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 100 STAT. 2776

PUBLIC LAW 99-514—OCT. 22, 1986

"SEC. 4083. CROSS REFERENCES. "(1) For provisions to relieve farmers from excise tax in the case of gasoline used on the farm for farming purposes, see section 6420. H'. •i(2) For provisions to relieve purchasers of gasoline from excise tax in the case of gasoline used for certain nonhighway purposes, used by local , transit systems, or sold for certain exempt purposes, see section 6421. i, "(3) For provisions to relieve purchasers of gasoline from excise tax in the case of gasoline not used for taxable purposes, see section 6427." (b) BOND REQUIREMENTS.—

(1) IN GENERAL.—Section 4101 is amended to read as follows: "SEC. 4101. REGISTRATION AND BOND.

"(a) REGISTRATION.—Every person subject to tax under section 4081 shall, before incurring any liability for tax under such section, register with the Secretary. "(b) BOND.—Under regulations prescribed by the Secretary, every person who registers under subsection (a) may be required to give a bond in such sum as the Secretary determines." (2) CLERICAL AMENDMENT.—The table of sections for subpart C of part III of subchapter A of chapter 32 is amended by striking out the item relating to section 4101 and inserting in lieu thereof the following new item: "Sec. 4101. Registration and bond." (c) GASOLINE SOLD FOR CERTAIN EXEMPT PURPOSES.—

(1) IN GENERAL.—Section 6421 (relating to gasoline used for certain nonhighway purposes or by local transit systems) is amended— (A) by redesignating subsections (c), (d), (e), (f), (g), and (h) as subsections (d), (e), (f), (g), (h), and (i), respectively, and (B) by inserting after subsection 0)), the following new sulDsection: purpose described in paragraph (2), (3), (4), or (5) of section 4221(a), the Secretary shall pay (without interest) to such person an amount equal to the product of the number of gallons of gasoline so sold multiplied by the rate at which tax was imposed on such gasoline by section 4081." (2) CONFORMING AMENDMENTS.—
 * ' "(c) EXEMPT PURPOSES.—If gasoline is sold to any person for any

(A) Paragraph (1) of section 6421(d) (relating to time for y* filing claims; period covered), as redesignated by paragraph (1) of this subsection, is amended by striking out "and not • i;>: more than one claim may be filed under subsection (b)" and inserting in lieu thereof "not more than one claim may be filed under subsection Qy), and not more than one claim may be filed under subsection (c)". . (B) Section 6421(f) (relating to exempt sales; other payments or refunds available), as redesignated by paragraph (1) of this subsection, is amended by striking out paragraph (1) and redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively. (C) Subsection (a) of section 4221 (relating to certain taxfree sales) is amended— (i) by inserting "or 4081" after "section 4121" in the first sentence, and (ii) by striking out "4071, or 4081" in the last sen.., tence and inserting in lieu thereof "or 4071".

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 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2777

(D) The heading for section 6421 is amended to read as follows: "SEC. 6421. GASOLINE USED FOR CERTAIN NONHIGHWAY PURPOSES, USED BY LOCAL TRANSIT SYSTEMS, OR SOLD FOR CERTAIN EXEMPT PURPOSES."

(E) The table of contents for subchapter B of chapter 65 is amended by striking out the item relating to section 6421 and inserting in lieu thereof the following new item: "Sec. 6421. Gasoline used for certain nonhighway purposes, used by local transit systems, or sold for certain exempt purposes." (d) TIME FOR FILING GASOHOL CREDIT.—

(1) IN GENERAL.—Section 6427(h) (relating to time for filing claims; period covered) is amended by adding at the end thereof the following new paragraph:

"(3) SPECIAL RULE FOR GASOHOL CREDIT.—

"(A) IN GENERAL.—A claim may be filed under subsection (f) by any person with respect to gasoline used to produce gasohol (as defined in section 4081(c)(1)) for any period— "(i) for which $200 or more is payable under such subsection (f), and "(ii) which is not less than 1 week. "(B) PAYMENT OF CLAIM.—Notwithstanding subsection (0(1), if the Secretary has not paid pursuant to a claim filed under this section within 20 days of the date of the filing of such claim, the claim shall be paid with interest from such date determined by using the overpayment rate and method under section 6621." (B) CONFORMING AMENDMENTS.—

i0i -;.;

(i) Paragraph (1) of section 6427(h) is amended by striking out "(f)". (ii) Paragraph (2)(A) of section 6427(h) is amended— (I) by inserting "or" at the end of subclause (i), (II) by striking out "or" at the end of subclause (ii), and (Ill) by striking out clause (iii) and "(or clauses)". (iii) Paragraph (2)(B) of section 6427(f) is amended by striking out "or clause (iii)". (iv) Paragraph (2) of section 6427(j) is amended by striking out "subsection (h)(2)" and inserting in lieu thereof' 'subsection (h)(2) or (h)(3)".

(e) CREDIT FOR GASOLINE BLEND STOCKS OR ADDITIVES NOT USED FOR PRODUCING GASOLINE.—

(1) IN GENERAL.—Section 6427 (relating to fuels not used for ,: taxable purposes) is amended— (A) by redesignating subsections (h), (i), (j), (k), (1), (m), and (n) as subsections (i), (j), (k), (1), (m), (n), and (o), respectively, and (B) by inserting after subsection (g) the following new subsection: "(h) GASOLINE BLEND STOCKS OR ADDITIVES NOT USED FOR PRODUC-

ING GASOLINE.—Except as provided in subsection (k), if any gasoline blend stock or additive (within the meaning of section 4082(b)) is not used by any person to produce gasoline and such person establishes that the ultimate use of such gasoline blend stock or additive is not to produce gasoline, the Secretary shall pay (without interest) to

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Page:United States Statutes at Large Volume 100 Part 3.djvu/970

 100 STAT. 2778

PUBLIC LAW 99-514—OCT. 22, 1986

such person an amount equal to the aggregate amount of the tax imposed on such person with respect to such gasoline blend stock or additive." (2) CONFORMING AMENDMENTS.—

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•'-''-

(A) Subsections (a), (b)(1), (c), (d), (e)(D, (0(1), and (g)(1) of section 6427 are each amended by striking out "subsection (j)" and inserting in lieu thereof "subsection (k)". (B) Subsection (i)(1) of section 6427 (as redesignated by subsection (d)(l)(A)) is amended by striking out "or (g)" and inserting in lieu thereof "(g), or (h)". (C) Subsections (i)(2)(A)(i) and (n) of section 6427 (as so redesignated) are amended by striking out "and (g)" each place it appears and inserting in lieu thereof "(g), and (h)". (D) The heading of subsection (n) of section 6427 {as so redesignated) is amended by striking out "AND (g)" and inserting in lieu thereof "(g), AND (h)". (E) Subsection (i)(2) of section 6427 (as so redesignated) is amended by striking out "subsection (h)(2)" and inserting in lieu thereof "(i)(2)". (F) Section 34(a)(3) is amended by striking out "section 6427(j)" and inserting in lieu thereof "section 6427(k)". (G) Sections 7210, 7603, 7604(b), 7604(c)(2), 7605(a), 7609(c)(l), and 7610(c) are amended by striking out "section 6427(i)(2)" and inserting in lieu thereof "section 64270'X2)".

if) FLOOR STOCK TAXES.—

(1) IN GENERAL.—On gasoline subject to tax under section
 * 4081 of the Internal Revenue Code of 1986 which, on January 1,

1988, is held by a dealer for sale, and with respect to which no tax has been imposed under such section, there is hereby imposed a floor stocks tax at the rate of 9 cents a gallon. '"

(2) OVERPAYMENT OF FLOOR STOCKS TAXES.—Section 6416 of

such Code shall apply in respect of the floor stocks taxes imposed by this section, so as to entitle, subject to all provisions of such section, any person paying such floor stocks taxes to a section. (3) DUE DATE OF TAXES.—The taxes imposed by this subsection shall be paid before February 16, 1988. (4) TRANSFER OF FLOOR STOCKS TAXES TO HIGHWAY TRUST
 * credit or refund thereof for any reasons specified in such

^ FUND.—For purposes of determining the amount transferred to the Highway Trust Fund for any period, the taxes imposed by this subsection shall be treated as if they were imposed by - section 4081 of the Internal Revenue Code of 1986. (5) DEFINITIONS AND SPECIAL RULE.—For purposes of this subsection— (A) DEALER.—The term "dealer" includes a wholesaler, M. jobber, distributor, or retailer. f-v (B) HELD BY A DEALER.—Gasoline shall be considered as "held by a dealer" if title thereto has passed to such dealer wa? (whether or not delivery to him has been made) and if for purposes of consumption title to such gasoline or possession thereof has not at any time been transferred to any person '? other than a dealer. (C) GASOLINE.—The term "gasoline" has the same meaning given to such term by section 4082(a) of the Internal Revenue Code of 1986. (g) STUDY OF EVASION OF GASOLINE TAX.—

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Page:United States Statutes at Large Volume 100 Part 3.djvu/971

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2779

(1) IN GENERAL.—The Secretary of the Treasury or his delegate shall conduct a study of the incidence of the evasion of the gasoline tax. (2) REPORT.—The report of the study under paragraph (1) shall be submitted, not later than December 31, 1986, to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate. (h) EFFECTIVE DATE.—The amendments made by this section shall apply to gasoline removed (as defined in section 4082 of the Internal Revenue Code of 1986, as amended by this section) after December 31, 1987. SEC. 1704. EXEMPTION FROM SOCIAL SECURITY COVERAGE FOR CERTAIN CLERGY. (a) CONDITIONS FOR RECEIVING EXEMPTION.—

(1) IN GENERAL.—Section 1402(e)(1) (relating to exemption from tax on self-employment income of certain ministers, members of religious orders, and Christian Science practitioners) is ^ amended by inserting "and, in the case of an individual described in subparagraph (A), that he has informed the ordaining, commissioning, or licensing body of the church or order ' that he is opposed to such insurance" after "Act)". «

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(2) VERIFICATION

OF APPLICATION.—Section

1402(e),

as

amended by paragraph (1) of this subsection, is further amended— (A) by striking out "Any individual" in paragraph (1) and inserting in lieu thereof "Subject to paragraph (2), any individual", (B) by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively, and (C) by inserting after paragraph (1) the following new paragraph: "(2) VERIFICATION OF APPLICATION.—The Secretary may ap-

^ f ^

prove an application for an exemption filed pursuant to paragraph (1) only if the Secretary has verified that the individual applying for the exemption is aware of the grounds on which the individual may receive an exemption pursuant to this subsection and that the individual seeks exemption on such grounds. The Secretary (or the Secretary of Health and Human Services under an agreement with the Secretary) shall make such verification by such means as prescribed in regulations." (3) EFFECTIVE DATE.—The amendments made by paragraphs (1) and (2) shall apply to applications filed after December 31, 1986. 03) REVOCATION OF EXEMPTION.—

(1) IN GENERAL.—Notwithstanding section 1402(e)(3) of the Internal Revenue Code of 1986, as redesignated by subsection (a)(2)(B) of this section, any exemption which has been received under section 1402(e)(1) of such Code by a duly ordained, commissioned, or licensed minister of a church, a member of a religious order, or a Christian Science practitioner, and which is effective for the taxable year in which this Act is enacted, may be revoked by filing an application therefor (in such form and manner, and with such official, as may be prescribed in regulations made under chapter 2 of subtitle A of such Code), if such application is filed—

