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 95 STAT. 214

PUBLIC LAW 97-34—AUG. 13, 1981 "(ii) the replacement is made pursuant to observations by maintenance-of-way personnel of specific track material needing replacement, "(iii) the replacement is made pursuant to the detection by a rail-test car of specific track material needing replacement, or (iv) the replacement is made as a result of a casualty. Replacements made as a result of a casualty shall be RRB replacement property only to the extent that, in the case of each casualty, the replacement cost with respect to the replacement track material exceeds $50,000. "(4) MANNER AND TIME FOR MAKING ELECTIONS.—

"(A) IN GENERAL.—Any election under this section shall be made for the taxable year in which the property is placed in service. "(B) MADE ON RETURN.—Any election under this section shall be made on the taxpayer's return of the tax imposed by this chapter for the taxable year concerned. "(C)

REVOCATION ONLY WITH CONSENT.—Any election

under this section, once made, may be revoked only with the consent of the Secretary. "(5) SHORT TAXABLE YEARS.—In the case of a taxable year that is less than 12 months, the amount of the deduction under this section shall be an amount which bears the same relationship to the amount of the deduction, determined without regard to this paragraph, as the number of months in the short taxable year bears to 12. In such case, the amount of the deduction for subsequent taxable years shall be appropriately adjusted in accordance with regulations prescribed by the Secretary. The determination of when a taxable year begins shall be made in accordance with regulations prescribed by the Secretary. This paragraph shall not apply to any deduction with respect to any property for the first taxable year of the lessor for which an election under paragraph (8) is in effect with respect to such property. "(6) LEASEHOLD IMPROVEMENTS.—For purposes of determining whether a leasehold improvement which is recovery property shall be amortized over the term of the lease, the recovery period (taking into account any election under paragraph (2)(C) of this subsection or under subsection (b)(3) with respect to such property) of such property shall be taken into account in lieu of its useful life. "(7) SPECIAL RULE FOR ACQUISITIONS AND DISPOSITIONS IN NONRECOGNITION TRANSACTIONS.—Notwithstanding any other provi-

sion of this section, the deduction allowed under this section in the taxable year in which recovery property is acquired or is disposed of in a transaction in which gain or loss is not recognized in whole or in part shall be determined in accordance with regulations prescribed by the Secretary. (8) SPECIAL RULE FOR LEASES.—

"(A) IN GENERAL.—In the case of an agreement with respect to qualified leased property, if all of the parties to the agreement characterize such agreement as a lease and elect to have the provisions of this paragraph apply with respect to such agreement, and if the requirements of subparagraph (B) are met, then, for purposes of this subtitle— "(i) such agreement shall be treated as a lease entered into by the parties (and any party which is a corporation

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95 STAT. 215

described in subparagraph (B)(i)(1) shall be deemed to have entered into the lease in the course of carrying on a trade or business), and "(ii) the lessor shall be treated as the owner of the property and the lessee shall be treated as the lessee of the property. "(B) CERTAIN REQUIREMENTS MUST BE MET.—The require-

ments of this subparagraph are met if— "(i) the lessor is— "(I) a corporation (other than an electing small business corporation (within the meaning of section 1371(b)) or a personal holding company (within the 26 USC 1371. meaning of section 542(a))), "(ID a partnership all of the partners of which are corporations described in subclause (I), or "(III) a grantor trust with respect to which the grantor and all beneficiaries of the trust are described in subclause (I) or (II), "(ii) the minimum investment of the lessor— "(I) at the time the property is first placed in service under the lease, and "(II) at all times during the term of the lease, is not less than 10 percent of the adjusted basis of such property, and "(iii) the term of the lease (including any extensions) does not exceed the greater of— "(I) 90 percent of the useful life of such property for purposes of section 167, or "(II) 150 percent of the present class life of such property. "(C) No OTHER FACTORS TAKEN INTO ACCOUNT.—If the requirements of subparagraphs (A) and (B) are met with respect to any transaction described in subparagraph (A), no other factors shall be taken into account in making a determination as to whether subparagraph (A)(i) or (ii) applies with respect to such transaction. "(D) QUALIFIED LEASED PROPERTY DEFINED.—For purpOSOS

of subparagraph (A), the term 'qualified leased property' means recovery property (other than a qualified rehabilitated building within the meaning of section 48(g)(1)) which Post, p. 236. is— "(i) new section 38 property (as defined in section 48(b)) of the lessor which is leased within 3 months after such property was placed in service and which, if acquired by the lessee, would have been new section 38 property of the lessee, "(ii) property— "(I) which was new section 38 property of the lessee, "(II) which was leased within 3 months after such property was placed in service by the lessee, and "(III) with respect to which the adjusted basis of the lessor does not exceed the adjusted basis of the lessee at the time of the lease, or "(iii) property which is a qualified mass commuting vehicle (as denned in section 103(b)(9)) and which is Post, p. 349. financed in whole or in part by obligations the interest

-194 O—82

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 95 STAT. 216

PUBLIC LAW 97-34—AUG. 13, 1981 on which is excludable from income under section 103(a). For purposes of this title (other than this subparagraph), any property described in clause (i) or (ii) to which subparagraph (A) applies shall be deemed originally placed in service not earlier than the date such property is used under the lease. In the case of property placed in service after December 31, 1980, and before the date of the enactment of this subparagraph, this subparagraph shall be applied by submitting 'the date of the enactment of this subparagraph' for 'such property was placed in service*. (E) MINIMUM INVESTMENT.—

"(i) IN GENERAL.—For purposes of subparagraph (A), the term 'minimum investment' means the amount the lessor has at risk with respect to the property (other than financing from the lessee or a related party of the lessee). "(ii) SPECIAL RULE FOR PURCHASE REQUIREMENT.—For

purposes of clause (i), an agreement between the lessor and lessee requiring either or both parties to purchase or sell the qualified leased property at some price (whether or not fixed in the agreement) at the end of the lease term shall not affect the amount the lessor is treated as having at risk with respect to the property. "(F) CHARACTERIZATION BY PARTIES.—For purposes of this paragraph, any determination as to whether a person is a lessor or lessee or property is leased shall be made on the basis of the characterization of such person or property under the agreement described in subparagraph (A). "(G) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this paragraph, including (but not limited to) regulations consistent with such purposes which limit the aggregate amount of (and timing of) deductions and credits in respect of qualified leased property to the aggregate amount (and the timing) allowable without regard to this paragraph. "(H) CROSS REFERENCE.— "For special recapture in cases where lessee acquires qualifled leased property, see section 1245.

"(9) SALVAGE VALUE.—No salvage value shall be taken into account in determining the deduction allowable under subsection (a). "(10) TRANSFEREE BOUND BY TRANSFEROR'S PERIOD AND METHOD IN CERTAIN CASES.—

26 USC 332.

"(A) IN GENERAL.—In the case of recovery property transferred in a transaction described in subparagraph (B), the transferee shall be treated as the transferor for purposes of computing the deduction allowable under subsection (a) with respect to so much of the basis in the hands of the transferee as does not exceed the adjusted basis in the hands of the transferor. "(B) TRANSFERS COVERED.—The transactions described in this subparagraph are— "(i) a transaction described in section 332 (other than a transaction with respect to which the basis is determined under section 334(b)(2)), 351, 361, 371(a), 374(a), 721, or 731;

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Page:Folk-lore - A Quarterly Review. Volume 7, 1896.djvu/234

 208 by a dhobi (washerman) very binding. Two subdivisions which do not intermarry. Adoption.

193. Saran District.—Initiation of chclas and mahants.

194. Andajuan Islanders.—Major Temple corrects Sir John Lubbock.

195. Lucky marks on the feet.

244. ''N.-W. Provinces''.—Marriage rites. The barber bathes and dresses the bridegroom; whose robes must be red. Disguise: Bride's mother dresses as bride, priest's wife as bridegroom, and do the ceremony again. Priest's wife gives a new name to the bride, and whispers it into a pot filled with certain kinds of food. Corners of the garments of the wedded pair are tied together. Bridegroom's mother ''dresses as a man. Red lead and red water'' used.

246. Taboos among the Pankti Sarwariya Brahmins.

248. Slight trace of mother-right.

Folktales.

A large number of tales, both amusing and interesting (as 31, 32, 35, 72, 76, 78, 143, 145, 146), are not touched upon, because they contain nothing that seems useful for the student.

5. The virtue of Raja Rupa Angad (Mirzapur).—Finding out by chance the potency of the Eleventh Day Fast, he ordered all his subjects to keep it; in consequence, they were all caught up to heaven in a fairy car when their lives were ended, and hell grew empty. Indra was sore afraid lest Rupa by virtue of his piety should take possession of his kingdom [just what Sakka is always thinking in the Jātaka, cp. vol. iv. pp. 8-9], so sent a fairy to tempt him astray She consents to live with him if he will either slay his son or give up the aforesaid fast. Both boy and mother preferred the former alternative; so the Raja cut off his son's head; and just as he was going to eat him, Bhagwān appears ex machina, restores the son to life, protects the king's virtue, and drives the fairy away. [Ed. points out that this is a "tradition of cannibalism among the Mānjhis," the teller being a Mānjhi.]

34. The Metamorphosis of Raja Vikramāditya.—The Raja learnt a charm from a Pundit how to get into a dead body; and he shows it to his servant by entering the body of a parrot. The servant cut up the body (away flew the parrot) and gave himself


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95 STAT. 217

"(ii) an acquisition (other than described in clause (i)) from a related person (as defined in subparagraph (D) of subsection (e)(4)); and "(iii) an acquisition followed by a leaseback to the person from whom the property is acquired. "(C) PROPERTY REACQUIRED BY THE TAXPAYER.—Under regulations prescribed by the Secretary, recovery property which is disposed of and then reacquired by the taxpayer shall be treated for purposes of computing the deduction allowable under subsection (a) as if such property had not been disposed of. "(D) EXCEPTION.—This paragraph shall not apply to any transaction to which subsection (e)(4) applies. "(11) SPECIAL RULES FOR COOPERATIVES.—In the case of a cooperative organization described in section 1381(a), the Secre- 26 USC 1381. tary may by regulations provide— "(A) for allowing allocation units to make separate elections under this section with respect to recovery property, and "(B) for the allocation of the deduction allowable under subsection (a) among allocation units. "(g) DEFINITIONS.—For purposes of this section— "(1) PUBLIC UTILITY PROPERTY.—The term 'public utility property' means property described in section 167(1)(3)(A). (2) PRESENT CLASS LIFE.—The term 'present class life' means the class life (if any) which would be applicable with respect to any property as of January 1, 1981, under subsection (m) of section 167 (determined without regard to paragraph (4) thereof Post, p. 221. and as if the taxpayer had made an election under such subsection). "(3) SECTION 1245 CLASS PROPERTY.—The term 'section 1245 class property' means tangible property described in section 1245(a)(3) other than subparagraphs (C) and (D). "(4) SECTION 1250 CLASS PROPERTY.—The term 'section 1250 class property' means property described in section 1250(c) and property described in section 1245(a)(3)(C). "(5) RESEARCH AND EXPERIMENTATION.—The term 'research and experimentation' has the same meaning as the term research or experimental has under section 174. "(6) RRB PROPERTY DEFINED.—For purposes of this section, the term 'RRB property' means property which under the taxpayer's method of depreciation before January 1, 1981, would have been depreciated using the retirement-replacement-betterment method. "(7) MANUFACTURED HOMES.—The term 'manufactured home' has the same meaning as in section 603(6) of the Housing and Community Development Act of 1974, which is 1250 class prop- 42 USC 5402. erty used as a dwelling unit. ' (8) QUALIFIED COAL UTILIZATION PROPERTY.—

' (A) IN GENERAL.—The term 'qualified coal utilization property' means that portion of the unadjusted basis of coal utilization property which bears the same ratio (but not greater than 1) to such unadjusted basis as— "(i) the Btu's of energy produced by the powerplant or major fuel-burning installation before the conversion or replacement involving coal utilization property, bears to '(ii) the Btu's of energy produced by such powerplant or installation after such conversion or replacement.

