purchases Treated as Asset Purchases SEC. 224. CERTAIN STOCK PURCHASES TREATED AS ASSET PURCHASES. (a) General Rule.— Subpart B of part II of subchapter C of chapter 1 (relating to effects on corporation) is amended by adding at the end thereof the following new section: “SEC. 338. CERTAIN STOCK PURCHASES TREATED AS ASSET ACQUISITIONS. “(a) General Rule.— For purposes of this subtitle, if a purchasing corporation makes an election under this section (or is treated under subsection (e) as having made such an election), then, in the case of any qualified stock purchase, the target corporation— “(1) shall be treated as having sold all of its assets at the close of the acquisition date in a single transaction to which section 337 applies, and “(2) shall be treated as a new corporation which purchased all of the assets referred to in paragraph (1) as of the beginning of the day after the acquisition date. “(b) Price at Which Deemed Sale Made.— “(1) In general.— For purposes of subsection (a), the assets of the target corporation shall be treated as sold (and purchased) at an amount equal to— “(A) the grossed-up basis of the purchasing corporation’s stock in the target corporation on the acquisition date, “(B) properly adjusted under regulations prescribed by the Secretary for liabilities of the target corporation and other relevant items. “(2) Grossed-up basis.— For purposes of paragraph (1), the grossed-up basis shall be an amount equal to the basis of the purchasing corporation’s stock in the target corporation on the acquisition date multiplied by a fraction— “(A) the numerator of which is 100 percent, and “(B) the denominator of which is the percentage of stock (by value) of the target corporation held by the purchasing corporation on the acquisition date. “(3) Allocation among assets.— The amount determined under paragraph (1) shall be allocated among the assets of the target corporation under regulations prescribed by the Secretary “(c) Special Rules.— “(1) Coordination with section 337 where purchasing corporation holds less than 100 percent of stock.— If during the 1-year period beginning on the acquisition date the maximum percentage (by value) of stock in the target corporation held by the purchasing corporation is less than 100 percent, then in applying section 337 for purposes of subsection (a)(1), the non-recognition of gain or loss shall be limited to an amount determined by applying such maximum percentage to such gain or loss. The preceding sentence shall not apply if the target corporation is liquidated during such 1-year period. “(2) Certain redemptions where election made.— If, in connection with a qualified stock purchase with respect to which an election is made under this section, the target corporation makes a distribution in complete redemption of all of the stock of a shareholder which qualifies under section 302(b)(3) (determined 26 USC 302. without regard to the application of section 302(c)(2)(A)(ii)), section 336 shall apply to such distribution as if it were a distribution in complete liquidation. “(d) Purchasing Corporation; Target Corporation; Qualified Stock Purchase.— For purposes of this section— “(1) Purchasing corporation.— The term ‘purchasing corporation’ means any corporation which makes a qualified stock purchase of stock of another corporation. “(2) Target corporation.— The term ‘target corporation’ means any corporation the stock of which is acquired by another corporation in a qualified stock purchase. “(3) Qualified stock purchase.— The term ‘qualified stock purchase’ means any transaction or series of transactions in which stock of 1 corporation possessing— “(A) at least 80 percent of total combined voting power of all classes of stock entitled to vote, and “(B) at least 80 percent of the total number of shares of all other classes of stock (except nonvoting stock which is limited and preferred as to dividends), is acquired by another corporation by purchase during the 12-month acquisition period. “(e) Deemed Election Where Purchasing Corporation Acquires Asset of Target Corporation.— “(1) In general.— A purchasing corporation shall be treated as having made an election under this section with respect to any target corporation if, at any time during the consistency period, it acquires any asset of the target corporation (or a target affiliate). “(2) Exceptions.— Paragraph (1) shall not apply with respect to any acquisition by the purchasing corporation if— “(A) such acquisition is pursuant to a sale by the target corporation (or the target affiliate) in the ordinary course of its trade or business, “(B) the basis of the property acquired is determined (in whole or in part) by reference to the adjusted basis of such property in the hands of the person from whom acquired, “(C) such acquisition was before September, 1, 1982, “(D) to the extent provided in regulations, the property acquired is located outside the United States, or “(E) such acquisition is described in regulations prescribed by the Secretary. “(3) Anti-avoidance rule.— Whenever necessary to carry out the purpose of this subsection and subsection (f), the Secretary may treat stock acquisitions which are pursuant to a plan and which meet the 80 percent requirements of subparagraphs (A) and (B) of subsection (d)(3) as qualified stock purchases. “(f) Consistency Required for All Stock Acquisitions from Same Affiliated Group.— If a purchasing corporation makes qualified stock purchases with respect to the target corporation and 1 or more target affiliates during any consistency period, then (except as otherwise provided in subsection (e))— “(1) any election under this section with respect to the first such purchase shall apply to each other such purchase, and “(2) no election may be made under this section with respect to the second or subsequent such purchase if such an election was not made with respect to the first such purchase. “(g) Election.— “(1) When made.— Except as otherwise provided in regulations, an election under this section shall be made not later than 75 days after the acquisition date. “(2) Manner.— An election by the purchasing corporation under this section shall be made in such manner as the Secretary shall by regulations prescribe. “(3) Election irrevocable.— An election by a purchasing corporation under this section, once made, shall be irrevocable. “(h) Definitions and Special Rules.— For purposes of this section— “(1) 12-month acquisition period.— The term ‘12-month acquisition period’ means the 12-month period beginning with the date of the first acquisition by purchase of stock included in a qualified stock purchase. “(2) Acquisition date.— The term ‘acquisition date’ means, with respect to any corporation, the first day on which there is a qualified stock purchase with respect to the stock of such corporation. “(3) Purchase.— “(A) In general.— The term ‘purchase’ means any acquisition of stock, but only if— “(i) the basis of the stock in the hands of the purchasing corporation is not determined (I) in whole or in part by reference to the adjusted basis of such stock in the hands of the person from whom acquired, or (II) under section 1014(a) (relating to property acquired from a 26 USC 1014. decedent), “(ii) the stock is not acquired in an exchange to which section 351 applies, and “(iii) the stock is not acquired from a person the ownership of whose stock would, under section 318(a) (other than paragaraph (4) thereof), be attributed to the person acquiring such stock. “(B) Deemed purchase of stock of subsidiaries.— If stock in a corporation is acquired by purchase (within the meaning of subparagraph (A)) and, as a result of such acquisition, the corporation making such purchase is treated (by reason of section 318(a)) as owning stock in a 3rd corporation, the corporation making such purchase shall be treated as having purchased such stock in such 3rd corporation. The corporation making such purchase shall be treated as purchasing stock in the 3rd corporation by reason of the preceding sentence on the first day on which the purchasing corporation is considered under section 318(a) as owning such stock. “(4) Consistency period.— “(A) In general.— Except as provided in subparagraph (B), the term ‘consistency period’ means the period consisting of— “(i) the 1-year period before the beginning of the 12-month acquisition period for the target corporation, “(ii) such acquisition period (up to and including the acquisition date), and “(iii) the 1-year period beginning on the day after the acquisition date. “(B) Extension where there is plan.— The period referred to in subparagraph (A) shall also include any period during which the Secretary determines that there was in effect a plan to make a qualified stock purchase plus 1 or more other qualified stock purchases (or asset acquisitions described in subsection (e)) with respect to the target corporation or any target affiliate. “(5) Affiliated group.— The term ‘affiliated group’ has the meaning given to such term by section 1504(a) (determined 26 USC 1504. without regard to the exceptions contained in section 1504(b)). “(6) Target affiliate.— “(A) In general.— A corporation shall be treated as a target affiliate of the target corporation if each of such corporations was, at any time during so much of the consistency period as ends on the acquisition date of the target corporation, a member of an affiliated group which had the same common parent. “(B) Certain foreign corporations, etc.— Except as otherwise provided in regulations (and subject to such conditions as may be provided in regulations)— “(i) the term ‘target affiliate’ does not include a foreign corporation, a DISC, a corporation described in section 934(b), or a corporation to which an election under section 936 applies, and “(ii) stock held by a target affiliate in a foreign corporation or a domestic corporation which is a DISC or described in section 1248(e) shall be excluded from the operation of this section. “(7) Acquisitions by purchasing corporation include acquisitions by corporations affiliated with purchasing corporation.— Except as otherwise provided in regulations, an acquisition of stock or assets by any member of an affiliated group which includes a purchasing corporation shall be treated as made by the purchasing corporation. “(i) Regulations.— The Secretary shall prescribe such regulations as may be necessary to ensure that the purposes of this section to require consistency of treatment of stock and asset purchases with respect to a target corporation and its target affiliates (whether by treating all of them as stock purchases or as asset purchases) may not be circumvented through the use of any provision of law or regulations (including the consolidated return regulations).” (b) Repeal of Section 334(b)(2).— Subsection (b) of section 334 26 USC 334. (relating to limitation of subsidiary) is amended to read as follows: “(b) Liquidation of Subsidiary.— “(1) Distribution in complete liquidation.— If property is received by a corporation in a distribution in a complete liquidation to which section 332(a) applies, the basis of the property in the hands of the distributee shall be the same as it would be in the hands of the transferor. “(2) Transfers to which section 332 (c) applies.— If property is received by a corporation in a transfer to which section 332(c) applies, the basis of the property in the hands of the transferee shall be the same as it would be in the hands of the transferor. “(3) Distributee defined.— For purposes of this subsection, the term ‘distributee’ means only the corporation which meets the 80-percent stock ownership requirements specified in section 332(b).” (c) Technical Amendments.— (1) Subparagraph (E) of section 168(e)(4) (relating to liquidation 95 Stat. 204. of subsidiary, etc.) is amended by adding at the end thereof the following new sentence: “A similar rule shall apply in the case of a deemed liquidation under section 338.” (2) Clause (i) of section 168(f)(10)(B) is amended by striking out “(other than a transaction with respect to which the basis is determined under section 334(b)(2))”. (3) Paragraph (4) of section 318(b) is amended to read as 26 USC 318. follows: “(4) section 338(h)(3)(B) (relating to purchase of stock from subsidiaries, etc.);”. (4) Paragraph (2) of section 336(b) is amended by striking out 26 USC 336. “334(b)(1)” each place it appears and inserting in lieu thereof “334(b)”. (5) Paragraph (2) of section 337(c) (relating to liquidations to 26 USC 337. which section 332 applies) is amended to read as follows: “(2) Liquidations to which section 332 applies.— In the case of any sale or exchange following the adoption of a plan of complete liquidation, if section 332 applies with respect to such liquidation, this section shall not apply.” (6) Subsection (d) of section 337 is amended by striking out “subsection (c)(2)(A)” each place it appears and inserting in lieu thereof “subsection (c)(2)”. (7) Paragraph (1) of section 381(a) is amended by striking out 26 USC 381. “, except in a case in which the basis of the assets distributed is determined under section 334(b)(2)”. (8) Subparagraph (B) of section 617(h)(3) is amended by inserting 26 USC 617. “338,” after “334(b),”. (9) The table of sections for subpart B of part II of subchapter C of chapter 1 is amended by striking out the item relating to section 338 and inserting in lieu thereof the following: “Sec. 338. Certain stock purchases treated as asset acquisitions.” (d) Effective Dates.— (1) In general.— The amendments made by this section shall apply to any target corporation (within the meaning of section 338 of the Internal Revenue Code of 1954 as added by this section) with respect to which the acquisition date (within the meaning of such section) occurs after August 31, 1982. (2) Certain acquisitions before september 1, 1982.— If— (A) an acquisition date under paragraph (1) occurred after August 31, 1980, and before September 1, 1982, (B) the target corporation (within the meaning of section 338 of such Code) is not liquidated before September 1, 1982, and (C) the purchasing corporation (within the meaning of section 338 of such Code) makes, not later than November 15, 1982, an election under section 338 of such Code, then the amendments made by this section shall apply to the acquisition of such target corporation. (3) Certain acquisitions of financial institutions.— In any case in which— (A) there is, on July 22, 1982, a binding contract to acquire control (within the meaning of section 368(c) of such Code) of any financial institution, (B) the approval of one or more regulatory authorities is required in order to complete such acquisition, and (C) within 90 days after the date of the final approval of the last such regulatory authority granting final approval, a plan of complete liquidation of such financial institution is adopted, then the purchasing corporation may elect not to have the amendments made by this section apply to the acquisition pursuant to such contract. Subpart C— Miscellaneous Provisions SEC. 225. CLARIFICATION OF SECTION 368(a)(1)(F). (a) General Rule.— Subparagraph (F) of section 368(a)( 1) (defining 26 USC 368. reorganization) is amended by inserting “of one corporation” after “place of organization”. (b) Effective Date.— (1) In general.— Except as provided in paragraph (2), the amendment made by subsection (a) shall apply with respect to transactions occurring after August 31, 1982. (2) Plans adopted on or before august 31, 1982.— The amendment made by subsection (a) shall not apply with respect to plans of reorganization adopted on or before August 31, 1982, but only if the transaction occurs before January 1, 1983. SEC. 226. AMENDMENTS RELATING TO BAILOUTS THROUGH USE OF HOLDING COMPANIES. (a) Amendments to Section 304.— (1) Coordination of sections 304 and 351.— (A) Subsection (b) of section 304 (relating to special rules 26 USC 304. for application of subsection (a)) is amended by adding at the end thereof the following new paragraph: “(3) Coordination with section 351.— “(A) Property treated as received in redemption.— Except as otherwise provided in this paragraph, subsection (a) (and not part III) shall apply to any property received in a distribution described in subsection (a). “(B) Certain assumptions of liability, etc.— “(i) In general.— Subsection (a) shall not apply to any liability— “(I) assumed by the acquiring corporation, or “(II) to which the stock is subject, if such liability was incurred by the transferor to acquire the stock. For purposes of the preceding sentence, “Stock.” the term ‘stock’ means stock referred to in paragraph (1)(B) or (2)(A) of subsection (a). “(ii) Extension of obligations, etc.— For purposes of clause (i), an extension, renewal, or refinancing of a liability which meets the requirements of clause (i) shall be treated as meeting such requirements. “(C) Distributions incident to formation of bank holding companies.— If— “(i) pursuant to a plan, control of a bank is acquired and within 2 years after the date on which such control is acquired, stock constituting control of such bank is transferred to a BHC in connection with its formation, “(ii) incident to the formation of the BHC there is a distribution of property described in subsection (a), and “(iii) the shareholders of the BHC who receive distributions of such property do not have control of such BHC, then, subsection (a) shall not apply to any securities received by a qualified minority shareholder incident to the formation of such BHC. “(D) Definitions and special rule.— For purposes of subparagraph (C) and this subparagraph— “(i) Qualified minority shareholder.— The term ‘qualified minority shareholder’ means any shareholder who owns less than 10 percent (in value) of the stock of the BHC. For purposes of the preceding sentence, the rules of paragraph (3) of subsection (c) shall apply. “(ii) BHC—The term ‘BHC’ means a bank holding company (within the meaning of section 2(a) of the Bank Holding Company Act of 1956). 12 USC 1841. “(iii) Special rule in case of bhc’s formed before 1985.— In the case of a BHC which is formed before 1985, clause (i) of subparagraph (C) shall not apply.” (B) Subsection (f) of section 351 (relating to cross references) 26 USC 351. is amended by adding at the end thereof the following new paragraph: For coordination of this section with section 304, see section 304(b)(3).” (2) Application of section 304 where stock is acquired in the transaction.— (A) Subsection (c) of section 304 is amended by redesignating paragraph (2) as paragraph (3) and by inserting after paragraph (1) the following new paragraph: For purposes of subsection (a)(1)— “(A) General rule.— Where 1 or more persons in control 26 USC 304. of the issuing corporation transfer stock of such corporation in exchange for stock of the acquiring corporation, the stock of the acquiring corporation received shall be taken into account in determining whether such person or persons are in control of the acquiring corporation. “(B) Definition of control group.— Where 2 or more persons in control of the issuing corporation transfer stock of such corporation to the acquiring corporation and, after the transfer, the transferors are in control of the acquiring corporation, the person or persons in control of each corporation shall include each of the persons who so transfer stock.” (B) Paragraph (3) of section 304(c) (as redesignated by paragraph (D) is amended by striking out “paragraph (1)” and inserting in lieu thereof “this section”. (3) Determination of earnings and profits.— Subparagraph (A) of section 304(b)(2) (relating to amount constituting dividend) is amended to read as follows: “(A) Where subsection (a)(1) applies.— In the case of any acquisition of stock to which paragraph (1) (and not paragraph (2)) of subsection (a) of this section applies, the determination of the amount which is a dividend shall be made as if the property were distributed by the issuing corporation to the acquiring corporation and immediately thereafter distributed by the acquiring corporation.” (b) Application of Section 306 to Certain Stock Acquired in Section 351 Exchanges.— Subsection (c) of section 306 (defining 26 USC 306. section 306 stock) is amended by adding at the end thereof the following new paragraph: “(3) Certain stock acquired in section 351 exchange.— The term ‘section 306 stock’ also includes any stock which is not common stock acquired in an exchange to which section 351 applied if receipt of money (in lieu of the stock) would have been treated as a dividend to any extent. In the case of such stock, rules similar to the rules of section 304(b)(2) shall apply for purposes of this section.” (c) Effective Date.— (1) In general.— Except as provided in paragraph (2), the amendments made by this section shall apply to transfers occurring after August 31, 1982, in taxable years ending after such date. (2) Approval by federal reserve board.— The amendments made by this section shall not apply to transfers pursuant to an application to form a BHC filed with the Federal Reserve Board before August 16, 1982, if the BHC was formed not later than the later of— (A) the 90th day after the date of the last required approval of any regulatory authority to form such BHC, or (B) January 1, 1983. For purposes of this paragraph, the term “BHC” means a bank holding company (within the meaning of section 2(a) of the Bank Holding Company Act of 1956). 12 USC 1841. SEC. 227. APPLICATION OF ATTRIBUTION RULES FOR PURPOSES OF SECTIONS 306 AND 356(a)(2). (a) Application for purposes of section 306.— Subsection (c) of section 306 is amended by adding at the end thereof the following 26 USC 306. new paragraph: “(4) Application of attribution rules for certain purposes.— For purposes of paragraphs (l)(B)(ii) and (3), section 318(a) shall apply. For purposes of applying the preceding sentence to paragraph (3), sections 318(a)(2)(C) and 318(a)(3)(C) shall be applied without regard to the 50 percent l imitation contained there in.” (b) Application for purposes of section 356(a)(2).— Paragraph (2) of section 356(a) (relating to treatment as dividend) is amended by 26 USC 356. inserting “(determined with the application of section 318(a)” after “distribution of a dividend” (c) Effective Dates.— (1) Section 306.— The amendment made by subsection (a) 26 USC 306 note. shall apply to stock received after August 31, 1982, in taxable years ending after such date. (2) Section 356.— The amendment made by subsection (b) 26 USC 356 note. shall apply to distributions after August 31, 1982, in taxable years ending after such date. SEC. 228. WAIVER OF FAMILY ATTRIBUTION BY ENTITIES. (a) General Rule.— Paragraph (2) of section 302(c) (relating to 26 USC 302. constructive ownership of stock) is amended by adding at the end thereof the following new subparagraph: “(C) Special rule for waivers by entities.— “(i) In general.— Subparagraph (A) shall not apply to a distribution to any entity unless— “(I) such entity and each related person meet the requirements of clauses (i), (ii), and (iii) of subparagraph (A), and “(II) each related person agrees to be jointly and severally liable for any deficiency (including interest and additions to tax) resulting from an acquisition described in clause (ii) of subparagraph (A). In any case to which the preceding sentence applies, the second sentence of subparagraph (A) and subparagraph (B)(ii) shall be applied by substituting ‘distributee or any related person’ for ‘distributee’ each place it appears. “(ii) Definitions.— For purposes of this subparagraph— “(I) the term ‘entity’ means a partnership, estate, trust, or corporation; and “(II) the term ‘related person’ means any person to whom ownership of stock in the corporation is (at the time of the distribution) attributable under section 318(a)(1) if such stock is further attributable to the entity under section 318(a)(3).”. (b) Effective Date.— The amendment made by subsection (a) 26 USC 302 note. shall apply with respect to distributions after August 31, 1982, in taxable years ending after such date. PART VI— METHODS OF ACCOUNTING SEC. 229. MODIFICATION OF REGULATIONS ON THE COMPLETED CONTRACT METHOD OF ACCOUNTING. (a) In general.— The Secretary of the Treasury shall modify the income tax regulations relating to accounting for long-term contracts to— (1) clarify the time at which a contract is to be considered completed, (2) clarify when— (A) one agreement will be treated as more than one contract, and (B) two or more agreements will be treated as one contract, and (3) properly allocate all costs which directly benefit, or are incurred by reason of, the extended period long-term contract activities of the taxpayer. (b) Extended Period Long-Term Contracts Defined.— For purposes of this section— (1) In general.— The term “extended period long-term contract” means any long-term contract which the taxpayer estimates (at the time such contract is entered into) will not be completed within the 2-year period beginning on the contract commencement date of such contract. (2) Certain Construction Contracts.— (A) In general.— The term “extended period long-term contract” does not include any construction contract entered into by a taxpayer— (i) who estimates (at the time such contract is entered into) that such contract will be completed within the 3-year period beginning on the contract commencement date of such contract, or (ii) whose average annual gross receipts over the 3 taxable years preceding the taxable year in which such contract is entered into do not exceed $25,000,000. (B) Determination of taxpayer’s gross receipts.— For purposes of subparagraph (A), the gross receipts of— (i) all trades or businesses (whether or not incorporated) which are under common control with the taxpayer (within the meaning of section 52(b)), and 26 USC 52. (ii) all members of any controlled group of corporations of which the taxpayer is a member, for the 3 taxable years of such persons preceding the taxable year in which the contract described in subparagraph (A) is entered into shall be included in the gross receipts of the taxpayer for the period described in subparagraph (A). The Secretary shall prescribe regulations which provide Regulations. attribution rules that take into account, in addition to the persons and entities described in the preceding sentence, taxpayers who engage in construction contracts through partnerships, joint ventures, and corporations. (C) Controlled group of corporations.— The term “controlled group of corporations” has the meaning given to such term by section 1563(a), except that— (i) “more than 50 percent” shall be substituted for “at least 80 percent” each place it appears in section 15()3(a)(1), and (ii) the determination shall be made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. (3) Construction contract.— The term “construction contract” means any contract for the building, construction, reconstruction, or rehabilitation of, or the installation of any integral component to, improvements to real property. (4) Contract commencement date.— The term “contract commencement date” means, with respect to any contract, the first date on which any costs (other than costs such as bidding expenses or expenses incurred in connection with negotiating the contract) allocable to such contract are incurred. (c) Effective Dates; Special Rules.— (1) In general.— The modifications to regulations which are required to be made under paragraphs (1) and (2) of subsection (a) shall apply with respect to taxable years ending after December 31, 1982. (2) Cost Allocation.— (A) In general.— Any modification to Income Tax Regulation 1.451–3 made under subsection (a)(3) which requires additional costs to be allocated to a contract shall apply only to the applicable percentage of such additional costs incurred in taxable years beginning after December 31, 1982, with respect to contracts entered into after such date. (B) Applicable percentage.— For purposes of subparagraph (A), the applicable percentage shall be determined in accordance with the following table: “If the taxable year begins in calendar year: The applicable percentage is: 1983 33⅓ 1984 66⅔ 1985 or thereafter 100.”. (3) Special rules.— (A) Time of completion.— Any contract of a taxpayer which would (but for this paragraph) be treated as having been completed prior to the first taxable year of such taxpayer ending after December 31, 1982, solely by reason of any modification to regulations made under subsection (a)(1), shall be treated as having been completed on the first day of such taxable year. (B) Aggregation and severance.— Any contract of a taxpayer which would (but for this paragraph) be treated as having been completed prior to the first taxable year of such taxpayer ending after December 31, 1982— (i) solely by reason of any modification to regulations made under subsection (a)(2), or (ii) solely by reason of any modifications to regulations made under both paragraphs (1) and (2) of subsection (a), shall be treated as having been completed on the first day after December 31, 1982, on which any contract which was severed from such contract (by reason of the modifications made by subsection (a)(2)) is completed (determined after the application of any modifications to regulations made under subsection (a)(1)). SEC. 230. ANNUAL ACCRUAL METHOD OF ACCOUNTING EXTENDED TO CERTAIN PARTNERSHIPS. (a) In General.— Section 447(g) (relating to certain annual 26 USC 447. accrual accounting methods) is amended— (1) by inserting “or qualified partnership” after “corporation” each place it appears in paragraph (1), (2) by amending paragraph (3) to read as follows: “(3) Certain nonrecognition transfers.— For purposes of this subsection, if— “(A) a corporation acquired substantially all the assets of a qualified farming trade or business from another corporation in a transaction in which no gain or loss was recognized to the transferor or transferee corporation, or “(B) a qualified partnership acquired substantially all the assets of a qualified farming trade or business from one of its partners in a transaction to which section 721 applies, the transferee corporation or qualified partnership shall be deemed to have computed its taxable income on an annual accrual method of accounting during the period for which the transferor corporation or partnership computed its taxable income from such trade or business on an annual accrual method.”, and (3) by adding at the end thereof the following new paragraph: “(4) Qualified partnership defined.— For purposes of this subsection— “(A) Qualified partnership.— The term ‘qualified partnership’ means a partnership which is engaged in a qualified farming trade or business and each of the partners of which is a corporation other than— “(i) an electing small business corporation (within the meaning of section 1371(b)), or 26 USC 1371. “(ii) a personal holding company (within the meaning of section 542(a)). “(B) Qualified farming trade or business.— The term ‘qualified farming trade or business’ means the trade or business of farming sugar cane.”. (b) Effective Date.— The amendments made by this section shall 26 USC 447 note. apply to taxable years beginning after December 31, 1981. PART VII— ORIGINAL ISSUE DISCOUNT SEC. 231. ORIGINAL ISSUE DISCOUNT TAKEN INTO ACCOUNT ON BASIS OF CONSTANT INTEREST RATE. (a) In General.— Part IV of subchapter P of chapter 1 (relating to special rules for determining capital gains and losses) is amended by inserting after section 1232 the following new section: “SEC. 1232A. ORIGINAL ISSUE DISCOUNT. “(a) Original Issue Discount on Bonds Issued After July 1, 1982, Included in Income on Basis of Constant Interest Rate.— “(1) General rule.— For purposes of this subtitle, there shall be included in the gross income of the holder of any bond having an original issue discount issued after July 1, 1982 (and which is a capital asset in the hands of the holder) an amount equal to the sum of the daily portions of the original issue discount for each day during the taxable year on which such holder held such bond. “(2) Exceptions.— Paragraph (1) shall not apply to— “(A) Natural persons.— Any obligation issued by a natural person. “(B) Tax-exempt obligations.— Any obligation if— “(i) the interest on such obligation is not includible in gross income under section 103, or “(ii) the interest on such obligation is exempt from tax (without regard to the identity of the holder) under any other provision of law. “(C) Short-term government obligations.— Any short-term Government obligation (within the meaning of section 1232(a)(3)). “(D) United states savings bonds.— Any United States savings bond. “(3) Determination of daily portions.— For purposes of paragraph (1), the daily portion of the original issue discount on any bond shall be determined by allocating to each day in any bond period its ratable portion of the increase during such bond period in the adjusted issue price of the bond. For purposes of the preceding sentence, the increase in the adjusted issue price for any bond period shall be an amount equal to the excess (if any) of— “(A) the product of— “(i) the adjusted issue price of the bond at the beginning of such bond period, and “(ii) the yield to maturity (determined on the basis of compounding at the close of each bond period), over “(B) the sum of the amounts payable as interest on such bond during such bond period. “(4) Adjusted issue price.— For purposes of this subsection, the adjusted issue price of any bond at the beginning of any bond period is the sum of— “(A) the issue price of such bond, plus “(B) the adjustments under this subsection to such issue price for all periods before the first day of such bond period. “(5) Bond period.— Except as otherwise provided in regulations prescribed by the Secretary, the term ‘bond period’ means a 1-year period (or the shorter period to maturity) beginning on the day in the calendar year which corresponds to the date of original issue of the bond. “(6) Reduction in case of certain subsequent holders.— For purposes of this subsection, in the case of any purchase of a bond to which this subsection applies after its original issue, the daily portion shall not include an amount (determined at the time of purchase) equal to the excess (if any) of— “(A) the cost of such bond incurred by the purchaser, over “(B) the issue price of such bond, increased by the sum of the daily portions for such bond for all days before the date of purchase (computed without regard to this paragraph), divided by the number of days beginning on the date of such purchase and ending on the day before the stated maturity date. “(7) Regulation authority.— The Secretary may prescribe regulations providing that where, by reason of varying rates of interest, put or call options, or other circumstances, the inclusion under paragraph (1) for the taxable year does not accurately reflect the income of the holder, the proper amount of income shall be included for such taxable year (and appropriate adjustments shall be made in the amounts included for subsequent taxable years). “(b) Ratable Inclusion Retained for Corporate Bonds Issued Before July 2, 1982.— “(1) General rule.— There shall be included in the gross income of the holder of any bond issued by corporation after May 27, 1969, and before July 2, 1982 (and which is a capital asset in the hands of the holder)— “(A) the ratable monthly portion of original issue discount, multiplied by “(B) the number of complete months (plus any fractional part of a month determined under paragraph (3)) such holder held such bond during the taxable year. “(2) Determination of ratable monthly portion.— Except as provided in paragraph (4), the ratable monthly portion of original issue discount shall equal— “(A) the original issue discount, divided by “(B) the number of complete months from the date of original issue to the stated maturity date of the bond. “(3) Month defined.— For purposes of this subsection, a complete month commences with the date of original issue and the corresponding day of each succeeding calendar month (or the last day of a calendar month in which there is no corresponding day). In any case where a bond is acquired on any day other than a day determined under the preceding sentence, the rat-able monthly portion of original issue discount for the complete month (or partial month) in which such acquisition occurs shall be allocated between the transferor and the transferee in accordance with the number of days in such complete (or partial) month each held the bond. “(4) Reduction in case of certain subsequent holders.— For purposes of this subsection, the ratable monthly portion of original issue discount shall not include an amount , determined at the time of any purchase after the original issue of the bond, equal to the excess of— “(A) the cost of such bond incurred by the holder, over “(B) the issue price of such bond, increased by the portion of original discount previously includible in the gross income of any holder (computed without regard to this paragraph), divided by the number of complete months (plus any fractional part of a month) from the date of such purchase to the stated maturity date of such bond. “(c) Definitions and Special Rules.— “(1) Bond includes other evidences of indebtedness.— For purposes of this section, the term ’bond’ means a bond, debenture, note, or certificate or other evidence of indebtedness. “(2) Purchase defined.— For purposes of this section, the term ‘purchase’ means any acquisition of a bond, but only if the basis of the bond is not determined in whole or in part by reference to the adjusted basis of such bond in the hands of the person from whom acquired, or under section 1014(a) (relating 26 USC 1014. to property acquired from a decedent). “(3) Original issue discount, etc.— For purposes of this section, the terms ‘original issue discount’, ‘issue price’, and ‘date of original issue’ shall have the respective meanings given to such terms by section 1232(b). “(4) Exceptions.— This section shall not apply to any holder— “(A) who has purchased the bond at a premium, or “(B) which is a life insurance company to which section 818(b) applies. “(5) Basis adjustments.— The basis of any bond in the hands of the holder thereof shall be increased by the amount included in his gross income pursuant to this section.” (b) Deduction Determined on Basis of Constant Interest Rate.— Section 163 (relating to deduction for interest) is amended by 26 USC 163. redesignating subsection (e) as subsection (0 and by inserting after subsection (d) the following new subsection: “(e) Original Issue Discount.— “(1) In general.— In the case of any bond issued after July 1, 1982, by an issuer (other than a natural person), the portion of the original issue discount with respect to such bond which is allowable as a deduction to the issuer for any taxable year shall be equal to the aggregate daily portions of the original issue discount for days during such taxable year. “(2) Definitions and special rules.— For purposes of this section— “(A) Bond.— The term ‘bond’ has the meaning given to such term by section 1232A(c)(1). “(B) Daily portions.— The daily portion of the original issue discount for any day shall be determined under section 1232A(a) (without regard to paragraphs (2)(B) and (6) thereof and without regard to the second sentence of section 1232(b)(1)).” (c) Conforming Amendments.— (1) Subparagraph (A) of section 1232(a)(2) is amended— 26 USC 1232. (A) by striking out “by a corporation after May 27, 1969” and inserting in lieu thereof “by a corporation after May 27, 1969, or by a government or political subdivision thereof after July 1, 1982”, (B) by striking out “as provided in paragraph (3)(B)” and inserting in lieu thereof “without regard to subsection (a)(6) or (b)(4) of section 1232A (or the corresponding provisions of prior law)”, and (C) by striking out the subparagraph heading and inserting in lieu thereof the following: “(A) Corporate bonds issued after may 27, 1969, and government bonds issued after july 1, 1982.—”. (2) Subparagraph (B) of section 1232(a)(2) is amended— (A) by striking out “by a government or political subdivision thereof after December 31, 1954” and inserting in lieu thereof “by a government or political subdivision thereof after December 31, 1954, and on or before July 1, 1982,”, and (B) by striking out “government bonds” in the subparagraph heading and inserting in lieu thereof “government bonds issued on or before july 1, 1982”. (3) Subparagraph (D) of section 1232(a)(2) is amended by striking out “This section” and inserting in lieu thereof “This section and sections 1232A and 1232B”. (4) Subsection (a) of section 1232 is amended by striking out paragraph (3) and by redesignating paragraph (4) as paragraph (3). (d) Clerical Amendment.— The table of sections for such part IV is amended by inserting after the item relating to section 1232 the following: “Sec. 1232A. Original issue discount.” (e) Transitional Rule.— For purposes of the amendments made 26 USC 1232A note. by this section, any evidence of indebtedness issued pursuant to a written commitment which was binding on July 1, 1982, and at all times thereafter shall be treated as issued on July 1, 1982. SEC. 232. TAX TREATMENT OF STRIPPED BONDS. (a) In general.— Part IV of subchapter P of chapter 1 (relating to special rules for determining capital gains and losses) is amended by inserting after section 1232A the following new section: “SEC. 1232B. TAX TREATMENT OF STRIPPED BONDS. “(a) Inclusion in Income as if Bond and Coupons Were Original Issue Discount Bonds.— If any person purchases after July 1, 1982, a stripped bond or a stripped coupon, then such bond or coupon while held by such purchaser (or by any other person whose basis is determined by reference to the basis in the hands of such purchaser) shall be treated for purposes of section 1232A(a) as a Ante, p. 496. bond originally issued by a corporation on the purchase date and having an original issue discount equal to the excess (if any) of— “(1) the stated redemption price at maturity (or, in the case of a coupon, the amount payable on the due date of such coupon), over “(2) such bond’s or coupon’s ratable share of the purchase price. For purposes of paragraph (2), ratable shares shall be determined on the basis of their respective fair market values on the date of purchase. “(b) Tax Treatment of Person Stripping Bond.— For purposes of this subtitle, if any person strips 1 or more coupons from a bond and after July 1, 1982, disposes of the bond or such coupon— “(1) such person shall include in gross income an amount equal to the interest accrued on such bond before the time that such coupon or bond was disposed of (to the extent such interest has not theretofore been included in such person’s gross income), “(2) the basis of the bond and coupons shall be increased by the amount of the accrued interest described in paragraph (1), “(3) the basis of the bond and coupons immediately before the disposition (as adjusted pursuant to paragraph (2)) shall be allocated among the items retained by such person and the items disposed of by such person on the basis of their respective fair market values, and “(4) for purposes of subsection (a), such person shall be treated as having purchased on the date of such disposition each such item which he retains for an amount equal to the basis allocated to such item under paragraph (3). A rule similar to the rule of paragraph (4) shall apply in the case of any person whose basis in any bond or coupon is determined by reference to the basis of the person described in the preceding sentence. “(c) Retention of Existing Law for Stripped Bonds Purchased Before July 2, 1982.— If a bond issued at any time with interest coupons— “(1) is purchased after August 16, 1954, and before January 1, 1958, and the purchaser does not receive all the coupons which first become payable more than 12 months after the date of the purchase, or “(2) is purchased after December 31, 1957, and before July 2, 1982, and the purchaser does not receive all the coupons which first become payable after the date of the purchase, then the gain on the sale or other disposition of such bond by such purchaser (or by a person whose basis is determined by reference to the basis in the hands of such purchaser) shall be considered as ordinary income to the extent that the fair market value (determined as of the time of the purchase) of the bond with coupons attached exceeds the purchase price. If this subsection and section 1232(a)(2)(A) apply with respect to gain realized on the sale or 26 USC 1232. exchange of any evidence of indebtedness, then section 1232(a)(2)(A) shall apply with respect to that part of the gain to which this subsection does not apply. “(d) Special Rules for Tax-Exempt Obligations.— In the case of any obligation the interest on which is not includible in gross income under section 103 or is exempt from tax (without regard to the identity of the holder) under any other provision of law— “(1) subsections (a) and (b)(1) shall not apply, “(2) the rules of subsection (b)(4) shall apply for purposes of subsection (c), and “(3) subsection (c) shall be applied without regard to the requirement that the bond be purchased before July 2, 1982. “(e) Definitions and Special Rules.— For purposes of this section— “(1) Bond.— The term ‘bond’ means a bond, debenture, note, or certificate or other evidence of indebtedness. “(2) Stripped bond.— The term ‘stripped bond’ means a bond issued at any time with interest coupons where there is a separation in ownership between the bond and any coupon which has not yet become payable. “(3) Stripped coupon.— The term ‘stripped coupon’ means any coupon relating to a stripped bond. “(4) Stated redemption price at maturity.— The term ‘stated redemption price at maturity’ has the meaning given such term by the third sentence of section 1232(b)(1). “(5) Coupon.— The term ‘coupon’ includes any right to receive interest on a bond (whether or not evidenced by a coupon). This paragraph shall apply for purposes of subsection (c) only in the case of purchases after July 1, 1982. “(f) Regulation Authority.— The Secretary may prescribe regulations providing that where, by reason of varying rates of interest , put or call options, extendable maturities, or other circumstances, the tax treatment under this section does not accurately reflect the income of the bolder of a stripped coupon or stripped bond, or of the person disposing of such bond or coupon, as the case may be, for any period, such treatment shall be modified to require that the proper amount of income be included for such period.” (b) Conforming Amendment.— Section 1232 is amended by striking 26 USC 1232. out subsections (c) and (d). (c) Clerical Amendment.— The table of sections for such part IV is amended by inserting after the item relating to section 1232A the following: “Sec. 1232B. Tax treatment of stripped bonds.” PART VIII— OTHER BUSINESS PROVISIONS SEC. 233. TARGETED JOBS TAX CREDIT. (a) 2-Year Extension.— Paragraph (3) of section 51(c) (relating to 95 Stat. 260. termination of credit for employment of certain new employees) is amended by striking out “1982” and inserting in lieu thereof “1984”. (b) Qualified Summer Youth Employee.— Subsection (d) of section 51 (defining members of targeted groups) is amended— (1) by striking out “or” at the end of subparagraph (H), (2) by striking out the period at the end of subparagraph (I) and inserting in lieu thereof “, or”, (3) by inserting after subparagraph (I) the following new subparagraph: “(J) a qualified summer youth employee.”, (4) by redesignating paragraphs (12), (13), (14), and (15) as paragraphs (13), (14), (15), and (16), respectively, and (5) by inserting after paragraph (11) the following new paragraph: “(12) Qualified summer youth employee.— “(A) In general.— The term ‘qualified summer youth employee’ means an individual— “(i) who performs services for the employer between May 1 and September 15, “(ii) who is certified by the designated local agency as having attained age 16 but not 18 on the hiring date (as defined in paragraph (14)), “(iii) who has not been an employee of the employer during any period prior to the 90-day period described in subparagraph (B)(iii), and “(iv) who is certified by the designated local agency as being a member of an economically disadvantaged family (as determined under paragraph (11)). “(B) Special rules for determining amount of credit.— For purposes of applying this subpart to wages paid or incurred to any qualified summer youth employee— “(i) subsection (a)(1) shall be applied by substituting ‘85 percent’ for ‘50 percent’, “(ii) subsections (a)(2) and (b)(3) shall not apply, “(iii) subsection (b)(2) shall be applied by substituting ‘any 90-day period between May 1 and September 15’ for ‘the 1-year period beginning with the day the individual begins work for the employer’, and “(iv) subsection (b)(4) shall be applied by substituting ‘$3,000’ for ‘$6,000’. “(C) Special rule for continued employment for same employer.— In the case of an individual who, with respect to the same employer, is certified as a member of another targeted group after such individual has been a qualified summer youth employee, paragraph (14) shall be applied by substituting ‘certified’ for ‘hired by the employer’.” (c) Termination of Involuntarily Terminated CETA Employee as Member of Targeted Group.— Paragraph (10) of section 51(d) 26 USC 51. (relating to involuntarily terminated CETA employee) is amended by adding at the end thereof the following new sentence: “This paragraph shall not apply to any individual who begins work for the employer after December 31, 1982.” (d) Voucher or Scrip Payments to General Recipients in Qualified General Assistance Programs.— Subclause (II) of section 51(d)(6)(B)(i) (defining qualified general assistance programs) is amended by inserting before the comma the following: “or voucher or scrip”. (e) Additional Authorization of Appropriations; Reports.— Paragraph (2) of section 261(f) of the Economic Recovery Tax Act of 1981 is amended— (1) by inserting after “for fiscal year 1982 the sum of $30,000,000” the following: “, and for fiscal years 1983 and 1984 such sums as may be necessary,”; and (2) by inserting at the end thereof the following new sentence: “The Secretary of Labor shall each calendar year beginning with calendar year 1983 report to the Committee on Ways and Means of the House of Representatives and to the Committee on Finance of the Senate with respect to the results of the testing conducted under subparagraph (A) during the preceding calendar year.” (f) Certifications.