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 100 STAT. 2780

PUBLIC LAW 99-514—OCT. 22, 1986

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(A) before the applicant becomes entitled to benefits under section 202(a) or 223 of the Social Security Act (without regard to section 202(j)(l) or 223(b) of such Act), and (B) no later than the due date of the Federal income tax return (including any extension thereof) for the applicant's . first taxable year beginning after the date of the enactment of this Act. Any such revocation shall be effective (for purposes of chapter 2 of subtitle A of the Internal Revenue Code of 1986 and title II of the Social Security Act), as specified in the application, either with respect to the applicant's first taxable year ending on or after the date of the enactment of this Act or with respect to the applicant's first taxable year beginning after such date, and for all succeeding taxable years; and the applicant for any such revocation may not thereafter again file application for an exemption under such section 1402(e)(1). If the application is filed on or after the due date of the Federal income tax return for the applicant's first taxable year ending on or after the date of the enactment of this Act and is effective with respect to that taxable year, it shall include or be accompanied by payment in full of an amount equal to the total of the taxes that would have been imposed by section 1401 of the Internal Revenue Code of 1986 with respect to all of the applicant's income derived in that taxable year which would have constituted net earnings from self-employment for purposes of chapter 2 of subtitle A of such Code (notwithstanding paragraph (4) or (5) of section 1402(c) of such Code) but for the exemption under section 1402(e)(1) of such Code. (2) EFFECTIVE DATE.—Paragraph (1) of this subsection shall apply with respect to service performed (to the extent specified in such paragraph) in taxable years ending on or after the date of the enactment of this Act and with respect to monthly insurance benefits payable under title II of the Social Security Act on the basis of the wages and self-employment income of any individual for months in or after the calendar year in which such individual's application for revocation (as described in such paragraph) is effective (and lump-sum death payments payable under such title on the basis of such wages and self-employment income in the case of deaths occurring in or after such calendar year).

SEC. 1705. APPLICABILITY OF UNEMPLOYMENT COMPENSATION TAX TO CERTAIN SERVICES PERFORMED FOR CERTAIN INDIAN TRIBAL GOVERNMENTS.

(a) IN GENERAL.—For purposes of the Federal Unemployment Tax Act, service performed in the employ of a qualified Indian tribal government shall not be treated as employment (within the meaning of section 3306 of such Act) if it is service— (1) which is performed— (A) before, on, or after the date of the enactment of this Act, but before January 1, 1988, and (B) during a period in which the Indian tribal government is not covered by a State unemployment compensation program, and •'. (2) with respect to which the tax imposed under the Federal Unemployment Tax Act has not been paid.

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 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2781

(b) DEFINITION.—For purposes of this section, the term "qualified Indian tribal government" means an Indian tribal government the service for which is not covered by a State unemployment compensation program on June 11, 1986 SEC. 1706. TREATMENT OF CERTAIN TECHNICAL PERSONNEL.

(a) IN GENERAL.—Section 530 of the Revenue Act of 1978 is amended by adding at the end thereof the following new subsection: "(d) EXCEPTION.—This section shall not apply in the case of an individual who, pursuant to an arrangement between the taxpayer and another person, provides services for such other person as an engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker engaged in a similar line of work." Oa) EFFECTIVE DATE.—The amendment made by this section shall apply to remuneration paid and services rendered after December 31, 1986. SEC. 1707. EXCLUSION FOR CERTAIN FOSTER CARE PAYMENTS.

(a) IN GENERAL.—Section 131 (relating to certain foster care payments) is amended to read as follows: "SEC. 131. CERTAIN FOSTER CARE PAYMENTS. "(a) GENERAL RULE.—Gross income shall not include amounts received by a foster care provider during the taxable year as qualified foster care payments. "(h) QUALIFIED FOSTER CARE PAYMENT DEFINED.—For purposes of this section— "(1) IN GENERAL.—The term 'qualified foster care payment' means any amount— "(A) which is paid by a State or political subdivision thereof or by a placement agency which is described in section 501(c)(3) and exempt from tax under section 501(a), and "(B) which is— "(i) paid to the foster care provider for caring for a qualified foster individual in the foster care provider's home, or "(ii) a difficulty of care payment. "(2) QUALIFIED FOSTER INDIVIDUAL.—The term 'qualified foster individual' means any individual who is living in a foster family home in which such individual was placed by— "(A) an agency of a State or political subdivision thereof, or "(B) in the case of an individual who has not attained age 19, an organization which is licensed by a State (or political subdivision thereof) as a placement agency and which is described in section 501(c)(3) and exempt from tax under section 501(a). "(3) LIMITATION BASED ON NUMBER OF INDIVIDUALS OVER THE

AGE OF 18.—In the case of any foster home in which there is a qualified foster care individual who has attained age 19, foster care payments (other than difficulty of care payments) for any period to which such payments relate shall not be excludable from gross income under subsection (a) to the extent such payments are made for more than 5 such qualified foster individuals."

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Page:United States Statutes at Large Volume 100 Part 3.djvu/974

 100 STAT. 2782

PUBLIC LAW 99-514—OCT. 22, 1986

"(c) DIFFICULTY OF CARE PAYMENTS.—For purposes of this section— "(1) DIFFICULTY OF CARE PAYMENTS.—The term 'difficulty of care payments' means payments to individuals which are not described in subsection (b)(l)(B)(i), and which— "(A) are compensation for providing the additional care of a qualified foster individual which is— ' "(i) required by reason of a physical, mental, or ' > emotional handicap of such individual with respect to which the State has determined that there is a need for additional compensation, and "(ii) provided in the home of the foster care provider, and "(B) are designated by the payor as compensation )described in subparagraph (A). "(2) LIMITATION BASED ON NUMBER OF INDIVIDUALS.—In the

case of any foster home, difficulty of care payments for any period to which such payments relate shall not be excludable from gross income under subsection (a) to the extent such payments are made for more than— "(A) 10 qualified foster individuals who have not attained age 19, and " "(B) 5 qualified foster individuals not described in subparagraph (A)." (b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable years beginning after December 31, 1985. SEC. 1708. EXTENSION OF RULES FOR SPOUSES OF INDIVIDUALS MISSING INACTION. (a) EXTENSION OF PROVISIONS.— (1) DEFINITION OF SURVIVING SPOUSE.—Subparagraph (B) of

section 2(a)(3) (relating to special rule where deceased spouse was in missing status) is amended to read as follows: "(B) except in the case of the combat zone designated for g purposes of the Vietnam conflict, the date which is 2 years after the date designated under section 112 as the date of termination of combatant activities in that zone." (2) INCOME TAXES OF MEMBERS OF ARMED FORCES ON DEATH.—

The last sentence of section 692(b) (relating to individuals in missing status) is amended to read as follows: "Except in the case of the combat zone designated for purposes of the Vietnam conflict, the preceding sentence shall not cause subsection (a)(D to apply for any taxable year beginning more than 2 years after the date designated under section 112 as the date of termination of combatant activities in a combat zone." (3) JOINT RETURNS.—The last sentence of section 6013(f)(1) (relating to joint returns where an individual is in missing status) is amended by striking out "no such election may be made for any taxable year beginning after December 31, 1982" and inserting in lieu thereof "such election may be made for any taxable year while an individual is in missing status". (4) POSTPONEMENT OF TIME FOR PERFORMING CERTAIN ACTS.—

The last sentence of section 75080?) (relating to application to spouse) is amended to read as follows: "Except in the case of the combat zone designated for purposes of the Vietnam conflict, the preceding sentence shall not cause this section to apply for any spouse for any taxable year beginning more than 2 years

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Page:United States Statutes at Large Volume 100 Part 3.djvu/975

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2783

after the date designated under section 112 as the date of termination of combatant activities in a combat zone." (b) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 1982. SEC. 1709. AMENDMENT TO THE REINDEER INDUSTRY ACT OF 1937. (a) TAX EXEMPTION FOR REINDEER-RELATED INCOME.—Before the

period at the end of the first sentence of section 8 of the Act of September 1, 1937 (50 Stat. 900, chapter 897), insert the following: ": Provided, That during the period of the trust, income derived directly from the sale of reindeer and reindeer products as provided in this Act shall be exempt from Federal income taxation". (b) EFFECTIVE DATE.—The amendment made by this section shall take effect as if originally included in the provision of the Act of September 1, 1937, to which such amendment relates. SEC. 1710. Q U A L I T Y CONTROL STUDIES.

Section 12301 of the Consolidated Omnibus Reconciliation Act of 1985 is amended— (1) by striking out "of the enactment of this Act" in subsection (a)(3) and inserting in lieu thereof "the Secretary and the National Academy of Sciences enter into the contract required under paragraph (2)"; (2) by striking out "18 months after the date of the enactment of this Act" in subsection (c)(1) and inserting in lieu thereof "6 months after the date on which the results of both studies required under subsection (a)(3) have been reported". SEC. 1711. ADOPTION ASSISTANCE AGREEMENTS UNDER ADOPTION ASSISTANCE PROGRAM: PAYMENT OF NONRECURRING EXPENSES RELATED TO ADOPTIONS OF CHILDREN WITH SPECIAL NEEDS.

(a) IN GENERAL.—Section 473(a) of the Social Security Act is amended— (1) by redesignating paragraphs (2), (3), and (4) as paragraphs (3), (4), and (5), respectively, and (2) by striking out all of paragraph (1) through "adopt a child who—" and inserting in lieu thereof the following: "(1)(A) Each State having a plan approved under this part shall enter into adoption assistance agreements (as defined in section 475(3)) with the adoptive parents of children with special needs. "(B) Under any adoption assistance agreement entered into by a State with parents who adopt a child with special needs, the State— "(i) shall make payments of nonrecurring adoption expenses incurred by or on behalf of such parents in connection with the adoption of such child, directly through the State agency or through another public or nonprofit private agency, in amounts determined under paragraph (3), and "(ii) in any case where the child meets the requirements of paragraph (2), may make adoption assistance payments to such parents, directly through the State agency or through another public or nonprofit private agency, in amounts so determined. "(2) For purposes of paragraph (l)(B)(ii), a child meets the requirements of this paragraph if such child— (b)

DEFINITION

AND PAYMENT

OF NONRECURRING

ADOPTION

EXPENSES.—Section 473(a) of the Social Security Act, as amended by

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Page:United States Statutes at Large Volume 100 Part 3.djvu/976

 100 STAT. 2784

PUBLIC LAW 99-514—OCT. 22, 1986

subsection (a) of this section, is further amended by adding at the end thereof the following new paragraph: "(6)(A) For purposes of paragraph (l)(B)(i), the term 'nonrecurring adoption expenses' means reasonable and necessary adoption fees, court costs, attorney fees, and other expenses which are directly related to the legal adoption of a child with special needs and which are not incurred in violation of State or Federal law. "(B) A State's payment of nonrecurring adoption expenses under an adoption assistance agreement shall be treated as an expenditure made for the proper and efficient administration of the State plan for purposes of section 474(a)(3)(B)." (c) TECHNICAL AND CONFORMING AMENDMENTS.—

(1) The first sentence of section 470 of the Social Security Act is amended by striking out "foster care" and all that follows down through "title XVI)" and inserting in lieu thereof the following: "foster care and transitional independent living programs for children who otherwise would be eligible for assistance under the State's plan approved under part A and adoption assistance for children with special needs". (2) Paragraphs (1) and (11) of section 471(a) of such Act are each amended by striking out "adoption assistance payments" and inserting in lieu thereof "adoption assistance". (3) Section 473(a)(3) of such Act, as redesignated by subsection (a)(1) of this section, is amended— (A) by striking out "adoption assistance payments" in the first sentence and inserting in lieu thereof "payments to be made in any case under clauses (i) and (ii) of paragraph (1)(B)", and (B) by inserting after "the adoption assistance payment" the first place it appears in the second sentence the follow"* ' ing: "made under clause (ii) of paragraph (1)(B)". (4) Section 473(a)(5) of such Act, as so redesignated, is amended by striking out ", pursuant to an interlocutory decree, shall be eligible for adoption assistance payments under this subsection," and inserting in lieu thereof "in accordance with applicable State and local law shall be eligible for such payments,". (5) Section 473(b)(1)(A) of such Act is amended by striking out "subsection (a)(1)" and inserting in lieu thereof "subsection <a)(2)". (6) Section 475(3) of such Act is amended by striking out clause (A) and inserting in lieu thereof the following: "(A) specifies the nature and amount of any payments, services, and assistance to be provided under such agreement, and". (d) EFFECTIVE DATE.—The amendments made by this section shall apply only with respect to expenditures made after December 31, 1986.

