§ 447. Method of accounting for corporations engaged in farming

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. 1976

   Pub. L. 94–455 title II § 207(c)(1)(A) · 90 Stat. 1520

   Enacted · 26 U.S.C. § 447

   Added Pub. L. 94–455, title II, § 207(c)(1)(A), Oct. 4, 1976, 90 Stat. 1538

   Source evidence

   Code source credit
   Added Pub. L. 94–455, title II, § 207(c)(1)(A), Oct. 4, 1976, 90 Stat. 1538

   Enacted provision · exact public law section
   (A) Subpart A of part II of subchapter E of chapter 1 (relating to methods of accounting) is amended by adding at the end thereof the following new section: “SEC. 447. METHOD OF ACCOUNTING FOR CORPORATIONS ENGAGED IN FARMING. “(a) General Rule.— Except as otherwise provided by law, the taxable income from farming of— “(1) a corporation engaged in the trade or business of firming, or “(2) a partnership engaged in the trade or business of farming, if a corporation is a partner in such partnership, shall be computed on an accrual method of accounting and with the capitalization of preproductive expenses described hi subsection (b). This section shall not apply to the trade or business of operating a nursery or to the raising or liar vesting of trees (other than fruit and nut trees). “(b) Preproductive Period Expenses.— “(1) In general.— For purposes of this section, the term ‘preproductive “Pre productive period expenses.” period expenses’ means any amount which is attributable to crops, animals, or any other property having a crop or yield during the preproductive period of such property. “(2) Exceptions.— Paragraph (1) she 11 not apply— “(A) to taxes and interest, and “(B) to any amount incurred on account of fire, storm, flood, or other casualty or on account of disease or drought. “(3) Preproductive period defined.— For purposes of this subsection, the term ‘preproductive period’ means— “(A) in the ease of property having a useful life of more than 1 year which will have more than 1 crop or yield, the period before the disposition of the first such marketable crop or yield, or “(B) in the case of any other property, the period before such property is disposed of. For purposes of this section, the use by the taxpayer in the trade or business of farming of any supply produced in such trade or business shall be treated as a disposition. “(c) Exception for Small Business and Family Corporations.— For purposes of subsection (a), a corporation shall be treated as not being a corporation if it is— “(1) an electing small business corporation (within the meaning of section 1371 (b)), 26 USC 1371. “(2) a corporation of which at least 50 percent of the total combined voting power of all classes of stock entitled to vote, and at least 50 percent of the total number of shares of all other classes of stock of the corporation, are owned by members of the same family, or “(3) a corporation the gross receipts of which meet the requirements of subsection (e). “(d) Members of the Same Family.— For purposes of subsection (c)(2)— “(1) the members of the same family are an individual, such individual’s brothers and sisters, the brothers and sisters of such individual’s parents and grandparents, the ancestors and lineal descendants or any of the foregoing, a spouse of any of the foregoing, and the estate of any of the foregoing. “(2) stock owned, directly or indirectly, by or for a partnership or trust, shall be treated as owned proportionately by its partners or beneficiaries, and “(3) if 50 percent or more in value of the stock in a corporation (hereinafter in this paragraph referred to as ‘first corporation’) is owned, directly or through paragraph (2), by or for members of the same family, such members shall be considered as owning each class of stock in a second corporation (or a wholly owned subsidiary of such second corporation) owned, directly or indirectly, by or for the first corporation, in that proportion which the value of the stock in the first corporation which such members so own beans to the value of all the stock in the first corporation. For purposes of paragraph (1), individuals related by the half blood or by legal adoption shall be treated as if they were related by the whole blood. “(e) Corporations Having Gross Receipts of $1,000,000 or Less.— A corporation meets the requirements of this subsection if, for each prior taxable year beginning after December 31, 1975, such corporation (and any predecessor corporation) did not have gross receipts exceeding $1,000,000, For purposes of the preceding sentence, all corporations which are members of a controlled group of corporations (within the meaning of section 1563(a)) shall be treated as one corporation. “(f) Coordination With Section 481.— In the case of any taxpayer required by this section to change its method of accounting for any taxable year— “(1) such change shall be treated as having been made with the consent of the Secretary, “(2) for purposes of section 481 (a)(2), such change shall be treated as a change not initiated by the taxpayer, and “(3) under regulations prescribed by the Secretary, the net amount of adjustments required by section 481(a) to he taken into account by the taxpayer in computing taxable income shall (except as otherwise provided in such regulations) be taken into account in each of the 10 taxable years beginning with the year of change. “(g) Certain Annual Accrual Accounting Methods.— “(1) In general.— If— “(A) for its 10 taxable years ending with its first taxable year beginning after December 31, 1975, a corporation used an annual accrual method of accounting with respect to its trade or business of farming, “(B) such corporation raises crops which are harvested not less than 12 months after planting, and “(C) such corporation has used such method of accounting for all taxable years intervening between its first taxable year beginning after December 31, 1975, and the taxable year, such corporation may continue to employ such method of accounting for the taxable year with respect to its trade or business of farming. “(2) Annual accrual method of accounting defined.— For purposes of paragraph (1), the term ‘annual accrual method of accounting’ means a method under which revenues, costs, and expenses are computed on an accrual method of accounting and the preproductive expenses incurred during the taxable year are charged to harvested crops or deducted in determining the taxable income for such years. “(3) Certain reorganizations.— For purposes of this subsection, if a corporation acquired substantially all the assets of a farming trade or business from another corporation in a transaction in which no gain or loss was recognized to the transferor or transferee corporation, the transferee corporation shall be deemed to have computed its taxable income on an annual accrual method of accounting during the period for which the transferor corporation computed its taxable income, from such trade or business on an annual accrual method.”

2. 1978

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

   1. Substituted · 26 U.S.C. § 447(a)

      Pub. L. 95–600, §§ 353(a), 703(d), substituted in provisions following par. (2) “preproductive period expenses” for “preproductive expenses”

   2. Substituted · 26 U.S.C. § 447(a)

      Pub. L. 95–600, §§ 353(a), 703(d), substituted in provisions following par. (2) “nursery or sod farm” for “nursery”

   Source evidence

   Code amendment note
   Subsec. (a). Pub. L. 95–600, §§ 353(a), 703(d), substituted in provisions following par. (2) “preproductive period expenses” for “preproductive expenses” and “nursery or sod farm” for “nursery”.

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

3. 1978

   Pub. L. 95–600 § 701 · 92 Stat. 2763

   Struck and inserted · 26 U.S.C. § 447(f)(3)

   Pub. L. 95–600, § 701(l)(1), struck out “(except as otherwise provided in such regulations)” before “be taken” and inserted “(or the remaining taxable years where there is a stated future life of less than 10 taxable years)” after “10 taxable years”

   Source evidence

   Code amendment note
   Subsec. (f)(3). Pub. L. 95–600, § 701(l)(1), struck out “(except as otherwise provided in such regulations)” before “be taken” and inserted “(or the remaining taxable years where there is a stated future life of less than 10 taxable years)” after “10 taxable years”.