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 95 STAT. 218 "Coal utiiization property."

PUBLIC LAW 97-34—AUG. 13, 1981 "(B) IN GENERAL.—The term 'coal utilization property* mCanS—

"(i) a boiler or burner— "(I) the primary fuel for which is coal (including lignite), and "(11) which replaces an existing boiler or burner which is part of a powerplant or major fuel-burning installation and the primary fuel for which is oil or natural gas or any product thereof, and "(ii) equipment for converting an existing boiler or burner described in clause (i)(II) to a boiler or burner the primary fuel for which will be coal. "(C) POWERPLANT AND MAJOR FUEL-BURNING INSTALLA-

42 USC 8302.

TION.—The terms 'powerplant' and 'major fuel-burning installation' have the meanings given such terms by paragraphs (7) and (10) of section 103(a) of the Powerplant and Industrial Fuel Use Act of 1978, respectively. "(D) EXISTING BOILER OR BURNER.—The term 'existing boiler or burner' means a boiler or burner which was placed in service before January 1, 1981. "(E)

REPLACEMENT OF EXISTING BOILER OR BURNER.—A

boiler or burner shall be treated as replacing a boiler or burner if the taxpayer certifies that the boiler or burner which is to be replaced— "(i) was used during calendar year 1980 for more than 2,000 hours of full load peak use (or equivalent thereof), and "(ii) will not be used for more than 2,000 hours of such use during any 12-month period after the boiler or burner which is to replace such boiler or burner is placed in service. "(h) SPECIAL RULES FOR RECOVERY PROPERTY CLASSES.—For purposes of this section— "(1) CERTAIN HORSES.—The term '3-year property' includes— "(A) any race horse which is more than 2 years old at the time such horse is placed in service; or "(B) any other horse which is more than 12 years old at such time. "(2) RAILROAD TANK CARS.—The term *10-year property' includes railroad tank cars. "(3) MANUFACTURED HOMES.—The term '10-year property' includes manufactured homes. "(4) QUALIFIED COAL UTIUZATION PROPERTY.—The term '10-year property' includes qualified coal utilization property which is not 3-year property, 5-year property, or 10-year property (determined without regard to this paragraph). "(5) APPLICATION WITH OTHER CLASSES.—Any property which is treated as included in a class or property by reason of this subsection shall not be treated as property included in any other class, "(i) CROSS REFERENCE.—

"For special rules with respect to certain gain derived from disposition of recovery property, see sections 1245 and 1250." (b) SINGLE PURPOSE AGRICULTURAL OR HORTICULTURAL STRUCTURES AND PETROLEUM PRODUCT STORAGE FACILITIES TREATED AS SECTION

26 USC 1245.

1245 PROPERTY.—Paragraph (3) of section 1245(a) (defining section 1245 property) is amended by striking out "or" at the end of

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subparagraph (C), by striking out the period at the end of subparagraph (D), and by adding at the end thereof the following new subparagraphs: (E) a single purpose agricultural or horticultural structure (as defined in section 48(p)), or "(F) a storage facility used in connection with the distribution of petroleum or any primary product of petroleum." (c) REPEAL OF SECTION 263(e).—Subsection (e) of section 263 is 26 USC 263. hereby repealed. (d) CLERICAL AMENDMENT.—The table of sections for part VI of subchapter B of chapter 1 is amended by inserting after the item relating to section 167 the following new item: "Sec. 168. Accelerated cost recovery system." SEC. 202. ELECTION TO EXPENSE CERTAIN DEPRECIABLE BUSINESS ASSETS.

(a) IN GENERAL.—Section 179 (relating to additional first-year 26 USC 179. depreciation allowance for small business) is amended to read as follows: "SEC. 179. ELECTION TO EXPENSE CERTAIN DEPRECIABLE BUSINESS ASSETS. "(a) TREATMENT AS EXPENSES.—A taxpayer may elect to treat the cost of any section 179 property as an expense which is not chargeable to capital account. Any cost so treated shall be allowed as a deduction for the taxable year in which the section 179 property is placed in service. "(b) DOLLAR LIMITATION.—

"(1) IN GENERAL.—The aggregate cost which may be taken into account under subsection (a) for any taxable year shall not exceed the following applicable amount: "If the taxable year The applicable begins in: amount is: 1981 $0 1982 5,000 1983 5,000 1984 7,500 1985 7,500 1986 or thereafter 10,000. "(2) MARRIED INDIVIDUALS FIUNG SEPARATELY.—In the case of a

husband and wife filing separate returns for a taxable year, the applicable amount under paragraph (1) shall be equal to 50 percent of the amount otherwise determined under paragraph (1).

"(c) ELECTION.—

"(1) IN GENERAL.—An election under this section for any taxable year shall— "(A) specify the items of section 179 property to which the election applies and the portion of the cost of each of such items which is to be taken into account under subsection (a), and "(B) be made on the taxpayer's return of the tax imposed by this chapter for the taxable year. Such election shall be made in such manner as the Secretary may by regulations prescribe. "(2) ELECTION IRREVOCABLE.—Any election made under this section, and any specification contained in any such election, may not be revoked except with the consent of the Secretary. "(d) DEFINITIONS AND SPECIAL RULES.—

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 95 STAT. 220

PUBLIC LAW 97-34—AUG. 13, 1981 "(1) SECTION 179 PROPERTY.—For purposes of this section, the term 'section 179 property' means any recovery property which is section 38 property and which is acquired by purchase for use in a trade or business. "(2) PURCHASE DEFINED.—For purposes of paragraph (1), the

term 'purchase' means any acquisition of property, but only if— "(A) the property is not acquired from a person whose relationship to the person acquiring it would result in the disallowance of losses under section 267 or 707(b) (but, in applying section 267 Oo) and (c) for purposes of this section, paragraph (4) of section 267(c) shall be treated as providing that the family of an individual shall include only his spouse, ancestors, and lineal descendants), "(B) the property is not acquired by one component member of a controlled group from another component member of the same controlled group, and "(C) the basis of the property in the hands of the person acquiring it is not determined— "(i) in whole or in part by reference to the adjusted basis of such property in the hands of the person from whom acquired, or "(ii) under section 1014(a) (relating to property acquired from a decedent). "(3) COST.—For purposes of this section, the cost of property does not include so much of the basis of such property as is determined by reference to the basis of other property held at any time by the person acquiring such property. "(4) SECTION NOT TO APPLY TO ESTATES AND TRUSTS.—This

section shall not apply to estates and trusts. "(5) SECTION NOT TO APPLY TO CERTAIN NONCORPORATE LES-

Post, p. 228.

SORS.—This section shall not apply to any section 179 property purchased by any person described in section 46(e)(3) unless the credit under section 38 is allowable with respect to such person for such property (determined without regard to this section). "(6) DOLLAR LIMITATION OF CONTROLLED GROUP.—For purposes

26 USC 1245.

of subsection (b) of this section— "(A) all component members of a controlled group shall be treated as one taxpayer, and "(B) the Secretary shall apportion the dollar limitation contained in subsection (b)(1) among the component members of such controlled group in such manner as he shall by regulations prescribe. "(7) CONTROLLED GROUP DEFINED.—For purposes of paragraphs (2) and (6), the term 'controlled group' has the meaning assigned to it by section 1563(a), except that, for such purposes, the phrase 'more than 50 percent' shall be substituted for the phrase 'at least 80 percent' each place it appears in section 1563(a)(1). "(8) DOLLAR LIMITATION IN CASE OF PARTNERSHIPS.—In the case of a partnership, the dollar limitation contained in subsection (b)(1) shall apply with respect to the partnership and with respect to each partner. "(9) COORDINATION WITH SECTION 38.—No credit shall be allowed under section 38 with respect to any amount for which a deduction is allowed under subsection (a)." (b) RECAPTURE RULE.—Subsection (a) of section 1245 (relating to gains from dispositions from certain depreciable property) is amended—

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95 STAT. 221

(1) by striking out "169, 184" each place it appears in paragraph (2) and inserting in lieu thereof "169,179,184", (2) by striking out "section 190" in paragraph (2) and inserting in lieu thereof "section 179,190", and (8) by striking out "169, 185" in paragraphs (2)(D) and (3)(D) and inserting in lieu thereof "169,179,185". (c) INSTALLMENT SALES.—Section 453 (relating to the installment

26 USC 453.

method) is amended by redesignating subsection (i) as subsection (j) and by inserting after subsection (h) the following new subsection: "(i) APPLICATION WITH SECTION 179.—

"(1) IN GENERAL.—In the case of an installment sale of section 179 property, subsection (a) shall not apply, and for purposes of this title, all payments to be received shall be deemed received in the year of disposition. "(2) LIMITATION.—Paragraph (1) shall apply only to the extent of the amount allowed as a deduction under section 179 with respect to the section 179 property." (d) TECHNICAL AMENDMENTS.—

(1) Paragraph (1) of section 263(a) (relating to capital expendi- 26 USC 263. tures) is amended— (A) by striking "or" at the end of subparagraph (F); (B) by striking out the period at the end of subparagraph (G) and inserting in lieu thereof a semicolon and "or', and (C) by adding at the end thereof the following new subparagraph: "(H) expenditures for which a deduction is allowed under section 179." (2) Subparagraph (A) of section 1033(g)(3) (relating to condem- 26 USC 1033. nation of real property held for productive use in trade or business or for investment) is amended by striking out "(relating to additional first-year depreciation allowance for small business)" and inserting in lieu thereof "(relating to election to expense certain depreciable business assets)". (3) The table of sections for part VI of subchapter B of chapter 1 is amended by striking out the item relating to section 179 and inserting in lieu thereof the following: "Sec. 179. Election to expense certain depreciable business assets." SEC. 203. AMENDMENTS RELATED TO DEPRECIATION. (a) RECOVERY DEDUCTION TREATED AS DEPRECIATION.—Subsection

(a) of section 167 (relating to depreciation) is amended by adding at 26 USC 167. the end thereof the following new sentence: "In the ceise of recovery property (within the meaning of section 168), the deduction allowable Ante, p. 204. under section 168 shall be deemed to constitute the reasonable allowance provided by this section, except with respect to that portion of the basis of such property to which subsection (k) applies." (b) TERMINATION OF CLASS LIFE SYSTEM.—Subsection (m) of section

167 (relating to class lives) is amended by adding at the end thereof the following new paragraph: "(4) TERMINATION.—This subsection shall not apply with respect to recovery property (within the meaning of section 168) placed in service after December 31, 1980." (c) RETIREMENT—REPLACEMENT—BETTERMENT METHOD OP DEPRECIATION.— (1) REPEAL OF SECTION I67(r).—Section 167 (relating to depreci-

ation) is amended by striking out subsection (r) and redesignating subsection (s) as subsection (r).