TITLE XVUl—TECHNICAL CORRECTIONS SEC. 1800. COORDINATION WITH OTHER TITLES.

For purposes of applying the amendments made by any title of this Act other than this title, the provisions of this title shall be treated as having been enacted immediately before the provisions of such other titles.

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Page:United States Statutes at Large Volume 100 Part 3.djvu/977

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2785

Subtitle A—Amendments Related to the Tax Reform Act of 1984 CHAPTER 1—AMENDMENTS RELATED TO TITLE I OF THE ACT SEC. 1801. AMENDMENTS RELATED TO DEFERRAL OF CERTAIN TAX REDUCTIONS. (a) AMENDMENTS RELATED TO SECTION 12 OF THE ACT.— (1) ELECTION OUT OF TRANSITIONAL RULES.—Paragraph (1) of

',

section 12(c) of the Tax Reform Act of 1984 (relating to finance lease provisions) is amended by adding at the end thereof the following new sentence: "The preceding sentence shall not apply to any property with respect to which an election is made under this sentence at such time after the date of the enactment of the Tax Reform Act of 1986 as the Secretary of the Treasury or his delegate may prescribe." (2) TREATMENT OF CERTAIN FARM FINANCE LEASES.— (A) IN GENERAL.—If—

(i) any partnership or grantor trust is the lessor under a specified agreement, (ii) such partnership or grantor trust met the requirements of section 168(f)(8)(C)(i) of the Internal Revenue Code of 1954 (relating to special rules for finance lesises) when the agreement was entered into, and (iii) a person other than a C corporation became a partner in such partnership (or a beneficiary in such trust) before September 26, 1985, then, for purposes of applying the revenue laws of the United States in respect to such agreement, the portion of the property allocable to partners (or beneficiaries) not described in clause (iii) shall be treated as if it were subject to a separate agreement and the portion of such property allocable to the partner or beneficiary described in clause J (iii) shall be treated as if it were subject to a separate agreement. (B) SPECIFIED AGREEMENT.—For purposes of subparagraph ^ (A), the term "specified agreement" means an agreement to which subparagraph (B) of section 209(d) of the Tax Equity and Fiscal Responsibility Act of 1982 applies which is— (i) an agreement dated as of December 20, 1982, as amended and restated as of February 1, 1983, involving approximately $8,734,000 of property at December 31, 1983, (ii) an agreement dated as of December 15, 1983, as pv,. ^ *' I amended and restated as of January 3, 1984, involving approximately $13,199,000 of property at December 31, 1984, or (iii) an agreement dated as of October 25, 1984, as amended and restated as of December 1, 1984, involving approximately $966,000 of property at December 31, 1984. Qy) AMENDMENT RELATED TO SECTION 26 OF THE ACT.—Paragraph

(2) of section 42510)) (relating to rate of tax on communications

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Page:United States Statutes at Large Volume 100 Part 3.djvu/978

 100 STAT. 2786

PUBLIC LAW 99-514—OCT. 22, 1986

services) is amended by inserting "1985," after "1984," in the table contained in such section. (c) AMENDMENTS RELATED TO SECTION 27 OF THE ACT.—

(1) Subsection (e) of section 5061 (relating to payment by fl electronic fund transfer of alcohol taxes) is amended by adding at the end thereof the following new paragraph: "(3) CONTROLLED GROUPS.—

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"(A) IN GENERAL.—In the case of a controlled group of corporations, all corporations which are component members of such group shall be treated as 1 taxpayer. For purposes of the preceding sentence, the term 'controlled group of corporations' has the meaning given to such term by subsection (a) of section 1563, except that 'more than 50 percent' shall be substituted for 'at least 80 percent' each place it appears in such subsection. "(B) CONTROLLED GROUPS NONINCORPORATED PERSONS.—Under

WHICH

INCLUDE

regulations prescribed by the Secretary, principles similar to the principles of subparagraph (A) shall apply to a group of persons under common control where 1 or more of such persons is not a corporation." ,^.,.. (2) Paragraph (3) of section 5703(b) (relating to payment by electronic fund transfer of tobacco taxes) is amended by adding at the end thereof the following: "Rules similar to the rules of section 5061(e)(3) shall apply to the $5,000,000 amount specified in the preceding sentence." (3) Paragraph (7) of section 27(b) of the Tax Reform Act of 1984 (relating to floor stocks tax on distilled spirits) is amended by adding at the end thereof the following new subparagraph: "(F) TREATMENT OF DISTILLED SPIRITS IN FOREIGN TRADE

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,,

•

ZONES.—Notwithstanding the Act of June 18, 1934 (48 Stat. 998, 19 U.S.C. 81a) or any other provision of law, distilled spirits which are located in a foreign trade zone on October 1, 1985, shall be subject to the tax imposed by paragraph (1) and shall be treated for purposes of this subsection as held on such date for sale if— "(i) internal revenue taxes have been determined, or customs duties liquidated, with respect to such distilled spirits before such date pursuant to a request made under the first proviso of section 3(a) of such Act, or "(ii) such distilled spirits are held on such date under the supervision of customs pursuant to the second proviso of such section 3(a). Under regulations prescribed by the Secretary, provisions similar to sections 5062 and 5064 of such Code shall apply to distilled spirits with respect to which tax is imposed by paragraph (1) by reason of this subparagraph."

SEC. 1802. AMENDMENTS RELATED TO TAX-EXEMPT ENTITY LEASING PROVISIONS. (a) AMENDMENTS RELATING TO SECTION 31 OF THE ACT.—r (1) TREATMENT OF USE IN UNRELATED TRADE OR BUSINESS.—

^.. j

Subparagraph (D) of section 168(j)(3) (relating tol exception where property used in unrelated trade or business) \s amended by adding at the end thereof the following new sentence: "For purposes of subparagraph (B)(iii), any portion of a property so

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used shall not be treated as leased to a tax-exempt entity in a disqualified lease." (2) TREATMENT OF CERTAIN PREVIOUSLY TAX-EXEMPT ORGANIZATIONS.—

(A) Clause (i) of section 168(j)(4)(E) (relating to treatment of certain previously tax-exempt organizations) is amended— (i) by striking out "any property of which such organization is the lessee" and inserting in lieu thereof "any property (other than property held by such organization)', and (ii) by striking out "first leased to" and inserting in lieu thereof "first used by". (B) Subclause (I) of section 168(j)(4)(E)(ii) is amended by striking out "of which such organization is the lessee'. (C) Subclause (II) of section 168(j)(4)(E)(ii) is amended by striking out "is placed in service under the lease" and inserting in lieu thereof "is first used by the organization". (D) Subparagraph (E) of section 168(j)(4) is amended by adding at the end thereof the following new clause: "(iv) FIRST USED.—For purposes of this subparagraph, property shall be treated as first used by the organization— "(I) when the property is first placed in service under a lease to such organization, or "(II) in the case of property leased to (or held by) .i . a partnership (or other pass-thru entity) in which the organization is a member, the later of when such property is first used by such partnership or pass-thru entity or when such organization is first V5 w ^ a member of such partnership or pass-thru entity." (E)(i) Paragraph (9) of section 168(j) is amended by redesignating subparagraph (E) as subparagraph (F) and by inserting after subparagraph (D) the following new subparagraph: "(E) TREATMENT OF CERTAIN TAXABLE ENTITIES.—

5

"(i) IN GENERAL.—For purposes of this paragraph, except as otherwise provided in this subparagraph, any tax-exempt controlled entity shall be treated as a taxexempt entity. "(ii) ELECTION.—If a tax-exempt controlled entity makes an election under this clause— "(I) such entity shall not be treated as a taxexempt entity for purposes of this paragraph, and "(II) any gain recognized by a tax-exempt entity on any disposition of an interest in such entity (and any dividend or interest received or accrued by a tax-exempt entity from such tax-exempt controlled entity) shall be treated as unrelated business taxable income for purposes of section 511. Any such election shall be irrevocable and shall bind all tax-exempt entities holding interests in such taxexempt controlled entity. For purposes of subclause (II), there shall only be taken into account dividends which are properly allocable to income of the tax-exempt controlled entity which was not subject to tax under this chapter.

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PUBLIC LAW 99-514—OCT. 22, 1986 ^5 ". * ^

"(iii) TAX-EXEMPT CONTROLLED ENTITY.—The term 'tax-exempt controlled entity' means any corporation ' (which is not a tax-exempt entity determined without regard to this subparagraph and paragraph (4)(E)) if 50 n percent or more (by value) of the stock in such corpora^* -' tion is held (directly or through the application of section 318 determined without regard to the 50-percent limitation contained in subsection (a)(2)(C) thereof) by 1 or more tax-exempt entities." •;«i ^ (ii)(I) Except as otherwise provided in this clause, the amendment made by clause (i) shall apply to property iii 1 placed in service after September 27, 1985; except that such amendment shall not apply to any property acquired pursuant to a binding written contract in effect on such date (and at all times thereafter). (II) If an election under this subclause is made with respect to any property, the amendment made by clause (i) shall apply to such property whether or not placed in service on or before September 27, 1985. (F) Clause (i)(I) of section 31(g)(16)(C) of the Tax Reform Act of 1984 (defining exempt arbitrage profits) is amended by striking out "section 168(j)(4)(E)(i)(I) and inserting in lieu thereof "section 168(j)(4)(E)(i)". i »*" (G) Clause (i) of section 168(j)(4)(E) is amended by striking out "preceding sentence" and inserting in lieu thereof ^ f "preceding sentence and subparagraph (D)(ii)". (3) REPEAL OF OVERLAPPING SECRETARIAL AUTHORITY.—Clause

(iv) of section 168(j)(5)(C) (relating to property not subject to rapid obsolescence may be excluded) is hereby repealed. (4) PARTNERSHIP RULES.—

