§ 2039. Annuities

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. 384 · 68A Stat. 384

   Enacted · 26 U.S.C. § 2039

   Aug. 16, 1954, ch. 736, 68A Stat. 384

   Source evidence

   Code source credit
   Aug. 16, 1954, ch. 736, 68A Stat. 384

2. 1958

   Technical Amendments Act of 1958

   Pub. L. 85–866 § 67(a) · 72 Stat. 1606

   Inserted · 26 U.S.C. § 2039(c)(2)

   Pub. L. 85–866, § 67(a), inserted “(4), (5), and (6)” after “section 401(a)(3)”

   Source evidence

   Code amendment note
   Subsec. (c)(2). Pub. L. 85–866, § 67(a), inserted “(4), (5), and (6)” after “section 401(a)(3)”.

   Enacted provision · exact public law section
   (a) Requirements.— Section 2039 (c) (2) (relating to exclusion from gross estate in the case of certain retirement annuity contracts) is amended by striking out “section 401 (a) (3)” and inserting in lieu thereof “section 401 (a) (3), (4), (5), and (6).”

3. 1958

   Technical Amendments Act of 1958

   Pub. L. 85–866 § 23(e) · 72 Stat. 1606

   1. Added · 26 U.S.C. § 2039(c)(3)

      Pub. L. 85–866, § 23(e), added par. (3)

   2. Inserted · 26 U.S.C. § 2039(c)(3)

      Pub. L. 85–866, § 23(e), inserted “or under contract described in paragraph (3)” in second sentence of subsec. (c)

   3. Substituted · 26 U.S.C. § 2039(c)(3)

      Pub. L. 85–866, § 23(e), substituted “paragraph (1) or (2) shall not be considered to be contributed by the decedent, and contributions or payments made by the decedent’s employer or former employer toward the purchase of an annuity contract described in paragraph (3) shall, to the extent excludable from gross income under section 403(b),” for “this subsection shall” in third sentence of subsec. (c)

   Source evidence

   Code amendment note
   Subsec. (c)(3) and closing sentences. Pub. L. 85–866, § 23(e), added par. (3), inserted “or under contract described in paragraph (3)” in second sentence of subsec. (c) and substituted “paragraph (1) or (2) shall not be considered to be contributed by the decedent, and contributions or payments made by the decedent’s employer or former employer toward the purchase of an annuity contract described in paragraph (3) shall, to the extent excludable from gross income under section 403(b),” for “this subsection shall” in third sentence of subsec. (c).

   Enacted provision · exact public law section
   (e) Exclusion From Gross Estate.— Section 2039 (c) (relating to exemption of annuities under certain trusts and plans) is amended— (1) by striking out “or” at the end of paragraph (1), and by striking out the period at the end of paragraph (2) and inserting in lieu thereof or”; (2) by inserting after paragraph (2) the following new paragraph: “(3) a retirement annuity contract purchased for an employee by an employer which is an organization referred to in section 503 (b) (1), (2), or (3), and which is exempt from tax under section 501 (a).”; 26 USC 503, 501. (3) by inserting after “under a plan described in paragraph (1) or (2)” in the second sentence the following: “or under a contract described in paragraph (3)”; and (4) by striking out the third sentence and inserting in lieu thereof the following: “For purposes of this subsection, contributions or payments made by the decedent’s employer or former employer under a trust or plan described in paragraph (1) or (2) shall not be considered to be contributed by the decedent, and contributions or payments made by the decedent’s employer or former employer toward the purchase of an annuity contract described in paragraph (3) shall, to the extent excludable from gross income under section 403 (b), not be considered to be contributed 26 USC 403. by the decedent.”

4. 1962

   Self-Employed Individuals Tax Retirement Act of 1962

   Pub. L. 87–792 § 7(i) · 76 Stat. 809

   1. Substituted · 26 U.S.C. § 2039(c)

      Pub. L. 87–792 substituted “was a plan described in section 403(a)” for “met the requirements of section 401(a)(3), (4), (5), and (6)” in par. (2)

   2. Inserted · 26 U.S.C. § 2039(c)

      Pub. L. 87–792 inserted sentence providing, for purposes of this subsection, that contributions or payments on behalf of the decedent while he was an employee within the meaning of section 401(c)(1) made under a trust or plan described in paragraph (1) or (2) shall be considered to be contributions or payments made by the decedent

   Source evidence

   Code amendment note
   Subsec. (c). Pub. L. 87–792 substituted “was a plan described in section 403(a)” for “met the requirements of section 401(a)(3), (4), (5), and (6)” in par. (2), and inserted sentence providing, for purposes of this subsection, that contributions or payments on behalf of the decedent while he was an employee within the meaning of section 401(c)(1) made under a trust or plan described in paragraph (1) or (2) shall be considered to be contributions or payments made by the decedent.

   Enacted provision · exact public law section
   (i) Estate Tax Exemption of Employees’ Annuities.— Section 2039 of the Internal Revenue Code of 1954 (relating to exemption from the gross estate of annuities under certain trusts and plans) is amended— (1) by striking out in subsection (c)(2) “met the requirements of section 401(a)(3), (4), (5), and (6)” and inserting “was a plan described in section 403(a)”; and (2) by adding at the end of subsection (c) the following new sentence: “For purposes of this subsection, contributions or payments on behalf of the decedent while he was an employee within Ante, p. 811. the meaning of section 401(c)(1) made under a trust or plan described in paragraph (1) or (2) shall be considered to be contributions or payments made by the decedent.”

5. 1966

   Pub. L. 89–365 § 2(a) · 80 Stat. 32

   1. Added · 26 U.S.C. § 2039(c)

      Pub. L. 89–365 added par. (4)

   2. Inserted · 26 U.S.C. § 2039(c)

      Pub. L. 89–365 inserted reference to chapter 73 of title 10 of the United States Code in the enumeration of the plans and contracts set out in the prohibition against allowance of exclusion for that part of the value of the amount payable under the plan or contract in the proportion that the total payments or contributions made by the decedent bear to the total payments or contributions made, and provided that, for purposes of this section, amounts payable under chapter 73 of title 10 are attributable to payments or contributions made by the decedent only to the extent of amounts deposited by him pursuant to section 1438 of title 10

   Source evidence

   Code amendment note
   Subsec. (c). Pub. L. 89–365 added par. (4), inserted reference to chapter 73 of title 10 of the United States Code in the enumeration of the plans and contracts set out in the prohibition against allowance of exclusion for that part of the value of the amount payable under the plan or contract in the proportion that the total payments or contributions made by the decedent bear to the total payments or contributions made, and provided that, for purposes of this section, amounts payable under chapter 73 of title 10 are attributable to payments or contributions made by the decedent only to the extent of amounts deposited by him pursuant to section 1438 of title 10.

   Enacted provision · exact public law section
   (a) Section 2039(c) of the Internal Revenue Code of 1954 (relating to exclusion from gross estate of annuities under certain trusts and plans) is amended— (1) by striking out “or” at the end of paragraph (2), by striking out the period at the end of paragraph (3) and inserting in lieu thereof “; or”, and by adding at the end thereof the following new paragraph: “(4) chapter 73 of title 10 of the United State Code.”; 10 USC 1431–1446. (2) by striking out “or under a contract described in paragraph (3)” in the second sentence and inserting in lieu thereof “, under a contract described in paragraph (3), or under chapter 73 of title 10 of the United States Code”; and (3) by inserting at the end thereof the following new sentence: “For purposes of this subsection, amounts payable under chapter 73 of title 10 of the United States Code are attributable to payments or contributions made by the decedent only to the extent of amounts deposited by him pursuant to section 1438 of such title 10.” 70A Stat. 110.

6. 1969

   Tax Reform Act of 1969

   Pub. L. 91–172 title I § 101(j)(23) · 83 Stat. 487

   Substituted · 26 U.S.C. § 2039(c)(3)

   Pub. L. 91–172 substituted “section 170(b)(1)(A)(ii) or (vi), or which is a religious organization (other than a trust),” for “section 503(b) (1), (2), or (3),”

   Source evidence

   Code amendment note
   Subsec. (c)(3). Pub. L. 91–172 substituted “section 170(b)(1)(A)(ii) or (vi), or which is a religious organization (other than a trust),” for “section 503(b) (1), (2), or (3),”.

   Enacted provision · exact public law section
   (23) Section 2039(c)(3) (relating to exemption of annuities under certain trusts and plans) is amended by striking out “section 503(b)(1), (2), or (3),” and inserting in lieu thereof “section Post, p. 550. 170(b)(1)(A) (ii) or (vi), or which is a religious organization (other than a trust),”.

7. 1972

   Pub. L. 92–580 § 2(a) · 86 Stat. 1276

   Added · 26 U.S.C. § 2039(d)

   Pub. L. 92–580 added subsec. (d)

   Source evidence

   Code amendment note
   Subsec. (d). Pub. L. 92–580 added subsec. (d).

   Enacted provision · exact public law section
   (a) Section 2039 of the Internal Revenue Code of 1954 (relating to estate tax treatment of annuities) is amended by adding at the end thereof the following new subsection: “(d) Exemption of Certain Annuity Interests Created by Community Property Laws.— In the case of an employee on whose behalf contributions or payments were made by his employer or former employer under a trust or plan described in subsection (c) (1) or (2), or toward the purchase of a contract described in subsection (c) (3), which under subsection (c) are not considered as contributed by the employee, if the spouse of such employee predeceases him, then, notwithstanding the provisions of this section or of any other provision of law, there shall be excluded from the gross estate of such spouse the value of any interest of such spouse in such trust or plan or such contract, to the extent such interest— “(1) is attributable to such contributions or payments, and “(2) arises solely by reason of such spouse’s interest in community income under the community property laws of a State.”

8. 1974

   Employee Retirement Income Security Act of 1974

   Pub. L. 93–406 title II § 2007(b)(4) · 88 Stat. 829

   Inserted · 26 U.S.C. § 2039(c)

   Pub. L. 93–406 inserted reference to section 1452(d) in provisions following par. (4)

   Source evidence

   Code amendment note
   Subsec. (c). Pub. L. 93–406 inserted reference to section 1452(d) in provisions following par. (4).

   Enacted provision · exact public law section
   (4) Section 2039(c) is amended by striking out “section 1438” 26 USC 2039. in the last sentence and inserting in lieu thereof “section 1438 or 1452(d)”.

9. 1976

   Pub. L. 94–455 § 2009(c)(2) · 90 Stat. 1520

   1. Substituted · 26 U.S.C. § 2039(c)

      Pub. L. 94–455, § 2009(c)(2), (3), substituted “other payment (other than a lump sum distribution described in section 402(e)(4), determined without regard to the next to the last sentence of section 402(e)(4)(A)) receivable by any beneficiary” for “other payment receivable by any beneficiary” in provisions preceding par. (1)

   2. Substituted · 26 U.S.C. § 2039(c)

      Pub. L. 94–455, § 2009(c)(2), (3), substituted “For purposes of this subsection, contributions or payments on behalf of the decedent while he was an employee within the meaning of section 401(c)(1) made under a trust or plan described in paragraph (1) or (2) shall, to the extent allowable as a deduction under section 404, be considered to be made by a person other than the decedent and, to the extent not so allowable, shall be considered to be made by the decedent” for “For purposes of this subsection, contributions or payments on behalf of the decedent while he was an employee within the meaning of section 401(c)(1) made under a trust or plan described in paragraph (1) or (2) shall be considered to be contributions or payments made by the decedent” in provisions following par. (4)

   Source evidence

   Code amendment note
   Subsec. (c). Pub. L. 94–455, § 2009(c)(2), (3), substituted “other payment (other than a lump sum distribution described in section 402(e)(4), determined without regard to the next to the last sentence of section 402(e)(4)(A)) receivable by any beneficiary” for “other payment receivable by any beneficiary” in provisions preceding par. (1) and substituted “For purposes of this subsection, contributions or payments on behalf of the decedent while he was an employee within the meaning of section 401(c)(1) made under a trust or plan described in paragraph (1) or (2) shall, to the extent allowable as a deduction under section 404, be considered to be made by a person other than the decedent and, to the extent not so allowable, shall be considered to be made by the decedent” for “For purposes of this subsection, contributions or payments on behalf of the decedent while he was an employee within the meaning of section 401(c)(1) made under a trust or plan described in paragraph (1) or (2) shall be considered to be contributions or payments made by the decedent” in provisions following par. (4).

   Enacted provision · exact public law section
   (2) Exclusion from gross estate of self-employed plans.— The fifth sentence of section 2039(c) (relating to exemption of 26 USC 2039. annuities under certain trusts and plans) is amended to read as follows: “For purposes of this subsection, contributions or payments on behalf of the decedent while he was an employee within the meaning of section 401(c)(1) made under a trust or plan described in paragraph (1) or (2) shall, to the extent allowable as a deduction under section 404, be considered to be made by a person other than the decedent and, to the extent not so allowable, shall be considered to be made by the decedent.”

10. 1976

    Pub. L. 94–455 § 2009(c)(1) · 90 Stat. 1520

    Added · 26 U.S.C. § 2039(e)

    Pub. L. 94–455, § 2009(c)(1), added subsec. (e)

    Source evidence

    Code amendment note
    Subsec. (e). Pub. L. 94–455, § 2009(c)(1), added subsec. (e).

    Enacted provision · exact public law section
    (1) Exclusion from gross estate of individual retirement accounts, etc.— Section 2039 (relating to annuities) is amended by adding at the end thereof the following new subsection: “(e) Exclusion of Individual Retirement Accounts, Etc.— Notwithstanding the provisions of this section or of any other provision of law, there shall be excluded from the value of the gross estate the value of an annuity receivable by any beneficiary (other than the executor) under— “(1) an individual retirement account described in section 408(a), “(2) an individual retirement annuity described in section 408(b), or “(3) a retirement bond described in section 409(a). If any payment to an account described in paragraph (1) or for an annuity described in paragraph (2) or a bond described in paragraph (3) was not allowable as a deduction under section 219 and was not a rollover contribution described in section 402(a)(5), 403(a)(4), 408 (d)(3), or 409(b)(3)(C), the preceding sentence shall not apply to that portion of the value of the amount receivable under such account, annuity, or bond (as the case may be) which beat’s the same ratio to the total value of the amount so receivable as the total amount which was paid to or for such account, annuity “Annuity.” , or bond and which was not allowable as a deduction under section 219 and was not such a rollover contribution bears to the total amount paid to or for such account, annuity, or bond. For purposes of this subsection, the term ‘annuity’ means an annuity contract or other arrangement providing for a series of substantially equal periodic payments to be made to a beneficiary (other than the executor) for his life or over a period extending for at least 36 months after the date of the decedent’s death.”

11. 1978

    Pub. L. 95–600 § 142(a) · 92 Stat. 2763

    Substituted · 26 U.S.C. § 2039(c)

    Pub. L. 95–600, § 142(a), substituted “(other than an amount described in subsection (f))” for “(other than a lump sum distribution described in section 402(e)(4), determined without regard to the next to the last sentence of section 402(e)(4)(A))” in provisions preceding par. (1)

    Source evidence

    Code amendment note
    Subsec. (c). Pub. L. 95–600, § 142(a), substituted “(other than an amount described in subsection (f))” for “(other than a lump sum distribution described in section 402(e)(4), determined without regard to the next to the last sentence of section 402(e)(4)(A))” in provisions preceding par. (1).

    Enacted provision · exact public law section
    (a) 26 USC 2039. In General.— Subsection (c) of section 2039 (relating to exemption of annuities under certain trusts and plans) is amended by striking out “(other than a lump sum distribution described in section 26 USC 402. 402(e)(4), determined without regard to the next to the last sentence of section 402(e)(4)(A))” and inserting in lieu thereof “(other than an amount described in subsection (f))”

12. 1978

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

    1. Inserted · 26 U.S.C. § 2039(e)

       Pub. L. 95–600, §§ 156(c)(4), 702(j)(1), inserted “section 403(b)(8) (but only to the extent such contribution is attributed to a distribution from a contract described in subsection (c)(3)),” after “403(a)(4)”

    2. Inserted · 26 U.S.C. § 2039(e)

       Pub. L. 95–600, §§ 156(c)(4), 702(j)(1), inserted “or 220” after “section 219” wherever appearing in provisions following par. (3)

    Source evidence

    Code amendment note
    Subsec. (e). Pub. L. 95–600, §§ 156(c)(4), 702(j)(1), inserted “section 403(b)(8) (but only to the extent such contribution is attributed to a distribution from a contract described in subsection (c)(3)),” after “403(a)(4)” and inserted “or 220” after “section 219” wherever appearing in provisions following par. (3).