   Enacted provision · exact public law section
   SEC. 701. TECHNICAL AMENDMENTS TO INCOME TAX PROVISIONS AND ADMINISTRATIVE PROVISIONS. (a) Amendments Relating to Retention of Prior Law for Retirement Income Credit Under Section 37(e).— (1) Clarification that spouse under age 65 must have public retirement system income.— Paragraph (2) of section 37(e) (relating to election of prior law with respect to public retirement system income) is amended by striking out “who has not attained age 65 before the close of the taxable year” and inserting in lieu thereof “who has not attained age 65 before the close of the taxable year (and whose gross income includes income described in paragraph (4)(B))”. (2) Clarification that qualifying services must have been performed by taxpayer or spouse.— Subparagraph (B) of section 37(e)(4) (defining retirement income) is amended by inserting “and who performed the services giving rise to the pension or annuity (or is the spouse of the individual who performed the services)” after “before the close of the taxable year”. (3) Disregard of community property laws.— Subsection (c) of section 37 (relating to election of prior law with respect to public retirement system income) is amended— (A) by redesignating paragraph (8) as paragraph (9) and by inserting after paragraph (7) the following new paragraph: “(8) Community property laws not applicable.— In the case of a joint return, this subsection shall be applied without regard to community property laws.”, (B) by striking out “paragraph (8)(A)” in paragraph (4)(B) and inserting in lieu thereof “paragraph (9)(A)”; and (C) by striking out “paragraph (8)(B)” in paragraph (5)(B) and inserting in lieu thereof “paragraph (9)(B)”. (4) 26 USC 37 note. Effective dates.— (A) The amendments made by paragraphs (1) and (2) shall apply to taxable years beginning after December 31, 1975. (B) The amendments made by paragraph (3) shall apply to taxable years beginning after December 31, 1977. (b) Amendments Relating to the Minimum Tax.— (1) 26 USC 57. Special rules for minimum tax in the case of subchapters corporations and personal holding companies.— (A) Paragraph (1) of section 57(a) (relating to adjusted itemized deductions) is amended by striking out “An amount” and inserting in lieu thereof “In the case of an individual, an amount”. (B) The last sentence of section 57(a) (relating to items of tax preference) is amended by striking out “Paragraphs (1), (3), and” and inserting in lieu thereof “Paragraphs (3) and”. (2) 26 USC 58. Division of $ 10,000 amount among members of controlled groups.— Subsection (b) of section 58 (relating to members of controlled groups) is amended to read as follows: “(b) Members of Controlled Groups.— In the case of a controlled 26 USC 1563. 26 USC 56. group of corporations (as defined in section 1563(a)), the $10,000 amount specified in section 56 shall be divided among the component members of such group in proportion to their respective regular tax deductions (within the meaning of section 56(c)) for the taxable year.” (3) Computation of adjusted itemized deductions in the case of estates and trusts.— Paragraph (2) of section 57(b) (relating to computation of adjusted itemized deductions in the case of estates and trusts) is amended to read as follows: “(2) Special rules for estates and trusts.— “(A) In general.— In the case of an estate or trust, for purposes of paragraph (1) of subsection (a), the amount of the adjusted itemized deductions for any taxable year is the amount by which the sum of the deductions for the taxable year other than— “(i) the deductions allowable in arriving at adjusted gross income, “(ii) the deduction for personal exemption provided by 26 USC 642. section 642(b), “(iii) the deduction for casualty losses described in 26 USC 165. section 165(c)(3), “(iv) 26 USC 651. the deductions allowable under section 651(a), 26 USC 661, 691. 661(a), or 691(c), and “(v) the deductions allowable to a trust under section 26 USC 642. 642(c) to the extent that a corresponding amount is included in the gross income of the beneficiary under 26 USC 662. section 662(a)(1) for the taxable year of the beneficiary with which or within which the taxable year of the trusts ends, exceeds 60 percent (but does not exceed 100 percent) of the adjusted gross income of the estate or trust for the taxable year. “(B) Determination of adjusted gross income.— For purposes of this paragraph, the adjusted gross income of an estate or trust shall be computed in the same manner as in the case of an individual, except that— “(i) the deductions for costs paid or incurred in connection with the administration of the estate or trust, and “(ii) to the extent provided in subparagraph (C), the deductions under section 642(c), 26 USC 642. shall be treated as allowable in arriving at adjusted gross income. “(C) Treatment of certain charitable contributions.— For purposes of this paragraph, the following deductions under section 642(c) (relating to deductions for amounts paid or permanently set aside for charitable purposes) shall be treated as deductions allowable in arriving at adjusted gross income: “(i) deductions allowable to an estate, “(ii) deductions allowable to a trust all of the unexpired interests in which are devoted to one or more of the purposes described in section 170(c)(2)(B), 26 USC 170. “(iii) deductions allowable to a trust which is a pooled income fund within the meaning of section 642(c)(5), “(iv) deductions allowable to a trust which are attributable to transfers to the trust before January 1, 1977, and “(v) deductions allowable to a trust, all of the income interest of which is devoted solely to one or more of the purposes described in section 170(c)(2)(B), which are attributable to transfers pursuant to a will or pursuant to an inter vivos trust in which the grantor had the power to revoke at the date of his death.” (4) Section 691(c) deduction not taken into account for determining adjusted itemized deductions.— Paragraph (1) of section 57(b) is amended by striking out “and” at the end of subparagraph (C), by inserting “and” at the end of subparagraph (D), and by inserting after subparagraph (D) the following new subparagraph: “(E) the deduction allowable under section 691(c),”. 26 USC 691. (5) Effective date.— The amendments made by this subsection 26 USC 57 note. shall take effect as if included in the amendments made by section 301 of the Tax Reform Act of 1976. 26 USC 301. (c) Sick Pay.— (1) In general.— Section 105(d) is amended by striking out 26 USC 105. paragraphs (4) and (6), by redesignating paragraph (5) as paragraph (4) and paragraph (7) as paragraph (6), and by inserting after paragraph (4) the following new paragraph: “(5) Special rules for married couples.— “(A) Married couple must file joint return.— Except in the case of a husband and wife who live apart at all times during the taxable year, if the taxpayer is married at the close of the taxable year, the exclusion provided by this subsection shall be allowed only if the taxpayer and his spouse file a joint return for the taxable year. “(B) Application of paragraphs (2) and (3).— In the case of a joint return— “(i) paragraph (2) shall be applied separately with respect to each spouse, but “(ii) paragraph (3) shall be applied with respect to their combined adjusted gross income. “(C) Determination of marital status.— For purposes of this subsection, marital status shall be determined under 26 USC 143. section 143(a). “(D) Joint return defined.— For purposes of this subsection, the term ‘joint return’ means the joint return of a 26 USC 6013. husband and wife made under section 6013.” (2) 26 USC 105 note. Conforming amendments.— (A) 26 USC 505. Subsection (c)(3) of section 505 of the Tax Reform Act of 1976 (relating to disability retirement) is amended by striking 26 USC 105. out “section 105(d)(5)” and inserting in lieu thereof “section 105(d)(4)”. (B) 26 USC 105 note. Subsections (c) and (e)(1) of section 301 of the Tax Reduction and Simplification Act of 1977 (relating to effective date of changes in the exclusion for sick pay) are each 26 USC 105. amended by striking out “section 105(d)(7)” and inserting in lieu thereof “section 105(d)(6)”. (3) 26 USC 105 note. Effective date.— (A) The amendments made by paragraphs (1) and (2)(A) shall take effect as if included in section 105(d) of the 26 USC 105. 26 USC 505. Internal Revenue Code of 1954 as such section was amended by section 505(a) of the Tax Reform Act of 1976. (B) The amendments made by paragraph (2)(B) shall take effect as if included in section 301 of the Tax Reduction and 26 USC 105 notes. Simplification Act of 1977. (d) Net Operating Losses.— (1) 26 USC 172. Amendment of section 172(b)(1)(B).— The second sentence of subparagraph (B) of section 172(b)(1) (relating to years to which net operating losses may be carried) is amended by striking out “and (F)” and inserting in lieu thereof “(F), and (G)”. (2) 26 USC 172 note. Effective date.— The amendment made by paragraph (1) shall apply to losses incurred in taxable years ending after December 31, 1975. (e) 26 USC 189 note. Effective Date for Fiscal Year Taxpayers for Construction Period Interest and Taxes.— Paragraph (1) of section 201(c) of the 26 USC 201. Tax Reform Act of 1976 is amended to read as follows: “(1) in the case of nonresidential real property, if the construction period begins on or after the first day of the first taxable year beginning after December 31, 1975,”. (f) Clarification of Provisions Providing Tax Incentives To Encourage the Preservation of Historic Structures.— (1) Definition of certified historic structures.— Subsection 26 USC 191. (d) of section 191 (relating to amortization of certain rehabilitation expenditures for certified historic structures) is amended by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively, and by striking out paragraph (1) and inserting in lieu thereof the following new paragraphs: “(1) Certified historic structure.— The term ‘certified historic structure’ means a building or structure which is of a character subject to the allowance for depreciation provided in 26 USC 167. section 167 and which— “(A) is listed in the National Register, or “(B) is located in a registered historic district and is certified by the Secretary of the Interior to the Secretary as being of historic significance to the district. “(2) Registered historic district.— The term ‘registered historic district’ means— “(A) any district listed in the National Register, and “(B) any district— “(i) which is designated under a statute of the appropriate State or local government, if such statute is certified by the Secretary of the Interior to the Secretary as containing criteria which will substantially achieve the purpose of preserving and rehabilitating buildings of historic significance to the district, and “(ii) which is certified by the Secretary of the Interior to the Secretary as meeting substantially all of the requirements for the listing of districts in the National Register.” (2) Amendment of cross references.— Subsection (g) of section 191 (relating to cross references) is amended to read as 26 USC 191. follows: “(1) For rules relating to the listing of buildings, structures, and historic districts in the National Register, see the Act entitled ‘An Act to establish a program for the preservation of additional historic properties throughout the Nation, and for other purposes’, approved October 15, 1966 (16 U.S.C. 470 et seq.). “(2) For special rules with respect to certain gain derived from the disposition of property the adjusted basis of which is determined with regard to this section, see sections 1245 and 1250.” (3) Special rules for recapture of amortization deduction.— (A) Paragraph (2) of section 1245(a) (relating to gain from 26 USC 1245. dispositions of certain depreciable property) is amended— (i) by striking out “190, or 191” the first place it appears and inserting in lieu thereof “or 190” and (ii) by striking out “190, or 191” the second and third place it appears and inserting in lieu thereof “190, or (in the case of property described in paragraph (3)(C)) 191”. (B) Subparagraph (D) of section 1245(a)(3) (relating to gain from dispositions of certain depreciable property) is amended by striking out “190, or 191” and inserting in lieu thereof “or 190”. (C) Paragraph (3) of section 1250(b) (relating to depreciation 26 USC 1250. adjustments) is amended by striking out “190 or 191” and inserting in lieu thereof “or 190”. (D) Paragraph (2) of section 57(a) (relating to items of tax 26 USC 57. preference) is amended by inserting “or 191” after “167(k)”. (E) Paragraph (4) of section 1250(b) (relating to definition of additional depreciation) is amended— (i) by inserting “or amortization” after “depreciation” the second and third places it appears, and (ii) by inserting “or 191” after “167(k)” each place it appears. (4) Straight line method in certain cases.— Subsection (n) of section 167 is amended to read as follows: “(n) Straight Line Method in Certain Cases.— “(1) In general.— In the case of any property in whole or in part constructed, reconstructed, erected, or used on a site which was, on or after June 30, 1976, occupied by a certified historic structure (or by any structure in a registered historic district) which is demolished or substantially altered after such date— “(A) subsections (b), (j), (k), and (1) shall not apply, and “(B) the term ‘reasonable allowance’ as used in subsection (a) means only an allowance computed under the straight line method. The preceding sentence shall not apply if the last substantial alteration of the structure is a certified rehabilitation. “(2) Exceptions.— The limitations imposed by this subsection shall not apply— “(A) to personal property, and “(B) in the case of demolition or substantial alteration of a structure located in a registered historic district, if— “(i) such structure was not a certified historic structure, “(ii) the Secretary of the Interior certified to the Secretary that such structure is not of historic significance to the district, and “(iii) if the certification referred to in clause (ii) occurs after the beginning of the demolition or substantial alteration of such structure, the taxpayer certifies to the Secretary that, at the beginning of such demolition or substantial alteration, he in good faith was not aware of the requirements of clause (ii). “(3) Definitions.— For purposes of this subsection, the terms ‘certified historic structure’, ‘registered historic district’, and ‘certified rehabilitation’ have the respective meanings given 26 USC 191. such terms by section 191(d).” (5) Demolition of certain historic structures.— Subsection (b) of section 280B (relating to special rule for registered historic districts) is amended to read as follows: “(b) 26 USC 280B. Special Rule for Registered Historic Districts.— For purposes of this section, any building or other structure located in a registered historic district (as defined in section 191(d)(2)) shall be treated as a certified historic structure unless the Secretary of the Interior has certified that such structure is not a certified historic structure, and that such structure is not of historic significance to the district, and if such certification occurs after the beginning of the demolition of such structure, the taxpayer has certified to the Secretary that, at the time of such demolition, he in good faith was not aware of the certification requirement by the Secretary of the Interior.” (6) Substantially rehabilitated historic property.— (A) 26 USC 167. Paragraph (1) of section 167(o) (relating to substantially rehabilitated historic property) is amended by inserting “(other than property with respect to which an amortization deduction has been allowea to the taxpayer under 26 USC 191. section 191)” after “substantially rehabilitated historic property”. (B) 26 USC 167.26 USC 191. Paragraph (2) of section 167(o) is amended by striking out “section 191(d)(3)” and inserting in lieu thereof “section 191(d)(4)”. (7) Amortization allowable to persons with certain lease interests.— Section 191(f) (relating to treatment of life tenants and remaindermen) is amended to read as follows: “(f) Special Rules for Certain Interests.— “(1) Life tenant and remainderman.— In the case of property held by one person for life with remainder to another person, the deduction under this section shall be computed as if the life tenant were the absolute owner of the property and shall be allowable to the life tenant. “(2) Certain lessees.— “(A) In general.— In the case of a lessee of a certified historic structure who has expended amounts in connection with the certified rehabilitation of such structure which are properly chargeable to capital account, the deduction under this section shall be allowable to such lessee with respect to such amounts. “(B) Amortizable basis.— For purposes of subsection (a), the amortizable basis of such lessee shall not exceed the sum of the amounts described in subparagraph (A). “(C) Limitation.— Subparagraph (A) shall apply only if on the date of the certified rehabilitation is completed, the remaining term of the lease (determined without regard to any renewal periods) extends— “(i) beyond the last day of the useful life (determined without regard to this section) of the improvements for which the amounts described in subparagraph (A) were expended, and “(ii) for not less than 30 years.”. (8) Effective date.— The amendments made by this subsection 26 USC 191 note. shall take effect as if included in the respective provisions of the Internal Revenue Code of 1954 to which such amendments relate, as such provision were added to such Code, or amended, by section 2124 of the Tax Reform Act of 1976. 26 USC 191. (g) Foreign Conventions.— (1) Deductions not disallowed to employer where employee includes amounts in gross income.— Subparagraph (D) of section 274(h)(6) (relating to application of subsection to employer as 26 USC 274. well as to traveler) is amended to read as follows: “(D) Subsection to apply to employer as well as to traveler.— “(i) Except as provided in clause (ii), this subsection shall apply to deductions otherwise allowable under section 162 or 212 to any person, whether or not such 26 USC 162, 212. person is the individual attending the foreign convention. For the purposes of the preceding sentence such person shall be treated, with respect to each individual, as having selected the same 2 foreign conventions as were selected by such individual. “(ii) This subsection shall not deny a deduction to any person other than the individual attending the foreign convention with respect to any amount paid by such person to or on behalf of another person if includible in the gross income of such other person. The preceding sentence shall not apply if such amount is required to be included in any information return filed by such person under part III of subchapter A of chapter 61 and is not so 26 USC 6031 et seq. included.” (2) Individuals residing in foreign countries.— Section 274(h)(6) is amended by adding at the end thereof the following 26 USC 274. new subparagraph: “(E) Individuals residing in foreign countries.— For purposes of this subsection, in the case of an individual citizen of the United States who establishes to the satisfaction of the Secretary that he was a bona fide resident of a foreign country at the time that he attended a convention in such foreign country, such individual’s attendance at such convention shall not be considered as attendance at a foreign convention.”. (3) 26 USC 274. Technical amendment.— The first sentence of section 274(h)(3) is amended by striking out “more than, one-half” and inserting in lieu thereof “at least one-half”. (4) 26 USC 274 note. Effective date.— The amendments made by this subsection shall apply to conventions beginning after December 31, 1976. (h) Rental of Former Principal Residence.— (1) 26 USC 280A. In general.— Subsection (d) of section 280A (relating to use of residence for personal purposes) is amended by adding at the end thereof the following new paragraph: “(3) Rental of principal residence.— “(A) In general.— For purposes of applying subsection (c)(5) to deductions allocable to a qualified rental period, a taxpayer shall not be considered to have used a dwelling unit for personal purposes for any day during the taxable year which occurs before or after a qualified rental period described in subparagraph (B)(i), or before a qualified rental period described in subparagraph (B)(ii), if with respect to such day such unit constitutes the principal residence 26 USC 1034. (within the meaning of section 1034) of the taxpayer. “(B) Qualified rental period.