— Effective only with respect to individuals who begin work for the taxpayer after May 11, 1982, subparagraph (A) of section 51(d)(15) (relating to special rules for certifications), as in 95 Stat. 260. effect before the amendments made by this Act, is amended by striking out “before the day” and inserting in lieu thereof “on or before the day”. (g) Effective Dates.— (1) Subsection (b).— The amendments made by subsection (b) shall apply to amounts paid or incurred after April 30, 1983, to individuals beginning work for the employer after such date. (2) Subsection (d).— The amendments made by subsection (d) shall apply to amounts paid or incurred after July 1, 1982, to individuals beginning work for the employer after such date. SEC. 234. ACCELERATED PAYMENT OF INCOME TAX BY CORPORATIONS. (a) Increase in Amount of Estimated Tax Required To Be Paid.— (1) In general.— Paragraph (1) of section 6655(b) (relating to 26 USC 6655. amount of underpayment) is amended by striking out “80” each place it appears and inserting in lieu thereof “90”. (2) Conforming Amendment.— Paragraph (3) of section 6655(d) (relating to exception to imposition of additional tax) is amended by striking out “80” and inserting in lieu thereof “90”. (b) Elimination of Election With Respect to Payment of Unpaid Taxes.— (1) In general.— Section 6152 (relating to installment payments 26 USC 6152. of tax) is amended by striking out subsections (a) and (b) and inserting in lieu thereof the following new subsections: “(a) Privilege to Elect to Make Four Installment Payments by Decedent’s Estate.— A decedent’s estate subject to the tax imposed by chapter 1 may elect to pay such tax in four equal installments. “(b) Dates Prescribed for Payment of Four Installments.— In any case (other than payment of estimated income tax) in which the tax may be paid in four installments, the first installment shall be paid on the date prescribed for the payment of the tax, the second installment shall be paid on or before 3 months, the third installment on or before 6 months, and the fourth installment on or before 9 months, after such date.”. (2) Conforming amendments.— (A) Paragraph (2) of section 832(e) is amended by striking 26 USC 832. out “, as if no election to make installment payments under section 6152 is made”. (B) Subsection (b) of section 6081 is amended by striking 26 USC 6081. out “or the first installment thereof required under section 6152”. (C) Section 6164 is amended— 26 USC 6164. (i) by striking out the last sentence of subsection (c) and inserting in lieu thereof the following new sentence: “If an extension of time under this section relates to only a part of the tax, the time for payment of the remainder shall be the date on which payment would have been required if such remainder had been the tax.”; and (ii) by striking out paragraph (2) of subsection (g) and inserting in lieu thereof the following new paragraph: “(2) the time for payment of such amount shall be considered to be the date on which payment would have been required if there had been no extension with respect to such amount.”. (c) Amount of Addition to Tax.— Subsection (a) of section 6655 26 USC 6655. (relating to addition to tax) is amended to read as follows: “(a) Addition to Tax.— Except as provided in subsections (d) and (e), in the case of any underpayment of tax by a corporation— “(1) In general.— There shall be added to the tax under chapter 1 for the taxable year an amount determined at the rate established under section 6621 on the amount of the underpayment for the period of the underpayment . “(2) Special rule where corporation paid 80 percent or more of tax.— In any case in which there would be no underpayment if subsection (b) were applied by substituting ‘80 percent’ for ‘90 percent’ each place it appears , the addition to tax under paragraph (1) shall be equal to 75 percent of the amount otherwise determined under paragraph (1).” (d) Additional Exception from Penalty for Underpayments Of Estimated Income Tax Where a Corporation has a Recurring Pattern of Seasonal Income.— (1) In general.— Section 6655 (relating to failure by corporation 26 USC 6655. to pay estimated income tax) is amended by redesignating subsections (e), (f), (g), and (h) as subsections (f), (g), (h), and (i), respectively, and by inserting after subsection (d) the following new subsection: “(e) Additional Exception for Recurring Seasonal Income.— “(1) In general.— Notwithstanding the preceding subsections, the addition to the tax with respect to any underpayment of any installment shall not be imposed if the total amount of all payments of estimated tax made on or before the last date prescribed for the payment of such installment equals or exceeds 90 percent of the amount determined under paragraph (2). “(2) Determination of amount.— The amount determined under this paragraph for any installment shall be determined in the following manner— “(A) take the taxable income for all months during, the taxable year preceding the filing month, “(B) divide such amount by the base period percentage for all months during the taxable year preceding the filing month, “(C) determine the tax on the amount determined under subparagraph (B), and “(D) multiply the tax computed under subparagraph (C) by the base period percentage for the filing month and all months during the taxable year preceding the filing month. “(3) Definitions and special rules.— For purposes of this subsection— “(A) Base period percentage.— The base period percentage for any period of months shall be the average percent which the taxable income for the corresponding months in each of the 3 preceding taxable years bears to the taxable income for the 3 preceding taxable years. “(B) Filing month.— The term ‘filing month’ means the month in which the installment is required to be paid. “(C) Limitation on application of subsection.— This subsection shall only apply if the base period percentage for any 6 consecutive months of the taxable year equals or exceeds 70 percent. “(D) Reorganizations, etc.— The Secretary may by regulations provide for the determination of the base period percentage in the case of reorganizations, new corporations, and other similar circumstances.” (2) Technical amendment.— Subsection (f) of section 6655 (as 26 USC 6655. redesignated by paragraph (D) is amended by striking out “(d), and (h)” and inserting in lieu thereof “(d), (e), and (i)” (e) Effective Date.— The amendments made by this section shall 26 USC 6655 note. apply to taxable years beginning after December 31, 1982. Subtitle C— Pensions PART I— CONTRIBUTION AND LOAN LIMITS SEC. 235. LOWER CONTRIBUTION AND BENEFIT LIMITS FOR CERTAIN ANNUITIES, ETC. (a) Limit on Annual Defined Benefit Lowered From $136,425 To $90,000; Limit on Annual Defined Contribution Lowered From $45,475 to $30,000.— (1) Defined benefit plans.— Subparagraph (A) of section 415(b)(1) (relating to limitation for defined benefit plan) is 26 USC 415. amended by striking out “$75,000” and inserting in lieu thereof “$90,000”. (2) Defined contribution plans.— Subparagraph (A) of section 415(c)(1) (relating to limitation for defined contribution plan) is amended by striking out “$25,000” and inserting in lieu thereof “$30,000”. (3) Conforming amendments.— (A) Subparagraph (C) of section 415(b)(2) is amended by striking out “$75,000” each place it appears and inserting in lieu thereof “$90,000”. (B) The last sentence of paragraph (7) of section 415(b) is amended by striking out “by substituting ‘37,500’ for ‘75,000’” and inserting in lieu thereof “by substituting the greater of $68,212 or one-half the amount otherwise applicable for such year under paragraph (1)(A) for ‘$90,000’”. (b) Cost-of-Living Adjustments.— (1) Adjustment to reflect adjustments made in social security benefit payments rather than primary insurance amounts.— Paragraph (1) of section 415(d) (relating to cost-of-living adjustments) is amended by striking out “primary insurance amounts” and inserting in lieu thereof “benefit amounts”. (2) Freeze on cost-of-living adjustments before january 1, 1986.— (A) In general.— Subsection (d) of section 415 is amended by adding at the end thereof the following new paragraph: “(3) Freeze on adjustment to defined contribution and benefit limits.— The Secretary shall not make any adjustment under subparagraph (A) or (B) of paragraph (1) with respect to any year beginning after December 31, 1982, and before January 1, 1986.” (B) Change in base period to reflect change in limits and freeze.— Paragraph (2) of section 415(d) (relating to base periods) is amended by striking out “1974” and inserting in lieu thereof “1984”. (3) Conforming amendments to decrease in limits.— Paragraph (1) of section 415(d) is amended— (A) by striking out “$75,000” in subparagraph (A) and inserting in lieu thereof “$90,000”, and (B) by striking out “$25,000” in subparagraph (B) and inserting in lieu thereof “$30,000”. (c) Lower Limits Where Individual is Covered by Both Defined Benefit Plan and Defined Contribution Plan.— (1) Sum of defined benefit plan fraction and defined contribution plan fraction cannot exceed 1.25 for dollar limits and 1.4 for percentage limits.— Paragraph (1) of section 415(e) (relating to limitation in case of defined benefit plan and 26 USC 415. defined contribution plan for same employee) is amended by striking out “1.4” and inserting in lieu thereof “1.0”. (2) Defined benefit and contribution plan fractions.— (A) Defined benefit plan fraction.— Subparagraph (B) of section 415(e)(2) (defining defined benefit plan fraction) is amended to read as follows: “(B) the denominator of which is the lesser of— “(i) the product of 1.25, multiplied by the dollar limitation in effect under subsection (b)(1)(A) for such year, or “(ii) the product of— “(I) 1.4, multiplied by “(II) the amount which may be taken into account under subsection (b)(1)(B) with respect to such individual under the plan for such year.” (B) Defined contribution plan fraction.— Subparagraph (B) of section 415(e)(3) (defining defined contribution plan fraction) is amended to read as follows: “(B) the denominator of which is the sum of the lesser of the following amounts determined for such year and for each prior year of service with the employer: “(i) the product of 1.25, multiplied by the dollar limitation in effect under subsection (c)(1)(A) for such year (determined without regard to subsection (c)(6)), or “(ii) the product of— “(I) 1.4, multiplied by— “(II) the amount which may be taken into account under subsection (c)(1)(B) (or subsection (c) (7) or (8), if applicable) with respect to such individual under such plan for such year.” (d) Transition Rules for Defined Contribution Fraction.— Section 415(e) is amended by adding at the end thereof the following new paragraph: “(6) Special transition rule for defined contribution fraction for years ending after december 31, 1982.— “(A) In general.— At the election of the plan administrator, in applying paragraph (3) with respect to any year ending after December 31, 1982, the amount taken into account under paragraph (3)(B) with respect to each participant for all years ending before January 1, 1983, shall be an amount equal to the product of— “(i) the amount determined under paragraph (3)(B) (as in effect for the year ending in 1982) for the year ending in 1982, multiplied by “(ii) the transition fraction. “(B) Transition fraction.— The term ‘transition fraction’ means a fraction— “(i) the numerator of which is the lesser of— “(I) $51,875, or “(II) 1.4, multiplied by 25 percent of the compensation of the participant for the year ending in 1981, and “(ii) the denominator of which is the lesser of— “(I) $41,500, or “(II) 25 percent of the compensation of the participant for the year ending in 1981.” (e) Actuarial Adjustments.— (1) Actuarial adjustments for early retirement made by reference to age 62 (instead of 55).— Subparagraph (C) of section 415(b)(2) (relating to adjustments where benefit begins 26 USC 415. before age 55) is amended by striking out “55” each place it appears and inserting in lieu thereof “62”. (2) $75,000 floor on actuarial adjustment where benefit begins before 62.— Subparagraph (C) of section 415(b)(2) is amended by adding at the end thereof the following new sentence: “The reduction under this subparagraph shall not reduce the limitation of paragraph (1)(A) below— “(i) if the benefit begins at or after age 55, $75,000, or “(ii) if the benefit begins before age 55, the amount which is the equivalent of the $75,000 limitation for age 55.” (3) Actuarial adjustments where benefit begins after age 65.— Paragraph (2) of section 415(b) is amended by adding at the end thereof the following new subparagraph: “(D) ADJUSTMENT TO $90,OOO LIMITATION WHERE BENEFIT BEGINS AFTER AGE 65.—If the retirement income benefit under the plan begins after age 65, the determination as to whether the $90,000 limitation set forth in paragraph (1)(A) has been satisfied shall be made, in accordance with regulations prescribed by the Secretary, by adjusting such benefit so that it is equivalent to such a benefit beginning at age 65.” (4) Limitations on actuarial adjustments under section 415(b)(2).— Paragraph (2) of section 415(b) is amended by adding at the end thereof the following new subparagraph: “(E) Limitation on certain assumptions.— “(i) For purposes of adjusting any benefit under subparagraph (B) or (C), the interest rate assumption shall not be less than the greater of 5 percent or the rate specified in the plan. “(ii) For purposes of adjusting any benefit under subparagraph (D), the interest rate assumption shall not be greater than the lesser of 5 percent or the rate specified in the plan. “(iii) For purposes of adjusting any benefit under subparagraph (B), (C), or (D), no adjustments under subsection (d)(1) shall be taken into account before the year for which such adjustment first takes effect.” (f) Limitations on Deductibility of ContributionS.— Section 404 95 Stat. 293. (relating to contributions of an employer to an employee’s trust , etc.) is amended by adding at the end thereof the following new subsection: “(j) Special Rules Relating to Application With Section 415.— “(1) No deduction in excess of section 415 limitation.— In computing the amount of any deduction allowable under paragraph (1), (2), (3), (4), (7), or (10) of subsection (a) for any year— “(A) in the case of a defined benefit plan, there shall not be taken into account any benefits for any year in excess of any limitation on such benefits under section 415 for such 26 USC 415. year, or “(B) in the case of a defined contribution plan, the amount of any contributions otherwise taken into account shall be reduced by any annual additions in excess of the limitation under section 415 for such year. “(2) No advance funding of cost-of-living adjustments.— For purposes of clause (i), (ii) or (iii) of subsection (a)(1)(A), and in computing the full funding limitation, there shall not be taken into account any adjustments under section 415(d)(1) for any year before the year for which such adjustment first takes effect.” (g) Effective Dates.— (1) In general.— (A) New plans.— In the case of any plan which is not in existence on July 1, 1982, the amendments made by this section shall apply to years ending after July 1, 1982. (B) Existing plans.— (i) In the case of any plan which is in existence on July 1, 1982, the amendments made by this section shall apply to years beginning after December 31, 1982. (ii) Plan requirements.— A plan shall not be treated as failing to meet the requirements of section 401(a)(16) of the Internal Revenue Code of 1954 for any year beginning before January 1, 1984, merely because such plan provides for benefit or contribution limits which are in excess of the limitations under section 415 of such Code, as amended by this section. The preceding sentence shall not apply to any plan which provides such limits in excess of the limitation under section 415 of such Code before such amendments . (2) Amendments related to cost-of-living adjustments.— (A) In general.— Except as provided in subparagraph (B), the amendments made by subsection (b) shall apply to adjustments for years beginning after December 31, 1982. (B) Adjustment procedures.— The amendments made by subsections (b)(1) and (b)(2)(B) shall apply to adjustments for years beginning after December 31, 1985. (3) Transition rule where the sum of defined contribution and defined benefit plan fractions exceeds 1.0.— In the case of a plan which satisfied the requirements of section 415 of the Internal Revenue Code of 1954 for the last year beginning before January 1, 1983, the Secretary of the Treasury or his delegate shall prescribe regulations under which an amount is subtracted from the numerator of the defined contribution plan fraction (not exceeding such numerator) so that the sum of the defined benefit plan fraction and the defined contribution plan fraction computed under section 415(e)(1) of the Internal Revenue Code of 1954 (as amended by the Tax Equity and Fiscal Ante, p. 506. Responsibility Act of 1982) does not exceed 1.0 for such year. (4) Right to higher accrued defined benefit preserved.— (A) In general.— In the case of an individual who is a participant before January 1, 1983, in a defined benefit plan which is in existence on July 1, 1982, and with respect to which the requirements of section 415 of such Code have been met for all years, if such individual’s current accrued benefit under such plan exceeds the limitation of subsection (b) of section 415 of the Internal Revenue Code of 1954 (as amended by this section), then (in the case of such plan) for purposes of subsections (b) and (e) of such section, the limitation of such subsection (b) with respect to such individual shall be equal to such current accrued benefit. (B) Current accrued benefit defined.— (i) In general.— For purposes of this paragraph, the term “current accrued benefit” means the individual’s accrued benefit (at the close of the last year beginning before January 1, 1983) when expressed as an annual benefit (within the meaning of section 415(b)(2) of such 26 USC 415. Code as in effect before the amendments made by this Act). (ii) Special rule.— For purposes of determining the amount of any individual’s current accrued benefit— (I) no change in the terms and conditions of the plan after July 1, 1982, and (II) no cost-of-living adjustment occurring after July 1, 1982, shall be taken into account. (5) Special rule for collective bargaining agreements.— In the case of a plan maintained on the date of the enactment of this Act pursuant to 1 or more collective bargaining agreements between employee representatives and 1 or more employers, the amendments made by this section and section 253 (relating to age 70½) shall not apply to years beginning before the earlier of— (A) the date on which the last of the collective bargaining agreements relating to the plan terminates (determined without regard to any extension thereof agreed to after the date of the enactment of this Act), or (B) January 1, 1986. For purposes of subparagraph (A), any plan amendment made pursuant to a collective bargaining agreement relating to the plan which amends the plan solely to conform to any requirement added by this section and section 253 shall not be treated as a termination of such collective bargaining agreement. SEC. 236. LOANS TREATED AS DISTRIBUTIONS. (a) General Rule.— Section 72 (relating to annuities and certain 95 Stat. 278. proceeds of endowment and life insurance contracts) is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection: “(p) Loans Treated as Distributions.— For purposes of this section — “(1) Treatment as distributions.— “(A) Loans.— If during any taxable year a participant or beneficiary receives (directly or indirectly) any amount as a loan from a qualified employer plan, such amount shall be treated as having been received by such individual as a distribution under such plan. “(B) Assignments or pledges.— If during any taxable year a participant or beneficiary assigns (or agrees to assign) or pledges (or agrees to pledge) any portion of his interest in a qualified employer plan, such portion shall be treated as having been received by such individual as a loan from such plan. “(2) Exception for certain loans.— “(A) General rule.— Paragraph (1) shall not apply to any loan to the extent that such loan (when added to the outstanding balance of all other loans from such plan whether made on, before, or after August 13, 1982), does not exceed the lesser of— “(i) $50,000, or “(ii) ½ of the present value of the nonforfeitable accrued benefit of the employee under the plan (but not less than $10,000). “(B) Requirement that loan be repayable within 5 years.— “(i) In general.— Subparagraph (A) shall not apply to any loan unless such loan, by its terms, is required to be repaid within 5 years. “(ii) Exception for home loans.— Clause (i) shall not apply to any loan used to acquire, construct, reconstruct, or substantially rehabilitate any dwelling unit which within a reasonable time is to be used (determined at the time the loan is made) as a principal residence of the participant or a member of the family (within the meaning of section 267(c)(4)) of the 26 USC 267. participant. “(C) Related employers and related plans.— For purposes of this paragraph— “(i) the rules of subsections (b), (c), and (m) of section 414 shall apply, and “(ii) all plans of an employer (determined after the application of such subsections) shall be treated as 1 plan. “(3) Qualified employer plan, etc.— For purposes of this subsection, the term ‘qualified employer plan’ means any plan which was (or was determined to be) a qualified employer plan (as defined in section 219(e)(3) without regard to subparagraph (D) thereof). For purposes of this subsection, such term includes any government plan (as defined in section 219(e)(4)). “(4) Special rules for loans, etc., from certain contracts.— For purposes of this subsection, any amount received as a loan under a contract purchased under a qualified employer plan (and any assignment or pledge with respect to such a contract) shall be treated as a loan under such employer plan.” (b) Technical Amendments.— (1) Subsection (m) of section 72 is amended by striking out 95 Stat. 284. 26 USC 72. paragraphs (4) and (8). (2) Subparagraph (A) of section 72(o)(3) is amended by striking 95 Stat. 278. out “subsection (m)(4) and (8)” and inserting in lieu thereof “subsection (p)”. (c) Effective Date.— (1) In general.— The amendments made by this section shall apply to loans, assignments, and pledges made after August 13, 1982. For purposes of the preceding sentence, the outstanding balance of any loan which is renegotiated, extended, renewed, or revised after such date shall be treated as an amount received as a loan on the date of such renegotiation, extension, renewal, or revision. (2) Exception for certain loans used to repay outstanding obligations.— (A) In general.— Any qualified refunding loan shall not be treated as a distribution by reason of the amendments made by this section to the extent such loan is repaid before August 14, 1983. (B) Qualified refunding loan.— For purposes of subparagraph (A), the term “qualified refunding loan” means any loan made after August 13, 1982, and before August 14, 1983, to the extent such loan is used to make a required principal payment. (C) Required principal payment.— For purposes of subparagraph (B), the term “required principal payment” means any principal repayment on a loan made under the plan which was outstanding on August 13, 1982, if such repayment is required to be made after August 13, 1982, and before August 14, 1983. PART II— REPEAL OF SPECIAL LIMITATIONS ON PLANS BENEFITING SELF-EMPLOYED INDIVIDUALS OR OWNER-EMPLOYEES SEC. 237. REPEAL OF SPECIAL QUALIFICATION REQUIREMENTS. (a) General Rule.— Subsection (d) of section 401 (relating to 26 USC 401. additional requirements for qualifications of trusts and plans benefiting owner-employees) is amended— (1) by striking out paragraphs (1) through (7), and (2) by redesignating paragraphs (9), (10), and (11) as paragraphs (1), (2), and (3), respectively. (b) Repeal of Limitations on Amount of Compensation Taken Into Account and on Certain Defined Benefit Plans.— Paragraphs (17) and (18) of section 401(a) are hereby repealed. (c) Repeal of Excise Tax on Excess Contributions for Self-Employed Individuals.— (1) Section 4972 (relating to tax on excess contributions for 26 USC 4972. self-employed individuals) is hereby repealed. (2) The table of sections for chapter 43 is amended by striking out the item relating to section 4972. (d) Penalty for Premature Withdrawals Limited to Key Employees in Top-Heavy Plans.— (1) Subparagraph (A) of section 72(m)(5) is amended— 26 USC 72. (A) by striking out “an owner-employee” the first place it appears and inserting in lieu thereof “a key employee”, (B) by striking out “while he was an owner-employee” and inserting in lieu thereof “while he was a key employee in a top-heavy plan”, and (C) by striking, out “an owner-employee” in clause (ii) and inserting in lieu thereof “a key employee”. (2) Paragraph (5) of section 72(m) is amended by adding at the end thereof the following new subparagraph: “(C) For purposes of this paragraph, the terms ‘key employee’ and ‘top-heavy plan’ have the same meanings as when used in section 416.” (3) Paragraph (6) of section 72(m) is amended by striking out 95 Stat. 284. “except in applying paragraph (5),”. (e) Conforming Amendments.— (1) Paragraph (10) of section 401(a) is amended to read as 26 USC 401. follows: “(10) Other requirements.— “(A) Plans benefiting owner-employees.— In the case of any plan which provides contributions or benefits for employees some or all of whom are owner-employees (as defined in subsection (c)(3)), a trust forming part of such plan shall constitute a qualified trust under this section only if the requirements of subsection (d) are also met.” (2) Paragraph (2) of section 404(a) is amended— (A) by striking out “(8), (11)” and inserting in lieu thereof “(8), (9), (11)”, and (B) by striking out “section 401(a)(9), (10), (17), and (18), and of section 401(d) (other than paragraph (1))” and inserting in lieu thereof “section 401(a)(10) and of section 401(d)”. (3) (A) Paragraph (2) of section 408(a) (defining individual 26 USC 408. retirement account) is amended by striking out “as defined in section 401(d)(1)” and inserting in lieu thereof “as defined in subsection (n)”. (B) Section 408 is amended by redesignating the subsection relating to cross references as subsection (o) and by inserting immediately before such subsection the following new subsection: “(n) Bank.— For purposes of subsection (a)(2), the term ‘bank’ means— “(1) any bank (as defined in section 581), “(2) an insured credit union (within the meaning of section 101(6) of the Federal Credit Union Act), and 12 USC 1752. “(3) a corporation which, under the laws of the State of its incorporation, is subject to supervision and examination by the Commissioner of Banking or other officer of such State in charge of the administration of the banking laws of such State.” SEC. 238. REPEAL OF SPECIAL LIMITATIONS ON DEDUCTION FOR SELF-EMPLOYED INDIVIDUALS AND SUBCHAPTER S CORPORATIONS. (a) Repeal of limit of lower of $15,000 or 15 percent of earned income.— Subsection (e) of section 404 (relating to special 26 USC 404. limitations for self-employed individuals) is amended to read as follows: “(e) Contributions Allocable to Life Insurance Protection for Self-Employed Individuals.— In the case of a self-employed individual described in section 401(c)(1), contributions which are allocable (determined under regulations prescribed by the Secretary) to the purchase of life, accident, health, or other insurance shall not be taken into account under this section.” (b) Repeal of Limitations on Defined Benefit Plans.— Subsection (j) of section 401 (relating to defined benefit plans providing 26 USC 401. benefits for self-employed individuals and shareholder-employees) is hereby repealed. (c) Repeal of Limitations Applicable to Subchapter S Corporations.— Section 1379 is amended— 26 USC 1379. (1) by striking out subsections (a) and (b), and (2) by redesignating subsections (c) and (d) as subsections (a) and (b), respectively. (d) Technical Amendments.— (1) Paragraph (1) of section 401(c)(1) (defining employee) is 26 USC 401. amended to read as follows: “(1) Self-employed individual treated as employee.— “(A) In general.— The term ‘employee’ includes, for any taxable year, an individual who is a self-employed individual for such taxable year. “(B) Self-employed individual.— The term ‘self-employed individual’ means, with respect to any taxable year, an individual who has earned income (as defined in paragraph (2)) for such taxable year. To the extent provided in regulations prescribed by the Secretary, such term also includes, for any taxable year— “(i) an individual who would be a self-employed individual within the meaning of the preceding sentence but for the fact that the trade or business carried on by such individual did not have net profits for the taxable year, and “(ii) an individual who has been a self-employed individual within the meaning of the preceding sentence for any prior taxable year.” (2) Subparagraph (A) of section 401(c)(2) (defining earned income) is amended by striking out “and” at the end of clause (iii), by striking out the period at the end of clause (iv) and inserting in lieu thereof “, and”, and by adding at the end thereof the following new clause: “(v) with regard to the deductions allowed by sections 404 and 405(c) to the taxpayer.” (3) Subsection (j) of section 408 is amended to read as follows: 26 USC 408. “(j) Increase in Maximum Limitations for Simplified Employee Pensions.— In the case of any simplified employee pension, subsections (a)(1) and (b)(2) of this section shall be applied by increasing the $2,000 amounts contained therein by the amount of the limitation in effect under section 415(c)(1)(A).” (4) (A) Paragraph (6) of section 408(k) is hereby repealed. (B) Paragraph (1) of section 408(k) is amended by striking out “(5), and (6)” and inserting in lieu thereof “and (5)”. (C) Subparagraph (C) of section 408(k)(3) is amended to read as follows: “(C) Contributions must bear uniform relationship to total compensation.— For purposes of subparagraph (A), employer contributions to simplified employee pensions shall be considered discriminatory unless contributions thereto bear a uniform relationship to the total compensation (not in excess of the first $200,000) of each employee maintaining a simplified employee pension.” (5) Paragraph (5) of section 415(c) (relating to application with 26 USC 415. section 404(e)) is hereby repealed. SEC. 239. ALLOWANCE OF EXCLUSION OF DEATH BENEFIT FOR SELF-EMPLOYED INDIVIDUALS. Paragraph (3) of section 101(b) (relating to self-employed individual 26 USC 101. not considered as employee) is amended to read as follows: “(3) Treatment of self-employed individuals.— For purposes of this subsection— “(A) Self-employed individual not considered employee.— Except as provided in subparagraph (B), the term ‘employee’ does not include a self-employed individual described in section 401(c)(1). “(B) Special rule for certain lump sum distributions.— In the case of any lump sum distribution described in the second sentence of paragraph (2)(B), the term ‘employee’ includes a self-employed individual described in section 401(c)(1).” SEC. 240. SPECIAL RULES FOR TOP-HEAVY PLANS. (a) General Rule.— Subpart B of part I of subchapter D of chapter 1 (relating to special rules) is amended by adding at the end thereof the following new section: “SEC. 416. SPECIAL RULES FOR TOP-HEAVY PLANS. “(a) General Rule.— A trust shall not constitute a qualified trust under section 401(a) for any plan year if the plan of which it is a part is a top-heavy plan for such plan year unless such plan meets— “(1) the vesting requirements of subsection (b), “(2) the minimum benefit requirements of subsection (c), and “(3) the limitation on compensation requirement of subsection (d). “(b) Vesting Requirements.— “(1) In general.— A plan satisfies the requirements of this subsection if it satisfies the requirements of either of the following subparagraphs: “(A) 3-year vesting.— A plan satisfies the requirements of this subparagraph if an employee who has completed at least 3 years of service with the employer or employers maintaining the plan has a nonforfeitable right to 100 percent of his accrued benefit derived from employer contributions. “(B) 6-year graded vesting.— A plan Satisfies the requirements of this subparagraph if an employee has a nonforfeitable right to a percentage of his accrued benefit derived from employer contributions determined under the following table: “Years of service The nonforfeitable percentage is: 2 20 3 40 4 60 5 80 6 or more 100 “(2) Certain rules made applicable.— Except to the extent inconsistent with the provisions of this subsection, the rules of section 411 shall apply for purposes of this subsection. “(c) Plan Must Provide Minimum Benefits.— “(1) Defined benefit plans.— “(A) In general.— A defined benefit plan meets the requirements of this subsection if the accrued benefit derived from employer contributions of each participant who is a non-key employee, when expressed as an annual retirement benefit, is not less than the applicable percentage of the participant’s average compensation for years in the testing period. “(B) Applicable percentage.— For purposes of subparagraph (A), the term ‘applicable percentage’ means the lesser of— “(i) 2 percent multiplied by the number of years of service with the employer, or “(ii) 20 percent. “(C) Years of service.— For purposes of this paragraph— “(i) In general.— Except as provided in clause (ii), years of service shall be determined under the rules of paragraphs (4), (5), and (6) of section 411(a). 26 USC 411. “(ii) Exception for years during which plan was not top-heavy.— A year of service with the employer shall not be taken into account under this paragraph if— “(I) the plan was not a top-heavy plan for any plan year ending during such year of service, or “(II) such year of service was completed in a plan year beginning before January 1, 1984. “(D) Average compensation for high 5 years.— For purposes of this paragraph— “(i) In general.— A participant’s testing period shall be the period of consecutive years (not exceeding 5) during which the participant had the greatest aggregate compensation from the employer. “(ii) Year must be included in year of service.— The years taken into account under clause (i) shall be properly adjusted for years not included in a year of service. “(iii) Certain years not taken into account.— Except to the extent provided in the plan, a year shall not be taken into account under clause (i) if— “(I) such year ends in a plan year beginning before January 1, 1984, or “(II) such year begins after the close of the last year in which the plan was a top-heavy plan. “(E) Annual retirement benefit.— For purposes of this paragraph, the term ‘annual retirement benefit’ means a benefit payable annually in the form of a single life annuity (with no ancillary benefits) beginning at the normal retirement age under the plan. “(2) Defined contribution plans.— “(A) In general.— A defined contribution plan meets the requirements of the subsection if the employer contribution for the year for each participant who is a non-key employee is not less than 3 percent of such participant’s compensation (within the meaning of section 415). “(B) Special rule where maximum contribution less than 3 percent.— “(i) In general.— The percentage referred to in subparagraph (A) for any year shall not exceed the percentage at which contributions are made (or required to be made) under the plan for the year for the key employee for whom such percentage is the highest for the year. “(ii) Determination of percentage.— The determination referred to in clause (i) shall be determined for each key employee by dividing the contributions for such employee by so much of his total compensation for the year as does not exceed $200,000. “(iii) Treatment of aggregation groups.— “(I) For purposes of this subparagraph, all defined contribution plans required to be included in an aggregation group under subsection (g)(2)(A)(i) shall be treated as one plan. “(II) This subparagraph shall not apply to any plan required to be included in an aggregation group if such plan enables a defined benefit plan required to be included in such group to meet the requirements of section 401(a)(4) or 410. 26 USC 401, 410. “(C) Certain amounts not taken into account.— For purposes of this paragraph, any employer contribution attributable to a salary reduction or similar arrangement shall not be taken into account. “(d) Not More Than $200,000 in Annual Compensation Taken Into Account.— “(1) In general.— A plan meets the requirements of this subsection if the annual compensation of each employee taken into account under the plan does not exceed the first $200,000. “(2) Cost-of-living adjustments.— The Secretary shall annually adjust the $200,000 amount contained in paragraph (1) of this subsection and in clause (ii) of subsection (c)(2)(B) in the same manner as he adjusts the dollar amount contained in section 415(c)(1)(A). “(e) Plan Must Meet Requirements Without Taking Into Account Social Security and Similar Contributions and Benefits.— A top-heavy plan shall not be treated as meeting the requirement of subsection (b) or (c) unless such plan meets such requirement without taking into account contributions or benefits under chapter 2 (relating to tax on self-employment income), chapter 26 USC 1401 et seq. 26 USC 3101 et. seq. 21 (relating to Federal Insurance Contributions Act), title II of Social Security Act, or any other Federal or State law. “(f) Coordination Where Employer Has 2 or More Plans.— The Secretary shall prescribe such regulations as may be necessary or 42 USC 401. appropriate to carry out the purposes of this section where the employer has 2 or more plans including (but not limited to) regulations to prevent inappropriate omissions or require duplication of minimum benefits or contributions. “(g) Top-Heavy Plan Defined.— For purposes of this section— “(1) In general.— “(A) Plans not required to be aggregated.— Except as provided in subparagraph (B), the term ‘top-heavy plan’ means, with respect to any plan year— “(i) any defined benefit plan if, as of the determination date, the present value of the cumulative accrued benefits under the plan for key employees exceeds 60 percent of the present value of the cumulative accrued benefits under the plan for all employees, and “(ii) any defined contribution plan if, as of the determination date, the aggregate of the accounts of key employees under the plan exceeds 60 percent of the aggregate of the accounts of all employees under such plan. “(B) Aggregated plans.— Each plan of an employer required to be included in an aggregation group shall be treated as a top-heavy plan if such group is a top-heavy group. “(2) Aggregation.— For purposes of this subsection— “(A) Aggregation group.— “(i) Required aggregation.— The term ‘aggregation group’ means— “(I) each plan of the employer in which a key employee is a participant, and “(II) each other plan of the employer which enables any plan described in subclause (I) to meet the requirements of section 401(a)(4) or 410. 26 USC 401, 410. “(ii) Permissive aggregation.— The employer may treat any plan not required to be included in an aggregation group under clause (i) as being part of such group if such group would continue to meet the requirements of sections 401(a)(4) and 410 with such plan being taken into account. “(B) Top-heavy group.— The term ‘top-heavy group’ means any aggregation group if— “(i) the sum (as of the determination date) of— “(I) the present value of the cumulative accrued benefits for key employees under all defined benefit plans included in such group, and “(II) the aggregate of the accounts of key employees under all defined contribution plans included in such group, “(ii) exceeds 60 percent of a similar sum determined for all employees. “(3) Distributions during last 5 years taken into account.— For purposes of determining— “(A) the present value of the cumulative accrued benefit for any employee, or “(B) the amount of the account of any employee, such present value or amount shall be increased by the aggregate distributions made with respect to such employee under the plan during the 5-year period ending on the determination date. “(4) Other special rules.— For purposes of this subsection— “(A) Rollover contributions to plan not taken into account.— Except to the extent provided in regulations, any rollover contribution (or similar transfer) initiated by the employee and made after December 31, 1983, to a plan shall not be taken into account with respect to the transferee plan for purposes of determining whether such plan is a top-heavy plan (or whether any aggregation group which includes such plan is a top-heavy group). “(B) Benefits not taken into account if employee ceases to be key employee.— If any individual is a non-key employee with respect to any plan for any plan year, but such individual was a key employee with respect to such plan for any prior plan year, any accrued benefit for such employee (and the account of such employee) shall not be taken into account. “(C) Determination date.— The term ‘determination date’ means, with respect to any plan year— “(i) the last day of the preceding plan year, or “(ii) in the case of the first plan year of any plan, the last day of such plan year. “(D) Years.— To the extent provided in regulations, this section shall be applied on the basis of any year specified in such regulations in lieu of plan years. “(h) Adjustments in Section 415 Limits for Top-Heavy Plans.— “(1) In general.— In the case of any top-heavy plan, paragraphs (2)(B) and (3)(B) of section 415(e) shall be applied by Ante, p. 506. substituting ‘1.0’ for ‘1.25’. “(2) Exception where benefits for key employees do not exceed 90 percent of total benefits and additional contributions are made for non-key employees.— Paragraph (1) shall not apply with respect to any top-heavy plan if the requirements of subparagraphs (A) and (B) of this paragraph are met with respect to such plan. “(A) Minimum benefit requirements.— “(i) In general.— The requirements of this subparagraph are met with respect to any top-heavy plan if such plan (and any plan required to be included in an aggregation group with such plan) meets the requirements of subsection (c) as modified by clause (ii). “(ii) Modifications.— For purposes of clause (i)— “(I) paragraph (1)(B) of subsection (c) shall be applied by substituting ‘3 percent’ for ‘2 percent’, and by increasing (but not by more than 10 percentage points) 20 percent by 1 percentage point for each year for which such plan was taken into account under this subsection, and “(II) paragraph (2)(A) shall be applied by substituting ‘4 percent’ for ‘3 percent’. “(B) Benefits for key employees cannot exceed 90 percent of total benefits.— A plan meets the requirements of this subparagraph if such plan would not be a top heavy plan if ‘90 percent’ were substituted for ‘60 percent’ each place it appears in paragraphs (1)(A) and (2)(B) of subsection (g). “(3) Transition rule.— If, but for this paragraph, paragraph (1) would begin to apply with respect to any top-heavy plan, the application of paragraph (1) shall be suspended with respect to any individual so long as there are no— “(A) employer contributions, forfeitures, or voluntary nondeductible contributions allocated to such individual, or “(B) accruals for such individual under the defined benefit plan. “(4) Coordination with transitional rule under section 415.— In the case of any top-heavy plan to which paragraph (1) applies, section 415(e)(6)(B)(i) shall be applied by substituting ‘$41,500’ for ‘$51,875’. “(i) Definitions.— For purposes of this section— “(1) Key employee.— “(A) In general.— The term ‘key employee’ means any participant in an employer plan who, at any time during the plan year or any of the 4 preceding plan years, is— “(i) an officer of the employer, “(ii) 1 of the 10 employees owning (or considered as owning within the meaning of section 318) the largest 26 USC 318. interests in the employer, “(iii) a 5-percent owner of the employer, or “(iv) a 1-percent owner of the employer having an annual compensation from the employer of more than $150,000. For purposes of clause (i), no more than 50 employees (or, if lesser, the greater of 3 or 10 percent of the employees) shall be treated as officers. “(B) Percentage owners.— “(i) 5-percent owner.— For purposes of this paragraph, the term ‘5-percent owner’ means— “(I) if the employer is a corporation, any person who owns (or is considered as owning within the meaning of section 318) more than 5 percent of the outstanding stock of the corporation or stock possessing more than 5 percent of the total combined voting power of all stock of the corporation, or “(II) if the employer is not a corporation, any person who owns more than 5 percent of the capital or profits interest in the employer. “(ii) 1-percent owner.— For purposes of this paragraph, the term ‘1-percent owner’ means any person who would be described in clause (i) if ‘1 percent’ were substituted for ‘5 percent’ each place it appears in clause (i). “(iii) Constructive ownership rules.— For purposes of this subparagraph and subparagraph (A)(ii)((II)— “(I) subparagraph (C) of section 318(a)(2) shall be applied by substituting ‘5 percent’ for ‘50 percent’, and “(II) in the case of any employer which is not a corporation, ownership in such employer shall be determined in accordance with regulations prescribed by the Secretary which shall be based on principles similar to the principles of section 318 (as modified by subclause (I)). “(C) Aggregation rules do not apply for purposes of determining 5-percent or 1-percent owners.— The rules of subsections (b), (c), and (m) of section 414 shall not apply for purposes of determining ownership in the employer. “(2) Non-key employee.— The term ‘non-key employee’ means any employee who is not a key employee. “(3) Self-employed individuals.— In the case of a self-employed individual described in section 401(c)(1)— “(A) such individual shall be treated as an employee, and “(B) such individual’s earned income (within the meaning of section 401(c)(2)) shall be treated as compensation. “(4) Treatment of employees covered by collective bargaining agreements.— The requirements of subsections (b), (c), and (d) shall not apply with respect to any employee included in a unit of employees covered by an agreement which the Secre-tary of Labor finds to be a collective bargaining agreement between employee representatives and 1 or more employers if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representatives and such employer or employers. “(5) Treatment of beneficiaries.— The terms ‘employee’ and ‘key employee’ include their beneficiaries. “(6) Treatment of simplified employee pensions.— “(A) Treatment as defined contribution plans.— A simplified employee pension shall be treated as a defined contribution plan. “(B) Election to have determinations based on employer contributions.— In the case of a simplified employee pension, at the election of the employer, paragraphs (1)(A)(ii) and (2)(B) of subsection (g) shall be applied by taking into account aggregate employer contributions in lieu of the aggregate of the accounts of employees.” (b) Qualification Requirements.— Paragraph (10) of section 401(a) (relating to other requirements) is amended by adding at the Ante, p. 512. end thereof the following new subparagraph: “(B) Top-heavy plans.— “(i) In general.— In the case of any top-heavy plan, a trust forming part of such plan shall constitute a qualified trust under this section only if the requirements of section 416 are met. “(ii) Plans which may become top-heavy.— Except to the extent provided in regulations, a trust forming part of a plan (whether or not a top-heavy plan) shall constitute a qualified trust under this section only if such plan contains provisions— “(I) which will take effect if such plan becomes a top-heavy plan, and “(II) which meet the requirements of section 416.” (c) Technical Amendments.— (1) Subsections (b) and (c) of section 414 (relating to employees 26 USC 414. of controlled groups) are each amended by striking out “and 415” and inserting in lieu thereof “415, and 416”. (2) Paragraph (4) of section 414(m) (relating to employees of an affiliated service group) is amended by striking out “and 415” in subparagraph (B), and inserting in lieu there of “415, and 416”. (d) Clerical Amendment.— The table of sections for subpart B of part I of subchapter D of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 416. Special rules for top-heavy plans.” SEC. 241. EFFECTIVE DATES. (a) General rule.— Except as provided in subsection (b), the amendments made by this part shall apply to years beginning after December 31, 1983. (b) Allowance of exclusion of death benefit for self-employed individuals.— The amendment made by section 239 shall apply with respect to decedents dying after December 31, 1983. PART III— OTHER REQUIREMENTS SEC. 242. REQUIRED DISTRIBUTIONS FOR QUALIFIED PLANS. (a) General Rule.— Paragraph (9) of section 401(a) (relating to 26 USC 401. requirements for qualification) is amended to read as follows: “(9) Required distributions.— “(A) Before death.— A trust forming part of a plan shall not constitute a qualified trust under this section unless the plan provides that the entire interest of each employee— “(i) either will be distributed to him not later than his taxable year in which he attains age 70½ or, in the case of an employee other than a key employee who is a participant in a top-heavy plan, in which he retires, whichever is the later, or “(ii) will be distributed, commencing not later than such taxable year— “(I) in accordance with regulations prescribed by the Secretary, over the life of such employee or over the lives of such employee and his spouse, or “(II) in accordance with such regulations, over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and his spouse. “(B) After death.