    Enacted provision · exact public law
    TITLE I— PROVISIONS PRIMARILY AFFECTING INDIVIDUAL INCOME TAX Subtitle A— Tax Reductions and Extensions SEC. 101. WIDENING OF BRACKETS; RATE CUTS IN CERTAIN BRACKETS; INCREASE IN ZERO BRACKET AMOUNTS. (a) Rate Reduction.— Section 1 (relating to tax imposed) is 26 USC 1. amended to read as follows: “SECTION 1. TAX IMPOSED. “(a) Married Individuals Filing Joint Returns and Surviving Spouses.— There is hereby imposed on the taxable income of— “(1) every married individual (as defined in section 143) who makes a single return jointly with his spouse under section 6013, and “(2) every surviving spouse (as defined in section 2(a)), a tax determined in accordance with the following table: “If taxable income is: The tax is:  Not over $3,400  No Tax.  Over $3,400 but not over $5,500  14% of excess over $3,400.  Over $5,500 but not over $7,600  $294, plus 16% of excess over $5,500.  Over $7,600 but not over $11,900  $630, plus 18% of excess over $7,600.  Over $11,900 but not over $16,000  $1,404, plus 21% of excess over $11,900.  Over $16,000 but not over $20,200  $2,265, plus 24% of excess over $16,000.  Over $20,200 but not over $24,600  $3,273, plus 28% of excess over $20,200.  Over $24,600 but not over $29,900  $4,505, plus 32% of excess over $24,600.  Over $29,900 but not over $35,200  $6,201, plus 37% of excess over $29,900.  Over $35,200 but not over $45,800  $8,162, plus 43% of excess over $35,200.  Over $45,800 but not over $60,000  $12,720, plus 49% of excess over $45,800. “If taxable income is: The tax is:  Over $60,000 but not over $85,600  $19,678, plus 54% of excess over $60,000.  Over $85,600 but not over $109,400  $33,502, plus 59% of excess over $85,600.  $33,502, plus 59% of excess over $85,600  $47,544, plus 64% of excess over $109,400.  Over $162,400 but not over $215,400  $81,464, plus 68% of excess over $162,400.  Over $215,400  $117,504, plus 70% of excess over $215,400. “(b) Heads of Households.— There is hereby imposed on the taxable income of every individual who is the head of a household (as defined in section 2(b)) a tax determined in accordance with the following table: “If taxable income is: The tax is: Not over $2,300  No tax.  Over $2,300 but not over $4,400  14% of excess over $2,300.  Over $4,400 but not over $6,500  $294, plus 16% of excess over $4,400.  Over $6,500 but not over $8,700  $630, plus 18% of excess over $6,500.  Over $8,700 but not over $11,800  $1,026, plus 22% of excess over $8,700  Over $11,800 but not over $15,000  $1,708, plus 24% of excess over $11,800  Over $15,000 but not over $18,200  $2,476, plus 26% of excess over $15,000  Over $18,200 but not over $23,500  $3,308, plus 31% of excess over $18,200,  Over $23,500 but not over $28,800  $4,951, plus 36% of excess over $23,500,  Over $28,800 but not over $34,100  $6,859, plus 42% of excess over $28,800  Over $34,100 but not over $44,700  $9,085, plus 46% of excess over $34,100,  Over $44,700 but not over $60,600  $13,961, plus 54% of excess over $44,700.  Over $60,600 but not over $81,800  $22,547, plus 59% of excess over $60,600.  Over $81,800 but not over $108,300  $35,055, plus 63% of excess over $81,800.  Over $108,300 but not over $161,300  $51,750, plus 68% of excess over $108,300.  Over $161,300  $87,790, plus 70% of excess over $161,300. “(c) Unmarried Individuals (Other Than Surviving Spouses and Heads of Households).— There is hereby imposed on the tax-able income of every individual (other than a surviving spouse as defined in section 2(a) or the head of a household as defined in section 2(b)) who is not a married individual (as defined in section 143) a tax determined in accordance with the following table: “If taxable income is: The tax is:  Not over $2,300  No tax.  Over $2,300 but not over $3,400  14% of excess over $2,300.  Over $3,400 but not over $4,400  $154, plus 16% of excess over $3,400.  Over $4,400 but not over $6,500  $314, plus 18% of excess over $4,400.  Over $6,500 but not over $8,500  $692, plus 19% of excess over $6,500.  Over $8,500 but not over $10,800  $1,072, plus 21% of excess over $8,500  Over $10,800 but not over $12,900  $1,555, plus 24% of excess over $10,800  Over $12,900 but not over $15,000  $2,059, plus 26% of excess over $12,900  Over $15,000 but not over $18,200  $2,605, plus 30% of excess over $15,000  Over $18,200 but not over $23,500  $3,565, plus 34% of excess over $18,200  Over $23,500 but not over $28,800  $5,367, plus 39% of excess over $23,500  Over $28,800 but not over $34,100  $7,434, plus 44% of excess over $28,800  Over $34,100 but not over $41,500  $9,766, plus 49% of excess over $34,100  Over $41,500 but not over $55,300  $13,392, plus 55% of excess over $41,500.  Over $55,300 but not over $81,800  $20,982, plus 63% of excess over $55,300.  Over $81,800 but not over $108,300  $37,677, plus 68% of excess over $81,800. “If taxable income is: The tax is:  Over $108,300  $55,697, plus 70% of excess over $108,300. “(d) Married Individuals Filing Separate Returns.— There is hereby imposed on the taxable income of every married individual (as defined in section 143) who does not make a single return jointly with his spouse under section 6013 a tax determined in accordance with the following table: “If taxable income is: The tax is:  Not over $1,700  No tax.  Over $1,700 but not over $2,750  14% of excess over $1,700.  Over $2,750 but not over $3,800  $147, plus 16% of excess over $2,750.  Over $3,800 but not over $5,950  $315, plus 18% of excess over $3,800.  Over $5,950 but not over $8,000  $702, plus 21% of excess over $5,950.  Over $8,000 but not over $10,100  $1,132.50, plus 24% of excess over $8,000.  Over $10,100 but not over $12,300  $1,636.50, plus 28% of excess over $10,100.  Over $12,300 but not over $14,950  $2,252.50, plus 32% of excess over $12,300.  Over $14,950 but not over $17,600  $3,100.50, plus 37% of excess over $14,950.  Over $17,600 but not over $22,900  $4,081, plus 43% of excess over $17,600.  Over $22,900 but not over $30,000  $6,360, plus 49% of excess over $22,900.  Over $30,000 but not over $42,800  $9,839, plus 54% of excess over $30,000.  Over $42,800 but not over $54,700  $16,751, plus 59% of excess over $42,800.  Over $54,700 but not over $81,200  $23,772, plus 64% of excess over $54,700.  Over $81,200 but not over $107,700  $40,732, plus 68% of excess over $81,200.  Over $107,700  $58,752, plus 70% of excess over $107,700. “(e) Estates and Trusts.— There is hereby imposed on the taxable income of every estate and trust taxable under this subsection a tax determined in accordance with the following table: “If taxable income is: The tax is:  Not over $1,050  14% of taxable income.  Over $1,050 but not over $2,100  $147, plus 16% of excess over $1,050.  Over $2,100 but not over $4,250  $315, plus 18% of excess over $2,100.  Over $4,250 but not over $6,300  $702, plus 21% of excess over $4,250.  Over $6,300 but not over $8,400  $1,132.50 plus 24% of excess over $6,300.  Over $8,400 but not over $10,600  $1,636.50, plus 28% of excess over $8,400.  Over $10,600 but not over $13,250  $2,252.50, plus 32% of excess over $10,600.  Over $13,250 but not over $15,900  $3,100.50, plus 37% of excess over $13,250.  Over $15,900 but not over $21,200  $4,081, plus 43% of excess over $15,900.  Over $21,200 but not over $28,300  $6,360, plus 49% of excess over $21,200.  Over $28,300 but not over $41,100  $9,839, plus 54% of excess over $28,300.  Over $41,100 but not over $53,000  $16,751, plus 59% of excess over $41,100.  Over $53,000 but not over $79,500  $23,772, plus 64% of excess over $53,000.  Over $79,500 but not over $106,000  $40,732, plus 68% of excess over $79,500.  Over $106,000  $58,752, plus 70% of excess over $106,000.”. (b) Increase in Zero Bracket Amount.— Subsection (d) of section 26 USC 63. 63 (defining zero bracket amount) is amended— (1) by striking out “$3,200” and inserting in lieu thereof “$3,400”, (2) by striking out “$2,200” and inserting in lieu thereof “$2,300”, and (3) by striking out “$1,600” and inserting in lieu thereof “$1,700”. (c) 26 USC 6012. Filing Requirements.— Paragraph (1) of section 6012(a) (relatmake returns of income) is amended— (1) by striking out “$2,950” and inserting in lieu thereof “$3,050”, (2) by striking out “$3,950” and inserting in lieu thereof “$4,150”, and (3) by striking out “$4,700” and inserting in lieu thereof “$4,900”. (d) Technical Amendments.— (1) 26 USC 402. Subparagraph (C) of section 402(e)(1) (relating to tax on lump sum distributions) is amended by striking out “$2,200” and inserting in lieu thereof “$2,300”. (2) 26 USC 1302. Paragraph (3) of section 1302(b) (relating to transitional rule for determining base period income) is amended to read as follows: “(3) Transitional rule for determining base period income.— The base period income (determined under paragraph (2)) for any taxable year beginning before January 1, 1977, shall be increased by— “(A) $3,200 in the case of a joint return or a surviving 26 USC 2. spouse (as defined in section 2(a)), “(B) $2,200 in the case of an individual who is not married (within the meaning of section 143) and is not a surviving spouse (as so defined), or “(C) $1,600 in the case of a married individual (within the 26 USC 143. meaning of section 143) filing a separate return. For purposes of this paragraph, filing status shall be determined as of the computation year.” (e) Withholding Amendments.— (1) 26 USC 3402. Withholding tables.— Subsection (a) of section 3402 (relating to requirement of withholding) is amended by striking out the second and third sentences and inserting in lieu thereof the following new sentence: “With respect to wages paid after December 31, 1978, the tables so prescribed shall be the same as the tables prescribed under this subsection which were in effect on January 1, 1975, except that such tables shall be modified to the extent necessary to reflect the amendments made by sections 91 Stat. 127, 135. 101 and 102 of the Tax Reduction and Simplification Act of 1977 and the amendments made by section 101 of the Revenue Act of Ante, p. 2767. 1978.”. (2) Withholding allowances based on itemized deductions.— Subparagraph (B) of section 3402(m)(1) (relating to withholding allowances based on itemized deductions) is amended— (A) by striking out “$3,200” and inserting in lieu thereof “$3,400”, and (B) by striking out “$2,200” and inserting in lieu thereof “$2,300”. (f) Effective Dates.— (1) 26 USC 1 note. In general.— The amendments made by subsections (a), (b), (c), and (d) shall apply to taxable years beginning after December 31, 1978. (2) Withholding amendments.— The amendments made by 26 USC 3402 note. subsection (e) shall apply to remuneration paid after December 31, 1978. SEC. 102. PERSONAL EXEMPTIONS INCREASED TO $1,000. (a) General Rule.— Section 151 (relating to allowance of deductions 26 USC 151. for personal exemptions) is amended by striking out “$750” each place it appears and inserting in lieu thereof “$1,000”. (b) Filing Requirements.— (1) Paragraph (1) of section 6012(a) (relating to persons 26 USC 6012. required to make returns of income) as amended by section 101(c) of this Act, is amended by striking out “$750”, “$3,050”, “$4,150”, and “$4,900” each place they appear and inserting in lieu thereof “$1,000”, “$3,300”, “$4,400”, and “$5,400”, respectively. (2) Subparagraph (A) of section 6013(b)(3) (relating to assessment 26 USC 6013. and collection in the case of certain returns of husband and wife) is amended by striking out “$750” and “$1,500” each place they appear and inserting in lieu thereof “$1,000” and “$2,000”, respectively. (c) Withholding Requirements.— (1) Paragraph (1) of section 3402(b) (relating to percentage 26 USC 3402. method of withholding income tax at source) is amended by striking out the table and inserting in lieu thereof the following: “Payroll period Amount of one withholding exemption Weekly $19.23 Biweekly 38.46 Semimonthly 41.66 Monthly 83.33 Quarterly 250 Semiannual 500 Annual 1,000.00 Daily or miscellaneous (per day of such period) 2.74”. (2) Paragraph (1) of section 3402(m) (relating to withholding allowances based on itemized deductions) is amended by striking out “$750” and inserting in lieu thereof “$1,000”. (d) Effective Dates.— (1) In general.— The amendments made by subsections (a) and 26 USC 151 note. (b) shall apply to taxable years beginning after December 31, 1978. (2) Withholding amendments.— The amendments made by 26 USC 3402 note. subsection (c) shall apply with respect to remuneration paid after December 31, 1978. SEC. 103. EARNED INCOME CREDIT MADE PERMANENT. (a) General Rule.— Subsection (b) of section 209 of the Tax Reduction Act of 1975 is amended by striking out “, and before "26 USC 43 note. January 1, 1979”. (b) Technical Amendment.— The second sentence of section 401(e) of the Tax Reform Act of 1976 (as added by section 103 of the Tax 26 USC 42 note. Reduction and Simplification Act of 1977) is amended by striking out and shall cease to apply to taxable years beginning after December 31, 1978”. SEC. 104. INCREASE IN AND SIMPLIFICATION OF THE EARNED INCOME TAX CREDIT. (a) 26 USC 43. Increase in Credit.— Subsection (a) of section 43 (relating to earned income credit) is amended— (1) by striking out “chapter” and inserting in lieu thereof “subtitle”, and (2) by striking out “$4,000” and inserting in lieu thereof “$5,000”. (b) Revision of the Limitation.— Subsection (b) of section 43 is amended to read as follows: “(b) Limitation.— The amount of the credit allowable to a taxpayer under subsection (a) for any taxable year shall not exceed the excess (if any) of— “(1) $500, over “(2) 12.5 percent of so much of the adjusted gross income (or, if greater, the earned income) of the taxpayer for the taxable year as exceeds $6,000.”. (c) Amount of Credit To Be Determined Under Tables.— Section 43 is amended by adding at the end thereof the following new subsection: “(f) Amount of Credit To Be Determined Under Tables.— “(1) In general.— The amount of the credit allowed by this section shall be determined under tables prescribed by the Secretary. “(2) Requirements for tables.— The tables prescribed under paragraph (1) shall reflect the provisions of subsections (a) and (b) and shall have income brackets of not greater than $50 each— “(A) for earned income between $0 and $10,000, and “(B) for adjusted gross income between $6,000 and $10,000.”. (d) Excludable Earned Income Taken Into Account.— Subparagraph (B) of section 43(c)(2) (defining earned income) is amended by striking out clause (i) and by redesignating clauses (ii), (iii), and (iv) as clauses (i), (ii), and (iii), respectively. (e) Definition of Eligible Individual.— Paragraph (1) of section 43(c) (defining eligible individual) is amended to read as follows: “(1) Eligible individual.— “(A) In general.— The term ‘eligible individual’ means an individual who, for the taxable year— “(i) 26 USC 143.26 USC 151. is married (within the meaning of section 143) and is entitled to a deduction under section 151 for a child (within the meaning of section 151(e)(3)), “(ii) is a surviving spouse (as determined under section 26 USC 2. 2(a)), or “(iii) is a head of a household (as determined under subsection (b) of section 2 without regard to subparagraphs (A)(ii) and (B) of paragraph (1) of such suosection). “(B) Child must reside with taxpayer in the united states.— An individual shall be treated as satisfying clause (i) of subparagraph (A) only if the child has the same principal place of abode as the individual and such abode is in the United States. An individual shall be treated as satisfying clause (ii) or (iii) of subparagraph (A) only if the household in question is in the United States. “(C) 26 USC 911. Individual entitled to exclude income under section 911 not eligible individual.— The term ‘eligible indi-vidual’ does not include an individual who, for the taxable year, is entitled to exclude any amount from gross income under section 911 (relating to earned income from sources 26 USC 911. 26 USC 931. without the United States) or section 931 (relating to income from sources within the possessions of the United States).”. (f) Effective Date.— The amendments made by this section shall 26 USC 43 note. apply to taxable years beginning after December 31, 1978. SEC. 105. ADVANCE PAYMENT OF EARNED INCOME CREDIT. (a) Coordination of Credit With Advance Payments.— Section 43 (relating to earned income credit) is amended by adding at the end 26 USC 43. thereof the following new subsection: “(h) Coordination With Advance Payments of Earned Income Credit.— “(1) Recapture of excess advance payments.— If any payment is made to the individual by an employer under section 3507 during any calendar year, then the tax imposed by this Infra. chapter for the individual’s last taxable year beginning in such calendar year shall be increased by the aggregate amount of such payments. “(2) Reconciliation of payments advanced and credit allowed.— Any increase in tax under paragraph (1) shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit (other than the credit allowed by subsection (a)) allowable under this subpart.”. (b) Advance Payment of Earned Income Credit.— (1) In general.— Chapter 25 (general provisions relating to employment taxes) is amended by adding at the end thereof the following new section: “SEC. 3507. ADVANCE PAYMENT OF EARNED INCOME CREDIT. “(a) General Rule.— Except as otherwise provided in this section, every employer making payment of wages to an employee with respect to whom an earned income eligibility certificate is in effect shall, at the time of paying such wages, make an additional payment to such employee equal to such employee’s earned income advance amount. “(b) Earned Income Eligibility Certificate.— For purposes of this title, an earned income eligibility certificate is a statement furnished by an employee to the employer which— “(1) certifies that the employee will be eligible to receive the credit provided by section 43 for the taxable year, “(2) certifies that the employee does not have an earned income eligibility certificate in effect for the calendar year with respect to the payment of wages by another employer, and “(3) states whether or not the employee’s spouse has an earned income eligibility certificate in effect. For purposes of this section, a certificate shall be treated as being in effect with respect to a spouse if such a certificate will be in effect on the first status determination date following the date on which the employee furnishes the statement in question. “(c) Earned Income Advance Amount.— “(1) In general.— For purposes of this title, the term ‘earned income advance amount’ means, with respect to any payroll period, the amount determined— “(A) on the basis of the employee’s wages from the employer for such period, and “(B) in accordance with tables prescribed by the Secretary. “(2) Advance amount tables.— The tables referred to in paragraph (1)(B)— “(A) shall be similar in form to the tables prescribed under 26 USC 3402. section 3402 and, to the maximum extent feasible, shall be coordinated with such tables, and “(B) if the employee is not married, or if no earned income eligibility certificate is in effect with respect to the spouse of Ante, pp. 2772, 2773. the employee, shall treat the credit provided by section 43 as if it were a credit— “(i) of not more than 10 percent of the first $5,000 of earned income, which “(ii) phases out between $6,000 and $10,000 of earned income, or “(C) if an earned income eligibility certificate is in effect with respect to the spouse of the employee, shall treat the credit provided by section 43 as if it were a credit— “(i) of not more than 10 percent of the first $2,500 of earned income, which “(ii) phases out between $3,000 and $5,000 of earned income. “(d) Payments To Be Treated as Payments of Withholding and FICA Taxes.— “(1) In general.— For purposes of this title, payments made by an employer under subsection (a) to his employees for any payroll period— “(A) shall not be treated as the payment of compensation, and “(B) shall be treated as made out of— “(i) amounts required to be deducted and withheld for 26 USC 3401. the payroll period under section 3401 (relating to wage withholding), and “(ii) amounts required to be deducted for the payroll 26 USC 3102. period under section 3102 (relating to FICA employee taxes), and “(iii) amounts of the taxes imposed for the payroll 26 USC 3111. period under section 3111 (relating to FICA employer taxes), as if the employer had paid to the Secretary, on the day on which the wages are paid to the employees, an amount equal to such payments. “(2) Advance payments exceed taxes due.— In the case of any employer, if for any payroll period the aggregate amount of earned income advance payments exceeds the sum of the amounts referred to in paragraph (1)(B), each such advance payment shall be reduced by an amount which bears the same ratio to such excess as such advance payment bears to the aggregate amount of all such advance payments. “(3) Employer may make full advance payments.— The Secretary shall prescribe regulations under which an employer may elect (in lieu of any application of paragraph (2))— “(A) to pay in full all earned income advance amounts, and “(B) to have additional amounts paid by reason of this paragraph treated as the advance payment of taxes imposed by this title. “(4) Failure to make advance payments.— For purposes of this title (including penalties), failure to make any advance payment under this section at the time provided therefor shall be treated as the failure at such time to deduct and withhold under chapter 24 an amount equal to the amount of such advance 26 USC 3401 et seq. payment. “(e) Furnishing and Taking Effect of Certificates.— For purposes of this section— “(1) When certificate takes effect.— “(A) First certificate furnished.— An earned income eligibility certificate furnished the employer in cases in which no previous such certificate had been in effect for the calendar year shall take effect as of the beginning of the first payroll period ending, or the first payment of wages made without regard to a payroll period, on or after the date on which such certificate is so furnished (or if later, the first day of the calendar year for which furnished). “(B) Later certificate.— An earned income eligibility certificate furnished the employer in cases in which a previous such certificate had been in effect for the calendar year shall take effect with respect to the first payment of wages made on or after the first status determination date which occurs at least 30 days after the date on which such certificate is so furnished, except that at the election of the employer such certificate may be made effective with respect to any payment of wages made on or after the date on which such certificate is so furnished. For purposes of this section, the term ‘status determination date’ means January 1, May 1, July 1, and October 1 of each year. “(2) Period during which certificate remains in effect.— An earned income eligibility certificate which takes effect under this section for any calendar year shall continue in effect with respect to the employee during such calendar year until revoked by the employee or until another such certificate takes effect under this section. “(3) Change of status.— “(A) Requirement to revoke or furnish new certificate.— If, after an employee has furnished an earned income eligibility certificate under this section, there has been a change of circumstances which has the effect of— “(i) making the employee ineligible for the credit provided by section 43 for the taxable year, or Ante, pp. 2772, 2773. “(ii) causing an earned income eligibility certificate to be in effect with respect to the spouse of the employee, the employee shall, within 10 days after such change in circumstances, furnish the employer with a revocation of such certificate or with a new certificate (as the case may be). Such a revocation (or such a new certificate) shall take effect under the rules provided by paragraph (1)(B) for a later certificate and shall be made in such form as the Secretary shall by regulations prescribe. “(B) Certificate no longer in effect.— If, after an employee has furnished an earned income eligibility certificate under this section which certifies that such a certificate is in effect with respect to the spouse of the employee, such a certificate is no longer in effect with respect to such spouse, then the employee may furnish the employer with a new earned income eligibility certificate. “(4) Form and contents of certificate.— Earned income eligibility certificates shall be in such form and contain such other information as the Secretary may by regulations prescribe. “(5) Taxable year defined.— The term ‘taxable year’ means the last taxable year of the employee under subtitle A beginning in the calendar year in which the wages are paid.”. (2) Clerical amendment.— The table of sections for chapter 25 is amended by adding at the end thereof the following new item: “Sec. 3507. Advance payment of earned income credit.”. (c) Information Shown on W–2.— The first sentence of section 26 USC 6051. 6051(a) (relating to receipts for employees) is amended— (1) by striking out “and” at the end of paragraph (5), (2) by striking out the period at the end of paragraph (6) and inserting in lieu thereof“, and”, and (3) by adding at the end thereof the following new paragraph: “(7) the total amount paid to the employee under section 3507 (relating to advance payment of earned income credit).”. (d) 26 USC 6012. Requirement of Return.— Subsection (a) of section 6012 (relating to persons required to make returns of income) is amended by adding at the end thereof the following new paragraph: “(8) Every individual who receives payments during the calendar Ante, p. 2773. year in which the taxable year begins under section 3507 (relating to advance payment of earned income credit).”. (e) 26 USC 6302. Cross Reference.— Section 6302 (relating to mode or time of collection) is amended by adding at the end thereof the following new subsection: “(d) Cross Reference.— “For treatment of payment of earned income advance amounts as payment of withholding and FICA taxes, see section 3507(d).”. (f) Disregard to Terminate in 1980.— Section 2(d) of the Revenue 26 USC 43 note. Adjustment Act of 1975 (relating to disregard of refund) is amended— (1) by inserting before “shall not be taken into account” the following: “, and any payment made by an employer under 26 USC 3507. section 3507 of such Code (relating to advance payment of earned income credit)”, and (2) by inserting after “shall not be taken into account” the following: “in any year ending before 1980”. (g) Effective Date.— (1) 26 USC 43 note. The amendments made by subsections (a) and (d) shall apply to taxable years beginning after December 31, 1978. (2) 26 USC 3507 note. The amendments made by subsections 6b), (c), and (e) shall apply to remuneration paid after June 30, 1978. (3) 26 USC 43 note. Subsection (f) shall take effect on the date of the enactment of this Act. SEC. 106. APPLICATION OF CERTAIN CHANGES IN THE CASE OF FISCAL YEAR TAXPAYERS. 26 USC 21. Section 21 (relating to effects of changes in rate of tax) is amended by adding at the end thereof the following new subsection: “(f) Changes Made by Revenue Act of 1978.