— For purposes of subparagraph (A), the term ‘qualified rental period’ means a consecutive period of— “(i) 12 or more months which begins or ends in such taxable year, or “(ii) less than 12 months which begins in such taxable year and at the end of which such dwelling unit is sold or exchanged, and for which such unit is rented to a person other than a 26 USC 267. member of the family (as defined in section 267(c)(4)) of the taxpayer, or is held for rental, at a fair rental.” (2) 26 USC 280A note.26 USC 280A.26 USC 601.26 USC 337. Effective date.— The amendment made by paragraph (1) shall take effect as if included in section 280A of the Internal Revenue Code of 1954, as such provision was added to such Code by section 601(a) of the Tax Reform Act of 1976. (i) Clarification of Last Sentence of Section 337(c)(2).— (1) In general.— Subsection (c) of section 337 (relating to limitations on application of section 337) is amended by striking out the last sentence of paragraph (2) and by adding at the end of such subsection the following new paragraph: “(3) Special rule for affiliated group.— “(A) In general.— Paragraph (2) shall not apply to a sale or exchange by a corporation (hereinafter in this paragraph referred to as the ‘selling corporation’) if— “(i) within the 12-month period beginning on the date of the adoption of a plan of complete liquidation by the selling corporation, the selling corporation and each distributee corporation is completely liquidated, and “(ii) none of the complete liquidations referred to in clause (i) is a liquidation with respect to which section 333 applies. 26 USC 333. “(B) Definitions.— For purposes of subparagraph (A)— “(i) The term ‘distributee corporation’ means a corporation in the chain of includible corporations to which the selling corporation or a corporation above the selling corporation in such chain makes a distribution in complete liquidation within the 12-month period referred to in subparagraph (A)(i). “(ii) The term ‘chain of includible corporation’ includes, in the case of any distribution, any corporation which (at the time of such distribution) is in a chain of includible corporations for purposes of section 1504(a) 26 USC 1504. (determined without regard to the exceptions contained in section 1504(b)). Such term includes, where appropriate, the common parent corporation.” (2) Effective date.— The amendment made by paragraph (1) 26 USC 337 note. shall apply to sales or exchanges made pursuant to a plan of complete liquidation adopted after December 31, 1975. (j) Certain Transactions Involving 2 or More Investment Companies.— (1) Amendments of section 368(a)(2)(f).— (A) The first sentence of clause (iii) of section 368(a)(2)(F) is amended— (i) by striking out “more than 50 percent” and inserting in lieu thereof “50 percent or more”; and (ii) by striking out “more than 80 percent” and inserting in lieu thereof “80 percent or more.” (B) The first sentence of clause (vi) of section 368(a)(2)(F) is amended by striking out “is not diversified within the meaning” and inserting in lieu thereof “does not meet the requirements”. (C) The second sentence of such clause (vi) is amended to read as follows: “If such investment company acquires stock of another corporation in a reorganization described in section 368(a)(1)(B), clause (i) shall be applied to the shareholders of such investment company as though they had exchanged with such other corporation all of their stock in such company for stock having a fair market value equal to the fair market value of their stock of such investment company immediately after the exchange.” (D) Subparagraph (F) of section 368(a)(2) is amended by adding at the end thereof the following new clauses: “(vii) For purposes of clauses (ii) and (iii), the term ‘securities’ includes obligations of State and local governments, commodity futures contracts, shares of regulated investment companies and real estate investment trusts, and other investments constituting a security within the meaning of the Investment Company Act of 1940(15 U.S.C. 80a–2(36)). “(viii) In applying paragraph (3) of section 267(b) in 26 USC 267. respect of any transaction to which this subparagraph applies, the reference to a personal holding company in such paragraph (3) shall be treated as including a reference to an investment company and the determination of whether a corporation is an investment company shall be made as of the time immediately before the transaction instead of with respect to the taxable year referred to in such paragraph (3).” (2) 26 USC 368 note. Effective dates.— (A) Except as provided in subparagraphs (B) and (C), the amendments made by paragraph (1) shall apply as if 26 USC 368. included in section 368(a)(2)(F) of the Internal Revenue Code of 1954 as added by section 2131(a) of the Tax Reform Act of 1976. (B) Clause (viii) of section 368(a)(2)(F) of the Internal Revenue Code of 1954 (as added by paragraph (D) shall apply only with respect to losses sustained after September 26, 1977. (C) Clause (vii) of section 368(a)(2)(F) of the Internal Revenue Code of 1954 (as added by paragraph (1)) shall apply only with respect to transfers made after September 26, 1977. (k) At Risk Provisions.— (1) 26 USC 465 note. Clerical amendment to effective date.— Subparagraph (A) of section 204(c)(3) of the Tax Reform Act of 1976 is amended by striking out “section 465(c)(1)(B)” and inserting in lieu thereof “section 465(c)(1)(C)”. (2) 26 USC 465. Clarification of section 465(d).— Subsection (d) of section 465 (defining loss for purposes of the at risk provisions) is amended by striking out “(determined without regard to this section)” and inserting in lieu thereof “(determined without regard to the first sentence of subsection (a))”. (3) 26 USC 465 note. Effective date.— The amendments made by this subsection shall take effect on October 4, 1976. (l) Amendments Relating to Use of Accrual Accounting for Farming.— (1) Automatic 10-year adjustment period for farming corporations required to use accrual accounting.— Paragraph 26 USC 447. (3) of section 447(f) (relating to coordination with section 481) is amended— (A) by striking out “(except as otherwise provided in such regulations)”, and (B) by inserting “(or the remaining taxable years where there is a stated future life of less than 10 taxable years)” after “10 taxable years”. (2) 26 USC 447 note. Automatic 10-year adjustment for farming syndicates changing to accrual accounting.— If— (A) 26 USC 464. a farming syndicate (within the meaning of section 464(c) of the Internal Revenue Code of 1954) was in existence on December 31, 1975, and (B) such syndicate elects an accrual method of accounting (including the capitalization of preproductive period 26 USC 447. expenses described in section 447(b) of such Code) for a taxable year beginning before January 1, 1979, then such election shall be treated as having been made with the consent of the Secretary of the Treasury or his delegate and, under regulations prescribed by the Secretary of the Treasury or his delegate, the net amount of the adjustments required by 26 USC 481. section 481(a) of such Code to be taken into account by the taxpayer in computing taxable income shall be taken into account in each of the 10 taxable years (or the remaining taxable years where there is a stated future life of less than 10 taxable years) beginning with the year of change. (3) Extending family attribution to spouse in the farming syndicate rules.— (A) Subparagraph (E) of section 464(c)(2) (defining farming 26 USC 464. syndicate) is amended by striking out “(within the meaning of section 267(c)(4))” and inserting in lieu thereof “(or a 26 USC 267. spouse of any such member)”. (B) Paragraph (2) of section 464(c) is amended by adding at the end thereof the following new sentence: “For purposes of subparagraph (E), the term ‘family’ has the meaning given to such term by section 267(c)(4).” (4) Effective date.— The amendment made by paragraphs (1) 26 USC 447 note. and (3) shall take effect as if included in section 447 or 464 (as the case may be) of the Internal Revenue Code of 1954 at the time of 26 USC 447, 464. the enactment of such sections. (m) Extension of Certain Provisions to Foreign Personal Holding Companies.— (1) Section 189.— Subsection (a) of section 189 (relating to 26 USC 189. amortization of real property construction period interest and taxes) is amended— (A) by striking out “an electing small business corporation (within the meaning of section 1371(b)), or personal holding 26 USC 1371. 26 USC 542. company (within the meaning of section 542),”; and 26 USC 542. (B) by adding at the end thereof the following new sentence: “For purposes of this section, an electing small business corporation (as defined in section 1371(b)), a personal holding company (as defined in section 542), and a foreign personal holding company (as defined in section 552) shall be 26 USC 552. treated as an individual.” (2) Section 280.— Subsection (a) of section 280 (relating to 26 USC 280. certain expenditures incurred in production of films, books, records, or similar property) is amended— (A) by striking out “Except in the case of a corporation (other than an electing small business corporation (as defined in section 1371(b)) or a personal holding company (as defined in section 542) and except” and inserting in lieu thereof “In the case of an individual, except”; and (B) by adding at the end thereof the following new sentence: “For purposes of this section, an electing small business corporation (as defined in section 1371(b)), a personal holding company (as defined in section 542), and a foreign personal holding company (as defined in section 552) shall be 26 USC 552. treated as an individual.” (3) Effective dates.— (A) The amendments made by paragraph (1) shall take 26 USC 189 note. effect as if included in the amendment made by section 201(a) of the Tax Reform Act of 1976. 26 USC 189. 26 USC 280 note. (B) The amendments made by paragraph (2) shall take effect as if included in the amendment made by section 210(a) of the Tax Reform Act of 1976. (n) Definition of Condominium Management Association.— (1) In general.— Paragraph (2) of section 528(c) (defining 26 USC 528. condominium management association) is amended by striking out “as residences” and inserting in lieu thereof “by individuals for residences”. (2) Effective date.— The amendment made by paragraph (1) 26 USC 528 note. shall apply to taxable years beginning after December 31, 1973. (o) Definition of Personal Holding Company.— (1) 26 USC 542 note.26 USC 542. In general.— The last sentence of section 542(a)(2) of the Internal Revenue Code of 1954 (relating to stock ownership requirement) shall not apply in the case of an organization or trust organized or created before July 1, 1950, if at all times on or after July 1, 1950, and before the close of the taxable year such organization or trust has owned all of the common stock and at least 80 percent of the total number of shares of all other classes of stock of the corporation. (2) 26 USC 542 note. Effective date.— The provisions of paragraph (1) shall apply with respect to taxable years beginning after December 31, 1976. (p) Special Rule for Gain on Property Transferred to Trust at Less Than Fair Market Value.— (1) Additional tax to apply only to recognized gains.— (A) In general.— Subsections (a)(1), (a)(2), and (b)(1) of 26 USC 644. section 644 (relating to special rule for gain on property transferred to trust at less than fair market value) are each amended by striking out “gain realized” each place it appears and inserting in lieu thereof “gain recognized”. (B) Special rule for substituted basis property.— Subsection (d) of section 644 (relating to special rule for short sales) is amended to read as follows: “(d) Special Rules.— “(1) Short sales.— If the trust sells the property referred to in subsection (a) in a short sale within the 2-year period referred to in such subsection, such 2-year period shall be extended to the date of the closing of such short sale. “(2) Substituted basis property.— For purposes of this section, in the case of any property held by the trust which has a basis determined in whole or in part by reference to the basis of any other property which was transferred to the trust— “(A) the initial transfer of such property in trust by the transferor shall be treated as having occurred on the date of the initial transfer in trust of such other property, “(B) subsections (a)(1)(B) and (b)(2) shall be applied by taking into account the fair market value and the adjusted basis of such other property, and “(C) the amount determined under subsection (b)(2) with respect to such other property shall be allocated (under regulations prescribed by the Secretary) among such other property and all properties held by the trust which have a basis determined in whole or in part by reference to the basis of such other property.” (2) Treatment of net operating losses, capital losses, etc., which may affect transferor’s tax in other years.— Section 644(a)(2) (relating to additional tax on gain on property transferred to trust at less than fair market value) is amended by adding at the end thereof the following new sentence: “The determination of tax under clause (i) of subparagraph (A) shall be made by not taking into account any carryback, and by not taking into account any loss or deduction to the extent that such loss or deduction may be carried by the transferor to any other taxable year.” (3) Technical amendment.— Paragraph (1) of section 644(f) is amended by striking out “subsection (a)” and inserting in lieu thereof “subsection (a) (other than the 2-year requirement of paragraph (1)(A) thereof)”. (4) Conforming amendment to revision of section 644.— Section 1402(b)(1) of the Tax Reform Act of 1976 (relating to holding period for long-term capital gains treatment) is amended by striking out subparagraph (K) thereof. (5) Effective dates.— (A) Except as provided in subparagraph (B), the amendment made by this subsection shall apply to transfers in trust made after May 21, 1976. (B) The amendment made by paragraph (4) shall take effect on October 4, 1976. (q) Allowance of Foreign Tax Credit for Accumulation Distributions.— (1) Special rules for foreign trust.— (A) Subsection (d) of section 665 is amended to read as 26 USC 665. follows: “(d) Taxes Imposed on the Trust.— For purposes of this subpart— “(1) In general.— The term ‘taxes imposed on the trust’ means the amount of the taxes which are imposed for any taxable year of the trust under this chapter (without regard to this subpart or subpart A of part IV of subchapter A) and which, under regulations prescribed by the Secretary, are properly allocable to the undistributed portions of distributable net income and gains in excess of losses from sales or exchanges of capital assets. The amount determined in the preceding sentence shall be reduced by any amount of such taxes deemed distributed under section 666 (b) and (c) or 669 (d) and (e) to any beneficiary. 26 USC 666, 669. “(2) Foreign trusts.— In the case of any foreign trust, the term ‘taxes imposed on the trust’ includes the amount, reduced as provided in the last sentence of paragraph (1), of any income, war profits, and excess profits taxes imposed by any foreign country or possession of the United States on such foreign trust which, as determined under paragraph (1), are so properly allocable.” (B) Section 667 is amended by adding at the end thereof the following new subsection: “(d) Special Rules for Foreign Trust.— “(1) Foreign tax deemed paid by beneficiary.— “(A) In general.— In determining the increase in tax under subsection (b)(1)(D) for any computation year, the taxes described in section 665(d)(2) which are deemed distributed under section 666 (b) or (c) and added under subsection (b)(1)(C) to the taxable income of the beneficiary for any computation year shall, except as provided in subparagraphs (B) and (C), be treated as a credit against the increase in tax for such computation year under subsection (b)(1)(D). “(B) Deduction in lieu of credit.— If the beneficiary did not choose the benefits of subpart A of part III of subchapter N with respect to the computation year, the beneficiary may in lieu of treating the amounts described in subparagraph (A) (without regard to subparagraph (C)) as a credit may treat such amounts as a deduction in computing the beneficiary’s taxable income under subsection (b)(1)(C) for the computation year. “(C) Limitation on credit; retention of character.— “(i) Limitation on credit.— For purposes of determining under subparagraph (A) the amount treated as a credit for any computation year, the limitations under subpart A of part III of subchapter N shall be applied separately with respect to amounts added under subsection (b)(1)(C) to the taxable income of the beneficiary for such computation year. For purposes of computing the increase in tax under subsection (b)(1)(D) for any computation year for which the beneficiary did not choose the benefits of subpart A of part III of subchapter N, the beneficiary shall be treated as having chosen such benefits for such computation year. “(ii) Retention of character.— The items of income, deduction, and credit of the Trust shall retain their 26 USC 904. character (subject to the application of section 904(f)(5)) to the extent necessary to apply this paragraph. “(D) Computation year.— For purposes of this paragraph, the term ‘computation year’ means any of the three taxable years remaining after application of subsection (b)(1)(B).”. (C) 26 USC 667. The last sentence of section 667(b)(1) is amended by inserting “(other than the amount of taxes described in Ante, p. 2909. 26 USC 904. section 665(d)(2))” after “taxes”. (2) Recapture of overall foreign loss.— Section 904(f) is amended by adding at the end thereof the following new paragraph: “(5) Accumulation distributions of foreign trust.— For purposes of this chapter, in the case of amounts of income from sources without the United States which are treated under 26 USC 666. section 666 (without regard to subsections (b) and (c) thereof if the taxpayer chose to take a deduction with respect to the amounts 26 USC 667. described in such subsections under section 667(d)(1)(B)) as having been distributed by a foreign trust in a preceding taxable year, that portion of such amounts equal to the amount of any overall foreign loss sustained by the beneficiary in a year prior to the taxable year of the beneficiary in which such distribution is received from the trust shall be treated as income from sources within the United States (and not income from sources without the United States) to the extent that such loss was not used under this subsection in prior taxable years, or in the current taxable year, against other income of the beneficiary.”. (3) Effective dates.— (A) 26 USC 665 note. The amendments made by paragraph (1) shall apply to distributions made in taxable years beginning after December 31, 1975. (B) 26 USC 904 note.26 USC 904.26 USC 904. The amendments made by paragraph (2) shall take effect as if included in section 904(f) of the Internal Revenue Code of 1954, as such provision was added to such Code by section 1032(a) of the Tax Reform Act of 1976. (r) Retention of Character of Amounts Distributed From Accumulation Trust to Nonresident Auens and Foreign Corporations.— (1) 26 USC 667. In general.— Section 667 (relating to treatment of amounts deemed distributed by trust in preceding years) is amended by adding at the end thereof the following new subsection: “(e) Retention of Character of Amounts Distributed From Accumulation Trust to Nonresident Auens and Foreign Corporations.— In the case of a distribution from a trust to a nonresident alien individual or to a foreign corporation, the first sentence of subsection (a) shall be applied as if the reference to the determination 26 USC 662. of character under section 662(b) applied to all amounts instead of just to tax-exempt interest.” (2) Effective date.— The amendment made by paragraph (1) 26 USC 667 note. shall apply to distributions made in taxable years beginning after December 31, 1975. (s) Exempt Interest Dividends of Regulated Investment Companies.— (1) Treatment of tax-exempt interest for purposes of the 90-percent and 30-percent tests.— Subsection (b) of section 851 26 USC 851. (relating to limitations on the definition of regulated investment company) is amended by adding at the end thereof the following new sentence: “For purposes of paragraphs (2) and (3), amounts excludable from gross income under section 103(a)(1) shall be 26 USC 103. treated as included in gross income.” (2) Losses attributable to tax-exempt interest where stock is held less than 31 days.— Paragraph (4) of section 852(b) 26 USC 852. (relating to loss on sale or exchange of stock held less than 31 days) is amended to read as follows: “(4) Loss on sale or exchange of stock held less than 31 days.— “(A) Loss attributable to capital gain dividend.