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(A) Paragraph (8) of section 168(j) (relating to tax-exempt use of property leased to partnerships, etc., determined at partner level) is amended by striking out "and paragraphs (4) and (5) of section 48(a)" in the matter preceding subparagraph (A). (B) Paragraph (9) of section 168(j) (relating to treatment of property owned by partnerships, etc.) is amended— (i) by striking out "and paragraphs (4) and (5) of section 48(a)" in subparagraph (A), and (ii) by striking out "loss deduction" in subparagraph (B)(i) and inserting in lieu thereof "loss, deduction". (C) Paragraph (5) of section 48(a) (relating to property used by governmental units or foreign persons or entities) is amended by redesignating subparagraph (D) as subparagraph (E) and by inserting after subparagraph (C) the following new subparagraph: "(D) SPECIAL RULES FOR PARTNERSHIPS, ETC.—For purposes

of this paragraph and paragraph (4), rules similar to the rules of paragraphs (8) and (9) of section 168(j) shall apply." (5) TREATMENT OF CERTAIN AIRCRAFT LEASED TO FOREIGN PERSONS.—

(A) Subsection (a) of section 47 (relating to certain dispositions, etc., of section 38 property) is amended by adding at the end thereof the following new paragraph: "(9) AIRCRAFT LEASED TO FOREIGN PERSONS OR ENTITIES.—

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"(A) IN GENERAL.—Any aircraft which was new section 38 property for the taxable year in which it was placed in

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service and which is used by any foreign person or entity (as defined in section 168(j)(4)(C)) under a qualified lease (as defined in paragraph (7)(C)) entered into before January 1, 1990, shall not be treated as ceasing to be section 38 property by reason of such use until such aircraft has been so used for a period or periods exceeding 3 years in total. "(B) RECAPTURE PERIOD EXTENDED.—For purposes of paragraphs (1) and (5)(B) of this subsection, any period during which there was use described in subparagraph (A) of an aircraft shall be disregarded." (B) Clause (iii) of section 48(a)(5)(B) is hereby repealed. (6) TREATMENT OF CERTAIN PARTNERSHIPS HAVING SECTION 593

ORGANIZATION AS MEMBER.—Paragraph (4) of section 46(e) is amended by adding at the end thereof the following new subparagraph: "(D) SPECIAL RULES FOR PARTNERSHIPS, ETC.—For purposes

of paragraph (1)(A), rules similar to the rules of paragraphs (8) and (9) of section 168(j) shall apply." (7) TREATMENT OF CERTAIN PROPERTY HELD BY PARTNERSHIPS.—

(A) Paragraph (9) of section 168(j) (relating to treatment of property owned by partnerships, etc.) is amended by redesignating subparagraphs (D), (E), and (F) as subparagraphs (E), (F), and (G), respectively, and by inserting after subparagraph (C) the following new subparagraph: "(D) DETERMINATION OF WHETHER PROPERTY USED IN UNRELATED TRADE OR BUSINESS.—For purposes of this subsec-

tion, in the case of any property which is owned by a partnership which has both a tax-exempt entity and a person who is not a tax-exempt entity as partners, the determination of whether such property is used in an unrelated trade or business of such an entity shall be made without regard to section 514." (B) Subparagraph (E) of section 168(j)(9) (as redesignated by subparagraph (A)) is amended by striking out "and (C)" and inserting in lieu thereof "(C), and (D)". (8) EXCEPTION FOR QUALIFIED REHABILITATED BUILDINGS LEASED

TO SECTION 593 ORGANIZATIONS.—Paragraph (4) of section 46(e) (relating to special rules where section 593 organization is lessee) is amended by adding at the end thereof the following new subparagraph: "(E) EXCEPTION FOR QUALIFIED REHABILITATED BUILDINGS

LEASED TO SECTION 593 ORGANIZATIONS.—Subparagraph (A) shall not apply to qualified investment attributable to qualified rehabilitation expenditures for any portion of a building if such portion of the building would not be taxexempt use property (as defined in section 168(j)) if the section 593 organization were a tax-exempt entity (as defined in section 168(j)(4))." (9) CLERICAL AMENDMENTS.—

(A) Paragraph (4) of section 48(a) is amended— (i) by striking out "514(c)" and inserting in lieu thereof "514(b)", and (ii) by striking out "5140))" and inserting in lieu thereof "514(a)". (B) Subclause (I) of section 48(g)(2)(B)(vi) is amended by striking out "section 168(j)(3)" and inserting in lieu thereof "section 168(j)".

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(C) Subparagraph (A) of section 7701(e)(4) is amended by adding at the end thereof the following new sentence: "For purposes of this paragraph, the term 'related entity' has the same meaning as when used in section 168(j)."

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(10) EFFECTIVE DATE PROVISIONS.—

(A) Subparagraph (B) of section 31(g)(3) of the Tax Reform Act of 1984 is amended by striking out "The amendments made by this section" and inserting in lieu thereof "Paragraph (9) of section 168(j) of the Internal Revenue Code of 1954 (as added by this section)". •>3s (g) Effective with respect to property placed in service by the taxpayer after July 18, 1984, clause (ii) of section 31(g)(15)(D) of the Tax Reform Act of 1984 (relating to ^ certain aircraft) is amended to read as follows: "(ii) such aircraft is originally placed in service by such foreign person or entity (or its successor in interest under the contract) after May 23, 1983, and before January 1, 1986." (C) Paragraph (4) of section 31(g) of the Tax Reform Act of 1984 is amended by adding at the end thereof the following new subparagraph: "(C) SPECIAL RULE FOR CREDIT UNIONS.—In the case of any property leased to a credit union pursuant to a written ,^ binding contract with an expiration date of December 31, 1984, which was entered into by such organization on August 23, 1984— 2 "(i) such credit union shall not be treated as an r agency or instrumentality of the United States; and "(ii) clause (ii) of subparagraph (A) shall be applied ,,.. by substituting 'January 1, 1987' for 'January 1, 1985'." (D)(i) Clause (ii) of section 31(g)(20)(B) of the Tax Reform Act of 1984 (defining substantial improvement) is amended by striking out subclauses (I) and (II) and inserting in lieu thereof the following: f77'5 "(I) by substituting 'property' for 'building' each place it appears therein, "(II) by substituting '20 percent' for '25 percent' ^a« • in clause (ii) thereof, and "(III) without regard to clause (iii) thereof." (ii) The amendment made by clause (i) shall not apply to any property if— (I) on or before March 28, 1985, the taxpayer (or a predecessor in interest under the contract) or the taxexempt entity entered into a written binding contract j'-^ to acquire, construct, or rehabilitate the property, or [ iHi* (II) the taxpayer or the tax-exempt entity began the construction, reconstruction, or rehabilitation of the property on or before March 28, 1985. (E) Paragraph (4) of section 31(g) of the Tax Reform Act of J3; • 1984 is amended by adding at the end thereof the following new subparagraphs: i.

'

r

"(D) SPECIAL RULE FOR GREENVILLE AUDITORIUM BOARD.—

For purposes of this paragraph, significant official govern' mental action taken by the Greenville County Auditorium > •?. Board of Greenville, South Carolina, before May 23, 1983, shall be treated as significant official governmental action

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with respect to the coliseum facility subject to a binding contract to lease which was in effect on January 1, 1985. "(E) TREATMENT OF CERTAIN HISTORIC STRUCTURES.—If—

'-'

j,.^

"(i) on June 16, 1982, the legislative body of the local governmental unit adopted a bond ordinance to provide funds to renovate elevators in a deteriorating building owned by the local governmental unit and listed in the National Register, and "(ii) the chief executive officer of the local governmental unit, in connection with the renovation of such - building, made an application on June 1, 1983, to a State agency for a Federal historic preservation grant and made an application on June 17, 1983, to the Economic Development Administration of the United States Department of Commerce for a grant, the requirements of clauses (i) and (ii) of subparagraph (A) shall be treated as met." (F) Subparagraph (H) of section 31(g)(17) of the Tax Reform Act of 1984 is amended by adding at the end thereof the following new sentence: "In the case of Clemson University, the preceding sentence applies only to the Continuing Education Center and the component housing project." (G) Subparagraph (L) of section 31(g)(17) of the Tax Reform Act of 1984 is amended by adding at the end thereof the following: "Property is described in this subparagraph if such property was leased to a tax-exempt entity pursuant to a lease recorded in the Registry of Deeds of Essex County, New Jersey, on May 7, 1984, and a deed of such property was recorded in the Registry of Deeds of Essex County, New Jersey, on May 7, 1985."

(b) AMENDMENTS RELATED TO SECTION 32 OF THE ACT.—

(1) Subsection (f) of section 168 (relating to special rules) is amended— (A) by redesignating the paragraph (13) relating to motor vehicle operating leases as paragraph (14), and (B) by redesignating paragraph (14) as paragraph (15). (2) Subsection (c) of section 32 of the Tax Reform Act of 1984 is amended by striking out "section 168(f)(13)" and inserting in lieu thereof "section 168(0(14)". SEC. 1803. AMENDMENTS RELATED TO TREATMENT OF BONDS AND OTHER DEBT INSTRUMENTS. (a) AMENDMENTS RELATED TO SECTION 41 OF THE ACT.— (1) TREATMENT OP SHORT-TERM NONGOVERNMENT OBLIGATIONS.—

' ^

(A) Subsection (a) of section 1271 (relating to treatment of amounts received on retirement or sale or exchange of debt instruments) is amended by adding at the end thereof the following new paragraph: "(4) CERTAIN SHORT-TERM NONGOVERNMENT OBLIGATIONS.—

j

"(A) IN GENERAL.—On the sale or exchange of any shortterm nongovernment obligation, any gain realized which does not exceed an amount equal to the ratable share of the original issue discount shall be treated as ordinary income.

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PUBLIC LAW 99-514—OCT. 22, 1986

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"(B) SHORT-TERM NONGOVERNMENT OBLIGATION.—For purposes of this paragraph, the term 'short-term nongovernment obligation' means any obligation which— "(i) has a fixed maturity date not more than 1 year from the date of the issue, and "(ii) is not a short-term Government obligation (as defined in paragraph (3)(B) without regard to the last sentence thereof. "(C) RATABLE SHARE.—For purposes of this paragraph, except as provided in subparagraph (D), the ratable share of the original issue discount is an amount which bears the same ratio to such discount as— "(i) the number of days which the taxpayer held the obligation, bears to "(ii) the number of days after the date of original issue and up to (and including) the date of its maturity. "(D) ELECTION OF ACCRUAL ON BASIS OF CONSTANT INTEREST RATE.—At the election of the taxpayer with respect

to any obligation, the ratable share of the original issue discount is the portion of the original issue discount accruing while the taxpayer held the obligation determined (under regulations prescribed by the Secretary) on the basis of"(i) the yield to maturity based on the issue price of the obligation, and "(ii) compounding daily. Any election under this subparagraph, once made with respect to any obligation, shall be irrevocable." (B) Paragraph (3) of section 1283(d) is amended by striking out "section 1271(a)(3)" and inserting in lieu thereof "paragraphs (3) and (4) of section 1271(a)". (2) ELECTION OF ACCRUAL ON BASIS OF CONSTANT INTEREST RATE FOR SHORT-TERM GOVERNMENT OBLIGATIONS.—

r>.'.