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Page:United States Statutes at Large Volume 95.djvu/248

 95 STAT. 222 26 USC 167

^°^26 USC 167 At 203 ^' ^'

PUBLIC LAW 97-34—AUG. 13, 1981 (2) CHANGE IN METHOD OP ACCOUNTING.—Sections 446 and 481

of the Internal Revenue Code of 1954 shall not apply to the change in the method of depreciation to comply with the provisions of this subsection. (3) TRANSITIONAL RULE.—The adjusted basis of RRB property ^^^ defined in section 168(g)(6) of such Code) as of December 31, 1980, shall be depreciated using a useful life of no less than 5 years and no more than 50 years and a method described in section 167(b) of such Code, including the method described in section 167(b)(2) of such Code, switching to the method described in section 167(b)(3) of such Code at a time to maximize the deduction. (d) AGREEMENT AS TO USEFUL LIFE ON WHICH DEPRECIATION RATE IS

26 USC 167. 26 USC 167 note. 26 USC 1 et seq.

BASED.—Subsection (d) of section 167 is amended by adding at the end thereof the following: "This subsection shall not apply with respect to recovery property defined in section 168." (e) CONFORMING AMENDMENT.—The Secretary of Health and Human Services is not required to apply any provision of the Internal Revenue Code of 1954, as amended, in calculating depreciation (for the purpose of determining any cost under a program administered by the Secretary), unless a provision of law requires so expressly. SEC. 204. RECAPTURE ON DISPOSITION OF RECOVERY PROPERTY.

26 USC 1245.

(a) GENERAL RULE.—Paragraph (1) of section 1245(a) (relating to ordinary income) is amended by inserting after "December 31, 1962," the following "or section 1245 recovery property is disposed of after December 31, 1980,". (b) RECOMPUTED BASIS.—Paragraph (2) of section 1245(a) (relating to recomputed basis) is amended— (1) by striking out "or" at the end of subparagraph (C), (2) by inserting ", or" at the end of subparagraph (D), and (3) by inserting immediately after subparagraph (D) the following new subparagraph: "(E) with respect to any section 1245 recovery property, the adjusted basis of such property recomputed by adding thereto all adjustments attributable to periods for which a deduction is allowed under section 168(a) (as added by the Economic Recovery Tax Act of 1981) with respect to such property,". (c) SECTION 1245 RECOVERY PROPERTY DEFINED.—Subsection (a) of

section 1245 is amended by adding at the end thereof the following new paragraph: "(5) SECTION 1245 RECOVERY PROPERTY.—For purposes of this section, the term 'section 1245 recovery property' means recovery property (within the meaning of section 168) other than— "(A) 15-year real property which is residential rental property (as defined in section 167(j)(2)(B)), "(B) 15-year real property which is described in section 168(f)(2), "(C) 15-year real property with respect to which an election under subsection (b)(3) of section 168 to use a different recovery percentage is in effect, and "(D) 15-year real property which is described in clause (i), (ii), (iii), or (iv) of section 1250(a)(1)(B). If only a portion of a building (or other structure) is section 1245 recovery property, gain from any disposition of such building (or other structure) shall be allocated first to the portion of the building (or other structure) which is section 1245 recovery

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95 STAT. 223

property (to the extent of the amount which may be treated as ordinary income under this section) and then to the portion of the building or other structure which is not section 1245 recovery property." (d) QuAUFiED LEASED PROPERTY.—Subsection (a) of section 1245 26 USC 1245. (relating to recomputed basis) is amended by adding at the end thereof the following new paragraph: "(6) SPECIAL RULE FOR QUALIFIED LEASED PROPERTY.—In any

case in which— "(A) the lessor of qualified leased property (within the meaning of section 168(f)(8)(D)) is treated as the owner of such property for purposes of this subtitle under section 168(f)(8), and "(B) the lessee acquires such property, the recomputed basis of the lessee under this subsection shall be determined by taking into account any adjustments which would be taken into account in determining the recomputed basis of the lessor." (e) APPLICATION WITH SECTION 1250.—Subsection (d) of section 1250 (relating to exceptions and limitations) is amended by adding at the end thereof the following new paragraph: "(11) SECTION 1245 RECOVERY PROPERTY.—Subsection (a) shall not apply to the disposition of property which is section 1245 recovery property (as defined in section 1245(a)(5))." SEC. 205. MINIMUM TAX TREATMENT. (a) IN GENERAL.—Subsection (a) of section 57 (defining items of tax preference) is amended by inserting immediately after paragraph (11) the following new paragraph: "(12) ACCELERATED COST RECOVERY DEDUCTION.—

"(A) IN GENERAL.—With respect to each recovery property (other than 15-year real property) which is subject to a lease, the amount (if any) by which the deduction allowed under section 168(a) for the taxable year exceeds the deduction which would have been allowable for the taxable year had the property been depreciated using the straight-line method (with a half-year convention and without regard to salvage value) and a recovery period determined in accordance with the following table:

"In the case of: 3-year property 5-year property 10-year property 15-year public utility property

The recovery period is: 5 years. 8 years. 15 years. 22 years.

"(B) 15-YEAR REAL PROPERTY.—With respect to each recovery property which is 15-year real property, the amount (if any) by which the deduction allowed under section 168(a) for the taxable year exceeds the deduction which would have been allowable for the taxable year had the property been depreciated using a 15-year period and the straight-line method (without regard to salvage value).

Ante, p. 203.

26 USC 1250.

Ante, p. 222. 26 USC 57.

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 95 STAT. 224

PUBLIC LAW 97-34—AUG. 13, 1981 "(C) PARAGRAPHS (2) AND (3) SHALL NOT APPLY.—Para-

Ante, p. 203. 26 USC 57.

graphs (2) and (3) shall not apply to recovery property. "(D) DEFINITIONS.—For purposes of this paragraph, the terms '3-year property*, *5-year property',' 10-year property', 'recovery property', shall have the same meanings given such terms under section 168." (b) CONFORMING AMENDMENT.—The next to the last sentence of section 57(a) is amended by striking out "and (11)" and inserting in lieu thereof ", (11), and (12)*^. SEC. 206. EARNINGS AND PROFITS.
 * 15-year public utility property', 15-year real property', and

26 USC 312.

(a) IN GENERAL.—Subsection (k) of section 312 (relating to earnings and profits) is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph: "(3) EXCEPTION FOR RECOVERY AND SECTION 179 PROPERTY.— "(A) RECOVERY PROPERTY.—Except as provided in subpara-

graphs (B) and (C), in the case of recovery property (within the meaning of section 168), the adjustment to earnings and profits for depreciation for any taxable year shall be the amount determined under the straight-line method (using a half year convention in the case of property other than the 15-year real property and without regard to salvage value) and using a recovery period determined in accordance with the following table:

"In the case of: 3-year property 5-year property 10-year property 15-year real property 15-year public utility property

The applicable recovery period is: 5 years. 12 years. 25 years. 35 years. 35 years.

For purposes of this subparagraph, no adjustment shall be allowed in the year of disposition (except with respect to 15year real property), and rules similar to the rules under the next to the last sentence of section 168(b)(2)(A) and section 168(b)(2)(B) shall apply. "(B) TREATMENT OF AMOUNTS DEDUCTIBLE UNDER SECTION

Ante, p. 219.

179.—For purposes of computing the earnings and profits of a corporation, any amount deductible under section 179 shall be allowed as a deduction ratably over the period of 5 years (beginning with the year for which such amount is deductible under section 179). "(C) FLEXIBILITY.—In any case where a different recovery percentage is elected under section 168(b)(3) or (f)(2)(C) based on a recovery period longer than the recovery period provided in subparagraph (A), the adjustment to earnings and profits shall be based on such longer period under rules similar to those provided in subparagraph (A)." (b) FOREIGN CORPORATIONS.—Paragraph (4) of section 312(k), as redesignated by subsection (a), is amended— (1) by striking out "paragraph (1)" and inserting in lieu thereof "paragraphs (1) and (3)", and (2) by adding at the end thereof the following new sentence: "In determining the earnings and profits of such corporation in the case of recovery property (within the meaning of section 168), the rules of section 168(fK2) shall apply."

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95 STAT. 225

(c) CONFORMING AMENDMENT.—Subsection (a) of section 964 (relat- 26 USC 964. ing to miscellaneous provisions involving controlled foreign corporations) is amended by striking out "section 312(k)(3)" and inserting in lieu thereof "section 312(k)(4)". SEC. 207. EXTENSION OF CARRYOVER PERIOD FOR NET OPERATING LOSSES AND CERTAIN CREDITS. (a) NET OPERATING Loss.— (1) IN GENERAL.—Subparagraph (B) of section 172(b)(1) (relating 26 USC 172. to net operating loss carryovers) is amended by striking out "7 ' and inserting in lieu thereof "15". (2) CONFORMING AMENDMENTS.—

(A) Subparagraph (C) of section 172(b)(1) is amended— (i) by inserting "and before January 1, 1976," after "1955,^', and (ii) by striking out the last sentence thereof. (B)(i) Subparagraph (E)(i)(II) of section 172(b)(1) is amended 94 Stat. 3464. by striking out " 8 " and inserting in lieu thereof "15". (ii) Clause (ii) of section 172(b)(1)(E) is amended to read as follows: "(ii) In the case of any net operating loss for a taxable year which is not a REIT year, such loss shall not be carried back to any taxable year which is a REIT year." (C) Paragraph (3) of section 172(g) (relating to certain regulated transportation corporations) is amended— (i) by inserting "and" at the end of subparagraph (A), (ii) by striking out "; and" at the end of subparagraph (B) and inserting in lieu thereof a period, and (iii) by striking out subparagraph (C). (b) CERTAIN LOSSES OF LIFE INSURANCE COMPANIES.—Paragraph (1)

of section 812(b) (relating to operations loss carrybacks and car- 26 USC 812. ryovers of life insurance companies) and paragraph (1) of section 825(d) (relating to unused loss carrybacks and carryovers of mutual 26 USC 825. life insurance companies) are each amended by striking out "7" and inserting in lieu thereof "15". / (c) CARRYOVER OF TAX CREDITS.— (1) INVESTMENT CREDIT AND WIN CREDIT.—Paragraph (1) of

/ /

section 46(b) (relating to carryback and carryovers of unused 26 USC 46. investment credits) and paragraph (1) of section 50A(b) (relating 26 USC 50A. to carryback and carryover of unused work incentive program credit) are each amended by adding at the end thereof the following new sentence: "In the case of an unused credit for an unused credit year ending after December 31, 1973, this paragraph shall be applied by substituting '15' for '7' in subparagraph (B), and by substituting 1 8 ' for '10', and '17' for '9' in the second sentence.' (2) N E W EMPLOYEE CREDIT.—Paragraph (1) of section 53(c) 26 USC 53. (relating to carrybacks and carryovers of new employee credit) is amended— (A) by striking out "7" in subparagraph (B) and inserting in lieu thereof "15", (B) by striking out "10" and inserting in lieu thereof "18", and (C) by striking out "9" and inserting in lieu thereof "17". (3) ALCOHOL FUELS CREDIT.—Subparagraph (A) of section

44E(e)(2) (relating to carryover of unused credit) is amended— 26 USC 44E. (A) by striking out "7" each place it appears and inserting in lieu thereof "15", and

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Page:United States Statutes at Large Volume 95.djvu/252

 95 STAT. 226

Post, p. 246. 26 USC 381.