— If— “(i) under subparagraph (B) or (D) of paragraph (3) a shareholder of a regulated investment company is required, with respect to any share, to treat any amount as a long-term capital gain, and “(ii) such share is held by the taxpayer for less than 31 days, then any loss (to the extent not disallowed under subparagraph (B)) on the sale or exchange of such share shall, to the extent of the amount described in clause (i), be treated as a long-term capital loss. “(B) Loss attributable to exempt-interest dividend.— If— “(i) a shareholder of a regulated investment company receives an exempt-interest dividend with respect to any share, and “(ii) such share is held by the taxpayer for less than 31 days, then any loss on the sale or exchange of such share shall, to the extent of the amount of such exempt-interest dividend, be disallowed. “(C) Determination of holding periods.— For purposes of this paragraph, the rules of section 246(c)(3) shall apply in 26 USC 246. determining whether any share of stock has been held for less them 31 days; except that ‘30 days’ shall be substituted for the number of days specified in subparagraph (B) of section 246(C)(3).” (3) Effective date.— The amendments made by this section 26 USC 851 note. shall apply to taxable years beginning after December 31, 1975. (t) Amendments Relating to Real Estate Investment Trusts.— (1) Annual accounting period.— Section 859 (relating to 26 USC 859. adoption of annual accounting period), as redesignated by the Act, is further amended to read as follows: “SEC. 859. ADOPTION OF ANNUAL ACCOUNTING PERIOD. “For purposes of this subtitle— “(1) a real estate investment trust shall not change to any accounting period other than the calendar year, and “(2) a corporation, trust, or association may not elect to be a real estate investment trust for any taxable year beginning after October 4, 1976, unless its accounting period is the calendar year. Paragraph (2) shall not apply to a corporation, trust, or association which was considered to be a real estate investment trust for any taxable year beginning on or before October 4, 1976.” (2) 26 USC 856. Amendment of section 856(c)(3)(d).— Subparagraph (D) of section 856(c)(3) is amended by inserting “(other than gain from prohibited transactions)” after “and gain”. (3) Excise tax on reft undistributed income.— (A) 26 USC 6501. Paragraph (3) of section 6501(e) (relating to limitations on assessment and collection) is amended by striking out “or 43” and inserting in lieu thereof “43, or 44”. (B) 26 USC 275. Subsection (b) of section 1605 of the Tax Reform Act of 1976 (relating to technical amendments) is amended by striking out paragraph (1) thereof. (C) 26 USC 6212. Subparagraph (D) of section 1605(b)(5) of the Tax Reform Act of 1976 is amended to read as follows: “(D) 26 USC 4971. by striking out ‘of chapter 43 tax for the same taxable years,’ in subsection (c)(1) and inserting in lieu thereof ‘of 26 USC 4971, 4981. chapter 43 tax for the same taxable year, of chapter 44 tax for the same taxable year,’.” (4) Correction of cross reference.— Subparagraph (B) of 26 USC 859. section 859(b)(2) is amended by striking out “section 6601(c)” and inserting in lieu thereof “section 6601(b)”. (5) 26 USC 859 note. Effective date.— The amendments made by this subsection shall take effect on October 4, 1976. (u) Amendments Relating to Treatment of Foreign Income.— (1) Foreign tax credits not disallowed on certain distributions made by possessions corporations.— (A) 26 USC 901. In general.— Paragraph (1) of section 901(g) (relating to certain taxes paid with respect to distributions from possessions corporations) is amended to read as follows: “(1) In general.— For purposes of this chapter, any tax of a foreign country or possession of the United States which is paid or accrued with respect to any distribution from a corporation— “(A) to the extent that such distribution is attributable to periods during which such corporation is a possessions corporation, and “(B) (i) if a dividends received deduction is allowable with respect to such distribution under part VIII of subchapter B, or “(ii) to the extent that such distribution is received in connection with a liquidation or other transaction with respect to which gain or loss is not recognized, shall not be treated as income, war profits, or excess profits taxes paid or accrued to a foreign country or possession of the United States, and no deduction shall be allowed under this title with respect to any amount so paid or accrued.” (B) Definition of possessions corporation.— Paragraph (2) of section 901(g) (defining possessions corporation) is amended— (i) 26 USC 931. by striking out “or during which section 931” and inserting in lieu thereof “, during which section 931”, and (ii) by inserting before the period at the end thereof the following: “, or during which section 957(c) applied to such corporation”. (C) Effective dates.— The amendment made by subparagraph 26 USC 901 note. (A) shall apply as if included in section 901(g) of the Internal Revenue Code of 1954 as added by section 1051(d)(2) 26 USC 901. of the Tax Reform Act of 1976. The amendments made by subparagraph (B) shall apply to distributions made after the date of the enactment of this Act in taxable years ending after such date. (2) Foreign tax credit adjustments for capital gains.— (A) In general.— Paragraph (2) of section 904(b) (relating to treatment of capital gains for purposes of the foreign tax credit limitation) is amended by striking out “For purposes of subsection (a)—” and inserting in lieu thereof “For purposes of this section—”. (B) Source rule.— Subparagraph (C) of section 904(b)(3) is amended by striking out “For purposes of this paragraph, there” and inserting in lieu thereof “There”. (C) Source rule for liquidations of certain foreign corporations.— Paragraph (3) of section 904(b) (relating to source rules for gain from the sale of certain personal property) is amended by redesignating subparagraph (D) as subparagraph (E) and by inserting after subparagraph (O the following new subparagraph: “(D) Gain from liquidation of certain foreign corporations.— Subparagraph (C) shall not apply with respect to a distribution in liquidation of a foreign corporation to which part II of subchapter C applies if such corporation derived less than 50 percent of its gross income from sources within the United States for the 3-year period ending with the close of such corporation’s taxable year immediately preceding the year during which the distribution occurred.” (D) Effective date.— The amendments made by this paragraph 26 USC 904 note. shall apply to taxable years beginning after December 31, 1975. (3) Treatment of certain capital loss carryovers and carrybacks for purposes of the limitation on credit for foreign taxes.— (A) In general.— Clause (iii) of section 904(b)(2)(A) (relating 26 USC 904. to treatment of capital gains of corporations for purposes of the foreign tax credit limitation) is amended by striking out “any net capital loss” and inserting in lieu thereof “for purposes of determining taxable income from sources without the United States, any net capital loss (and any amount which is a short-term capital loss under section 1212(a))”. 26 USC 1212. 26 USC 904 note. (B) Effective date.— The amendment made by subparagraph (A) shall apply to taxable years beginning after December 31, 1975. (4) Treatment of capital loss carryovers for purposes of foreign loss recapture.— (A) In general.— Subparagraph (a) of section 904(f)(2) 26 USC 904. (defining overall foreign loss) is amended by striking out “or any capital loss carrybacks and carryovers to such year under section 1212”. 26 USC 1212. (B) Foreign oil related losses.— Subparagraph (A) of section 904(f)(4) (relating to determination of foreign oil 26 USC 904. 26 USC 907. related loss where section 907 applies) is amended by striking out “or any capital loss carrybacks and carryovers to 26 USC 1212. such year under section 1212”. (C) 26 USC 904 note. Effective date.— The amendments made by this paragraph shall apply— (i) to overall foreign losses sustained in taxable years beginning after December 31, 1975, and (ii) to foreign oil related losses sustained in taxable years ending after December 31, 1975. (5) Effective date for recapture of foreign oil related losses.— (A) 26 USC 904 note. In general.— Paragraph (1) of section 1032(c) of the Tax Reform Act of 1976 is amended to read as follows: “(1) In general.— Except as provided in paragraphs (2), (3), and (5), the amendment made by subsection (a) shall apply to losses sustained in taxable years beginning after December 31, 1975. The amendment made by subsection (b)(1) shall apply to taxable years beginning after December 31, 1975. The amendment made by subsection (b)(2) shall apply to losses sustained in taxable years ending after December 31, 1975.” (B) 26 USC 904 note. Foreign oil related losses.— Subsection (c) of section 1032 of the Tax Reform Act of 1976 is amended by adding at the end thereof the following new paragraph: “(5) Foreign oil related losses.— The amendment made by subsection (a) shall apply to foreign oil related losses sustained in taxable years ending sifter December 31, 1975.” (6) 26 USC 904 note. Transitional rules for certain mining operations.— The second sentence of paragraph (2) of section 1031(c) of the Tax Reform Act of 1976 is amended to read as follows: “In the case of a loss sustained in a taxable year beginning before January 1, 1979, by any corporation to which this paragraph applies, if 26 USC 904. section 904(a)(1) of such Code (as in effect before the enactment of this Act) applies with respect to such taxable year, the provisions of section 904(f) of such Code shall be applied with respect to such loss under the principles of such section 904(a)(1).” (7) Transitional rules for recapture of certain foreign losses.— (A) 26 USC 904 note. Computation of deficit in earnings and profits for purposes of the recapture of certain foreign losses.— Paragraph (4) of section 1032(c) of the Tax Reform Act of 1976 (relating to limitation based on deficit in earnings and profits for purposes of the recapture of foreign losses) is amended by adding at the end thereof the following new sentence: “For purposes of the preceding sentence, there shall be taken into account only earnings and profits of the corporation which (A) were accumulated in taxable years of the corporation beginning after December 31, 1962, and during the period in which the stock of such corporation from which the loss arose was held by the taxpayer and (B) are attributable to such stock.” (B) Recapture of possession losses during transitional period where taxpayer is on a per-country basis.— (i) 26 USC 904 note. Subsection (c) of section 1032 of the Tax Reform Act of 1976 (relating to effective dates for recapture of foreign losses) is amended by adding at the end thereof the following new paragraph: “(6) Recapture of possession losses during transitional period where taxpayer is on a per-country basis.— “(A) Application of paragraph.— This paragraph shall apply if— “(i) the taxpayer sustained a loss in a possession of the United States in a taxable year beginning after December 31, 1975, and before January 1, 1979, “(ii) such loss is attributable to a trade or business engaged in by the taxpayer in such possession on January 1, 1976, and “(iii) the taxpayer chooses to have the benefits of subpart A of part III of subchapter N apply for such taxable year and section 904(a)(1) of the Internal Revenue Code of 1954 (as in effect before the enactment of 26 USC 904. this Act) applies with respect to such taxable year. “(B) No recapture during transition period.— In any case to which this paragraph applies, for purposes of determining the liability for tax of the taxpayer for taxable years beginning before January 1, 1979, section 904(0 of the Internal Revenue Code of 1954 shall not apply with respect to the loss described in subparagraph (A)(i). “(C) Recapture of loss after the transition period.— In any case to which this paragraph applies— “(i) for purposes of determining the liability for tax of the taxpayer for taxable years beginning after December 31, 1978, section 904(0 of the Internal Revenue Code of 1954 shall be applied with respect to the loss described in subparagraph (A)(i) under the principles of section 904(a)(1) of such Code (as in effect before the enactment of this Act); but “(ii) in the case of any taxpayer and any possession, the aggregate amount to which such section 904(0 applies by reason of clause (i) shall not exceed the sum of the net incomes of all affiliated corporations from such possession for taxable years of such affiliated corporations beginning after December 31, 1975, and before January 1, 1979. “(D) Taxpayers not engaged in trade on business on January 1, 1976.— In any case to which this paragraph applies but for the fact that the taxpayer was not engaged in a trade or business in such possession on January 1, 1976, for purposes of determining the liability for tax of the taxpayer for taxable years beginning before January 1, 1979; if section 904(a)(1) of such Code (as in effect before the enactment of this Act) applies with respect to such taxable year, the provisions of section 904(f) of such Code shall be applied with respect to the loss described in subparagraph (A)(i) under the principles of such section 904(a)(1). “(E) Affiliated corporation defined.— For purposes of subparagraph (C)(ii), the term ‘affiliated corporation’ means a corporation which, for the taxable year for which the net income is being determined, was not a member of the same affiliated group (within the meaning of section 1504 of the Internal Revenue Code of 1954) as the taxpayer but would 26 USC 1504. have been a member of such group but for the application of subsection (b) of such section 1504.” (ii) 26 USC 904 note. Paragraph (3) of section 1031(c) of the Tax Reform Act of 1976 is amended by striking out the last sentence. (8) Limitations on foreign tax credit where individual has foreign oil and gas extraction income.— (A) Reduction in foreign tax credit for certain individuals having foreign oil and gas extraction income.— 26 USC 907. Subsection (a) (as amended by this Act) of section 907 (relating to special rules in case of foreign oil and gas income) is further amended to read as follows: “(a) Reduction in Amount Allowed as Foreign Tax Under Section 901.— In applying section 901, the amount of any oil and gas extraction taxes paid or accrued (or deemed to have been paid) during the taxable year which would (but for this subsection) be taken into account for purposes of section 901 shall be reduced by the amount (if any) by which the amount of such taxes exceeds the product of— “(1) the amount of the foreign oil and gas extraction income for the taxable year, “(2) multiplied by— “(A) in the case of a corporation, the percentage which is 26 USC 11. equal to the highest rate of tax specified under section 11(b), or “(B) in the case of an individual, a fraction the numerator of which is the tax against which the credit under section 26 USC 901. 901(a) is taken and the denominator of which is the taxpayer’s entire taxable income.” (B) 26 USC 904. Application of section 904 separately to foreign oil related income of individuals.— Subsection (b) of section 26 USC 907, 904. 907 (relating to application of section 904 limitation) is amended to read as follows: “(b) Application of Section 904 Limitation.— The provisions of section 904 shall be applied separately with respect to— “(1) foreign oil related income, and “(2) other taxable income.” (C) Technical amendment.— Paragraph (4) of section 26 USC 904. 904(f) (relating to recapture of overall foreign loss) is amended by striking out “In the case of a corporation to 26 USC 907. which section 907(b)(1) applies” and inserting in lieu thereof “In making the separate computation under this subsection with respect to foreign oil related income which is required by section 907(b)”. (D) 26 USC 907 note. Effective dates.— (i) The amendments made by this paragraph shall apply, in the case of individuals, to taxable years ending after December 31, 1974, and, in the case of corporations, to taxable years ending after December 31, 1976. (ii) In the case of any taxable year ending after December 31, 1975, with respect to foreign oil related income (within the meaning of section 907(c) of the 26 USC 907. 26 USC 904. Internal Revenue Code of 1954), the overall limitation provided by section 904(a)(2) of such Code shall apply and the per-country limitation provided by section 904(a)(1) of such Code shall not apply. (9) Effective date for disallowance of foreign tax credit for certain production-sharing contracts.— The second sentence of paragraph (3) of section 1035(c) of the Tax Reform Act of 1976 (relating to tax credit for production-sharing contracts) is amended to read as follows: “A contract described in the preced-ing sentence shall be taken into account under paragraph (1) only with respect to amounts (A) paid or accrued to the foreign government before January 1, 1978, and (B) attributable to income earned before such date.” (10) Foreign taxes attributable to section 911 exclusion.— (A) In general.— The last sentence of section 911(a) (relating to earned income from sources without the United States) is amended to read as follows: “An individual shall not be allowed as a deduction from his gross income any deductions (other than those allowed by section 151, 26 USC 151. relating to personal exemptions), to the extent that such deductions are properly allocable to or chargeable against amounts excluded from gross income under this subsection. For purposes of this title, the amount of the income, war profits, and excess profits taxes paid or accrued by any individual to a foreign country or possession of the United States for any taxable year shall be reduced by an amount determined by multiplying the amount of such taxes by a fraction— “(A) the numerator of which is the tax determined under subsection (d) (1) (B), and “(B) the denominator of which is the sum of the amount referred to in subparagraph (A), plus the limitation imposed for the taxable year by section 904(a).”. 26 USC 904. 26 USC 911 note. (B) Effective date.— The amendment made by subparagraph (A) shall apply to taxable years beginning after December 31, 1976. (11) Sale of assets by a possessions corporation.— (A) In general.— Subsection (a) of section 936 (relating to 26 USC 936. Puerto Rico and possession tax credit) is amended by redesignating paragraph (2) as paragraph (3) and by amending so much of paragraph (1) as precedes subparagraph (A) thereof to read as follows: “(1) In general.— Except as provided in paragraph (3), if a domestic corporation elects the application of this section and if the conditions of both subparagraph (A) and subparagraph (B) of paragraph (2) are satisfied, there shall be allowed as a credit against the tax imposed by this chapter an amount equal to the portion of the tax which is attributable to the sum of— “(A) the taxable income, from sources without the United States, from— “(i) the active conduct of a trade or business within a possession of the United States, or “(ii) the sale or exchange of substantially all of the assets used by the taxpayer in the active conduct of such trade or business, and “(B) the qualified possession source investment income. “(2) Conditions which must be satisfied.— The conditions referred to iq paragraph (1) are:”. (B) Income from sale of carryover basis property not taken into account.— (i) Subsection (d) of section 936 (relating to definitions) is amended by adding at the end thereof the following new paragraph: “(3) Carryover basis property.— “(A) In general.— Income from the sale or exchange of any asset the basis of which is determined in whole or in part by reference to its basis in the hands of another person shall not be treated as income described in subparagraph (A) or (B) of subsection (a)(1). “(B) Exception for possessions corporations, etc.— For purposes of subparagraph (A), the holding of any asset by another person shall not be taken into account if throughout the period for which such asset was held by such person 26 USC 931, 957. section 931, this section, or section 957(c) applied to such person.”. (ii) The heading of such subsection (d) is amended to read as follows: “(d) Definitions and Special Rules.—”. (C) 26 USC 936 note.26 USC 936. Effective date.— The amendments made by this paragraph shall apply as if included in section 936 of the Internal Revenue Code of 1954 at the time of its addition by section 1051(b) of the Tax Reform Act of 1976. (12) 26 USC 995 note. Gain on disposition of stock in a disc.— (A) Delay in effective date.— Paragraph (4) of section 1101(g) of the Tax Reform Act of 1976 (relating to effective date for amendment relating to gain or disposition of DISC stock) is amended by striking out “December 31, 1975” and inserting in lieu thereof “December 31, 1976”. (B) Technical amendment.