(A) IN GENERAL.—Paragraph (3) of section 1271(a) (relating to certain short-term Government obligations) is amended by adding at the end thereof the following new subparagraph: "(E) ELECTION OF ACCRUAL ON BASIS OF CONSTANT INTEREST

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.^

RATE.—At the election of the taxpayer with respect to any obligation, the ratable share of the acquisition discount is the portion of the acquisition discount accruing while the taxpayer held the obligation determined (under regulations prescribed by the Secretary) on the basis of— "(i) the taxpayer's yield to maturity based on the taxpayer's cost of acquiring the obligation, and "(ii) compounding daily. An election under this subparagraph, once made with respect to any obligation, shall be irrevocable." (B) TECHNICAL AMENDMENT.—Subparagraph (D) of section 1271(a)(3) is amended by striking out "this paragraph" and inserting in lieu thereof "this paragraph, except as provided in subparagraph (E)". (3) DEFINITION OF SHORT-TERM GOVERNMENT OBLIGATION.—

Subparagraph (B) of section 1271(a)(3) (defining short-term Government obligation) is amended to read as follows: "(B) SHORT-TERM GOVERNMENT OBLIGATION.—For purposes

'

of this paragraph, the term 'short-term Government obliga-

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tion' means any obligation of the United States or any of its possessions, or of a State or any political subdivision thereof, or of the District of Columbia, which has a fixed maturity date not more than 1 year from the date of issue. Such term does not include any tax-exempt obligation." (4) DEDUCTION OF ORIGINAL ISSUE DISCOUNT ON SHORT-TERM

OBLIGATIONS.—Paragraph (2) of section 163(e) (relating to original issue discount) is amended by adding at the end thereof the following new subparagraph: "(C) SHORT-TERM OBLIGATIONS.—In the case of an obligor of a short-term obligation (as defined in section 1283(a)(l)(A)) who uses the cash receipts and disbursements method of accounting, the original issue discount (and any other interest payable) on such obligation shall be deductible only when paid." (5) TREATMENT OF CERTAIN TRANSFERS OF MARKET DISCOUNT

BONDS.—Paragraph (1) of section 1276(d) (relating to special rules) is amended by striking out "and" at the end of subparagraph (A) and by inserting after subparagraph (B) the following new subparagraph: "(C) paragraph (3) of section 12450t)) shall be applied as if it did not contain a reference to section 351, and". (6) TREATMENT OF BONDS ACQUIRED AT ORIGINAL ISSUE FOR PURPOSES OF MARKET DISCOUNT RULES.—Paragraph (1) of section

1278(a) (defining market discount bond) is amended by adding at the end thereof the following new subparagraph: "(C) TREATMENT OF BONDS ACQUIRED AT ORIGINAL ISSUE.—

"(i) IN GENERAL.—Except as otherwise provided in this subparagraph or in regulations, the term 'market discount bond' shall not include any bond acquired by the taxpayer at its original issue. "(ii) TREATMENT OF BONDS ACQUIRED FOR LESS THAN

ISSUE PRICE.—Clause (i) shall not apply to any bond if— "(I) the basis of the taxpayer in such bond is determined under section 1012, and "(II) such basis is less them the issue price of such bond determined under subpart A of this part. "(iii) BONDS ACQUIRED IN CERTAIN REORGANIZATIONS.—Clause (i) shall not apply to any bond issued pursuant to a plan of reorganization (within the meaning of section 368(a)(l)) in exchange for another bond having market discount. Solely for purposes of section 1276, the preceding sentence shall not apply if such other bond was issued on or before July 18, 1984 (the date of the enactment of section 1276) and if the bond issued pursuant to such plan of reorganization has the same term and the same interest rate as such other bond had. "(iv) TREATMENT OF CERTAIN TRANSFERRED BASIS PROP-

ERTY.—For purposes of clause (i), if the adjusted basis of any bond in the hands of the taxpayer is determined by reference to the adjusted basis of such bond in the hands of a person who acquired such bond at its original issue, such bond shall be treated as acquired by the taxpayer at its original issue." (7) TREATMENT OF CERTAIN STRIPPED BONDS OR STRIPPED COU-

PONS.—Paragraph (1) of section 12810b) (relating to short-term

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PUBLIC LAW 99-514—OCT. 22, 1986 r '; f' '*'

obligations to which section applies) is amended by striking out "or" at the end of subparagraph (D), by striking out the period at the end of subparagraph (E) and inserting in lieu thereof ", or", and by adding at the end thereof the following new subparagraph: "(F) is a stripped bond or stripped coupon held by the person who stripped the bond or coupon (or by any other person whose basis is determined by reference to the basis in the hands of such person)." (8) ACCRUAL OF INTEREST PAYMENTS ON CERTAIN SHORT-TERM OBLIGATIONS.—

(A) Effective with respect to obligations acquired after ^,. September 27, 1985, subsection (a) of section 1281 (relating to current inclusion in income of discount on certain shortterm obligations) is amended to read as follows: "(a) GENERAL RULE.—In the case of any short-term obligation to which this section applies, for purposes of this title— "(1) there shall be included in the gross income of the holder an amount equal to the sum of the daily portions of the acquisi*t tion discount for each day during the taxable year on which such holder held such obligation, and 4 "(2) any interest payable on the obligation (other than inH terest taken into account in determining the amount of the acquisition discount) shall be included in gross income as it accrues." (B) Subsection (a) of section 1282 (relating to deferral of interest deduction allocable to accrued discount) is amended to read as follows: "(a) GENERAL RULE.—Except as otherwise provided in this section, the net direct interest expense with respect to any short-term obligation shall be allowed as a deduction for the taxable year only to the extent such expense exceeds the sum of— "(1) the daily portions of the acquisition discount for each day during the taxable year on which the taxpayer held such obligation, and "(2) the amount of any interest payable on the obligation (other than interest taken into account in determining the amount of the acquisition discount) which accrues during the taxable year while the taxpayer held such obligation (and is not included in the gross income of the taxpayer for such taxable year by reason of the taxpayer's method of accounting)." (9) TREATMENT OF TRANSFERS OF LAND BETWEEN RELATED PAR-

TIES.—In the case of any sale or exchange before July 1, 1985, to which section 483(f) of the Internal Revenue Code of 1954 (as in effect on the day before the date of the enactment of Public Law 99-121) applies, such section shall be treated as providing that the discount rate to be used for purposes of section 483(c)(1) of such Code shall be 6 percent, compounded semiannually. (10)

CLARIFICATION OF TREATMENT OF DEBT INSTRUMENTS ISSUED FOR PUBLICLY TRADED PROPERTY.—Subparagraph (B) of

section 12730t))(3) (relating to debt instruments issued for property where there is public trading) is amended to read as follows: "(B)(i) is issued for stock or securities which are traded on an established securities market, or

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"(ii) to the extent provided in regulations, is issued for property (other than stock or securities) of a kind regularly traded on an established market,". (11) BOND PREMIUMS AMORTIZED AT CONSTANT RATE, ETC.—

(A) IN GENERAL.—Paragraph (3) of section 171(b) (relating to amortizable bond premiums) is amended to read as follows: "(3) METHOD OF DETERMINATION.—

"(A) IN GENERAL.—Except as provided in regulations prescribed by the Secretary, the determinations required under paragraphs (1) and (2) shall be made on the basis of the taxpayer's yield to maturity determined by— "(i) using the taxpayer's basis (for purposes of determining loss on sale or exchange) of the obligation, and "(ii) compounding at the close of each accrual period (as defined in section 1272(a)(5)). "(B) SPECIAL RULE WHERE EARLIER CALL DATE IS USED.—

For purposes of subparagraph (A), if the amount payable on an earlier call date is used under paragraph (l)(B)(ii) in determining the amortizable bond premium attributable to the period before the earlier call date, such bond shall be treated as maturing on such date for the amount so payable and then reissued on such date for the amount so payable." (B) AMORTIZABLE BOND PREMIUM RULES TO APPLY TO OBLIGATIONS ISSUED BY INDIVIDUALS, ETC.—Subsection (d) of

section 171 (defining bond) is amended by striking out "issued by any corporation and bearing interest (including any like obligation issued by a government or political subdivision thereof),". (C) EFFECTIVE DATE.—

(i) The amendments made by this paragraph shall apply to obligations issued after September 27, 1985. (ii) In the case of a taxpayer with respect to whom an election is in effect on the date of the enactment of this Act under section 171(c) of the Internal Revenue Code of 1954, such election shall apply to obligations issued after September 27, 1985, only if the taxpayer chooses (at such time and in such manner as may be prescribed by the Secretary of the Treasury or his delegate) to have such election apply with respect to such obligations. (12) CLARIFICATION OF AMOUNT OF AMORTIZABLE BOND PREIIUM.—

(A) IN GENERAL.—Subsection (b) of section 171 (defining amortizable bond premium) is amended by adding at the end thereof the following new paragraph: "(4) TREATMENT OF CERTAIN BONDS ACQUIRED IN EXCHANGE FOR THER PROPERTY.—

"(A) IN GENERAL.—If—

f

"(i) a bond is acquired by any person in exchange for other property, and "(ii) the basis of such bond is determined (in whole or in part) by reference to the basis of such other property, for purposes of applying this subsection to such bond while held by such person, the basis of such bond shall not exceed its fair market value immediately after the exchange. A

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PUBLIC LAW 99-514—OCT. 22, 1986 similar rule shall apply in the case of such bond while held by any other person whose basis is determined (in whole or in part) by reference to the basis in the hands of the person referred to in clause (i). "(B) SPECIAL RULE WHERE BOND EXCHANGED IN REORGA-

.«

NIZATION.—Subparagraph (A) shall not apply to an exchange by the taxpayer of a bond for another bond if such exchange is a part of a reorganization (as defined in section 368). If any portion of the basis of the taxpayer in a bond transferred in such an exchange is not taken into account in determining bond premium by reason of this paragraph, such portion shall not be taken into account in determining the amount of bond premium on any bond received in the exchange." (B) EFFECTIVE DATE.—The amendment made by subparagraph (A) shall apply to exchanges after May 6, 1986. (13) SPECIAL RULE FOR BONDS WITH PARTIAL PRINCIPAL PAYMENTS.— (A) TREATMENT OF ACCRUED MARKET DISCOUNT.—

T

(i) Subsection (a) of section 1276 (relating to disposition gain representing accrued market discount treated as ordinary income) is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph: "(3) TREATMENT OF PARTIAL PRINCIPAL PAYMENTS.—

"(A) IN GENERAL.—Any partial principal payment on a market discount bond shall be included in gross income as ordinary income to the extent such payment does not exceed the accrued market discount on such bond. "(B) ADJUSTMENT.—If subparagraph (A) applies to any partial principal payment on any market discount bond, for purposes of applying this section to any disposition of (or subsequent partial principal payment on) such bond, the amount of accrued market discount shall be reduced by the amount of such partial principal payment included in gross income under subparagraph (A)." (ii) Paragraph (4) of section 1276(a) (as redesignated by subparagraph (A)) is amended by striking out "under paragraph (1)" and inserting in lieu thereof "under paragraph (1) or (3)". (iii) Subsection (b) of section 1276 is amended by adding at the end thereof the following new paragraph: "SPECIAL RULE WHERE PARTIAL PRINCIPAL PAYMENTS. In

the

case of a bond the principal of which may be paid in 2 or more payments, the amount of accrued market discount shall be determined under regulations prescribed by the Secretary" (B) COORDINATION WITH TAX TREATMENT OF STRIPPED BONDS.—

(i) Paragraph (1) of section 1286(b) (relating to tax 1;t treatment of person stripping bond) is amended to read as follows: "(1) such person shall include in gross income an amount equal to the sum of— "(A) the interest accrued on such bond while held by such person and before the time such coupon or bond was disposed of (to the extent such interest has not theretofore been included in such person's gross income), and

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100 STAT. 2797

"(B) the accrued market discount on such bond determined as of the time such coupon or bond was disposed of (to the extent such discount has not theretofore been included in such person's gross income),". (ii) Paragraph (2) of section 1286(b) is amended by striking out "the amount of the accrued interest described in paragraph (1)" and inserting in lieu thereof "the amount included in gross income under paragraph (1)". (C) EFFECTIVE DATE.—The amendments made by this paragraph shall apply to obligations acquired after the date of the enactment of this Act. (14) CLERICAL AMENDMENTS.—

(A) Subparagraph (A) of section 1274(c)(4) is amended by striking out "FOR LESS THAN $1,000,000" in the subpara-

i

graph heading and inserting in lieu thereof "FOR $1,000,000 OR LESS".