— In applying subsection (a) to a taxable year which is not a calendar year— “(1) Ante, pp. 2767, 2771; Post, p. 2820 the amendments made by sections 101,102, and 301 of the Revenue Act of 1978 (and no other amendments made by such Act), and “(2) 26 USC 42. the expiration of section 42 (relating to general tax credit), shall be treated as a change in a rate of tax.”. Subtitle B— Itemized Deductions; Etc. SEC. 111. REPEAL OF DEDUCTION FOR STATE AND LOCAL TAXES ON GASOLINE AND OTHER MOTOR FUELS. (a) Repeal.— Paragraph (5) of section 164(a) (relating to deduction 26 USC 164. for taxes) is hereby repealed. (b) Conforming Amendments.— (1) The heading of paragraph (5) of section 164(b) is amended by striking out “and gasoline taxes”. (2) The text of such paragraph (5) is amended by striking out “or of any tax on the sale of gasoline, diesel fuel, or other motor fuel”. (c) Effective Date.— The amendments made by this section shall 26 USC 164 note. apply to taxable years beginning after December 31, 1978. SEC. 112. TAXATION OF UNEMPLOYMENT COMPENSATION BENEFITS AT CERTAIN INCOME LEVELS. (a) Inclusion in Gross Income.— Part II of subchapter B of chapter 1 (relating to amounts specifically included in gross income) is 26 USC 71. amended by adding at the end thereof the following new section: “SEC. 85. UNEMPLOYMENT COMPENSATION. “(a) In General.— If the sum for the taxable year of the adjusted gross income of the taxpayer (determined without regard to this section and without regard to section 105(d)) and the unemployment 26 USC 105. compensation exceeds the base amount, gross income for the taxable year includes unemployment compensation in an amount equal to the lesser of— “(1) one-half of the amount of the excess of such sum over the base amount, or “(2) the amount of the unemployment compensation. “(b) Base Amount Defined.— For purposes of this section, the term ‘base amount’ means— “(1) except as provided in paragraphs (2) and (3), $20,000, “(2) $25,000, in the case of a joint return under section 6013, or 26 USC 6013. “(3) zero, in the case of a taxpayer who— “(A) is married at the close of the taxable year (within the meaning of section 143) but does not file a joint return for 26 USC 143. such year, and “(B) does not live apart from his spouse at all times during the taxable year. “(c) Unemployment Compensation Defined.— For purposes of this section, the term ‘unemployment compensation’ means any amount received under a law of the United States or of a State which is in the nature of unemployment compensation.”. (b) Reporting of Unemployment Compensation Payments.— Subpart B of part III of subchapter A of chapter 61 (relating to information concerning transactions with other persons) is amended by adding at the end thereof the following new section: “SEC. 6050B. RETURNS RELATING TO UNEMPLOYMENT COMPENSATION. “(a) Requirement of Reporting.— Every person who makes payments of unemployment compensation aggregating $10 or more to any individual during any calendar year shall make a return according to the forms or regulations prescribed by the Secretary, setting forth the aggregate amounts of such payments and the name and address of the individual to whom paid. “(b) Statements To Be Furnished to Individuals With Respect to Whom Information Is Furnished.— Every person making a return under subsection (a) shall furnish to each individual whose name is set forth in such return a written statement showing— “(1) the name and address of the person making such return, and “(2) the aggregate amount of payments to the individual as shown on such return. The written statement required under the preceding sentence shall be furnished to the individual on or before January 31 of the year following the calendar year for which the return under subsection (a) was made. No statement shall be required to be furnished to any individual under this subsection if the aggregate amount of payments to such individual shown on the return made under subsection (a) is less than $10. “(c) Definitions.— For purposes of this section— “(1) Unemployment compensation.— The term ‘unemployment compensation’ has the meaning given to such term by 26 USC 85. section 85(c). “(2) Person.— The term ‘person’ means the officer or employee having control of the payment of the unemployment compensation, or the person appropriately designated for purposes of this section.” (c) Clerical Amendments.— (1) The table of sections for part II of subchapter B of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 85. Unemployment compensation.” (2) The table of sections for subpart B of part III of subchapter A of chapter 61 is amended by adding at the end thereof the following new item: “Sec. 6050B. Returns relating to unemployment compensation.”. (d) 26 USC 85 note. Effective Date.— The amendments made by this section shall apply to payments of unemployment compensation made after December 31, 1978, in taxable years ending after such date. SEC. 113. REPEAL OF DEDUCTION FOR POLITICAL CONTRIBUTIONS; INCREASE IN CREDIT. (a) Repeal of Deduction.— (1) 26 USC 218. Repeal.— Section 218 (relating to deduction for contributions to candidates for public office and newsletter funds) is hereby repealed. (2) Conforming amendments.— (A) The table of sections for part VII of subchapter B of chapter 1 (relating to additional itemized deductions for individuals) is amended by striking out the item relating to section 218. (B) 26 USC 642. Section 642 (relating to special rules for credits and deductions of estates and trusts) is amended by striking out subsection (i) and by redesignating subsections (j) and (k) as subsections (i) and (j), respectively. (c) 26 USC 41. Increase in Amount of Credit.— Paragraph (1) of section 41(b) (relating to maximum credit) is amended by striking out “$25” and “$50” and inserting in lieu thereof “$50” and “$100”, respectively. (d) 26 USC 41 note. Effective Date.— The amendments made by this section shall apply with respect to contributions the payment of which is made after December 31, 1978, in taxable years beginning after such date. Subtitle C— Credits SEC. 121. PAYMENTS TO RELATED INDIVIDUALS UNDER CHILD CARE CREDIT. (a) In General.— Paragraph (6) of section 44A(f) (relating to payments 26 USC 44A. to related individuals) is amended to read as follows: “(6) Payments to related individuals.— No credit shall be allowed under subsection (a) for any amount paid by the tax-payer to an individual— “(A) with respect to whom, for the taxable year, a deduction under section 151(e) (relating to deduction for personal 26 USC 151. exemptions for dependents) is allowable either to the tax-payer or his spouse, or “(B) who is a child of the taxpayer (within the meaning of section 151(e)(3)) who has not attained the age of 19 at the close of the taxable year. For purposes of this paragraph, the term ‘taxable year’ means “Taxable year.” the taxable year of the taxpayer in which the service is performed.” (b) Effective Date.— The amendment made by subsection (a) shall 26 USC 44A note. apply to taxable years beginning after December 31, 1978. Subtitle D— Deferred Compensation PART I— DEFERRED COMPENSATION PROVISIONS SEC. 131. DEFERRED COMPENSATION PLANS WITH RESPECT TO SERVICE FOR STATE AND LOCAL GOVERNMENTS. (a) In General.— Subpart B of part II of subchapter E of chapter 1 (relating to taxable years for which gross income included) is amended by adding at the end thereof the following new section: “SEC. 457. DEFERRED COMPENSATION PLANS WITH RESPECT TO SERVICE FOR STATE AND LOCAL GOVERNMENTS. “(a) Year of Inclusion in Gross Income.— In the case of a participant in an eligible State deferred compensation plan, any amount of compensation deferred under the plan, and any income attributable to the amounts so deferred, shall be includible in gross income only for the taxable year in which such compensation or other income is paid or otherwise made available to the participant or other beneficiary. “(b) Eligible State Deferred Compensation Plan Defined.— For purposes of this section, the term ‘eligible State deferred compensation plan’ means a plan established and maintained by a State— “(1) in which only individuals who perform service for the State may be participants, “(2) which provides that (except as provided in paragraph (3)) the maximum that may be deferred under the plan for the taxable year shall not exceed the lesser of— “(A) $7,500, or “(B) 33⅓ percent of the participant’s includible compensation, “(3) which may provide that, for 1 or more of the participant’s last 3 taxable years ending before he attains normal retirement age under the plan, the ceiling set forth in paragraph (2) shall be the lesser of— “(A) $15,000, or “(B) the sum of— “(i) the plan ceiling established for purposes of paragraph (2) for the taxable year (determined without regard to this paragraph), plus “(ii) so much of the plan ceiling established for purposes of paragraph (2) for taxable years before the taxable year as has not theretofore been used under paragraph (2) or this paragraph, “(4) which provides that compensation will be deferred for any calendar month only if an agreement providing for such deferral has been entered into before the beginning of such month, “(5) which does not provide that amounts payable under the plan will be made available to participants or other beneficiaries earlier than when the participant is separated from service with the State or is faced with an unforeseeable emergency (determined in the manner prescribed by the Secretary by regulation), and “(6) which provides that— “(A) all amounts of compensation deferred under the plan, “(B) all property and rights purchased with such amounts, and “(C) all income attributable to such amounts, property, or rights, shall remain (until made available to the participant or other beneficiary) solely the property and rights of the State (without being restricted to the provision of benefits under the plan) subject only to the claims of the State’s general creditors. A plan which is administered in a manner which is inconsistent with the requirements of any of the preceding paragraphs shall be treated as not meeting the requirements of such paragraph as of the first plan year beginning more than 180 days after the date of notification by the Secretary of the inconsistency unless the State corrects the inconsistency before the first day of such plan year. “(c) Individuals Who Are Participants in More Than One Plan.— “(1) In general.— The maximum amount of the compensation of any one individual which may be deferred under subsection (a) during any taxable year shall not exceed $7,500 (as modified by any adjustment provided under subsection (b)(3)). “(2) 26 USC 403. Coordination with section 403(b).— In applying paragraph (1) of this subsection and paragraphs (2) and (3) of subsection (b), an amount excluded during a taxable year under section 403(b) shall be treated as an amount deferred under subsection (a). In applying clause (ii) of section 403(b)(2)(A), an amount deferred under subsection (a) for any year of service shall be taken into account as if described in such clause. “(d) Other Definitions and Special Rules.— For purposes of this section— “(1) State.— The term ‘State’ means a State, a political subdivision of a State, and an agency or instrumentality of a State or political subdivision of a State. “(2) Performance of service.— The performance of service includes performance of service as an independent contractor. “(3) Participant.— The term ‘participant’ means an individual who is eligible to defer compensation under the plan. “(4) Beneficiary.— The term ‘beneficiary’ means a beneficiary of the participant, his estate, or any other person whose interest in the plan is derived from the participant. “(5) Includible compensation.— The term ‘includible compensation’ means compensation for service performed for the State which (taking into account the provisions of this section and section 403(b)) is currently includible in gross income. “(6) Compensation taken into account at present value.— Compensation shall be taken into account at its present value. “(7) Community property laws.— The amount of includible compensation shall be determined without regard to any community property laws. “(8) Income attributable.— Gains from the disposition of property shall be treated as income attributable to such property. “(9) Section to apply to rural electric cooperatives.— “(A) In general.— This section shall apply with respect to any participant in a plan of a rural electric cooperative in the same manner and to the same extent as if such plan were a plan of a State. “(B) Rural electric cooperative defined.— For purposes of subparagraph (A), the term ‘rural electric cooperative’ means— “(i) any organization described in section 501(c)(12) 26 USC 501. which is exempt from tax under section 501(a) and which is engaged primarily in providing electric service, and “(ii) any organization described in section 501(c)(6) which is exempt from tax under section 501(a) and all the members of which are organizations described in clause (i). “(e) Tax Treatment of Participants Where Plan or Arrangement of State is not Eligible.— “(1) In general.— In the case of a plan of a State providing for a deferral of compensation, if such plan is not an eligible State deferred compensation plan, then— “(A) the compensation shall be included in the gross income of the participant or beneficiary for the first taxable year in which there is no substantial risk of forfeiture of the rights to such compensation, and “(B) the tax treatment of any amount made available under the plan to a participant or beneficiary shall be determined under section 72 (relating to annuities, etc.). 26 USC 72. “(2) Exceptions.— Paragraph (1) shall not apply to— “(A) a plan described in section 401(a) which includes a 26 USC 401. trust exempt from tax under section 501(a), 26 USC 501. “(B) an annuity plan or contract described in section 403, 26 USC 403. “(C) a qualified bond purchase plan described in section 405(a), 26 USC 405. “(D) that portion of any plan which consists of a transfer of property described in section 83, and 26 USC 83. “(E) that portion of any plan which consists of a trust to which section 402(b) applies. 26 USC 402. “(3) Definitions.— For purposes of this subsection— “(A) Plan includes arrangements, etc.— The term ‘plan’ includes any agreement or arrangement. “(B) Substantial risk of forfeiture.— The rights of a person to compensation are subject to a substantial risk of forfeiture if such person’s rights to such compensation are conditioned upon the future performance of substantial services by any individual.” (b) Clerical Amendment.— The table of sections for such subpart B is amended by adding at the end thereof the following: “Sec. 457. Deferred compensation plans with respect to service for State and local governments.”. (c) 26 USC 457 note. Effective Date.— (1) In general.— The amendments made by this section shall apply to taxable years beginning after December 31, 1978. (2) Transitional rules.— (A) In general.— In the case of any taxable year beginning after December 31, 1978, and before January 1, 1982— (i) any amount of compensation deferred under a plan of a State providing for a deferral of compensation (other than a plan described in section 457(e)(2) of the Ante, p. 2779. Internal Revenue Code of 1954), and any income attributable to the amounts so deferred, shall be includible in gross income only for the taxable year in which such compensation or other income is paid or otherwise made available to the participant or other beneficiary, but (ii) the maximum amount of the compensation of any one individual which may be excluded from gross income by reason of clause (i) and by reason of section 457(a) of such Code during any such taxable year shall not exceed the lesser of— (I) $7,500, or (II) 33⅓ percent of the participant’s includible compensation. (B) Application of catch-up provisions in certain cases.— If, in the case of any participant for any taxable year, all of the plans are eligible State deferred compensation plans, then clause (ii) of subparagraph (A) of this paragraph shall be applied with the modification provided by paragraph (3) of section 457(b) of such Code. (C) Applications of certain coordination provisions.— In applying clause (ii) of subparagraph (A) of this paragraph 26 USC 403. Ante, p. 2779. and section 403(b)(2)(A)(ii) of such Code, rules similar to the rules of section 457(c)(2) of such Code shall apply. (D) Meaning of terms.— Except as otherwise provided in this paragraph, terms used in this paragraph shall have the same meaning as when used in section 457 of such Code. SEC. 132. CERTAIN PRIVATE DEFERRED COMPENSATION PLANS. (a) 26 USC 451 note. General Rule.— The taxable year of inclusion in gross income of any amount covered by a private deferred compensation plan shall be determined in accordance with the principles set forth in regulations, rulings, and judicial decisions relating to deferred compensation which were in effect on February 1, 1978. (b) Private Deferred Compensation Plan Defined.— (1) In general.—For purposes of this section, the term “private deferred compensation plan” means a plan, agreement, or arrangement— (A) where the person for whom the service is performed is not a State (within the meaning of paragraph (1) of section 457(d) of the Internal Revenue Code of 1954) and not an Ante, p. 2779. 26 USC 501. organization which is exempt from tax under section 501 of such Code, and (B) under which the payment or otherwise making available of compensation is deferred. (2) Certain plans excluded.— Paragraph (1) shall not apply (A) a plan described in section 401(a) of the Internal Revenue Code of 1954 which includes a trust exempt from 26 USC 401. 26 USC 501. tax under section 501(a) of such Code, (B) an annuity plan or contract described in section 403 of 26 USC 403. such Code, (C) a qualified bond purchase plan described in section 405(a) of such Code, 26 USC 405. (D) that portion of any plan which consists of a transfer of property described in section 83 (determined without regard 26 USC 83. 26 USC 402. to subsection (e) thereof) of such Code, and (E) that portion of any plan which consists of a trust to which section 402(b) of such Code applies. (c) Effective Date.—This section shall apply to taxable years ending on or after February 1, 1978. SEC. 133. CLARIFICATION OF DEDUCTIBILITY OF PAYMENTS OF DEFERRED COMPENSATION, ETC., TO INDEPENDENT CONTRACTORS. (a) In General.— Section 404 (relating to deduction for contributions 26 USC 404. of an employer to an employees’ trust or annuity plan and compensation under a deferred-payment plan) is amended by inserting after subsection (c) the following new subsection: “(d) Deductibility of Payments of Deferred Compensation, Etc., to Independent Contractors.— If a plan would be described in so much of subsection (a) as precedes paragraph (1) thereof (as modified by subsection (b)) but for the fact that there is no employer-employee relationship, the contributions or compensation— “(1) shall not be deductible by the payor thereof under section 162 or 212, but 26 USC 162, 212. “(2) shall (if they would be deductible under section 162 or 212 but for paragraph (1)) be deductible under this subsection for the taxable year in which an amount attributable to the contribution or compensation is includible in the gross income of the persons participating in the plan.” (b) Clarification of Section 404(b).— Subsection (b) of section 404 26 USC 404. (relating to method of contributions, etc., having the effect of a plan) is amended by striking out “similar plan” and inserting in lieu thereof “other plan”. (c) Effective Date.—The amendments made by this section shall 26 USC 404 note. apply to deductions for taxable years beginning after December 31, 1978. SEC. 134. TAX TREATMENT OF CAFETERIA PLANS. (a) In General.— Part III of subchapter B of chapter 1 (relating to items specifically excluded from gross income) is amended by redesignating section 125 as section 126 and by inserting after section 124 the 26 USC 126. following new section: “SEC. 125. CAFETERIA PLANS. “(a) In General.— Except as provided in subsection (b), no amount shall be included in the gross income of a participant in a cafeteria plan solely because, under the plan, the participant may choose among the benefits of the plan. “(b) Exception for Highly Compensated Participants Where Plan is Discriminatory.— “(1) In general.— In the case of a highly compensated participant, subsection (a) shall not apply to any benefit attributable to a plan year for which the plan discriminates in favor of— “(A) highly compensated individuals as to eligibility to participate, or “(B) highly compensated participants as to contributions and benefits. “(2) Year of inclusion.— For purposes of determining the taxable year of inclusion, any benefit described in paragraph (1) shall be treated as received or accrued in the participant’s taxable year in which the plan year ends. “(c) Discrimination as to Benefits or Contributions.— For purposes of subparagraph (B) of subsection (b)(1), a cafeteria plan does not discriminate where nontaxable benefits and total benefits (or employer contributions allocable to nontaxable benefits and employer contributions for total benefits) do not discriminate in favor of highly compensated participants. “(d) Cafeteria Plan Defined.— For purposes of this section— “(1) In general.— The term ‘cafeteria plan’ means a written plan under which— “(A) all participants are employees, and “(B) the participants may choose among two or more benefits. The benefits which may be chosen may be nontaxable benefits, or cash, property, or other taxable benefits. “(2) Deferred compensation plans excluded.— The term ‘cafeteria plan’ does not include any plan which provides for deferred compensation. “(e) Highly Compensated Participant and Individual Defined.— For purposes of this section— “(1) Highly compensated participant.— The term ‘highly compensated participant’ means a participant who is— “(A) an officer, “(B) a shareholder owning more than 5 percent of the voting power or value of all classes of stock of the employer, “(C) highly compensated, or “(D) a spouse or dependent (within the meaning of section 26 USC 152. 152) of an individual described in subparagraph (A), (B), or (C). “(2) Highly compensated individual.— The term ‘highly compensated individual’ means an individual who is described in subparagraphs (A), (B), (C), or (D) of paragraph (1). “(f) Nontaxable Benefit Defined.— For purposes of this section, the term ‘nontaxable benefit’ means any benefit which, with the application of subsection (a), is not includible in the gross income of the employee. “(g) Special Rules.— “(1) Collectively bargained plan not considered discriminatory.— For purposes of this section, a plan shall not be treated as discriminatory if the plan is maintained under an agreement which the Secretary finds to be a collective bargaining agreement between employee representatives and one or more employers. “(2) Health benefits.— For purposes of subparagraph (B) of subsection (b)(1), a cafeteria plan which provides health benefits shall not be treated as discriminatory if— “(A) contributions under the plan on behalf of each participant include an amount which— “(i) equals 100 percent of the cost of the health benefit coverage under the plan of the majority of the highly compensated participants similarly situated, or “(ii) equals or exceeds 75 percent of the cost of the health benefit coverage of the participant (similarly situated) having the highest cost health benefit coverage under the plan,and “(B) contributions or benefits under the plan in excess of those described in subparagraph (A) bear a uniform relationship to compensation. “(3) Certain participation eligibility rules not treated as discriminatory.— For purposes of subparagraph (A) of subsection (b)(1), a classification shall not be treated as discriminatory if the plan— “(A) benefits a group of employees described in subparagraph (B) of section 410(b)(1), and 26 USC 410. “(B) meets the requirements of clauses (i) and (ii): “(i) No employee is required to complete more than 3 years of employment with the employer or employers maintaining the plan as a condition of participation in the plan, and the service requirement for each employee is the same. “(ii) Any employee who has satisfied the employment requirement of clause (i) and who is otherwise entitled to participate in the plan commences participation no later than the first day of the first plan year beginning after the date the service requirement was satisfied unless the employee was separated from service before the first day of that plan year. “(4) 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. “(h) Regulations.— The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section.” (b) Clerical Amendment.— The table of sections for part III of subchapter B of chapter 1 is amended by striking out the item relating to section 124 and inserting in lieu thereof the following: “Sec. 125. Cafeteria plans. “Sec. 126. Cross references to other Acts.” (c) Effective Date.— The amendments made by this section shall 26 USC 125 note. apply to taxable years beginning after December 31, 1978. SEC. 135. CERTAIN CASH OR DEFERRED ARRANGEMENTS. (a) In General.— Section 401 (relating to qualified pension, profit-sharing, 26 USC 401. and stock bonus plans) is amended by redesignating subsection (k) as (1) and by inserting after subsection (j) the following new subsection: “(k) Cash or Deferred Arrangements.— “(1) General rule.— A profit-sharing or stock bonus plan shall not be considered as not satisfying the requirements of sub-section (a) merely because the plan includes a qualified cash or deferred arrangement. “(2) Qualified cash or deferred arrangement.— A qualified cash or deferred arrangement is any arrangement which is part of a profit-sharing or stock bonus plan which meets the requirements of subsection (a)— “(A) under which a covered employee may elect to have the employer make payments as contributions to a trust under the plan on behalf of the employee, or to the employee directly in cash; “(B) under which amounts held by the trust which are attributable to employer contributions made pursuant to the employee’s election may not be distributable to participants or other beneficiaries earlier than upon retirement, death, disability, or separation from service, hardship or the attainment of age 59½, and will not be distributable merely by reason of the completion of a stated period of participation or the lapse of a fixed number of years; and “(C) which provides that an employee’s right to his accrued benefit derived from employer contributions made to the trust pursuant to his election are nonforfeitable. “(3) Application of participation and discrimination standards.