PUBLIC LAW 97-34—AUG. 13, 1981 (B) by striking out "6" and inserting in lieu thereof "14". SEC. 208. CARRYOVER OF RECOVERY ATTRIBUTE IN SECTION 381 TRANSACTIONS. Subsection (c) of section 381 is amended by adding at the end thereof the following new paragraph: "(28) METHOD OF COMPUTING RECOVERY ALLOWANCE FOR RECOV-

Ante, p. 203.

26 USC 168

ERY PROPERTY.—The acquiring corporation shall be treated as the distributor or transferor corporation for purposes of computing the deduction allowable under section 168(a) on property acquired in a distribution or transfer with respect to so much of the basis in the hands of the acquiring corporation as does not exceed the adjusted basis in the hands of the distributor or transferor corporation." SEC. 209. EFFECTIVE DATES. (a) GENERAL RULE.—Except as otherwise provided in this section, the amendments made by this subtitle shall apply to property placed in service after December 31, 1980, in taxable years ending after such date. (b) SPECIAL RULE FOR R R B PROPERTY.—The amendment made by subsection (c) of section 203 shall take effect on January 1, 1981, and shall apply with respect to taxable years ending after such date. (c) SPECIAL RULE FOR CARRYOVERS.—

94 Stat. 3464. 26 USC 172.

(1)(A) Except as provided in subparagraph (B), the amendments made by subsections (a) and (b) of section 207 shall apply to net operating losses in taxable years ending after December 31, 1975. (B) The amendments made by subparagraph (B)(i) of section 207(a)(2) shall take effect as if they had been included in the amendments made by section 1(a) of Public Law 96-595; except \^Y^Q^ ^jjg amendments made by such subparagraph shall apply only to net operating losses in taxable years ending after December 31, 1972. (2)(A) The amendments made by subsection (c)(1) of section 207 shall apply to unused credit years ending after December 31, 1973. (B) The amendment made by subsection (c)(2) of section 207 shall apply to unused credit years beginning after December 31, 1976. (C) The amendments m a d e by subsection (c)(3) of section 207 shall apply to u n u s e d credit year s e n d i n g after September 30, 1980.

26 USC 168 "ot®-

(d) SPECIAL RULE FOR P U B L I C U T I L I T I E S. — (1) TRANSITIONAL RULE FOR NORMALIZATION REQUIREMENTS.—If,

by the terms of the applicable rate order last entered before the date of the enactment of this Act by a regulatory commission having appropriate jurisdiction, a regulated public utility would (but for this provision) fail to meet the requirements of section 168(e)(3) of the Internal Revenue Code of 1954 with respect to roperty because, for an accounting period ending after Decemer 31, 1980, such public utility used a method of accounting other than a normalization method of accounting, such regulated public utility shall not fail to meet such requirements if, by the terms of its first rate order determining cost of service with respect to such property which becomes effective after the date of the enactment of this Act and on or before January 1, 1983, such regulated public utility uses a normalization method of account-

E

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95 STAT. 227

ing. This provision shall not apply to any rate order which, under the rules in effect before the date of the enactment of this Act, required a regulated public utility to use a method of accounting with respect to the deduction allowable by section 167 which, under section 167(1), it was not permitted to use. (2) TRANSITIONAL RULE FOR REQUIREMENTS OF SECTION 46(f).—If, 26 USC 46 note. by the terms of the applicable rate order last entered before the date of the enactment of this Act by a regulatory commission having appropriate jurisdiction, a regulated public utUity would (but for this provision) fail to meet the requirements of paragraph (1) or (2) of section 46(f) of the Internal Revenue Code of 1954 with respect to property for an accounting period ending after December 31, 1980, such regulated public utility shall not fail to meet such requirements if, by the terms of its first rate order determining cost of service with respect to such property which becomes effective after the date of the enactment of this Act and on or before January 1, 1983, such regulated public utility meets such requirements. This provision shall not apply to any rate order which, under the rules in effect before the date of the enactment of this Act, was inconsistent with the requirements of paragraph (1) or (2) of section 46(f) of such Code (whichever would have been applicable). (3) (CLARIFICATION.—Subpar^aph (C) of section 167(1)(3) is 26 USC i67. amended by inserting "and which is placed in service before January 1, 1981" immediately before the period at the end thereof. (4) AUTHORITY TO PRESCRIBE INTERIM REGULATIONS WITH RE- 26 USC i68

SPECT TO NORMALIZATION.—Until C]k)ngress acts further, the Sec- note. retary of the Treasury or his delegate may prescribe such interim regulations as may be necessary or appropriate to determine whether the requirements of section 168(e)(o)(B) of the Internal Revenue Code of 1954 have been met with respect to property Ante, p. 203. placed in service after December 31, 1980.

Subtitle B—Investment Tax Credit Provisions SEC. 211. MODIFICATION OF INVESTMENT TAX CREDIT TO REFLECT ACCELERATED COST RECOVERY. (a) APPLICABLE PERCENTAGE.—

(1) IN GENERAL.—Subsection (c) of section 46 (relating to 26 USC 46. qualified investment) is amended by adding at the end thereof the following new paragraph: "(7) APPLICABLE PERCENTAGE FOR RECOVERY PROPERTY.-Not-

withstanding paragraph (2), the applicable percentage for purposes of paragraph (1) shall be— "(A) in the case of 15-year public utility, 10-year, or 5-year property (within the meaning of section 168(c)), 100 percent, and "(B) in the case of 3-year property (within the meaning of section 168(c)), 60 percent. For {purposes of subparagraph (A), RRB replacement property (within the meaning of section 168(fK3XB)) shall be treated as 5-year property." (2) Subsection (a) of section 48 (defining section 38 property) is 26 USC 48. amended by striking out paragraph (9). (b) REVISION OF PROGRESS ExPENnrruRE RULES.—

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Page:United States Statutes at Large Volume 95.djvu/254

 95 STAT. 228 26 USC 46.

PUBLIC LAW 97-34—AUG. 13, 1981 Q) jjj GENERAL.—Paragraph (1) of section 46(d) (defining qualified progress expenditures) is amended to read as follows: "(1) INCREASE IN QUALIFIED INVESTMENT.—

"(A) IN GENERAL.—In the case of any taxpayer who has made an election under paragraph (6), the amount of the qualified investment of such taxpayer for the taxable year (determined under subsection (c) without regard to this subsection) shall be increased by an amount equal to the aggregate of the applicable percentage of each qualified progress expenditure for the taxable year with respect to progress expenditure property. "(B) APPLICABLE PERCENTAGE.—

"(i) RECOVERY PROPERTY.—For purposes of subpara-

Ante, p. 203.

graph (A), the applicable percentage for recovery property (within the meaning of section 168) shall be determined under subsection (c)(7) based on a reasonable expectation of what the character of the property will be when it is placed in service. "(ii) NONRECOVERY PROPERTY.—For purposes of subparagraph (A), the applicable percentage for property which is not recovery property (within the meaning of section 168) shall be determined under subsection (c)(2) based on a reasonable expectation of what the useful life of the property will be when it is placed in service, "(iii) APPLICATION ON BASIS OF FACTS KNOWN.—Clauses

(i) and (ii) shall be applied on the basis of the facts known at the close of the tsixable year of the taxpayer in which the expenditure is made." (2) CONFORMING AMENDMENT.—Clause (ii) of section 46(d)(2)(A) (defining progress expenditure property) is amended by striking out "having a useful life of 7 years or more". (c) PETROLEUM PRODUCT STORAGE FACILITIES.—Paragraph (1) of

26 USC 48.

section 48(a) (defining section 38 property) is amended— (1) by striking out the period at the end of subparagraph (F) and inserting in lieu thereof ", or"; and (2) by inserting immediately after subparagraph (F) the following new subparagraph: "(G) a storage facility used in connection with the distribution of petroleum or any primary product of petroleum." (d) TECHNICAL AMENDMENT RELATING TO NONCORPORATE LES-

SORS.—Paragraph (3) of section 46(e) (relating to limitations on noncorporate lessors) is amended by adding at the end thereof the following new sentence: "For purposes of subparagraph (B), in the case of any recovery property (within the meaning of section 168), the useful life shall be the present class life for such property (as defined in section 168(g)(2))." (e) CONFORMING AMENDMENTS.—

(1) The heading and so much of paragraph (2) of section 46(c) as precedes the table is amended to read as follows: "(2) APPLICABLE PERCENTAGE IN CERTAIN CASES.—Except as

provided in paragraphs (3), (6), and (7), the applicable percentage for purposes of paragraph (1) for any property shall be determined under the following table:". (2) Subparagraph (A) of section 46(c)(6) (relating to special rules for commuter highway vehicles) is amended to read as follows: "(A) IN GENERAL.—Notwithstanding paragraph (2) or (3), in the case of a commuter highway vehicle the useful life of which is 3 years or more, or which is recovery property

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 PUBLIC LAW 97-34—AUG. 13, 1981

95 STAT. 229

(within the meaning of section 168), the applicable percentage for purposes of paragraph (1) shall be 100 percent." (3) Subparagraph (C) of section 48(1)(2) (defining energy prop- 26 USC 48. erty) is amended by inserting before the period at the end thereof "or which is recovery property (within the meaning of section 168)". (4) The second sentence of section 48(a)(l) (defining section 38 property) is amended by striking out "includes only property" and inserting in lieu thereof "includes only recovery property (within the meaning of section 168 without regard to any useful Ante, p. 203. life) and any other property", (f) APPLICATION OF AT RISK RULES TO INVESTMENT CREDIT.—