— A trust forming part of a plan shall not constitute a qualified trust under this section unless the plan provides that if— “(i) an employee dies before his entire interest has been distributed to him, or “(ii) distribution has been commenced in accordance with subparagraph (A)(ii) to his surviving spouse and such surviving spouse dies before his entire interest has been distributed to such surviving spouse, his entire interest (or the remaining part of such interest if distribution thereof has commenced) will be distributed within 5 years after his death (or the death of his surviving spouse). The preceding sentence shall not apply if the distribution of the interest of the employee has commenced and such distribution is for a term certain over a period permitted under subparagraph (A)(ii)(II).” (b) Effective Date.— (1) In general.— The amendment made by subsection (a) shall apply to plan years beginning after December 31, 1983. (2) Transition rule.— A trust forming part of a plan shall not be disqualified under paragraph (9) of section 401(a) of the Internal Revenue Code of 1954, as amended by subsection (a), by reason of distributions under a designation (before January 1, 1984) by any employee of a method of distribution— (A) which does not meet the requirements of such paragraph (9), but (B) which would not have disqualified such trust under paragraph (9) of section 401(a) of such Code as in effect before the amendment made by subsection (a). SEC. 243. REQUIRED DISTRIBUTIONS IN CASE OF INDIVIDUAL RETIREMENT PLANS. (a) Required Distributions After Death.— (1) Individual retirement accounts.— Paragraph (7) of section 408(a) (defining individual retirement account) is amended 26 USC 408. to read as follows: “(7) If— “(A) an individual for whose benefit the trust is maintained dies before his entire interest has been distributed to him, or “(B) distribution has been commenced as provided in paragraph (6) to his surviving spouse and such surviving spouse dies before the entire interest has been distributed to such spouse, the entire interest (or the remaining part of such interest if distribution thereof has commenced) will be distributed within 5 years after his death (or the death of the surviving spouse). The preceding sentence shall not apply if distributions over a term certain commenced before the death of the individual for whose benefit the trust was maintained and the term certain is for a period permitted under paragraph (6).” (2) Individual retirement annuities.— Paragraph (4) of section 408(b) (defining individual retirement annuity) is amended to read as follows: “(4) If— “(A) the owner dies before his entire interest has been distributed to him, or “(B) distribution has been commenced as provided in paragraph (3) to his surviving spouse and such surviving spouse dies before the entire interest has been distributed to such spouse, the entire interest (or the remaining part of such interest if distribution thereof has commenced) will be distributed within 5 years after his death (or the death of his surviving spouse). The preceding sentence shall not apply if distributions over a term certain commenced before the death of the owner and the term certain is for a period permitted under paragraph (3).” (b) Treatment of Inherited Individual Retirement Plans.— (1) Denial of rollover treatment.— (A) Paragraph (3) of section 408(d) (defining rollover contributions) is amended by adding at the end thereof the following new subparagraph: “(C) Denial of rollover treatment for inherited accounts, etc.— “(i) In general.— In the case of an inherited individual retirement account or individual retirement annuity— “(I) this paragraph shall not apply to any amount received by an individual from such an account or annuity (and no amount transferred from such account or annuity to another individual retirement account or annuity shall be excluded from gross income by reason of such transfer), and “(II) such inherited account or annuity shall not be treated as an individual retirement account or annuity for purposes of determining whether any other amount is a rollover contribution. “(ii) Inherited individual retirement account or annuity.— An individual retirement account or indi-vidual retirement annuity shall be treated as inherited if— “(I) the individual for whose benefit the account or annuity is maintained acquired such account by reason of the death of another individual, and “(II) such individual was not the surviving spouse of such other individual.” (B) Subparagraph (C) of section 409(b)(3) (relating to roll-over 26 USC 409. into an individual retirement account or annuity or a qualified plan) is amended by adding at the end thereof the following new sentence: “This subparagraph shall not apply to any retirement bond if such bond is acquired by the owner by reason of the death of another individual and the owner was not the surviving spouse of such other individual.” (2) Denial of deduction for contributions to inherited individual retirement accounts or annuities.— Subsection (d) of section 219 (relating to other limitations and restrictions) 95 Stat. 274. is amended by adding at the end thereof the following new paragraph: “(4) Denial of deduction for amount contributed to inherited annuities or accounts.— No deduction shall be allowed under this section with respect to any amount paid to an inherited individual retirement account or individual retirement annuity (within the meaning of section 408(d)(3)(C)(ii)).” (c) Effective Dates.— (1) Subsection (a).— The amendments made by subsection (a) shall apply in the case of individuals dying after December 31, 1983. (2) Subsection (b).— The amendments made by subsection (b) shall apply to taxable years beginning after December 31, 1983. SEC. 244. LIMITATION ON EXCLUSION FOR GROUP-TERM LIFE INSURANCE PURCHASED FOR EMPLOYEES. (a) General Rule.— Section 79 (relating to group-term life insurance 26 USC 79. purchased for employees) is amended by adding at the end thereof the following new subsection: “(d) Nondiscrimination Requirements.— “(1) In general.— In the case of a discriminatory group-term life insurance plan, paragraph (1) of subsection (a) shall not apply with respect to any key employee. “(2) Discriminatory group-term life insurance plan.— For purposes of this subsection, the term ‘discriminatory group-term life insurance plan’ means any plan of an employer for providing group-term life insurance unless— “(A) the plan does not discriminate in favor of key employees as to eligibility to participate, and “(B) the type and amount of benefits available under the plan do not discriminate in favor of participants who are key employees. “(3) Nondiscriminatory eligibility classification.— “(A) In general.— A plan does not meet requirements of subparagraph (A) of paragraph (2) unless— “(i) such plan benefits 70 percent or more of all employees of the employer, “(ii) at least 85 percent of all employees who are participants under the plan are not key employees, “(iii) such plan benefits such employees as qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of key employees, or “(iv) in the case of a plan which is part of a cafeteria plan, the requirements of section 125 are met. “(B) Exclusion of certain employees.— For purposes of subparagraph (A), there may be excluded from consideration— “(i) employees who have not completed 3 years of service; “(ii) part-time or seasonal employees; “(iii) employees not included in the plan who are included in a unit of employees covered by an agreement between employee representatives and one or more employers which the Secretary finds to be a collective bargaining agreement, if the benefits provided under the plan were the subject of good faith bargaining between such employee representatives and such employer or employers; and “(iv) employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)). “(4) Nondiscriminatory benefits.— A plan does not meet the requirements of paragraph (2)(B) unless all benefits available to participants who are key employees are available to all other participants. “(5) Special rule.— A plan shall not fail to meet the requirements of paragraph (2)(B) merely because the amount of life insurance on behalf of the employees under the plan bears a uniform relationship to the total compensation or the basic or regular rate of compensation of such employees. “(6) Key employee defined.— For purposes of this subsection, the term ‘key employee’ has the meaning given to such term by paragraph (1) of section 416(i), except that Ante, p. 514. subparagraph (A)(iv) of such paragraph shall be applied by not taking into account employees described in paragraph (3)(B) who are not participants in the plan. “(7) Certain controlled groups, etc.— All employees who are treated as employed by a single employer under subsection (b), (c), or (m) of section 414 shall be treated as employed by a single employer for purposes of this section.” (b) Effective Date.— The amendment made by subsection (a) 26 USC 79 note. shall apply to taxable years beginning after December 31, 1983. SEC. 245. LIMITATION ON ESTATE TAX EXCLUSIONS UNDER SECTION 2039. (a) General Rule.— Section 2039 (relating to annuities) is 26 USC 2039. amended by adding at the end thereof the following new subsection: “(g) $100,000 LIMITATION ON EXCLUSIONS UNDER SUBSECTIONS (C) AND (e).—The aggregate amount excluded from the gross estate of any decedent under subsections (c) and (e) of this section shall not exceed $100,000.” (b) Technical Amendments.— Subsections (c) and (e) of section 2039 are each amended by striking out “Notwithstanding the provi-sions of this section” and inserting in lieu thereof “Subject to the limitation of subsection (g), notwithstanding any other provision of this section”. (c) Effective Date.— The amendments made by this section shall 26 USC 2039 note. apply to the estates of decedents dying after December 31, 1982. SEC. 246. ORGANIZATIONS PERFORMING MANAGEMENT FUNCTIONS. (a) General Rule.— Subsection (m) of section 414 (relating to 26 USC 414. employees of an affiliated service group) is amended by redesignating paragraphs (5) and (6) as paragraphs (6) and (7), respectively, and by inserting after paragraph (4) the following new paragraph: “(5) Certain organizations performing management functions.— For purposes of this subsection, the term ‘affiliated service group’ also includes a group consisting of— “(A) an organization the principal business of which is performing, on a regular and continuing basis, management functions for 1 organization (or for 1 organization and other organizations related to such 1 organization), and “(B) the organization (and related organizations) for which such functions are so performed by the organization described in subparagraph (A). For purposes of this paragraph, the term ‘related organizations’ has the same meaning as the term ‘related persons’ when used in section 103(b)(6)(C).” (b) Effective Date.— The amendments made by subsection (a) 26 USC 414 note. shall apply to taxable years beginning after December 31, 1983. SEC. 247. EXISTING PERSONAL SERVICE CORPORATIONS MAY LIQUIDATE UNDER SECTION 333 DURING 1983 OR 1984. (a) In General.— In the case of a complete liquidation of a personal 26 USC 333 note. service corporation (within the meaning of section 535(c)(2)(B) of the Internal Revenue Code of 1954) during 1983 or 1984, the following rules shall apply with respect to any shareholder other than a corporation: (1) The determination of whether section 333 of such Code applies shall be made without regard to whether the corporation is a collapsible corporation to which section 341(a) of such Code applies. (2) No gain or loss shall be recognized by the liquidating corporation on the distribution of any unrealized receivable in such liquidation. (3) (A) Except as provided in subparagraph (C), any disposition by a shareholder of any unrealized receivable received in the liquidation shall be treated as a sale at fair market value of such receivable and any gain or loss shall be treated as ordinary gain or loss. (B) For purposes of subparagraph (A), the term “disposition” includes— (i) failing to hold the property in the trade or business which generated the receivables, and (ii) failing to hold a continuing interest in such trade or business. (C) For purposes of subparagraph (A), the term “disposition” does not include transmission at death to the estate of the decedent or transfer to a person pursuant to the right of such person to receive such property by reason of the death of the decedent or by bequest, devise, or inheritance from the decedent. (4) Unrealized receivables distributed in the liquidation shall be treated as having a zero basis. (5) For purposes of computing earnings and profits, the liquidating corporation shall not treat unrealized receivables distributed in the liquidation as an item of income. (b) Unrealized Receivables Defined.— For purposes of this section, the term “unrealized receivables” has the meaning given such term by the first sentence of section 751(c) of such Code. SEC. 248. EMPLOYEE LEASING. (a) General Rule.— Section 414 (relating to definitions and special 26 USC 414. rules) is amended by adding at the end thereof the following new subsection: “(n) Employee Leasing.— “(1) In general.— For purposes of the pension requirements listed in paragraph (3), except to the extent otherwise provided in regulations, with respect to any person (hereinafter in this subsection referred to as the ‘recipient’) for whom a leased employee performs services— “(A) the leased employee shall be treated as an employee of the recipient, but “(B) contributions or benefits provided by the leasing organization which are attributable to services performed for the recipient shall be treated as provided by the recipient. “(2) Leased employee.— For purposes of paragraph (1), the term ‘leased employee’ means any person who provides services to the recipient if— “(A) such services are provided pursuant to an agreement between the recipient and any other person (in this subsection referred to as the ‘leasing organization’), “(B) such person has performed such services for the recipient (or for the recipient and related persons) on a substantially full-time basis for a period of at least 1 year, and “(C) such services are of a type historically performed, in the business field of the recipient, by employees. “(3) Pension requirements.— For purposes of this subsection, the pension requirements listed in this paragraph are— “(A) paragraphs (3), (4), (7), and (16) of section 401(a), and “(B) sections 408(k), 410, 411, 415, and 416. Ante, p. 514. “(4) Time when leased employee is first considered as employee.— In the case of any leased employee, paragraph (1) shall apply only for purposes of determining whether the pension requirements listed in paragraph (3) are met for periods after the close of the 1-year period referred to in paragraph (2); except that years of service for the recipient shall be determined by taking into account the entire period for which the leased employee performed services for the recipient (or related persons). “(5) Safe harbor.— This subsection shall not apply to any leased employee if such employee is covered by a plan which is maintained by the leasing organization if, with respect to such employee, such plan— “(A) is a money purchase pension plan with a nonintegrated employer contribution rate of at least 7½ percent, and “(B) provides for immediate participation and for full and immediate vesting. “(6) Related persons.— For purposes of this subsection, the term ‘related persons’ has the same meaning as when used in section 103(b)(6)(C).” (b) Effective Date.— The amendment made by subsection (a) 26 USC 414 note. shall apply to taxable years beginning after December 31, 1983. SEC. 249. NONDISCRIMINATORY COORDINATION OF DEFINED CONTRIBUTION PLANS WITH OASDI. (a) In General.— Section 401 (relating to qualified pension, profit-sharing, 26 USC 401. stock bonus plans, etc.) is amended by redesignating subsection (1) as subsection (o), and by inserting after subsection (k) the following new subsection: “(l) NONDISCRIMINATORY COORDINATION OF DEFINED CONTRIBUTION PLANS WITH OASDI.— “(1) In general.— Notwithstanding subsection (a)(5), the coordination of a defined contribution plan with OASDI meets the requirements of subsection (a)(4) only if the total contributions with respect to each participant , when increased by the OASDI contributions, bear a uniform relationship— “(A) to the total compensation of such employee, or “(B) to the basic or regular rate of compensation of such employee. “(2) Definitions.— For purposes of paragraph (1)— “(A) OASDI contributions.— The term ‘OASDI contributions’ means the product of— “(i) so much of the remuneration paid by the employer to the employee during the plan year as— “(I) constitutes wages (within the meaning of section 3121(a) without regard to paragraph (1) thereof), and “(II) does not exceed the contribution and benefit base applicable under OASDI at the beginning of the plan year, multiplied by “(ii) the rate of tax applicable under section 3111(a) (relating to employer’s OASDI tax) at the beginning of the plan year. In the case of an individual who is an employee within the meaning of subsection (c)(1), the preceding sentence shall be applied by taking into account his earned income (as defined in subsection (c)(2)). “(B) OASDI.— The term ‘OASDI’ means the system of old-age, survivors, and disability insurance established under title II of the Social Security Act and the Federal Insurance Contributions Act. “(C) Remuneration.— The term ‘remuneration’ means— “(i) total compensation, or “(ii) basic or regular rate of compensation, whichever is used in determining contributions or benefits under the plan. “(3) Determination of compensation, etc., of self-employed individuals.— For purposes of this subsection, in the case of an individual who is an employee within the meaning of subsection (c)(1)— “(A) his total compensation shall include his earned income (as defined in subsection (c)(2)), and “(B) his basic or regular rate of compensation shall be determined (under regulations prescribed by the Secretary) with respect to that portion of his earned income which bears the same ratio to his earned income as the basic or regular compensation of the employees under the plan (other than employees within the meaning of subsection (c)(1)) bears to the total compensation of such employees.” (b) Effective Date.— The amendments made by this section shall 26 USC 401 note. apply to plan years beginning after December 31, 1983. SEC. 250. AUTHORITY OF SECRETARY TO ALLOCATE INCOME AND DEDUCTIONS IN THE CASE OF CERTAIN CORPORATIONS. (a) In general.— Part IX of subchapter B of chapter 1 (relating to items not deductible) is amended by adding after section 269 the following new section: “SEC. 269A. PERSONAL SERVICE CORPORATIONS FORMED OR AVAILED OF TO AVOID OR EVADE INCOME TAX. “(a) General Rule.— If— “(1) substantially all of the services of a personal service corporation are performed for (or on behalf of) 1 other corporation, partnership, or other entity, and “(2) the principal purpose for forming, or availing of, such personal service corporation is the avoidance or evasion of Federal income tax by reducing the income of, or securing the benefit of any expense, deduction, credit, exclusion, or other allowance for, any employee-owner which would not otherwise be available, then the Secretary may allocate all income, deductions, credits, exclusions, and other allowances between such personal service corporation and its employee-owners, if such allocation is necessary to prevent avoidance or evasion of Federal income tax or clearly to reflect the income of the personal service corporation or any of its employee-owners. “(b) Definitions.— For purposes of this section— “(1) Personal service corporation.— The term ‘personal service corporation’ means a corporation the principal activity of which is the performance of personal services and such services are substantially performed by employee-owners. “(2) Employee-owner.— The term ‘employee-owner’ means any employee who owns, on any day during the taxable year, more than 10 percent of the outstanding stock of the personal service corporation. For purposes of the preceding sentence, section 318 shall apply, except that ‘5 percent’ shall be substituted for ‘50 percent’ in section 318(a)(2)(C). “(3) Related persons.— All related persons (within the meaning of section 103(b)(6)(C)) shall be treated as 1 entity.” (b) Clerical Amendment.— The table of sections for part IX of subchapter 1 is amended by inserting after the item relating to section 269 the following new item: “Sec. 269A. Personal service corporations formed or availed of to avoid or evade income tax.” (c) Effective Date.— The amendments made by this section shall 26 USC 269A note. apply to taxable years beginning after December 31, 1982. PART IV— MISCELLANEOUS SEC. 251. CHURCH PLANS. (a) Exclusion Allowance.— (1) Election to have section 415 rules apply.— Subparagraph (B) of section 403(b)(2) (relating to exclusion allowance) is 26 USC 403. amended by striking out “(under section 415)” and inserting in lieu thereof “(under section 415 without regard to section 415(c)(8))”. (2) Years of service.— Section 403(b)(2) is amended by adding at the end thereof the following new subparagraphs: “(C) Number of years of service for duly ordained, commissioned, or licensed ministers or lay employees.— For purposes of this subsection and section 415(c)(4)(A)— “(i) all years of service by— “(I) a duly ordained, commissioned, or licensed minister of a church, or “(II) a lay person, as an employee of a church, a convention or association of churches, including an organization described in section 414(e)(3)(B)(ii), shall be considered as years of service for 1 employer, and “(ii) all amounts contributed for annuity contracts by each such church (or convention or association of churches) or such organization during such years for such minister or lay person shall be considered to have been contributed by 1 employer. For purposes of the preceding sentence, the terms ‘church’ and ‘convention or association of churches’ have the same meaning as when used in section 414(e). “(D) Alternative exclusion allowance.— “(i) In general.— In the case of any individual described in subparagraph (C), the amount determined under subparagraph (A) shall not be less than the lesser of— “(I) $3,000, or “(II) the includible compensation of such individual, “(ii) Subparagraph not to apply to individuals with adjusted gross income over $17,000.— This Subparagraph shall not apply with respect to any taxable year to any individual whose adjusted gross income for such taxable year (determined separately and without regard to any community property laws) exceeds $17,000. “(iii) Special rule for foreign missionaries.— In the case of an individual described in subparagraph (C)(i) performing services outside the United States, there shall be included as includible compensation for any year under clause (i)(II) any amount contributed during such year by a church (or convention or association of churches) for an annuity contract with respect to such individual.” (b) Retirement Income Accounts Provided by Churches, Etc.— Section 403(b) is amended by adding at the end thereof the following 26 USC 403. new paragraph: “(9) Retirement income accounts provided by churches, etc.— “(A) Amounts paid treated as contributions.— For purposes of this title— “(i) a retirement income account shall be treated as an annuity contract described in this subsection, and “(ii) amounts paid by an employer described in paragraph (1)(A) to a retirement income account shall be treated as amounts contributed by the employer for an annuity contract for the employee on whose behalf such account is maintained. “(B) Retirement income account.— For purposes of this paragraph, the term ‘retirement income account’ means a defined contribution program established or maintained by a church, a convention or association of churches, including an organization described in section 414(e)(3)(A), to provide benefits under section 403(b) for an employee described in paragraph (1) or his beneficiaries.” (c) Contribution Limitations.— (1) Application of section 415 (c)(4) to church plans.— Paragraph (4) of section 415(c) (relating to special election for 26 USC 415. section 403(b) contracts) is amended— (A) by striking out “or a home health service agency” each place it appears and inserting in lieu thereof “a home health service agency, or a church, convention or association of churches, or an organization described in section 414(e)(3)(B)(ii)”, (B) by inserting “(as determined for purposes of section 403(b)(2))” after “service for the employer” in subparagraph (A), (C) by adding at the end of subparagraph (D) the following new clause: “(iv) For purposes of this paragraph, the terms ‘church’ and ‘convention or association of churches’ have the same meaning as when used in section 414(e).”, and (D) by striking out “and home health service agencies” in the heading and inserting in lieu thereof “, home health service agencies, and certain churches, etc.” . (2) Total annual additions.— Section 415(c) (relating to limitation on defined contribution plan) is amended by adding at the end thereof the following paragraph: “(8) Certain contributions by church plans not treated as exceeding limits.— “(A) Alternative exclusion allowance.— Any contribution or addition with respect to any participant, when expressed as an annual addition, which is allocable to the application of section 403(b)(2)(D) to such participant for Ante, p. 529. such year, shall be treated as not exceeding the limitations of paragraph (1). “(B) Contributions not in excess of $40,000 ($10,000 per year).— “(i) In general.— Notwithstanding any other provision of this subsection, at the election of a participant who is an employee of a church, a convention or association of churches, including an organization described in section 414(e)(3)(B)(ii), contributions and other additions for an annuity contract or retirement income account described in section 403(b) with respect to such participant, when expressed as an annual addition to such participant’s account, shall be treated as not exceeding the limitation of paragraph (1) if such annual addition is not in excess of $10,000. “(ii) $40,000 aggregate limitation.— The total amount of additions with respect to any participant which may be taken into account for purposes of this subparagraph for all years may not exceed $40,000. “(iii) No election if paragraph (4) (a) election made.— No election may be made under this subparagraph for any year if an election is made under paragraph (4)(A) for such year. “(C) Annual addition.— For purposes of this paragraph, the term ‘annual addition’ has the meaning given such term by paragraph (2).” (3) Conforming amendment.— Section 403(b)(2)(B) (relating to 26 USC 403. exclusion allowance) is amended by striking out “and home health service agencies” and inserting in lieu thereof “home health service agencies, and certain churches, etc.” (d) Correction period for church plans.— A church plan 26 USC 403 note. (within the meaning of section 414(e) of the Internal Revenue Code of 1954) shall not be treated as not meeting the requirements of section 401 or 403 of such Code if— (1) by reason of any change in any law, regulation, ruling, or otherwise such plan is required to be amended to meet such requirements, and (2) such plan is so amended at the next earliest church convention or such other time as the Secretary of the Treasury or his delegate may prescribe. (e) Effective Dates.— (1) In general.— Except as provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 1981. (2) Retirement income accounts.— The amendments made by subsection (b) shall apply to taxable years beginning after December 31, 1974. (3) Section 415 amendments.— The amendments made by subsection (c) shall apply to years beginning after December 31, 1981. (4) Correction period.— The amendment made by subsection (d) shall take effect on July 1, 1982. (5) Special rule for existing defined benefit arrangements.— Any defined benefit arrangement which is established by a church or a convention or association of churches (including an organization described in section 414(e)(3)(B)(ii) of the Internal Revenue Code of 1954) and which is in effect on the date of the enactment of this Act shall not be treated as failing to meet the requirements of section 403(b)(2) of such Code merely because it is a defined benefit arrangement. SEC. 252. DEFERRED COMPENSATION PLANS FOR STATE JUDGES. Subsection (c) of section 131 of the Revenue Act of 1978 is 26 USC 457 note. amended by adding at the end thereof the following new paragraph: “(3) Deferred compensation plans for state judges.— “(A) In general.— The amendments made by this section shall not apply to any qualified State judicial plan. “(B) Qualified state judicial plan.— For purposes of subparagraph (A), the term ‘qualified State judicial plan’ means any retirement plan of a State for the exclusive benefit of judges or their beneficiaries if— “(i) such plan has been continuously in existence since December 31, 1978, “(ii) under such plan, all judges eligible to benefit under the plan— “(I) are required to participate, and “(II) are required to contribute the same fixed percentage of their basic or regular rate of compensation as judge, “(iii) under such plan, no judge has an option as to contributions or benefits the exercise of which would affect the amount of includible compensation, “(iv) the retirement payments of a judge under the plan are a percentage of the compensation of judges of that State holding similar positions, and “(v) the plan during any year does not pay benefits with respect to any participant which exceed the limitations of section 415(b) of the Internal Revenue Code of 1954.” SEC. 253. PROFIT-SHARING PLAN CONTRIBUTIONS ON BEHALF OF DISABLED. (a) In general.— Paragraph (3) of section 415(c) (defining participant’s 26 USC 415. compensation) is amended to read as follows: “(3) Participant’s compensation.— For purposes of paragraph (1)— “(A) In general.— The term ‘participant’s compensation’ means the compensation of the participant from the employer for the year. “(B) Special rule for self-employed individuals.— In the case of an employee within the meaning of section 401(c)(1), subparagraph (A) shall be applied by substituting ‘the participant’s earned income (within the meaning of section 401(c)(2) but determined without regard to any exclusion under section 911)’ for ‘compensation of the participant from the employer’. “(C) Special rules for permanent and total disability.— In the case of a participant— “(i) who is permanently and totally disabled (as defined in section 105(d)(4)), “(ii) who is not an officer, owner, or highly compensated, and “(iii) with respect to whom the employer elects, at such time and in such manner as the Secretary may prescribe, to have this subparagraph apply, the term ‘participant’s compensation’ means the compensation the participant would have received for the year if the participant was paid at the rate of compensation paid immediately before becoming permanently and totally disabled. This subparagraph shall only apply if contributions made with respect to such participant are nonforfeitable when made.” (b) Deductibility.— Subparagraph (B) of section 404(a)(3) (relating 26 USC 404. to limits on deductible contributions to stock bonus and profit-sharing trusts) is amended by adding at the end thereof the following: “The term ‘compensation otherwise paid or accrued during the taxable year to all employees’ shall include any amount with respect to which an election under section 415(c)(3)(C) is in effect, but only to the extent that any contribution with respect to such amount is nonforfeitable.” (c) Effective Date.— The amendments made by this section shall 26 USC 404 note. apply to taxable years beginning after December 31, 1981. SEC. 254. EXEMPTION FOR TRUSTS WHICH INCLUDE GOVERNMENTAL PLANS. (a) In general.— Section 401(a) (relating to requirements of qualification 26 USC 401. for qualified pension, profit-sharing, and stock bonus plans) is amended by inserting immediately after paragraph (23) the following new paragraph: “(24) Any group trust which otherwise meets the requirements of this section shall not be treated as not meeting such requirements on account of the participation or inclusion in such trust of the moneys of any plan or governmental unit described in section 805(d)(6).” (b) Effective Date.— The amendment made by subsection (a) 26 USC 401 note. shall apply with respect to taxable years beginning after December 31, 1981. Subtitle D— Taxation of Life Insurance Companies and Annuities PART I— COINSURANCE ARRANGEMENTS Subpart A— Modified Coinsurance Contracts SEC. 255. REPEAL OF OPTIONAL TREATMENT OF POLICIES REINSURED UNDER MODIFIED COINSURANCE CONTRACTS. (a) Repeal of Section 820.— Section 820 (relating to optional 26 USC 820. treatment of policies reinsured under modified coinsurance contracts) is repealed. (b) Conforming Amendments.— (1) Section 811 (relating to dividends to policyholders) is 26 USC 811. amended by adding at the end thereof the following new subsection: “(c) Special Rule for Dividends to Policyholders Under Reinsurance Contracts.— If, under the terms of a conventional coinsurance contract, a life insurance company (hereinafter referred to as ‘the reinsurer’) is obligated to reimburse another life insurance company (hereinafter referred to as ‘the reinsured’) for dividends to policyholders on the policies reinsured, the amount of the deduction for dividends reimbursed shall, for purposes of section 809(d)(12), be Post, p. 534. equal to the amount of dividends to policyholders— “(1) which were paid by the reinsured, and “(2) with respect to which the reinsurer reimbursed the reinsured under the terms of such contract. The amount determined under the preceding sentence shall be properly adjusted to reflect the adjustments under subsection (b)(1).” (2) The first sentence of section 809(c)(1) (relating to premiums) 26 USC 809. is amended to read as follows: “The gross amount of premiums and other consideration, including— “(A) advance premiums, “(B) deposits, “(C) fees, “(D) assessments, “(E) consideration in respect of assuming liabilities under contracts not issued by the taxpayer, and “(F) the amount of dividends to policyholders reimbursed to the taxpayer by a reinsurer in respect of reinsured policies, on insurance and annuity contracts (including contracts supplementary thereto); less return premiums, and premiums and other consideration arising out of reinsurance ceded.” (3) Section 809(d)(3) (relating to dividends to policyholders) is amended by inserting “, other than the deduction provided under paragraph (12)” before the period at the end thereof. (4) Section 809(d) (relating to deductions in computing gain and loss from operations) is amended by adding after paragraph (11) thereof the following new paragraph: “(12) Dividends reimbursed.— The deduction for the amount of dividends to policyholders reimbursed by the taxpayer to another insurance company in respect of policies the taxpayer has reinsured (determined under section 811(c)).” Ante, p. 533. (5) The table of sections for subpart E of part I of subchapter L of chapter 1 is amended by striking out the item relating to section 820. Ante, p. 533. (c) Effective Dates.— (1) In general.— Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 1981. (2) Rules applicable to taxable years beginning before january 1, 1982.— (A) In general.— In the case of any taxable year beginning before January 1, 1982— (i) any determination as to whether any contract met the requirements of subsection (b) of section 820 of the Internal Revenue Code of 1954 (as in effect before its repeal by this section) shall be made solely by reference to the terms of the contract, and (ii) the treatment of such contract under subsection (c) of such section 820 shall be made in accordance with the regulations under such section which were in effect on December 31, 1981. (B) Paragraph not to apply if fraud involved.— The provisions of subparagraph (A) shall not apply with respect to any deficiency which the Secretary of the Treasury or his delegate establishes was due to fraud with intent to evade tax. SEC. 256. SPECIAL ACCOUNTING RULES RELATING TO REPEAL OF SECTION 820. (a) In general.— For purposes of subchapter L of chapter 1 of the Internal Revenue Code of 1954, the provisions of this section shall apply to any contract— (1) which was in effect on December 31, 1981, and (2) to which section 820(a)(1) of such Code (as in effect before its repeal by section 255(a)) applied. (b) Treatment of Reserves and Assets.— Except as provided in subsections (c) and (d), the reserves on the contract described in subsection (a) and the assets in relation to such reserves shall— (1) as of the beginning of taxable year 1982, be treated as the reserves and assets of the re insurer (and not the reinsured), and (2) as of the end of taxable year 1982, be treated as the reserves and assets of the reinsured (and not the reinsurer). (c) Allocation of certain section 820(c) items.— Any amount described in paragraphs (1), (2), (4), and (5) of section 820(c) of such Code (as so in effect) with respect to any contract described in subsection (a) shall, beginning with taxable year 1982, be taken into account by the reinsured and the reinsurer in the same manner as such amounts would be taken into account under a modified coinsurance contract to which section 820(a)(1) of such Code (as so in effect) does not apply. (d) Amounts Treated as Returned Under the Contract.— (1) In general.— For taxable year 1982— (A) in the case of the reinsurer , there shall be allowed as a deduction for ordinary and necessary business expenses under section 809(d)(11) of such Code an amount equal to the termination amount (and such amount shall not otherwise be taken into account in determining gain or loss from operations under section 809 of such Code), and (B) in the case of the reinsured, the gross amount under section 809(c)(3) of such Code shall be increased by the termination amount. (2) Adjustment for reserves of reinsured.— For purposes of subsections (a) and (b) of section 810 of such Code, the amount taken into account as of the close of taxable year 1982 by the reinsured shall be reduced for such taxable year (but not for purposes of determining such amount at the beginning of the next succeeding taxable year) by the excess (if any) of— (A) the reserves on the contract as of January 1, 1982 (determined under the reinsured’s method of computing reserves for tax purposes), over (B) the termination amount. This paragraph shall not apply to any portion of any policies with respect to which the taxpayer is both the reinsured and the reinsurer under contracts to which this section applies. (3) Termination amount.— For purposes of this subsection, the term “termination amount” means the amount under the contract which the reinsurer would have returned to the reinsured upon termination of the contract if the contract had been terminated as of January 1, 1982. (4) Certain amounts not taken into account under section 809(d)(5).— Any amount treated as the reserves of the reinsured by reason of subsection (b)(2) shall not be taken into account under section 809(d)(5) of the Internal Revenue Code of 1954. (e) 3-Year Installment Payment of Taxes Owed by Reinsurer Resulting From Repeal of Section 820.— (1) In general.— That portion of any tax imposed under chapter 1 of such Code (reduced by the sum of the credits allowable under subpart A of part IV of such chapter) on a 26 USC 31. re insurer for taxable year 1982 which is attributable to the excess (if any) of— (A) any decrease in reserves for such taxable year by reason of subsection (b), over (B) the amount allowable as a deduction for such taxable year by reason of subsection (d)(1)(A), may, at the election of the reinsurer, be paid in 3 equal annual installments. (2) Time for payments.— (A) In general.— The 3 installments under paragraph (1) shall be paid on March 15 of 1983, 1984, and 1985. (B) First installment may be made in 2 payments.— The reinsurer may elect to pay one-half of the installment due March 15, 1983, on June 15, 1983. (3) Acceleration of payments.— If— (A) an election is made under paragraph (1), and (B) before the tax attributable to such excess is paid in full any installment under this section is not paid on or before the date fixed by this section for its payment, then the extension of time for payment of tax provided in this subsection shall cease to apply, and any portion of the tax payable in installments shall be paid on notice and demand from the Secretary of the Treasury or his delegate. (4) Proration of deficiency to installments.— If an election is made under paragraph (1) and a deficiency attributable to the excess has been assessed, the deficiency shall be prorated to such installments. The part of the deficiency so prorated to any installment the date for payment of which has not arrived shall be collected at the same time as, and as part of, such installment. The part of the deficiency so prorated to any installment the date for payment of which has arrived shall be paid on notice and demand from the Secretary of the Treasury or his delegate. This paragraph shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax. (5) Bond may be required.— If an election is made under this section, section 6165 of the Internal Revenue Code of 1954 shall apply as though the Secretary of the Treasury or his delegate were extending the time for payment of the tax. (6) Extension of period of limitations.— The running of any period of limitations for the collection of the tax with respect to which an election is made under paragraph (1) shall be suspended for the period during which there are any unpaid installments of such tax. (7) Interest on installments.— Rules similar to the rules of section 6601(b)(2) of such Code (without regard to the last sentence thereof) shall apply with respect to any tax for which an election is made under paragraph (1). (f) Special Rule Allowing Reinsured to Revoke an Election Under Section 820.— (1) In general.— In any case in which— (A) a taxpayer is the reinsured under any contract— (i) which took effect in 1980 or 1981, and (ii) with respect to which an election under section 20 of the Internal Revenue Code of 1954 was made, Ante, p. 533. (B) the taxpayer has a loss from operations or its gain from operations (determined without regard to any deduction under paragraphs (3), (5), and (6) of section 809(d) of such Code) for the taxable year in which such contract took effect does not exceed the taxpayer’s taxable investment income for such taxable year, (C) such contract was not a contract with a person who, during the taxable year in which such contract took effect, was a member of the same affiliated group (determined under section 1504 of such Code without regard to subsection (b)) of which the taxpayer is a member, and (D) the taxpayer makes an election under this subsection within 6 months after the date of the enactment of this Act, then the provisions of paragraph (2) shall apply. (2) Rules which apply if this subsection applies.— In any case described in paragraph (1)— (A) the taxpayer shall, for all taxable years, be treated as not having made an election under section 820 of such Code with respect to the contract described in paragraph (1), but (B) all other parties to the contract shall be treated as having made such election with respect to such contract for all taxable years. (g) Taxable Year 1982.— For purposes of this section, the term “taxable year 1982” means, with respect to any taxpayer, the first taxable year of the taxpayer beginning after December 31, 1981. (h) Regulations.— The Secretary of the Treasury or his delegate shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section. Subpart B— Other Reinsurance Agreements SEC. 257. DENIAL OF INTEREST DEDUCTION ON INDEBTEDNESS INCURRED IN CONNECTION WITH REINSURANCE AGREEMENTS. (a) In general.— Section 805(e) (relating to interest paid) is 26 USC 805. amended by adding at the end thereof the following new sentence: “For purposes of this subpart , the interest paid for any taxable year shall not include any interest paid or accrued after December 31, 1981, by a ceding company (or its affiliates) to any person in connection with are insurance agreement (other than interest on account of delay in making periodic settlements of income and expense items under the terms of the agreement).” (b) Special Transitional Rule Where at Least 20 Percent of the Liabilities Reinsured are Paid in Cash, Etc.— The amendment made by subsection (a) shall not apply with respect to any interest paid or incurred by a ceding company to a person who is a member of the same affiliated group (within the meaning of section 1504 of the Internal Revenue Code of 1954) on indebtedness evidenced by a note— (1) which was entered into after December 31, 1981, with respect to a reinsurance contract under the terms of which an amount not less than 20 percent of the amounts reinsured was paid in cash to the reinsurer on the effective date of such contract, (2) at least 40 percent of the principal of which had been paid by the ceding company in cash as of July 1, 1982, and (3) the remaining balance of which is paid in cash before January 1, 1983. SEC. 258. Allocation of Income, Etc. in the Case of Other Reinsurance Agreements. (a) In general.— Section 818 (relating to accounting provisions) is 26 USC 818. amended by adding at the end thereof the following new subsection: “(g) Allocation in Case of Reinsurance Agreement Involving Tax Avoidance or Evasion.— In the case of 2 or more related persons (within the meaning of section 1239(b)) who are parties to a reinsurance agreement, the Secretary may— “(1) allocate between or among such persons income (whether investment income, premium, or otherwise), deductions, assets, reserves, credits, and other items related to such agreement, or “(2) recharacterize any such items, if he determines that such allocation or recharacterization is necessary to reflect the proper source and character of the taxable income (or any item described in paragraph (1) relating to such taxable income) of each such person.”. (b) Effective Date.— The amendment made by subsection (a) 26 USC 818 note. shall apply to agreements entered into after the date of the enactment of this Act. PART II— 2-YEAR TEMPORARY PROVISIONS RELATING TO TAXATION OF LIFE INSURANCE COMPANIES SEC. 259. INCREASE IN AMOUNT OF DIVIDEND DEDUCTION ALLOWED; PENSION PLAN RESERVES. (a) Increase in Limitation.— Section 809(f) (relating to limitation 26 USC 809. on certain deductions) is amended to read as follows: “(f) Limitation on Certain Deductions.— “(1) In general.— The amount of the deductions under paragraphs (3), (5), and (6) of subsection (d) shall not exceed the greater of— “(A) $1,000,000, plus the amount (if any) by which— “(i) the gain from operations for the taxable year (computed without regard to such deductions), exceeds “(ii) the taxable investment income for the taxable year, or “(B) if the taxpayer elects for any taxable year, the amount determined under paragraph (2). “(2) Alternative limitation.— The amount determined under this paragraph for any taxable year shall be equal to the sum of— “(A) that portion of the deduction under subsection (d)(3) which is allocable to any contract described in section 805(d), and “(B) an amount equal to the sum of— “(i) so much of the base amount as does not exceed $1,000,000, plus “(ii) in the case of— “(I) a mutual life insurance company, 77.5 percent of the base amount, or “(II) a stock life insurance company, 85 percent of the base amount. “(3) Reduction in $1,000,000 amount for large insurers.— If the sum of the deductions under paragraphs (3), (5), and (6) of subsection (d) exceeds $4,000,000, then each of the $1,000,000 amounts in paragraphs (1) and (2) shall be reduced (but not below zero) by the amount which bears the same ratio to $1,000,000 as— “(A) the amount of such excess bears to, “(B) $4,000,000. “(4) Base Amount.— For purposes of paragraph (2)(B), the term ‘base amount’ means the excess of— “(A) the amount of the deductions under paragraphs (3) and (5) of subsection (d) for the taxable year, over “(B) the amount determined under paragraph (2)(A) for such taxable year. “(5) Application of limitation.— The limitation provided by paragraph (1) shall apply first to the amount of the deduction under subsection (d)(3), then to the amount of the deduction under subsection (d)(5), and finally to the amount of the deduction under subsection (d)(6).” (b) $1,000,000 Limitation to be Apportioned Among Members of Same Controlled Group.— Section 1561(a) (relating to limitations 26 USC 1561. on certain multiple tax benefits in the case of certain controlled corporations) is amended— (1) by striking out “and” at the end of paragraph (2), (2) by striking out the period at the end of paragraph (3) and inserting in lieu thereof a comma and “and”, (3) by inserting after paragraph (3) the following new paragraph: “(4) one $1,000,000 amount (adjusted as provided in section 809(f)(3)) for purposes of computing the limitation under paragraph (1) or (2) of section 809(f).”, and (4) by striking out “(2) and (3)” and inserting in lieu thereof “(2), (3), and (4)”. (c) Conforming Amendments.— Section 1561(b) (relating to certain short taxable years) is amended— (1) by striking out “and” at the end of paragraph (2), (2) by striking out the comma at the end of paragraph (3) and inserting in lieu thereof a comma and “and”, (3) by inserting after paragraph (3) the following new paragraph: “(4) the amount (adjusted as provided in section 809(f)(3)) to be used in computing the limitation under paragraph (1) or (2) of section 809(f),”, and (4) by striking out “(2), or (3)” and inserting in lieu thereof “(2), (3), or (4)”. SEC. 260. COMPUTATION OF AMOUNT OF LIFE INSURANCE RESERVES. (a) Reserves on Contracts on Which Certain Interest is Guaranteed Beyond the End of the Taxable Year.