— “(A) A qualified cash or deferred arrangement shall be considered to satisfy the requirements of subsection (a)(4), with respect to the amount of contributions, and of subparagraph 26 USC 410. (B) of section 410(b)(1) for a plan year if those employees eligible to benefit under the plan satisfy the provisions of subparagraph (A) or (B) of section 410(b)(1) and if the actual deferral percentage for highly compensated employees (as defined in paragraph (4)) for such plan year bears a relationship to the actual deferral percentage for all other eligible employees for such plan year which meets either of the following tests: “(i) The actual deferral percentage for the group of highly compensated employees is not more than the actual deferral percentage of all other eligible employees multiplied by 1.5. “(ii) The excess of the actual deferral percentage for the group of highly compensated employees over that of all other eligible employees is not more than 3 percentage points, and the actual deferral percentage for the group of highly compensated employees is not more than the actual deferral percentage of all other eligible employees multiplied by 2.5. “(B) For purposes of subparagraph (A), the actual deferral percentage for a specified group of employees for a plan year shall be the average of the ratios (calculated separately for each employee in such group) of— “(i) the amount of employer contributions actually paid over to the trust on behalf of each such employee for such plan year, to “(ii) the employee’s compensation for such plan year. For purposes of the preceding sentence, the compensation of any employee for a plan year shall be the amount of his compensation which is taken into account under the plan in calculating the contribution which may be made on his behalf for such plan year. “(4) Highly compensated employee.— For purposes of this subsection, the term ‘highly compensated employee’ means any employee who is more highly compensated than two-thirds of all eligible employees, taking into account only compensation which is considered in applying paragraph (3).” (b) Taxability of Beneficiaries.— Subsection (a) of section 402 is 26 USC 402. amended by adding at the end thereof the following new paragraph: “(8) Cash or deferred arrangements.— For purposes of this title, contributions made by an employer on behalf of an employee to a trust which is a part of a qualified cash or deferred arrangement (as defined in section 401(k)(2)) shall not be treated 26 USC 401. as distributed or made available to the employee nor as contributions made to the trust by the employee merely because the arrangement includes provisions under which the employee has an election whether the contribution will be made to the trust or received by the employee in cash.” (c) Effective Date.— (1) In general.— The amendments made by this section shall apply to plan years beginning after December 31, 1979. (2) Transitional rule.— In the case of cash or deferred arrangements in existence on June 27, 1974— (A) the qualification of the plan and the trust under section 401 of the Internal Revenue Code of 1954; 26 USC 401. (B) the exemption of the trust under section 501(a) of such 26 USC 501. Code; (C) the taxable year of inclusion in gross income of the employee of any amount so contributed by the employer to the trust; and (D) the excludability of the interest of the employee in the trust under sections 2039 and 2517 of such Code, 26 USC 2039, 2517. shall be determined for plan years beginning before January 1, 1980 in a manner consistent with Revenue Ruling 56–497 (1956—2 C.B. 284), Revenue Ruling 63–180 (1963–2 C.B. 189), and Revenue Ruling 68–89 (1968–1 C.B. 402). PART II— EMPLOYEE STOCK OWNERSHIP PLANS SEC. 141. ESOPS. (a) In General.— Subpart A of part I of subchapter D of chapter 1 (relating to general rule for pension, profit-sharing, stock bonus plans, etc.) is amended by adding at the end thereof the following new section: “SEC. 409A. QUALIFICATIONS FOR ESOPS. “(a) ESOP Defined.— Except as otherwise provided in this title, for purposes of this title, the term ‘ESOP’ means a defined contribution plan which— “(1) meets the requirements of section 401(a), 26 USC 401. “(2) is designed to invest primarily in employer securities, and “(3) meets the requirements of subsections (b), (c), (d), (e), (f), (g), and (h) of this section. “(b) Required Allocation of Employer Securities.— “(1) In general.— A plan meets the requirements of this subsection if— “(A) the plan provides for the allocation for the plan year of all employer securities transferred to it or purchased by it (because of the requirements of section 48(n)(1)(A)) to the accounts of all participants who are entitled to share in such allocation, and “(B) for the plan year the allocation to each participant so entitled is an amount which bears substantially the same proportion to the amount of all such securities allocated to all such participants in the plan for that year as the amount of compensation paid to such participant during that year bears to the compensation paid to all such participants during that year. “(2) Compensation in excess of $100,000 disregarded.— For purposes of paragraph (1), compensation of any participant in excess of the first $100,000 per year shall be disregarded. “(3) Determination of compensation.— For purposes of this subsection, the amount of compensation paid to a participant for any period is the amount of such participant’s compensation 26 USC 415. (within the meaning of section 415(c)(3)) for such period. “(4) Suspension of allocation in certain cases.— Notwithstanding paragraph (1), the allocation to the account of any participant which is attributable to the basic ESOP credit may be extended over whatever period may be necessary to comply with the requirements of section 415. “(c) Participants Must Have Nonforfeitable Rights.— A plan meets the requirements of this subsection only if it provides that each participant has a nonforfeitable right to any employer security allocated to his account. “(d) Employer Securities Must Stay in the Plan.— A plan meets the requirements of this subsection only if it provides that no employer security allocated to a participants’s account under subsection (b) may be distributed from that account before the end of the 84th month beginning after the month in which the security is allocated to the account. To the extent provided in the plan, the preceding sentence shall not apply in the case of separation from service, death, or disability. “(e) Voting Rights.— “(1) In general.— A plan meets the requirements of this subsection if it meets the requirements of paragraph (2) or (3), whichever is applicable. “(2) Requirements where employer has a registration-type class of securities.— If the employer has a registration-type class of securities, the plan meets the requirements of this paragraph only if each participant in the plan is entitled to direct the plan as to the manner in which employer securities which are entitled to vote and are allocated to the account of such participant are to be voted. “(3) Requirement for other employers.— If the employer does not have a registration-type class of securities, the plan meets the requirements of this paragraph only if each participant in the plan is entitled to direct the plan as to the manner in which voting rights under employer securities which are allocated to the account of such participant are to be exercised with respect to a corporate matter which (by law or charter) must be decided by more than a majority vote of outstanding common shares voted. “(4) Registration-type class of securities defined.— For purposes of this subsection, the term, ‘registration-type class of securities’ means— “(A) a class of securities required to be registered under section 12 of the Securities Exchange Act of 1934, and 15 USC 78l. “(B) a class of securities which would be required to be so registered except for the exemption from registration provided in subsection (g)(2)(H) of such section 12. “(f) Plan Must Be Established Before Employer’s Due Date.— “(1) In general.— A plan meets the requirements of this subsection for a plan year only if it is established on or before the due date for the filing of the employer’s tax return for the taxable year (including any extensions of such date) in which or with which the plan year ends. “(2) Special rule for first year.— A plan which otherwise meets the requirements of this section shall not be considered to have failed to meet the requirements of section 401(a) merely 26 USC 401. because it was not established by the close of the first taxable year of the employer for which an ESOP credit is claimed by the employer. “(g) Transferred Amounts Must Stay in Plan Even Though Investment Credit is Redetermined or Recaptured.— A plan meets the requirement of this subsection only if it provides that amounts which are transferred to the plan (because of the requirements of section 48(n)(1)) shall remain in the plan (and, if allocated under the 26 USC 48. plan, shall remain so allocated) even though part or all of the ESOP credit is recaptured or redetermined. “(h) Right to Demand Employer Securities; Put Option.— “(1) In general.— A plan meets the requirements of this subsection if a participant who is entitled to a distribution from the plan— “(A) has a right to demand that his benefits be distributed in the form of employer securities, and “(B) if the employer securities are not readily tradable on an established market, has a right to require that the employer repurchase employer securities under a fair valuation formula. “(2) Plan may distribute cash in certain cases.— A plan which otherwise meets the requirements of this section shall not be considered to have failed to meet the requirements of section 401(a) merely because under the plan the benefits may be distributed in cash or in the form of employer securities. “(i) Reimbursement for Expenses of Establishing and Administering Plan.— A plan which otherwise meets the requirements of this section shall not be treated as failing to meet such requirements merely because it provides that— “(1) Expenses of establishing plan.— As reimbursement for the expenses of establishing the plan, the employer may withhold from amounts due the plan for the taxable year for which the plan is established (or the plan may pay) so much of the amounts paid or incurred in connection with the establishment of the plan as does not exceed the sum of— “(A) 10 percent of the first $100,000 which the employer is required to transfer to the plan for that taxable year under section 48(n)(1), and “(B) 5 percent of any amount so required to be transferred in excess of the first $100,000; and “(2) Administrative expenses.— As reimbursement for the expenses of administering the plan, the employer may withhold from amounts due the plan (or the plan may pay) so much of the amounts paid or incurred during the taxable year as expenses of administering the plan as does not exceed the lesser of— “(A) the sum of— “(i) 10 percent of the first $100,000 of the dividends paid to the plan with respect to stock of the employer during the plan year ending with or within the employer’s taxable year, and “(ii) 5 percent of the amount of such dividends in excess of $100,000 or “(B) $100,000. “(j) Conditional Contributions to the Plan.— A plan which otherwise meets the requirements of this section shall not be treated as failing to satisfy such requirements (or as failing to satisfy the 26 USC 401. 29 USC 1103. requirements of section 401(a) of this title or of section 403(c)(1) of the 29 USC 1103. Employee Retirement Income Security Act of 1974) merely because of the return of a contribution (or a provision permitting such a return) if— “(1) the contribution to the plan is conditioned on a determination by the Secretary that such plan meets the requirements of this section, “(2) the application for a determination described in paragraph (1) is filed with the Secretary not later than 90 days after the date on which an ESOP credit is claimed, and “(3) the contribution is returned within 1 year after the date on which the Secretary issues notice to the employer that such plan does not satisfy the requirements of this section. “(k) Requirements Relating to Certain Withdrawals.— Notwithstanding any other law or rule of law— “(1) the withdrawal from a plan which otherwise meets the requirements of this section by the employer of an amount contributed for purposes of the matching ESOP credit shall not be considered to make the benefits forfeitable, and “(2) the plan shall not, by reason of such withdrawal, fail to be for the exclusive benefit of participants or their beneficiaries, if the withdrawn amounts were not matched by employee contributions 26 USC 415. or were in excess of the limitations of section 415. Any withdrawal described in the preceding sentence shall not be considered to violate the provisions of section 403(c)(1) of the Employee Retirement Income Security Act of 1974. “(l) Employer Securities Defined.— For purposes of this section— “(1) In general.— The term ‘employer securities’ means common stock issued by the employer (or by a corporation which is a member of the same controlled group) which is readily tradable on an established securities market. “(2) Special rule where there is no readily tradable common stock.— If there is no common stock which meets the requirements of paragraph (1), the term ‘employer securities’ means common stock issued by the employer (or by a corporation which is a member of the same controlled group) having a combination of voting power and dividend rights equal to or in excess of— “(A) that class of common stock of the employer (or of any other such corporation) having the greatest voting power, and “(B) that class of stock of the employer (or of any other such corporation) having the greatest dividend rights. “(3) Preferred stock may be issued in certain cases.— Noncallable preferred stock shall be treated as meeting the requirements of paragraph (1) if such stock is convertible at any time into stock which meets the requirements of paragraph (1) and if such conversion is at a conversion price which (as of the date of the acquisition by the ESOP) is reasonable. “(4) Controlled group of corporations defined.— “(A) In general.— For purposes of this subsection, the term ‘controlled group of corporations’ has the meaning given to such term by section 1563(a) (determined without 26 USC 1563. regard to subsections (a)(4) and (e)(3)(C) of section 1563). “(B) Common parent may own only 50 percent of first tier subsidiary.— For purposes of subparagraph (A), if the common parent owns directly stock possessing at least 50 percent of the voting power of all classes of stock and at least 50 percent of each class of nonvoting stock in a first tier subsidiary, such subsidiary (and all other corporations below it in the chain which would meet the 80 percent test of section 1563(a) if the first tier subsidiary were the common parent) shall be treated as includible corporations. “(m) Contributions of Stock of Controlling Corporation.— If the stock of a corporation which controls another corporation or which controls a corporation controlled by such other corporation is contributed to an ESOP of the controlled corporation, then no gain or loss shall be recognized, because of that contribution, to the controlled corporation. For purposes of this subsection, the term ‘control’ has the same meaning as that term has in section 368(c). 26 USC 368. “(n) Cross References.— “(1) For requirements for allowance of ESOP credit, see section 48(n). “(2) For assessable penalties for failure to meet requirements of this section, or for failure to make contributions required with respect to the allowance of an ESOP credit, see section 6699.” (b) Amendment of Investment Credit Rules.— Section 48 (relating 26 USC 48. to definitions and special rules) is amended by redesignating subsection (n) as subsection (p) and by inserting after subsection (m) the following new subsections: “(n) Requirements for Allowance of ESOP Percentage.— “(1) In general.— “(A) Basic esop percentage.— The basic ESOP percentage shall not apply to any taxpayer for any taxable year unless the taxpayer on his return for such taxable year agrees, as a condition for the allowance of such percentage— “(i) to make transfers of employer securities to an ESOP maintained by the taxpayer having an aggregate value equal to 1 percent of the amount of the qualified investment (as determined under subsections (c) and (d) of section 46) for the taxable year, and 26 USC 46. “(ii) to make such transfers at the times prescribed in subparagraph (C). “(B) Matching esop percentage.— The matching ESOP percentage shall not apply to any taxpayer for any taxable year unless the basic ESOP percentage applies to such taxpayer for such taxable year, and the taxpayer on his return for such taxable year agrees, as a condition for the allowance of the matching ESOP percentage— “(i) to make transfers of employer securities to an ESOP maintained by the taxpayer having an aggregate value equal to the sum of the qualified matching employee contributions made to such ESOP for the taxable year, and “(ii) to make such transfers at the times prescribed in subparagraph (C). “(C) Times for making transfers.— The aggregate of the transfers required under subparagraphs (A) and (B) shall be made— “(i) to the extent allocable to that portion of the ESOP credit allowed for the taxable year or allowed as a carryback to a preceding taxable year, not later than 30 days after the due date (including extensions) for filing the return for the taxable year, or “(ii) to the extent allocable to that portion of the ESOP credit which is allowed as a carryover in a succeeding taxable year, not later than 30 days after the due date (including extensions) for filing the return for such succeeding taxable year. The Secretary may by regulations provide that transfers may be made later than the times prescribed in the preceding sentence where the amount of any credit or carryover or carryback for any taxable year exceeds the amount shown on the return for the taxable year. “(D) Ordering rules.— For purposes of subparagraph (C), the portion of the ESOP credit allowed for the current year or as a carryover or carryback shall be determined— “(i) first by treating the credit or carryover or carry-back as attributable to the regular percentage, “(ii) second by treating the portion (not allocated under clause (i)) of such credit or carryover or carryback as attributable to the basic ESOP percentage, and “(iii) finally by treating the portion (not allocated under clause (i) or (ii) as attributable to the matching ESOP percentage. “(2) Qualified matching employee contribution defined.— “(A) In general.— For purposes of this subsection, the term ‘qualified matching employee contribution’ means, with respect to any taxable year, any contribution made by an employee to an ESOP maintained by the taxpayer if— “(i) each employee who is entitled to an allocation of employer securities transferred to the ESOP under paragraph (1)(A) is entitled to make such a contribution, “(ii) the contribution is designated by the employee as a contribution intended to be taken into account under this subparagraph for the taxable year, “(iii) the contribution is paid in cash to the employer or plan administrator not later than 24 months after the close of the taxable year, and is invested forthwith in employer securities, and “(iv) the ESOP meets the requirements of subparagraph (B). “(B) Plan requirements.— For purposes of subparagraph (A), an ESOP meets the requirements of this subparagraph if— “(i) participation in the ESOP is not required as a condition of employment and the ESOP does not require matching employee contributions as a condition of participation in the ESOP, “(ii) employee contributions under the ESOP meet the requirements of section 401(a)(4), and 26 USC 401. “(iii) the ESOP provides for allocation of all employer securities transferred to it or purchased by it (because of the requirements of paragraph (1)(B)) to the account of each participant in an amount equal to such participant’s matching employee contributions for the year. “(3) Certain contributions of cash treated as contributions of employer securities.— For purposes of this subsection, a transfer of cash shall be treated as a transfer of employer securities if the cash is, under the ESOP, used within 30 days to purchase employer securities. “(4) Adjustments if esop credit recaptured.— If any portion of the ESOP credit is recaptured under section 47 or the ESOP 26 USC 47. credit is reduced by a final determination— “(A) the employer may reduce the amount required to be transferred to the ESOP under paragraph (1) for the current taxable year or any succeeding taxable year by an amount equal to such portion (or reduction), or “(B) notwithstanding the provisions of paragraph (5) and to the extent not taken into account under subparagraph (A), the employer may deduct an amount equal to such portion (or reduction), subject to the limitations of section 404. 26 USC 404. “(5) Disallowance of deduction.— No deduction shall be allowed under section 162, 212, or 404 for amounts required to be 26 USC 162, 212, 404. transferred to an ESOP under this subsection. “(6) Definitions.— For purposes of this subsection— “(A) Employer securities.— The term ‘employer securities’ has the meaning given to such term by section 409A(l). “(B) Value.— The term ‘value’ means— “(i) in the case of securities listed on a national exchange, the average of closing prices of such securities for the 20 consecutive trading days immediately preceding the due date for filing the return for the taxable year (determined with regard to extensions), or “(ii) in the case of securities not listed on a national exchange, the fair market value as determined in good faith and in accordance with regulations prescribed by the Secretary. “(o) Certain Credits Defined.— For purposes of this title— “(1) Regular investment credit.— The term ‘regular investment credit’ means that portion of the credit allowable by section 38 which is attributable to the regular percentage. 26 USC 38. “(2) Energy investment credit.— The term ‘energy investment credit’ means that portion of the credit allowable by section 38 which is attributable to the energy percentage. “(3) ESOP credit.— The term ‘ESOP credit’ means the sum of— “(A) the basic ESOP credit, and “(B) the matching ESOP credit. “(4) Basic esop credit.— The term ‘basic ESOP credit’ means that portion of the credit allowable by section 38 which is attributable to the basic ESOP percentage. “(5) Matching esop credit.— The term ‘matching ESOP credit’ means that portion of the credit allowable by section 38 which is attributable to the matching ESOP. “(6) Basic esop percentage.— The term ‘basic ESOP percentage’ means the 1-percent ESOP percentage set forth in section 26 USC 46. 46(a)(2)(E)(i). “(7) Matching esop percentage.— The term ‘matching ESOP percentage’ means the additional ESOP percentage (not to exceed % of 1 percent) set forth in section 46(a)(2)(E)(ii) ” (c) Assessable Penalties.— (1) In general.— Subchapter B of chapter 68 (relating to assessable penalties) is amended by adding at the end thereof the following new section: “SEC. 6699. ASSESSABLE PENALTIES RELATING TO ESOP. “(a) In General.— If a taxpayer who has claimed an ESOP credit for any taxable year— “(1) 26 USC 409. fails to satisfy any requirement provided by section 409A, or “(2) fails to make any contribution which is required under 26 USC 48. section 48(n) within the period required for making such contribution, the taxpayer shall pay a penalty in an amount equal to the amount involved in such failure. “(b) No Penalty Where There Is Timely Correction of Failure.— Subsection (a) shall not apply with respect to any failure if the employer corrects such failure (as determined by the Secretary) within 90 days after the Secretary notifies him of such failure. “(c) Amount Involved Defined.— “(1) In general.— For purposes of this section, the term ‘amount involved’ means an amount determined by the Secretary. “(2) Maximum and minimum amount.— The amount determined under paragraph (1)— “(A) shall not exceed the amount determined by multiplying the qualified investment of the employer for the taxable year to which the failure relates by the ESOP percentage claimed by the employer for such year, and “(B) shall not be less than the product of one-half of 1 percent of the amount referred to in subparagraph (A), multiplied by the number of months (or parts thereof) during which such failure continues.” (2) Clerical amendment.— The table of sections for such subchapter B is amended by adding at the end thereof the following new item: “Sec. 6699. Assessable penalties relating to ESOP.” (d) 26 USC 56. Regular Tax Deduction for Purposes of the Minimum Tax Determined Without Regard to ESOP Percentage.— Subsection (c) of section 56 (defining regular tax deduction) is amended by adding at the end thereof the following new sentence: “For purposes of the preceding sentence, the amount of the credit allowable under section 38 shall be determined without regard to the ESOP percentage set forth in section 46(a)(2)(E).” (e) 26 USC 46. ESOP Credit Extended for 3 Years.— Subparagraph (E) of section 46(a)(2) (relating to amount of business investment credit for current taxable year) is amended by striking out “and ending on December 31, 1980,” each place it appears and inserting in lieu thereof “December 31, 1983”. (f) Technical and Conforming Amendments.— (1) Subsections (d), (e), and (f) of section 301 of the Tax Repeal. 26 USC 46 note. Reduction Act of 1975 are hereby repealed. (2) Subparagraph (E) of section 46(a)(2) is amended— 26 USC 46. (A) by striking out “section 301(e) of the Tax Reduction Act of 1975” and inserting in lieu thereof “section 48(n)(1)(B)”, 26 USC 48. and (B) by striking out “section 301(d) of the Tax Reduction Act of 1975” and inserting in lieu thereof “section 409A”. (3) Paragraph (21) of section 401(a) is amended to read as 26 USC 401. follows: “(21) A trust forming part of an ESOP shall not fail to be considered a permanent program merely because employer contributions under the plan are determined solely by reference to the amount of credit which would be allowable under section 46(a) if the employer made the transfer described in section 26 USC 26. 26 USC 48. 26 USC 1504. 48(n)(1).” (4) The last sentence of section 1504(a) (defining affiliated group) is amended to read as follows: “As used in this subsection, the term ‘stock’ does not include nonvoting stock which is limited and preferred as to dividends, employer securities (within the meaning for section 409A(l)) while Ante, p. 2787. such securities are held under an ESOP, or qualifying employer securities (within the meaning of section 4975(e)(8)) while such 26 USC 4975. securities are held under a leveraged employee stock ownership plan which meets the requirements of section 4975(e)(7).” (5) Paragraph (7) of section 4975(e) (defining employee stock ownership plan) is amended— (A) by striking out “Employee” in the paragraph heading and inserting in lieu thereof “Leveraged employee”, and (B) by striking out “employee” in the text and inserting in lieu thereof “leveraged employee”, and (C) by adding at the end thereof the following new sentence: “A plan shall not be treated as as leveraged employee stock ownership plan unless it meets the requirements of subsections (e) and (h) of section 409A.” Ante, p. 2787. (6) Paragraph (3) of section 4975(d) is amended by striking out 26 USC 4975. “employee” and inserting in lieu thereof “leveraged employee”. (7) Subparagraph (B) of section 415(c)(6) is amended by striking 26 USC 415. out clauses (i) and (ii) and inserting in lieu thereof the following: “(i) the term ‘employee stock ownership plan’ means a leveraged employee stock ownership plan (within the meaning of section 4975(e)(7)) or an ESOP, 26 USC 4975. “(ii) the term ‘employer securities’ has the meaning given to such term by section 409A,”. Ante, p. 2787. (8) The table of sections for part I of subchapter D of chapter 1 is amended by inserting after the item relating to section 409 the following new item: “Sec. 409A. Qualification for ESOPs.” (9) Section 404(a)(2) and section 805(d) are each amended by 26 USC 404, 805. striking out “and (20)” and inserting in lieu thereof “(20), and (22)”. (g) Effective Dates.