(B) Paragraph (1) of section 483(d) is amended by striking out "any debt instrument to which section 1272 applies" and inserting in lieu thereof "any debt instrument for which an issue price is determined under section 1273(b) (other than paragraph (4) thereof) or section 1274". (C) Clause (iii) of section 6049(b)(5)(B) is amended by striking out "section 1232(b)(l)" and inserting in lieu thereof "section 1273(a)". (b) AMENDMENTS RELATED TO SECTION 44 OF THE ACT.— (1) CLARIFICATION OF TRANSITIONAL RULE FOR PURPOSES OF IMPUTED INTEREST RULES.—Paragraph (4) of section 44(b) of the

Tax Reform Act of 1984 (relating to special rules for sales before July 1, 1985), as added by section 2 of Public Law 98-612, is amended— (A) by striking out "before July 1, 1985" in subparagraph (A) and inserting in lieu thereof " ^ t e r December 31, 1984, and before July 1, 1985", (B) by striking out "BEFORE JULY i, 1985" in the paragraph heading and inserting in lieu thereof "AFTER DECEM•'i

BER 31, 1984, AND BEFORE JULY 1, 1985", and

(C) by adding at the end thereof the following new subparagraph: "(G) CLARIFICATION OF APPLICATION OF THIS PARAGRAPH,

ETC.—This paragraph and paragraphs (5), (6), and (7) shall apply only in the case of sales or exchanges to which section 1274 or 483 of the Internal Revenue Code of 1954 (as amended by section 41) applies." (2) CLARIFICATION OF INTEREST ACCRUAL, ETC.—Subparagraph

(A) of section 44(b)(3) of the Tax Reform Act of 1984 is amended by striking out "and before January 1, 1985," each place it appears. (3) EXCEPTION FOR BINDING CONTRACTS.—Subparagraph (B) of

section 44(b)(3) of the Tax Reform Act of 1984 is amended to read as follows: "(B) EXCEPTION FOR BINDING CONTRACTS.—

^

"(i) Subparagraph (A)(i)(1) shall not apply to any sale or exchange pursuant to a written contract which was binding on March 1, 1984, and at all times thereafter before the sale or exchange.

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Page:United States Statutes at Large Volume 100 Part 3.djvu/990

 100 STAT. 2798

PUBLIC LAW 99-514—OCT. 22, 1986, vf ' "(ii) Subparagraph (A)(i)(II) shall not apply to any %. sale or exchange pursuant to a written contract which ft'. was binding on June 8, 1984, and at all times thereafter before the sale or exchange." (4) CLERICAL AMENDMENT.—Clause (ii) of section 44(b)(6)(B) of the Tax Reform Act of 1984 (as added by section 2 of Public Law 98-612) is amended by striking out "greater than" and inserting , in lieu thereof "not greater than". (5) CLARIFICATION OF EFFECTIVE DATE FOR REPEAL OF CAPITAL

,, ASSET REQUIREMENT.—Subsection (g) of section 44 of the Tax

Reform Act of 1984 is amended by striking out "before December 31, 1984" and inserting in lieu thereof "on or before December 31, 1984". SEC. 1804. AMENDMENTS RELATED TO CORPORATE PROVISIONS. (a) AMENDMENT RELATED TO SECTION 51 OF THE ACT.—Subsection

(a) of section 246A (relating to dividends received deduction reduced where portfolio stock is debt financed) is amended— (1) by striking out "or 245" and inserting in lieu thereof "or 245(a)", and (2) by adding at the end thereof the following new sentence: "The preceding sentence shall be applied before any determination of a ratio under paragraph (1) or (2) of section 245(a)." (b) AMENDMENTS RELATED TO SECTION 53 AND SECTION 54 OF THE ACT.— (1) AMENDMENTS TO SECTION 246.—

o ^1 j-i. ^ ,:^ ^,

(A) Subparagraph (A) of section 246(c)(1) (relating to exclusion of certain dividends) is amended to read as follows: "(A) Which is held by the taxpayer for 45 days or less, or". (B) Paragraph (4) of section 246(c) (relating to holding period reduced for periods where risk of loss diminished) is amended by striking out "determined under paragraph (3)" and inserting in lieu thereof "determined for purposes of this subsection". (C) The amendments made by this paragraph shall apply to stock acquired after March 1, 1986. (2) EFFECTIVE DATE FOR RELATED PERSON PROVISIONS.—Para-

graph (3) of section 53(e) of the TEIX Reform Act of 1984 (relating to effective date for related person provisions) is amended to read as follows: ^r "(3) RELATED PERSON PROVISIONS.—

"(A) IN GENERAL.—Except as otherwise provided in ,. subparagraph (B), the amendment made by subsection (c) ^ shall take effect on July 18, 1984. f (B) SPECIAL RULE FOR PURPOSES OF SECTION 265(2).—The amendment made by subsection (c) insofar as it relates to, section 265(2) of the Internal Revenue Code of 1954 shall ^^ apply to— "(i) term loans made after July 18, 1984, and "(ii) demand loans outstanding after July 18, 1984 sise Y (other than any loan outstanding on July 18, 1984, and gj ' repaid before September 18, 1984). J "(C) TREATMENT OF RENEGOTIATIONS, ETC.—For purposes of this paragraph, any loan renegotiated, extended, or re-

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Page:United States Statutes at Large Volume 100 Part 3.djvu/991

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2799

vised after July 18, 1984, shall be treated as a loan made after such date. "(D) DEFINITION OF TERM AND DEMAND LOANS.—For purposes of this paragraph, the terms 'demand loan' and 'term loan' have the respective meanings given such terms by paragraphs (5) and (6) of section 7872(f) of the Internal Revenue Code of 1954, except that the second sentence of such paragraph (5) shall not apply." (3) SPECIAL RULE FOR CERTAIN DISTRIBUTIONS BEFORE JANUARY

1, 1988.—Paragraph (3) of section 54 of the Tax Reform Act of 1984 (relating to exceptions for distributions before January 1, 1985, to 80-percent corporate shareholders) is amended by adding at the end thereof the following new subparagraph: "(D) SPECIAL RULE FOR CERTAIN DISTRIBUTIONS BEFORE JANUARY 1, 1988.—

"(i) IN GENERAL.—In the case of a transaction to which this subparagraph applies, subparagraph (A) shall be applied by substituting '1988' for '1985' and the amendments made by subtitle D of title VI shall not apply. "(ii) TRANSACTION TO WHICH SUBPARAGAPH APPLIES.—

This subparagraph apples to a transaction in which a Delaware corporation which was incorporated on May 31, 1927, and which was acquired by the transferee on December 9, 1968, transfers to the transferee stock in a corporation— "(I) with respect to which such Delaware corporation is a 100-percent corporate shareholder, and "(II) which is a Tennessee corporation which was incorporated on October 5, 1981, and which is a successor to an Indiana corporation which was incorporated on June 28, 1946, and acquired by the transferee on December 9, 1968." (c) AMENDMENTS RELATED TO SECTION 55 OF THE ACT.—

(1) Clause (ii) of section 852(b)(4)(B) (relating to losses attributable to exempt-interest dividend) is amended by striking out "for less than 31 days" and inserting in lieu thereof "for 6 months or less". (2) Subparagraph (C) of section 8520aX4) (relating to determination of holding periods) is amended to read as follows: "(C) DETERMINATION OF HOLDING PERIODS.—For purposes

of this paragraph, the rules of paragraphs (3) and (4) of IS I section 246(c) shall apply in determining the period for which the taxpayer has held any share of stock; except that r ' ^ '6 months' shall be substituted for each number of days specified in subparagraph (B) of section 246(c)(3)." •*'- (3) Subparagraph (D) of section 8520t))(4) (relating to losses incurred under a periodic liquidation plan) is amended by striking out "subparagraph (A)" and inserting in lieu thereof "subparagraphs (A) and (B)". (4) Paragraph (4) of section 852(b) is amended by adding at the end thereof the following new subparagraph: "(E) AUTHORITY TO SHORTEN REQUIRED HOLDING PERIOD.—

In the case of a regulated investment company which regularly distributes at least 90 percent of its net tax-exempt interest, the Secretary may by regulations prescribe that

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PUBLIC LAW 99-514—OCT. 22, 1986 5*t f

subparagraph (B) (and subparagraph (C) to the extent it relates to subparagraph (B)) shall be applied on the basis of a holding period requirement shorter than 6 months; except that such shorter holding period requirement shall not be shorter than the greater of 31 days or the period between regular distributions of exempt-interest dividends." (5) The paragraph heading for paragraph (4) of section 852(b)

is amended by striking out "LESS THAN 31 DAYS" and inserting in

lieu thereof "6 MONTHS OR LESS". (6) The amendments made by this subsection shall apply to stock with respect to which the taxpayer's holding period begins after March 28, 1985. (d) AMENDMENT RELATED TO SECTION 58 OF THE ACT.—

(1) IN GENERAL.—Paragraph (1) of section 562(b) (relating to distributions in liquidation) is amended by adding at the end thereof the following new sentence: "Except to the extent provided in regulations, the preceding sentence shall not apply in the case of any mere holding or investment company which is not a regulated investment company." (2) EFFECTIVE DATE.—The amendment made by paragraph (1) shall apply to distributions after September 27, 1985. (e) AMENDMENTS RELATED TO SECTION 60 OF THE ACT.— (1) TREATMENT OF CERTAIN REDEMPTION AND LIQUIDATION

RIGHTS.—Subparagraph (C) of section 1504(a)(4) (relating to certain preferred stock not treated as stock) is amended to read as follows: "(C) has redemption and liquidation rights which do not exceed the issue price of such stock (except for a reasonable redemption or liquidation premium), and". (2) TREATMENT OF CERTAIN CORPORATIONS AFFILIATED ON JUNE

22, 1984.—Paragraph (2) of section 60(b) of the Tax Reform Act of 1984 (relating to special rule for corporations affiliated on June 22, 1984) is amended by adding at the end thereof the following new sentence: "The preceding sentence shall cease to apply as of the first day after June 22, 1984, on which such corporation does not qualify as a member of such group under section 1504(a) of the Internal Revenue Code of 1954 (as in effect on the day before the date of the enactment of this Act)." (3) TREATMENT OF CERTAIN SELL-DOWNS AFTER JUNE 22, 1984.—