— Section 818 (relating Ante, p. 538. to accounting provisions), as amended by section 258(a), is amended by adding at the end thereof the following new subsection: “(h) Method of Computing Reserves on Contract Where Interest is Guaranteed Beyond End of Taxable Year.— For purposes of this part (other than section 801), interest payable under any contract which is computed at a rate which— “(1) is in excess of the lowest rates which are assumed under such contract for any period in calculating the reserves under section 810(c) for the contract under which such interest is payable, and “(2) is guaranteed beyond the end of the taxable year on which the reserves are being computed, shall be taken into account in computing the reserves with respect to such contract as if such interest were guaranteed only up to the end of the taxable year.” (b) Prohibition Against Deduction of Interest in Excess of Amount Credited to Group Pension Policyholders.— Section 805 26 USC 805. (relating to the determination of policy and other contract liability requirements) is amended by adding at the end thereof the following: “(g) Special Limitation for Group Pension Contracts.— The amount determined under paragraphs (2) and (3) of subsection (a) for policy and other contract liability requirements for group pension contracts shall not exceed the amount actually credited to the policyholders whether such crediting is through premium rate computations, reserve increases, excess interest , experience rate credits, policyholder dividends or otherwise. The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection.” (c) Prohibition Against Changing the Qualification Status of Life Insurance Companies.— For any taxable year ending before January 1, 1984, a taxpayer shall not be treated as other than a life insurance company (as defined in section 801(a) of such Code) because of the effect of amounts held under contracts which would be described in section 805(d) of the Internal Revenue Code of 1954, except for the fact that such contracts do not contain permanent annuity purchase rate guarantees. SEC. 261. MODIFICATION OF MENGE FORMULA. Subparagraph (B) of section 805(c)(1) (defining adjusted life insurance 26 USC 805. reserves rate) is amended to read as follows: “(B) 0.9 raised to the power of n where n is the number (positive or negative) determined by subtracting— “(i) 100 times the average rate of interest assumed by the taxpayer in calculating such reserves, from “(ii) 100 times the adjusted reserves rate.” SEC. 262. CONSOLIDATED RETURNS TO BE COMPUTED ON A BOTTOM LINE BASIS. Subsection (f) of section 818 (relating to computation on consolidated 26 USC 818. returns of policyholders’ share of investment yield) is amended to read as follows: “(f) Special Rules for Consolidated Return Computations.— For purposes of this part, in the case of a life insurance company filing or required to file a consolidated return under section 1501 for a taxable year, the following rules shall apply: “(1) Policyholders’ share of investment yield.— The computation of the policyholders’ share of investment yield under subparts B and C (including all determinations and computations incident thereto) shall be made as if such company were not filing a consolidated return. “(2) Life Insurance Company Taxable Income.— “(A) In general.— The amount of the consolidated life insurance company taxable income under paragraphs (1) and (2) of section 802(b) shall be determined by taking into 26 USC 802. account the life insurance company taxable income (including any case where deductions exceed income) of each life insurance company which is a member of the group (as computed separately under such paragraphs). “(B) Certain amounts computed separately.— For purposes of subparagraph (A), the determination of a life insurance company’s taxable investment income and gain or loss from operations (after applying the limitation provided by section 809(f)) shall be made without regard to the taxable investment income or gain or loss from operations of any other such company. “(3) Consolidated net capital gain.— If there is a consolidated net capital gain, then the partial tax referred to in section 802(a)(2)(A) shall be computed on— “(A) the consolidated life insurance company taxable income, reduced (but not below the sum of the amounts determined under section 802(b)(3)) by “(B) the amount of such consolidated net capital gain.” SEC. 263. EFFECTIVE DATES; SPECIAL RULES APPLICABLE TO TRANSACTIONS BEFORE EFFECTIVE DATE. (a) Effective Dates.— (1) In general.— Except as provided in this subsection, the amendments made by this part shall apply to taxable years beginning after December 31, 1981, and before January 1, 1984. (2) Group pension contracts.— The amendments made by section 260(b) shall apply to taxable years beginning after December 31, 1982, and before January 1, 1984. (3) Reserves on contracts where interest guaranteed for extended periods.— (A) In general.— The amendment made by section 260(a) shall apply to reserves computed for taxable years beginning after December 31, 1981, and before January 1, 1984, with respect to guarantees made after July 1, 1982, and before January 1, 1984. (B) Special rule relating to reserves.— If, for any taxable year beginning before January 1, 1982— (i) a taxpayer increased reserves pursuant to section 810(c)(4) of the Internal Revenue Code of 1954 to reflect interest guaranteed beyond the end of such taxable year, and (ii) the Federal income tax liability of such taxpayer for all taxable years would be the same if such liability was computed with or without regard to such reserves, then such reserves shall, as of the beginning of the first taxable year of the taxpayer beginning after December 31, 1981, be recomputed as if section 818(h) of such Code (as Ante, p. 539. added by this Act) applied to such reserves. If this subparagraph applies to any taxpayer, subparagraph (A) shall be applied with respect to such taxpayer by striking out “after July 1, 1982, and”. (b) Special Rules for Certain Transactions in Taxable Years Beginning Before January 1, 1982.— (1) Certain interest and premiums.— (A) In general.— In the case of any taxable year beginning before January 1, 1982, if a taxpayer, on his return of tax for such taxable year, treated— (i) any amount described in subparagraph (B) as an amount which was not a dividend to policyholders (within the meaning of section 811 of the Internal Revenue Code of 1954), or 26 USC 811. (ii) any amount described in subparagraph (C) as not described in section 809(c)(1), Ante, p. 534. then such amounts shall be so treated for purposes of the Internal Revenue Code of 1954. (B) Certain interest.— An amount is described in this subparagraph if such amount is in the nature of interest accrued for the taxable year on an insurance or annuity contract pursuant to— (i) an interest rate guaranteed or fixed before the period of payment of such amount begins, or (ii) any other method (fixed before such period begins) the terms of which during the period are beyond the control and are independent of the experience of the company, whether or not the interest rate or other method was guaranteed or fixed for any specified period of time. (C) Amounts not treated as premiums.— An amount is described in this subparagraph if such amount represents the difference between— (i) the amount of premiums received or mortality charges made under rates fixed in advance of the premium or mortality charge due date, and (ii) the maximum premium or mortality charge which could be charged under the terms of the insurance or annuity contract. (D) No inference.— The provisions of this paragraph shall constitute no inference with respect to the treatment of any item in taxable years beginning after December 31, 1981. (2) Consolidated returns.— The provisions of section 818(f) of such Code, as amended by section 262, shall apply to any taxable year beginning before January 1, 1982, if the taxpayer filed a consolidated return before July 1, 1982 for such taxable year under section 1501 of such Code which, on such date (determined without regard to any amended return filed after June 30, 1982), was consistent with the provisions of section 818(f) of such Code, as so amended. In the case of a taxable year beginning in 1981, the preceding sentence shall be applied by substituting “September 16” for “July 1” and “September 15” for “June 30”. (3) Taxable years where period of limitation has run.— This subsection shall not apply to any taxable year with respect to which the statute of limitations for filing a claim for credit or refund has expired under any provision of law or by operation of law. PART III— EXCESS INTEREST; AMOUNTS RECEIVED UNDER ANNUITY CONTRACTS; FLEXIBLE PREMIUM CONTRACTS; COMPUTATION OF RESERVES SEC. 264. ALLOWANCE OF DEDUCTION FOR EXCESS INTEREST. (a) In General.— Subsection (e) of section 805 (defining interest 26 USC 805. paid) is amended by adding at the end thereof the following new paragraph: “(5) Qualified guaranteed interest.— Qualified guaranteed interest (within the meaning of subsection (f))”. (b) Qualified Guaranteed Interest Defined.— Section 805 (relating to policy and other contract liability requirements) is amended by adding at the end thereof the following new subsection: “(f) Qualified Guaranteed Interest and Qualified Contracts.— For purposes of this section— “(1) In general.— The term ‘qualified guaranteed interest’ means any amount in the nature of interest for the taxable year on qualified contracts, but only if such amount is determined pursuant to— “(A) a stated rate of interest which is guaranteed— “(i) before the beginning of the period for which the interest accrues, and “(ii) for a period of not less than 12 months (or for a period ending not earlier than the close of the taxable year in which the contract was issued), or “(B) a rate or rates of interest which— “(i) meet the requirements of clause (i) of subparagraph (A), and “(ii) is determined under a formula or other method the terms of which— “(I) during the period referred to in subparagraph (A)(ii) may not be changed by the taxpayer, and “(II) are independent of the experience of the taxpayer. “(2) Qualified contract.— The term ‘qualified contract’ means any annuity contract (other than any contract described in subsection (d)) which— “(A) involves (at the time the qualified interest is credited under the contract) life contingencies, “(B) provides no right under State law for the policyholder to participate in the divisible surplus of the taxpayer, and “(C) provides that the taxpayer may from time to time credit amounts in the nature of interest in excess of amounts computed on the basis of any rate or rates guaranteed in the contractat the time it was entered into. “(3) Special rule for participating contracts.— “(A) In general.— In the case of an annuity contract which is not a qualified contract solely because it fails to satisfy the requirements of subparagraph (B) of paragraph (2), such contract shall be treated as a qualified contract and the amount taken into account as qualified guaranteed interest with respect to such contract shall be equal to the sum of— “(i) the amount of interest which would be assumed in calculating reserves with respect to such contract under section 810(c) if such interest were not taken into account under subsection (e), plus “(ii) 92.5 percent of the excess of— “(I) the amount of qualified guaranteed interest (determined without regard to this paragraph and as if such contract were a qualified contract), over “(II) the amount determined under clause (i). “(B) Interest not otherwise taken into account.— No deduction shall be allowed under any other provision of this part for the 7.5 percent of the excess described in subparagraph (A)(ii) which is not treated as qualified guaranteed interest.” (c) Conforming Amendments.— (1) Subparagraph (A) of section 805(c)(1) (defining adjusted life 26 USC 805. insurance reserves) is amended by inserting “or reserves on any qualified contract” after “pension plan reserves”. (2) Paragraph (2) of section 809(a) (defining required interest) 26 USC 809. is amended— (A) by inserting “the amount of qualified guaranteed interest (within the meaning of section 805(D(1)) and” after Ante, p. 543. “the sum of”; and (B) by adding at the end thereof the following new sentence: “For purposes of subparagraphs (A) and (B), reserves on qualified contracts (within the meaning of section 805(f)(2)) shall not Ante, p. 543. be taken into account.” (3) Paragraph (1) of section 809(e) (relating to modification of interest deduction) is amended by inserting “qualified guaranteed interest (within the meaning of section 805(0(1) or” after “allowed for”. (d) Effective Dates.— (1) In general.— The amendments made by this section shall apply to taxable years beginning after December 31, 1981. (2) Guarantees for less than 12 months.— (A) Moneys held before august 14, 1982.— The requirements of subparagraph (A)(ii) or (B)(ii)(I) of section 805(f)(1) of the Internal Revenue Code of 1954 (as added by subsection (b)) shall not apply to any moneys held under any contract on August 13, 1982 (and any interest on such moneys after such date). (B) Contracts entered into after august 13, 1982, and before january 1, 1983.— A Contract entered into after August 13, 1982, and before January 1, 1983, shall be treated as meeting the requirements of subparagraph (A)(ii) or (B)(ii)(I) of such Code if it meets such requirements on the first contract anniversary date. SEC. 265. TREATMENT OF AMOUNTS RECEIVED UNDER ANNUITY CONTRACTS BEFORE ANNUITY STARTING DATE. (a) In General.— Subsection (e) of section 72 (relating to amounts 26 USC 72. not received as annuities) is amended to read as follows: “(e) Amounts Not Received as Annuities.— “(1) Application of subsection.— “(A) In general.— This subsection shall apply to any amount which— “(i) is received under an annuity, endowment, or life insurance contract, and “(ii) is not received as an annuity, if no provision of this subtit le (other than this subsection) applies with respect to such amount. “(B) Dividends.— For purposes of this section, any amount received which is in the nature of a dividend or similar distribution shall be treated as an amount not received as an annuity. “(2) General rule.— Any amount to which this subsection applies— “(A) if received on or after the annuity starting date, shall be included in gross income, or “(B) if received before the annuity starting date— “(i) shall be included in gross income to the extent allocable to income on the contract, and “(ii) shall not be included in gross income to the extent allocable to the investment in the contract. “(3) Allocation of amounts to income and investment.— For purposes of paragraph (2)(B)— “(A) Allocation to income.— Any amount to which this subsection applies shall be treated as allocable to income on the contract to the extent that such amount does not exceed the excess (if any) of— “(i) the cash value of the contract (determined without regard to any sur render charge) immediately before the amount is received, over “(ii) the investment in the contract at such time. “(B) Allocation to investment.— Any amount to which this subsection applies shall be treated as allocable to investment in the contract to the extent that such amount is not allocated to income under subparagraph (A). “(4) Special rules for application of paragraph (2)(b).— For purposes of paragraph (2)(B)— “(A) Loans treated as distributions.— If, during any taxable year, an individual— “(i) receives (directly or indirectly) any amount as a loan under any contract to which this subsection applies, or “(ii) assigns or pledges (or agrees to assign or pledge) any portion of the value of any such contract, such amount or portion shall be treated as received under the contract as an amount not received as an annuity. “(B) Treatment of policyholder dividends.— Any amount described in paragraph (1)(B) shall not be included in gross income under paragraph (2)(B)(i) to the extent such amount is retained by the insurer as a premium or other consideration paid for the contract. “(5) Retention of existing rules in certain cases.— “(A) In general.— In any case to which this paragraph applies— “(i) paragraphs (2)(B) and (4)(A) shall not apply, and “(ii) if paragraph (2)(A) does not apply, the amount shall be included in gross income, but only to the extent it exceeds the investment in the contract. “(B) Existing contracts.— This paragraph shall apply to contracts entered into before August 14, 1982. Any amount allocable to investment in the contract after August 13, 1982, shall be treated as from a contract entered into after such date. “(C) Certain life insurance and endowment contracts.— Except to the extent prescribed by the Secretary by regulations, this paragraph shall apply to any amount not received as an annuity which is received under a life insurance or endowment contract. “(D) Contracts under qualified plans.— This paragraph shall apply to any amount received— “(i) from a trust described in section 401(a) which is exempt from tax under section 501(a), “(ii) from a contract— “(I) purchased by a trust described in clause (i), “(II) purchased as part of a plan described in section 403(a), “(III) described in section 403(b), or “(IV) provided for employees of a life insurance company under a plan described in section 805(d)(3), or “(iii) from an individual retirement account or an individual retirement annuity. “(E) Full refunds, surrenders, redemptions, and maturities.— This paragraph shall apply to— “(i) any amount received, whether in a single sum or otherwise, under a contract in full discharge of the obligation under the contract which is in the nature of a refund of the consideration paid for the contract, and “(ii) any amount received under a contract on its complete surrender, redemption, or maturity. In the case of any amount to which the preceding sentence applies, the rule of paragraph (2)(A) shall not apply. “(6) Investment in the contract.— For purposes of this subsection, the investment in the contract as of any date is— “(A) the aggregate amount of premiums or other consideration paid for the contract before such date, minus “(B) the aggregate amount received under the contract before such date, to the extent that such amount was excludable from gross income under this subtitle or prior income tax laws.” (b) 5-Percent Penalty for Certain Premature Distributions.— (1) In general.— Section 72 (relating to annuities; certain 95 Stat. 278. proceeds of endowment and life insurance contracts) is amended by redesignating subsection (q) as subsection (r) and by adding after subsection (p) the following new subsection: “(q) 5-Percent Penalty for Premature Distributions from Annuity Contracts.— “(1) Imposition of penalty.— “(A) In general.— If any taxpayer receives any amount under an annuity contract, the taxpayer’s tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 5 percent of the portion of such amount includible in gross income which is properly allocable to any investment in the annuity contract made during the 10-year period ending on the date such amount was received by the taxpayer. “(B) Allocation on first-in, first-out basis.— For purposes of subparagraph (A), the amount includible in gross income shall be allocated to the earliest investment in the contract with respect to which amounts have not been previously fully allocated under this paragraph. “(2) Subsection not to apply to certain distributions.— This subsection shall not apply to any distribution— “(A) made on or after the date on which the taxpayer attains age 59½, “(B) made to a beneficiary (or to the estate of an annuitant) on or after the death of an annuitant, “(C) attributable to the taxpayer’s becoming disabled within the meaning of subsection (m)(7), “(D) which is one of a series of substantially equal periodic payments made for the life of a taxpayer or over a period extending for at least 60 months after the annuity starting date, “(E) from a plan, contract, account, trust, or annuity described in subsection (e)(5)(D), or “(F) allocable to investment in the contract before August 14, 1982.” (2) Conforming amendments.— (A) Each of the following provisions are amended by inserting “section 72(q)(1) (relating to 5-percent tax on premature Ante, p. 546. distributions under annuity contracts),” after “owner-employees)”: (i) Section 46(a)(4), 26 USC 46. (ii) Section 50A(a)(3), 26 USC 50A. (iii) Section 53(a), 26 USC 53. (iv) Section 901(a). 26 USC 901. (B) Subparagraph (A) of section 1302(a)(2) is amended by 26 USC 1302. inserting “or (q)(1)” after “section 72(m)(5)”. (C) Paragraph (1) of section 1304(e) is amended— 26 USC 1304. (i) by inserting “or section 72(q)(1) (relating to 5-percent tax on premature distributions under annuity p contracts)” after “owner-employees)”, and (ii) by inserting “or (q)(1)” after “Section 72(m)(5)” in the heading thereof, (c) Effective Dates.— (1) Subsection (a).— The amendments made by subsection (a) shall take effect on August 13, 1982. (2) Subsection (b).— The amendments made by subsection (b) shall apply to distributions after December 31, 1982. SEC. 266. FLEXIBLE PREMIUM CONTRACTS. (a) In General.— Section 101 (relating to exclusion from gross 26 USC 101. income for certain death benefits) is amended by adding at the end thereof the following new subsection: “(f) Proceeds of Flexible Premium Contracts Payable by Reason of Death.— “(1) In general.— Any amount paid by reason of the death of the insured under a flexible premium life insurance contract shall be excluded from gross income only if— “(A) under such contract— “(i) the sum of the premiums paid under such contract does not at any time exceed the guideline premium limitation as of such time, and “(ii) any amount payable by reason of the death of the insured (determined without regard to any qualified additional benefit) is not at any time less than the applicable percentage of the cash value of such contract at such time, or “(B) by the terms of such contract, the cash value of such contract may not at any time exceed the net single premium with respect to the amount payable by reason of the death of the insured (determined without regard to any qualified additional benefit) at such time. “(2) Guideline premium limitation.— For purposes of this subsection— “(A) Guideline premium limitation.— The term ‘guideline premium limitation’ means, as of any date, the greater of— “(i) the guideline single premium, or “(ii) the sum of the guideline level premiums to such date. “(B) Guideline single premium.— The term ‘guideline single premium’ means the premium at issue with respect to future benefits under the contract (without regard to any qualified additional benefit), and with respect to any charges for qualified additional benefits, at the time of a determination under subparagraph (A) or (E) and which is based on— “(i) the mortality and other charges guaranteed under the contract, and “(ii) interest at the greater of an annual effective rate of 6 percent or the minimum rate or rates guaranteed upon issue of the contract. “(C) Guideline level premium.— The term ‘guideline level premium’ means the level annual amount, payable over the longest period permitted under the contract (but ending not less than 20 years from date of issue or not later than age 95, if earlier), computed on the same basis as the guideline single premium, except that subparagraph (B)(ii) shall be applied by substituting ‘4 percent’ for ‘6 percent’. “(D) Computational rules.— In computing the guideline single premium or guideline level premium under subparagraph (B) or (C)— “(i) the excess of the amount payable by reason of the death of the insured (determined without regard to any qualified additional benefit) over the cash value of the contract shall be deemed to be not greater than such excess at the time the contract was issued, “(ii) the maturity date shall be the latest maturity date permitted under the contract, but not less than 20 years after the date of issue or (if earlier) age 95, and “(iii) the amount of any endowment benefit (or sum of endowment benefits) shall be deemed not to exceed the least amount payable by reason of the death of the insured (determined without regard to any qualified additional benefit) at any time under the contract. “(E) Adjustments.— The guideline single premium and guideline level premium shall be adjusted in the event of a change in the future benefits or any qualified additional benefit under the contract which was not reflected in any guideline single premiums or guideline level premium previously determined. “(3) Other definitions and special rules.— For purposes of this subsection— “(A) Flexible premium life insurance contract.— The terms ‘flexible premium life insurance contract’ and ‘contract’ mean a life insurance contract (including any qualified additional benefits) which provides for the payment of one or more premiums which are not fixed by the insurer as to both timing and amount. Such terms do not include that portion of any contract which is treated under State law as providing any annuity benefits other than as a settlement option. “(B) Premiums paid.— The term ‘premiums paid’ means the premiums paid under the contract less any amounts (other than amounts includible in gross income) to which section 72(e) applies. If, in order to comply with the requirements of paragraph (1)(A), any portion of any premium paid during any contract year is returned by the insurance company (with interest) within 60 days after the end of a contract year— “(i) the amount so returned (excluding interest) shall be deemed to reduce the sum of the premiums paid under the contract during such year, and “(ii) notwithstanding the provisions of section 72(e), the amount of any interest so returned shall be includible in the gross income of the recipient. “(C) Applicable percentage.— The term ‘applicable percentage’ means— “(i) 140 percent in the case of an insured with an attained age at the beginning of the contract year of 40 or less, and “(ii) in the case of an insured with an attained age of more than 40 as of the beginning of the contract year, 140 percent reduced (but not below 105 percent) by one percent for each year in excess of 40. “(D) Cash value.— The cash value of any contract shall be determined without regard to any deduction for any surrender charge or policy loan. “(E) Qualified additional benefits.— The term ‘qualified additional benefits’ means any— “(i) guaranteed insurability, “(ii) accidental death benefit, “(iii) family term coverage, or “(iv) waiver of premium. “(F) Premium payments not disqualifying contract.— The payment of a premium which would result in the sum of the premiums paid exceeding the guideline premium limitation shall be disregarded for purposes of paragraph (1)(A)(i) if the amount of such premium does not exceed the amount necessary to prevent the termination of the contract without cash value on or before the end of the contract year. “(G) Net single premium.— In computing the net single premium under paragraph (1)(B)— “(i) the mortality basis shall be that guaranteed under the contract (determined by reference to the most recent mortality table allowed under all State laws on the date of issuance), “(ii) interest shall be based on the greater of— “(I) an annual effective rate of 4 percent (3 percent for contracts issued before July 1, 1983), or “(II) the minimum rate or rates guaranteed upon issue of the contract, and “(iii) the computational rules of paragraph (2)(D) shall apply, except that the maturity date referred to in clause (ii) thereof shall not be earlier than age 95. “(H) Correction of errors.— If the taxpayer establishes to the satisfaction of the Secretary that— “(i) the requirements described in paragraph (1) for any contract year was not satisfied due to reasonable error, and “(ii) reasonable steps are being taken to remedy the error, the Secretary may waive the failure to satisfy such requirements. “(I) Regulations.— The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection.” (b) Conforming Amendment.— Paragraph (1) of section 101(a) 26 USC 101. (relating to proceeds of life insurance contracts payable by reason of death) is amended by striking out “and in subsection (d)” and inserting in lieu thereof “, subsection (d), and subsection (f)”. (c) Effective Dates.— (1) In general.— The amendments made by this section shall apply to contracts entered into before January 1, 1984. (2) Special rule for contracts entered into before january 1, 1983.— Any contract entered into before January 1, 1983, which meets the requirements of section 101(f) of the Internal Revenue Code of 1954 on the date which is 1 year after the date Ante, p. 547. of the enactment of this Act shall be treated as meeting the requirements of such section for any period before the date on which such contract meets such requirements. Any death benefits paid under a flexible premium life insurance contract (within the meaning of section 101(f)(3)(A) of such Code) before the date which is 1 year after such date of enactment shall be excluded from gross income. (3) Special rule for certain contracts.— Any contract entered into before January 1, 1983, shall be treated as meeting the requirements of subparagraph (A) of section 101(f)(1) of such Code if such contract would meet such requirements if section 103(0(2)(C) of such Code were applied by substituting “3 percent” for “4 percent”. SEC. 267. REDUCTION IN APPROXIMATE REVALUATION METHOD OF COMPUTING RESERVES. (a) Reduction from $21 Per $1,000 To $19 Per $1,000 in Determining Approximate Revaluation of Certain Reserves Computed on Preliminary Term Basis.— (1) In general.— Subparagraph (A) of section 818(c)(2) (relating 26 USC 818. to approximate revaluation of reserves computed on preliminary term basis) is amended— (A) by striking out “$21” and inserting in lieu thereof “$19”, and (B) by striking out “2.1 percent” and inserting in lieu thereof “1.9 percent”. (2) Taxpayer allowed to elect out of approximate revaluation.— The last sentence of section 818(c) (relating to life 26 USC 818. insurance reserves computed on preliminary term basis) is amended— (A) by inserting “or in effect for a taxable year beginning in 1981” after “1958” the first place it appears, and (B) by inserting “or 1981, whichever is applicable” after “1958” the second place it appears. (b) Effective Date.— The amendments made by this section shall 26 USC 818 note. apply to taxable years beginning after December 31, 1981, but only with respect to reserves established under contracts entered into after March 31, 1982. PART IV— UNDERPAYMENTS OF ESTIMATED TAX FOR 1982 SEC. 268. UNDERPAYMENTS OF ESTIMATED TAX FOR 1982. No addition to the tax shall be made under section 6655 of the Internal Revenue Code of 1954 (relating to failure by corporation to pay estimated income tax) for any period before December 15, 1982, with respect to any underpayment of estimated tax by a taxpayer with respect to any tax imposed by section 802(a), to the extent that such underpayment was created or increased by any provisions of this subtitle. Subtitle E— Employment Taxes PART I— IN GENERAL SEC. 269. TREATMENT OF REAL ESTATE AGENTS AND DIRECT SELLERS. (a) General Rule.— Chapter 25 of the Internal Revenue Code of 1954 is amended by adding at the end thereof the following new section: “SEC. 3508. TREATMENT OF REAL ESTATE AGENTS AND DIRECT SELLERS. “(a) General Rule.— For purposes of this title, in the case of services performed as a qualified real estate agent or as a direct seller— “(1) the individual performing such services shall not be treated as an employee, and “(2) the person for whom such services are performed shall not be treated as an employer. “(b) Definitions.— For purposes of this section— “(1) Qualified real estate agent.— The term ‘qualified real estate agent’ means any individual who is a sales person if— “(A) such individual is a licensed real estate agent, “(B) substantially all of the remuneration (whether or not paid in cash) for the services performed by such individual as a real estate agent is directly related to sales or other output (including the performance of services) rather than to the number of hours worked, and “(C) the services performed by the individual are performed pursuant to a written contract between such individual and the person for whom the services are performed and such contract provides that the individual will not be treated as an employee with respect to such services for Federal tax purposes. “(2) Direct seller.— The term ‘direct seller’ means any person if— “(A) such person— “(i) is engaged in the trade or business of selling (or soliciting the sale of) consumer products to any buyer on a buy-sell basis, a deposit-commission basis, or any similar basis which the Secretary prescribes by regulations, for resale (by the buyer or any. other person) in the home or otherwise than in a permanent retail establishment, or “(ii) is engaged in the trade or business of selling (or soliciting the sale of) consumer products in the home or otherwise than in a permanent retail establishment, “(B) substantially all the remuneration (whether or not paid in cash) for the performance of the services described in subparagraph (A) is directly related to sales or other output (including the performance of services) rather than to the number of hours worked, and “(C) the services performed by the person are performed pursuant to a written contract between such person and the person for whom the services are performed and such contract provides that the person will not be treated as an employee with respect to such services for Federal tax purposes. “(3) Coordination with retirement plans for self-employed.— This section shall not apply for purposes of subtitle A to the extent that the individual is treated as an employee under section 401(c)(1) (relating to self-employed individuals).” (b) Amendment of Social Security Act.— Section 210 of the Social Security Act is amended by adding at the end thereof the 42 USC 410. following new subsection: “Treatment of Real Estate Agents and Direct Sellers “(p) Notwithstanding any other provision of this title, the rules of section 3508 of the Internal Revenue Code of 1954 shall apply for Ante, p. 551. purposes of this title.” (c) Indefinite Extension of Provisions Relating to Employment Status for Employment Taxes.— (1) Termination of certain employment tax liability.— (A) Subparagraph (A) of section 530(a)(1) of the Revenue Act of 1978 (relating to termination of certain employment 26 USC 3401 note. tax liability for periods before July 1, 1982) is amended by striking out “ending before July 1, 1982”. (B) Paragraph (3) of section 530(a) of such Act is amended by striking out “and before July 1, 1982,”. (C) The subsection heading of subsection (a) of section 530 of such Act is amended by striking out “For Periods Before July 1, 1982”. (2) Prohibition against regulations and rulings on employment status.— Subsection (b) of section 530 of such Act is amended— (A) by striking out “July 1, 1982 (or, if earlier,”, and (B) by striking out “taxes)” and inserting in lieu thereof “taxes”. (3) Certain regulations, etc., permitted.— Nothing in section 26 USC 3508 note. 530 of the Revenue Act of 1978 shall be construed to prohibit the implementation of the amendments made by this 26 USC 3401 note. section. (d) Clerical Amendment.— The table of sections for chapter 25 of such Code is amended by adding at the end thereof the following new item: “Sec. 3508. Treatment of real estate agents and direct sellers.” (e) Effective Dates.— (1) In general.— Except as provided in paragraph (2), the amendments made by this section shall apply to services performed after December 31, 1982. (2) Subsection (c).— The amendments made by subsection (c) shall take effect on July 1, 1982. SEC. 270. SIMPLIFIED PROCEDURE FOR DETERMINING AMOUNT OF EMPLOYMENT TAXES. (a) In General.— Chapter 25 (relating to general provisions relating to employment taxes), as amended by section 271, is amended by adding at the end thereof the following new section: “SEC. 3509. DETERMINATION OF EMPLOYERS LIABILITY FOR CERTAIN EMPLOYMENT TAXES. “(a) In General.— If any employer fails to deduct and withhold any tax under chapter 24 or subchapter A of chapter 21 with respect 26 USC 3401 et seq. 3101. to any employee by reason of treating such employee as not being an employee for purposes of such chapter or subchapter, the amount of the employer’s liability for— “(1) Withholding taxes.— Tax under chapter 24 for such year with respect to such employee shall be determined as if the amount required to be deducted and withheld were equal to 1.5 percent of the wages (as defined in section 3401) paid to such employee. “(2) Employee social security tax.— Taxes under subchapter A of chapter 21 with respect to such employee shall be determined as if the taxes imposed under such subchapter were 20 percent of the amount imposed under such subchapter without regard to this subparagraph. “(b) Employer’s Liability Increased Where Employer Disregards Reporting Requirements.— “(1) In general.— In the case of an employer who fails to meet the applicable requirements of section 6041(a), 6041A, or Post, p. 601. 6051 with respect to any employee, unless such failure is due to reasonable cause and not willful neglect, subsection (a) shall be applied with respect to such employee— “(A) by substituting ‘3 percent’ for ‘1.5 percent’ in paragraph (1); and “(B) by substituting ‘40 percent’ for ‘20 percent’ in paragraph (2). “(2) Applicable requirements.— For purposes of paragraph (1), the term ‘applicable requirements’ means the requirements described in paragraph (1) which would be applicable consistent with the employer’s treatment of the employee as not being an employee for purposes of chapter 24 or subchapter A of chapter 21. “(c) Section No to Apply In Cases of Intentional Disregard.— This section shall not apply to the determination of the employer’s liability for tax under chapter 24 or subchapter A of chapter 21 if such liability is due to the employer’s intentional 26 USC 3401 et seq. 3101. disregard of the requirement to deduct and withhold such tax. “(d) Special Rules.— For purposes of this section— “(1) Determination of liability.— If the amount of any liability for tax is determined under this section— “(A) the employee’s liability for tax shall not be affected by the assessment or collection of the tax so determined, “(B) the employer shall not be entitled to recover from the employee any tax so determined, and “(C) sections 3402(d) and section 6521 shall not apply. “(2) Section not to apply where employer deducts wage but not social security taxes.— This section shall not apply to any employer with respect to any wages if— “(A) the employer deducted and withheld any amount of the tax imposed by chapter 24 on such wages, but “(B) failed to deduct and withhold the amount of the tax imposed by subchapter A of chapter 21 with respect to such wages. “(3) Section not to apply to certain statutory employees.— This section shall not apply to any tax under subchapter A of chapter 21 with respect to an individual described in subsection (d)(3) of section 3121 (without regard to whether such individual is described in paragraph (1) or (2) of such subsection).”. (b) Conforming Amendment.— The table of sections for chapter 25 is amended by adding at the end thereof the following new item: “Sec. 3509. Determination of employer’s liability for certain employment taxes.” (c) Effective Date.— The amendment made by this section shall 26 USC 3509 note. take effect on the date of the enactment of this Act, except that such amendments shall not apply to any assessment made before January 1, 1983. PART II— FEDERAL UNEMPLOYMENT TAX Subpart A— Increase in Federal Unemployment Tax SEC. 271. INCREASE IN FEDERAL UNEMPLOYMENT TAX WAGE BASE AND RATE. (a) Increase in wage base.— Paragraph (1) of section 3306(b) 26 USC 3306. (defining wages) is amended by striking out “$6,000” each place it appears and inserting in lieu thereof “$7,000”. (b) Increase in Rate.— (1) In general.— Paragraph (1) of section 3301 (relating to 26 USC 3301. rate of unemployment tax) is amended by striking out “3.4 percent” and inserting in lieu thereof “3.5 percent”. (2) Technical amendments.— (A) Subparagraph (C) of section 901(c)(3) of the Social Security Act is amended to read as follows: 42 USC 1101. “(C) Each estimate of net receipts under this paragraph shall be based upon (i) a tax rate of 0.5 percent in the case of any calendar year for which the rate of tax under section 3301 of the Federal Unemployment Tax Act is 3.2 percent, and (ii) a tax rate of 0.8 26 USC 3301. percent in the case of any calendar year for which the rate of tax under such section is 3.5 percent.” (B) Paragraph (1) of section 905(b) of such Act is amended 42 USC 1105. by amending the last sentence to read as follows: “In the case of any month after March 1983 and before April 1 of the first calendar year to which paragraph (2) of section 3301 of the Federal Unemployment Tax Act applies, the 26 USC 3301. first sentence of this paragraph shall be applied by substituting ‘40 percent’ for ‘one-tenth’.” (C) Subsection (b) of section 6157 is amended by striking 26 USC 6157. out “0.7 percent” and inserting in lieu thereof “0.8 percent”. (c) Increase in Rate For 1985 and Thereafter.— (1) In general.— Section 3301 (as amended by subsection (b)) is amended— (A) by striking out “3.5 percent” and inserting in lieu thereof “6.2 percent”, and (B) by striking out “3.2 percent” and inserting in lieu thereof “6.0 percent”. (2) Increase in amount of state credit.— (A) Subsection (b) of section 3302 (relating to additional 26 USC 3302. credit) is amended by striking out “2.7%” and inserting in lieu thereof “5.4%”. (B) Paragraph (1) of section 3302(d) (relating to rate of tax deemed to be 3 percent) is amended by striking out “3 percent” each place it appears and inserting in lieu thereof “6 percent”. (3) Technical amendments.— (A) Paragraph (2) of section 3302(c) is amended by striking out “10 percent” each place it appears in subparagraph (A) and inserting in lieu thereof “5 percent”. (B) Paragraph (3) of section 3302(c) is amended by striking out “15 percent” and inserting in lieu thereof “7½ percent”. (C) Subsection (b) of section 6157 is amended by striking 26 USC 6157. out “0.5 percent” each place it appears and inserting in lieu thereof “0.6 percent”. (D) Subparagraph (C) of section 901(c)(3) of the Social Security Act (as amended by subsection (b)) is amended— Ante, p. 554. (i) by striking out “0.5 percent” and inserting in lieu thereof “0.6 percent”; (ii) by striking out “3.2 percent” and inserting in lieu thereof “6.0 percent”; and (iii) by striking out “3.5 percent” and inserting in lieu thereof “6.2 percent”. (b) Effective Dates.— (1) Subsections (a) and (b).— The amendments made by subsections 26 USC 3301 note. (a) and (b) shall apply to remuneration paid after December 31, 1982. (2) Subsection (c).— The amendments made by subsection (c) 26 USC 3301 note. shall apply to remuneration paid after December 31, 1984. (3) Transitional rule for certain employees.— (A) In general.— Notwithstanding section 3303 of the Internal Revenue Code of 1954, in the case of taxable years beginning after December 31, 1984, and before January 1, 1989, a taxpayer shall be allowed the additional credit under section 3302(b) of such Code with respect to any Supra. employee covered by a qualified specific industry provision if the requirements of subparagraph (B) are met with respect to such employee. (B) Requirements.— The requirements of this subparagraph are met for any taxable year with respect to any employee covered by a specific industry provision if the amount of contributions required to be paid for the taxable year to the unemployment fund of the State with respect to such employee are not less than the product of the required rate multiplied by the wages paid by the employer during the taxable year. (C) Required rate.— For purposes of subparagraph (B), the required rate for any taxable year is the sum of— (i) the rate at which contributions were required to be made under the specific industry provision as in effect on August 10, 1982, and (ii) the applicable percentage of the excess of 5.4 percent over the rate described in clause (i). (D) Applicable percentage.— For purposes of subparagraph (C), the term “applicable percentage” means— (i) 20 percent in the case of taxable year 1985, (ii) 40 percent in the case of taxable year 1986, (iii) 60 percent in the case of taxable year 1987, and (iv) 80 percent in the case of taxable year 1988. (E) Qualified specific industry provision.— For purposes of this paragraph, the term, “qualified specific industry provision” means a provision contained in a State unemployment compensation law (as in effect on August 10, 1982)— (i) which applies to employees in a specific industry or to an otherwise defined type of employees, and (ii) under which employers may elect to make contributions at a specified rate (without experience rating) which exceeds 2.7 percent. Subpart B— Other Financing Provisions SEC. 272. CREDIT REDUCTION NOT TO APPLY WHEN STATE MAKES CERTAIN REPAYMENTS. (a) General Rule.— Section 3302 (relating to credits against 95 Stat. 876. unemployment tax) is amended by adding at the end thereof the following new subsection: “(g) Credit Reduction Not To Apply When State Makes Certain Repayments.— “(1) In general.— In the case of any State which meets requirements of paragraph (2) with respect to any taxable year, subsection (c)(2) shall not apply to such taxable year; except that such taxable year (and January 1 of such taxable year) shall (except as provided in subsection (f)(3)) be taken into account for purposes of applying subsection (c)(2) to succeeding taxable years. “(2) Requirements.— The requirements of this paragraph are met by any State with respect to any taxable year if the Secretary of Labor determines that— “(A) the repayments during the 1-year period ending on November 9 of such taxable year made by such State of advances under title XII of the Social Security Act are not 42 USC 1321. less than the sum of— “(i) the potential additional taxes for such taxable year, and “(ii) any advances made to such State during such 1-year period under such title XII, “(B) there will be sufficient amounts in the State unemployment fund to pay all compensation during the 3-month period beginning on November 1 of such taxable year without receiving any advance under title XII of the Social Security Act, and “(C) there is a net increase in the solvency of the State unemployment compensation system for the taxable year attributable to changes made in the State law after the date on which the first advance taken into account in determining the amount of the potential additional taxes was made (or, if later, after the date of the enactment of this subsection) and such net increase equals or exceeds the potential additional taxes for such taxable year. “(3) DEFINITIONS.—For purposes of paragraph (2)— “(A) Potential additional taxes.— The term ‘potential additional taxes’ means, with respect to any State for any taxable year, the aggregate amount of the additional tax which would be payable under this chapter for such taxable year by all taxpayers subject to the unemployment compensation law of such State for such taxable year if paragraph (2) of subsection (c) had applied to such taxable year and any preceding taxable year without regard to this subsection but with regard to subsection (f). “(B) Treatment of certain reductions.— Any reduction in the State’s balance under section 901(d)(1) of the Social Security Act shall not be treated as a repayment made by 42 USC 1101. such State. “(4) Reports.— The Secretary of Labor may require a State to furnish such information at such time and in such manner as may be necessary for purposes of paragraph (2).” (b) Effective Date.— The amendment made by subsection (a) 26 USC 3302 note. shall apply to taxable years beginning after December 31, 1982. SEC. 273. LIMITATION ON FIFTH YEAR CREDIT REDUCTION. (a) General Rule.— Paragraph (2) of section 3302(c) (relating to 26 USC 3302. limit on total credits) is amended by adding at the end thereof the following new sentence: “Subparagraph (C) shall not apply with respect to any taxable year to which it would otherwise apply (but subparagraph (B) shall apply to such taxable year) if the Secretary of Labor determines (on or before November 10 of such taxable year) that the State meets the requirements of subsection (f)(2)(B) for such taxable year.” (b) Effective Date.— The amendment made by subsection (a) 26 USC 3302 note. shall apply to taxable years beginning after December 31, 1982. SEC. 274. DEFERRAL OF INTEREST IN CASE OF CERTAIN STATES WITH HIGH UNEMPLOYMENT RATES. (a) General Rule.— Paragraph (3) of section 1202(b) of the Social Security Act is amended by adding at the end thereof the following 95 Stat. 879. 42 USC 1322. new subparagraph: “(C) (i) In the case of any State which meets the requirements of clause (ii) for any calendar year, any interest otherwise required to be paid under this subsection during such calendar year shall be paid as follows— “(I) 25 percent of the amount otherwise required to be paid on or before any day during such calendar year shall be paid on or before such day; and “(II) 25 percent of the amount otherwise required to be paid on or before such day shall be paid on or before the corresponding day in each of the 3 succeeding calendar years. Any interest the time for payment of which is deferred under this subparagraph shall bear interest in the same manner as if it were an advance made on the day on which it would have been required to be paid but for this subparagraph. “(ii) A State meets the requirements of this clause for any calendar year if the rate of insured unemployment (as determined for purposes of section 203 of the Federal-State Extended Unemployment Compensation Act of 1970) under the State law of the period 26 USC 3304 note. consisting of the first 6 months of the preceding calendar year equaled or exceeded 7.5 percent.” (b) Effective Date.