(1) IN GENERAL.—Subsection (c) of section 46 (relating to 26 USC 46. qualified investment) is amended by adding at the end thereof the following new paragraphs: "(8) LIMITATION TO AMOUNT AT RISK.—

"(A) IN GENERAL.—In the case of new or used section 38 property which— "(i) is placed in service during the taxable year by a taxpayer described in section 465(a)(1), and "(ii) is used in connection with an activity with respect to which any loss is subject to limitation under section 465, the basis of such property for purposes of paragraph (1) shall not exceed the amount the taxpayer is at risk with respect to such property as of the close of such taxable year. "(B) AMOUNT AT RISK.—

"(i) IN GENERAL.—Except as provided in clause (ii), the term 'at risk' has the same meaning given such term by section 465(b) (without regard to paragraph (5) thereof), "(ii) CERTAIN FINANCING.—In the case of a taxpayer who at all times is at risk (determined without regard to this clause) in an amount equal to at least 20 percent of the basis (determined under section 168(d)(l)(A)(i)) of property described in subparagraph (A) and who acquired such property from a person who is not a related person, such taxpayer shall for purposes of this paragraph be considered at risk with respect to any amount borrowed in connection with such property (other than convertible debt) to the extent that such amount— "(I) is borrowed from a qualified person, or "(II) represents a loan from any Federal, State, or local government or instrumentality thereof, or is guaranteed by, any Federal, State, or local government. "(C) SPECIAL RULE FOR PARTNERSHIPS AND SUBCHAPTER S

CORPORATIONS.—In the case of any partnership or electing small business corporation (within the meaning of section 1371(b)), any amount treated as at risk under subparagraph (B)(ii) shall be allocated among the partners or shareholders (and treated as an amount at risk with respect to such persons) in the same manner as the credit allowable by section 38. "(D) QuAUFiED PERSON.—-For purposes of this paragraph, the term 'qualified person' means any person— "(i) which—

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 95 STAT. 230

Post, pp. 267, 270. 26 USC 401.

Ante, p. 203.

PUBLIC LAW 97-34—AUG. 13, 1981 "(I) is an institution described in clause (i), (ii), or (iii) of subparagraph (A) or subparagraph (B) of section 128(c)(2) or an insurance company to which subchapter L applies, or "(II) is a pension trust qualified under section 401(a) or a person not described in subclause (I) and which is actively and regularly engaged in the business of lending money, "(ii) which is not a related person with respect to the taxpayer, "(iu) which is not a person who receives a fee with respect to the taxpayer's investment in property described in subparagraph (A) or a related person to such person, and "(iv) which is not a person from which the taj^ayer acquired the property described in subparagraph (A) or a related person to such person. "(E) RELATED PERSON.—For purposes of this paragraph, the term 'related person* has the same meaning as such term is used in section 168(e)(4), except that in applying section 168(e)(4)(D)(i) in the case of a person described in subparagraph (D)(i)(II) of this paragraph, sections 267(b) and 707(b)(l) shall be applied by substituting *0 percent* for '50 percent*. "(F) SPECIAL RULE FOR CERTAIN ENERGY PROPERTY.—

"(i) IN GENERAL.—The provisions of subparagraph (A) shall not apply to amounts borrowed with respect to qualified energy property (other than amounts described in subparagraph (B)). "(ii) QUALIFIED ENERGY PROPERTY.—The term 'qualified energy property' means energy property to which (but for this subparagraph) subparagraph (A) applies and— "(I) which is described in clause (iii), "(II) with respect to which the energy percentage determined under section 46(a)(2)(C) at the time such property is placed in service is greater than zero, "(III) with respect to which the taxpayer, as of the close of the taxable year in which the property is placed in service, is at risk (within the meaning of section 465(b) without regard to paragraph (5) thereof) in an amount equal to at least 25 percent of the basis of the property, and "(IV) with respect to which any nonrecourse financing (other than financing described in section 46(c)(8)(B)(ii)) in connection with such property consists of a level payment loan. For purposes of subclause (II), the energy percentage for property described in clause (iii)(V) shall be treated as being greater than zero during any period the energy percentage for property described in section 48(1)(14) is greater than zero. "(iii) PROPERTY TO WHICH THIS SUBPARAGRAPH APPLIES.—Energy property is described in this clause if such property is— "(1) described in clause (ii), (iv), or (vii) or section 48(1)(2), "(H) described in section 48(1)(15),

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95 STAT. 231

"(III) described in section 48(l)(3)(A)(iii) (but only to the extent such property is used for converting an alternate substance into alcohol for fuel purposes), "(IV) described in clause (i) of section 48(1)(2)(A) (but only to the extent such property is also described in section 48(1)(3)(A) (viii) or (ix)), or "(V) property comprising a system for using the same energy source for the sequential generation of electrical power, mechanical shaft power, or both, in combination with steam, heat, or other forms of useful energy. "(iv) LEVEL PAYMENT LOAN DEFINED.—The term 'level payment loan* means a loan in which each installment is substantially equal, a portion of each installment is attributable to the repayment of principal, and that portion is increased commensurate with decreases in the portion of the payment attributable to interest. "(9) SUBSEQUENT INCREASES IN THE TAXPAYER'S AMOUNT AT RISK WITH RESPECT TO THE PROPERTY.—

"(A) IN GENERAL.—If, at the close of a taxable year subsequent to the year in which property was placed in service, the amount which the taxpayer nas at risk with respect to such property has increased (as determined under subparagraph (B)), such increase shall be taken into account as additional qualified investment in such property in accordance with subparagraph (C). "(B) INCREASES TO BE TAKEN INTO ACCOUNT.—For purposes of subparagraphs (A) and (C), the amount which a taxpayer has at risk with respect to the property shall be treated as increased by the sum of the cash and the fair market value of property (other than property with respect to which the taxpayer is not at risk) used during the tsixable year to reduce the principal sum of any amount with respect to which the taxpayer is not at risk. "(C) MANNER IN WHICH TAKEN INTO ACCOUNT.—For purposes of determining the amount of credit allowed under section 38 and the amount of credit subject to the early disposition rules under section 47, an increase in a taxpayer's qualified investment in property (determined under subparagraph (B)) shall be deemed to be additional qualified investment made by the taxpayer in the year in which the property referred to in subparagraph (A) was first {)laced in service. However, the credit determined by taking into account the increase in qualified investment under this paragraph shall be considered a credit earned in the taxable year of such increase." (2) RECAPTURE.—Section 47 (relating to certain dispositions of 26 USC 47. section 38 property), is amended by adding at the end thereof the following new subsection: "(d) PROPERTY CEASING TO BE AT RISK.—

"(1) IN GENERAL.—If the taxpayer ceases to any extent to be at risk (within the meaning of section 46(c)(8)(B)) with respect to any Ante, p. 229. amount in connection with section 38 property, then the tax under this chapter for such taxable year shall be increased by an amount equal to the aggregate decrease in credits allowed under section 38 for all prior taxable years which would have resulted from substituting, in determining qualified investment, the amount determined under section 46(c)(8) with respect to such

-194

O—82

17: QL3

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 95 STAT. 232

PUBLIC LAW 97-34—AUG. 13, 1981 property if, on the date the property was placed in service, the taxpayer had not been at risk with respect to the amount he ceased to be at risk to. "(2) CERTAIN TRANSFERS NOT TREATED AS CEASING TO BE AT

Ante, p. 229.

RISK.—If, after the 12-month period after the date on which a taxpayer borrows an amount from a quaUfied person (within the meaning of section 48(c)(8)(D)) with respect to which such taxpayer is considered at risk under section 48(c)(8)(B), the quahfied person transfers or agrees to transfer any evidence of such indebtedness to a person who is not a quaUfied person, then, for purposes of paragraph (1), the taxpayer shall not be treated as ceasing to be at risk with respect to such amount. "(3) SPECIAL RULES FOR CERTAIN ENERGY PROPERTY.—

"(A) IN GENERAL.—In the case of the second taxable year following the taxable year in which any qualified energy property (within the meaning of section 46(c)(8)(E)) is placed in service by the taxpayer and any succeeding taxable year, the taxpayer, for purposes of paragraph (1), shall be treated as ceasing to be at risk with respect to such property for such taxable year in an amount equal to the credit recapture amount (if any). "(B) CREDIT RECAPTURE AMOUNT.—For purposes of this paragraph, the term 'credit recapture amount' means an amount equal to the excess (if any) of— "(i) the total amount of principal to be paid as of the close of any taxable year under a nonrecourse level payment loan (as defined in section 46(c)(8)(F)(iv) other than a loan described in section 46(c)(8)(B)(ii)) with respect to such property, over ' (ii) the sum of— "(I) the amount of principal actually paid as of the close of such taxable year, plus "(II) the sum of the credit recapture amounts with respect to such property for all preceding taxable years. "(C)

Ante, p. 203.

SPECIAL RULES FOR DETERMINING PRINCIPAL TO BE

PAID.—For purposes of subparagraph (B)(i), in determining the amount of the principal to be paid under a level payment loan, such determination shall be made as if such loan was to be fully repaid by the end of a period equal to the earlier of— "(i) the present class life (as defined in section 168(g)(2)) of the property or, if the property has no present clsiss life, a similar period determined by the Secretary, or "(ii) the period at the end of which full repayment is to occur under the terms of the loan. "(D)

SPECIAL RULE FOR CERTAIN CUMULATIVE DEFICIEN-

CIES.—If the excess of— "(i) the amount of the total scheduled principal payments under a loan described in subparagraph (B)(i) as of the close of the taxable year, over "(ii) the total principal actually paid under such loan as of the close of such taxable year, is equal to or greater than the amount of such total scheduled payments for the 5-taxable year period ending with such taxable year, then, notwithstanding subparagraph (B), the credit recapture amount for such taxable year shall be equal to the principal remaining to be paid as of the close of

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95 STAT. 233

such taxable year over the sum of the credit recapture amounts with respect to such property for all preceding taxable years. "(E) SPECIAL RULE FOR CERTAIN DISPOSITIONS.—

"(i) IN GENERAL.—If any property which is held by the taxpayer and to which this paragraph applies is disposed of by the taxpayer, then for purposes of paragraph (1) and notwithstanding subparagraph (B), the credit recapture amount for the taxpayer shall be an amount equal to the unpaid principal on the loan described in subparagraph (B)(i) as of the date of disposition; "(ii) ASSUMPTIONS, ETC.—Any amount of the loan described in subparagraph (B)(i) which is assumed or taken subject to by any person shall be treated for purposes of clause (i) as not reducing unpaid principal with respect to such loan. "(F) APPLICATION WITH SUBSECTION (a).—The amount of

any increase in tax under subsection (a) with respect to any property to which this paragraph applies shall be determined by reducing the qualified investment with respect to such property by the aggregate credit recapture amounts for all taxable years under this paragraph. "(G) ADDITIONAL INTEREST.—In the case of any increase in tax under paragraph (1) by reason of the application of this paragraph, there shall be added to such tax interest on such tax (determined under section 6621) as if the increase in tax under paragraph (1) was for the taxable year in which the property was placed in service." (g) AMENDMENT OF RECAPTURE RULES.—