— (1) In general.— The amendments made by this section (other than by subsection (f)(3)) shall apply with respect to qualified investment for taxable years beginning after December 31, 1978. The amendment made by subsection (f)(7) shall apply to years beginning after December 31, 1978. (2) 26 USC 56 note. Retroactive application of amendment made by subsection (d).— In determining the regular tax deduction under 26 USC 6. section 6 of the Internal Revenue Code of 1954 for any taxable year beginning before January 1, 1979, the amount of the credit 26 USC 38. 26 USC 46. 92 Stat. 3174. 26 USC 1 note. allowable under section 38 shall be determined without regard to section 46(a)(2)(B) of such Code (as in effect before the enactment of the Energy Tax Act of 1978). SEC. 142. CERTAIN LUMP SUM DISTRIBUTIONS EXCLUDED FROM GROSS ESTATE WHERE RECIPIENT ELECTS NOT TO APPLY 10-YEAR AVERAGING. (a) 26 USC 2039. In General.— Subsection (c) of section 2039 (relating to exemption of annuities under certain trusts and plans) is amended by striking out “(other than a lump sum distribution described in section 26 USC 402. 402(e)(4), determined without regard to the next to the last sentence of section 402(e)(4)(A))” and inserting in lieu thereof “(other than an amount described in subsection (f))” (b) 26 USC 2039. Definitions.— Section 2039 is amended by adding at the end thereof the following new subsection: “(f) Lump Sum Distributions.— “(1) In general.— An amount is described in this subsection if 26 USC 402. it is a lump sum distribution described in section 402(e)(4) (determined without regard to the next to the last sentence of section 402(e)(4)(A)). “(2) Exception where recipient elects not to take 10-year averaging.— A lump sum distribution described in paragraph (1) shall be treated as not described in this subsection if the recipient elects irrevocably (at such time and in such manner as the Secretary may by regulations prescribe) to treat the distribution as taxable under section 402(a) without the application of paragraph (2) thereof.” (c) 26 USC 2039 note. Effective Date.— The amendments made by this section shall apply with respect to the estates of decedents dying after December 31, 1978. SEC. 143. QUALIFIED PLANS REQUIRED TO PASS THROUGH VOTING RIGHTS ON EMPLOYER SECURITIES. (a) 26 USC 401. In General.— Subsection (a) of section 401 (relating to qualified pension, profit-sharing, and stock bonus plans) is amended by inserting after paragraph (21) the following new paragraph: “(22) If a defined contributions plan— “(A) is established by an employer whose stock is not publicly traded, and “(B) after acquiring securities of the employer, more than 10 percent of the total assets of the plan as securities of the employer, any trust forming part of said plan shall not constitute a qualified trust under this section unless the plan meets the Ante, p. 2787. 26 USC 401 note. requirements of subsection (e) of section 409A.” (b) Effective Date.— The amendment made by subsection (a) shall apply to acquisitions of securities after December 31, 1979. Subtitle E— Retirement Plans SEC. 152. SIMPLIFIED EMPLOYEE PENSIONS. (a) Increase in Maximum Limitation Under Section 408 to $7,500.— Section 408 (relating to individual retirement account) is amended by redesignating subsection (j) as subsection (m) and by inserting after subsection (i) the following new subsection: “(j) Increase in Maximum Limitations for Simplified Employee Pensions.— In the case of a simplified employee pension, this section shall be applied by substituting ‘$7,500’ for ‘$1,500’ in the following provisions: “(1) paragraph (1) of subsection (a), “(2) paragraph (2) of subsection (b), and “(3) paragraph (5) of subsection (b).” (b) Simplified Employee Pension Defined.— Section 408 is amended by inserting after subsection (j) the following new subsection: “(k) Simplified Employee Pension Defined.— “(1) In general.— For purposes of this title, the term ‘simplified employee pension’ means an individual retirement account or individual retirement annuity with respect to which the requirements of paragraphs (2), (3), (4), and (5) of this subsection are met. “(2) Participation requirements.— This paragraph is satisfied with respect to a simplified employee pension for a calendar year only if for such year the employer contributes to the simplified employee pension of each employee who— “(A) has attained age 25, and “(B) has performed service for the employer during at least 3 of the immediately preceding 5 calendar years. “(3) Contributions may not discriminate in favor of the highly compensated, etc.— “(A) In general.— The requirements of this paragraph are met with respect to a simplified employee pension for a calendar year if for such year the contributions made by the employer to simplified employee pensions for his employees do not discriminate in favor of any employee who is— “(i) an officer, “(ii) a shareholder, “(iii) a self-employed individual, or “(iv) highly compensated. “(B) Special rules.— For purposes of subparagraph (A)— “(i) there shall be excluded from consideration employees described in subparagraph (A) or (C) of section 410(b)(2), and 26 USC 410. “(ii) an individual shall be considered a shareholder if he owns (with the application of section 318) more than 26 USC 318. 10 percent of the value of the stock of the employer. “(C) Contributions must bear a 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 $100,000) of each employee maintaining a simplified employee pension. “(D) Treatment of certain contributions and taxes.— Except as provided in this subparagraph, employer contributions do not meet the requirements of this paragraph unless such contributions meet the requirements of this paragraph without taking into account contributions or benefits under 26 USC 1401. 26 USC 3101. 42 USC 401. 26 USC 3111. chapter 2 (relating to tax on self-employment income), chapter 21 (relating to Federal Insurance Contribution Act), title II of the Social Security Act, or any other Federal or State law. Taxes paid under section 3111 (relating to tax on employers) with respect to an employee may, for purposes of this paragraph, be taken into account as a contribution by the employer to an employee’s simplified employee pension. If contributions are made to the simplified employee pension of an owner-employee, the preceding sentence shall not apply unless taxes paid by all such owner-employees under chapter 2, and the taxes which would be payable under chapter 2 by such owner-employees but for paragraphs (4) 26 USC 1402. and (5) of section 1402(c), are taken into account as contributions by the employer on behalf of such owner-employees. “(4) Withdrawals must be permitted.— A simplified employee pension meets the requirements of this paragraph only if— “(A) employer contributions thereto are not conditioned on the retention in such pension of any portion of the amount contributed, and “(B) there is no prohibition imposed by the employer on withdrawals from the simplified employee pension. “(5) Contributions must be made under written allocation formula.— The requirements of this paragraph are met with respect to a simplified employee pension only if employer contributions to such pension are determined under a definite written allocation formula which specifies— “(A) the requirements which an employee must satisfy to share in an allocation, and “(B) the manner in which the amount allocated is computed. “(6) Definitions.— For purposes of this subsection and subsection (1)— “(A) Employee, employer, or owner-employee.— The terms ‘employee’, ‘employer’, and ‘owner-employee’ shall have the respective meanings given such terms by section 401(c). “(B) Compensation.— The term ‘compensation’ means, in the case of an employee within the meaning of section 401(c)(1), earned income within the meaning of section 26 USC 401. 401(c)(2). “(l) Simplified Employer Reports.— An employer who makes a contribution on behalf of an employee to a simplified employee pension shall provide such simplified reports with respect to such contributions as the Secretary may require by regulations. The reports required by this subsection shall be filed at such time and in such manner, and information with respect to such contributions shall be furnished to the employee at such time and in such manner, as may be required by regulations.” (c) 26 USC 219. Maximum Deduction Under Section 219.— Subsection (b) of section 219 (relating to maximum deduction in the case of retirement savings) is amended by adding at the end thereof the following new paragraph: “(7) Simplified employee pensions.— In the case of an employer contribution on behalf of the employee to a simplified employee pension, paragraph (2) shall not apply with respect to the employer contribution and the limitation under paragraph (1) shall be the lesser of— “(A) 15 percent of compensation includible in the employee’s gross income for the taxable year (determined without regard to the employer contribution to the simplified employee pension), or “(B) the sum of— “(i) the amount contributed by the employer to the simplified employee pension and included in gross income (but not in excess of $7,500), and “(ii) $1,500, reduced (but not below zero) by the amount described in clause (i). In the case of an employee who is an officer, shareholder, or owner-employee described in section 408(k)(3), the amount 26 USC 408. referred to in subparagraph (B) shall be reduced by the amount of tax taken into account with respect to such individual under subparagraph (D) of section 408(k)(3).” (d) Employees of Enterprises Under Common Control.— Subsections (b) and (c) of section 414 are each amended by inserting “408(k),” 26 USC 414. after “401,”. (e) Simplified Employee Pension May Be Taken Into Account in Determining Whether Employer Meets Certain Other Nondiscrimination Provisions.— Paragraph (5) of section 401(a) is amended 26 USC 401. by adding at the end thereof the following new sentence: “For purposes of determining whether one or more plans of an employer satisfy the requirements of paragraph (4) and of section 410(b), an 26 USC 410. employer may take into account all simplified employee pensions to which only the employer contributes.” (f) Employer Deductions.— Section 404 (relating to deduction for 26 USC 404. contributions of an employer) is amended by adding the following new subsection at the end thereof: “(h) Special Rules for Simplified Employee Pensions.— “(1) In general.— Employer contributions to a simplified employee pension shall be treated as if they are made to a plan subject to the requirements of this section. Employer contributions to a simplified employee pension are subject to the following limitations: “(A) Contributions made for a calendar year are deductible for the taxable year with which or within which the calendar year ends. “(B) Contributions made within 3‘/2 months after the close of a calendar year are treated as if they were made on the last day of such calendar year if they are made on account of such calendar year. “(C) The amount deductible in a taxable year for a simplified employee pension shall not exceed 15 percent of the compensation paid to the employees during the calendar year ending with or within the taxable year. The excess of the amount contributed over the amount deductible for a taxable year shall be deductible in the succeeding taxable years in order of time, subject to the 15 percent limit of the preceding sentence. “(2) Effect on stock bonus and profit-sharing trust.— For any taxable year for which the employer has a deduction under subparagraph (1), the otherwise applicable limitations in subsection (a)(3)(A) shall be reduced by the amount of the allowable deductions under subparagraph (1) with respect to participants in the stock bonus or profit-sharing trust. “(3) Effect on limit on deductions.— For any taxable year for which the employer has a deduction under subparagraph (1), the otherwise applicable 25 percent limitations in subsection (a)(7) shall be reduced by the amount of the allowable deductions under subparagraph (1) with respect to participants in the stock bonus or profit-sharing trust. “(4) Effect on self-employed individuals.— The limitations described in paragraphs (1), (2)(A), and (4) of subsection (e) for any taxable year shall be reduced by the amount of the allowable deductions under subparagraph (1) with respect to an employee 26 USC 401. 26 USC 415. within the meaning of section 401(c)(1).” (g) Amendments to Section 415.— Section 415 (relating to limitations on benefits and contributions under certain plans) is amended— (1) by redesignating subparagraphs (E) and (F) of subsection (a)(2) as subparagraphs (F) and (G) and by inserting after subparagraph (D) the following new subparagraph: “(E) a simplified employee pension,”; (2) by inserting “408(k),” after “408(h),” in the material immediately following subparagraph (G) of section 415(b)(2); (3) by inserting “any simplified employee pension,” after “section 408(b),” in section 415(e)(5); and (4) by striking out “or” in section 415(k)(1)(F), by redesignating subparagraph (G) of section 415(k)(1) as subparagraph (H), and by inserting after section 415(k)(1)(F) the following new subparagraph: “(G) a simplified employee pension, or”. (h) 26 USC 408 note. Effective Date.— The amendments made by this section shall apply to taxable years beginning after December 31, 1978. SEC. 153. DEFINED BENEFIT PLAN LIMITS. (a) 26 USC 415. In General.— Subsection (b) of section 415 (relating to limitation for defined benefit plans) is amended by adding at the end thereof the following new paragraph: “(7) Benefits under certain collectively bargained plans.— For a year, the limitation referred to in paragraph (1)(B) shall not apply to benefits with respect to a participant under a defined benefit plan— “(A) which is maintained for such year pursuant to a collective bargaining agreement between employee representatives and one or more employers, “(B) which, at all times during such year, has at least 100 participants, “(C) benefits under which are determined by multiplying a specified amount (which is the same amount for each participant) by the number of the participant’s years of service, “(D) which provides that an employee who has at least 4 years of service has a nonforfeitable right to 100 percent of his accrued benefit derived from employer contributions, and “(E) which requires, as a condition of participation in the plan, that an employee complete a period of not more than 60 consecutive days of service with the employer or employers maintaining the plan. This paragraph shall not apply to a participant whose compensation for any 3 years during the 10-year period immediately preceding the year in which he separates from service exceeded the average compensation for such 3 years of all participants in such plan. For any year for which the paragraph applies to benefits with respect to a participant, paragraph (1)(A) and subsection (dl(1)(A) shall be applied with respect to such participant by substituting ‘37,500’ for ‘75,000’.” (b) Effective Date.— The amendment made by this section shall 26 USC 415 note. apply to years beginning after December 31, 1978. SEC. 154. CUSTODIAL ACCOUNTS FOR REGULATED INVESTMENT COMPANY STOCK. (a) Amendment of Section 403.— Subparagraph (A) of section 403(b)(7) (relating to custodial accounts for regulated investment 26 USC 403. company stock) is amended to read as follows: “(A) Amounts paid treated as contributions.— For purposes of this title, amounts paid by an employer described in paragraph (1)(A) to a custodial account which satisfied the requirements of section 401(f)(2) shall be treated as amounts 26 USC 401. contributed by him for an annuity contract for his employee if— “(i) the amounts are to be invested in regulated investment company stock to be held in that custodial account, and “(ii) under the custodial account no such amounts may be paid or made available to any distributee before the employee dies, attains age 59½, separates from service, becomes disabled (within the meaning of section 72(m)(7)), or encounters financial hardship.” 26 USC 72. (b) Effective Date.— The amendment made by this section shall 26 USC 403 note. apply to taxable years beginning after December 31, 1978. SEC. 155. PENSION PLAN RESERVES. (a) In General.— Subsection (d) of section 805 (relating to pension 26 USC 805. plan reserves) is amended— (1) by striking out “or” at the end of paragraph (4); (2) by striking out the period at the end of paragraph (5) and inserting in lieu thereof “; or”; and (3) by adding at the end thereof the following new paragraph: “(6) purchased by— “(A) a governmental plan (within the meaning of section 414(d)), or 26 USC 414. “(B) the Government of the United States, the government of any State or political subdivision thereof, or by any agency or instrumentality of the foregoing, for use in satisfying an obligation of such government, political subdivision, or agency or instrumentality to provide a benefit under a plan described in subparagraph (A).” (b) Effective Date.— The amendments made by this section apply 26 USC 805 note. to taxable years beginning after December 31, 1978. SEC. 156. ROLLOVER OF SECTION 403(b) ANNUITIES PERMITTED. (a) General Rule.— Subsection (b) of section 403 (relating to 26 USC 403. taxability of beneficiary under annuity purchased by section 501(c)(3) 26 USC 501. organization or public school) is amended by adding at the end thereof the following new paragraph: “(8) Rollover amounts.— “(A) General rule.— If— “(i) the balance to the credit of an employee is paid to him in a qualifying distribution, “(ii) the employee transfers any portion of the property he receives in such distribution to an individual retirement plan or to an annuity contract described in paragraph (1), and “(iii) in the case of a distribution of property other than money, the property so transferred consists of the property distributed, then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid. “(B) Qualifying distribution defined.— “(i) In general.— For purposes of subparagraph (A), the term ‘qualifying distribution’ means 1 or more distributions from an annuity contract described in paragraph (1) which would constitute a lump sum distribution 26 USC 402. within the meaning of section 402(e)(4)(A) (determined without regard to subparagraphs (B) and (H) of section 402(e)(4)) if such annuity contract were described in subsection (a). “(ii) Aggregation of annuity contracts.— For purposes of this paragraph, all annuity contracts described in paragraph (1) purchased by an employer shall be treated as a single contract, and section 402(e)(4)(C) shall not apply. “(C) Certain rules made applicable.— Rules similar to the rules of subparagraphs (B), (C), and (E)(i) of section 402(a)(5) and of paragraphs (6) and (7) of section 402(a) shall apply for purposes of subparagraph (A).” (b) 26 USC 403. Treatment of Rollover Contributions.— Section 403(b)(1) (relating to annuities purchased by certain exempt organizations and public schools) is amended by adding at the end thereof the following new sentence: “For purposes of applying the rules of this subsection to amounts contributed by an employer for a taxable year, amounts transferred to a contract described in this paragraph by reason of a rollover contribution described in paragraph (8) of this subsection or 26 USC 408, 409. section 408(d)(3)(A)(iii) or 409(d)(3)(C) shall not be considered contributed by such employer.” (c) Technical and Conforming Amendments.— (1) 26 USC 408. Subparagraph (A) of section 408(d)(3) is amended by striking out “or” at the end of clause (i), by striking out the period at the end of clause (ii) and inserting in lieu thereof or”, and by adding at the end thereof the following new clause: “(iii) (I) the entire amount received (including money and other property) represents the entire interest in the account or the entire value of the annuity, “(II) no amount in the account and no part of the value of the annuity is attributable to any source other than a rollover contribution from an annuity contract 26 USC 403. described in section 403(b) and any earnings on such rollover, and “(III) the entire amount thereof is paid into another annuity contract described in section 403(b) (for the benefit of such individual) not later than the 60th day after he receives the payment or distribution.” (2) Subparagraph (C) of section 409(b)(3) is amended— 26 USC 409. (A) by striking out “or an annuity plan described in section 403(a)” in the first sentence and inserting in lieu thereof “an 26 USC 403. annuity plan described in section 403(a), or an annuity contract described in section 403(b)”, and (B) by adding at the end thereof the following new sentence: “This subparagraph does not apply in the case of a transfer to an annuity contract described in section 403(b) unless no part of the value of such proceeds is attributable to any source other than a rollover contribution from such an annuity contract.” (3) Sections 219(b)(4), 220(b)(5), 408(a)(1), 409(a)(4), and 26 USC 219, 220, 408, 409, 4973. 4973(b)(1)(A) are each amended by inserting “403(b)(8),’ after “403(a)(4),” each place it appears. (4) Section 2039(e) is amended by inserting after “403(a)(4),” the 26 USC 2039. following: “section 403(b)(8) (but only to the extent such contribution is attributable to a distribution from a contract described in subsection (c)(3)),”. (5) Section 4973(c)(1) is amended by inserting after “account” 26 USC 4973. the following: “(other than a rollover contribution described in section 403(b)(8), 408(d)(3)(A)(iii), or 409(d)(3)(C))”. (d) Effective Date.— The amendments made by this section shall 26 USC 403 note. apply to distributions or transfers made after December 31, 1978, in taxable years beginning after such date. SEC. 157. INDIVIDUAL RETIREMENT ACCOUNT TECHNICAL CHANGES. (a) Extension of Period for Making Individual Retirement Plan Contributions.— (1) Amendment of section 219(c)(3).— Paragraph (3) of section 26 USC 219. 219(c) (relating to time when contributions deemed made in the case of retirement savings) is amended by striking out “not later than 45 days after the end of such taxable year” and inserting in lieu thereof “not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof)”. (2) Amendment of section 220(c)(4).— Paragraph (4) of section 26 USC 220. 220(c) (relating to time when contributions deemed made in the case of retirement savings for certain married individuals) is amended by striking out “not later than 45 days after the end of such taxable year” and inserting in lieu thereof “not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof)”. (3) Effective date.— The amendments made by this subsection 26 USC 219 note. shall apply to taxable years beginning after December 31, 1977. (b) Excess Contributions May Be Deducted in Subsequent Year for Which There Is an Unused Limitation.— (1) Amendment of section 219.— Subsection (c) of section 219 26 USC 219. (relating to definitions and special rules for retirement savings) is amended by adding at the end thereof the following new paragraph: “(5) Excess contributions treated as contribution made during subsequent year for which there is an unused limitation.— “(A) In general.— If for the taxable year the maximum amount allowable as a deduction under this section exceeds the amount contributed, then the taxpayer shall be treated as having made an additional contribution for the taxable year in an amount equal to the lesser of— “(i) the amount of such excess, or “(ii) the amount of the excess contributions for such 26 USC 4973. taxable year (determined under section 4973(b)(2) without regard to subparagraph (C) thereof). “(B) Amount contributed.— For purposes of this paragraph, the amount contributed— “(i) shall be determined without regard to this paragraph, and “(ii) shall not include any rollover contribution. “(C) Special rule where excess deduction was allowed for closed year.— Proper reduction shall be made in the amount allowable as a deduction by reason of this paragraph for any amount allowed as a deduction under this section or Infra. section 220 for a prior taxable year for which the period for assessing deficiency has expired if the amount so allowed exceeds the amount which should have been allowed for such prior taxable year.” (2) 26 USC 220. Amendment of section 220.— Subsection (c) of section 220 (relating to definitions and special rules for retirement savings for certain married individuals) is amended by adding at the end thereof the following new paragraph: “(6) Excess contributions treated as contribution made during subsequent year for which there is an unused limitation.— “(A) In general.— If for the taxable year the maximum amount allowable as a deduction under this section exceeds the amount contributed, then the taxpayer shall be treated as having made an additional contribution for the taxable year in an amount equal to the lesser of— “(i) the amount of such excess, or “(ii) the amount of the excess contributions for such taxable year (determined under section 4973(b)(2) without regard to subparagraph (C) thereof). “(B) Amount contributed.— For purposes of this paragraph, the amount contributed— “(i) shall be determined without regard to this paragraph, and “(ii) shall not include any rollover contribution. “(C) Special rule where excess deduction was allowed for closed year.— Proper reduction shall be made in the amount allowable as a deduction by reason of this paragraph for any amount allowed as a deduction under this section or Ante, p. 2803. section 219 for a prior taxable year for which the period for assessing a deficiency has expired if the amount so allowed exceeds the amount which should have been allowed for such prior taxable year.” (3) 26 USC 4973. Amendment of section 4973.— Paragraph (2) of section 4973(b) (defining excess contributions) is amended to read as follows: “(2) the amount determined under this subsection for the preceding taxable year reduced by the sum of— “(A) the distributions out of the account for the taxable year which were included in the gross income of the payee 26 USC 408. under section 408(d)(1), “(B) the distributions out of the account for the taxable year to which section 408(d)(5) applies, and 26 USC 408. “(C) the excess (if any) of the maximum amount allowable as a deduction under section 219 or 220 for the taxable year Ante, pp. 2803, 2804. over the amount contributed (determined without regard to sections 219(c)(5) and 220(c)(6)) to the accounts or for the annuities or bonds for the taxable year.” (4) Effective date.— (A) In general.