— The amendment made by subsection (a) 42 USC 1322 note. shall apply to interest required to be paid after December 31, 1982. SEC. 275. REQUIRED REPAYMENTS FROM EXTENDED UNEMPLOYMENT COMPENSATION ACCOUNT. Subsection (d) of section 905 of the Social Security Act is amended 42 USC 1105. by inserting after the second sentence the following new sentence: “Repayments under the preceding sentence shall be made whenever the Secretary of the Treasury (after consultation with the Secretary of Labor) determines that the amount then in the account exceeds the amount necessary to meet the anticipated payments from the account during the next 3 months.” SEC. 276. TREATMENT OF CERTAIN SERVICES PERFORMED BY STUDENTS. (a) Student Interns.— (1) In general.— Subparagraph (C) of section 3306(c)(10) 26 USC 3306. (defining employment) is amended by striking out “under the age of 22”. (2) Effective date.— The amendment made by paragraph (1) 26 USC 3306 note. shall apply with respect to services performed after the date of the enactment of this Act. (b) Full Time Students Employed By Summer Camps.— (1) Service by full time students.— Subsection (c) of section 3306 (defining employment) is amended— 26 USC 3306. (A) by striking out “or” at the end of paragraph (18), (B) by striking out the period at the end of paragraph (19) and inserting in lieu thereof “; or”, and (C) by adding at the end thereof the following new paragraph: “(20) service performed by a full time student (as defined in subsection (q)) in the employ of an organized camp— “(A) if such camp— “(i) did not operate for more than 7 months in the calendar year and did not operate for more than 7 months in the preceding calendar year, or “(ii) had average gross receipts for any 6 months in the preceding calendar year which were not more than 33⅓ percent of its average gross receipts for the other 6 months in the preceding calendar year; and “(B) if such full time student performed services in the employ of such camp for less than 13 calendar weeks in such calendar year.” (2) Full time student defined.— Section 3306 is amended by 26 USC 3306. adding at the end thereof the following new subsection: “(q) Full time student.— For purposes of subsection (c)(20), an individual shall be treated as a full time student for any period— “(1) during which the individual is enrolled as a full time student at an educational institution, or “(2) which is between academic years or terms if— “(A) the individual was enrolled as a full time student at an educational institution for the immediately preceding academic year or term, and “(B) there is a reasonable assurance that the individual will be so enrolled for the immediately succeeding academic year or term after the period described in subparagraph (A).” (3) Effective date.— The amendments made by this subsection 26 USC 3306. shall apply to remuneration paid after December 31, 1982, and before January 1, 1984. SEC. 277. TREATMENT OF CERTAIN ALIEN FARM WORKERS. Subparagraph (B) of section 3306(c)(1) (defining employment) is 26 USC 3306. amended by striking out “January 1, 1982” and inserting in lieu thereof “January 1, 1984”. PART III— MEDICARE COVERAGE SEC. 278. MEDICARE COVERAGE OF, AND APPLICATION OF HOSPITAL INSURANCE TAX TO, FEDERAL EMPLOYMENT. (a) Application of Hospital Insurance Tax to Federal Employment.— (1) In general.— Section 3121 (relating to definitions for purposes 26 USC 3121. of the Federal Insurance Contributions Act) is amended by adding at the end thereof the following new subsection: “(u) Application of Hospital Insurance Tax to Federal Employment.— “(1) In general.— For purposes of the taxes imposed by sections 3101(b) and 3111(b)— “(A) paragraph (6) of subsection (b) shall be applied without regard to subparagraphs (A), (B), and (C)(i), (ii), and (vi) thereof, and “(B) paragraph (5) of subsection (b) (and the provisions of law referred to therein) shall not apply. “(2) Medicare qualified federal employment.— For purposes of this chapter, the term ‘medicare qualified Federal employment’ means service which— “(A) is employment (as defined in subsection (b)) with the application of paragraph (1), but “(B) would not be employment (as so defined) without the application of paragraph (1).” (2) Conforming amendment to self-employment tax.— Section 1402(b) (relating to self-employment income) is amended in 26 USC 1402. the second sentence by striking out “and” before “(B)” and by inserting before the period the following: “, and (C) includes, but only with respect to the tax imposed by section 1401(b), remuneration paid for medicare qualified Federal employment (as defined in section 3121(u)(2)) which is subject to the taxes Ante, p. 559. imposed by sections 3101(b) and 3111(b)”. (3) Conforming amendment to federal service.— Section 3122 (relating to federal service) is amended in the first sentence by inserting “including service which is medicare qualified Federal employment (as defined in section 3121(u)(2)),” after “wholly owned by the United States,”. (b) Entitlement to Hospital Insurance Benefits.— (1) Definition of medicare qualified federal employment.— Section 210 of the Social Security Act is amended by 42 USC 410. adding at the end thereof the following new subsection: “Medicare Qualified Federal Employment “(p) For purposes of sections 226 and 226A, the term ‘medicare 42 USC 426, 426–1. qualified Federal employment’ means any service which would constitute ‘employment’ as defined in subsection (a) of this section but for the application of the provisions of— “(1) subparagraph (A), (B), or (C)(i), (ii), or (vi) of subsection (a)(6), or “(2) subsection (a)(5).”. (2) Entitlement to hospital insurance benefits.— (A) For individuals age 65 or older.— Section 226(a)(2) of the the Social Security Act is amended— 42 USC 426. (i) by inserting “(A)” after “(2)”; (ii) by striking out “or is a qualified railroad retirement beneficiary,” at the end of subparagraph (A); and (iii) by inserting after subparagraph (A) the following new subparagraphs: “(B) is a qualified railroad retirement beneficiary, or “(C) (i) would meet the requirements of subparagraph (A) upon filing application for the monthly insurance benefits involved if medicare qualified Federal employment (as defined in section 210(p)) were treated as employment (as defined in section 210(a)) Supra. for purposes of this title, and (ii) files an application, in conformity with regulations of the Secretary, for hospital insurance benefits under part A of title XVIII,”. 42 USC 1395c. (B) Entitlement for disabled individuals.— (i) In general.— Section 226(b)(2) of the Social Security Act is amended by striking out “(B)” and all that follows through “1974,” and adding at the end the following: “(B) is, and has been for not less than 24 months, a disabled qualified railroad retirement beneficiary, within the meaning of section 7(d) of the Railroad Ret i rement Act of 1974, or 45 USC 231f. “(C) (i) has filed an application, in conformity with regulations of the Secretary, for hospital insurance benefits under part A of title XVIII pursuant to this subparagraph, and “(ii) would meet the requirements of subparagraph (A) (as determined under the disability criteria, including reviews, applied under this title), including the requirement than the has been entitled to the specified benefits for 24 months, if— “(I) medicare qualified Federal employment (as defined in section 210(p)) were treated as employment (as defined in section 210(a)) for purposes of this title, and “(II) the filing of the application under clause (i) of this subparagraph were deemed to be the filing of an application for the disability-related benefits referred to in clause (i), (ii), or (iii) of subparagraph (A),”. (ii) Clarification of period of entitlement.— Section 226(b) of such Act is further amended by adding 42 USC 426. after the first sentence the following new sentence: “In applying the previous sentence in the case of an individual described in paragraph (2)(C), the ‘twenty-fifth month of his entitlement’ refers to the first month after the twenty-fourth month of entitlement to specified benefits referred to in paragraph (2)(C) and ‘notice of termination of such entitlement’ refers to a notice that the individual would no longer be determined to be entitled to such specified benefits under the conditions described in that paragraph.”. (C) Entitlement for individuals with end-stage renal disease.— Paragraph (1) of section 226A(a) of the Social Security Act is amended to read as follows: 42 USC 426–1. “(1) (A) is fully or currently insured (as such terms are defined in section 214), or would be fully or currently insured if (i) his service as an employee (as defined in the Railroad Ret i rement Act of 1974) after December 31, 1936, were included within the 45 USC 231t. meaning of the term ‘employment’ for purposes of this title, and (ii) his medicare qualified Federal employment (as defined in section 210(p)) were included within the meaning of the term Ante, p. 560. ‘employment’ for purposes of this title; “(B) (i) is entitled to monthly insurance benefits under this title, (ii) is entitled to an annuity under the Railroad Retirement Act of 1974, or (iii) would be entit led to a monthly insurance benefit under this title if medicare qualified Federal employment (as defined in 210(p)) after December 31, 1982, were included within the meaning of the term ‘employment’ for purposes of this title; or “(C) is the spouse or dependent child (as defined in regulations) of an individual described in subparagraph (A) or (B);”. (3) Conforming amendment.— Section 1811 of the Social Security Act is amended— 42 USC 1395c. (A) by inserting “(or would be eligible for such benefits if certain Federal employment were covered employment under such title)” after “title II of this Act” in clause (1), and (B) by inserting “(or would have been so entitled to such benefits if certain Federal employment were covered employment under such title)” after “title II of this Act” in clause (2). (4) Notice to individuals who are prospective medicare beneficiaries based on federal employment.— Section 226 of such Act is amended by redesignating subsection (g) as subsection 42 USC 426. (h) and by inserting after subsection (f) the following new subsection: “(g) The Secretary and Director of the Office of Personnel Management shall jointly prescribe and carry out procedures designed to assure that all individuals who perform medicare qualified Federal employment are fully informed with respect to (1) their eligibility or potential eligibility for hospital insurance benefits (based on such employment) under part A of title XVIII, (2) the requirements for 42 USC 1395c. and conditions of such eligibility, and (3) the necessity of timely application as a condition of entitlement under subsection (b)(2)(C), giving particular attention to individuals who apply for an annuity under chapter 83 of title 5, United States Code, or under another 5 USC 8301 et seq. similar Federal retirement program, and whose eligibility for such an annuity is or would be based on a disability.”. (c) Effective Dates.— (1) Hospital insurance taxes.— The amendments made by 26 USC 3121 note. subsection (a) shall apply to remuneration paid after December 31, 1982. (2) Medicare coverage.— (A) In general.— The amendments made by subsection (b) are effective on and after January 1, 1983, and the amendments made by paragraph (3) of that subsection apply to remuneration (for medicare qualified Federal employment) paid after December 31, 1982. (B) Treatment of current disabilities.— For purposes of establishing entitlement to hospital insurance benefits under part A of title XVIII of the Social Security Act 42 USC 1395c. pursuant to the amendments made by subsection (b) or the provisions of subsection (d), no individual may be considered to be under a disability for any period before January 1, 1983. (d) Transitional Provisions.— (1) In general.— For purposes of sections 226, 226A, and 1811 of the Social Security Act, in the case of any individual— 42 USC 426, 426–1, 1395c. (A) who performs service both during January 1983, and before January 1, 1983, which constitutes medicare qualified Federal employment (as defined in section 210(p) of such Act) and (B) who would be entitled, under section 226(a)(2)(C), 226(b)(2)(C), 226A(a)(l)(A)(ii), or 226A(a)(l)(B)(iii) of such Act, Ante, pp. 560, 561. to hospital insurance benefits under part A of title XVIII of such Act but for the failure to include medicare qualified Federal employment (as so defined) within the meaning of the term “employment” for purposes of title II of such Act 42 USC 401. for remuneration paid before January 1, 1983, the individual’s medicare qualified Federal employment (as so defined) performed before January 1, 1983, for which remuneration was paid before such date, shall be considered to be “employment” (as so defined), but only for the purpose of providing such entitlement. (2) Eligibility of other persons.— Any individual who is entitled to hospital insurance benefits under part A of title XVIII of the Social Security Act by reason of the application of paragraph (1) of this subsection, shall be deemed to be entitled to an old-age benefit under section 202 of such Act, or a disability 42 USC 402. 42 USC 423. benefit under section 223 of such Act, for purposes of determining eligibility for such hospital insurance benefits for any other person. In applying this paragraph, any such other person who would be entitled to a monthly benefit under section 202 of such Act if such individual (to whom paragraph (1) applies) were entitled to such old-age or disability benefit, shall be deemed to be entitled to such monthly benefit, but only for purposes of determining such person’s eligibility for hospital insurance benefits. (3) Appropriations.— There are authorized to be appropriated to the Federal Hospital Insurance Trust Fund from time to time such sums as the Secretary of Health and Human Services deems necessary for any fiscal year, on account of— (A) payments made or to be made during such fiscal year from such Trust Fund with respect to individuals who are entitled to benefits under title XVIII of the Social Security Act solely by reason of paragraph (1) or (2) of this 42 USC 1395. subsection, (B) the additional adminstrative expenses resulting or expected to result therefrom, and (C) any loss in interest to such Trust Fund resulting from the payment of those amounts, in order to place such Trust Fund in the same position at the end of such fiscal year as it would have been in if this subsection had not been enacted. Subtitle F— Excise Taxes PART I— AIRPORT AND AIRWAY SEC. 279. TAX ON FUEL USED IN NONCOMMERCIAL AVIATION. (a) Imposition of Tax.— (1) Gasoline fuels.— Paragraph (3) of subsection 4041(c) 26 USC 4041. (relating to rate of tax) is amended by striking out “3 cents a gallon” and inserting in lieu thereof “8 cents a gallon (10½ cents a gallon in the case of any gasoline with respect to which a tax is imposed under section 4081 at the rate set forth in subsection (b) thereof)”. (2) Nongasoline fuels.— Paragraph (1) of subsection 4041(c) (relating to tax on fuel used in noncommercial aviation) is amended by striking out “7 cents” and inserting in lieu thereof “14 cents”. (3) Termination.— Paragraph (5) of section 4041(c) is amended to read as follows: “(5) Termination.— The taxes imposed by paragraphs (1) and (2) shall apply during the period beginning on September 1, 1982, and ending on December 31, 1987.” (b) Certain helicopters.— (1) Exemption.— Section 4041 (relating to tax on special fuels) is amended by adding at the end thereof the following new subsection: “(l) Exemption for certain helicopter uses.— No tax shall be imposed under this section on any liquid sold for use in, or used in, a helicopter for the purpose of— “(1) transporting individuals, equipment, or supplies in the exploration for, or the development or removal of, hard minerals, or “(2) the planting, cultivation, cutting or transportation of, or caring for, trees (including logging operation), but only if the helicopter does not take off from, or land at, a facility eligible for assistance under the Airport and Airway Development Act of 1970, or otherwise use services provided pursuant to the 49 USC 1701 note. Airport and Airway Improvement Act of 1982 during such use.” (2) Refund of tax.— Subsection (d) of section 6427 (relating to Post, p. 671. 26 USC 6427. fuels not used for taxable purposes) is amended— (A) by inserting “or is used in a helicopter for a purpose described in section 4041(1),” after “section 4041(h)(2)(C),”; and (B) by inserting “or in Certain Helicopters” after “Museums” in the caption thereof. (c) Effective Date.— The amendments made by this section shall 26 USC 4041 note. take effect on September 1, 1982. SEC. 280. TAX ON TRANSPORTATION BY AIR. (a) Transportation of Persons.— Section 4261 (relating to imposition 26 USC 4261. of tax) is amended by striking out subsection (e) and inserting in lieu thereof the following new subsections: “(e) Exemption for Certain Helicopter Uses.— No tax shall be imposed under subsection (a) or (b) on air transportation by helicopter for the purpose of— “(1) transporting individuals, equipment, or supplies in the exploration for, or the development or removal of, hard minerals, or “(2) the planting, cultivation, cutting, or transportation of, or caring for, trees (including logging operations), but only if the helicopter does not take off from, or land at, a facility eligible for assistance under the Airport and Airway Development Act of 1970, or otherwise use services provided pursuant to the 49 USC 1701 note. Post, p 671. Airport and Airway Improvement Act of 1982 during such use. “(f) Termination.— The taxes imposed by this section shall apply with respect to transportation beginning after August 31, 1982, and before January 1, 1988.” (b) Transportation of Property.— Subsection (d) of section 4271 26 USC 4271. is amended to read as follows: “(d) Termination.— The tax imposed by subsection (a) shall apply with respect to transportation beginning after August 31, 1982, and before January 1, 1988.” (c) Repeal of Certain Terminated Taxes.— (1) In general.— Subchapter E of chapter 36 is hereby 26 USC 4491–4494. repealed. (2) Conforming amendments.— (A) The table of subchapters for chapter 36 is amended by striking out the item relating to subchapter E. (B) Section 4281 (relating to small aircraft on nonestablished 26 USC 4281. lines) is amended— (i) by striking out “(as defined in section 4492(b))”, and (ii) by adding at the end thereof the following new sentence: “For purposes of the preceding sentence, the term ‘maximum certificated takeoff weight’ means the maximum such weight contained in the type certificate or airworthiness certificate.” (C) Subsection (a) of section 6156 is amended by striking 26 USC 6156. out “or 4491”. (D) Paragraph (2) of section 6156(e) is amended by striking out “in the case of the tax imposed by section 4481”. (E) The section heading for section 6156 is amended by striking out “and civil aircraft”. (F) The table of sections for subchapter A of chapter 62 is amended by striking out “and civil aircraft” in the item relating to section 6156. (G) Section 6426 is hereby repealed. Repeal. 26 USC 6426. (H) The table of sections for subchapter B of chapter 65 is amended by striking out the item relating to section 6426. (d) Effective Date.— The amendments made by this section shall 26 USC 4261 note. apply with respect to transportation beginning after August 31, 1982; except that such amendments shall not apply to any amount paid on or before such date. SEC. 281. EXTENSION OF AIRPORT AND AIRWAY TRUST FUND. (a) General Rule.— Subchapter A of chapter 98 (relating to Trust Fund Code) is amended by adding at the end thereof the following new section: “SEC. 9302. AIRPORT AND AIRWAY TRUST FUND. “(a) Creation of Trust Fund.— There is established in the Treasury of the United States a trust fund to be known as the ‘Airport and Airway Trust Fund’, consisting of such amounts as may be appropriated or credited to the Airport and Airway Trust Fund as provided in this section or section 9602(b). “(b) Transfer to Airport and Airway Trust Fund of Amounts Equivalent to Certain Taxes.— There is hereby appropriated to the Airport and Airway Trust Fund— “(1) amounts equivalent to the taxes received in the Treasury after August 31, 1982, and before January 1, 1988, under subsections (c) and (d) of section 4041 (taxes on aviation fuel) and under sections 4261 and 4271 (taxes on transportation by air); “(2) amounts determined by the Secretary of the Treasury to be equivalent to the taxes received in the Treasury after August 31, 1982, and before January 1, 1988, under section 4081, with respect to gasoline used in aircraft; and “(3) amounts determined by the Secretary of the Treasury to be equivalent to the taxes received in the Treasury after August 31, 1982, and before January 1, 1988, under paragraphs (2) and (3) of section 4071(a), with respect to tires and tubes of the types used on aircraft. “(c) Appropriation of additional sums.— There are hereby authorized to be appropriated to the Airport and Airway Trust Fund such additional sums as may be required to make the expenditures referred to in subsection (d) of this section. “(d) Expenditures from Airport and Airway Trust Fund.— “(1) Airport and airway program.— Amounts in the Airport and Airway Trust Fund shall be available, as provided by appropriation Acts, for making expenditures before October 1, 1987, to meet those obligations of the United States— “(A) incurred under title I of the Airport and Airway Development Act of 1970 or of the Airport and Airway 49 USC 1701. 49 USC 1701 note. 49 USC 2101 note. 95 Stat. 622. Post, p. 671. Development Act Amendments of 1976 or of the Aviation Safety and Noise Abatement Act of 1979 or under the Fiscal Year 1981 Airport Development Authorization Act or the provisions of the Airport and Airway Improvement Act of 1982 (as such Acts were in effect on the date of the enactment of the Airport and Airway Improvement Act of 1982); “(B) heretofore or hereafter incurred under the Federal Aviation Act of 1958, as amended (49 U.S.C. 1301 et seq.), which are attributable to planning, research and development, construction, or operation and maintenance of— “(i) air traffic control, “(ii) air navigation. “(iii) communications, or “(iv) supporting services, for the airway system; or “(C) for those portions of the administrative expenses of the Department of Transportation which are attributable to activities described in subparagraph (A) or (B). “(2) Transfers from airport and airway trust fund on account of certain refunds.— The Secretary of the Treasury shall pay from time to time from the Airport and Airway Trust Fund into the general fund of the Treasury amounts equivalent to the amounts paid after August 31, 1982, in respect of fuel used in aircraft, under section 6420 (relating to amounts paid in respect of gasoline used on farms, 6421 (relating to amounts paid in respect of gasoline used for certain nonhighway purposes), or 6427 (relating to fuels not used for taxable purposes). “(3) Transfers from the airport and airway trust fund on account of certain section 39 credits.— The Secretary of the Treasury shall pay from time to time from the Airport and Airway Trust Fund into the general fund of the Treasury amounts equivalent to the credits allowed under section 39 with respect to fuel used after August 31, 1982. Such amounts shall be transferred on the basis of estimates by the Secretary of the Treasury, and proper adjustments shall be made in amounts subsequently transferred to the extent prior estimates were in excess of or less than the credits allowed.”. (b) Repeal of Section 208 of the Airport and Airway Revenue Act of 1970.— Section 208 of the Airport and Airway Revenue Act of 1970 is hereby repealed. 49 USC 1742. (c) Conforming Amendments.— (1) The table of sections for subchapter A of chapter 98 is amended to read as follows: “Sec. 9501. Black Lung Disability Trust Fund. “Sec. 9502. Airport and Airway Trust Fund.”. (2) The section heading for section 9501 (relating to establishment 26 USC 9501. of Black Lung Disability Trust Fund) is amended to read as follows: “SEC. 9501. BLACK LUNG DISABILITY TRUST FUND.”. (d) Effective Date.— (1) In General.— The amendments made by this section shall take effect on September 1, 1982. (2) Savings Provisions.— The Airport and Airway Trust Fund established by the amendments made by this section shall be treated for all purposes of law as the continuation of the Airport and Airway Trust Fund established by section 208 of the Airport and Airway Revenue Act of 1970. Any reference in any law Supra. to the Airport and Airway Trust Fund established by such section 208 shall be deemed to include a reference to the Airport and Airway Trust Fund established by the amendments made by this section. SEC. 281A. TECHNICAL PROVISIONS RELATING TO TAX ON TRANSPORTATION OF PERSONS BY AIR. (a) Technical Modifications to Transportation of Passengers By Air.— (1) Longer layover permitted to qualify as uninterrupted international air transportation.— Paragraph (3) of section 4262(c) (defining uninterrupted international air transportation) 26 USC 4262. is amended by striking out “6 hours” each place it appears and inserting in lieu thereof “12 hours”. (2) Authority to waive 225-mile zone provisions.— Section 4262 (defining taxable transportation) is amended by adding at 26 USC 4262. the end thereof the following new subsection: “(e) Authority to Waive 225-Mile Zone Provisions.— “(1) In general.— If the Secretary of the Treasury determines that Canada or Mexico has entered into a qualified agreement— “(A) the Secretary shall publish a notice of such determination Publication in Federal Register. in the Federal Register, and “(B) effective with respect to transportation beginning after the date specified in such notice, to the extent provided in the agreement, the term ‘225-mile zone’ shall not include part or all of the country with respect to which such determination is made. “(2) Termination of waiver.— If a determination was made under paragraph (1) with respect to any country and the Secretary of the Treasury subsequently determines that the agreement is no longer in effect or that the agreement is no longer a qualified agreement— “(A) the Secretary shall publish a notice of such determination Publication in Federal Register. in the Federal Register, and “(B) subparagraph (B) of paragraph (1) shall cease to apply with respect to transportation beginning after the date specified in such notice. “(3) Qualified agreement.— For purposes of this subsection, the term ‘qualified agreement’ means an agreement between the United States and Canada or Mexico (as the case may be)— “(A) setting forth that portion of such country which is not to be treated as within the 225-mile zone, and “(B) providing that the tax imposed by such country on transportation described in subparagraph (A) will be at a level which the Secretary of the Treasury determines to be appropriate. “(4) Requirement that agreement be submitted to congress.— No notice may be published under paragraph (1)(A) with respect to any qualified agreement before the date 90 days after the date on which a copy of such agreement was furnished to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate.” (3) Effective Date.— The amendments made by this subsection 26 USC 4262 note. shall apply to transportation beginning after August 31, 1982. (b) Manner in Which Tax on Transportation by Air is Required to be Shown on Airline Tickets.— (1) General rule.— Subsection (a) of section 7275 (relating to 26 USC 7275. penalty for offenses relating to certain airline tickets and advertising) is amended to read as follows: “(a) Tickets.— In the case of transportation by air all of which is taxable transportation (as defined in section 4262), the ticket for such transportation shall show the total of— “(1) the amount paid for such transportation, and “(2) the taxes imposed by subsections (a) and (b) of section 4261.”. (2) Effective Date.— The amendment made by subsection (a) 26 USC 7275 note. shall apply with respect to transportation beginning after the date of the enactment of this Act. PART II— COMMUNICATIONS SERVICES SEC. 282. EXTENSION OF EXCISE TAX ON COMMUNICATIONS SERVICES. (a) In General.— Section 4251 (relating to imposition of tax on 26 USC 4251. communications services) is amended by striking out subsections (a) and (b) and inserting the following new subsections: “(a) Tax Imposed.— “(1) In general.— There is hereby imposed on amounts paid for communications services a tax equal to the applicable percentage of amounts so paid. “(2) Payment of tax.— The tax imposed by this section shall be paid by the person paying for such services. “(b) Definitions.— “For purposes of subsection (a)— “(1) Communications services.— “The term ‘communications services’ means— “(A) local telephone service; “(B) toll telephone service; and “(C) teletypewriter exchange service. “(2) Applicable percentage.— “The term ‘applicable percentage’ means— “With respect to amounts paid pursuant to bills first rendered— The percentage is— During 1983, 1984, or 1985 3 During 1986 or thereafter 0.”. (b) Effective Date.— “The amendment made by subsection (a) 26 USC 4251 note. shall apply with respect to amounts paid for communications services pursuant to bills first rendered after December 31, 1982. PART III— CIGARETTES SEC. 283. INCREASE IN TAX ON CIGARETTES. (a) Rate of Tax.— Subsection (b) of section 5701 (relating to rate of 26 USC 5701. tax on cigarettes) is amended— (1) by striking out “$4” in paragraph (1) and inserting in lieu thereof “$8”; and (2) by striking out “$8.40” in paragraph (2) and inserting in lieu thereof “$16.80”. (b) Floor Stocks.— (1) Imposition of Tax.— On cigarettes manufactured in or imported into the United States which are removed before January 1, 1983, and held on such date for sale by any person, there shall be imposed the following taxes: (A) Small cigarettes.— On cigarettes, weighing not more than 3 pounds per thousand, $4 per thousand; (B) Large cigarettes.— On cigarettes, weighing more than 3 pounds per thousand, $8.40 per thousand; except that , if more than 6½ inches in length, they shall be taxable at the rate prescribed for cigarettes weighing not more than 3 pounds per thousand, counting each 2¾ inches, or fraction thereof, of the length of each as one cigarette. (2) Liability for tax and method of payment.— (A) Liability for tax.— A person holding cigarettes on January 1, 1983, to which any tax imposed by paragraph (1) applies shall be liable for such tax. (B) Method of payment.— The tax imposed by paragraph (1) shall be treated as a tax imposed under section 5701 and shall be due and payable on January 18, 1983 in the same manner as the tax imposed under such section is payable with respect to cigarettes removed on January 1, 1983. (3) Cigarette.— For purposes of this subsection, the term “cigarette” shall have the meaning given to such term by subsection (b) of section 5702 of the Internal Revenue Code of 1954. (4) Exception for retailers.— The taxes imposed by paragraph (1) shall not apply to cigarettes in retail stocks held on January 1, 1983, at the place where intended to be sold at retail. (c) Effective Date.— The amendment made by subsection (a) shall 26 USC 5701 note. apply with respect to cigarettes removed after December 31, 1982 and before October 1, 1985. PART IV— TAPS ADJUSTMENT ELIMINATED SEC. 284. ELIMINATION OF THE TAPS ADJUSTMENT. (a) In General. Subsection (d) of section 4996 (relating to Alaskan 26 USC 4996. oil from Sadlerochit reservior) is amended to read as follows: “(d) Alaskan Oil From Sadlerochit Reservoir.— For purposes of this chapter— “(1) Removal price determined on monthly basis.— The removal price of Sadlerochit oil removed during any calendar month shall be the average of the producer’s removal prices for such month. “(2) Sadlerochit oil defined.— The term ‘Sadlerochit oil’ means crude oil produced from the Sadlerochit reservoir in the Prudhoe Bay oilfield.”. (b) Effective Date.— The amendment made by this section shall 26 USC 4996 note. apply with respect to oil removed after December 31, 1982. Subtitle G— Miscellaneous SEC. 285. TWO-YEAR EXTENSION OF EXCLUSION FROM GROSS INCOME OF NATIONAL RESEARCH SERVICE AWARDS. Paragraph (2) of section 161(b) of the Revenue Act of 1978 (relating 26 USC 117 note. to exclusion from gross income for national research service awards) is amended by striking out “1981” and inserting in lieu thereof “1983”. SEC. 286. SPECIAL RULES FOR CERTAIN AMATEUR SPORTS ORGANIZATIONS. (a) SPECIAL RULES.— Section 501 is amended by redesignating subsection 26 USC 501. (j) as subsection (k) and by inserting after subsection (i) the following new subsection: “(j) Special Rules for Certain Amateur Sports Organizations.— “(1) In general.— In the case of a qualified amateur sports organization— “(A) the requirement of subsection (c)(3) that no part of its activities involve the provision of athletic facilities or equipment shall not apply, and “(B) such organization shall not fail to meet the requirements of subsection (c)(3) merely because its membership is local or regional in nature. “(2) Qualified amateur sports organization defined.— For purposes of this subsection, the term ‘qualified amateur sports organization’ means any organization organized and operated exclusively to foster national or international amateur sports competition if such organization is also organized and operated primarily to conduct national or international competition in sports or to support and develop amateur athletes for national or international competition in sports.” (b) Definition of Charitable Contribution.— (1) Subsection (c) of section 170 (defining charitable contribution) is amended by adding 26 USC 170. at the end of paragraph (2) the following new sentence: “Rules similar to the rules of section 501(j) shall apply for purposes of this Ante, p. 569. paragraph.”. (2) Subsection (a) of section 2055 (relating to transfers for public, 26 USC 2055. charitable, and religious uses) is amended by adding at the end thereof the following new sentence: “Rules similar to the rules of section 501(j) shall apply for purposes of paragraph (2).”. (3) Subsection (a) of section 2522 (relating to charitable and similar 26 USC 2522. gifts) is amended by adding at the end thereof the following new sentence: “Rules similar to the rules of section 501(j) shall apply for purposes of paragraph (2).”. (c) Effective Date.— The amendments made by this section shall 26 USC 501 note. take effect on October 5, 1976. SEC. 287. NEW JERSEY GENERAL REVENUE SHARING ALLOCATION. (a) In General.— Subsection (e) of section 109 of the State and Local Fiscal Assistance Act of 1972 (31 U.S.C. 1228) (defining general tax effort factor) is amended by inserting at the end thereof the following new paragraph: “(3) New jersey franchise and gross receipts taxes.— “(A) The New Jersey Franchise and Gross Receipts Taxes (N.J. Rev. Stat. 54:30A–18.1) transferred to a unit of local government within the State in the years beginning January 1 of 1980, 1981, and 1982 shall be deemed to be an adjusted tax of such units for purposes of paragraph (2)(A)(i). “(B) The provisions of subparagraph (A) shall be given effect for quarterly payments made for quarters beginning after December 31, 1982, only if the Governor of the State of New Jersey notifies the Secretary that, prior to January 1, 1983, the State amended the New Jersey Franchise and Gross Receipts Taxes statute to provide for collection and retention of such taxes by units of local government for years beginning as of January 1, 1983. “(C) Notwithstanding the limitation in subparagraph (B), the provisions of subparagaph (A) shall be given effect with respect to the quarterly payment to be made for the quarter beginning October 1, 1982.”. (b) Effective Date.— The amendment made by this section shall 31 USC 1228 note. be effective after September 30, 1982. SEC. 288. ILLEGAL PAYMENTS TO GOVERNMENT OFFICIALS OR EMPLOYEES. (a) In General.— Paragraph (1) of section 162(c) (relating to illegal 26 USC 162. payments to Government officials or employees) is amended— (1) by striking out “would be unlawful under the laws of the United States if such laws were applicable to such payment and to such official or employee” and inserting in lieu thereof “is unlawful under the Foreign Corrupt Practices Act of 1977”, and 15 USC 78a note. (2) by striking out “(or would be unlawful under the laws of the United States)” and inserting in lieu thereof “(or is unlawful under the Foreign Corrupt Practices Act of 1977)”. (b) Coordination With Subpart F.— (1) Subsection (a) of section 952 is amended by adding at the 26 USC 952. end thereof the following new sentence: “The payments referred to in paragraph (4) are payments which would be unlawful under the Foreign Corrupt Practices Act of 1977 if the payor were a United States person.” (2) Subsection (a) of section 964 is amended by adding at the 26 USC 964. end thereof the following new sentence: “The payments referred to in the preceding sentence are payments which would be unlawful under the Foreign Corrupt Practices Act of 1977 if the payor were a United States person.” (c) Effective Date.— The amendments made by this section shall 26 USC 162 note. apply to payments made after the date of the enactment of this Act. SEC. 289. DEBT MANAGEMENT PROVISIONS. (a) Determination by Secretary of Investment Yield on United States Savings Bond.— (1) Subsection (b) of section 22 of the Second Liberty Bond Act (31 U.S.C. 757c) is amended— (A) by amending paragraph (3) to read as follows: “(3) The Secretary of the Treasury, with the approval of the President, may fix the investment yield on any United States savings bond. The Secretary of the Treasury, with the approval of the President, may provide for increases and decreases in the investment yield on any outstanding United States savings bond; except that the investment yield on any bond for the period held may not be decreased below the minimum yield for such period guaranteed at the time of its issuance.”; (B) by striking out “the Secretary of the Treasury may prescribe: Provided” and all that follows down through the end of the second sentence of paragraph (1) of such subsection and inserting in lieu thereof “the Secretary of the Treasury may prescribe.”; (C) by striking out “and shall be expressed in terms of their maturity value” in the third sentence of paragraph (1) of such subsection; and (D) by striking out “higher rates which are consistent” and inserting in lieu thereof “rates which are consistent” in subparagraph (B) of paragraph (2) of such subsection. (2) The second sentence of section 22A(b)(l) of such Act is 31 USC 757C-2. amended by striking out “the Secretary of the Treasury may prescribe” and all that follows down through the end thereof and inserting in lieu thereof “the Secretary of the Treasury may prescribe.”. (b) Transitional Rule.— In the case of any savings bond issued 31 USC 757c note. before the 30th day after the date of the enactment of this Act, for purposes of sections 22 and 22A of the Second Liberty Bond Act, the 31 USC 757c, 757c-2. minimum yield guaranteed for the period held shall be the scheduled investment yield for such period as in effect on such 30th day. (c) Limit on Outstanding Bonds.— Effective on the date of the enactment of this Act, the last sentence of the second paragraph of the first section of the Second Liberty Bond Act (31 U.S.C. 752) is amended by striking out “$70,000,000,000” and inserting in lieu thereof “$110,000,000,000”. SEC. 290. JEFFERSON COUNTY MENTAL HEALTH CENTER. (a) In General.— The Secretary is authorized and directed to pay, out of any money in the Treasury not otherwise appropriated, to the Jefferson County Mental Health Center, Incorporated, of Lakewood, Colorado, the sum of $50,000 in full settlement of all claims of the center against the United States for repayment of amounts the center erroneously refunded to its employees for social security contributions in the period after December 31, 1971, and prior to May 14, 1975, pursuant to instructions by the Internal Revenue Service. (b) Limitation.— No part of the amount appropriated in subsection (a) in excess of 10 per centum shall be paid, delivered to, or received by any agent or attorney on account of services rendered in connection with this claim, and the same shall be unlawful, any contract to the contrary notwithstanding. Any person violating the provisions of this subsection shall be guilty of a misdemeanor and, upon conviction thereof be fined any sum not exceeding $1,000. SEC. 291. ALASKA NATIVE CORPORATIONS. Paragraph (2) of subsection (d) of section 4994 of subpart B of chapter 45 (relating to windfall profit tax on domestic crude oil; 26 USC 4994. categories of oil) is amended by striking “under” the first time it appears and inserting in lieu thereof “pursuant to”. SEC. 292. AWARDING OF COSTS AND CERTAIN FEES. (a) In General.— Subchapter B of chapter 76 (relating to proceedings by taxpayers and third parties) is amended by redesignating section 7430 as section 7431 and by inserting after section 7429 the 26 USC 7431. following new section: “SEC. 7430. AWARDING OF COURT COSTS AND CERTAIN FEES. “(a) In General.— In the case of any civil proceeding which is— “(1) brought by or against the United States in connection with the determination, collection, or refund of any tax, interest, or penalty under this title, and “(2) brought in a court of the United States (including the Tax Court), the prevailing party may be awarded a judgment for reasonable litigation costs incurred in such proceeding. “(b) Limitations.— “(1) Maximum dollar amount.— The amount of reasonable litigation costs which may be awarded under subsection (a) with respect to any prevailing party in any civil proceeding shall not exceed $25,000. “(2) Requirement that administrative remedies be exhausted.— A judgment for reasonable litigation costs shall not be awarded under subsection (a) unless the court determines that the prevailing party has exhausted the administrative remedies available to such party within the Internal Revenue Service. “(3) Only costs allocable to the united states.— An award under subsection (a) shall be made only for reasonable litigation costs which are allocable to the United States and not to any other party to the action or proceeding. “(4) Exclusion of declaratory judgment proceedings.— “(A) In General.— No award for reasonable litigation costs may be made under subsection (a) with respect to any declaratory judgment proceeding. “(B) Exception for section 501 (c) (3) determination revocation proceedings.— Subparagraph (A) shall not apply to any proceeding which involves the revocation of a determination that the organization is described in section 501(c)(3). “(c) Definitions.— For purposes of this section— “(1) Reasonable litigation costs.— “(A) In general.— The term ‘reasonable litigation costs’ includes— “(i) reasonable court costs, “(ii) the reasonable expenses of expert witnesses in connection with the civil proceeding, “(iii) the reasonable cost of any study, analysis, engineering report, test, or project which is found by the court to be necessary for the preparation of the party’s case, and “(iv) reasonable fees paid or incurred for the services of attorneys in connection with the civil proceeding. “(B) Attorney’s fees.— In the case of any proceeding in the Tax Court, fees for the services of an individual (whether or not an attorney) who is authorized to practice before the Tax Court shall be treated as fees for the services of an attorney. “(2) Prevailing party.— “(A) In general.— The term ‘prevailing party’ means any party to any proceeding described in subsection (a) (other than the United States or any creditor of the taxpayer involved) which— “(i) establishes that the position of the United States in the civil proceeding was unreasonable, and “(ii) (I) has substantially prevailed with respect to the amount in controversy, or “(II) has substantially prevailed with respect to the most significant issue or set of issues presented. “(B) Determination as to prevailing party.— Any determination under subparagraph (A) as to whether a party is a prevailing party shall be made— “(i) by the court, or “(ii) by agreement of the parties. “(3) Civil actions.— The term ‘civil proceeding’ includes a civil action. “(d) Multiple Actions.— For purposes of this section, in the case of— “(1) multiple actions which could have been joined or consolidated, or “(2) a case or cases involving a return or returns of the same taxpayer (including joint returns of married individuals) which could have been joined in a single proceeding in the same court, such actions or cases shall be treated as one civil proceeding regardless of whether such joinder or consolidation actually occurs, unless the court in which such action is brought determines, in its discretion, that it would be inappropriate to treat such actions or cases as joined or consolidated for purposes of this section. “(e) Right of Appeal.— An order granting or denying an award for reasonable litigation costs under subsection (a), in whole or in part, shall be incorporated as a part of the decision or judgment in the case and shall be subject to appeal in the same manner as the decision or judgment. “(f) Termination.— This section shall not apply to any proceeding commenced after December 31, 1985.” (b) Penalty for Using Tax Court Proceedings for Delay; Penalty for Frivolous or Groundless Proceeding.— The first sentence of section 6673 (relating to damages assessable by instituting 26 USC 6673. proceedings before the Tax Court merely for delay) is amended to read as follows: “Whenever it appears to the Tax Court that proceedings before it have been instituted or maintained by the taxpayer primarily for delay or that the taxpayer’s position in such proceedings is frivolous or groundless, damages in an amount not in excess of $5,000 shall be awarded to the United States by the Tax Court in its decision.”. (c) Application With Title 28.— Section 2412 of title 28, United States Code, is amended by adding at the end thereof the following new subsection: “(e) The provisions of this section shall not apply to any costs, fees, and other expenses in connection with any proceeding to which section 7430 of the Internal Revenue Code of 1954 applies (determined without regard to subsections (b) and (f) of such section). Nothing in the preceding sentence shall prevent the awarding under subsection (a) of section 2412 of title 28, United States Code, of costs enumerated in section 1920 of such title (as in effect on October 1, 1981).”. (d) Conforming Amendments.— (1) The table of sections for subchapter B of chapter 76 is amended by striking out the item relating to section 7430 and inserting the following new items: “Sec. 7430. Awarding of court costs and certain fees. “Sec. 7431. Cross references.”. (2) (A) The section heading of section 6673 is amended by 26 USC 6673. striking out “merely for delay.” and inserting in lieu thereof “primarily for delay, etc.”. (B) The table of sections for subchapter B of chapter 68 is amended by striking out “merely for delay.” in the item relating to section 6673 and inserting in lieu thereof “primarily for delay, etc.”. (e) Effective Dates.— (1) General.— The amendments made by this section shall apply to civil actions or proceedings commenced after February 28, 1983. (2) Penalty.— The amendments made by subsections (b) and (d)(2) shall apply to any action or proceeding in the Tax Court commenced after December 31, 1982. SEC. 293. TREATMENT OF CERTAIN LENDING OR FINANCE BUSINESSES FOR PURPOSES OF THE TAX ON PERSONAL HOLDING COMPANIES. (a) Removal of Limitation on Amount of Ordinary Gross Income from Lending or Finance Business Taken Into Account.— Clause (ii) of section 542(c)(6)(C) (relating to exceptions 26 USC 542. from definition of personal holding company) is amended by striking out “but not $1,000,000”. (b) Changes in Definition of Lending or Finance Business.— Clause (i) of section 542(d)(1)(B) (relating to exceptions from definition of lending or finance business) is amended to read as follows: “(i) making loans, or purchasing or discounting accounts receivable, notes, or installment obligations, if (at the time of the loan, purchase, or discount) the remaining maturity exceeds 144 months; unless— “(I) the loans, notes, or installment obligations are evidenced or secured by contracts of conditional sale, chattel mortgages, or chattel lease agreements arising out of the sale of goods or services in the course of the borrower’s or transferor’s trade or business, or “(II) the loans, notes, or installment obligations are made or acquired by the taxpayer and meet the requirements of subparagraph (C), or”. (c) Indefinite Maturity Credit Transactions.— Paragraph (1) of section 542(d) (relating to special rules) is amended by adding at the end thereof the following new subparagraph: “(C) Indefinite maturity credit transactions.— For purposes of subparagraph (B)(i), a loan, note, or installment obligation meets the requirements of this subparagraph if it is made under an agreement— “(i) under which the creditor agrees to make loans or advances (not in excess of an agreed upon maximum amount) from time to time to or for the account of the debtor upon request, and “(ii) under which the debtor may repay the loan or advance in full or in installments.” (d) Effective Dates.— (1) Subsection (a).— The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1981. (2) Subsections (b) and (c).— The amendments made by subsections (b) and (c) shall apply to taxable years beginning after December 31, 1980. SEC. 294. ADDITIONAL REFUNDS RELATING TO REPEAL OF EXCISE TAX ON BUSES. (a) Time For Filing Claim.— Subparagraph (C) of section 231(c)(2) of the Energy Tax Act of 1978 (relating to refunds with respect to 26 USC 4063 note. certain consumer purchases) is amended by striking out “the first day of such 10th calendar month” and inserting in lieu thereof “December 31, 1982”. (b) Procedure for Passing Through Refund.— Subparagraph (A) of section 231(c)(2) of such Act is amended by inserting before the semicolon “, or, in lieu of evidence of reimbursement, he makes such reimbursement simultaneously with the receipt of such a refund under an arrangement satisfactory to such Secretary which assures such simultaneous reimbursement” .