— Paragraph (1) of section 26 USC 995. 995(c) (relating to gain on disposition of stock in a DISC) is amended by adding at the end thereof the following new sentence: “Subparagraph (C) shall not apply if the person receiving the stock in the disposition has a holding period for the stock which includes the period for which the stock was held by the shareholder disposing of such stock.” (C) 26 USC 995 note. Effective date.— The amendment made by subparagraph (B) shall apply to dispositions made after December 31, 1976, in taxable years ending after such date. (13) Limitation on partner’s tax where partner receives amount treated as sale of section 1248 stock.— (A) In general.— Section 751 (relating to unrealized receivables and inventory items) is amended by adding at the end thereof the following new subsection: “(e) Limitation on Tax Attributable to Deemed Sales of Section 1248 Stock.— For purposes of applying this section and sections 731, 736, and 741 to any amount resulting from the reference to section 1248(a) in the second sentence of subsection (c), in the case of an individual, the tax attributable to such amount shall be limited in the manner provided by subsection (b) of section 1248 (relating to gain from certain sales or exchanges of stock in certain foreign corporation).” (B) 26 USC 736. Cross reference.— Section 736 (relating to payments to a retiring partner or a deceased partner’s successor in interest) is amended by adding at the end thereof the following new subsection: “(c) Cross Reference.— “For limitation on the tax attributable to certain gain connected with section 1248 stock, see section 751(e).” (C) 26 USC 751 note. Effective date.— The amendments made by this paragraph shall apply to transfers beginning after October 9, 1975, and to sales, exchanges, and distributions taking place after such date. (14) Excise tax on transfers of property to foreign persons to avoid federal income tax.— (A) Transfers involving estates.— Section 1491 (relating 26 USC 1491. to tax on transfers to avoid income tax) is amended by striking out “trust” each place it appears therein and inserting in lieu thereof “estate or trust”. (B) Clarification of paragraph (3) of section 1492.— Paragraph (3) of section 1492 (relating to nontaxable transfers) 26 USC 1492. 26 USC 1491 note. is amended to read as follows: “(3) To a transfer described in section 367; or”. (C) Effective date.— The amendments made by this paragraph shall apply to transfers after October 2, 1975. (15) Election to treat nonresident alien individual as resident of the united states.— (A) Provisions affected by election.— Paragraph (1) of section 6013(g) (relating to election to treat nonresident alien 26 USC 6013. individual as resident of the United States) is amended to read as follows: “(1) In general.— A nonresident alien individual with respect to whom this subsection is in effect for the taxable year shall be treated as a resident of the United States— “(A) for purposes of chapters 1 and 5 for all of such taxable 26 USC 1 et seq., 1491 et seq. year, and “(B) for purposes of chapter 24 (relating to wage withholding) for payments of wages made during such taxable year.” (B) Conforming amendment.— Paragraph (5) of section 6013(g) (relating to termination of election by Secretary) is 26 USC 6013. amended by striking out “chapter 1” and inserting in lieu thereof “chapters 1 and 5”. (C) Year of residency.— Paragraph (1) of section 6013(h) (relating to return for year nonresident alien becomes resident) is amended— (i) by striking out “chapter 1” and inserting in lieu thereof “chapters 1 and 5”, and 26 USC 1 et seq., 1491 et seq. (ii) by inserting before the period at the end thereof the following: “, and for purposes of chapter 24 (relating 26 USC 3401 et seq. to wage withholding) for payments of wages made during such taxable year”. (D) Certain amounts withheld under chapter 3 treated as overpayments of tax.— Subsection (b) of section 6401 (relating to excessive credits) is amended by adding at 26 USC 6401. the end thereof the following new sentence: “For purposes of the preceding sentence, any credit allowed under paragraph (1) of section 32 (relating to withholding of tax on nonresident 26 USC 32. aliens and on foreign corporations) to a nonresident alien individual for a taxable year with respect to which an election under section 6013 (g) or (h) is in effect shall be 26 USC 6013. 26 USC 31. 26 USC 6013 note. treated as an amount allowable as a credit under section 31.” (E) Effective dates.— The amendments made by this paragraph— (i) to the extent that they relate to chapter 1 or 5 of the Internal Revenue Code of 1954, shall apply to taxable 26 USC 1 et seq., 1491 et seq. years ending on or after December 31, 1975, and (ii) to the extent that they relate to wage withholding under chapter 24 of such Code, shall apply to remuneration 26 USC 3401 et seq. paid on or after the first day of the first month which begins more than 90 days after the date of the enactment of this Act. (16) Nonresident alien individual allowed to be treated as resident of the united states.— (A) 26 USC 6013. In general.— Paragraph (2) of section 6013(g) (relating to election to treat nonresident alien individual as resident of the United States) is amended by striking out “who, at the time an election was made under this subsection,” and inserting in lieu thereof “who, at the close of the taxable year for which an election under this subsection was made,”. (B) 26 USC 6013 note. Effective date.— The amendment made by subparaKaph (A) shall apply to taxable years beginning after December 31, 1975. (v) Amendment of Section 1239(a).— (1) 26 USC 1239. In general.— Subsection (a) of section 1239 (relating to gain from sale of depreciable property between certain related tax-payers) is amended by striking out “subject to the allowance for depreciation provided in section 167” and inserting in lieu thereof “of a character which is subject to the allowance for 26 USC 167. 26 USC 1239 note. 26 USC 1239. depreciation provided in section 167”. (2) Effective date.— The amendment made by paragraph (1) shall apply as if included in the amendment made to section 1239 of the Internal Revenue Code of 1954 by section 2129(a) of the Tax Reform Act of 1976. (w) Recapture of Depreciation on Player Contracts.— (1) 26 USC 1245. In general.— Subparagraph (C) of section 1245(a)(4) (defining previously unrecaptured depreciation with respect to contracts transferred) is amended to read as follows: (C) Previously unrecaptured depreciation with respect to contracts transferred.— For purposes of subparagraph (A)(ii), the term ‘previously unrecaptured depreciation’ means the amount of any deduction allowed or allowable to the taxpayer transferor for the depreciation of any contracts involved in such transfer.” (2) Recapture of depreciation with respect to initial contracts.— Subparagraph (B) of section 1245(a)(4) (defining previously unrecaptured depreciation with respect to initial contracts) is amended— (A) by inserting “attributable to periods after December 31, 1975,” after “depreciation” in clause (i), (B) by inserting “incurred after December 31, 1975,” after “losses” in clause (i), and (C) by inserting “described in clause (i)” after “amounts” in clause (ii). (3) 26 USC 1245 note. Effective date.— The amendments made by this subsection shall apply to transfers of player contracts in connection with any sale or exchange of a franchise after December 31, 1975. (x) Treatment of Pensions and Annuities for 50-Percent Maximum Rate on Personal Service Income.— (1) 26 USC 1348. In general.— Subparagraph (A) of section 1348(b)(1) (defining personal service income) is amended by striking out “pension or annuity” and inserting in lieu thereof “pension or annuity which arises from an employer-employee relationship or from tax-deductible contributions to a retirement plan”. (2) Technical amendment.— The last sentence of section 1348(b) is amended by striking out “earned income” and inserting in lieu thereof “personal service income”. (3) Effective date.— The amendments made by this section 26 USC 1348 note. shall apply to taxable years beginning after December 31, 1976. (y) Changes in the Subchapter S Provisions.— (1) Grantor trust may be treated as permitted shareholder after decedent’s death; grantor or grantor trust must be individual.— Paragraph (1) of subsection (e) of section 1371 (as redesignated by this Act) is amended to read as follows: “(1) (A) A trust all of which is treated as owned by the grantor 26 USC 1371. (who is an individual who is a citizen or resident of the United States) under subpart E of part I of subchapter J of this chapter. “(B) A trust which was described in subparagraph (A) immediately before the death of the grantor and which continues in existence after such death, but only for the 60-day period beginning on the day of the grantor’s death. If a trust is described in the preceding sentence and if the entire corpus of the trust is includible in the gross estate of the grantor, the preceding sentence shall be applied by substituting ‘2-year period’ for ‘60- day period’.” (2) Effective date.— The amendment made by paragraph (1) 26 USC 1371 note. shall apply to taxable years beginning after December 31, 1976. (z) Withholding of Federal Taxes on Certain Individuals Engaged in Fishing.— (1) In general.— Section 1207(f)(4) of the Tax Reform Act of 26 USC 3121 note. 1976 (relating to effective date of provisions relating to withholding on certain individuals engaged in fishing) is amended by striking out “December 31, 1971” each place it appears and inserting in lieu thereof “December 31, 1954”. (2) Effective date.— The amendments made by paragraph (1) 26 USC 3121 note. shall take effect on October 4, 1976. (aa) Withdrawals From Individual Retirement Accounts, Etc.— (1) In general.— The last sentence of section 4973(b) (relating 26 USC 4973. to excess contributions to individual retirement accounts, etc.) is amended by striking out “solely because of employer contributions to a plan or contract described in section 219(b)(2)” and 26 USC 219. inserting in lieu thereof “solely because of ineligibility under section 219(b)(2) or section 220(b)(3)”. 26 USC 219, 220. (2) Effective date.— The amendment made by paragraph (1) shall apply as if included in section 1501 of the Tax Reform Act of 26 USC 4973 note. 1976 at the time of the enactment of such Act. (bb) Amendments Relating to Disclosure of Tax Returns.— (1) Disclosure of mailing address for purposes of collecting certain student loans.— (A) Subsection (m) of section 6103 (relating to disclosure of 26 USC 6103. taxpayer identity information) is amended to read as follows: “(m) Disclosure of Taxpayer Identity Information.— “(1) Tax refunds.— The Secretary may disclose taxpayer identity information to the press and other media for purposes of notifying persons entitled to tax refunds when the Secretary, after reasonable effort and lapse of time, has been unable to locate such persons. “(2) Federal claims.— Upon written request, the Secretary may disclose the mailing address of a taxpayer to officers and employees of an agency personally and directly engaged in, and solely for their use in, preparation for any administrative or judicial proceeding (or investigation which may result in such a proceeding) pertaining to the collection or compromise of a Federal claim against such taxpayer in accordance with the provisions of section 3 of the Federal Claims Collection Act of 31 USC 952. 1966. “(3) National institute for occupational safety and health.— Upon written request, the Secretary may disclose the mailing address of taxpayers to officers and employees of the National Institute for Occupational Safety and Health solely for the purpose of locating individuals who are, or may have been, exposed to occupational hazards in order to determine the status of their health or to inform them of the possible need for medical care and treatment. “(4) Individuals who have defaulted on student loans.— “(A) In general.— Upon written request by the Commissioner of Education, the Secretary may disclose the mailing address of any taxpayer who has defaulted on a loan made from the student loan fund established under part E of title 20 USC 1088 et seq. IV of the Higher Education Act of 1965 for use only for purposes of locating such taxpayer for purposes of collecting such loan. “(B) Disclosure to institutions.— Any mailing address disclosed under subparagraph (A) may be disclosed by the Commissioner of Education to any educational institution with which he has an agreement under part E of title IV of the Higher Education Act of 1965 only for use by officers, employees or agents of such institution whose duties relate to the collection of student loans for purposes of locating individuals who have defaulted on student loans made by such institution pursuant to such agreement for purposes of collecting such loans.” (B) 26 USC 6103. Paragraph (3) of section 6103(a) is amended by inserting “, subsection (m)(4)(B),” after “subsection (e)(1)(D)(iii)”. (C) 26 USC 7213. Paragraph (2) of section 7213(a) (relating to penalties for unauthorized disclosure of information) is amended— (i) by striking out “or any local” and inserting in lieu thereof “, any local”; (ii) by inserting “, or any educational institution” after “enforcement agency”; and (iii) 26 USC 6103. by striking out “section 6103(d) or (1)(6)” and inserting in lieu thereof “subsection (d), (1)(6), or (m)(4)(B) of section 6103”. (2) Disclosure of tax return information regarding special fuel excise taxes.— Subsection (d) of section 6103 (relating to disclosure to State tax officials) is amended by inserting “31,” after “24,”. (3) Return information other than taxpayer return information.— Paragraph (2) of section 6103(i) (relating to return information other than taxpayer return information) is amended by adding at the end thereof the following new sentence: “For purposes of this paragraph, the name and address of the tax-payer shall not be treated as taxpayer return information.” (4) Disclosure of return information concerning possible criminal activities.— Paragraph (3) of section 6103(i) (relating to disclosure of return information concerning possible criminal activities) is amended by adding at the end thereof the following new sentence: “For purposes of the preceding sentence, the name and address of the taxpayer shall not be treated as taxpayer return information if there is return information (other than taxpayer return information) which may constitute evidence of a violation of Federal criminal laws.” (5) Disclosure under tax conventions.— Section 6103(k)(4) 26 USC 6103. (relating to disclosure of return information under income tax conventions) is amended— (A) by striking out “income” in the caption thereof, (B) by inserting “or gift and estate tax” after “income tax”, and (C) by inserting or other convention relating to the exchange of tax information,” after “convention” the first place it appears. (6) Criminal penalty for unauthorized disclosure of information.— Section 7213(a) (relating to unauthorized disclosure of 26 USC 7213. information) is amended— (A) by striking out “to disclose” in paragraphs (1), (2), and (5) and inserting in lieu thereof “willfully to disclose”, (B) by striking out “to thereafter print or publish” in paragraph (3) and inserting in lieu thereof “thereafter will-fully to print or publish”, and (C) by striking out “to offer” in paragraph (4) and inserting in lieu thereof “willfully to offer”. (7) No civil liability for good faith but erroneous interpretation of disclosure requirements.— Section 7217 (relating to civil damages for unauthorized disclosure of return and return information) is amended— (A) by redesignating subsections (b) and (c) as subsections (c) and (d), respectively; (B) by inserting after subsection (a) the following new subsection: “(b) No Liability for Good Faith but Erroneous Interpretation.— No liability shall arise under this section with respect to any disclosure which results from a good faith, but erroneous, interpretation of section 6103.”; and 26 USC 6103. (C) by striking out “An action” in subsection (d) (as so redesignated) and inserting in lieu thereof “Period for Bringing Action.—An action”. (8) Effective dates.— (A) Except as provided in subparagraph (B), the amendments made by this subsection shall take effect January 1, 1977. (B) The amendments made by paragraph (7) shall apply with respect to disclosures made after the date of the enactment of this Act. (cc) Amendments Relating to Income Tax Return Preparers.— (1) Negotiation of checks by bank.— Subsection (f) of section 6695 (relating to negotiation of check) is amended by adding at 26 USC 6695. the end thereof the following new sentence: “The preceding sentence shall not apply with respect to the deposit by a bank (within the meaning of section 581) of the full amount of the 26 USC 581. check in the taxpayer’s account in such bank for the benefit of the taxpayer.” (2) Definition.— Clause (iii) of section 7701(a)(36)(B) (relating 26 USC 7701. to exceptions from the definition of income tax return preparer) is amended to read as follows: “(iii) prepares as a fiduciary a return or claim for refund for any person, or”. (3) 26 USC 6695 note. Effective date.— The amendments made by this subsection shall apply to documents prepared after December 31, 1976. (dd) Clarification of Declaratory Judgment Provisions With Respect to Revocations of or Other Changes in the Qualifications of Certain Organizations.— (1) 26 USC 7476. Qualification of certain retirement plans.— Subsection (a) of section 7476 (relating to declaratory judgments relating to qualification of certain retirement plans) is amended by adding at the end thereof the following new sentence: “For purposes of this section, a determination with respect to a continuing qualification includes any revocation of or other change in a qualification.” (2) 26 USC 7428. Classification of organizations under section 50(c)(s), etc.— Subsection (a) of section 7428 (relating to declaratory judgments relating to status and classification of organizations 26 USC 501. under section 501(c)(3), etc.) is amended by adding at the end thereof the following new sentence: “For purposes of this section, a determination with respect to a continuing qualification or continuing classification includes any revocation of or other change in a qualification or classification.” (3) 26 USC 7476 note. Effective date.— The amendments made by paragraphs (1) and (2) shall take effect as if included in section 7476 or 7428 of 26 USC 7476, 7428. the Internal Revenue Code of 1954 (as the case may be) at the respective times such sections were added to such Code. (ee) Contributions of Certain Government Publications.— (1) 26 USC 1231. In general.— Paragraph (1) of section 1231(b) (relating to definition of property used in trade or business) is amended— (A) by striking out “or” at the end of subparagraph (B), (B) by striking out the period at the end of subparagraph (C) and inserting in lieu thereof a comma and “or”, and (C) by adding at the end thereof the following new subparagraph: “(D) a publication of the United States Government (including the Congressional Record) which is received from the United States Government, or any agency thereof, other than by purchase at the price at which it is offered for sale to the public, and which is held by a taxpayer described in 26 USC 1221. paragraph (6) of section 1221.”. (2) 26 USC 1231 note. Effective date.— The amendment made by paragraph (1) shall apply with respect to sales, exchanges, and contributions made after October 4, 1976. (ff) Exemption for Light-Duty Truck Parts.— (1) 26 USC 4063. In general.— Section 4063 (relating to exemption of motor vehicles and parts) is amended by adding at the end thereof the following new subsection: “(e) Parts for Light-Duty Trucks.— The tax imposed by section 4061(b) shall not apply to the sale by the manufacturer, producer, or importer of any article which is to be resold by the purchaser on or in connection with the first retail sale of a light-duty truck, as described 26 USC 4061. in section 4061(a)(2), or which is to be resold by the purchaser to a second purchaser for resale by such second purchaser on or in connection with the first retail sale of a light-duty truck.” (2) Conforming amendments.— (A) 26 USC 4221.26 USC 4063. Section 4221(c) (relating to manufacturer relieved from liability in certain cases) is amended by inserting “4063(e),” after “4063(b),”. (B) Section 4222(d) (relating to registration in the case of 26 USC 4222. 26 USC 4063. tax-free sales) is amended by inserting “4063(e),” after 26 USC 4063. “4063(b),”. (3) Effective date.— The amendments made by this subsection 26 USC 4063 note. shall take effect on the first day of the first calendar month note-beginning more than 20 days after the date of the enactment of this Act.