— The amendments made by this subsection shall apply to the determination of deductions for taxable years beginning after December 31, 1975. (B) Transitional rule.— If, but for this subparagraph, an amount would be allowable as a deduction by reason of section 219(c)(5) or 220(c)(6) of the Internal Revenue Code of 1954 for a taxable year beginning before January 1, 1978, such amount shall be allowable only for the taxpayer’s first taxable year beginning in 1978. (c) Additional Period to Rectify Certain Excess Contributions.— (1) General rule.— Subsection (d) of section 408 (relating to 26 USC 408. tax treatment of distributions) is amended by redesignating paragraph (5) as paragraph (6) and by inserting after paragraph (4) the following new paragraph: “(5) Certain distributions of excess contributions after due date for taxable year.— “(A) In general.— In the case of any individual, if the aggregate contributions (other than rollover contributions) paid for any taxable year to an individual retirement account or for an individual retirement annuity do not exceed $1,750, paragraph (1) shall not apply to the distribution of any such contribution to the extent that such contribution exceeds the amount allowable as a deduction under section 219 or 220 for the taxable year for which the contribution was paid— “(i) if such distribution is received after the date described in paragraph (4), “(ii) but only to the extent that no deduction has been allowed under section 219 or 220 with respect to such excess contribution. “(B) Excess rollover contributions attributable to erroneous information.— If— “(i) the taxpayer reasonably relies on information supplied pursuant to subtitle F for determining the amount of a rollover contribution, but “(ii) such information was erroneous, subparagraph (A) shall be applied by increasing the dollar limit set forth therein by that portion of the excess contribution which was attributable to such information.” (2) Effective date.— (A) In general.— The amendments made by paragraph (1) shall apply to distributions in taxable years beginning after December 31, 1975. (B) Transitional rule.— In the case of contributions for taxable years beginning before January 1, 1978, paragraph (5) of section 408(d) of the Internal Revenue Code of 1954 Supra. shall be applied as if such paragraph did not contain any dollar limitation. (d) Requirement That Annuity Contracts Will Qualify as Individual Retirement Annuity Only if the Premiums Are Flexible.— (1) 26 USC 408. In general.— Paragraph (2) of section 408(b) (defining individual retirement annuity) is amended to read as follows: “(2) Under the contract— “(A) the premiums are not fixed, “(B) the annual premium will not exceed $1,500, and “(C) any refund of premiums will be applied before the close of the calendar year following the year of the refund toward the payment of future premiums or the purchase of additional benefits.” (2) 26 USC 408 note. Effective date.— The amendment made by paragraph (1) shall apply to contracts issued after the date of the enactment of this Act. (3) 26 USC 408 note. Tax relief for fixed premium contracts heretofore issued.— In the case of any annuity or endowment contract issued on or before the date of the enactment of this Act which would be an individual retirement annuity within the meaning of section 408(b) of the Internal Revenue Code of 1954 (as amended by paragraph (1)) but for the fact that the premiums under the contract are fixed, at the election of the taxpayer an exchange before January 1, 1981, of that contract for an individual retirement annuity within the meaning of such section 408(b) (as amended by paragraph (1)) shall be treated as a nontaxable exchange which does not constitute a distribution. (e) Clarification of Dollar Limit in the Case of Individual Retirement Annuities and Retirement Bonds.— (1) In general.— (A) Amendment of section 408(b)(2).— Subparagraph (B) of section 408(b)(2) (as amended by paragraph (1) of subsection (d)) is amended by inserting “on behalf of any individual” after “annual premium”. (B) 26 USC 409. Amendment of section 409(a)(4).— Paragraph (4) of section 409(a) (relating to retirement bonds) is amended by inserting “on behalf of any individual” after “May not contribute”. (2) 26 USC 408 note. Effective date.— The amendments made by paragraph (1) shall apply to taxable years beginning after December 31, 1976. (f) 26 USC 402. Rollover of Proceeds From Sale of Property Permitted.— (1) Rollovers from qualified employees’ trusts and annuities.— Paragraph (6) of section 402(a) (relating to special rollover rules) is amended by adding at the end thereof the following new subparagraph: “(D) Sales of distributed property.— For purposes of subparagraphs (5) and (7)— “(i) Transfer of proceeds from sale of distributed property treated as transfer of distributed property.— The transfer of an amount equal to any portion of the proceeds from the sale of property received in the distribution shall be treated as the transfer of property received in the distribution. “(ii) Proceeds attributable to increase in value.— The excess of fair market value of property on sale over its fair market value on distribution shall be treated as property received in the distribution. “(iii) Designation where amount of distribution exceeds rollover contribution.— In any case where part or all of the distribution consists of property other than money, the taxpayer many designate— “(I) the portion of the money or other property which is to be treated as attributable to employee contributions, and “(II) the portion of the money or other property which is to be treated as included in the rollover contribution. Any designation under this clause for a taxable year shall be made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). Any such designation, once made, shall be irrevocable. “(iv) Treatment where no designation.— In any case where part or all of the distribution consists of property other than money and the taxpayer fails to make a designation under clause (iii) within the time provided therein, then— “(I) the portion of the money or other property which is to be treated as attributable to employee contributions, and “(II) the portion of the money or other property which is to be treated as included in the rollover contribution shall be determined on a ratable basis. “(v) Nonrecognition of gain or loss.— In the case of any sale described in clause (i), to the extent that an amount equal to the proceeds is transferred pursuant to paragraph (5)(B) or (7)(B) (as the case by be), neither gain nor loss on such sale shall be recognized.” (2) Effective date.— The amendment made by paragraph (1) 26 USC 402 note. shall apply to qualifying rollover distributions (as defined in section 402(a)(5)(D)(i) of the Internal Revenue Code of 1954) Ante, p. 2806. completed after December 31, 1978, in taxable years ending after such date. (g) Distribution From Employees’ Qualified Plan or Annuity to Spouse May Be Rollover Contribution to an Individual Retirement Plan.— (1) Rollovers from qualified employees’ trust.— Subsection 26 USC 402. (a) of section 402 (relating to taxability of beneficiary of exempt trust) is amended by adding at the end thereof the following new paragraph: “(7) Rollover where spouse receives lump-sum distribution at death of employee.— “(A) General rule.— If— “(i) any portion of a lump-sum distribution from a qualified trust is paid to the spouse of the employee on account of the employee’s death, “(ii) the spouse transfers any portion of the property which the spouse receives in such distribution to an individual retirement plan, and “(iii) in the case of a distribution of property other than money, the amount so transferred consists of the property distributed, then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid. “(B) Certain rules made applicable.— Rules similar to the rules of subparagraphs (B) through (E) of paragraph (5) and of paragraph (6) shall apply for purposes of this paragraph.” (2) 26 USC 403. Rollover from qualified annuity plans.— Subparagraph (B) of section 403(a)(4), as amended by section 21(b), is amended by striking out “paragraph (6)” and inserting lieu thereof “paragraphs (6) and (7)”. (3) 26 USC 408. No rollover to qualified plan or annuity from ira to which spouse made rollover contribution.— Subparagraph (B) of section 408(d)(3) is amended by adding at the end thereof the following: “Clause (ii) of subparagraph (A) shall not apply to any amount paid or distributed out of an individual retirement account or an individual retirement annuity to which an amount was contributed which was treated as a rollover contribution by Ante, p. 2807. 26 USC 403. 26 USC 402 note. section 402(a)(7) (or in the case of an individual retirement annuity, such section as made applicable by section 403(a)(4)(B)).” (4) Effective date.— The amendments made by this subsection shall apply to lump-sum distributions completed after December 31, 1978, in taxable years ending after such date. (h) Ante, p. 2806. Removal of Certain Requirements.— (1) Disregard of 5-year minimum participation rule for purposes of rollovers.— Subclause (II) of section 402(a)(5)(D)(i) is amended by striking out “subsection (e)(4)(B)” and inserting in lieu thereof “subparagraphs (B) and (H) of subsection (e)(4)”. (2) 26 USC 408. Reduction of required period between rollover contributions from 3 years to 1 year.— The first sentence of subparagraph (B) of section 408(d)(3) is amended by striking out “3-year period” and inserting in lieu thereof “1-year period”. (3) 26 USC 402 note. Effective date.— (A) In general.— The amendments made by this section shall apply to payments made in taxable years beginning after December 31, 1977. (B) Transitional rule.— In the case of any payment which is described in section 402(a)(5)(A) or 403(a)(4)(A) of the 26 USC 402, 403. Internal Revenue Code of 1954 by reason of the amendments made by this section, the applicable period specified in section 402(a)(5)(C) of such Code (or in the case of an individual retirement annuity, such section as made applicable by section 403(a)(4)(B) of such Code) shall not expire before the close of December 31, 1978. (i) Waiver of Excise Tax on Certain Accumulations in Individual Retirement Accounts or Annuities.— (1) 26 USC 4974. General rule.— Section 4974 (relating to excise tax on certain accumulations in individual retirement accounts or annuities) is amended by adding at the end thereof the following new subsection: “(c) Waiver of Tax in Certain Cases.— If the taxpayer establishes to the satisfaction of the Secretary that— “(1) the shortfall described in subsection (a) in the amount distributed during any taxable year was due to reasonable error, and “(2) reasonable steps are being taken to remedy the shortfall, the Secretary may waive the tax imposed by subsection (a) for the taxable year.” (2) Effective date.— The amendment made by paragraph (1) 26 USC 4974 note. shall apply to taxable years beginning after December 31, 1975. (j) Removal of Certain Limitations on Provision Allowing Correction of Excess Contributions.— (1) General rule.— The last sentence of section 4973(b) (defining 26 USC 4973. excess contributions) is amended to read as follows: “For purposes of this subsection, any contribution which is distributed from the individual retirement account, individual retirement annuity, or bond in a distribution to which section 408(d)(4) 26 USC 408. applies shall be treated as an amount not contributed.” (2) Effective date.— The amendment made by paragraph (1) 26 USC 4973 note. shall apply to contributions made for taxable years beginning after December 31, 1977. (k) Simplification of Return Requirements With Respect to Individual Retirement Plans.— (1) In general.— Section 6058 (relating to information 26 USC 6058. required in connection with certain plans of deferred compensation) is amended by redesignating subsection (d) as subsection (f) and by striking out subsection (c) and inserting in lieu thereof the following new subsections. “(c) Employer.— For purposes of this section, the term ‘employer’ includes a person described in section 401(c)(4) and an individual who 26 USC 401. establishes an individual retirement plan. “(d) Coordination With Income Tax Returns, Etc.— An individual who establishes an individual retirement plan shall not be required to file a return under this section with respect to such plan for any taxable year for which there is— “(1) no special IRP tax, and “(2) no plan activity other than— “(A) the making of contributions (other than rollover contributions), and “(B) the making of distributions. “(e) Special IRP Tax Defined.— For purposes of this section, the term ‘special IRP tax’ means a tax imposed by— “(1) section 408(f), 26 USC 408. “(2) section 409(c), 26 USC 4090. “(3) section 4973, or 26 USC 4973. “(4) section 4974.”. 26 USC 4974. (2) Individual retirement plan defined.— Subsection (a) of section 7701 (relating to definitions of general application 26 USC 7701. throughout the Code) is amended by adding at the end thereof the following new paragraph: “(37) Individual retirement plan.— The term ‘individual retirement plan’ means— “(A) an individual retirement account described in section 408(a), 26 USC 408. “(B) an individual retirement annuity described in section 408(b), and “(C) a retirement bond described in section 409.” 26 USC 409. (3) Effective date.— The amendments made by paragraph (1) 26 USC 6058 note. shall apply to returns for taxable years beginning after December 31, 1977. The amendment made by paragraph (2) shall apply to taxable years beginning after December 31, 1974. Subtitle F— Other Individual Items SEC. 161. CERTAIN GOVERNMENT SCHOLARSHIP AND AWARD PROGRAMS. (a) Government Health Profession Scholarship Programs.— Subsection (c) of section 4 of the Act entitled “An Act to suspend until the close of June 30, 1975, the duty on certain carboxymethyl cellulose salts, and for other purposes ’ (Public Law 93–483; 88 Stat. 26 USC 117 note. 1457) approved October 26, 1974, is amended— (1) by striking out “1979” and inserting in lieu thereof “1980”, and (2) by striking out “1983” and inserting in lieu thereof “1984”. (b) 26 USC 117 note. National Research Service Awards.— (1) General rule.— Any amount paid to, or on behalf of, an individual from appropriated funds as a national research service 42 USC 289l–1. award under section 472 of the Public Health Service Act shall be treated as a scholarship or fellowship grant under 26 USC 117. section 117 of the Internal Revenue Code of 1954. (2) Effective date.— The provisions of subsection (b) shall apply to awards made during calendar years 1974 through 1979. SEC. 162. CANCELLATION OF STUDENT LOANS. 26 USC 61 note. Subsection (c) of section 2117 of the Tax Reform Act of 1976 (relating to cancellation of certain student loans) is amended by striking out “January 1, 1979” and inserting in lieu thereof “January 1, 1983”. SEC. 163. TAX COUNSELING FOR THE ELDERLY. (a) 26 USC 7803 note. Training and Technical Assistance.— (1) Agreements.— The Secretary, through the Internal Revenue Service, is authorized to enter into agreements with private or public nonprofit agencies or organizations for the purpose of providing training and technical assistance to prepare volunteers to provide tax counseling assistance for elderly individuals in the preparation of their Federal income tax returns. (2) Other assistance.— In addition to any other forms of technical assistance provided under this section, the Secretary may provide— (A) preferential access to Internal Revenue Service tax-payer service representatives for the purpose of making available technical information needed during the course of the volunteers’ work; (B) material to be used in making elderly persons aware of the availability of assistance under volunteer taxpayer assistance programs under this section; and (C) technical materials and publications to be used by such volunteers. (b) Powers of the Secretary.— In carrying out his responsibilities under this section, the Secretary is authorized— (1) to provide assistance to organizations which demonstrate, to the satisfaction of the Secretary, that their volunteers are adequately trained and competent to render effective tax counseling to the elderly; (2) to provide for the training of such volunteers, and to assist in such training, to insure that such volunteers are qualified to provide tax counseling assistance to elderly individuals; (3) to provide reimbursement to volunteers through such organizations for transportation, meals, and other expenses incurred by them in training or providing tax counseling assistance under this section, and such other support and assistance as he determines to be appropriate in carrying out the provisions of this section; (4) to provide for the use of services, personnel, and facilities of Federal executive agencies and of State and local public agencies with their consent, with or without reimbursement therefor; and (5) to prescribe such rules and regulations as he deems necessary Rules and regulations. to carry out the provisions of this section. (c) Employment of Volunteers.— (1) In general.— Service as a volunteer in any program carried out under this section shall not be considered service as an employee of the United States. Volunteers under such a program shall not be considered Federal employees and shall not be subject to the provisions of law relating to Federal employment, except that the provisions of section 1905 of title 18, United States Code, shall apply to volunteers as if they were employees of the United States. (2) Expenses.— Amounts received by volunteers serving in any program carried out under this section as reimbursement for expenses are exempt from taxation under chapters 1 and 21 of the Internal Revenue Code of 1954. 26 USC 1 et seq., 3101 et seq. (d) Publicity Relating to Income Tax Provisions Particularly Important to the Elderly.— The Secretary shall, from time to time, undertake to direct the attention of elderly individuals to those provisions of the Internal Revenue Code of 1954 which are particularly important to taxpayers who are elderly individuals, such as the provisions of section 37 (relating to credit for the elderly) and section 121 (relating to one-time exclusion of gain from sale of principal residence) of the Internal Revenue Code of 1954. 26 USC 37, 121. (e) Definitions.— For purposes of this section— (1) The term “Secretary” means the Secretary of the Treasury or his delegate. (2) The term “elderly individual” means an individual who has attained the age of 60 years as of the close of his taxable year. (3) The term “Federal income tax return” means any return required under chapter 61 of the Internal Revenue Code of 1954 26 USC 6001 et seq. with respect to the tax imposed on an individual under chapter 1 of such Code. 26 USC l et seq. (f) Authorization of Appropriations.— There are authorized to be appropriated for the purpose of carrying out the provisions of this section $2,500,000 for the fiscal year ending September 30, 1979, and $3,500,000 for the fiscal year ending September 30, 1980. SEC. 164. EXCLUSION OF VALUE OF CERTAIN EDUCATIONAL ASSISTANCE PROGRAMS. (a) In General.— Part III of subchapter B of chapter 1 (relating to items specifically excluded from gross income) is amended by redesignating section 127 as 128 and by inserting after section 126 the 26 USC 128. following new section: “SEC. 127. EDUCATIONAL ASSISTANCE PROGRAMS. “(a) General Rule.— Gross income of an employee does not include amounts paid or expenses incurred by the employer for educational assistance to the employee if the assistance is furnished pursuant to a program which is described in subsection (b). “(b) Educational Assistance Program.— “(1) In general.— For purposes of this section an educational assistance program is a separate written plan of an employer for the exclusive benefit of his employees to provide such employees with educational assistance. The program must meet the requirements of paragraphs (2) through (6) of this subsection. “(2) Eligibility.— The program shall benefit employees who qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of employees who are officers, owners, or highly compensated, or their dependents. For purposes of this paragraph, there shall be excluded from consideration employees not included in the program who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, if there is evidence that educational assistance benefits were the subject of good faith bargaining between such employee representatives and such employer or employers. “(3) Principal shareholders or owners.— Not more than 5 percent of the amounts paid or incurred by the employer for educational assistance during the year may be provided for the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the year) owns more than 5 percent of the stock or of the capital or profits interest in the employer. . “(4) Other benefits as an alternative.— A program must not provide eligible employees with a choice between educational assistance and other remuneration includible in gross income. For purposes of this section, the business practices of the employer (as well as the written program) will be taken into account. “(5) No funding required.— A program referred to in paragraph (1) is not required to be funded. “(6) Notification of employees.— Reasonable notification of the availability and terms of the program must be provided to eligible employees. “(c) Definitions; Special Rules.— For purposes of this section— “(1) Educational assistance.— The term ‘educational assistance’ means— “(A) the payment, by an employer, of expenses incurred by or on behalf of an employee for education of the employee (including, but not limited to, tuition, fees, and similar payments, books, supplies, and equipment), and “(B) the provision, by an employer, of courses of instruction for such employee (including books, supplies, and equipment), but does not include payment for, or the provision of, tools or supplies which may be retained by the employee after completion of a course of instruction, or meals, lodging, or transportation. The term ‘educational assistance’ also does not include any payment for, or the provision of any benefits with respect to, any course or other education involving sports, games, or hobbies. “(2) Employee.— The term ‘employee’ includes, for any year, an individual who is an employee within the meaning of section 401(c)(1) relating to self-employed individuals). “(3) Employer.— An individual who owns the entire interest in an unincorporated trade or business shall be treated as his own employer. A partnership shall be treated as the employer of each partner who is an employee within the meaning of paragraph (2). “(4) Attribution rules.— “(A) Ownership of stock.— Ownership of stock in a corporation shall be determined in accordance with the rules provided under subsections (d) and (e) of section 1563 (without 26 USC 1563. regard to section 1563(e)(3)(C)). “(B) Interest in unincorporated trade or business.— The interest of an employee in a trade or business which is not incorporated shall be determined in accordance with regulations prescribed by the Secretary, which shall be based on principles similar to the principles which apply in the case of subparagraph (A). “(5) Certain tests not applicable.— An educational assistance program shall not be held or considered to fail to meet any requirements of subsection (b) merely because— “(A) of utilization rates for the different types of educational assistance made available under the program; or “(B) successful completion, or attaining a particular course grade, is required for or considered in determining reimbursement under the program. “(6) Relationship to current law.— This section shall not be construed to affect the deduction or inclusion in income of amounts (not within the exclusion under this section) which are paid or incurred, or received as reimbursement, for educational expenses under section 117,162 or 212. 26 USC 117, 212. “(7) Disallowance of excluded amounts as credit or deduction.— No deduction or credit shall be allowed under any other section of this chapter for any amount excluded from income by reason of this section. “(d) Termination.— This section shall not apply to taxable years beginning after December 31, 1983.” (b) Treatment of Employer Educational Assistance Benefits for Purposes of Withholding, Unemployment Taxes, and Social Security Taxes.— (1) Section 3401(a) (relating to the definition of wages for 26 USC 3401. purposes of collection of income tax at the source) is amended— (A) by striking out “or” at the end of paragraph (16); (B) by striking out the period at the end of paragraph (17); and (C) by adding at the end thereof the following new paragraph: “(18) for any payment made, or benefit furnished, to or for the benefit of an employee if at the time of such payment or such furnishing it is reasonable to believe that the employee will be able to exclude such payment or benefit from income under section 124.”. 26 USC 124. 26 USC 3306. (2) Section 3306(b) (relating to the definition of wages for purposes of the Federal Unemployment Tax Act) is amended— (A) by striking out “or” at the end of paragraph (11); (B) by striking out the period at the end of paragraph (12) and inserting in lieu thereof “; or”; and (C) by adding at the end thereof the following new paragraph: “(13) any payment made, or benefit furnished, to or for the benefit of an employee if at the time of such payment or such furnishing it is reasonable to believe that the employee will be able to exclude such payment or benefit from income under Ante, p. 2811. 26 USC 3121. section 127.”. (3) Section 3121(a) (relating to the definition of wages for purposes of the Federal Insurance Contributions Act) is amended— (A) by striking out “or” at the end of paragraph (16); (B) by striking out the period at the end of subparagraph (17) and inserting in lieu thereof“; or”; and (C) by adding at the end thereof the following new paragraph: “(18) any payment made, or benefit furnished, to or for the benefit of an employee if at the time of such payment or such furnishing it is reasonable to believe that the employee will be able to exclude such payment or benefit from income under section 127.”. (4) 42 USC 409. Section 209 of the Social Security Act is amended— (A) by striking out “or” at the end of subsection (o); (B) by striking out the period at the end of subsection (p) and inserting in lieu thereof“; or”; and (C) by inserting after subsection (p) and before the sentence beginning with “For purposes of this title, in the case of domestic service” the following new subsection: “(q) Any payment made, or benefit furnished, to or for the benefit of an employee if at the time of such payment or such furnishing it is reasonable to believe that the employee will be able to exclude such payment or benefit from income under section 127 of the Internal Revenue Code of 1954.” (c) Clerical Amendment.— The table of sections for such part is amended by striking out the item relating to section 124 and inserting in lieu thereof the following: “Sec. 124. Educational assistance programs. “Sec. 125. Cross references to other Acts.”. (d) 26 USC 127 note. Effective Date.— The amendments made by this section shall apply with respect to taxable years beginning after December 31, 1978.