(1) IN GENERAL.—Subsection (a) of section 47 (relating to 26 USC 47. certain dispositions, etc, of section 38 property) is amended by redesignating paragraphs (5), (6), and (7) as paragraphs (6), (7), and (8), respectively, and by inserting after paragraph (4) the following new paragraph: "(5) SPECIAL RULES FOR RECOVERY PROPERTY.— "(A) GENERAL RULE.—If, during any taxable year, section

38 recovery property is disposed of, or otherwise ceases to be section 38 property with respect to the taxpayer before the close of the recapture period, then, except as provided in subparagraph (D), the tax under this chapter for such taxable year shall be increased by the recapture percentage of the aggregate decrease in the credits allowed under section 38 for all prior taxable years which would have resulted solely from reducing to zero the qualified investment taken into account with respect to such property. "(B) RECAPTURE PERCENTAGE.—For purposes of subparagraph (A), the recapture percentage shall be determined in accordance with the following table: "If the recovery property ceases to be section 38 property within— One full year after placed in service One full year after the close of the period described in clause (i) One full year after the close of the period described in clause (ii)

The recapture percentage is: For 15-year, 10-year, and 5-year property

For 3-year property

100

100

80

66

60

33

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 95 STAT. 234

PUBLIC LAW 97-34—AUG. 13, 1981 "If the recovery property ceases to be section 38 property within— One full year after the close of the period described in clause (iu) One full year after the close of the period described in clause (iv)

The recapture percentage is For 15-year, 10-year, and 5-year property

For 3-year property

40

0

20

0

"(C) PROPERTY CEASES TO BE PROGRESS EXPENDITURE PROP-

Ante, p. 228.

ERTY.—If, during any taxable year, any recovery property taken into account in determining qualified investment Under section 46(d)(l) ceases to be progress expenditure property (as determined under paragraph (3)) or becomes, with respect to the taxpayer, recovery property of a character other than that expected in determining the applicable percentage under section 46(d)(l)(B)(i), then the tax under this chapter for such taxable year shall be acHusted in accordance with regulations prescribed by the Secretary. "(D) LiMirATiON.—The tax for the taxable year shall be increased under subparagraph (A) only with respect to the credits allowed under section 38 which were used to reduce tax liability. In the case of credits not so used to reduce tax liability, the carrybacks and carryovers under section 46(b) shall be appropriately adjusted. "(E) DEFINITIONS AND SPECIAL RULES.—

Ante, p. 203.

"(i) SECTION 38 RECOVERY PROPERTY.—For purposes of this paragraph, the term 'section 38 recovery property' means any section 38 property which is recovery property (withm the meaning of section 168). (ii) RECAPTURE PERIOD.—For purposes of this paragraph, the term 'recapture period' means, with respect to any recovery property, the period consisting of the first full year after the property is placed in service and the 4 succeeding full years (the 2 succeeding full years in the case of 3-year property). "(iii) CLASSIFICATION OF PROPERTY.—For purposes of this paragraph, property shall be classifed as provided in section 168(c). "(iv) PARAGRAPH (1) NOT TO APPLY.—Paragraph (1)

shall not apply with respect to any recovery property." 26 USC 47.

(2) TECHNICAL AMENDMENTS.—

(A) Subparagraph (D) of section 47(a)(3) is amended to read as follows: "(D) COORDINATION WITH PARAGRAPHS (1) AND (5).—If, after property is placed in service, there is a disposition or other cessation described in pars^aph (1), or a disposition, cessation, or change in expected use described in paragraph (5), then paragraph (1) or (5), as the case may be, shall be applied as if any credit, which was allowable by reason of section 46(d) and which has not been required to be recaptured before such disposition, cessation, or change in use were allowable for the taxable year the property was placed in service." (B) Pars^aph (6) of section 47(a) (as redesignated by paragraph (1) of this subsection) is amended by striking out "paragraph (1) or (3)" and inserting in lieu thereof "paragraph (1), (3), or (5)".

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95 STAT. 235

(C) Subparagraph (B) of section 47(a)(7) (as redesignated by paragraph (1)) is amended by striking out "paragraph (5) and inserting in lieu thereof paragraph (6)". (h) TREATMENT OP CERTAIN LEASED ROLUNG STOCK.—Clause (ii) of

section 48(a)(2)(B) is amended to read as follows: 26 USC 48. "(ii) rolling stock which is used within and without the United States and which is— "(I) of a domestic railroad corporation providing transportation subject to subchapter I of chapter 105 of title 49, or 49 USC losoi. "(n) of a United States person (other than a corporation described in subclause (I)) but only if the rolling stock is not leased to one or more foreign persons for periods aggregating more than 12 months in any 24-month period;", (i) EFFECTIVE DATE.— 26 USC 46 note. (1) IN GENERAL.—Except as provided in this subsection, the amendments made by this section shall apply to property placed in service after December 31, 1980. (2) PROGRESS EXPENDITURES.—The amendments made by subsection (b) shall apply to progress expenditures made after December 31, 1980. (3) PETROLEUM STORAGE FACILITIES.—The amendments made by subsection (c) shall apply to periods after December 31, 1980, under rules similar to the rules under section 48(m). (4) NONCORPORATE LESSORS.—The amendments made by subsection (d) shall apply to leases entered into after June 25, 1981. (5) AT RISK RULES.— (A) IN GENERAL.—The amendment made by subsection (f) shall not apply to— (i) property placed in service by the taxpayer on or before February 18, 1981, and t; (ii) property placed in service by the taxpayer after February 18, 1981, where such property is acquired by the taxpayer pursuant to a binding contract entered into on or before that date. (B) BINDING CONTRACT.—For purposes of subparagraph (A)(ii), property acquired pursuant to a binding contract shall, under regulations prescribed by the Secretary, include property acquired in a manner so that it would have qualified as pretermination property under section 49(b) (as in effect before its repeal by the Revenue Act of 1978). (6) LEASED ROLLING STOCK.—The amendment made by subsection (h) shall apply to taxable years beginning after December 31, 1980. SEC. 212. INCREASE IN INVESTMENT TAX CREDIT FOR QUALIFIED REHABILITATION EXPENDITURES. (a) INCREASE IN AMOUNT OF CREDIT.—

(1) IN GENERAL.—Subparagraph (A) of section 46(a)(2) (relating 26 USC 46. to amount of investment tax credit) is amended by striking out "and" at the end of clause (ii), by striking out the period at the end of clause (iii), by inserting in lieu thereof ", and", and by adding at the end thereof the following new clause: "(iv) in the case of that portion of the basis of any property which is attributable to qualified rehabilitation expenditures, the rehabilitation percentage.".

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Page:United States Statutes at Large Volume 95.djvu/262

 95 STAT. 236 26 USC 46.

PUBLIC LAW 97-34—AUG. 13, 1981 (2) REHABILITATION PERCENTAGE DEFINED.—Paragraph (2) of

section 46(a) is amended by adding at the end thereof the following new subparagraph: "(F) REHABILITATION PERCENTAGE.—For purposes of this paragraph— "(i) IN GENERAL.—

"In the case of qualified rehabilitation expenditures with respect to a: 30-year building 40-year building Certified historic structure

The rehabilitation percentage is: 15 20 25.

"(ii) REGULAR AND ENERGY PERCENTAGES NOT TO

26 USC 48.

APPLY.—The regular percentage and the energy percentage shall not apply to that portion of the basis of any property which is attributable to qualified rehabilitation expenditures, "(iii) DEFINITIONS.— "(I) 80-YEAR BUILDING.—The term *30-year building' means a qualified rehabilitated building other than a 40-year building and other than a certified historic structure. "(II) 40-YEAR BUILDING.—The term *40-year building' means any building (other than a certified historic structure) which would meet the requirements of section 48(g)(1)(B) if *40' were substituted for '30' each place it appears in subparagraph (B) thereof "(HI) CERTIFIED HISTORIC STRUCTURE.—The term 'certified historic structure' has the meaning given to such term by section 48(g)(3)." (3) CONFORMING AMENDMENT.—Section 48(o) (defining certain credits) is amended by adding at the end thereof the following new paragraph: "(8) REHABILITATION INVESTMENT CREDIT.—The term 'rehabilitation investment credit' means that portion of the credit allowable by section 38 which is attributable to the rehabilitation percentage." (b) QUALIFIED REHABIUTATED BUILDINGS AND EXPENDITURES.—Sub-

section (g) of section 48 (relating to special rules for qualified rehabilitated buildings) is amended to read as follows:

"(g) SPECIAL RULES FOR QUALIFIED REHABILITATED BUILDINGS.—For

purposes of this subpart—

"(1) QUALIFIED REHABILITATED BUILDING DEFINED.—

(A) IN GENERAL.—The term 'qualified rehabilitated building' means any building (and its structural components)— "(i) which has been substantially rehabilitated, "(ii) which was placed in service before the beginning of the rehabilitation, and "(iii) 75 percent or more of the existing external walls of which are retained in place as external walls in the rehabilitation process. "(B) 30 YEARS MUST HAVE ELAPSED SINGE CONSTRUCTION.—

In the case of a building other than a certified historic structure, a building shall not be a qualified rehabilitated building unless there is a period of at least 30 years between

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95 STAT. 237

the date the physical work on the rehabilitation began and the date the building was first placed in service. "(C) SUBSTANTIALLY REHABIUTATED DEFINED.—

"(i) IN GENERAL.—For purposes of subparagraph (A)(i), a building shall be treated as having been substantially rehabilitated only if the qualified rehabilitation expenditures during the 24-month period ending on the last day of the taxable year exceed the greater of— "(I) the adjusted basis of such property, or "(II) $5,000. The adjusted basis of the property shall be determined as of the beginning of the first day of such 24-month period, or of the holding period of the property (within the meaning of section 1250(e)), whichever is later. 26 USC 1250. "(ii) SPECIAL RULE FOR PHASED REHABILITATION.—In

the case of any rehabilitation which may reasonably be expected to be completed in phases set forth in architectural plans and specifications completed before the rehabilitation begins, clause (i) shall be applied by substituting *60-month period' for *24-month period. "(iii) LESSEES.—The Secretary shall prescribe by regulation rules for applying this provision to lessees. "(D) RECONSTRUCTION.—Rehabilitation includes reconstruction. "(2) QUALIFIED REHABILITATION EXPENDITURE DEFINED.—

(A) IN GENERAL.—The term 'qualified rehabilitation expenditure' means any amount properly chargeable to capital account which is incurred after December 31, 1981— "(i) for property (or additions or improvements to property) which have a recovery period (within the meaning of section 168) of 15 years, and Ante, p. 203. "(ii) in connection with the rehabilitation of a qualified rehabilitated building. "(B) CERTAIN EXPENDITURES NOT INCLUDED.—The term 'qualified rehabilitation expenditure' does not include— "(i) ACCELERATED METHODS OF DEPRECIATION MAY NOT