4. 1978

   Pub. L. 95–600 § 703(d) · 92 Stat. 2763

   Substituted · 26 U.S.C. § 447(g)(2)

   Pub. L. 95–600, § 703(d), substituted “preproductive period expenses” for “preproductive expenses”

   Source evidence

   Code amendment note
   Subsec. (g)(2). Pub. L. 95–600, § 703(d), substituted “preproductive period expenses” for “preproductive expenses”.

   Enacted provision · exact public law section
   (d) Accrual Accounting for Farm Corporations.— Subsections (a) and (g)(2) of section 447 are each amended by striking out 26 USC 447. “preproductive expenses” and inserting in lieu thereof “preproductive period expenses”.

5. 1978

   Pub. L. 95–600 § 351(a) · 92 Stat. 2763

   Added · 26 U.S.C. § 447(h)

   Pub. L. 95–600, § 351(a), added subsec. (h)

   Source evidence

   Code amendment note
   Subsec. (h). Pub. L. 95–600, § 351(a), added subsec. (h).

   Enacted provision · exact public law section
   (a) 26 USC 447. General Rule.— Section 447 (relating to method of accounting for corporations engaged in farming) is amended by adding at the end thereof the following new subsection: “(h) Exception for Certain Closely Held Corporations.— “(1) In general.— This section shall not apply to any corporation if, on October 4, 1976, and at all times thereafter— “(A) members of 2 families (within the meaning of subsection (d)(1)) have owned (directly or through the application of subsection (d)) at least 65 percent of the total combined voting power of all classes of stock of such corporation entitled to vote, and at least 65 percent of the total number of shares of all other classes of stock of such corporation; or “(B) (i) members of 3 families (within the meaning of subsection (d)(1)) have owned (directly or through the application of subsection (d)) at least 50 percent of the total combined voting power of all classes of stock of such corporation entitled to vote, and at least 50 percent of the total number of shares of all other classes of stock of such corporation; and “(ii) substantially all of the stock of such corporation which is not so owned (directly or through the application of subsection (d)) by members of such 3 families is owned directly— “(I) by employees of the corporation or members of 26 USC 267. their families (within the meaning of section 267(c)(4)), or “(II) by a trust for the benefit of the employees of such 26 USC 401. 26 USC 501. corporation which is described in section 401(a) and which is exempt from taxation under section 501(a). “(2) Stock held by employees, etc.— For purposes of this subsection, stock which— “(A) is owned directly by employes of the corporation or members of their families (within the meaning of section 26 USC 267. 267(c)(4)) or by a trust described in paragraph (1)(B)(ii)(II), and “(B) was acquired on or after October 4, 1976, from the corporation or from a member of a family which, on October 4, 1976, was described in subparagraph (A) or (B)(i) of paragraph (1), shall be treated as owned by a member of a family which, on October 4, 1976, was described in subparagraph (A) or (B)(i) of paragraph (1). “(3) Corporation must be engaged in farming.— This subsection shall apply only in the case of a corporation which was, on October 4, 1976, and at all times thereafter, engaged in the trade or business of farming.”

6. 1982

   Pub. L. 97–248 § 230(a)(1) · 96 Stat. 324

   Inserted · 26 U.S.C. § 447(g)(1)

   Pub. L. 97–248, § 230(a)(1), inserted “or qualified partnership” after “corporation” wherever appearing

   Source evidence

   Code amendment note
   Subsec. (g)(1). Pub. L. 97–248, § 230(a)(1), inserted “or qualified partnership” after “corporation” wherever appearing.

   Enacted provision · exact public law section
   (1) by inserting “or qualified partnership” after “corporation” each place it appears in paragraph (1),

7. 1982

   Pub. L. 97–248 § 230(a)(2) · 96 Stat. 324

   1. Amended · 26 U.S.C. § 447(g)(3)

      Pub. L. 97–248, § 230(a)(2), designated existing provisions from “a corporation acquired” through “transferee corporation”, as subpar. (A)

   2. Inserted · 26 U.S.C. § 447(g)(3)

      Pub. L. 97–248, § 230(a)(2), inserted “qualified” before “farming trade”

   3. Added · 26 U.S.C. § 447(g)(3)

      Pub. L. 97–248, § 230(a)(2), added subpar. (B)

   Source evidence

   Code amendment note
   Subsec. (g)(3). Pub. L. 97–248, § 230(a)(2), designated existing provisions from “a corporation acquired” through “transferee corporation”, as subpar. (A), inserted “qualified” before “farming trade”, and added subpar. (B).

   Enacted provision · exact public law section
   (2) by amending paragraph (3) to read as follows: “(3) Certain nonrecognition transfers.— For purposes of this subsection, if— “(A) a corporation acquired substantially all the assets of a qualified farming trade or business from another corporation in a transaction in which no gain or loss was recognized to the transferor or transferee corporation, or “(B) a qualified partnership acquired substantially all the assets of a qualified farming trade or business from one of its partners in a transaction to which section 721 applies, the transferee corporation or qualified partnership shall be deemed to have computed its taxable income on an annual accrual method of accounting during the period for which the transferor corporation or partnership computed its taxable income from such trade or business on an annual accrual method.”, and

8. 1982

   Pub. L. 97–248 § 230(a)(3) · 96 Stat. 324

   Added · 26 U.S.C. § 447(g)(4)

   Pub. L. 97–248, § 230(a)(3), added par. (4)

   Target inherited from the preceding amendment note.

   Source evidence

   Code amendment note
   Pub. L. 97–248, § 230(a)(3), added par. (4).

   Enacted provision · exact public law section
   (3) by adding at the end thereof the following new paragraph: “(4) Qualified partnership defined.— For purposes of this subsection— “(A) Qualified partnership.— The term ‘qualified partnership’ means a partnership which is engaged in a qualified farming trade or business and each of the partners of which is a corporation other than— “(i) an electing small business corporation (within the meaning of section 1371(b)), or 26 USC 1371. “(ii) a personal holding company (within the meaning of section 542(a)). “(B) Qualified farming trade or business.— The term ‘qualified farming trade or business’ means the trade or business of farming sugar cane.”.

9. 1982

   Subchapter S Revision Act of 1982

   Pub. L. 97–354 § 5(a)(28) · 96 Stat. 1669

   Substituted · 26 U.S.C. § 447(c)(1)

   Pub. L. 97–354, § 5(a)(28), substituted “an S corporation” for “an electing small business corporation (within the meaning of section 1371(b))”

   Source evidence

   Code amendment note
   Subsec. (c)(1). Pub. L. 97–354, § 5(a)(28), substituted “an S corporation” for “an electing small business corporation (within the meaning of section 1371(b))”.

   Enacted provision · exact public law section
   (28) Section 447(c)(1).— Paragraph (1) of section 447(c) (relating 26 USC 447. to exception for small business and family corporations) is amended to read as follows: “(1) an S corporation,”.

10. 1982

    Subchapter S Revision Act of 1982

    Pub. L. 97–354 § 5(a)(29) · 96 Stat. 1669

    Substituted · 26 U.S.C. § 447(g)(4)

    Pub. L. 97–354, § 5(a)(29), substituted in subpar. (A)(i) “an S corporation” for “an electing small business corporation (within the meaning of section 1371(b))”

    Source evidence

    Code amendment note
    Subsec. (g)(4). Pub. L. 97–354, § 5(a)(29), substituted in subpar. (A)(i) “an S corporation” for “an electing small business corporation (within the meaning of section 1371(b))”.

    Enacted provision · exact public law section
    (29) Section 447(g).— Clause (i) of section 447(g)(4)(A) is Ante, p. 495. amended to read as follows: “(i) an S corporation, or”.

11. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 803(b)(7)(B) · 100 Stat. 2085

    Struck · 26 U.S.C. § 447(a)

    Pub. L. 99–514, § 803(b)(7)(B), which directed that subsec. (a) be amended by striking out “and with the capitalization of preproductive period of expenses described in subsection (b)”, was executed by striking out “and with the capitalization of preproductive period expenses described in subsection (b)” after “accrual method of accounting”, as the probable intent of Congress

    Source evidence

    Code amendment note
    Subsec. (a). Pub. L. 99–514, § 803(b)(7)(B), which directed that subsec. (a) be amended by striking out “and with the capitalization of preproductive period of expenses described in subsection (b)”, was executed by striking out “and with the capitalization of preproductive period expenses described in subsection (b)” after “accrual method of accounting”, as the probable intent of Congress.

    Enacted provision · exact public law section
    (B) Subsection (a) of section 447 is amended by striking out “and with the capitalization of preproductive period of expenses described in subsection (b)”.

12. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 803(b)(7)(A) · 100 Stat. 2085

    1. Changed · 26 U.S.C. § 447(b)

       Pub. L. 99–514, § 803(b)(7)(A), in amending subsec. (b) generally

    2. Substituted · 26 U.S.C. § 447(b)

       Pub. L. 99–514, § 803(b)(7)(A), in substituted in heading “period of expenses” for “period expenses” and in text the cross reference to section 263A for former par. (1) defining “preproductive period expenses”, par. (2) relating to exceptions, and par. (3) defining “preproductive period”

    Source evidence

    Code amendment note
    Subsec. (b). Pub. L. 99–514, § 803(b)(7)(A), in amending subsec. (b) generally, substituted in heading “period of expenses” for “period expenses” and in text the cross reference to section 263A for former par. (1) defining “preproductive period expenses”, par. (2) relating to exceptions, and par. (3) defining “preproductive period”.

    Enacted provision · exact public law section
    (A) Subsection (b) of section 447 is amended to read as follows: “(b) Preproductive Period of Expenses.— “For rules requiring capitalization of certain preproductive period of expenses, see section 263A.”

13. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 803(b)(7)(C) · 100 Stat. 2085

    Substituted · 26 U.S.C. § 447(g)(1)

    Pub. L. 99–514, § 803(b)(7)(C), substituted “Notwithstanding subsection (a) or section 263A, if” for “If”

    Source evidence

    Code amendment note
    Subsec. (g)(1). Pub. L. 99–514, § 803(b)(7)(C), substituted “Notwithstanding subsection (a) or section 263A, if” for “If”.

    Enacted provision · exact public law section
    (C) Section 447(g)(1) is amended by striking out “if” and inserting in lieu thereof “Notwithstanding subsection (a) or section 263A, if.”

14. 1987

    Pub. L. 100–203 § 10205(a) · 101 Stat. 1330

    1. Added · 26 U.S.C. § 447(c)

       Pub. L. 100–203, § 10205(a), added subsec. (c)

    2. Substituted · 26 U.S.C. § 447(c)

       Pub. L. 100–203, § 10205(a), substituting “certain corporations” for “small business and family corporations” in heading

    3. Struck · 26 U.S.C. § 447(c)

       Pub. L. 100–203, § 10205(a), striking out former text which read as follows: “For purposes of subsection (a), a corporation shall be treated as not being a corporation if it is—

    Source evidence

    Code amendment note
    Subsec. (c). Pub. L. 100–203, § 10205(a), added subsec. (c), substituting “certain corporations” for “small business and family corporations” in heading and striking out former text which read as follows: “For purposes of subsection (a), a corporation shall be treated as not being a corporation if it is—

    “(1) an S corporation, “(2) a corporation of which at least 50 percent of the total combined voting power of all classes of stock entitled to vote, and at least 50 percent of the total number of shares of all other classes of stock of the corporation, are owned by members of the same family, or “(3) a corporation the gross receipts of which meet the requirements of subsection (e).”

    Enacted provision · exact public law section
    (a) General Rule.— Section 447 (relating to method of accounting for corporations engaged in farming) is amended by striking out subsections (c) and (e), by redesignating subsection (d) as subsection (e), and by inserting after subsection (b) the following new subsections: “(c) Exception for Certain Corporations.— For purposes of subsection (a), a corporation shall be treated as not being a corporation if it is— “(1) an S corporation, or “(2) a corporation the gross receipts of which meet the requirements of subsection (d). “(d) Gross Receipts Requirements.— “(1) In general.— A corporation meets the requirements of this subsection if, for each prior taxable year beginning after December 31, 1975, such corporation (and any predecessor corporation) did not have gross receipts exceeding $1,000,000. For purposes of the preceding sentence, all corporations which are members of the same controlled group of corporations (within the meaning of section 1563(a)) shall be treated as 1 corporation. “(2) Special rules for family corporations.— “(A) In general.— In the case of a family corporation, paragraph (1) shall be applied— “(i) by substituting ‘December 31, 1985,’ for ‘December 31, 1975,’; and “(ii) by substituting ‘$25,000,000’ for ‘$1,000,000’. “(B) Gross receipts test.— “(i) Controlled groups.— Notwithstanding the last sentence of paragraph (1), in the case of a family corporation— “(I) except as provided by the Secretary, only the applicable percentage of gross receipts of any other member of any controlled group of corporations of which such corporation is a member shall be taken into account, and “(II) under regulations, gross receipts of such corporation or of another member of such group shall not be taken into account by such corporation more than once. “(ii) Pass-thru entities.— For purposes of paragraph (1), if a family corporation holds directly or indirectly any interest in a partnership, estate, trust or other pass-thru entity, such corporation shall take into account its proportionate share of the gross receipts of such entity. “(iii) Applicable percentage.— For purposes of clause (i), the term ‘applicable percentage’ means the percentage equal to a fraction— “(I) the numerator of which is the fair market value of the stock of another corporation held directly or indirectly as of the close of the taxable year by the family corporation, and “(II) the denominator of which is the fair market value of all stock of such corporation as of such time. For purposes of this clause, the term ‘stock’ does not include stock described in section 1563(c)(1).108108 Copy read “1563(c)(1).” “(C) Family corporation.— For purposes of this section,108a108a Copy read “section.”. the term ‘family corporation’ means— “(i) any corporation if at least 50 percent of the total combined voting power of all classes of stock entitled to vote, and at least 50 percent of all other classes of stock of the corporation, are owned by members of the same family, and “(ii) any corporation described in subsection (h).”