13. 1978

    Pub. L. 95–600 § 142(b) · 92 Stat. 2763

    Added · 26 U.S.C. § 2039(f)

    Pub. L. 95–600, § 142(b), added subsec. (f)

    Source evidence

    Code amendment note
    Subsec. (f). Pub. L. 95–600, § 142(b), added subsec. (f).

    Enacted provision · exact public law section
    (b) 26 USC 2039. Definitions.— Section 2039 is amended by adding at the end thereof the following new subsection: “(f) Lump Sum Distributions.— “(1) In general.— An amount is described in this subsection if 26 USC 402. it is a lump sum distribution described in section 402(e)(4) (determined without regard to the next to the last sentence of section 402(e)(4)(A)). “(2) Exception where recipient elects not to take 10-year averaging.— A lump sum distribution described in paragraph (1) shall be treated as not described in this subsection if the recipient elects irrevocably (at such time and in such manner as the Secretary may by regulations prescribe) to treat the distribution as taxable under section 402(a) without the application of paragraph (2) thereof.”

14. 1980

    Technical Corrections Act of 1979

    Pub. L. 96–222 title I § 101(a)(8)(B) · 94 Stat. 194

    Substituted · 26 U.S.C. § 2039(f)(2)

    Pub. L. 96–222 substituted “(without the application of paragraph (2) thereof), except to the extent that section 402(e)(4)(J) applies to such distribution” for “without the application of paragraph (2) thereof”

    Source evidence

    Code amendment note
    Subsec. (f)(2). Pub. L. 96–222 substituted “(without the application of paragraph (2) thereof), except to the extent that section 402(e)(4)(J) applies to such distribution” for “without the application of paragraph (2) thereof”.

    Enacted provision · exact public law section
    (B) Paragraph (2) of section 2039(f) (relating to lump sum 26 USC 2039. distributions) is amended by striking out “without the application of paragraph (2) thereof” and inserting in lieu thereof “(without the application of paragraph (2) thereof), except to the extent that section 402(e)(4)(J) applies to such distribution”.

15. 1981

    Economic Recovery Tax Act of 1981

    Pub. L. 97–34 § 311(d)(1) · 95 Stat. 175

    Changed · 26 U.S.C. § 2039(c)

    Pub. L. 97–34, § 311(d)(1), provided that for purposes of subsec. (c), any deductible employee contributions, within the meaning of par. (5) of section 72(o), shall be considered as made by a person other than the decedent

    Source evidence

    Code amendment note
    Subsec. (c). Pub. L. 97–34, § 311(d)(1), provided that for purposes of subsec. (c), any deductible employee contributions, within the meaning of par. (5) of section 72(o), shall be considered as made by a person other than the decedent.

    Enacted provision · exact public law section
    (1) Estate tax.— Subsection (c) of section 2039 (relating to exemption of annuities under certain trusts and plans) is amended by adding at the end thereof the following new sentence: “For purposes of this subsection, any deductible employee contributions (within the meaning of paragraph (5) of section 72(o)) shall be considered as made by a person other than the decedent.”

16. 1981

    Economic Recovery Tax Act of 1981

    Pub. L. 97–34 § 313(b)(3) · 95 Stat. 175

    Inserted · 26 U.S.C. § 2039(e)

    Pub. L. 97–34, § 313(b)(3), inserted reference to rollover contribution described in section 405(d)(3)

    Source evidence

    Code amendment note
    Subsec. (e). Pub. L. 97–34, § 313(b)(3), inserted reference to rollover contribution described in section 405(d)(3).

    Enacted provision · exact public law section
    (3) Subsection (e) of section 2039 is amended by inserting “405(d)(3),” after “a contract described in subsection (c)(3)),”.

17. 1981

    Economic Recovery Tax Act of 1981

    Pub. L. 97–34 § 311(h)(4) · 95 Stat. 175

    Substituted · 26 U.S.C. § 2039(e)

    Pub. L. 97–34, § 311(h)(4), substituted “section 219” for “section 219 or 220”

    Target inherited from the preceding amendment note.