57. 1983

    Surface Transportation Assistance Act of 1982

    Pub. L. 97–424 § 547(a) · 96 Stat. 2097

    Redesignated · 26 U.S.C. § 103(m)

    Pub. L. 97–424, § 547(a), added subsec. (m). Former subsec. (m) redesignated (n)

    Source evidence

    Code amendment note
    Subsec. (m). Pub. L. 97–424, § 547(a), added subsec. (m). Former subsec. (m) redesignated (n).

    Enacted provision · exact public law section
    (a) In General.— Section 103 (relating to interest on certain Ante, p. 469. governmental obligations) is amended by redesignating subsection (m) as subsection (n) and by inserting after subsection (1) the following new subsection: “(m) Obligations Exempt Other Than Under This Title.— “(1) Prior exemptions.— For purposes of this title, notwithstanding any provisions of this section or section 103A any obligation the interest on which is exempt from taxation under this title under any provision of law which is in effect on the date of the enactment of this subsection (other than a provision of this title) shall be treated as an obligation described in subsection (a). “(2) No other interest to be exempt except as provided by this title.— Notwithstanding any other provision of law, no interest on any obligation shall be exempt from taxation under this title unless such interest— “(A) is on an obligation described in paragraph (1), or “(B) is exempt from taxation under any provision of this title.”.

58. 1983

    Surface Transportation Assistance Act of 1982

    Pub. L. 97–424 § 547(a) · 96 Stat. 2097

    Redesignated · 26 U.S.C. § 103(n)

    Pub. L. 97–424, § 547(a), redesignated former subsec. (m), relating to cross references, as (n)

    Source evidence

    Code amendment note
    Subsec. (n). Pub. L. 97–424, § 547(a), redesignated former subsec. (m), relating to cross references, as (n).

    Enacted provision · exact public law section
    (a) In General.— Section 103 (relating to interest on certain Ante, p. 469. governmental obligations) is amended by redesignating subsection (m) as subsection (n) and by inserting after subsection (1) the following new subsection: “(m) Obligations Exempt Other Than Under This Title.— “(1) Prior exemptions.— For purposes of this title, notwithstanding any provisions of this section or section 103A any obligation the interest on which is exempt from taxation under this title under any provision of law which is in effect on the date of the enactment of this subsection (other than a provision of this title) shall be treated as an obligation described in subsection (a). “(2) No other interest to be exempt except as provided by this title.— Notwithstanding any other provision of law, no interest on any obligation shall be exempt from taxation under this title unless such interest— “(A) is on an obligation described in paragraph (1), or “(B) is exempt from taxation under any provision of this title.”.

59. 1983

    Indian Tribal Governmental Tax Status Act of 1982

    Pub. L. 97–473 title II § 202(b)(2) · 96 Stat. 2605

    1. Amended · 26 U.S.C. § 103(m)

       Pub. L. 97–473 amended subsec. (m) generally

    2. Added · 26 U.S.C. § 103(m)

       Pub. L. 97–473 adding pars. (1) and (2)

    3. Redesignated · 26 U.S.C. § 103(m)

       Pub. L. 97–473 redesignating former pars. (1) to (3) as (3) to (5), respectively

    4. Struck · 26 U.S.C. § 103(m)

       Pub. L. 97–473 striking out par. (24) which had provided reference regarding exempt-interest dividends to section 852(b)(5)(B.) See section 722(b) of Pub. L. 98–369, set out as a note below

    Target inherited from the preceding amendment note.

    Source evidence

    Code amendment note
    Pub. L. 97–473 amended subsec. (m) generally, adding pars. (1) and (2), redesignating former pars. (1) to (3) as (3) to (5), respectively, and striking out par. (24) which had provided reference regarding exempt-interest dividends to section 852(b)(5)(B.) See section 722(b) of Pub. L. 98–369, set out as a note below.

    Enacted provision · exact public law section
    (2) Subsection (m) of section 103 is amended to read as follows: 26 USC 103. “(m) Cross References.— “For provisions relating to the taxable status of— “(1) Certain obligations issued by Indian tribal governments (or their subdivisions), see section 7871. “(2) Exempt interest dividends of regulated investment companies, see section 852(b)(5)(B). “(3) Puerto Rican bonds, see section 3 of the Act of March 2, 1917, as amended (48 U.S.C. 745). “(4) Virgin Islands insular and municipal bonds, see section 1 of the Act of October 27, 1919 (48 U.S.C. 1403). “(5) Certain obligations issued under title I of the Housing Act of 1949, see section 102(g) of title I of such Act (42 U.S.C. 1452(g)).”

60. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 628(e) · 98 Stat. 494

    Inserted · 26 U.S.C. § 103(b)(4)

    Pub. L. 98–369, § 628(e), inserted “For purposes of subparagraph (A), any property shall not be treated as failing to be residential rental property merely because part of the building in which such property is located is used for purposes other than residential rental purposes.”

    Source evidence

    Code amendment note
    Subsec. (b)(4). Pub. L. 98–369, § 628(e), inserted “For purposes of subparagraph (A), any property shall not be treated as failing to be residential rental property merely because part of the building in which such property is located is used for purposes other than residential rental purposes.”

    Enacted provision · exact public law section
    (e) Residential Rental Property May be in Mixed Use Structure.— Paragraph (4) of section 103(b) (relating to certain exempt activities) is amended by adding at the end thereof the following new sentence: “For purposes of subparagraph (A), any property shall not be treated as failing to be residential rental property merely because part of the building in which such property is located is used for purposes other than residential rental purposes.”

61. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 474(r)(4) · 98 Stat. 494

    Substituted · 26 U.S.C. § 103(b)(6)(F)(iv)

    Pub. L. 98–369, § 474(r)(4), substituted “section 30(b)(2)(A)” for “section 44F(b)(2)(A)”

    Source evidence

    Code amendment note
    Subsec. (b)(6)(F)(iv). Pub. L. 98–369, § 474(r)(4), substituted “section 30(b)(2)(A)” for “section 44F(b)(2)(A)”.

    Enacted provision · exact public law section
    (4) Section 103.— Clause (iv) of section 103(b)(6)(F) (relating to certain capital expenditures not taken into account) is amended by striking out “section 44F(b)(2)(A)” and inserting in lieu thereof “section 30(b)(2)(A)”.

62. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 630 · 98 Stat. 494

    1. Amended · 26 U.S.C. § 103(b)(6)(N)

       Pub. L. 98–369, § 630, designated existing provisions as cl. (i)

    2. Added · 26 U.S.C. § 103(b)(6)(N)

       Pub. L. 98–369, § 630, added cls. (ii) and (iii)

    Source evidence

    Code amendment note
    Subsec. (b)(6)(N). Pub. L. 98–369, § 630, designated existing provisions as cl. (i) and added cls. (ii) and (iii).

    Enacted provision · exact public law section
    SEC. 630. EXTENSION OF SMALL ISSUE INDUSTRIAL DEVELOPMENT BOND EXCEPTION. Subparagraph (N) of section 103(b)(6) (relating to termination 26 USC 103. date) is amended to read as follows: “(N) Termination dates.— “(i) In general.— This paragraph shall not apply to any obligation issued after December 31, 1986 (including any obligations issued to refund an obligation issued on or before such date). “(ii) Obligations used to finance manufacturing facilities.— In the case of any obligation which is part of an issue substantially all of the proceeds of which are to be used to provide a manufacturing facility clause (i) shall be applied by substituting ‘1988’ for ‘1986’. “(iii) Manufacturing facility.— For purposes of this subparagraph, the term ‘manufacturing facility’ means any facility which is used in the manufacturing or production of tangible personal property (including the processing resulting in a change in the condition of such property).

63. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 628(c) · 98 Stat. 494

    Added · 26 U.S.C. § 103(b)(6)(P)

    Pub. L. 98–369, § 628(c), added subpar. (P)

    Source evidence

    Code amendment note
    Subsec. (b)(6)(P). Pub. L. 98–369, § 628(c), added subpar. (P).

    Enacted provision · exact public law section
    (c) Aggregation of Issues for Single Project— Paragraph (6) of section 103(b) (relating to exemption for small issues) is amended 26 USC 103. by adding at the end thereof the following new subparagraph: “(P) Aggregation of issues with respect to single project.— For purposes of this paragraph, 2 or more issues part or all of which are to be used with respect to a single building, an enclosed shopping mall, or a strip of offices, stores, or warehouses using substantial common facilities shall be treated as 1 issue (and any person who is a principal user with respect to any of such issues shall be treated as a principal user with respect to the aggregated issue).”

64. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 628(g) · 98 Stat. 494

    Repealed · 26 U.S.C. § 103(b)(7)

    Pub. L. 98–369, § 628(g), repealed par. (7) which related to advance refunding of qualified public facilities

    Source evidence

    Code amendment note
    Subsec. (b)(7). Pub. L. 98–369, § 628(g), repealed par. (7) which related to advance refunding of qualified public facilities.

    Enacted provision · exact public law section
    (g) Repeal of Advance Refunding of Qualified Public Facilities.— Paragraph (7) of section 103(b) (relating to advance refunding of qualified public facilities) is hereby repealed.

65. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 628(d) · 98 Stat. 494

    Inserted · 26 U.S.C. § 103(b)(13)

    Pub. L. 98–369, § 628(d), inserted “For purposes of this paragraph— (A) a partnership and each of its partners (and their spouses and minor children) shall be treated as related persons, and (B) an S corporation and each of its shareholders (and their spouses and minor children) shall be treated as related persons.”

    Source evidence

    Code amendment note
    Subsec. (b)(13). Pub. L. 98–369, § 628(d), inserted “For purposes of this paragraph— (A) a partnership and each of its partners (and their spouses and minor children) shall be treated as related persons, and (B) an S corporation and each of its shareholders (and their spouses and minor children) shall be treated as related persons.”

    Enacted provision · exact public law section
    (d) Definition of Related Persons in the Case of Partnerships.— Paragraph (13) of section 103(b) (relating to exception where bond held by substantial user) is amended by adding at the end thereof the following new sentence: “For purposes of this paragraph— “(A) a partnership and each of its partners (and their spouses and minor children) shall be treated as related persons, and “(B) an S corporation and each of its shareholders (and their spouses and minor children) shall be treated as related persons.”.

66. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 623 · 98 Stat. 494

    Added · 26 U.S.C. § 103(b)(15)

    Pub. L. 98–369, § 623, added par. (15)

    Source evidence

    Code amendment note
    Subsec. (b)(15). Pub. L. 98–369, § 623, added par. (15).

    Enacted provision · exact public law section
    SEC. 623. AGGREGATE LIMIT PER TAXPAYER FOR SMALL ISSUE EXCEPTION. Subsection (b) of section 103 (relating to industrial development 26 USC 103. bonds) is amended by adding at the end thereof the following new paragraph: “(15) Aggregate limit per taxpayer for small issue exception.— “(A) In general.— Paragraph (6) of this subsection shall not apply to any issue if the aggregate authorized face amount of such issue allocated to any test-period beneficiary (when increased by the outstanding tax-exempt IDB’s of such beneficiary) exceeds $40,000,000. “(B) Outstanding tax-exempt idb’s of any person.— For purposes of applying subparagraph (A) with respect to any issue, the outstanding tax-exempt IDB’s of any person who is a test-period beneficiary with respect to such issue is the aggregate face amount of all industrial development bonds the interest on which is exempt from tax under subsection (a)— “(i) which are allocated to such beneficiary, and “(ii) which are outstanding at the time of such later issue (not including as outstanding any obligation which is to be redeemed from the proceeds of the later issue). “(C) Allocation of face amount of an issue.— “(i) In general.— Except as otherwise provided in regulations, the portion of the face amount of an issue allocated to any test-period beneficiary of a facility financed by the proceeds of such issue (other than an owner of such facility) is an amount which bears the same relationship to the entire face amount of such issue as the portion of such facility used by such beneficiary bears to the entire facility. “(ii) Owners.— Except as otherwise provided in regulations, the portion of the face amount of an issue allocated to any test-period beneficiary who is an owner of a facility financed by the proceeds of such issue is an amount which bears the same relationship to the entire face amount of such issue as the portion of such facility owned by such beneficiary bears to the entire facility. “(D) Test-period beneficiary.— For purposes of this paragraph, except as provided in regulations, the term ‘testperiod beneficiary’ means any person who was an owner or a principal user of facilities being financed by the issue at any time during the 3-year period beginning on the later of— “(i) the date such facilities were placed in service, or “(ii) the date of the issue. “(E) Treatment of related persons.— For purposes of this paragraph, all persons who are related (within the meaning of paragraph (6)(C) to each other shall be treated as one person.”

67. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 627 · 98 Stat. 494

    Added · 26 U.S.C. § 103(b)(16)(18)

    Pub. L. 98–369, § 627, added pars. (16) to (18)

    Source evidence

    Code amendment note
    Subsec. (b)(16) to (18). Pub. L. 98–369, § 627, added pars. (16) to (18).