15. 1987

    Pub. L. 100–203 § 10205(a) · 101 Stat. 1330

    Redesignated · 26 U.S.C. § 447(d)

    Pub. L. 100–203, § 10205(a), added subsec. (d). Former subsec. (d) redesignated (e)

    Source evidence

    Code amendment note
    Subsec. (d). Pub. L. 100–203, § 10205(a), added subsec. (d). Former subsec. (d) redesignated (e).

    Enacted provision · exact public law section
    (a) General Rule.— Section 447 (relating to method of accounting for corporations engaged in farming) is amended by striking out subsections (c) and (e), by redesignating subsection (d) as subsection (e), and by inserting after subsection (b) the following new subsections: “(c) Exception for Certain Corporations.— For purposes of subsection (a), a corporation shall be treated as not being a corporation if it is— “(1) an S corporation, or “(2) a corporation the gross receipts of which meet the requirements of subsection (d). “(d) Gross Receipts Requirements.— “(1) In general.— A corporation meets the requirements of this subsection if, for each prior taxable year beginning after December 31, 1975, such corporation (and any predecessor corporation) did not have gross receipts exceeding $1,000,000. For purposes of the preceding sentence, all corporations which are members of the same controlled group of corporations (within the meaning of section 1563(a)) shall be treated as 1 corporation. “(2) Special rules for family corporations.— “(A) In general.— In the case of a family corporation, paragraph (1) shall be applied— “(i) by substituting ‘December 31, 1985,’ for ‘December 31, 1975,’; and “(ii) by substituting ‘$25,000,000’ for ‘$1,000,000’. “(B) Gross receipts test.— “(i) Controlled groups.— Notwithstanding the last sentence of paragraph (1), in the case of a family corporation— “(I) except as provided by the Secretary, only the applicable percentage of gross receipts of any other member of any controlled group of corporations of which such corporation is a member shall be taken into account, and “(II) under regulations, gross receipts of such corporation or of another member of such group shall not be taken into account by such corporation more than once. “(ii) Pass-thru entities.— For purposes of paragraph (1), if a family corporation holds directly or indirectly any interest in a partnership, estate, trust or other pass-thru entity, such corporation shall take into account its proportionate share of the gross receipts of such entity. “(iii) Applicable percentage.— For purposes of clause (i), the term ‘applicable percentage’ means the percentage equal to a fraction— “(I) the numerator of which is the fair market value of the stock of another corporation held directly or indirectly as of the close of the taxable year by the family corporation, and “(II) the denominator of which is the fair market value of all stock of such corporation as of such time. For purposes of this clause, the term ‘stock’ does not include stock described in section 1563(c)(1).108108 Copy read “1563(c)(1).” “(C) Family corporation.— For purposes of this section,108a108a Copy read “section.”. the term ‘family corporation’ means— “(i) any corporation if at least 50 percent of the total combined voting power of all classes of stock entitled to vote, and at least 50 percent of all other classes of stock of the corporation, are owned by members of the same family, and “(ii) any corporation described in subsection (h).”

16. 1987

    Pub. L. 100–203 § 10205(c)(1) · 101 Stat. 1330

    Substituted · 26 U.S.C. § 447(e)

    Pub. L. 100–203, § 10205(c)(1), substituted “subsection (d)” for “subsection (c)(2)”

    Source evidence

    Code amendment note
    Subsec. (e). Pub. L. 100–203, § 10205(c)(1), substituted “subsection (d)” for “subsection (c)(2)”.

    Enacted provision · exact public law section
    (1) Subsection (e) of section 447 (as redesignated by subsection (a)) is amended by striking out “subsection (c)(2)” and inserting in lieu thereof “subsection (d)”.

17. 1987

    Pub. L. 100–203 § 10205(a) · 101 Stat. 1330

    1. Redesignated · 26 U.S.C. § 447(e)

       Pub. L. 100–203, § 10205(a), redesignated former subsec. (d) as (e)

    2. Struck · 26 U.S.C. § 447(e)

       Pub. L. 100–203, § 10205(a), struck out former subsec. (e), “Corporation having gross receipts of $1,000,000 or less”, which read as follows: “A corporation meets the requirements of this subsection if, for each prior taxable year beginning after December 31, 1975, such corporation (and any predecessor corporation) did not have gross receipts exceeding $1,000,000. For purposes of the preceding sentence, all corporations which are members of a controlled group of corporations (within the meaning of section 1563(a)) shall be treated as one corporation.”

    Target inherited from the preceding amendment note.

    Source evidence

    Code amendment note
    Pub. L. 100–203, § 10205(a), redesignated former subsec. (d) as (e) and struck out former subsec. (e), “Corporation having gross receipts of $1,000,000 or less”, which read as follows: “A corporation meets the requirements of this subsection if, for each prior taxable year beginning after December 31, 1975, such corporation (and any predecessor corporation) did not have gross receipts exceeding $1,000,000. For purposes of the preceding sentence, all corporations which are members of a controlled group of corporations (within the meaning of section 1563(a)) shall be treated as one corporation.”

    Enacted provision · exact public law section
    (a) General Rule.— Section 447 (relating to method of accounting for corporations engaged in farming) is amended by striking out subsections (c) and (e), by redesignating subsection (d) as subsection (e), and by inserting after subsection (b) the following new subsections: “(c) Exception for Certain Corporations.— For purposes of subsection (a), a corporation shall be treated as not being a corporation if it is— “(1) an S corporation, or “(2) a corporation the gross receipts of which meet the requirements of subsection (d). “(d) Gross Receipts Requirements.— “(1) In general.— A corporation meets the requirements of this subsection if, for each prior taxable year beginning after December 31, 1975, such corporation (and any predecessor corporation) did not have gross receipts exceeding $1,000,000. For purposes of the preceding sentence, all corporations which are members of the same controlled group of corporations (within the meaning of section 1563(a)) shall be treated as 1 corporation. “(2) Special rules for family corporations.— “(A) In general.— In the case of a family corporation, paragraph (1) shall be applied— “(i) by substituting ‘December 31, 1985,’ for ‘December 31, 1975,’; and “(ii) by substituting ‘$25,000,000’ for ‘$1,000,000’. “(B) Gross receipts test.— “(i) Controlled groups.— Notwithstanding the last sentence of paragraph (1), in the case of a family corporation— “(I) except as provided by the Secretary, only the applicable percentage of gross receipts of any other member of any controlled group of corporations of which such corporation is a member shall be taken into account, and “(II) under regulations, gross receipts of such corporation or of another member of such group shall not be taken into account by such corporation more than once. “(ii) Pass-thru entities.— For purposes of paragraph (1), if a family corporation holds directly or indirectly any interest in a partnership, estate, trust or other pass-thru entity, such corporation shall take into account its proportionate share of the gross receipts of such entity. “(iii) Applicable percentage.— For purposes of clause (i), the term ‘applicable percentage’ means the percentage equal to a fraction— “(I) the numerator of which is the fair market value of the stock of another corporation held directly or indirectly as of the close of the taxable year by the family corporation, and “(II) the denominator of which is the fair market value of all stock of such corporation as of such time. For purposes of this clause, the term ‘stock’ does not include stock described in section 1563(c)(1).108108 Copy read “1563(c)(1).” “(C) Family corporation.— For purposes of this section,108a108a Copy read “section.”. the term ‘family corporation’ means— “(i) any corporation if at least 50 percent of the total combined voting power of all classes of stock entitled to vote, and at least 50 percent of all other classes of stock of the corporation, are owned by members of the same family, and “(ii) any corporation described in subsection (h).”

18. 1987

    Pub. L. 100–203 § 10205(c)(2)(A) · 101 Stat. 1330

    Substituted · 26 U.S.C. § 447(h)(1)

    Pub. L. 100–203, § 10205(c)(2)(A), substituted “A corporation is described in this subsection” for “This section shall not apply to any corporation”

    Source evidence

    Code amendment note
    Subsec. (h)(1). Pub. L. 100–203, § 10205(c)(2)(A), substituted “A corporation is described in this subsection” for “This section shall not apply to any corporation”.

    Enacted provision · exact public law section
    (A) by striking out “This section shall not apply to any corporation” and inserting in lieu thereof “A corporation is described in this subsection”,

19. 1987

    Pub. L. 100–203 § 10205(c)(2)(B) · 101 Stat. 1330

    1. Substituted · 26 U.S.C. § 447(h)(1)(A); 26 U.S.C. § 447(h)(1)(B)

       Pub. L. 100–203, § 10205(c)(2)(B), (C), substituted “subsection (e)” for “subsection (d)” wherever appearing

    2. Substituted · 26 U.S.C. § 447(h)(1)(A); 26 U.S.C. § 447(h)(1)(B)

       Pub. L. 100–203, § 10205(c)(2)(B), (C), substituted “subsection (e)(1)” for “subsection (d)(1)” wherever appearing

    Source evidence

    Code amendment note
    Subsec. (h)(1)(A), (B). Pub. L. 100–203, § 10205(c)(2)(B), (C), substituted “subsection (e)” for “subsection (d)” and “subsection (e)(1)” for “subsection (d)(1)” wherever appearing.

    Enacted provision · exact public law section
    (B) by striking out “subsection (d)” each place it appears and inserting in lieu thereof “subsection (e)”, and

20. 1987

    Pub. L. 100–203 § 10205(b) · 101 Stat. 1330

    Added · 26 U.S.C. § 447(i)

    Pub. L. 100–203, § 10205(b), added subsec. (i)

    Source evidence

    Code amendment note
    Subsec. (i). Pub. L. 100–203, § 10205(b), added subsec. (i).

    Enacted provision · exact public law section
    (b) Suspense Account in Lieu of 481 Adjustments.— Section 447 is amended by adding at the end thereof the following new subsection: “(i) Suspense Account for Family Corporations.— “(1) In general.— If any family corporation is required by this section to change its method of accounting for any taxable year (hereinafter in this subsection referred to as the ‘year of the change’), notwithstanding subsection (f), such corporation shall establish a suspense account under this subsection in lieu of taking into account adjustments under section 481(a) with respect to amounts included in the suspense account. “(2) Initial opening balance.— The initial opening balance of the account described in paragraph (1) shall be the lesser of— “(A) the net adjustments which would have been required to be taken into account under section 481 but for this subsection, or “(B) the amount of such net adjustments determined as of the beginning of the taxable year preceding the year of change. If the amount referred to in subparagraph (A) exceeds the amount referred to in subparagraph (B), notwithstanding paragraph (1), such excess shall be included in gross income in the year of the change. “(3) Reduction in account if farming business contracts.— If— “(A) the gross receipts of the corporation from the trade or business of farming for the year of the change or any subsequent taxable year, is less than “(B) such gross receipts for the taxpayer’s last taxable year beginning before the year of the change (or for the most recent taxable year for which a reduction in the suspense account was made under this paragraph), the amount in the suspense account (after taking into account prior reductions) shall be reduced by the percentage by which the amount described in subparagraph (A) is less than the amount described in subparagraph (B). “(4) Income inclusion.— Any reduction in the suspense account under paragraph (3) shall be included in gross income for the taxable year of the reduction. “(5) Inclusion where corporation ceases to be a family corporation.— “(A) In general.— If the corporation ceases to be a family corporation during any taxable year, the amount in the suspense account (after taking into account prior reduc-tions) shall be included in gross income for such taxable year. “(B) Special rule for certain transfers.— For purposes of subparagraph (A), any transfer in a corporation after December 15, 1987, shall be treated as a transfer to a person whose ownership could not qualify such corporation as a family corporation unless it is a transfer— “(i) to a member of the family of the transferor, or “(ii) in the case of a corporation described in subsection (h), to a member of a family which on December 15, 1987, held stock in such corporation which qualified the corporation under subsection (h). “(6) Subchapter c transactions.— The application of this subsection with respect to a taxpayer which is a party to any transaction with respect to which there is nonrecognition of gain or loss to any party by reason of subchapter C shall be determined under regulations prescribed by the Secretary.”

21. 1988

    Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1008(b)(5) · 102 Stat. 3342

    Substituted · 26 U.S.C. § 447(b)

    Pub. L. 100–647, § 1008(b)(5), substituted “period expenses” for “period of expenses” in heading and in text

    Source evidence

    Code amendment note
    Subsec. (b). Pub. L. 100–647, § 1008(b)(5), substituted “period expenses” for “period of expenses” in heading and in text.

    Enacted provision · exact public law section
    (5) Section 447(b) of the 1986 Code is amended— (A) by striking out “of” before “expenses”, and (B) by striking out “of” before “Expenses” in the heading thereof.

22. 1988

    Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1008(b)(6) · 102 Stat. 3342

    Substituted · 26 U.S.C. § 447(g)(1)

    Pub. L. 100–647, § 1008(b)(6), substituted “qualified farming trade or business” for “trade or business of farming” in subpar. (A) and in concluding provisions

    Source evidence

    Code amendment note
    Subsec. (g)(1). Pub. L. 100–647, § 1008(b)(6), substituted “qualified farming trade or business” for “trade or business of farming” in subpar. (A) and in concluding provisions.

    Enacted provision · exact public law section
    (6) Section 447(g)(1) of the 1986 Code is amended by striking out “trade or business of farming” each place it appears and inserting in lieu thereof “qualified farming trade or business”.

23. 1990

    Revenue Reconciliation Act of 1990

    Pub. L. 101–508 § 11702(b)(2) · 104 Stat. 1388

    Substituted · 26 U.S.C. § 447(g)(1)(A)

    Pub. L. 101–508, § 11702(b)(2), substituted “trade or business of farming” for “qualified farming trade or business”

    Source evidence

    Code amendment note
    Subsec. (g)(1)(A). Pub. L. 101–508, § 11702(b)(2), substituted “trade or business of farming” for “qualified farming trade or business”.

    Enacted provision · exact public law section
    (2) Subparagraph (A) of section 447(g)(1) is amended by striking “qualified farming trade or business” and inserting “trade or business of farming”.

24. 1990

    Revenue Reconciliation Act of 1990

    Pub. L. 101–508 § 11702(b)(1) · 104 Stat. 1388

    Amended · 26 U.S.C. § 447(g)(4)(B)

    Pub. L. 101–508, § 11702(b)(1), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “The term ‘qualified farming trade or business’ means the trade or business of farming sugar cane.”

    Source evidence

    Code amendment note
    Subsec. (g)(4)(B). Pub. L. 101–508, § 11702(b)(1), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “The term ‘qualified farming trade or business’ means the trade or business of farming sugar cane.”

    Enacted provision · exact public law section
    (1) Subparagraph (B) of section 447(g)(4) is amended to read as follows: “(B) Qualified farming trade or business.— “(i) In general.— The term ‘qualified farming trade or business’ means the trade or business of farming— “(I) sugar cane, “(II) any plant with a preproductive period (as defined in section 263A(e)(3)) of 2 years or less, and “(III) any other plant (other than any citrus or almond tree) if an election by the corporation under this subparagraph is in effect. In the case of a partnership and for purposes of paragraph (3)(A), subclauses (II) and (III) shall not apply. “(ii) Effect of election.— For purposes of paragraphs (1) and (2) of section 263A(e), any election under this subparagraph shall be treated as if it were an election under subsection (d)(3) of section 263A. “(iii) Election.— Unless the Secretary otherwise consents, an election under this subparagraph may be made only for the corporation’s 1st taxable year which begins after December 31, 1986, and during which the corporation engages in a farming business. Any such election, once made, may be revoked only with the consent of the Secretary.”