BE USED.—Any expenditures with respect to which an election has not been made under section 168(b)(3) (to use the straight-line method of depreciation). "(ii) COST OF ACQUISITION.—The cost of acquiring any building or interest therein. "(iii) ENLARGEMENTS.—Any expenditure attributable to the enlargement of an existing building. "(iv)

CERTIFIED

HISTORIC STRUCTURE, ETC.—Any

expenditure attributable to the rehabilitation of a certified historic structure or a building in a registered historic district, unless the rehabilitation is a certified rehabilitation (within the meaning of subparagraph (C)). The preceding sentence shall not apply to a building in a registered historic district if— "(I) such building was not a certified historic structure, "(II) the Secretary of the Interior certified to the Secretary that such building is not of historic significance to the district, and "(III) if the certification referred to in subclause (II) occurs after the beginning of the rehabilitation of such building, the taxpayer certifies to the Secre-

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 95 STAT. 238

PUBLIC LAW 97-34—AUG. 13, 1981 tary that, at the beginning of such rehabilitation, he in good faith was not aware of the requirements of subclause (II). "(v) EXPENDITURES OF LESSEE.—Any expenditure of a lessee of a building if, on the date the rehabilitation is completed, the remaining term of the lease (determined without regard to any renewal periods) is less than 15 years. "(C) CERTIFIED REHABILITATION.—For purposes of subparagraph (B), the term 'certified rehabilitation' means any rehabilitation of a certified historic structure which the Secretary of the Interior has certified to the Secretary as being consistent with the historic character of such property or the district in which such property is located. "(3) CERTIFIED HISTORIC STRUCTURE DEFINED.—

"(A) IN GENERAL.—The term 'certified historic structure' means any building (and its structural components) which— "(i) is listed in the National Register, or "(ii) is located in a registered historic district and is certified by the Secretary of the Interior to the Secretary as being of historic significance to the district. "(B) REGISTERED HISTORIC DISTRICT.—The term 'registered historic district' meeuis— "(i) any district listed in the National Register, and "(ii) any district— "(I) which is designated under a statute of the appropriate State or local government, if such statute is certified by the Secretary of the Interior to the Secretary as containing criteria which will substantially achieve the purpose of preserving and rehabilitating buildings of historic significance to the district, and "(II) which is certified by the Secretary of the Interior to the Secretary as meeting substantially all of the requirements for the listing of districts in the National Register. "(4) PROPERTY TREATED AS NEW SECTION 38 PROPERTY.—Prop-

26 USC 38.

erty which is treated as section 38 property by reason of subsection (a)(1)(E) shall be treated as new section 38 property. "(5) ADJUSTMENT TO BASIS.—

"(A) IN GENERAL.—For purposes of this subtitle, if a credit is allowed under this section for any qualified rehabilitation expenditure in connection with a qualified rehabilitated building other than a certified historic structure, the increase in basis of such property which would (but for this paragraph) result from such expenditure shall be reduced by the amount of the credit so allowed. "(B) CERTAIN DISPOSITIONS.—If during any taxable year there is a recapture amount determined with respect to any qualified rehabilitated building the basis of which was reduced under subparagraph (A), the basis of such building (immediately before the event resulting in such recapture) shall be increased by an amount equal to such recapture amount. For purposes of the preceding sentence, the term 'recapture amount' means any increase in tax (or adjustment in carrybacks or carryovers) determined under section Ante, p. 233.

47(a)(5)."

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95 STAT. 239

(c) LODGING TO QUALIFY.—Paragraph (3) of section 48(a) (relating to 26 USC 48. property used for lodging) is amended— (1) by striking out "and" at the end of subparagraph (B), (2) by striking out the period at the end of subparagraph (C) and inserting in lieu thereof ", and", and (3) by adding at the end thereof the following new subparagraph: "(D) a certified historic structure to the extent of that portion of the basis which is attributable to qualified rehabilitation expenditures." (d) REPEAL OF STRUCTURES.—

CERTAIN

PROVISIONS

RELATING

TO HISTORIC

(1) IN GENERAL.—Section 191 (relating to amortization of cer- Repeals, tain rehabilitation expenditures for certified historic structures)?L^^^ ^^^' and subsections (n) and (o) of section 167 (relating to depreciation) are hereby repealed. (2) CONFORMING AMENDMENTS.—

(A) Paragraph (8) of section 48(a) (relating to amortized property) is amended by striking out "188, or 191" and inserting in lieu thereof'W188". (B) Paragraph (2) of section 57(a) (relating to items of tax preference) is amended by striking out "or 191". (C) Section 280B (relating to demolition of certain historic structures) is amended— (i) by striking out "section 191(d)(1)" in subsection (a), and inserting in lieu thereof "48(g)(3)(A)", and (ii) by striking out "section 191(d)(2)" in subsection (b) and inserting in lieu thereof "section 48(g)(3)(B)". (D) Subsection (f) of section 642 (relating to special rules for credits and deductions) is amended by striking out "188, and 191" and inserting in lieu thereof "and 188". (E) Subparagraph (B) of section 1082(a)(2) (relating to basis for determining gain or loss) is amended by striking out "188, or 191" and inserting in lieu thereof "or 188". (F) Paragraph (2) of section 1245(a) (relating to gain from dispositions of certain depreciable property) and paragraph (4) of section 1250(b) (relating to gain from dispositions of certain depreciable realty) are each amended by inserting "(as in effect before its repeal by the Economic Recovery Tax Act of 1981)" after "191" each place it appears. (G) Subsection (a) of section 1016 (relating to adjustments to basis) is amended— (i) by striking out "and" at the end of paragraph (22), (ii) by striking out the period at the end of paragraph (23) and inserting in lieu thereof ", and", and (iii) by adding at the end thereof the following new paragraph: "(24) to the extent provided in section 48(g)(5), in the case of expenditures with respect to which a credit has been allowed under section 38." (e) EFFECTIVE DATES.— (1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to expenditures incurred after December 31, 1981, in taxable years ending after such date. (2) TRANSITIONAL RULE.—The amendments made by this section shall not apply with respect to any rehabilitation of a building if^

26 USC 48. 26 USC 57. 26 USC 280B.

26 USC 642. 26 USC 1082. 26 USC 1245. 26 USC 1250.

26 USC 1016.

Ante, p. 236. 26 USC 46 note.

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 95 STAT. 240

PUBLIC LAW 97-34—AUG. 13, 1981 (A) the physical work on such rehabilitation began before January 1, 1982, and (B) such building meets the requirements of paragraph (1) of section 48(g) of the Internal Revenue Code of 1954 (as in effect on the day before the date of enactment of this Act) but does not meet the requirements of such paragraph (1) (as amended by this Act). SEC. 213. INVESTMENT CREDIT FOR USED PROPERTY; INCREASE IN DOLLAR LIMIT.

26 USC 48.

(a) IN GENERAL.—Paragraph (2) of section 48(c) (relating to used section 38 property) is amended by amending subparagraphs (A), (B), and (C) to read as follows: "(2) DOLLAR LIMITATION.—

26 USC 48 note.

"(A) IN GENERAL.—The cost of used section 38 property taken into account under section 46(c)(l)(B) for any taxable year shall not exceed $150,000 ($125,000 for taxable years beginning in 1981, 1982, 1983, or 1984). If such cost exceeds $150,000 (or $125,000 as the case may be), the taxpayer shall select (at such time and in such manner as the Secretary shall by regulations prescribe) the items to be taken into account, but only to the extent of an aggregate cost of $150,00 (or $125,000). Such a selection, once made, may be changed only in the manner, and to the extent, provided by such regulations. "(B) MARRIED INDIVIDUALS.—In the case of a husband or wife who files a separate return, the limitation under subparagraph (A) shall be $75,000 ($62,500 for taxable years beginning in 1981, 1982, 1983, or 1984). This subparagraph shall not apply if the spouse of the taxpayer has no used section 38 property which may be taken into account as qualified investment for the taxable year of such spouse which ends within or with the taxpayer's taxable year. "(C) CONTROLLED GROUPS.—In the case of a controlled group, the amount specified under subparagraph (A) shall be reduced for each component member of the group by apportioning such amount among the component members of such group in accordance with their respective amounts of used section 38 property which may be taken into account." (b) EFFECTIVE DATE.—The amendment made by this section shall apply to property placed in service after December 31, 1980. SEC. 214. INVESTMENT TAX CREDIT ALLOWED FOR CERTAIN REHABILITATED BUILDINGS LEASED TO TAX-EXEMPT ORGANIZATIONS OR TO GOVERNMENTAL UNITS. (a) USE BY TAX-EXEMPT ORGANIZATIONS.—Paragraph (4) of section

94 Stat. 3525.

48(a) (relating to property used by certain tax-exempt organizations) is amended by adding at the end thereof the following new sentence: "If any qualified rehabilitated building is used by the tax-exempt organization pursuant to a lease, this paragraph shall not apply to that portion of the basis of such building which is attributable to qualified rehabilitation expenditures." 0^) UsE BY GOVERNMENTAL UNITS.—Paragraph (5) of section 48(a) (relating to governmental units) is amended by adding at the end thereof the following new sentence: "If any qualified rehabilitated building is used by the governmental unit pursuant to a lease, this paragraph shall not apply to that portion of the basis of such building which is attributable to qualified rehabilitation expenditures."

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95 STAT. 241

(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 48 note. apply to uses after July 29, 1980, in taxable years ending after such date.

Subtitle C—Incentives for Research and Experimentation SEC. 221. CREDIT FOR INCREASING RESEARCH ACTIVITIES. (a) GENERAL RULE.—Subpart A of part IV of subchapter

A of chapter 1 (relating to credits allowable) is amended by inserting after section 44E the following new section: "SEC. 44F. CREDIT FOR INCREASING RESEARCH ACTIVITIES.

"(a) GENERAL RULE.—There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to 25 percent of the excess (if any) of— "(1) the qualified research expenses for the taxable year, over "(2) the base period research expenses. "(b) QUALIFIED RESEARCH EXPENSES.—For purposes of this section— "(1) QUALIFIED RESEARCH EXPENSES.—The term 'qualified research expenses' means the sum of the following amounts which are paid or incurred by the taxpayer during the taxable year in carrying on any trade or business of the taxpayer— "(A) in-house research expenses, and "(B) contract research expenses. "(2) IN-HOUSE RESEARCH EXPENSES.—

"(A) IN GENERAL.—The term *in-house research expenses' means— "(i) any w ^ e s paid or incurred to an employee for qualified services performed by such employee, "(ii) any amount paid or incurred for supplies used in the conduct of qualified research, and "(iii) any amount paid or incurred to another person for the right to use personal property in the conduct of qualified research. "(B) QUALIFIED SERVICES.—The term 'qualified services' means services consisting of— "(i) engaging in qualified research, or "(ii) engaging in the direct supervision or direct support of research activities which constitute qualified research. If substantially all of the services performed by an individual for the taxpayer during the taxable year consists of services meeting the requirements of clause (i) or (ii), the term 'qualified services' means all of the services performed by such individual for the taxpayer during the taxable year. "(C) SuppuES.—The term 'supplies' means any tangible property other than— "(i) land or improvements to land, and "(ii) property of a character subject to the allowance for depreciation. "(D) WAGES.—

"(i) IN GENERAL.—The term 'wages' has the meaning given such term by section 3401(a).