    Enacted provision · exact public law section
    SEC. 627. LIMITATIONS ON ACQUISITIONS OF LAND. EXISTING FACILITIES, ETC. (a) Limitation on Use for Land Acquisition.— Subsection (b) of section 103 is amended by adding at the end thereof the following new paragraph: “(16) Limitation on use for land acquisition.— “(A) In general.— Paragraphs (4), (5), and (6) shall not apply with respect to any obligation issued as part of an issue if— “(i) any portion of the proceeds of such issue are to be used (directly or indirectly) for the acquisition of land (or an interest therein) to be used for farming purposes, or “(ii) 25 percent or more of the proceeds of such issue are to be used (directly or indirectly) for the acquisition of land not described in clause (i) (or an interest therein). In the case of an obligation described in paragraph (5) (relating to industrial parks), clause (i) shall be applied by substituting ‘50 percent’ for ‘25 percent’. “(B) Exception for first-time farmers.— “(i) In general.— If the requirements of clause (ii) are met with respect to any land, subparagraph (A) shall not apply to such land, and paragraph (17) shall not apply to property located thereon or to property to be acquired within 1 year to be used in farming, but only to the extent of expenditures (financed with the proceeds of the issue) not in excess of $250,000. “(ii) Acquisition by first-time farmers.— The requirements of this clause are met with respect to any land if— “(I) such land is to be used for farming purposes, and “(II) such land is to be acquired by an individual who is a first-time farmer, who will be the principal user of such land, and who will materially and substantially participate on the farm of which such land is a part in the operation of such farm. “(iii) First-time farmer.— For purposes of this subparagraph, the term ‘first-time farmer’ means any individual if such individual has not at any time had any direct or indirect ownership interest in substantial farmland in the operation of which such individual materially participated. For purposes of this subparagraph, any ownership or material participation by an individual’s spouse or minor child shall be treated as ownership and material participation by the individual. “(iv) Farm.— For purposes of this subparagraph, the term ‘farm’ has the meaning given such term by section 6420(c)(2). “(v) Substantial farmland.— The term ‘substantial farmland’ means any parcel of land unless— “(I) such parcel is smaller than 15 percent of the median size of a farm in the county in which such parcel is located, and “(II) the fair market value of the land does not at any time while held by the individual exceed $125,000. “(C) Exception for certain land acquired for environmental purposes.— Any land acquired by a public agency in connection with an airport, mass transit, or port development project which consists of facilities described in paragraph (4)(D) shall not be taken into account under subparagraph (A) if— “(i) such land is acquired for a noise abatement, wetland preservation, future use, or other public purpose, and “(ii) there is not other significant use of such land.” (b) Acquisition of Existing Property Not Permitted.— Subsection (b) of section 103 (relating to industrial development bonds) is Ante, p. 928. amended by adding at the end thereof the following new paragraph: “(17) Acquisition of existing property not permitted.— “(A) In general.— Paragraphs (4), (5), (6), and (7) shall not apply to any obligation issued as part of an issue if any portion of the proceeds of such issue is to be used for the acquisition of any property (or an interest therein) unless the first use of such property is pursuant to such acquisition. “(B) Exception for certain rehabilitations.— Subparagraph (A) shall not apply with respect to any building (and the equipment therefor) if— “(i) the rehabilitation expenditures with respect to such building equals or exceeds “(ii) 15 percent of the portion of the cost of acquiring such building (and equipment) financed with the proceeds of the issue. A rule similar to the rule of the preceding sentence shall apply in the case of facilities other than a building except that clause (ii) shall be applied by substituting ‘100 percent’ for T5 percent’. “(C) Rehabilitation expenditures.— For purposes of this paragraph— “(i) In general.— Except as provided in this subparagraph, the term ‘rehabilitation expenditures’ means any amount properly chargeable to capital account which is incurred by the person acquiring the building for property (or additions or improvements to property) in connection with the rehabilitation of a building. In the case of an integrated operation contained in a building before its acquisition, such term includes rehabilitating existing equipment in such building or replacing it with equipment having substantially the same function. For purposes of this clause, any amount incurred by a successor to the person acquiring the building or by the seller under a sales contract with such person shall be treated as incurred by such person. “(ii) Certain expenditures not included.— The term ‘rehabilitation expenditures’ does not include any expenditure described in section 48(g)(2)(B) (other than clause (i) thereof). “(iii) Period during which expenditures must be incurred.— The term ‘rehabilitation expenditures’ shall not include any amount which is incurred after the date 2 years after the later of— “(I) the date on which the building was acquired, or “(II) the date on which the obligation was issued. “(D) Special rule for certain projects.— In the case of a project involving 2 or more buildings, this paragraph shall be applied on a project basis.” (c) Use of Tax-Exempt Bonds Prohibited for Skyboxes, Air-planes, Gambung Estabushments, Etc.— Subsection (b) of section 103 (relating to industrial development bonds) is amended by adding at the end thereof the following new paragraph: “(18) No portion of bonds may be issued for skyboxes, airplanes, gambling establishments, etc.— Paragraphs (4), (5), and (6) shall not apply to any obligation issued as part of an issue if any portion of the proceeds of such issue is to be used to provide any airplane, skybox, or other private luxury box, any health club facility, any facility primarily used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises.”

68. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 624(b)(2) · 98 Stat. 494

    Struck · 26 U.S.C. § 103(c)

    Pub. L. 98–369, § 624(b)(2), struck out “bonds” after “Arbitrage” in heading

    Source evidence

    Code amendment note
    Subsec. (c). Pub. L. 98–369, § 624(b)(2), struck out “bonds” after “Arbitrage” in heading.

    Enacted provision · exact public law section
    (2) Subsection (c) of section 103 is amended by striking out “Bonds” in the heading.

69. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 624(b)(3) · 98 Stat. 494

    Inserted · 26 U.S.C. § 103(c)(1)

    Pub. L. 98–369, § 624(b)(3), inserted “to arbitrage bonds” in heading

    Source evidence

    Code amendment note
    Subsec. (c)(1). Pub. L. 98–369, § 624(b)(3), inserted “to arbitrage bonds” in heading.

    Enacted provision · exact public law section
    (3) Paragraph (1) of section 103(c) is amended by inserting “to arbitrage bonds” in the heading.

70. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 624(a) · 98 Stat. 494

    1. Added · 26 U.S.C. § 103(c)(6); 26 U.S.C. § 103(c)(7)

       Pub. L. 98–369, § 624(a), added par. (6)

    2. Redesignated · 26 U.S.C. § 103(c)(6); 26 U.S.C. § 103(c)(7)

       Pub. L. 98–369, § 624(a), redesignated former par. (6) as (7)

    Source evidence

    Code amendment note
    Subsec. (c)(6), (7). Pub. L. 98–369, § 624(a), added par. (6) and redesignated former par. (6) as (7).

    Enacted provision · exact public law section
    (a) In General.— Subsection (c) of section 103 (relating to arbitrage bonds) is amended by redesignating paragraph (6) as paragraph (7) and inserting after paragraph (5) the following new paragraph: “(6) Investments in nonpurpose obligations.— “(A) In general.— For purposes of this title, any obligation which is part of an issue of industrial development bonds which does not meet the requirements of subparagraphs (C) and (D) shall be treated as an obligation which is not described in subsection (a). “(B) Exceptions.— Subparagraph (A) shall not apply to any obligation described in subsection (b)(4)(A) or to any housing program obligation under section 11(b) of the Housing Act of 1937. “(C) Limitation on investment in nonpurpose obligations.— “(i) In general.— An issue meets the requirements of this subparagraph only if— “(I) at no time during any bond year, the amount invested in nonpurpose obligations with a yield higher than the yield on the issue exceeds 150 percent of the debt service on the issue for the bond year, and “(II) the aggregate amount invested as provided in subclause (I) is promptly and appropriately reduced as the amount of outstanding obligations of the issue is reduced. “(ii) Exception for temporary periods.— Clause (i) shall not apply to— “(I) proceeds of the issue invested for an initial temporary period until such proceeds are needed for the governmental purpose of the issue, and “(II) temporary investment periods related to debt service. “(iii) Debt service defined.— For purposes of this subparagraph, the debt service on the issue for any bond year is the scheduled amount of interest and amortization of principal payable for such year with respect to such issue. For purposes of the preceding sentence, there shall not be taken into account amounts scheduled with respect to any bond which has been retired before the beginning of the bond year. “(iv) No disposition in case of loss.— This subparagraph shall not require the sale or disposition of any investment if such sale or disposition would result in a loss which exceeds the amount which would be paid to the United States (but for such sale or disposition) at the time of such sale or disposition. “(D) Rebate to united states.— An issue shall be treated as meeting the requirements of this subparagraph only if an amount equal to the sum of— “(i) the excess of— “(I) the aggregate amount earned on all nonpurpose obligations (other than investments attributable to an excess described in this clause), over “(II) the amount which would have been earned if all nonpurpose obligations were invested at a rate equal to the yield on the issue, plus “(ii) any income attributable to the excess described in clause (i), is paid to the United States by the issuer in accordance with the requirements of subparagraph (E). “(E) Due date of payments under subparagraph (d).— The amount which is required to be paid to the United States by the issuer shall be paid in installments which are made at least once every 5 years. Each installment shall be in an amount which insures that 90 percent of the amount described in subparagraph (D) with respect to the issue at the time payment of such installment is required will have been paid to the United States. The last installment shall be made no later than 30 days after the day on which the last obligation of the issue is redeemed and shall be in an amount sufficient to pay the remaining balance of the amount described in subparagraph (D) with respect to such issue. “(F) Special rules for applying subparagraph (d).— “(i) In general.— In determining the aggregate amount earned on nonpurpose obligations for purposes of subparagraph (D)— “(I) any gain or loss on the disposition of a nonpurpose obligation shall be taken into account, and “(II) unless the issuer otherwise elects, any amount earned on a bona fide debt service fund shall not be taken into account if the gross earnings on such fund for the bond year is less than $100,000. “(ii) Temporary investments.— Under regulations prescribed by the Secretary, an issue shall, for purposes of this paragraph, be treated as meeting the requirements of subparagraph (D) if the gross proceeds of such issue are expended for the governmental purpose for which the bond was issued by no later than the day which is 6 months after the date of issuance of such issue. Gross proceeds which are held in a bona fide debt service fund shall not be considered gross proceeds for purposes of this clause only. “(G) Exemption from gross income of sum rebated.— Gross income does not include the sum described in subparagraph (D). Notwithstanding any other provision of this title, no deduction shall be allowed for any amount paid to the United States under subparagraph (D). “(H) Definitions.— For purposes of this paragraph— “(i) Nonpurpose obligations.— The term ‘nonpurpose obligation’ means any security (within the meaning of subparagraph (A) or (B) of section 165(g)(2)) or any obligation not described in subsection (a) which— “(I) is acquired with the gross proceeds of an issue, and “(II) is not acquired in order to carry out the governmental purpose of the issue. “(ii) Gross proceeds.— The gross proceeds of an issue include— “(I) amounts received (including repayments of principal) as a result of investing the original proceeds of the issue, and “(II) amounts used to pay debt service on the issue. “(iii) Yield.— The yield on the issue shall be determined on the basis of the issue price (within the meaning of section 1273 or 1274).”

71. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 622 · 98 Stat. 494

    1. Substituted · 26 U.S.C. § 103(h)

       Pub. L. 98–369, § 622, amended subsec. (h) generally, in par. (1) substituting provisions that obligations are not included in the section if they are federally guaranteed for provisions which excluded obligations guaranteed, in whole or part, by the U.S. under a program to conserve energy, or under other Federal or State programs, in par. (2) substituting provisions defining “federally guaranteed” for provisions setting forth obligations to which this subsection applies

    2. Added · 26 U.S.C. § 103(h)

       Pub. L. 98–369, § 622, adding pars. (3) to (5)

    Source evidence

    Code amendment note
    Subsec. (h). Pub. L. 98–369, § 622, amended subsec. (h) generally, in par. (1) substituting provisions that obligations are not included in the section if they are federally guaranteed for provisions which excluded obligations guaranteed, in whole or part, by the U.S. under a program to conserve energy, or under other Federal or State programs, in par. (2) substituting provisions defining “federally guaranteed” for provisions setting forth obligations to which this subsection applies, and adding pars. (3) to (5).

    Enacted provision · exact public law section
    SEC. 622. TAX EXEMPTION DENIED WHERE OBLIGATION DIRECTLY OR INDIRECTLY GUARANTEED BY FEDERAL GOVERNMENT. 26 USC 103. Subsection (h) of section 103 (relating to certain obligations which must not be guaranteed or subsidized under a energy program) is amended to read as follows: “(h) Obligation Must Not Be Guaranteed, Etc.— “(1) In general.— An obligation shall not be treated as an obligation described in subsection (a) if such obligation is federally guaranteed. “(2) Federally guaranteed defined.— For purposes of paragraph (1), an obligation is federally guaranteed if— “(A) the payment of principal or interest with respect to such obligation is guaranted (in whole or in part) by the United States (or any agency or instrumentality thereof), “(B) such obligation is issued as part of an issue and a significant portion of the proceeds of such issue are to be— “(i) used in making loans the payment of principal or interest with respect to which are to be guaranteed (in whole or in part) by the United States (or any agency or instrumentality thereof), or “(ii) invested (directly or indirectly) in federally insured deposits or accounts, or “(C) the payment of principal or interest on such obligation is otherwise indirectly guaranteed (in whole or in part by the United States (or an agency or instrumentality thereof). “(3) Exceptions.— “(A) Certain insurance programs.— An obligation shall not be treated as federally guaranteed by reason of— “(i) any guarantee by the Federal Housing Administration, the Veterans’ Administration, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association, “(ii) any guarantee of student loans and any guarantee by the Student Loan Marketing Association to finance student loans, “(iii) any guarantee by the Small Business Administration with respect to qualified contracts for pollution control facilities (within the meaning of section 404(a) of the Small Business Investment Act of 1958, as in 15 USC 694–1. effect on the date of the enactment of the Tax Reform Act of 1984) if— “(I) the Administrator of the Small Business Administration charges a fee for making such guarantee, and “(II) the amount of such fee equals or exceeds 1 percent of the amount guaranteed, or “(iv) any guarantee by the Bonneville Power Authority pursuant to the Northwest Power Act (16 U.S.C. 839d) as in effect on the date of the enactment of the Tax Reform Act of 1984 with respect to any obligation issued before July 1, 1989. “(B) Debt service, etc.— Paragraph (1) shall not apply to— “(i) proceeds of the issue invested for an initial temporary period until such proceeds are needed for the purpose for which such issue was issued, “(ii) investments of a bona fide debt service fund, “(iii) investments of a reserve which meet the requirements of subsection (c)(4)(B), “(iv) investments in obligations issued by the United States Treasury, or “(v) other investments permitted under regulations. “(C) Exception for housing programs.— “(i) In general.— Except as provided in clause (ii), paragraph (1) shall not apply to— “(I) an obligation described in subsection (b)(4)(A) or a housing program obligation under section 11(b) of the United States Housing Act of 1937, “(II) a qualified mortgage bond (as defined in section 103A(c)(1)), or “(III) a qualified veterans’ mortgage bond (as defined in section 103A(c)(3)). “(ii) Exception not to apply where obligation invested in federally insured deposits or accounts.— Clause (i) shall not apply to any obligation which is federally guaranteed within the meaning of paragraph (2)(B)(i). “(D) Loans to, or guarantees by, financial institutions.— Except as provided in paragraph (2)(B)(i), an obligation which is issued as part of an issue shall not be treated as federally guaranteed merely by reason of the fact that the proceeds of such issue are used in making loans to a financial institution or there is a guarantee by a financial institution. “(4) Definitions.— For purposes of this subsection— “(A) Treatment of certain entities with authority to borrow from united states.— To the extent provided in regulations prescribed by the Secretary, any entity with statutory authority to borrow from the United States shall be treated as an instrumentality of the United States. Except in the case of a private activity bond (as defined in subsection (n)(7)), nothing in the preceding sentence shall be construed as treating the District of Columbia or any possession of the United States as an instrumentality of the United States. “(B) Federally insured deposit or account.— The term ‘federally insured deposit or account’ means any deposit or account in a financial institution to the extent such deposit or account is insured under Federal law by the Federal Deposit Insurance Corporation, the Federal Savings and Loan Insurance Corporation, the National Credit Union Administration, or any similar federally chartered corporation. “(5) Certain obligations subsidized under energy program.— “(A) In general.— An obligation to which this paragraph S-3 shall be treated as an obligation not described in section (a) if the payment of the principal or interest with respect to such obligation is to be made (in whole or in part) under a program of the United States, a State, or a political subdivision of a State the principal purpose of which is to encourage the production or conservation of energy. “(B) Obligations to which paragraph applies.— This paragraph shall apply to any obligations to which paragraph (1) of subsection (b) does not apply by reason of— “(i) subsection (b)(4)(H) (relating to qualified hydroelectric generating facilities), or “(ii) subsection (g) (relating to qualified steamgenerating or alcohol-producing facilities).”

72. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 628(a)(1) · 98 Stat. 494

    Inserted · 26 U.S.C. § 103(m)(1)

    Pub. L. 98–369, § 628(a)(1), inserted “In the case of an obligation issued after December 31, 1983, such obligation shall not be treated as described in this paragraph unless the appropriate requirements of subsections (b), (c), (h), (k), (l), and (n) of this section and section 103A are met with respect to such obligation. For purposes of applying such requirements, a possession of the United States shall be treated as a State; except that clause (ii) of subsection (n)(4)(A) shall not apply.”

    Source evidence

    Code amendment note
    Subsec. (m)(1). Pub. L. 98–369, § 628(a)(1), inserted “In the case of an obligation issued after December 31, 1983, such obligation shall not be treated as described in this paragraph unless the appropriate requirements of subsections (b), (c), (h), (k), (l), and (n) of this section and section 103A are met with respect to such obligation. For purposes of applying such requirements, a possession of the United States shall be treated as a State; except that clause (ii) of subsection (n)(4)(A) shall not apply.”

    Enacted provision · exact public law section
    (1) Paragraph (1) of section 103(m) (relating to obligations 26 USC 103. exempt other than under this title) is amended by adding at the end thereof the following new sentence: “In the case of an obligation issued after December 31, 1983, such obligation shall not be treated as described in this paragraph unless the appropriate requirements of subsections (b), (c), (h), (k), (1), and (n) of this section and section 103A are met with respect to such obligation. For purposes of applying such requirements, a possession of the United States shall be treated as a State; except that clause (ii) of subsection (n)(4)(A) shall not apply.”

73. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 628(a)(2) · 98 Stat. 494

    Substituted · 26 U.S.C. § 103(m)(2)(B)

    Pub. L. 98–369, § 628(a)(2), substituted “is exempt from tax under this title without regard to any provision of law which is not contained in this title and which is not contained in a revenue Act” for “is exempt from taxation under any provision of this title”

    Source evidence

    Code amendment note
    Subsec. (m)(2)(B). Pub. L. 98–369, § 628(a)(2), substituted “is exempt from tax under this title without regard to any provision of law which is not contained in this title and which is not contained in a revenue Act” for “is exempt from taxation under any provision of this title”.

    Enacted provision · exact public law section
    (2) Subparagraph (B) of section 103(m)(2) is amended to read as follows: “(B) is exempt from tax under this title without regard to any provision of law which is not contained in this title and which is not contained in a revenue Act.”

74. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 628(a)(3) · 98 Stat. 494

    Added · 26 U.S.C. § 103(m)(3)

    Pub. L. 98–369, § 628(a)(3), added par. (3)

    Source evidence

    Code amendment note
    Subsec. (m)(3). Pub. L. 98–369, § 628(a)(3), added par. (3).

    Enacted provision · exact public law section
    (3) Subsection (m) of section 103 is amended by adding at the end thereof the following new paragraph: (4) Exceptions.— The following obligations shall be treated as obligations described in paragraph (1) (without regard to the second sentence thereof): “(A) Any obligation issued pursuant to the Northwest Power Act (16 U.S.C. 839d) as in effect on the date of the enactment of the Tax Reform Act of 1984. Ante, p. 494. “(B) Any obligation issued pursuant to section 608(6)(A) of Public Law 97–468. 45 USC 1207. “(C) Any obligation issued before June 19, 1984, under section 11(b) of the United States Housing Act of 1937.”

75. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 621 · 98 Stat. 494

    1. Added · 26 U.S.C. § 103(n)

       Pub. L. 98–369, § 621, added subsec. (n). Former subsec. (n), relating to cross references

    2. Redesignated · 26 U.S.C. § 103(n)

       Pub. L. 98–369, § 621, redesignated (o)

    Source evidence

    Code amendment note
    Subsec. (n). Pub. L. 98–369, § 621, added subsec. (n). Former subsec. (n), relating to cross references, redesignated (o).

    Enacted provision · exact public law section
    SEC. 621. LIMITATION ON AGGREGATE AMOUNT OF PRIVATE ACTIVITY-BONDS. Section 103 (relating to interest on certain governmental obligations 26 USC 103. Post, p. 926. is amended by redesignating subsection (n) as subsection (o) and by inserting after subsection (m) the following new subsection: “(n) Limitation on Aggregate Amount of Private Activity Bonds Issued During Any Calendar Year.— “(1) In general.— A private activity bond issued as part of an issue shall be treated as an obligation not described in subsection (a) if the aggregate amount of private activity bonds issued pursuant to such issue, when added to the aggregate amount of private activity bonds previously issued by the issuing authority during the calendar year, exceeds such authority’s private activity bond limit for such calendar year. “(2) Private activity bond limit for state agencies— For purposes of this subsection— “(A) In general.— The private activity bond limit for any agency of the State authorized to issue private activity bonds for any calendar year shall be 50 percent of the State ceiling for such calendar year. “(B) Special rule where state has more than i agency.— If more than 1 agency of the State is authorized to issue private activity bonds, all such agencies shall be treated as a single agency. “(3) Private activity bond limit for other issuers.— For purposes of this subsection— “(A) In general.— The private activity bond limit for any issuing authority (other than a State agency) for any calendar year shall be an amount which bears the same ratio to 50 percent of the State ceiling for such calendar year as— “(i) the population of the jurisdiction of such issuing authority, bears to “(ii) the population for the entire State. “(B) Overlapping jurisdictions.— For purposes of subparagraph (A)(i), the rules of section 103A(g)(3)(B) shall apply. “(4) State ceiling.— For purposes of this subsection— “(A) In general.— The State ceiling applicable to any State for any calendar year shall be the greater of “(i) an amount equal to $150 multiplied by the State’s population, or “(ii) $200,000,000. “(B) Phase in of limitation where amount of 1983 private activity bonds exceeds the ceiling.— “(i) In general.— In the case of any State which has an excess bond amount for 1983, the State ceiling for calendar year 1984 shall be the sum of the State ceiling determined under subparagraph (A) plus 50 percent of the excess bond amount for 1983. “(ii) Excess bond amount for 1983.— For purposes of clause (i), the excess bond amount for 1983 in any State is the excess (if any) of— “(I) the aggregate amount of private activity bonds issued by issuing authorities in such State during the first 9 months of calendar year 1983 multiplied by %, over “(II) the State ceiling determined under subparagraph (A) for calendar year 1984. “(C) Adjustment of ceiling to reflect partial termination of small issue exemption.— In the case of calendar years after 1986, subparagraph (A) shall be applied by substituting ‘$100’ for ‘$150’ “(5) Special rule for states with constitutional home rule cities.— In the case of any State with 1 or more constitutional home rule cities (as defined in section 103A(g)(5)(C)), the rules of paragraph (5) of section 103A(g) shall apply for purposes of this subsection. “(6) State may provide for different allocation.— “(A) In general.— A State may, by law provide a different formula for allocating the State ceiling among the governmental units in such State having authority to issue private activity bonds. “(B) Interim authority for governor.— “(i) In general.— The Governor of any State may proclaim a different formula for allocating the State ceiling among the governmental units in such State having authority to issue private activity bonds. “(ii) Termination of authority.— The authority provided in clause (i) shall not apply after the earlier of— “(I) the first day of the first calendar year beginning after the legislature has met in regular session for more than 60 days after the date of the enactment of this paragraph, or “(II) the effective date of any State legislation with respect to the allocation of the State ceiling. “(C) State may not alter allocation to constitutional home rule cities.— The rules of paragraph (6)(C) of section 103A(g) shall apply for purposes of this paragraph. “(7) Private activity bond.— For purposes of this subsection— “(A) In general.— Except as otherwise provided in the paragraph, the term ‘private activity bond’ means any obligation the interest on which is exempt from tax under subsection (a) and which is— “(i) an industrial development bond, or “(ii) a student loan bond. “(B) Exception for multifamily housing.— The term ‘private activity bond’ shall not include any obligation described in subsection (b)(4)(A) nor any housing program obligation under section 11(b) of the United States Housing 42 USC 1437i. Act of 1937. “(C) Exception for certain facilities described in section 103(b) (4) (C) OR (D).— “(i) In general.— The term ‘private activity bond’ shall not include any obligation described in subparagraph (C) or (D) of subsection (b)(4), but only if the property described in such subparagraph is owned by or on behalf of a governmental unit. “(ii) Exception not to apply to certain parking facilities.— For purposes of clause (i), subparagraph (D) of subsection (b)(4) shall be applied as if it did not contain the phrase ‘parking facilities’. “(iii) Determination of whether property owned by governmental unit.— For purposes of clause (i), property shall not be treated as not owned by a govern-mental unit solely by reason of the length of the lease to which it is subject if the lessee makes an irrevocable election (binding on the lessee and all successors in interest under the lease) not to claim depreciation or an investment credit with respect to such property. “(iv) Restriction where significant front end loading.— Under regulations prescribed by the Secretary, clause (i) shall not apply in any case where the property is leased under a lease which has significant front end loading of rental accruals or payments. “(D) Refunding issues.— The term ‘private activity bond’ shall not include any obligation which is issued to refund another obligation to the extent that the amount of such obligation does not exceed the amount of the refunded obligation. In the case of any student loan bond, the preceding sentence shall apply only if the maturity date of the refunding obligation is not later than the later of— “(i) the maturity of the obligation to be refunded, or “(ii) the date 17 years after the date on which the refunded obligation was issued (or in the case of a series of refundings, the date on which the original obligation was issued). “(8) Student loan bonds.— For purposes of this subsection, the term ‘student loan bond’ means an obligation which is issued as part of an issue all or a major portion of the proceeds of which are to be used directly or indirectly to finance loans to individuals for educational expenses. “(9) Population.— For purposes of this subsection, determinations of the population of any State (or issuing authority) shall be made with respect to any calendar year on the basis of the most recent census estimate of the resident population of such State (or issuing authority) published by the Bureau of the Census before the beginning of such calendar year. “(10) Elective carryforward of unused limitation for specified project.— “(A) In general.— If— “(i) an issuing authority’s private activity bond limit for any calendar year after 1983, exceeds “(ii) the aggregate amount of private activity bonds issued during such calendar year by such authority, such authority may elect to treat all (or any portion) of such excess as a carryforward for 1 or more carryforward projects. “(B) Election must specify project.— In any election under subparagraph (A), the issuing authority shall— “(i) specify the project (or projects) for which the carryforward is elected, and “(ii) specify the portion of the excess described in subparagraph (A) which is to be a carryforward for each such project. “(C) Use of carryforward.— “(i) In general.— If any issuing authority elects a carryforward under subparagraph (A) with respect to any carryforward project, any private activity bonds issued by such authority with respect to such project during the 3 calendar years (or, in the case of a project described in subsection (b)(4)(F), 6 calendar years) following the calendar year in which the carryforward arose shall not be taken into account under paragraph (1) to the extent the amount of such bonds do not exceed the amount of the carryforward elected for such project. “(ii) Order in which carryforward used.— Carry-forwards elected with respect to any project shall be used in the order of the calendar years in which they arose. “(D) Election.— Any election made under this paragraph shall be made at such time and in such manner as the Secretary shall by regulations prescribe. Any such election (and any specification contained therein), once made, shall be irrevocable. “(E) Carryforward project.— For purposes of this paragraph, the term ‘carryforward project’ means— “(i) any project described in paragraph (4) or (5) of subsection (b), and “(ii) the purpose of issuing student loan bonds. “(11) Treatment of qualified scholarship funding bonds.— In the case of a qualified scholarship funding bond (as defined in subsection (e)), such bond shall be treated for purposes of this subsection as issued by a State or local issuing authority (whichever is appropriate). “(12) Certification of no consideration for allocation.— “(A) In general.— Any private activity bond allocated any portion of the State limit shall not be exempt from tax under subsection (a) unless the public official if any responsible for such allocation certifies under penalty of perjury that the allocation was not made in consideration of any bribe, gift, gratuity, or direct or indirect contribution to any political campaign. “(B) Any criminal penalty made applicable.— Any person willfully making an allocation described in subparagraph (A) in consideration of any bribe, gift, gratuity, or direct or indirect contribution to any political campaign shall be subject to criminal penalty to the same extent as if such allocation were a willful attempt to evade tax imposed by this title.”

76. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 626(a) · 98 Stat. 494

    Added · 26 U.S.C. § 103(o)

    Pub. L. 98–369, § 626(a), added subsec. (o) relating to consumer loan bonds

    Source evidence

    Code amendment note
    Subsec. (o). Pub. L. 98–369, § 626(a), added subsec. (o) relating to consumer loan bonds.

    Enacted provision · exact public law section
    (a) In General.— Section 103 (relating to interest on certain governmental obligations) is amended by adding at the end thereof the following new subsection: “(o) Consumer Loan Bonds.— “(1) Denial of tax exemption.— For purposes of this title, any consumer loan bond shall be treated as an obligation which is not described in subsection (a). “(2) Consumer loan bonds.— For purposes of this subsection— “(A) In general.— The term ‘consumer loan bond’ means any obligation which is issued as part of an issue all or a significant portion of the proceeds of which are reasonably expected to be used directly or indirectly to make or finance loans (other than loans described in subparagraph (O) to persons who are not exempt persons (within the meaning of subsection (b)(3)). “(B) Excluded obligations.— The term ‘consumer loan bond’ shall not include any— “(i) qualified student loan bond, “(ii) industrial development bond, or “(iii) qualified mortgage bond or qualified veterans’ mortgage bond. “(C) Excluded loans.— A loan is described in this subparagraph if the loan— “(i) enables the borrower to finance any governmental tax or assessment of general application for an essential governmental function, or “(ii) is used to acquire or carry nonpurpose obligations (within the meaning of subsection (c)(6)(G)(i)). “(3) Qualified student loan bonds.— For purposes of this subsection, the term ‘qualified student loan bond’ means any obligation which is issued as part of an issue all or a major portion of the proceeds of which are reasonably expected to be used directly or indirectly to make or finance student loans under a program of general application to which the Higher 20 USC 1001 note. Education Act of 1965 applies if— “(A) limitations are imposed under the program on— “(i) the maximum amount of loans outstanding to any student, and “(ii) the maximum rate of interest payable on any loan, “(B) the loans are directly or indirectly guaranteed by the Federal Government, “(C) the financing of loans under the program is not limited by Federal law to the proceeds of obligations the interest on which is exempt from taxation under this title, and “(D) special allowance payments under section 438 of the Higher Education Act of 1965— 20 USC 1087–1. “(i) are authorized to be paid with respect to loans made under the program, or “(ii) would be authorized to be made with respect to loans under the program if such loans were not financed with the proceeds of obligations the interest on which is exempt from taxation under this title. Such term shall not include any obligation issued under a State program which discriminates on the basis of the location (in the United States) at which the educational institution is located.”

77. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 621 · 98 Stat. 494

    Redesignated · 26 U.S.C. § 103(o)

    Pub. L. 98–369, § 621, redesignated subsec. (n), relating to cross references, as (o)

    Target inherited from the preceding amendment note.

    Source evidence

    Code amendment note
    Pub. L. 98–369, § 621, redesignated subsec. (n), relating to cross references, as (o).

    Enacted provision · exact public law section
    SEC. 621. LIMITATION ON AGGREGATE AMOUNT OF PRIVATE ACTIVITY-BONDS. Section 103 (relating to interest on certain governmental obligations 26 USC 103. Post, p. 926. is amended by redesignating subsection (n) as subsection (o) and by inserting after subsection (m) the following new subsection: “(n) Limitation on Aggregate Amount of Private Activity Bonds Issued During Any Calendar Year.— “(1) In general.— A private activity bond issued as part of an issue shall be treated as an obligation not described in subsection (a) if the aggregate amount of private activity bonds issued pursuant to such issue, when added to the aggregate amount of private activity bonds previously issued by the issuing authority during the calendar year, exceeds such authority’s private activity bond limit for such calendar year. “(2) Private activity bond limit for state agencies— For purposes of this subsection— “(A) In general.— The private activity bond limit for any agency of the State authorized to issue private activity bonds for any calendar year shall be 50 percent of the State ceiling for such calendar year. “(B) Special rule where state has more than i agency.— If more than 1 agency of the State is authorized to issue private activity bonds, all such agencies shall be treated as a single agency. “(3) Private activity bond limit for other issuers.— For purposes of this subsection— “(A) In general.— The private activity bond limit for any issuing authority (other than a State agency) for any calendar year shall be an amount which bears the same ratio to 50 percent of the State ceiling for such calendar year as— “(i) the population of the jurisdiction of such issuing authority, bears to “(ii) the population for the entire State. “(B) Overlapping jurisdictions.— For purposes of subparagraph (A)(i), the rules of section 103A(g)(3)(B) shall apply. “(4) State ceiling.— For purposes of this subsection— “(A) In general.— The State ceiling applicable to any State for any calendar year shall be the greater of “(i) an amount equal to $150 multiplied by the State’s population, or “(ii) $200,000,000. “(B) Phase in of limitation where amount of 1983 private activity bonds exceeds the ceiling.— “(i) In general.— In the case of any State which has an excess bond amount for 1983, the State ceiling for calendar year 1984 shall be the sum of the State ceiling determined under subparagraph (A) plus 50 percent of the excess bond amount for 1983. “(ii) Excess bond amount for 1983.— For purposes of clause (i), the excess bond amount for 1983 in any State is the excess (if any) of— “(I) the aggregate amount of private activity bonds issued by issuing authorities in such State during the first 9 months of calendar year 1983 multiplied by %, over “(II) the State ceiling determined under subparagraph (A) for calendar year 1984. “(C) Adjustment of ceiling to reflect partial termination of small issue exemption.— In the case of calendar years after 1986, subparagraph (A) shall be applied by substituting ‘$100’ for ‘$150’ “(5) Special rule for states with constitutional home rule cities.— In the case of any State with 1 or more constitutional home rule cities (as defined in section 103A(g)(5)(C)), the rules of paragraph (5) of section 103A(g) shall apply for purposes of this subsection. “(6) State may provide for different allocation.— “(A) In general.— A State may, by law provide a different formula for allocating the State ceiling among the governmental units in such State having authority to issue private activity bonds. “(B) Interim authority for governor.— “(i) In general.— The Governor of any State may proclaim a different formula for allocating the State ceiling among the governmental units in such State having authority to issue private activity bonds. “(ii) Termination of authority.— The authority provided in clause (i) shall not apply after the earlier of— “(I) the first day of the first calendar year beginning after the legislature has met in regular session for more than 60 days after the date of the enactment of this paragraph, or “(II) the effective date of any State legislation with respect to the allocation of the State ceiling. “(C) State may not alter allocation to constitutional home rule cities.— The rules of paragraph (6)(C) of section 103A(g) shall apply for purposes of this paragraph. “(7) Private activity bond.— For purposes of this subsection— “(A) In general.— Except as otherwise provided in the paragraph, the term ‘private activity bond’ means any obligation the interest on which is exempt from tax under subsection (a) and which is— “(i) an industrial development bond, or “(ii) a student loan bond. “(B) Exception for multifamily housing.— The term ‘private activity bond’ shall not include any obligation described in subsection (b)(4)(A) nor any housing program obligation under section 11(b) of the United States Housing 42 USC 1437i. Act of 1937. “(C) Exception for certain facilities described in section 103(b) (4) (C) OR (D).— “(i) In general.— The term ‘private activity bond’ shall not include any obligation described in subparagraph (C) or (D) of subsection (b)(4), but only if the property described in such subparagraph is owned by or on behalf of a governmental unit. “(ii) Exception not to apply to certain parking facilities.— For purposes of clause (i), subparagraph (D) of subsection (b)(4) shall be applied as if it did not contain the phrase ‘parking facilities’. “(iii) Determination of whether property owned by governmental unit.— For purposes of clause (i), property shall not be treated as not owned by a govern-mental unit solely by reason of the length of the lease to which it is subject if the lessee makes an irrevocable election (binding on the lessee and all successors in interest under the lease) not to claim depreciation or an investment credit with respect to such property. “(iv) Restriction where significant front end loading.— Under regulations prescribed by the Secretary, clause (i) shall not apply in any case where the property is leased under a lease which has significant front end loading of rental accruals or payments. “(D) Refunding issues.— The term ‘private activity bond’ shall not include any obligation which is issued to refund another obligation to the extent that the amount of such obligation does not exceed the amount of the refunded obligation. In the case of any student loan bond, the preceding sentence shall apply only if the maturity date of the refunding obligation is not later than the later of— “(i) the maturity of the obligation to be refunded, or “(ii) the date 17 years after the date on which the refunded obligation was issued (or in the case of a series of refundings, the date on which the original obligation was issued). “(8) Student loan bonds.— For purposes of this subsection, the term ‘student loan bond’ means an obligation which is issued as part of an issue all or a major portion of the proceeds of which are to be used directly or indirectly to finance loans to individuals for educational expenses. “(9) Population.— For purposes of this subsection, determinations of the population of any State (or issuing authority) shall be made with respect to any calendar year on the basis of the most recent census estimate of the resident population of such State (or issuing authority) published by the Bureau of the Census before the beginning of such calendar year. “(10) Elective carryforward of unused limitation for specified project.— “(A) In general.— If— “(i) an issuing authority’s private activity bond limit for any calendar year after 1983, exceeds “(ii) the aggregate amount of private activity bonds issued during such calendar year by such authority, such authority may elect to treat all (or any portion) of such excess as a carryforward for 1 or more carryforward projects. “(B) Election must specify project.— In any election under subparagraph (A), the issuing authority shall— “(i) specify the project (or projects) for which the carryforward is elected, and “(ii) specify the portion of the excess described in subparagraph (A) which is to be a carryforward for each such project. “(C) Use of carryforward.— “(i) In general.— If any issuing authority elects a carryforward under subparagraph (A) with respect to any carryforward project, any private activity bonds issued by such authority with respect to such project during the 3 calendar years (or, in the case of a project described in subsection (b)(4)(F), 6 calendar years) following the calendar year in which the carryforward arose shall not be taken into account under paragraph (1) to the extent the amount of such bonds do not exceed the amount of the carryforward elected for such project. “(ii) Order in which carryforward used.— Carry-forwards elected with respect to any project shall be used in the order of the calendar years in which they arose. “(D) Election.— Any election made under this paragraph shall be made at such time and in such manner as the Secretary shall by regulations prescribe. Any such election (and any specification contained therein), once made, shall be irrevocable. “(E) Carryforward project.— For purposes of this paragraph, the term ‘carryforward project’ means— “(i) any project described in paragraph (4) or (5) of subsection (b), and “(ii) the purpose of issuing student loan bonds. “(11) Treatment of qualified scholarship funding bonds.— In the case of a qualified scholarship funding bond (as defined in subsection (e)), such bond shall be treated for purposes of this subsection as issued by a State or local issuing authority (whichever is appropriate). “(12) Certification of no consideration for allocation.— “(A) In general.— Any private activity bond allocated any portion of the State limit shall not be exempt from tax under subsection (a) unless the public official if any responsible for such allocation certifies under penalty of perjury that the allocation was not made in consideration of any bribe, gift, gratuity, or direct or indirect contribution to any political campaign. “(B) Any criminal penalty made applicable.— Any person willfully making an allocation described in subparagraph (A) in consideration of any bribe, gift, gratuity, or direct or indirect contribution to any political campaign shall be subject to criminal penalty to the same extent as if such allocation were a willful attempt to evade tax imposed by this title.”