25. 1997

    Pub. L. 105–34 title X § 1081(a) · 111 Stat. 788

    1. Redesignated · 26 U.S.C. § 447(i)(3)

       Pub. L. 105–34 redesignated par. (5) as (3)

    2. Struck · 26 U.S.C. § 447(i)(3)

       Pub. L. 105–34 struck out heading and text of former par. (3). Text read as follows: “If—

    Source evidence

    Code amendment note
    Subsec. (i)(3). Pub. L. 105–34 redesignated par. (5) as (3) and struck out heading and text of former par. (3). Text read as follows: “If—

    “(A) the gross receipts of the corporation from the trade or business of farming for the year of the change or any subsequent taxable year, is less than “(B) such gross receipts for the taxpayer’s last taxable year beginning before the year of the change (or for the most recent taxable year for which a reduction in the suspense account was made under this paragraph), the amount in the suspense account (after taking into account prior reductions) shall be reduced by the percentage by which the amount described in subparagraph (A) is less than the amount described in subparagraph (B).”

    Enacted provision · exact public law section
    (a) In General.— Subsection (i) of section 447 (relating to method of accounting for corporations engaged in farming) is amended by striking paragraphs (3) and (4), by redesignating paragraphs (5) and (6) as paragraphs (3) and (4), respectively, and by adding at the end the following new paragraph: “(5) Termination.— “(A) In general.— No suspense account may be established under this subsection by any corporation required by this section to change its method of accounting for any taxable year ending after June 8, 1997. “(B) Phaseout of existing suspense accounts.— “(i) In general.— Each suspense account under this subsection shall be reduced (but not below zero) for each taxable year beginning after June 8, 1997, by an amount equal to the lesser of— “(I) the applicable portion of such account, or “(II) 50 percent of the taxable income of the corporation for the taxable year, or, if the corporation has no taxable income for such year, the amount of any net operating loss (as defined in section 172(c)) for such taxable year. For purposes of the preceding sentence, the amount of taxable income and net operating loss shall be determined without regard to this paragraph. “(ii) Coordination with other reductions.— The amount of the applicable portion for any taxable year shall be reduced (but not below zero) by the amount of any reduction required for such taxable year under any other provision of this subsection. “(iv) Inclusion in income.— Any reduction in a suspense account under this paragraph shall be included in gross income for the taxable year of the reduction. “(C) Applicable portion.— For purposes of subparagraph (B), the term ‘applicable portion’ means, for any taxable year, the amount which would ratably reduce the amount in the account (after taking into account prior reductions) to zero over the period consisting of such taxable year and the remaining taxable years in such first 20 taxable years. “(D) Amounts after 20th year.— Any amount in the account as of the close of the 20th year referred to in subparagraph (C) shall be treated as the applicable portion for each succeeding year thereafter to the extent not reduced under this paragraph for any prior taxable year after such 20th year.”.

26. 1997

    Pub. L. 105–34 title X § 1081(a) · 111 Stat. 788

    1. Redesignated · 26 U.S.C. § 447(i)(4)

       Pub. L. 105–34 redesignated par. (6) as (4)

    2. Struck · 26 U.S.C. § 447(i)(4)

       Pub. L. 105–34 struck out heading and text of former par. (4). Text read as follows: “Any reduction in the suspense account under paragraph (3) shall be included in gross income for the taxable year of the reduction.”

    Source evidence

    Code amendment note
    Subsec. (i)(4). Pub. L. 105–34 redesignated par. (6) as (4) and struck out heading and text of former par. (4). Text read as follows: “Any reduction in the suspense account under paragraph (3) shall be included in gross income for the taxable year of the reduction.”

    Enacted provision · exact public law section
    (a) In General.— Subsection (i) of section 447 (relating to method of accounting for corporations engaged in farming) is amended by striking paragraphs (3) and (4), by redesignating paragraphs (5) and (6) as paragraphs (3) and (4), respectively, and by adding at the end the following new paragraph: “(5) Termination.— “(A) In general.— No suspense account may be established under this subsection by any corporation required by this section to change its method of accounting for any taxable year ending after June 8, 1997. “(B) Phaseout of existing suspense accounts.— “(i) In general.— Each suspense account under this subsection shall be reduced (but not below zero) for each taxable year beginning after June 8, 1997, by an amount equal to the lesser of— “(I) the applicable portion of such account, or “(II) 50 percent of the taxable income of the corporation for the taxable year, or, if the corporation has no taxable income for such year, the amount of any net operating loss (as defined in section 172(c)) for such taxable year. For purposes of the preceding sentence, the amount of taxable income and net operating loss shall be determined without regard to this paragraph. “(ii) Coordination with other reductions.— The amount of the applicable portion for any taxable year shall be reduced (but not below zero) by the amount of any reduction required for such taxable year under any other provision of this subsection. “(iv) Inclusion in income.— Any reduction in a suspense account under this paragraph shall be included in gross income for the taxable year of the reduction. “(C) Applicable portion.— For purposes of subparagraph (B), the term ‘applicable portion’ means, for any taxable year, the amount which would ratably reduce the amount in the account (after taking into account prior reductions) to zero over the period consisting of such taxable year and the remaining taxable years in such first 20 taxable years. “(D) Amounts after 20th year.— Any amount in the account as of the close of the 20th year referred to in subparagraph (C) shall be treated as the applicable portion for each succeeding year thereafter to the extent not reduced under this paragraph for any prior taxable year after such 20th year.”.

27. 1997

    Pub. L. 105–34 title X § 1081(a) · 111 Stat. 788

    1. Added · 26 U.S.C. § 447(i)(5); 26 U.S.C. § 447(i)(6)

       Pub. L. 105–34 added par. (5)

    2. Redesignated · 26 U.S.C. § 447(i)(5); 26 U.S.C. § 447(i)(6)

       Pub. L. 105–34 redesignated former pars. (5) and (6) as (3) and (4), respectively

    Source evidence

    Code amendment note
    Subsec. (i)(5), (6). Pub. L. 105–34 added par. (5) and redesignated former pars. (5) and (6) as (3) and (4), respectively.

    Enacted provision · exact public law section
    (a) In General.— Subsection (i) of section 447 (relating to method of accounting for corporations engaged in farming) is amended by striking paragraphs (3) and (4), by redesignating paragraphs (5) and (6) as paragraphs (3) and (4), respectively, and by adding at the end the following new paragraph: “(5) Termination.— “(A) In general.— No suspense account may be established under this subsection by any corporation required by this section to change its method of accounting for any taxable year ending after June 8, 1997. “(B) Phaseout of existing suspense accounts.— “(i) In general.— Each suspense account under this subsection shall be reduced (but not below zero) for each taxable year beginning after June 8, 1997, by an amount equal to the lesser of— “(I) the applicable portion of such account, or “(II) 50 percent of the taxable income of the corporation for the taxable year, or, if the corporation has no taxable income for such year, the amount of any net operating loss (as defined in section 172(c)) for such taxable year. For purposes of the preceding sentence, the amount of taxable income and net operating loss shall be determined without regard to this paragraph. “(ii) Coordination with other reductions.— The amount of the applicable portion for any taxable year shall be reduced (but not below zero) by the amount of any reduction required for such taxable year under any other provision of this subsection. “(iv) Inclusion in income.— Any reduction in a suspense account under this paragraph shall be included in gross income for the taxable year of the reduction. “(C) Applicable portion.— For purposes of subparagraph (B), the term ‘applicable portion’ means, for any taxable year, the amount which would ratably reduce the amount in the account (after taking into account prior reductions) to zero over the period consisting of such taxable year and the remaining taxable years in such first 20 taxable years. “(D) Amounts after 20th year.— Any amount in the account as of the close of the 20th year referred to in subparagraph (C) shall be treated as the applicable portion for each succeeding year thereafter to the extent not reduced under this paragraph for any prior taxable year after such 20th year.”.

28. 2017

    Pub. L. 115–97 § 13102(a)(5)(A)(i) · 131 Stat. 2054

    Inserted · 26 U.S.C. § 447(c)

    Pub. L. 115–97, § 13102(a)(5)(A)(i), in introductory provisions, inserted “for any taxable year” after “not being a corporation”

    Source evidence

    Code amendment note
    Subsec. (c). Pub. L. 115–97, § 13102(a)(5)(A)(i), in introductory provisions, inserted “for any taxable year” after “not being a corporation”.

    Enacted provision · exact public law section
    (i) by inserting “for any taxable year” after “not being a corporation” in the matter preceding paragraph (1), and

    Effective date note
    Amendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, with provision for preservation of suspense account rules with respect to any existing suspense accounts, see section 13102(e) of Pub. L. 115–97, set out as a note under section 263A of this title.

29. 2017

    Pub. L. 115–97 § 13102(a)(5)(A)(ii) · 131 Stat. 2054

    Amended · 26 U.S.C. § 447(c)(2)

    Pub. L. 115–97, § 13102(a)(5)(A)(ii), amended par. (2) generally. Prior to amendment, par. (2) read as follows: “a corporation the gross receipts of which meet the requirements of subsection (d).”

    Source evidence

    Code amendment note
    Subsec. (c)(2). Pub. L. 115–97, § 13102(a)(5)(A)(ii), amended par. (2) generally. Prior to amendment, par. (2) read as follows: “a corporation the gross receipts of which meet the requirements of subsection (d).”

    Enacted provision · exact public law section
    (ii) by amending paragraph (2) to read as follows: “(2) a corporation which meets the gross receipts test of section 448(c) for such taxable year.” .

    Effective date note
    Amendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, with provision for preservation of suspense account rules with respect to any existing suspense accounts, see section 13102(e) of Pub. L. 115–97, set out as a note under section 263A of this title.

30. 2017

    Pub. L. 115–97 § 13102(a)(5)(C) · 131 Stat. 2054

    1. Redesignated · 26 U.S.C. § 447(d)

       Pub. L. 115–97, § 13102(a)(5)(C), redesignated subsec. (f) as (d)

    2. Struck · 26 U.S.C. § 447(d)

       Pub. L. 115–97, § 13102(a)(5)(C), struck out former subsec. (d) which related to gross receipts requirements

    Source evidence

    Code amendment note
    Subsec. (d). Pub. L. 115–97, § 13102(a)(5)(C), redesignated subsec. (f) as (d) and struck out former subsec. (d) which related to gross receipts requirements.

    Enacted provision · exact public law section
    (C) Conforming amendments.— Section 447 26 USC 447. is amended— (i) by striking subsections (d), (e), (h), and (i), and (ii) by redesignating subsections (f) and (g) (as amended by subparagraph (B)) as subsections (d) and (e), respectively.

    Effective date note
    Amendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, with provision for preservation of suspense account rules with respect to any existing suspense accounts, see section 13102(e) of Pub. L. 115–97, set out as a note under section 263A of this title.

31. 2017

    Pub. L. 115–97 § 13102(a)(5)(C) · 131 Stat. 2054

    1. Redesignated · 26 U.S.C. § 447(e)

       Pub. L. 115–97, § 13102(a)(5)(C), redesignated subsec. (g) as (e)

    2. Struck · 26 U.S.C. § 447(e)

       Pub. L. 115–97, § 13102(a)(5)(C), struck out former subsec. (e) which related to members of the same family

    Source evidence

    Code amendment note
    Subsec. (e). Pub. L. 115–97, § 13102(a)(5)(C), redesignated subsec. (g) as (e) and struck out former subsec. (e) which related to members of the same family.

    Enacted provision · exact public law section
    (C) Conforming amendments.— Section 447 26 USC 447. is amended— (i) by striking subsections (d), (e), (h), and (i), and (ii) by redesignating subsections (f) and (g) (as amended by subparagraph (B)) as subsections (d) and (e), respectively.

    Effective date note
    Amendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, with provision for preservation of suspense account rules with respect to any existing suspense accounts, see section 13102(e) of Pub. L. 115–97, set out as a note under section 263A of this title.

32. 2017

    Pub. L. 115–97 § 13102(a)(5)(C)(ii) · 131 Stat. 2054

    Redesignated · 26 U.S.C. § 447(f)

    Pub. L. 115–97, § 13102(a)(5)(C)(ii), redesignated subsec. (f) as (d)

    Source evidence

    Code amendment note
    Subsec. (f). Pub. L. 115–97, § 13102(a)(5)(C)(ii), redesignated subsec. (f) as (d).

    Enacted provision · exact public law section
    (ii) by redesignating subsections (f) and (g) (as amended by subparagraph (B)) as subsections (d) and (e), respectively.

    Effective date note
    Amendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, with provision for preservation of suspense account rules with respect to any existing suspense accounts, see section 13102(e) of Pub. L. 115–97, set out as a note under section 263A of this title.

33. 2017

    Pub. L. 115–97 § 13102(a)(5)(B) · 131 Stat. 2054

    Amended · 26 U.S.C. § 447(f)

    Pub. L. 115–97, § 13102(a)(5)(B), amended subsec. (f) generally. Prior to amendment, subsec. (f) related to coordination with section 481

    Target inherited from the preceding amendment note.

    Source evidence

    Code amendment note
    Pub. L. 115–97, § 13102(a)(5)(B), amended subsec. (f) generally. Prior to amendment, subsec. (f) related to coordination with section 481.

    Enacted provision · exact public law section
    (B) Coordination with section 481.— Section 447(f) is amended to read as follows: “(f) Coordination With Section 481.— Any change in method of accounting made pursuant to this section shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary.” .

    Effective date note
    Amendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, with provision for preservation of suspense account rules with respect to any existing suspense accounts, see section 13102(e) of Pub. L. 115–97, set out as a note under section 263A of this title.

34. 2017

    Pub. L. 115–97 § 13102(a)(5)(C)(ii) · 131 Stat. 2054

    Redesignated · 26 U.S.C. § 447(g)

    Pub. L. 115–97, § 13102(a)(5)(C)(ii), redesignated subsec. (g) as (e)

    Source evidence

    Code amendment note
    Subsec. (g). Pub. L. 115–97, § 13102(a)(5)(C)(ii), redesignated subsec. (g) as (e).

    Enacted provision · exact public law section
    (ii) by redesignating subsections (f) and (g) (as amended by subparagraph (B)) as subsections (d) and (e), respectively.

    Effective date note
    Amendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, with provision for preservation of suspense account rules with respect to any existing suspense accounts, see section 13102(e) of Pub. L. 115–97, set out as a note under section 263A of this title.

35. 2017

    Pub. L. 115–97 § 13102(a)(5)(C)(i) · 131 Stat. 2054

    Struck · 26 U.S.C. § 447(h); 26 U.S.C. § 447(i)

    Pub. L. 115–97, § 13102(a)(5)(C)(i), struck out subsecs. (h) and (i) which related to exception for certain closely held corporations and suspense account for family corporations, respectively

    Source evidence

    Code amendment note
    Subsecs. (h), (i). Pub. L. 115–97, § 13102(a)(5)(C)(i), struck out subsecs. (h) and (i) which related to exception for certain closely held corporations and suspense account for family corporations, respectively.

    Enacted provision · exact public law section
    (i) by striking subsections (d), (e), (h), and (i), and

    Effective date note
    Amendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, with provision for preservation of suspense account rules with respect to any existing suspense accounts, see section 13102(e) of Pub. L. 115–97, set out as a note under section 263A of this title.

46 of 48 references resolved to an enrolled provision · 2 partial