Paragraph (3) of section 600)) of the Tax Reform Act of 1984 (relating to special rule not to apply to certain sell-downs after June 22, 1984) is amended to read as follows: "(3) SPECIAL RULE NOT TO APPLY TO CERTAIN SELL-DOWNS AFTER JUNE 22, 1984.—If—

/

it Jill -'

"(A) the requirements of paragraph (2) are satisfied with respect to a corporation, "(B) more than a de minimis amount of the stock of such corporation— "(i) is sold or exchanged (including in a redemption), or "(ii) is issued, after June 22, 1984 (other than in the ordinary course of business), and "(C) the requirements of the amendment made by subsection (a) are not satisfied after such sale, exchange, or issuance,

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 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2801

then the amendment made by subsection (a) shall apply for purposes of determining whether such corporation continues to be a member of the group. The preceding sentence shall not apply to any transaction if such transaction does not reduce the percentage of the fair market value of the stock of the corporation referred to in the preceding sentence held by members of the group determined without regard to this paragraph." (4) TREATMENT OF CERTAIN CORPORATIONS AFFIUATED ON JUNE

22, 1984, ETC.—Subsection (b) of section 60 of the Tax Reform Act of 1984 is amended by striking out paragraph (5) and inserting in lieu thereof the following new paragraphs: "(5) NATIVE CORPORATIONS.—

'

hx: ^

•£,. • J

"(A) In the case of a Native Corporation established under the Alaska Native Claims Settlement Act (43 U.S.C. 1601 et seq.), or a corporation all of whose stock is owned directly by such a corporation, during any taxable year (beginning after the effective date of these amendments and before 1992), or any part thereof, in which the Native Corporation is subject to the provisions of section 7(h)(1) of such Act (43 U.S.C. 1606(h)(1))— "(i) the amendment made by subsection (a) shall not apply, and "(ii) the requirements for affiliation under section 1504(a) of the Internal Revenue Code of 1986 before the amendment made by subsection (a) shall be applied solely according to the provisions expressly contained therein, without regard to escrow arrangements, redemption rights, or similar provisions. "(B) Except as provided in subparagraph (C), during the period described in subparagraph (A), no provision of the Internal Revenue Code of 1986 (including sections 269 and 482) or principle of law shall apply to deny the benefit or use of losses incurred or credits earned by a corporation described in subparagraph (A) to the affiliated group of which the Native Corporation is the common parent. "(C) Losses incurred or credits earned by a corporation described in subparagraph (A) shall be subject to the general consolidated return regulations, including the provisions relating to separate return limitation years, and to sections 382 and 383 of the Internal Revenue Code of 1986. "(D) Losses incurred and credits earned by a corporation which is affiliated with a corporation described in subparagraph (A) shall be treated as having been incurred or earned in a separate return limitation year, unless the corporation incurring the losses or earning the credits satisfies the affiliation requirements of section 1504(a) without application of subparagraph (A). "(6) JUNE

', -

TREATMENT OF CERTAIN CORPORATIONS AFFIUATED ON

22, 1984.—In the case of an affiliated group which— "(A) has as its common parent a Minnesota corporation incorporated on April 23, 1940, and ""'"(B) has a member which is a New York corporation incorporated on November 13, 1969, for purposes of determining whether such New York corporation continues to be a member of such group, paragraph (2) shall be applied by substituting for 'January 1, 1988,' the earlier of

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Page:United States Statutes at Large Volume 100 Part 3.djvu/994

 100 STAT. 2802

PUBLIC LAW 99-514—OCT. 22, 1986 January 1, 1994, or the date on which the voting power of the preferred stock in such New York corporation terminates. "(7) ELECTION TO HAVE AMENDMENTS APPLY FOR YEARS BEGIN-

NING AFTER 1983.—If the common parent of any group makes an election under this paragraph, notwithstanding any other provision of this subsection, the amendments made by subsection (a) shall apply to such group for taxable years beginning after December 31, 1983. Any such election, once made, shall be irrevocable. "(8) TREATMENT OF CERTAIN AFFIUATED GROUPS.—If—

"(A) a corporation (hereinafter in this paragraph referred to as the parent') was incorporated in 1968 and filed consolidated returns as the parent of an affiliated group for each of its taxable years ending after 1969 and before 1985, "(B) another corporation (hereinafter in this paragraph referred to as the 'subsidiary') became a member of the parent's affiliated group in 1978 by reason of a recapitalization pursuant to which the parent increased its voting ^^j interest in the subsidiary from not less than 56 percent to not less than 85 percent, and ,.p "(C) such subsidiary is engaged (or was on September 27, 1985, engaged) in manufacturing and distributing a broad „l line of business systems and related supplies for binding, laminating, shredding, graphics, and providing secure identification, then, for purposes of determining whether such subsidiary corporation is a member of the parent's affiliated group under section 1504(a) of the Internal Revenue Code of 1954 (as amended by subsection (a)), paragraph (2)(B) of such section 1504(a) shall be applied by substituting '55 percent' for '80 percent'. "(9) TREATMENT OF CERTAIN CORPORATIONS AFFIUATED DURING

1971.— In the case of a group of corporations which filed a consolidated Federal income tax return for the taxable year beginning during 1971 and which— "(A) included as a common parent on December 31, 1971, » o.< a Delaware corporation incorporated on August 26, 1969, and "(B) included as a member thereof a Delaware corporation incorporated on November 8, 1971, for taxable years beginning after December 31, 1970, and ending before January 1, 1988, the requirements for affiliation for each member of such group under section 1504(a) of the Internal Revenue Code of 1954 (before the amendment made by subsection (a)) shall be limited solely to the provisions expressly contained therein and by reference to stock issued under State 5 law as common or preferred stock. During the period described in the preceding sentence, no provision of the Internal Revenue Code of 1986 (including sections 269 and 482) or principle of law, except the general consolidated return regulations (including the provisions relating to separate return limitation years) and sections 382 and 383 of such Code, shall apply to deny the K?; =. benefit or use of losses incurred or credits earned by members of such group." (5) TREATMENT OF CERTAIN SELL-DOWNS.—Paragraph (4)

i j

of

section 600t)) of the Tax Reform Act of 1984 (relating to excep, tion for certain sell-downs) is amended by adding at the end

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 PUBLIC LAW 99-514—OCT. 22, 1986

!, '; ^ -

100 STAT. 2803

thereof the following new sentence: "For purposes of the preceding sentence, if there is a letter of intent between a corporation and a securities underwriter entered into on or before June 22, 1984, and the subsequent issuance or sale is effected pursuant to a registration statement filed with the Securities and Exchange Commission, such stock shall be treated as issued or sold pursuant to a registration statement filed with the Securities and Exchange Commission on or before June 22, 1984." (6) AMENDMENT OF SECTION 332.— (A) IN GENERAL.—Paragraph (1) of section 332(b) (relating to liquidations to which section applies) is amended to read as follows: "(1) the corporation receiving such property was, on the date of the adoption of the plan of liquidation, and has continued to be at all times until the receipt of the property, the owner of stock (in such other corporation) meeting the requirements of section 1504(a)(2); and either".

5

(B) EFFECTIVE DATE.—

(i) IN GENERAL.—Except as provided in clause (iii), the amendment made by subparagraph (A) shall apply with respect to plans of complete liquidation adopted after March 28, 1985. (ii) CERTAIN DISTRIBUTIONS MADE AFTER DECEMBER 3 1,

' '"'•' '• ^ p ' " ?

1984.—Except as provided in clause (iii), the amendment made by subparagraph (A) shall also apply with respect to plans of complete liquidations adopted on or before March 28, 1985, pursuant to which any distribution is made in a taxable year beginning after December 31, 1984 (December 31, 1983, in the case of an affiliated group to which an election under section 60(b)(7) of the Tax Reform Act of 1984 applies), but only if the liquidating corporation and any corporation which receives a distribution in complete liquidation of such corporation are members of an affiliated group of corporations filing a consolidated return for the taxable year which includes the date of the distribution. (iii) TRANSITIONAL RULE FOR AFFILIATED GROUPS.—The

amendment made by subparagraph (A) shall not apply with respect to plans of complete liquidation if the liquidating corporation is a member of an affiliated group of corporations under section 600b)(2), (5), (6), or y (8) of the Tax Reform Act of 1984, for all taxable years which include the date of any distribution pursuant to .1 such plan. (7) AMENDMENT OP SECTION 337.— (A) IN GENERAL.—Subparagraph (B) of section 337(c)(3) m 11 (defining distributee corporation) is amended to read as follows: iM'

4 i: »:

"(B) DISTRIBUTEE CORPORATION.—For purposes of subpara-

graph (A), the term 'distributee corporation' means any corporation which receives a distribution to which section 332 applies in a complete liquidation of the selling corporation. Such term also includes any other corporation which receives a distribution to which section 332 applies in a complete liquidation of a corporation which is a distributee corporation under the preceding sentence or prior application of this sentence."

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 100 STAT. 2804

PUBLIC LAW 99-514—OCT. 22, 1986 -«

(B) EFFECTIVE DATE.—The amendment made by subparagraph (A) shall apply in the case of plans of complete liquidation pursuant to which any distribution is made in a taxable year beginning after December 31, 1984 (December 31, 1983, in the case of an affiliated group to which an election under section 6003X7) of the Tax Reform Act of 1984 applies). {.S) AMENDMENT OF SECTION 338.— (A) IN GENERAL.—Paragraph (3) of section 338(d) (defining qualified stock purchase) is amended to read as follows: "(3) QuAUFiED STOCK PURCHASE.—The term 'qualified stock purchase' means any transaction or series of transactions in which stock (meeting the requirements of section 1504(a)(2)) of 1 corporation is acquired by another corporation by purchase during the 12-month acquisition period." (B) EFFECTIVE DATE.—The amendment made by subparagraph (A) shall apply in cases where the 12-month acquisition period (as defined in section 338(h)(l) of the Internal Revenue Code of 1954) begins after December 31, 1985.

J

(9) TREATMENT OF CERTAIN CORPORATION ORGANIZED ON FEBRUARY 22, 1983.—In the case of a Rhode Island corporation

which was organized on February 22, 1983, and which on February 25, 1983— (A) purchased the stock of another corporation, (B) filed an election under section 338(g) of the Internal Revenue C!ode of 1986 with respect to such purchase, and (C) merged into the acquired corporation, such purchase of stock shall be considered as made by the acquiring corporation, such election shall be valid, and the acquiring corporation shall be considered a purchasing corporation for purposes of section 338 of such Code without regard to the duration of the existence of the acquiring corporation. (10) TREATMENT OF FORMER DISC'S.—Paragraph (7) of section 1504(b) (defining includible corporation) is amended to read as follows: "(7) A DISC (as defined in section 992(a)(l)), or any other corporation which has accumulated DISC income which is derived after December 31, 1984." (f) AMENDMENTS RELATED TO SECTION 61 OF THE ACT.— (1) TREATMENT OF DISTRIBUTIONS OF APPRECIATED PROPERTY.—

(A) Subsection Ob) of section 312 (relating to effect on earnings and profits) is amended to read as follows: "(b) DISTRIBUTIONS OF APPRECIATED PROPERTY.—On the distribu-

tion by a corporation, with respect to its stock, of any property the fair market value of which exceeds the adjusted basis thereof— "(1) the earnings and profits of the corporation shall be increased by the amount of such excess, and "(2) subsection (a)(3) shall be applied by substituting 'fair market value' for 'adjusted basis'. For purposes of this subsection and subsection (a), the adjusted basis of any property is its adjusted basis as determined for purposes of computing earnings and profits." (B) Subsection (c) of section 312 is amended by inserting "and" at the end of paragraph (1), by striking out ", and" at the end of paragraph (2) and inserting in lieu thereof a period, and by striking out paragraph (3).