26 USC 44F.

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Page:United States Statutes at Large Volume 95.djvu/268

 95 STAT. 242

PUBLIC LAW 97-34—AUG. 13, 1981 "(ii) SELF-EMPLOYED INDIVIDUALS AND OWNER-EMPLOY-

26 USC 401.

EES.—In the case of an employee (within the meaning of section 401(c)(1)), the term 'wages' includes the earned income (as defined in section 401(c)(2)) of such employee, "(iii) EXCLUSION FOR WAGES TO WHICH NEW JOBS OR WIN CREDIT APPLIES.—The term 'wages' shall not include any amount taken into account in computing the credit under section 40 or 44B. "(8) CONTRACT RESEARCH EXPENSES.—

"(A) IN GENERAL.—The term 'contract research expenses' means 65 percent of any amount paid or incurred by the taxpayer to any person (other than an employee of the taxpayer) for qualified research. "(B)

PREPAID

AMOUNTS.—If

any

contract

research

expenses paid or incurred during any taxable year are attributable to qualified research to be conducted after the close of such taxable year, such amount shall be treated as paid or incurred during the period during which the qualified research is conducted. "(c) BASE PERIOD RESEARCH EXPENSES.—For purposes of this section— "(1) IN GENERAL.—The term 'base period research expenses' means the average of the qualified research expenses for each year in the base period. "(2) BASE PERIOD.—

"(A) IN GENERAL.—For purposes of this subsection, the term 'base period' means the 3 taxable years immediately preceding the taxable year for which the determination is being made (hereinafter in this subsection referred to as the 'determination year'). "(B) TRANSITIONAL RULES.—Subparagraph (A) shall be applied— "(i) by substituting 'first taxable year' for '3 taxable years' in the case of the first determination year ending after June 30, 1981, and "(ii) by substituting '2' for '3' in the case of the second determination year ending after June 30, 1981. "(3) MINIMUM BASE PERIOD RESEARCH EXPENSES.—In no event shall the base period research expenses be less than 50 percent of the qualified research expenses for the determination year. "(d) QuAUFiED RESEARCH.—For purposes of this section the term 'qualified research' has the same meaning as the term research or experimental has under section 174, except that such term shall not include— "(1) qualified research conducted outside the United States, "(2) qualified research in the social sciences or humanities, and "(3) qualified research to the extent funded by any grant, contract, or otherwise by another person (or any governmental entity). "(e) CREDIT AVAILABLE WITH RESPECT TO CERTAIN BASIC RESEARCH BY COLLEGES, UNIVERSITIES, AND CERTAIN RESEARCH ORGANIZATIONS.—

Post, p. 248.

"(1) IN GENERAL.—65 percent of any amount paid or incurred by a corporation (as such term is defined in section 170(e)(4)(D)) to any qualified organization for basic research to be performed by such organization shall be treated as contract research expenses. The preceding sentence shall apply only if the amount is paid or

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95 STAT. 243

incurred pursuant to a written research agreement between the corporation and the qualified organization. "(2) QuAUFiED ORGANIZATION.—For purposes of this subsection, the term 'qualifled organization' means— "(A) any educational organization which is described in section 170(b)(l)(A)(ii) and which is an institution of higher 26 USC 170. education (as defined in section 3304(f)), and "(B) any other organization which— "(i) is described in section 501(c)(3) and exempt from tax under section 501(a), "(ii) is organized and operated primarily to conduct scientific research, and "(iii) is not a private foundation. "(3) BASIC RESEARCH.—The term 'basic research' means any original investigation for the advancement of scientific knowledge not having a specific commercial objective, except that such term shall not include— "(A) basic research conducted outside the United States, and "(B) basic research in the social sciences or humanities. "(4) SPECIAL RULES FOR GRANTS TO CERTAIN FUNDS.—

"(A) IN GENERAL.—For purposes of this subsection, a qualified fund shall be treated as a qualified organization and the requirements of paragraph (1) that the basic research be performed by the qualified organization shall not apply. "(B) QUALIFIED FUND.—For purposes of subparagraph (A), the term 'qualified fund' means any organization which— "(i) is described in section 501(c)(3) and exempt from tax under section 501(a) and is not a private foundation, "(ii) is established and maintained by an organization established before July 10, 1981, which meets the requirements of clause (i), "(iii) is organized and operated exclusively for purposes of m ^ i n g grants pursuant to written research agreements to orgEUiizations described in paragraph (2)(A) for purposes of basic research, and "(iv) makes an election under this paragraph. "(C) EFFECT OF ELECTION.—

"(i) IN GENERAL.—Any organization which makes an election under this paragraph shall be treated as a private foundation for purposes of this title (other than section 4940, relating to excise tax based on investment income). "(ii) ELECTION REVOCABLE ONLY WITH CONSENT.—An

election under this paragraph, once made, may be revoked only with the consent of the Secretary. "(f) SPECIAL RULES.—For purposes of this section— "(1) AGGREGATION OF EXPENDITURES.— "(A) CONTROLLED GROUP OF CORPORATIONS.—In

determin-

ing the amount of the credit under this section— "(i) all members of the same controlled group of corporations shall be treated as a single taxpayer, and "(ii) the credit (if any) allowable by this section to each such member shall be its proportionate share of the increase in qualified research expenses giving rise to the credit.

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Page:United States Statutes at Large Volume 95.djvu/270

 95 STAT. 244

PUBLIC LAW 97-34—AUG. 13, 1981 "(B) COMMON CONTROL.—-Under regulations prescribed by the Secretary, in determining the amount of the credit under this section— "(i) all trades or businesses (whether or not incorporated) which are under common control shall be treated as a single taxpayer, and "(ii) the credit (if any) allowable by this section to each such person shall be its proportionate share of the increase in qualified research expenses giving rise to the credit. The regulations prescribed under this subparagraph shall be based on principles similar to the principles which apply in the case of subparagraph (A). "(2) ALLOCATIONS.— "(A) PASSTHROUGH IN THE CASE OF SUBCHAPTER S CORPORATIONS, ETC.—Under regulations prescribed by the Secretary,

26 USC 52.

rules similar to the rules of subsections (d) and (e) of section 52 shall apply.

"(B) ALLOCATION IN THE CASE OP PARTNERSHIPS.—In the

case of partnerships, the credit shall be allocated among partners under regulations prescribed by the Secretary. "(3) ADJUSTMENTS FOR CERTAIN ACQUISITIONS, ETC.—Under regulations prescribed by the Secretary— "(A) ACQUISITIONS.—If, after June 30, 1980, a taxpayer acquires the major portion of a trade or business of another person (hereinsdfter in this paragraph referred to as the predecessor') or the major portion of a separate unit of a trade or business of a predecessor, then, for purposes of appl^^g this section for any taxable year ending after such acquisition, the amount of qualified research expenses paid or incurred by the taxpayer during periods before such acquisition shall be increased by so much of such expenses paid or incurred by the predecessor with respect to the acquired trade or business as is attributable to the portion of such trade or business or separate unit acquired by the taxpayer. "(B) DISPOSITIONS.—If, after June 30, 1980— "(i) a taxpayer disposes of the major portion of any trade or business or the major portion of a separate unit of a trade or business in a transaction to which subparagrai}h (A) applies, and "(ii) the taxpayer furnished the acquiring person such information as is necessary for the application of subparagraph (A), then, for purposes of applying this section for any taxable year ending after such disposition, the amount of qualified research expenses paid or incurred by the taxpayer during periods before such disposition shall be decreased by so much of such expenses as is attributable to the portion of such trade or business or separate unit disposed of by the taxpayer. "(C) INCREASE IN BASE PERIOD.—If during any of the 3 taxable years following the taxable year in which a disposition to which subparagraph (B) applies occurs, the disposing taxpayer (or a person with whom the taxpayer is required to aggregate expenditures under paragraph (1)) reimburses the acquiring person (or a person required to so aggregate expenditures with such person) for research on behsdf of the

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 PUBLIC LAW 97-34—AUG. 13, 1981

95 STAT. 245

taxpayer, then the amount of qualified research expenses of the tfi«payer for the base period for such taxable year shall be increased by the lesser of— "(i) the amount of the decrease under subparagraph (B) which is allocable to such base period, or "(ii) the product of the number of years in the base period, multiplied by the amount of the reimbursement described in this subparagraph. "(4) SHORT TAXABLE YEARS.—In the case of any short taxable year, qualified research expenses shall be annualized in such circumstances and under such methods as the Secretary may prescribe by regulation. "(5) CONTROLLED GROUP OF CORPORATIONS.—The term 'controlled group of corporations' has the same meaning given to such term by section 1563(a), except that— 26 USC 1563. "(A) more than 50 percent* shall be substituted for 'at least 80 percent' each place it appears in section 1563(a)(1), and "(B) the determination shall be made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. "(g) LIMITATION BASED ON AMOUNT OF TAX.— "(1) LIABILITY FOR TAX.—

"(A) IN GENERAL.—Except as provided in subparagraph (B), the credit allowed by subsection (a) for any taxable year shall not exceed the amount of the tax imposed by this chapter reduced by the sum of the credits allowable under a section of this part having a lower number or letter designation than this section, other than the credits allowable by sections 31, 39, and 43. For purposes of the preceding sentence, the term 'tax imposed by this chapter' shall not include any tax treated as not imposed by this chapter under the last sentence of section 53(a). "(B) SPECIAL RULE FOR PASSTHROUGH OF CREDIT.—In the

case of an individual who— "(i) owns an interest in an unincorporated trade or business, "(ii) is a partner in a partnership, "(iii) is a beneficiary of an estate or trust, or "(iv) is a shareholder in an electing small business corporation (within the meaning of section 1371(b)), the credit allowed by subsection (a) for any taxable year shall not exceed the lesser of the amount determined under subparagraph (A) for the taxable year or an amount (separately computed with respect to such person's interest in such trade or business or entity) equal to the amount of tax attributable to that portion of a person's taxable income which is allocable or apportionable to the person's interest in such trade or business or entity. "(2) CARRYBACK AND CARRYOVER OP UNUSED cREorr."(A) ALLOWANCE OF CREDIT.—If the amount of the credit determined under this section for any taxable year exceeds the limitation provided by paragraph (1) for such taxable year (hereinafter in this paragraph referred to as the unused credit year'), such excess shall be— "(i) a research credit carryback to each'of the 3 taxable years preceding the unused credit year, and "(ii) a research credit carryover to each of the 15 taxable years following the unused credit year.

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