    Source evidence

    Code amendment note
    Pub. L. 97–34, § 311(h)(4), substituted “section 219” for “section 219 or 220”.

    Enacted provision · exact public law section
    (4) Subsection (e) of section 2039 (relating to exclusion of individual retirement accounts, etc.) is amended by striking out “section 219 or 220” each place it appears and inserting in lieu thereof “section 219”.

18. 1982

    Pub. L. 97–248 § 245(b) · 96 Stat. 324

    Substituted · 26 U.S.C. § 2039(c)

    Pub. L. 97–248, § 245(b), substituted “Subject to the limitation of subsection (g), notwithstanding any other provision of this section” for “Notwithstanding the provisions of this section”

    Source evidence

    Code amendment note
    Subsec. (c). Pub. L. 97–248, § 245(b), substituted “Subject to the limitation of subsection (g), notwithstanding any other provision of this section” for “Notwithstanding the provisions of this section”.

    Enacted provision · exact public law section
    (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”.

19. 1982

    Pub. L. 97–248 § 245(b) · 96 Stat. 324

    Substituted · 26 U.S.C. § 2039(e)

    Pub. L. 97–248, § 245(b), substituted “Subject to the limitation of subsection (g), notwithstanding any other provision of this section” for “Notwithstanding the provisions of this section”

    Source evidence

    Code amendment note
    Subsec. (e). Pub. L. 97–248, § 245(b), substituted “Subject to the limitation of subsection (g), notwithstanding any other provision of this section” for “Notwithstanding the provisions of this section”.

    Enacted provision · exact public law section
    (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”.

20. 1982

    Pub. L. 97–248 § 245(a) · 96 Stat. 324

    Added · 26 U.S.C. § 2039(g)

    Pub. L. 97–248, § 245(a), added subsec. (g)

    Source evidence

    Code amendment note
    Subsec. (g). Pub. L. 97–248, § 245(a), added subsec. (g).

    Enacted provision · exact public law section
    (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.”

21. 1983

    Pub. L. 97–448 § 103(c)(9)(A) · 96 Stat. 2365

    1. Amended · 26 U.S.C. § 2039(f)(1)

       Pub. L. 97–448, § 103(c)(9)(A), designated existing provisions as subpar. (A)

    2. Substituted · 26 U.S.C. § 2039(f)(1)

       Pub. L. 97–448, § 103(c)(9)(A), substituted “without regard to the third sentence of section 402(e)(4)(A))” for “without regard to the next to the last sentence of section 402(e)(4)(A)” in subpar. (A) as so designated

    3. Added · 26 U.S.C. § 2039(f)(1)

       Pub. L. 97–448, § 103(c)(9)(A), added subpar. (B)

    Source evidence

    Code amendment note
    Subsec. (f)(1). Pub. L. 97–448, § 103(c)(9)(A), designated existing provisions as subpar. (A), substituted “without regard to the third sentence of section 402(e)(4)(A))” for “without regard to the next to the last sentence of section 402(e)(4)(A)” in subpar. (A) as so designated, and added subpar. (B).

    Enacted provision · exact public law section
    (A) Paragraph (1) of section 2039(f) is amended to read as 26 USC 2039. follows: “(1) In general.— An amount is described in this subsection if— “(A) it is a lump sum distribution described in section 402(e)(4) (determined without regard to the third sentence of section 402(e)(4)(A)), or “(B) it is an amount attributable to accumulated deductible employee contributions (as defined in section 72(o)(5)(B)) in any plan taken into account for purposes of determining whether the distribution described in subparagraph (A) qualifies as a lump sum distribution.”

22. 1983

    Pub. L. 97–448 § 103(c)(9)(B) · 96 Stat. 2365

    Substituted · 26 U.S.C. § 2039(f)(2)

    Pub. L. 97–448, § 103(c)(9)(B), substituted “An amount described” for “A lump sum distribution described”

    Source evidence

    Code amendment note
    Subsec. (f)(2). Pub. L. 97–448, § 103(c)(9)(B), substituted “An amount described” for “A lump sum distribution described”.

    Enacted provision · exact public law section
    (B) Paragraph (2) of section 2039(f) is amended by striking out “A lump sum distribution” and inserting in lieu thereof “An amount”.

23. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 525(a) · 98 Stat. 494

    Substituted · 26 U.S.C. § 2039(c)

    Pub. L. 98–369, § 525(a), substituted provisions relating to exception of certain annuity interests created by community property laws for provisions which related to exemption of annuities under certain trusts and plans

    Source evidence

    Code amendment note
    Subsec. (c). Pub. L. 98–369, § 525(a), substituted provisions relating to exception of certain annuity interests created by community property laws for provisions which related to exemption of annuities under certain trusts and plans.

    Enacted provision · exact public law section
    (a) In General.— Section 2039 (relating to inclusion in the gross 26 USC 2039. estate of annuities) is amended by striking out subsections (c), (d), (e), (f), and (g) and inserting in lieu thereof the following new subsection: “(c) Exception of Certain Annuity Interests Created by Community Property Laws.— “(1) In general.— In the case of an employee on whose behalf contributions or payments were made by his employer or former employer under a trust, plan, or contract to which this subsection applies, if the spouse of such employee predeceases such employee, then notwithstanding any provision of law, there shall be excluded from the gross estate of such spouse the value of any interest of such spouse in such trust, plan, or contract, to the extent such interest— “(A) is attributable to such contributions or payments, and “(B) arises solely by reason of such spouse’s interest in community income under the community property laws of a State. “(2) Trusts, plans, and contracts to which subsection applies.— This subsection shall apply to— “(A) any trust, plan, or contract which at the time of the decedent’s separation from employment (by death or otherwise), or if earlier, at the time of termination of the plan— “(i) formed part of a plan which met the requirements of section 401(a), or “(ii) was purchased pursuant to a plan described in section 403(a), or “(B) a retirement annuity contract purchased for an employee by an employer which is— “(i) an organization referred to in clause (ii) or (vi) of section 170(b)(L)(A), or “(ii) a religious organization (other than a trust) exempt from taxation under section 501(a). “(3) Amount contributed by employee.— For purposes of this «ubsection— “(A) contributions or payments made by the decedent’s employer or former employer under a trust, plan, or contract described in paragraph (2)(A) shall not be considered to be contributed by the decedent, and “(B) contributions or payments made by the decedent’s employer or former employer toward the purchase of an annuity contract described in paragraph (2)(B) shall not be considered to be contributed by the decedent to the extent excludable from gross income under section 403(b).”

    Effective date note
    Pub. L. 99–514, title XVIII, § 1852(e)(1)(B), Oct. 22, 1986, 100 Stat. 2868, provided that: “The amendment made by subparagraph (A) [amending this section] shall apply to estates of decedents dying after the date of the enactment of this Act [Oct. 22, 1986].” Amendment by section 1848(d) of Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.

24. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 525(a) · 98 Stat. 494

    Struck · 26 U.S.C. § 2039(d)

    Pub. L. 98–369, § 525(a), struck out subsec. (d) which related to exemption of certain annuity interests created by community property laws. See subsec. (c) of this section

    Source evidence

    Code amendment note
    Subsec. (d). Pub. L. 98–369, § 525(a), struck out subsec. (d) which related to exemption of certain annuity interests created by community property laws. See subsec. (c) of this section.

    Enacted provision · exact public law section
    (a) In General.— Section 2039 (relating to inclusion in the gross 26 USC 2039. estate of annuities) is amended by striking out subsections (c), (d), (e), (f), and (g) and inserting in lieu thereof the following new subsection: “(c) Exception of Certain Annuity Interests Created by Community Property Laws.— “(1) In general.— In the case of an employee on whose behalf contributions or payments were made by his employer or former employer under a trust, plan, or contract to which this subsection applies, if the spouse of such employee predeceases such employee, then notwithstanding any provision of law, there shall be excluded from the gross estate of such spouse the value of any interest of such spouse in such trust, plan, or contract, to the extent such interest— “(A) is attributable to such contributions or payments, and “(B) arises solely by reason of such spouse’s interest in community income under the community property laws of a State. “(2) Trusts, plans, and contracts to which subsection applies.— This subsection shall apply to— “(A) any trust, plan, or contract which at the time of the decedent’s separation from employment (by death or otherwise), or if earlier, at the time of termination of the plan— “(i) formed part of a plan which met the requirements of section 401(a), or “(ii) was purchased pursuant to a plan described in section 403(a), or “(B) a retirement annuity contract purchased for an employee by an employer which is— “(i) an organization referred to in clause (ii) or (vi) of section 170(b)(L)(A), or “(ii) a religious organization (other than a trust) exempt from taxation under section 501(a). “(3) Amount contributed by employee.— For purposes of this «ubsection— “(A) contributions or payments made by the decedent’s employer or former employer under a trust, plan, or contract described in paragraph (2)(A) shall not be considered to be contributed by the decedent, and “(B) contributions or payments made by the decedent’s employer or former employer toward the purchase of an annuity contract described in paragraph (2)(B) shall not be considered to be contributed by the decedent to the extent excludable from gross income under section 403(b).”

    Effective date note
    Pub. L. 99–514, title XVIII, § 1852(e)(1)(B), Oct. 22, 1986, 100 Stat. 2868, provided that: “The amendment made by subparagraph (A) [amending this section] shall apply to estates of decedents dying after the date of the enactment of this Act [Oct. 22, 1986].” Amendment by section 1848(d) of Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.

25. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 525(a) · 98 Stat. 494

    Struck · 26 U.S.C. § 2039(e)

    Pub. L. 98–369, § 525(a), struck out subsec. (e) which related to exclusion of individual retirement accounts

    Source evidence

    Code amendment note
    Subsec. (e). Pub. L. 98–369, § 525(a), struck out subsec. (e) which related to exclusion of individual retirement accounts.

    Enacted provision · exact public law section
    (a) In General.— Section 2039 (relating to inclusion in the gross 26 USC 2039. estate of annuities) is amended by striking out subsections (c), (d), (e), (f), and (g) and inserting in lieu thereof the following new subsection: “(c) Exception of Certain Annuity Interests Created by Community Property Laws.— “(1) In general.— In the case of an employee on whose behalf contributions or payments were made by his employer or former employer under a trust, plan, or contract to which this subsection applies, if the spouse of such employee predeceases such employee, then notwithstanding any provision of law, there shall be excluded from the gross estate of such spouse the value of any interest of such spouse in such trust, plan, or contract, to the extent such interest— “(A) is attributable to such contributions or payments, and “(B) arises solely by reason of such spouse’s interest in community income under the community property laws of a State. “(2) Trusts, plans, and contracts to which subsection applies.— This subsection shall apply to— “(A) any trust, plan, or contract which at the time of the decedent’s separation from employment (by death or otherwise), or if earlier, at the time of termination of the plan— “(i) formed part of a plan which met the requirements of section 401(a), or “(ii) was purchased pursuant to a plan described in section 403(a), or “(B) a retirement annuity contract purchased for an employee by an employer which is— “(i) an organization referred to in clause (ii) or (vi) of section 170(b)(L)(A), or “(ii) a religious organization (other than a trust) exempt from taxation under section 501(a). “(3) Amount contributed by employee.— For purposes of this «ubsection— “(A) contributions or payments made by the decedent’s employer or former employer under a trust, plan, or contract described in paragraph (2)(A) shall not be considered to be contributed by the decedent, and “(B) contributions or payments made by the decedent’s employer or former employer toward the purchase of an annuity contract described in paragraph (2)(B) shall not be considered to be contributed by the decedent to the extent excludable from gross income under section 403(b).”

    Effective date note
    Pub. L. 99–514, title XVIII, § 1852(e)(1)(B), Oct. 22, 1986, 100 Stat. 2868, provided that: “The amendment made by subparagraph (A) [amending this section] shall apply to estates of decedents dying after the date of the enactment of this Act [Oct. 22, 1986].” Amendment by section 1848(d) of Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.

26. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 491(d)(34) · 98 Stat. 494

    1. Inserted · 26 U.S.C. § 2039(e)

       Pub. L. 98–369, § 491(d)(34), inserted “or” at end of par. (1)

    2. Substituted · 26 U.S.C. § 2039(e)

       Pub. L. 98–369, § 491(d)(34), substituted a period for “, or” at end of par. (2)

    3. Struck · 26 U.S.C. § 2039(e)

       Pub. L. 98–369, § 491(d)(34), struck out par. (3) which excluded from the value of the gross estate the value of an annuity receivable by any beneficiary, other than the executor, under a retirement bond described in section 409(a)

    4. Substituted · 26 U.S.C. § 2039(e)

       Pub. L. 98–369, § 491(d)(34), substituted in provision following par. (2) “or 408(d)(3)” for “405(d)(3), 408(d)(3), or 409(b)(3)(C)”

    5. Substituted · 26 U.S.C. § 2039(e)

       Pub. L. 98–369, § 491(d)(34), substituted “or annuity” for “, annuity, or bond” wherever appearing

    Target inherited from the preceding amendment note.

    Source evidence

    Code amendment note
    Pub. L. 98–369, § 491(d)(34), inserted “or” at end of par. (1), substituted a period for “, or” at end of par. (2), struck out par. (3) which excluded from the value of the gross estate the value of an annuity receivable by any beneficiary, other than the executor, under a retirement bond described in section 409(a), and substituted in provision following par. (2) “or 408(d)(3)” for “405(d)(3), 408(d)(3), or 409(b)(3)(C)”, and substituted “or annuity” for “, annuity, or bond” wherever appearing.

    Enacted provision · exact public law section
    (34) Subsection (e) of section 2039 is amended— 26 USC 457. (A) by striking out paragraph (3), (B) by striking out “, or” at the end of paragraph (2) and inserting in lieu thereof a period, (C) by adding “or” at the end of paragraph (1), (D) by striking out “405(d)(3), 408(d)(3), or 409(b)(3)(C)” and inserting in lieu thereof “or 408(d)(3)”, and (E) by striking out “, annuity, or bond” each place it appears and inserting in lieu thereof “or annuity”.

    Effective date note
    Pub. L. 99–514, title XVIII, § 1852(e)(1)(B), Oct. 22, 1986, 100 Stat. 2868, provided that: “The amendment made by subparagraph (A) [amending this section] shall apply to estates of decedents dying after the date of the enactment of this Act [Oct. 22, 1986].” Amendment by section 1848(d) of Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.

27. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 525(a) · 98 Stat. 494

    Struck · 26 U.S.C. § 2039(f); 26 U.S.C. § 2039(g)

    Pub. L. 98–369, § 525(a), struck out subsec. (f) which related to lump sum distributions and an exception where the recipient elects not to take 10-year averaging, and subsec. (g) which related to a $100,000 limitation on the exclusions under subsecs. (c) and (e)

    Source evidence

    Code amendment note
    Subsecs. (f), (g). Pub. L. 98–369, § 525(a), struck out subsec. (f) which related to lump sum distributions and an exception where the recipient elects not to take 10-year averaging, and subsec. (g) which related to a $100,000 limitation on the exclusions under subsecs. (c) and (e).

    Enacted provision · exact public law section
    (a) In General.— Section 2039 (relating to inclusion in the gross 26 USC 2039. estate of annuities) is amended by striking out subsections (c), (d), (e), (f), and (g) and inserting in lieu thereof the following new subsection: “(c) Exception of Certain Annuity Interests Created by Community Property Laws.— “(1) In general.— In the case of an employee on whose behalf contributions or payments were made by his employer or former employer under a trust, plan, or contract to which this subsection applies, if the spouse of such employee predeceases such employee, then notwithstanding any provision of law, there shall be excluded from the gross estate of such spouse the value of any interest of such spouse in such trust, plan, or contract, to the extent such interest— “(A) is attributable to such contributions or payments, and “(B) arises solely by reason of such spouse’s interest in community income under the community property laws of a State. “(2) Trusts, plans, and contracts to which subsection applies.— This subsection shall apply to— “(A) any trust, plan, or contract which at the time of the decedent’s separation from employment (by death or otherwise), or if earlier, at the time of termination of the plan— “(i) formed part of a plan which met the requirements of section 401(a), or “(ii) was purchased pursuant to a plan described in section 403(a), or “(B) a retirement annuity contract purchased for an employee by an employer which is— “(i) an organization referred to in clause (ii) or (vi) of section 170(b)(L)(A), or “(ii) a religious organization (other than a trust) exempt from taxation under section 501(a). “(3) Amount contributed by employee.— For purposes of this «ubsection— “(A) contributions or payments made by the decedent’s employer or former employer under a trust, plan, or contract described in paragraph (2)(A) shall not be considered to be contributed by the decedent, and “(B) contributions or payments made by the decedent’s employer or former employer toward the purchase of an annuity contract described in paragraph (2)(B) shall not be considered to be contributed by the decedent to the extent excludable from gross income under section 403(b).”

    Effective date note
    Pub. L. 99–514, title XVIII, § 1852(e)(1)(B), Oct. 22, 1986, 100 Stat. 2868, provided that: “The amendment made by subparagraph (A) [amending this section] shall apply to estates of decedents dying after the date of the enactment of this Act [Oct. 22, 1986].” Amendment by section 1848(d) of Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.

28. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1852(e)(1) · 100 Stat. 2085

    Struck · 26 U.S.C. § 2039(c)

    Pub. L. 99–514, § 1852(e)(1), struck out subsec. (c) which provided an exclusion from gross estate of certain annuity interests created by community property laws

    Source evidence

    Code amendment note
    Subsec. (c). Pub. L. 99–514, § 1852(e)(1), struck out subsec. (c) which provided an exclusion from gross estate of certain annuity interests created by community property laws.

    Enacted provision · exact public law section
    (1) (A) Subsection (c) of section 2039 (relating to exception of certain annuity interests created by community property laws) is hereby repealed. (B) The amendment made by subparagraph (A) shall apply to estates of decedents dying after the date of the enactment of this Act.

    Effective date note
    Pub. L. 99–514, title XVIII, § 1852(e)(1)(B), Oct. 22, 1986, 100 Stat. 2868, provided that: “The amendment made by subparagraph (A) [amending this section] shall apply to estates of decedents dying after the date of the enactment of this Act [Oct. 22, 1986].” Amendment by section 1848(d) of Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.

29. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1848(d) · 100 Stat. 2085

    Repealed · 26 U.S.C. § 2039(e)

    Pub. L. 99–514, § 1848(d), struck out “or a bond described in paragraph (3)” after “an annuity described in paragraph (2)” in concluding provisions as such provisions were applicable to obligations issued after Dec. 31, 1983, and prior to repeal of subsec. (e) by Pub. L. 98–369, § 525(a), see Effective Date of 1984 Amendment note below

    Source evidence

    Code amendment note
    Subsec. (e). Pub. L. 99–514, § 1848(d), struck out “or a bond described in paragraph (3)” after “an annuity described in paragraph (2)” in concluding provisions as such provisions were applicable to obligations issued after Dec. 31, 1983, and prior to repeal of subsec. (e) by Pub. L. 98–369, § 525(a), see Effective Date of 1984 Amendment note below.

    Enacted provision · exact public law section
    (d) The second sentence of section 2039(e) is amended by striking out “or a bond described in paragraph (3)”.

    Effective date note
    Pub. L. 99–514, title XVIII, § 1852(e)(1)(B), Oct. 22, 1986, 100 Stat. 2868, provided that: “The amendment made by subparagraph (A) [amending this section] shall apply to estates of decedents dying after the date of the enactment of this Act [Oct. 22, 1986].” Amendment by section 1848(d) of Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.

38 of 41 references resolved to an enrolled provision · 3 partial