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 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2805

(C) The subsection heading for subsection (c) of section 312 is amended by striking out ", ETC.".

(D) Subsection (n) of section 312 is amended by striking out paragraph (4) and by redesignating paragraphs (5), (6), (7), (8), and (9) as paragraphs (4), (5), (6), (7), and (8), respectively. (E) Paragraph (8) of section 312(n) (as redesignated by subparagraph (D)) is amended by striking out "subsection (k)(4)" and all that follows and inserting in lieu thereof the following: "subsection (k)(4)— "(A) paragraphs (4) and (6) shall apply only in the case of taxable years beginning after December 31, 1985, and "(B) paragraph (5) shall apply only in the case of taxable years beginning after December 31, 1987." (F) Any reference in subsection (e) of section 61 of the Tax Reform Act of 1984 to a paragraph of section 312(n) of the Internal Revenue Code of 1954 shall be treated as a reference to such paragraph as in effect before its redesignation by subparagraph (D). (2) CLERICAL AMENDMENTS.—

(A) Subsection (a) of section 1275 is amended— (i) by redesignating the paragraph added by section 61 of the Tax Reform Act of 1984 as paragraph (5), and (ii) by striking out "TO CORPORATIONS" in the heading

of such paragraph and inserting in lieu thereof "BY CORPORATIONS".

(B) Paragraph (3) of section 301(f) is amended by striking out "this section" and inserting in lieu thereof "this subsection". (3) EFFECTIVE DATE FOR TREATMENT OF REDEMPTIONS.—Para-

graph (7) of section 312(n) of the Internal Revenue Code of 1954 (as redesignated by paragraph (1)(D) of this subsection), and the amendments made by section 61(a)(2) of the Tax Reform Act of 1984, shall apply to distributions in taxable years beginning after September 30, 1984. (g) AMENDMENTS RELATED TO SECTION 63 OF THE ACT.—

(1) IN GENERAL.—Section 361 (relating to nonrecognition of gain or loss to corporations) is amended to read as follows: "SEC. 361. NONRECOGNITION OF GAIN OR LOSS TO TRANSFEROR CORPORATION; OTHER TREATMENT OF TRANSFEROR CORPORATION; ETC. "(a) GENERAL RULE.—No gain or loss shall be recognized to a transferor corporation which is a party to a reorganization on any exchange of property pursuant to the plan of reorganization. "Ob) OTHER TREATMENT OF TRANSFEROR CORPORATION.—In the case of a transferor corporation which is a party to a reorganization— "(1) sections 336 and 337 shall not apply with respect to any liquidation of such corporation pursuant to the plan of reorganization, "(2) the basis of the property (other than stock and securities described in paragraph (3)) received by the corporation pursuant to such plan of reorganization shall be the same as it would be in the hands of the transferor of such property, adjusted by the amount of gain or loss recognized to such transferor on such transfer, and

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 100 STAT. 2806

PUBLIC LAW 99-514—OCT. 22, 1986

"(3) no gain or loss shall be recognized by such corporation on any disposition (pursuant to the plan of reorganization) of stock or securities which were received pursuant to such plan and which are in another corporation which is a party to such reorganization. For purposes of paragraph (3), if the transferor corporation is merged, consolidated, or liquidated pursuant to the plan of reorganization, or if a transaction meets the requirements of section 368(a)(l)(C) pursuant to a waiver granted by the Secretary under section 368(a)(2)(G)(ii), any distribution of such stock or securities by the transferor corporation to its creditors in connection with such transaction shall be treated as pursuant to such plan of reorganization. "(c) TREATMENT OF DISTRIBUTIONS OF APPRECIATED PROPERTY.—

Notwithstanding any other provision of this subtitle, gain shall be recognized on the distribution of property (other than property permitted by section 354, 355, or 356 to be received without the recognition of gain) pursuant to a plan of reorganization in the same manner as if such property had been sold to the distributee at its fair market value." (2)

CLARIFICATION OF

TRANSFERS TO

CREDITORS.—Section

368(a)(2)(G)(i) (relating to distribution requirement) is amended by adding at the end thereof the following new sentence: "For purposes of the preceding sentence, if the acquired corporation is liquidated pursuant to the plan of reorganization, any distribution to its creditors in connection with such liquidation shall be treated as pursuant to the plan of reorganization." (3) CONFORMING AMENDMENT.—The table of sections for subpart C of part III of subchapter C of chapter 1 is amended by striking out the item relating to section 361 and inserting in lieu thereof the following: "Sec. 361. Nonrecognition of gain or loss to transferor corporation; other treatment of transferor corporation; etc." (4) EFFECTIVE DATE.—The amendments made by this subsec-

tion shall apply to plans of reorganizations adopted after the date of the enactment of this Act. (h) AMENDMENTS RELATED TO SECTION 64 OF THE ACT.—

(1) Subsection (c) of section 368 (defining control) is amended to read as follows: "(c) CONTROL DEFINED.—For purposes of part I (other than section 304), part II, this part, and part V, the term 'control' means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation." (2) Paragraph (2) of section 368(a) is amended by adding at the end thereof the following new subparagraph:

': .^ %

"(H) SPECIAL RULE FOR DETERMINING WHETHER CERTAIN TRANSACTIONS ARE QUALIFIED UNDER PARAGRAPH (1)(D).—In

the case of any transaction with respect to which the requirements of subparagraphs (A) and (B) of section 354(b)(1) are met, for purposes of determining whether such transaction qualifies under subparagraph (D) of paragraph (1), the term 'control' has the meaning given to such term by section 304(c)."

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100 STAT. 2807

(3) Section 368(a)(2) is amended by inserting "(other than for purposes of subparagraph (C))" in subparagraph (A) after "subchapter", (i) AMENDMENTS RELATED TO SECTION 65 OF THE ACT.—

(1) IN GENERAL.—Subsection (a) of section 341 (relating to collapsible corporations) is amended by striking out "held for more than 6 months". (2) EFFECTIVE DATE.—The amendment made by paragraph (1) shall apply with respect to sales, exchanges, and distributions after September 27, 1985. (j) AMENDMENTS RELATED TO SECTION 67 OF THE ACT.— (1) EXEMPTION FOR SMALL BUSINESS CORPORATIONS, ETC.—

Subsection 03) of section 280G (defining excess parachute payment) is amended by adding at the end thereof the following new paragraph: "(5)

I

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r

•

,, ] ( i» ^

EXEMPTION FOR SMALL BUSINESS CORPORATIONS, ETC.—

"(A) IN GENERAL.—Notwithstanding paragraph (2), the term 'parachute payment' does not include— "(i) any payment to a disqualified individual with respect to a corporation which (immediately before the change described in paragraph (2)(A)(i)) was a small business corporation (as defined in section 1361(b)), and "(ii) any payment to a disqualified individual with respect to a corporation (other than a corporation described in clause (i)) if— "(I) immediately before the change described in paragraph (2)(A)(i), no stock in such corporation was readily tradeable on an established securities market or otherwise, and "(II) the shareholder approval requirements of subparagraph (B) are met with respect to such payment. The Secretary may, by regulations, prescribe that the requirements of subclause (I) of clause (ii) are not met where a substantial portion of the assets of any entity consists (directly or indirectly) of stock in such corporation and interests in such other entity are readily tradeable on an established securities market, or otherwise. "(B) SHAREHOLDER APPROVAL REQUIREMENTS.—The shareholder approval requirements of this subparagraph are met with respect to any payment if— "(i) such payment was approved by a vote of the persons who owned, immediately before the change described in paragraph (2)(A)(i), more than 75 percent of the voting power of all outstanding stock of the corporation, and "(ii) there was adequate disclosure to shareholders of all material facts concerning all payments which (but for this paragraph) would be parachute payments with respect to a disqualified individual." (2) TREATMENT OF REASONABLE COMPENSATION.—Paragraph (4)

of section 280G(b) (relating to excess parachute payments reduced to extent taxpayer establishes reasonable compensation) is amended to read as follows:

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text:
Page:United States Statutes at Large Volume 100 Part 3.djvu/1000

 100 STAT. 2808

PUBLIC LAW 99-514—OCT. 22, 1986 I

"(4) TREATMENT OF AMOUNTS WHICH TAXPAYER ESTABLISHES AS

1 REASONABLE COMPENSATION.—In the case of any payment described in paragraph (2)(A)— "(A) the amount treated as a parachute payment shall ..^ not include the portion of such payment which the taxpayer 1, establishes by clear and convincing evidence is reasonable compensation for personal services to be rendered on or after the date of the change described in paragraph (2)(A)(i), and "(B) the amount treated as an excess parachute payment shall be reduced by the portion of such payment which the taxpayer establishes by clear and convincing evidence is reasonable compensation for personal services actually ren^ dered before the date of the change described in paragraph (2)(A)(i). For purposes of subparagraph (B), reasonable compensation for services actually rendered before the date of the change de" scribed in paragraph (2)(A)(i) shall be first offset against the ^ base amount." (3)

EXEMPTION

FOR PAYMENT UNDER

QUALIFIED

PLANS.—

Subsection (b) of section 280G (defining excess parachute pay' ment) is amended by adding at the end thereof the following new paragraph: "(6) EXEMPTION FOR PAYMENTS UNDER QUALIFIED PLANS.—Not-

- withstanding paragraph (2), the term 'parachute payment' shall not include any payment to or from— "(A) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a), "(B) an annuity plan described in section 403(a), or "(C) a simplified employee pension (as defined in section 408(k))." (4) TREATMENT OF AFFIUATED GROUPS.—Subsection (d) of section 280G is amended by adding at the end thereof the following new paragraph: "(5) TREATMENT OF AFFILIATED GROUPS.—Except as otherwise

provided in regulations, all members of the same affiliated group (as defined in section 1504, determined without regard to section 15040))) shall be treated as 1 corporation for purposes of this section. Any person who is an officer or any member of such group shall be treated as an officer of such 1 corporation." (5) LIMITATION ON NUMBER OF INDIVIDUALS TREATED AS HIGHLY

'I COMPENSATED.—Subsection (c) of section 280G (defining disquali' fied individual) is amended by adding at the end thereof the following new sentence: "For purposes of paragraph (2), the ual who is (or would be if the individual were an employee) a member of the group consisting of the highest paid 1 percent of •* the employees of the corporation or, if less, the highest paid 250 • employees of the corporation." (6) EXCLUDED AMOUNTS NOT TAKEN INTO ACCOUNT IN DETERMINING WHETHER THRESHOLD AMOUNT IS MET.—Subparagraph
 * term 'highly-compensated individual' only includes an individ^

E (A) of section 280G(b)(2) (defining parachute payment) is amended by adding at the end thereof the following new sentence: "For purposes of clause (ii), payments not treated as parachute payments under paragraph (4)(A), (5), or (6) shall not be taken into account."

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