78. 1986

    Consolidated Omnibus Budget Reconciliation Act of 1985

    Pub. L. 99–272 title XIII § 13209(e) · 100 Stat. 82

    Struck · 26 U.S.C. § 103(b)(11)

    Pub. L. 99–272 struck out par. (11) relating to pollution control facilities acquired by regional pollution control authorities

    Source evidence

    Code amendment note
    Subsec. (b)(11). Pub. L. 99–272 struck out par. (11) relating to pollution control facilities acquired by regional pollution control authorities.

    Enacted provision · exact public law section
    (e) Repeal of Section 103(b)(11).— Paragraph (11) of section 103(b) 26 USC 103. is hereby repealed.

79. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1301(a) · 100 Stat. 2085

    1. Changed · 26 U.S.C. § 103

       Pub. L. 99–514, § 1301(a), in amending section generally

    2. Substituted · 26 U.S.C. § 103

       Pub. L. 99–514, § 1301(a), in substituted “Interest on State and local bonds” for “Interest on certain governmental obligations” in section catchline

    Source evidence

    Code amendment note
    Pub. L. 99–514, § 1301(a), in amending section generally, substituted “Interest on State and local bonds” for “Interest on certain governmental obligations” in section catchline.

    Enacted provision · exact public law section
    (a) Exclusion for Interest on Bonds Which Meet Certain Requirements.— Section 103 (relating to interest on certain governmental obligations) is amended to read as follows: “SEC. 103. INTEREST ON STATE AND LOCAL BONDS. “(a) Exclusion.— Except as provided in subsection (b), gross income does not include interest on any State or local bond. “(b) Exceptions.— Subsection (a) shall not apply to— “(1) Private activity bond which is not a qualified bond.— Any private activity bond which is not a qualified bond (within the meaning of section 141). “(2) Arbitrage bond.— Any arbitrage bond (within the meaning of section 148). “(3) Bond not in registered form, etc.— Any bond unless such bond meets the applicable requirements of section 149. “(c) Definitions.— For purposes of this section and part IV— “(1) State or local bond.— The term ‘State or local bond’ means an obligation of a State or political subdivision thereof. “(2) State.— The term ‘State’ includes the District of Columbia and any possession of the United States.”

80. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1301(a) · 100 Stat. 2085

    1. Substituted · 26 U.S.C. § 103(a)

       Pub. L. 99–514, § 1301(a), substituted “Exclusion” for “General rule” in heading

    2. Amended · 26 U.S.C. § 103(a)

       Pub. L. 99–514, § 1301(a), amended text generally. Prior to amendment, text read as follows: “Gross income does not include interest on—

    Source evidence

    Code amendment note
    Subsec. (a). Pub. L. 99–514, § 1301(a), substituted “Exclusion” for “General rule” in heading and amended text generally. Prior to amendment, text read as follows: “Gross income does not include interest on—

    “(1) the obligations of a State, a Territory, or a possession of the United States, or any political subdivision of any of the foregoing, or of the District of Columbia; and “(2) qualified scholarship funding bonds.”

    Enacted provision · exact public law section
    (a) Exclusion for Interest on Bonds Which Meet Certain Requirements.— Section 103 (relating to interest on certain governmental obligations) is amended to read as follows: “SEC. 103. INTEREST ON STATE AND LOCAL BONDS. “(a) Exclusion.— Except as provided in subsection (b), gross income does not include interest on any State or local bond. “(b) Exceptions.— Subsection (a) shall not apply to— “(1) Private activity bond which is not a qualified bond.— Any private activity bond which is not a qualified bond (within the meaning of section 141). “(2) Arbitrage bond.— Any arbitrage bond (within the meaning of section 148). “(3) Bond not in registered form, etc.— Any bond unless such bond meets the applicable requirements of section 149. “(c) Definitions.— For purposes of this section and part IV— “(1) State or local bond.— The term ‘State or local bond’ means an obligation of a State or political subdivision thereof. “(2) State.— The term ‘State’ includes the District of Columbia and any possession of the United States.”

81. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1301(a) · 100 Stat. 2085

    1. Changed · 26 U.S.C. § 103(b)

       Pub. L. 99–514, § 1301(a), in amending section generally

    2. Substituted · 26 U.S.C. § 103(b)

       Pub. L. 99–514, § 1301(a), in substituted provision relating to exceptions for provision relating to industrial development bonds

    Source evidence

    Code amendment note
    Subsec. (b). Pub. L. 99–514, § 1301(a), in amending section generally, substituted provision relating to exceptions for provision relating to industrial development bonds.

    Enacted provision · exact public law section
    (a) Exclusion for Interest on Bonds Which Meet Certain Requirements.— Section 103 (relating to interest on certain governmental obligations) is amended to read as follows: “SEC. 103. INTEREST ON STATE AND LOCAL BONDS. “(a) Exclusion.— Except as provided in subsection (b), gross income does not include interest on any State or local bond. “(b) Exceptions.— Subsection (a) shall not apply to— “(1) Private activity bond which is not a qualified bond.— Any private activity bond which is not a qualified bond (within the meaning of section 141). “(2) Arbitrage bond.— Any arbitrage bond (within the meaning of section 148). “(3) Bond not in registered form, etc.— Any bond unless such bond meets the applicable requirements of section 149. “(c) Definitions.— For purposes of this section and part IV— “(1) State or local bond.— The term ‘State or local bond’ means an obligation of a State or political subdivision thereof. “(2) State.— The term ‘State’ includes the District of Columbia and any possession of the United States.”

82. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1871(b) · 100 Stat. 2085

    Substituted · 26 U.S.C. § 103(b)(13); 26 U.S.C. § 103(14)(A)

    Pub. L. 99–514, § 1871(b), substituted “and (6)” for “(6), and (7)”

    Source evidence

    Code amendment note
    Subsec. (b)(13), (14)(A). Pub. L. 99–514, § 1871(b), substituted “and (6)” for “(6), and (7)”.

    Enacted provision · exact public law section
    (b) Conforming Amendments to Repeal of Advance Refunding of Qualified Public Facilities.— Paragraphs (13), (14)(A), and (17)(A) of section 103(b) are each amended by striking out “(6), and (7)” and inserting in lieu thereof “and (6)”.

83. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1870 · 100 Stat. 2085

    Substituted · 26 U.S.C. § 103(b)(16)(A)

    Pub. L. 99–514, § 1870, substituted “clause (ii)” for “clause (i)”

    Source evidence

    Code amendment note
    Subsec. (b)(16)(A). Pub. L. 99–514, § 1870, substituted “clause (ii)” for “clause (i)”.

    Enacted provision · exact public law section
    SEC. 1870. AMENDMENT RELATED TO SECTION «27 OF THE ACT. Subparagraph (A) of section 103(b)(16) (relating to limitation on use for land acquisition) is amended by striking out “clause (i)” in the last sentence and inserting in lieu thereof “clause (ii)”.

84. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1871(b) · 100 Stat. 2085

    Substituted · 26 U.S.C. § 103(b)(17)(A)

    Pub. L. 99–514, § 1871(b), substituted “and (6)” for “(6), and (7)”

    Source evidence

    Code amendment note
    Subsec. (b)(17)(A). Pub. L. 99–514, § 1871(b), substituted “and (6)” for “(6), and (7)”.

    Enacted provision · exact public law section
    (b) Conforming Amendments to Repeal of Advance Refunding of Qualified Public Facilities.— Paragraphs (13), (14)(A), and (17)(A) of section 103(b) are each amended by striking out “(6), and (7)” and inserting in lieu thereof “and (6)”.

85. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1301(a) · 100 Stat. 2085

    1. Changed · 26 U.S.C. § 103(c)

       Pub. L. 99–514, § 1301(a), in amending section generally

    2. Substituted · 26 U.S.C. § 103(c)

       Pub. L. 99–514, § 1301(a), in substituted provision relating to definitions for provision relating to arbitrage

    Source evidence

    Code amendment note
    Subsec. (c). Pub. L. 99–514, § 1301(a), in amending section generally, substituted provision relating to definitions for provision relating to arbitrage.

    Enacted provision · exact public law section
    (a) Exclusion for Interest on Bonds Which Meet Certain Requirements.— Section 103 (relating to interest on certain governmental obligations) is amended to read as follows: “SEC. 103. INTEREST ON STATE AND LOCAL BONDS. “(a) Exclusion.— Except as provided in subsection (b), gross income does not include interest on any State or local bond. “(b) Exceptions.— Subsection (a) shall not apply to— “(1) Private activity bond which is not a qualified bond.— Any private activity bond which is not a qualified bond (within the meaning of section 141). “(2) Arbitrage bond.— Any arbitrage bond (within the meaning of section 148). “(3) Bond not in registered form, etc.— Any bond unless such bond meets the applicable requirements of section 149. “(c) Definitions.— For purposes of this section and part IV— “(1) State or local bond.— The term ‘State or local bond’ means an obligation of a State or political subdivision thereof. “(2) State.— The term ‘State’ includes the District of Columbia and any possession of the United States.”

86. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1301(a) · 100 Stat. 2085

    1. Changed · 26 U.S.C. § 103(d)(g)

       Pub. L. 99–514, § 1301(a), in amending section generally

    2. Struck · 26 U.S.C. § 103(d)(g)

       Pub. L. 99–514, § 1301(a), in struck out subsecs. (d) to (g) which related to certain irrigation dams, qualified scholarship funding bonds, certain federally guaranteed obligations, and qualified steam-generating or alcohol-producing facilities, respectively

    Source evidence

    Code amendment note
    Subsecs. (d) to (g). Pub. L. 99–514, § 1301(a), in amending section generally, struck out subsecs. (d) to (g) which related to certain irrigation dams, qualified scholarship funding bonds, certain federally guaranteed obligations, and qualified steam-generating or alcohol-producing facilities, respectively.

    Enacted provision · exact public law section
    (a) Exclusion for Interest on Bonds Which Meet Certain Requirements.— Section 103 (relating to interest on certain governmental obligations) is amended to read as follows: “SEC. 103. INTEREST ON STATE AND LOCAL BONDS. “(a) Exclusion.— Except as provided in subsection (b), gross income does not include interest on any State or local bond. “(b) Exceptions.— Subsection (a) shall not apply to— “(1) Private activity bond which is not a qualified bond.— Any private activity bond which is not a qualified bond (within the meaning of section 141). “(2) Arbitrage bond.— Any arbitrage bond (within the meaning of section 148). “(3) Bond not in registered form, etc.— Any bond unless such bond meets the applicable requirements of section 149. “(c) Definitions.— For purposes of this section and part IV— “(1) State or local bond.— The term ‘State or local bond’ means an obligation of a State or political subdivision thereof. “(2) State.— The term ‘State’ includes the District of Columbia and any possession of the United States.”

87. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1301(a) · 100 Stat. 2085

    1. Changed · 26 U.S.C. § 103(h)

       Pub. L. 99–514, § 1301(a), in amending section generally

    2. Struck · 26 U.S.C. § 103(h)

       Pub. L. 99–514, § 1301(a), in struck out subsec. (h) which provided that obligations must not be guaranteed

    Source evidence

    Code amendment note
    Subsec. (h). Pub. L. 99–514, § 1301(a), in amending section generally, struck out subsec. (h) which provided that obligations must not be guaranteed.

    Enacted provision · exact public law section
    (a) Exclusion for Interest on Bonds Which Meet Certain Requirements.— Section 103 (relating to interest on certain governmental obligations) is amended to read as follows: “SEC. 103. INTEREST ON STATE AND LOCAL BONDS. “(a) Exclusion.— Except as provided in subsection (b), gross income does not include interest on any State or local bond. “(b) Exceptions.— Subsection (a) shall not apply to— “(1) Private activity bond which is not a qualified bond.— Any private activity bond which is not a qualified bond (within the meaning of section 141). “(2) Arbitrage bond.— Any arbitrage bond (within the meaning of section 148). “(3) Bond not in registered form, etc.— Any bond unless such bond meets the applicable requirements of section 149. “(c) Definitions.— For purposes of this section and part IV— “(1) State or local bond.— The term ‘State or local bond’ means an obligation of a State or political subdivision thereof. “(2) State.— The term ‘State’ includes the District of Columbia and any possession of the United States.”

88. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1899A(2) · 100 Stat. 2085

    Substituted · 26 U.S.C. § 103(h)(2)(A)

    Pub. L. 99–514, § 1899A(2), substituted “guaranteed” for “guaranted”

    Source evidence

    Code amendment note
    Subsec. (h)(2)(A). Pub. L. 99–514, § 1899A(2), substituted “guaranteed” for “guaranted”.

    Enacted provision · exact public law section
    (2) Subparagraph (A) of section 103(h)(2) (relating to prohibition of discrimination) is amended by striking out “guaranted” and inserting in lieu thereof “guaranteed”.

89. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1865(a) · 100 Stat. 2085

    Struck · 26 U.S.C. § 103(h)(5)(A)

    Pub. L. 99–514, § 1865(a), struck out “the United States,” after “program of”

    Source evidence

    Code amendment note
    Subsec. (h)(5)(A). Pub. L. 99–514, § 1865(a), struck out “the United States,” after “program of”.

    Enacted provision · exact public law section
    (a) Clerical Amendment.— Subparagraph (A) of section 103(h)(5) (relating to certain obligations subsidized under energy program) is amended by striking out “the United States,”.

90. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1301(a) · 100 Stat. 2085

    1. Changed · 26 U.S.C. § 103(i)(k)

       Pub. L. 99–514, § 1301(a), in amending section generally

    2. Struck · 26 U.S.C. § 103(i)(k)

       Pub. L. 99–514, § 1301(a), in struck out subsecs. (i) to (k) which related to obligations of certain volunteer fire departments, provided that obligations must be in registered form to be tax-exempt, and required public approval for industrial development bonds, respectively

    Source evidence

    Code amendment note
    Subsecs. (i) to (k). Pub. L. 99–514, § 1301(a), in amending section generally, struck out subsecs. (i) to (k) which related to obligations of certain volunteer fire departments, provided that obligations must be in registered form to be tax-exempt, and required public approval for industrial development bonds, respectively.

    Enacted provision · exact public law section
    (a) Exclusion for Interest on Bonds Which Meet Certain Requirements.— Section 103 (relating to interest on certain governmental obligations) is amended to read as follows: “SEC. 103. INTEREST ON STATE AND LOCAL BONDS. “(a) Exclusion.— Except as provided in subsection (b), gross income does not include interest on any State or local bond. “(b) Exceptions.— Subsection (a) shall not apply to— “(1) Private activity bond which is not a qualified bond.— Any private activity bond which is not a qualified bond (within the meaning of section 141). “(2) Arbitrage bond.— Any arbitrage bond (within the meaning of section 148). “(3) Bond not in registered form, etc.— Any bond unless such bond meets the applicable requirements of section 149. “(c) Definitions.— For purposes of this section and part IV— “(1) State or local bond.— The term ‘State or local bond’ means an obligation of a State or political subdivision thereof. “(2) State.— The term ‘State’ includes the District of Columbia and any possession of the United States.”

91. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1301(a) · 100 Stat. 2085

    1. Changed · 26 U.S.C. § 103(l)

       Pub. L. 99–514, § 1301(a), in amending section generally

    2. Struck · 26 U.S.C. § 103(l)

       Pub. L. 99–514, § 1301(a), in struck out subsec. (l) which related to information reporting requirements for certain bonds

    Source evidence

    Code amendment note
    Subsec. (l). Pub. L. 99–514, § 1301(a), in amending section generally, struck out subsec. (l) which related to information reporting requirements for certain bonds.

    Enacted provision · exact public law section
    (a) Exclusion for Interest on Bonds Which Meet Certain Requirements.— Section 103 (relating to interest on certain governmental obligations) is amended to read as follows: “SEC. 103. INTEREST ON STATE AND LOCAL BONDS. “(a) Exclusion.— Except as provided in subsection (b), gross income does not include interest on any State or local bond. “(b) Exceptions.— Subsection (a) shall not apply to— “(1) Private activity bond which is not a qualified bond.— Any private activity bond which is not a qualified bond (within the meaning of section 141). “(2) Arbitrage bond.— Any arbitrage bond (within the meaning of section 148). “(3) Bond not in registered form, etc.— Any bond unless such bond meets the applicable requirements of section 149. “(c) Definitions.— For purposes of this section and part IV— “(1) State or local bond.— The term ‘State or local bond’ means an obligation of a State or political subdivision thereof. “(2) State.— The term ‘State’ includes the District of Columbia and any possession of the United States.”

92. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1864(d) · 100 Stat. 2085

    Added · 26 U.S.C. § 103(l)(2)(F)

    Pub. L. 99–514, § 1864(d), added subpar. (F) which read: “if such obligation is a private activity bond (as defined in subsection (n)(7)), such information as the Secretary may require for purposes of determining whether the requirements of subsection (n) are met with respect to such obligation.”

    Source evidence

    Code amendment note
    Subsec. (l)(2)(F). Pub. L. 99–514, § 1864(d), added subpar. (F) which read: “if such obligation is a private activity bond (as defined in subsection (n)(7)), such information as the Secretary may require for purposes of determining whether the requirements of subsection (n) are met with respect to such obligation.”

    Enacted provision · exact public law section
    (d) Information Reporting on Allocation of Private Activity Bond Limit.— Paragraph (2) of section 103(1) (relating to information reporting requirements for certain bonds) is amended by striking out “and” at the end of subparagraph (D), by striking out the period at the end of subparagraph (E) and inserting in lieu thereof “, and”, and by adding at the end thereof the following new subparagraph: “(F) if such obligation is a private activity bond (as defined in subsection (n)), such information as the Secretary may require for purposes of determining whether the requirements of subsection (n) are met with respect to such obligation.”

93. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1301(a) · 100 Stat. 2085

    1. Changed · 26 U.S.C. § 103(m)

       Pub. L. 99–514, § 1301(a), in amending section generally

    2. Struck · 26 U.S.C. § 103(m)

       Pub. L. 99–514, § 1301(a), in struck out subsec. (m) which related to obligations exempt other than under this title

    Source evidence

    Code amendment note
    Subsec. (m). Pub. L. 99–514, § 1301(a), in amending section generally, struck out subsec. (m) which related to obligations exempt other than under this title.

    Enacted provision · exact public law section
    (a) Exclusion for Interest on Bonds Which Meet Certain Requirements.— Section 103 (relating to interest on certain governmental obligations) is amended to read as follows: “SEC. 103. INTEREST ON STATE AND LOCAL BONDS. “(a) Exclusion.— Except as provided in subsection (b), gross income does not include interest on any State or local bond. “(b) Exceptions.— Subsection (a) shall not apply to— “(1) Private activity bond which is not a qualified bond.— Any private activity bond which is not a qualified bond (within the meaning of section 141). “(2) Arbitrage bond.— Any arbitrage bond (within the meaning of section 148). “(3) Bond not in registered form, etc.— Any bond unless such bond meets the applicable requirements of section 149. “(c) Definitions.— For purposes of this section and part IV— “(1) State or local bond.— The term ‘State or local bond’ means an obligation of a State or political subdivision thereof. “(2) State.— The term ‘State’ includes the District of Columbia and any possession of the United States.”

94. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1871(a)(1) · 100 Stat. 2085

    Substituted · 26 U.S.C. § 103(m)(1)

    Pub. L. 99–514, § 1871(a)(1), substituted “(j), (k), (l), (n), and (o)” for “(k), (l), and (n)”

    Source evidence

    Code amendment note
    Subsec. (m)(1). Pub. L. 99–514, § 1871(a)(1), substituted “(j), (k), (l), (n), and (o)” for “(k), (l), and (n)”.

    Enacted provision · exact public law section
    (1) In general.— Paragraph (1) of section 103(m) (relating to obligations exempt other than under this title) is amended by striking out “(k), (1), and (n)” and inserting in lieu thereof “(j), (k), (1), (n), and (o)”.

95. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1899A(3) · 100 Stat. 2085

    Substituted · 26 U.S.C. § 103(m)(3)(B)

    Pub. L. 99–514, § 1899A(3), substituted “608(a)(6)(A)” for “608(6)(A)”

    Source evidence

    Code amendment note
    Subsec. (m)(3)(B). Pub. L. 99–514, § 1899A(3), substituted “608(a)(6)(A)” for “608(6)(A)”.

    Enacted provision · exact public law section
    (3) Subparagraph (B) of section 103(m)(3) (relating to exceptions) is amended by striking out “section 608(6)(A)” and inserting in lieu thereof “section 608(a)(6)(A)”.

96. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1301(a) · 100 Stat. 2085

    1. Changed · 26 U.S.C. § 103(n)

       Pub. L. 99–514, § 1301(a), in amending section generally

    2. Struck · 26 U.S.C. § 103(n)

       Pub. L. 99–514, § 1301(a), in struck out subsec. (n) which related to limitation on aggregate amount of private activity bonds issued during any calendar year

    Source evidence

    Code amendment note
    Subsec. (n). Pub. L. 99–514, § 1301(a), in amending section generally, struck out subsec. (n) which related to limitation on aggregate amount of private activity bonds issued during any calendar year.

    Enacted provision · exact public law section
    (a) Exclusion for Interest on Bonds Which Meet Certain Requirements.— Section 103 (relating to interest on certain governmental obligations) is amended to read as follows: “SEC. 103. INTEREST ON STATE AND LOCAL BONDS. “(a) Exclusion.— Except as provided in subsection (b), gross income does not include interest on any State or local bond. “(b) Exceptions.— Subsection (a) shall not apply to— “(1) Private activity bond which is not a qualified bond.— Any private activity bond which is not a qualified bond (within the meaning of section 141). “(2) Arbitrage bond.— Any arbitrage bond (within the meaning of section 148). “(3) Bond not in registered form, etc.— Any bond unless such bond meets the applicable requirements of section 149. “(c) Definitions.— For purposes of this section and part IV— “(1) State or local bond.— The term ‘State or local bond’ means an obligation of a State or political subdivision thereof. “(2) State.— The term ‘State’ includes the District of Columbia and any possession of the United States.”

97. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1864(b) · 100 Stat. 2085

    Substituted · 26 U.S.C. § 103(n)(6)(A); 26 U.S.C. § 103(n)(B)(i)

    Pub. L. 99–514, § 1864(b), substituted “governmental units or other authorities” for “governmental units”

    Source evidence

    Code amendment note
    Subsec. (n)(6)(A), (B)(i). Pub. L. 99–514, § 1864(b), substituted “governmental units or other authorities” for “governmental units”.

    Enacted provision · exact public law section
    (b) Clarification of Authority for Different Allocation.— Subparagraphs (A) and (B)(i) of section 103(n)(6) (relating to State may provide for different allocation) are each amended by striking out “governmental units” and inserting in lieu thereof “governmental units or other authorities”.

98. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1864(c) · 100 Stat. 2085

    Substituted · 26 U.S.C. § 103(n)(7)(C)(i)

    Pub. L. 99–514, § 1864(c), substituted “all of the property to be financed by the obligation” for “the property described in such paragraph”

    Source evidence

    Code amendment note
    Subsec. (n)(7)(C)(i). Pub. L. 99–514, § 1864(c), substituted “all of the property to be financed by the obligation” for “the property described in such paragraph”.

    Enacted provision · exact public law section
    (c) Clarification of Exception for Certain Facilities.— Clause (i) of section 103(n)(7)(C) (relating to exception for certain facilities described in section 103(b)(4) (C) or (D)) is amended by striking out “the property described in such subparagraph” and inserting in lieu thereof “all of the property to be financed by the obligation”.

99. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1864(e) · 100 Stat. 2085

    1. Substituted · 26 U.S.C. § 103(n)(10)(B)

       Pub. L. 99–514, § 1864(e), substituted “identify project” for “specify project” in text of subpar. (B)(i)

    2. Substituted · 26 U.S.C. § 103(n)(10)(B)

       Pub. L. 99–514, § 1864(e), substituted “identify (with reasonable specificity) the project” for “specify the project” in text of subpar. (B)(i)

    Source evidence

    Code amendment note
    Subsec. (n)(10)(B). Pub. L. 99–514, § 1864(e), substituted “identify project” for “specify project” in heading and “identify (with reasonable specificity) the project” for “specify the project” in text of subpar. (B)(i).

    Enacted provision · exact public law section
    (e) Clarification of Carryforward of Unused Bond Authority.— (1) Subparagraph (B) of section 103(n)(10) (relating to election must specify project) is amended— (A) by striking out “specify the project” in clause (i) and inserting in lieu thereof “identify (with reasonable specificity) the project”, and (B) by striking out “specify project” in the subparagraph heading and insert in lieu thereof “identify project”. (2) Subparagraph (D) of section 103(n)(10) is amended by striking out “any specification” and inserting in lieu thereof “any identification or specification”.

100. 1986

     Tax Reform Act of 1986

     Pub. L. 99–514 § 1864(e)(2) · 100 Stat. 2085

     Substituted · 26 U.S.C. § 103(n)(10)(D)

     Pub. L. 99–514, § 1864(e)(2), substituted “any identification or specification” for “any specification”

     Source evidence

     Code amendment note
     Subsec. (n)(10)(D). Pub. L. 99–514, § 1864(e)(2), substituted “any identification or specification” for “any specification”.

     Enacted provision · exact public law section
     (2) Subparagraph (D) of section 103(n)(10) is amended by striking out “any specification” and inserting in lieu thereof “any identification or specification”.

101. 1986

     Tax Reform Act of 1986

     Pub. L. 99–514 § 1864(a)(1) · 100 Stat. 2085

     Added · 26 U.S.C. § 103(n)(13)

     Pub. L. 99–514, § 1864(a)(1), added par. (13)

     Source evidence

     Code amendment note
     Subsec. (n)(13). Pub. L. 99–514, § 1864(a)(1), added par. (13).

     Enacted provision · exact public law section
     (1) In general.— Subsection (n) of section 103 (relating to limitation on aggregate amount of private activity bonds issued during any calendar year) is amended by adding at the end thereof the following new paragraph: “(13) Facility must be located within state.— “(A) In general.— Except as provided in subparagraph (B), no portion of the State ceiling applicable to any State for any calendar year may be used with respect to financing for a facility located outside such State. “(B) Exception for certain facilities where state will get proportionate share of benefits.— Subparagraph (A) shall not apply to any issue described in subparagraph (E), (G), or (H) of subsection (b)(4) if the issuer establishes that the State’s share of the use of the facility (or its output) will equal or exceed the State’s share of the private activity bonds issued to finance the facility.”

102. 1986

     Tax Reform Act of 1986

     Pub. L. 99–514 § 1301(a) · 100 Stat. 2085

     1. Changed · 26 U.S.C. § 103(o)

        Pub. L. 99–514, § 1301(a), in amending section generally

     2. Struck · 26 U.S.C. § 103(o)

        Pub. L. 99–514, § 1301(a), in struck out subsec. (o) relating to consumer loan bonds

     Source evidence

     Code amendment note
     Subsec. (o). Pub. L. 99–514, § 1301(a), in amending section generally, struck out subsec. (o) relating to consumer loan bonds.

     Enacted provision · exact public law section
     (a) Exclusion for Interest on Bonds Which Meet Certain Requirements.— Section 103 (relating to interest on certain governmental obligations) is amended to read as follows: “SEC. 103. INTEREST ON STATE AND LOCAL BONDS. “(a) Exclusion.— Except as provided in subsection (b), gross income does not include interest on any State or local bond. “(b) Exceptions.— Subsection (a) shall not apply to— “(1) Private activity bond which is not a qualified bond.— Any private activity bond which is not a qualified bond (within the meaning of section 141). “(2) Arbitrage bond.— Any arbitrage bond (within the meaning of section 148). “(3) Bond not in registered form, etc.— Any bond unless such bond meets the applicable requirements of section 149. “(c) Definitions.— For purposes of this section and part IV— “(1) State or local bond.— The term ‘State or local bond’ means an obligation of a State or political subdivision thereof. “(2) State.— The term ‘State’ includes the District of Columbia and any possession of the United States.”

103. 1986

     Tax Reform Act of 1986

     Pub. L. 99–514 § 1869(a) · 100 Stat. 2085

     1. Substituted · 26 U.S.C. § 103(o)

        Pub. L. 99–514, § 1869(a), (b)(1), substituted “Private loan bonds” for “Consumer loan bonds” in par. (2)(C)(ii)

     2. Substituted · 26 U.S.C. § 103(o)

        Pub. L. 99–514, § 1869(a), (b)(1), substituted “private loan bond” for “consumer loan bond” in par. (2)(C)(ii)

     3. Substituted · 26 U.S.C. § 103(o)

        Pub. L. 99–514, § 1869(a), (b)(1), substituted “subsection (c)(6)(H)(i)” for “subsection (c)(6)(G)(i)” in par. (2)(C)(ii)

     Target inherited from the preceding amendment note.

     Source evidence

     Code amendment note
     Pub. L. 99–514, § 1869(a), (b)(1), substituted “Private loan bonds” for “Consumer loan bonds” in subsection and par. (2) headings, “private loan bond” for “consumer loan bond” in text of pars. (1), (2)(A) and (B), and “subsection (c)(6)(H)(i)” for “subsection (c)(6)(G)(i)” in par. (2)(C)(ii).

     Enacted provision · exact public law section
     (a) Chance in Defined Term.— Subsection (o) of section 103 (relating to denial of tax exemption for consumer loan bonds) is amended— (1) by striking out “consumer loan bond” each place it appears and inserting in lieu thereof “private loan bond”, (2) by striking out “Consumer Loan Bonds” in the subsection heading and inserting in lieu thereof “Private Loan Bonds”, and (3) by striking out “Consumer loan bonds” in the heading for paragraph (2) and inserting in lieu thereof “Private loan bonds”.

104. 1986

     Tax Reform Act of 1986

     Pub. L. 99–514 § 1869(b)(2) · 100 Stat. 2085

     Redesignated · 26 U.S.C. § 103(o)

     Pub. L. 99–514, § 1869(b)(2), redesignated subsec. (o), relating to cross references, as (p)

     Target inherited from the preceding amendment note.

     Source evidence

     Code amendment note
     Pub. L. 99–514, § 1869(b)(2), redesignated subsec. (o), relating to cross references, as (p).

     Enacted provision · exact public law section
     (2) Section 103 is amended by redesignating the subsection ,o) (relating to cross references) as subsection (p).

105. 1986

     Tax Reform Act of 1986

     Pub. L. 99–514 § 1301(a) · 100 Stat. 2085

     1. Changed · 26 U.S.C. § 103(p)

        Pub. L. 99–514, § 1301(a), in amending section generally

     2. Struck · 26 U.S.C. § 103(p)

        Pub. L. 99–514, § 1301(a), in struck out subsec. (p) which related to cross references

     Source evidence

     Code amendment note
     Subsec. (p). Pub. L. 99–514, § 1301(a), in amending section generally, struck out subsec. (p) which related to cross references.

     Enacted provision · exact public law section
     (a) Exclusion for Interest on Bonds Which Meet Certain Requirements.— Section 103 (relating to interest on certain governmental obligations) is amended to read as follows: “SEC. 103. INTEREST ON STATE AND LOCAL BONDS. “(a) Exclusion.— Except as provided in subsection (b), gross income does not include interest on any State or local bond. “(b) Exceptions.— Subsection (a) shall not apply to— “(1) Private activity bond which is not a qualified bond.— Any private activity bond which is not a qualified bond (within the meaning of section 141). “(2) Arbitrage bond.— Any arbitrage bond (within the meaning of section 148). “(3) Bond not in registered form, etc.— Any bond unless such bond meets the applicable requirements of section 149. “(c) Definitions.— For purposes of this section and part IV— “(1) State or local bond.— The term ‘State or local bond’ means an obligation of a State or political subdivision thereof. “(2) State.— The term ‘State’ includes the District of Columbia and any possession of the United States.”

106. 1986

     Tax Reform Act of 1986

     Pub. L. 99–514 § 1869(b)(2) · 100 Stat. 2085

     Redesignated · 26 U.S.C. § 103(p)

     Pub. L. 99–514, § 1869(b)(2), redesignated former subsec. (o), relating to cross references, as (p)

     Target inherited from the preceding amendment note.

     Source evidence

     Code amendment note
     Pub. L. 99–514, § 1869(b)(2), redesignated former subsec. (o), relating to cross references, as (p).

     Enacted provision · exact public law section
     (2) Section 103 is amended by redesignating the subsection ,o) (relating to cross references) as subsection (p).

107. 1986

     Tax Reform Act of 1986

     Pub. L. 99–514 § 1899A(4) · 100 Stat. 2085

     Substituted · 26 U.S.C. § 103(p)(4)

     Pub. L. 99–514, § 1899A(4), substituted “October 27, 1949 (48 U.S.C. 1403)” for “October 27, 1919 (48 U.S.C. 1403)”

     Source evidence

     Code amendment note
     Subsec. (p)(4). Pub. L. 99–514, § 1899A(4), substituted “October 27, 1949 (48 U.S.C. 1403)” for “October 27, 1919 (48 U.S.C. 1403)”.

     Enacted provision · exact public law section
     (4) Paragraph (4) of section 103(p) is amended by striking out “October” and all that follows and inserting in lieu thereof “October 27, 1949 (48 U.S.C. 1403).”

108. 1988

     Technical and Miscellaneous Revenue Act of 1988

     Pub. L. 100–647 § 1013(c)(12)(A) · 102 Stat. 3342

     Redesignated · 26 U.S.C. § 103(b)(6)(N)

     Pub. L. 100–647, § 1013(c)(12)(A), amended subpar. (N), as in effect on the day before the date of the enactment of Pub. L. 99–514 [Oct. 22, 1986], by redesignating cls. (ii) and (iii) as (iii) and (iv), respectively, and by striking out cl. (i) and inserting in lieu thereof the following new cls.:

     Source evidence

     Code amendment note
     Subsec. (b)(6)(N). Pub. L. 100–647, § 1013(c)(12)(A), amended subpar. (N), as in effect on the day before the date of the enactment of Pub. L. 99–514 [Oct. 22, 1986], by redesignating cls. (ii) and (iii) as (iii) and (iv), respectively, and by striking out cl. (i) and inserting in lieu thereof the following new cls.:

     “(i) In general.—Except as provided in clause (ii), this paragraph shall not apply to any obligation issued after December 31, 1986. “(ii) Certain refundings.—This paragraph shall apply to any obligation (or series of obligations) issued to refund an obligation issued on or before December 31, 1986, if— “(I) the average maturity date of the issue of which the refunding obligation is a part is not later than the average maturity date of the obligations to be refunded by such issue, “(II) the amount of the refunding obligation does not exceed the outstanding amount of the refunded obligation, and “(III) the proceeds of the refunding obligation are used to redeem the refunded obligation not later than 90 days after the date of the issuance of the refunding obligation. For purposes of subclause (I), average maturity shall be determined in accordance with subsection (b)(14)(B)(i).”

     Enacted provision · exact public law section
     (A) Subparagraph (N) of section 103(b)(6) of the Internal Revenue Code of 1954, as in effect on the day before the date of the enactment of the Reform Act (relating to termination dates), is amended by redesignating clauses (ii) and (iii) as clauses (iii) and (iv), respectively, and by striking out clause (i) and inserting in lieu thereof the following new clauses: “(i) In general.— Except as provided in clause (ii), this paragraph shall not apply to any obligation issued after December 31, 1986. “(ii) Certain refundings.— This paragraph shall apply to any obligation (or series of obligations) issued to refund an obligation issued on or before December 31, 1986, if— “(I) the average maturity date of the issue of which the refunding obligation is a part is not later than the average maturity date of the obligations to be refunded by such issue, “(II) the amount of the refunding obligation does not exceed the outstanding amount of the refunded obligation, and “(iii) the proceeds of the refunding obligation are used to redeem the refunded obligation not later than 90 days after the date of the issuance of the refunding obligation. For purposes of subclause (I), average maturity shall be determined in accordance with subsection (b)(14)(B)(i)”

     Effective date note
     Pub. L. 100–647, title I, § 1013(a)(34)(B), Nov. 10, 1988, 102 Stat. 3544, provided that: “Subparagraph (A) [amending this section] shall apply to obligations sold after May 2, 1978, and to which Treasury regulation section 1.103–13 (1979) was provided to apply.”

109. 1988

     Technical and Miscellaneous Revenue Act of 1988

     Pub. L. 100–647 § 1013(a)(34)(A) · 102 Stat. 3342

     Substituted · 26 U.S.C. § 103(c)(7)

     Pub. L. 100–647, § 1013(a)(34)(A), amended par. (7), as in effect on the day before the date of the enactment of Pub. L. 99–514 [Oct. 22, 1986], by substituting “necessary” for “necessary”

     Source evidence

     Code amendment note
     Subsec. (c)(7). Pub. L. 100–647, § 1013(a)(34)(A), amended par. (7), as in effect on the day before the date of the enactment of Pub. L. 99–514 [Oct. 22, 1986], by substituting “necessary” for “necessary”.

     Enacted provision · exact public law section
     (A) Paragraph (7) of section 103(c) of the Internal Revenue Code of 1954 (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986) is amended by striking out “necessary” and inserting in lieu thereof “necessary”.

     Effective date note
     Pub. L. 100–647, title I, § 1013(a)(34)(B), Nov. 10, 1988, 102 Stat. 3544, provided that: “Subparagraph (A) [amending this section] shall apply to obligations sold after May 2, 1978, and to which Treasury regulation section 1.103–13 (1979) was provided to apply.”

135 of 156 references resolved to an enrolled provision · 21 partial