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"(3) EXCEPTION.—Paragraph (1) shall not apply to any dividends if an election under section 1562 is effective for either— " (A) the taxable year of the domestic corporation in which such dividends are received, or " (B) the taxable year of the foreign corporation out of the earnings and profits of which such dividends are paid.'' (2) Subsection (a) of such section 245 is amended by adding at the end thereof (after the sentence added by subsection (d)(4)) the following new sentence: " For purposes of paragraph (2), there shall not be taken into account any taxable year within such uninterrupted period if, with respect to dividends paid out of the earnings and profits of such year, the deduction provided by subsection (b) would be allowable." (3) Subsection (c) of such section 245 (as redesignated by paragraph (1)) is amended by striking out "subsection (a) " and inserting in lieu thereof "subsections (a) and (b)". (f)

DISTRIBUTIONS or

1559 ^s Stat. u?.

Ante, p. 1558.

CERTAIN FOREIGN CORPORATIONS.—Section

301(b)(1)(C) (relating to certain corporate distributees of foreign corporations) is amended— (1) by striking out "gross income from sources within the United States" in clause (i) and inserting in lieu thereof "gross income which is effectively connected with the conduct of a trade or business within the United States"; (2) by striking out "gross income from sources without the United States" in clause (ii) and inserting in lieu thereof "gross income which is not effectively connected with the conduct of a trade or business within the United States"; and (3) by adding at the end thereof the following new sentences: "For purposes of clause (i), the gross income of a foreign corporation for any period before its first taxable year beginning after December 31, 1966, which is effectively connected with the conduct of a trade or business within the United States is an amount equal to the gross income for such period from sources within the United States. For purposes of clause (ii), the gross income of a foreign corporation for any period before its first taxable year beginning after December 31, 1966, which is not effectively connected with the conduct of a trade or business within the United States is an amount equal to the gross income for such period from sources without the United States." (g) UNRELATED BUSINESS TAXABLE INCOME.—The last sentence of section 512(a) (relating to definition) is amended to read as follows: "In the case of an organization described in section 511 which is a foreign organization, the unrelated business taxable income shall be its unrelated business taxable income which is effectively connected with the conduct of a trade or business within the United States."

76 Stat. 977.

^^^ s*^* 1^°

(h) CORPORATIONS SUBJECT TO PERSONAL HOLMNG COMPANY T A X. —

(1) Paragraph (7) of section 542(c) (relating to corporations yg^^f t^*f ^^^' not subject to personal holding company tax) is amended to read as follows: "(7) a foreign corporation (other than a corporation which has income to which section 543(a)(7) applies for the taxable ^s Stat. si. year), if all of its stock outstanding during the last half of the taxable year is owned by nonresident alien individuals, whether directly or indirectly through foreign estates, foreign trusts, foreign partnerships, or other foreign corporations;". (2) Section 543(b)(1) (relating to definition of ordinary gross income) is amended— (A) by striking out "and" at the end of subparagraph (A),

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(B) by striking out the period at the end of subparagraph (B) and inserting in lieu thereof ", and"', and (C) by inserting after subparagraph (B) the following new subparagraph: " (C) in the case of a foreign corporation all of the outstanding stock of which during the last half of the taxable year is owned by nonresident alien individuals (whether directly or indirectly through foreign estates, foreign trusts, foreign partnerships, or other foreign corporations), all items of income which would, but for this subparagraph, constitute personal holding company income under any paragraph of subsection (a) other than paragraph (7) thereof:" 68A Stat. 189. ^3^ Section 645 (relating to definition of undistributed personal holding company income) is amended— (A) by striking out subsection (a) and inserting in lieu thereof the following: " (a) DEFINITION.—For purposes of this part, the term 'undistributed personal holding company income' means the taxable income of a personal holding company adjusted in the manner provided in subsections (b), (c), and (d), minus the dividends paid deduction as defined in section 561. I n the case of a personal holding company which is a foreign corporation, not more than 10 percent in value of the outstanding stock of which is owned (within the meaning of sec76 Stat. 1018. (-Ion 958(a)) during the last half of the taxable year by United States persons, the term 'undistributed personal holding company income' means the amount determined by multiplying the undistributed personal holding company income (determined without regard to this sentence) by the percentage in value of its outstanding stock which is the greatest percentage in value of its outstanding stock so owned by United States persons on any one day during such period."; and (B) by adding at the end thereof the following new subsection: " (d) CERTAIN FOREIGN CORPORATIONS.—In the case of a foreign corporation all of the outstanding stock of which during the last half of the taxable year is owned by nonresident alien individuals (whether directly or indirectly through foreign estates, foreign trusts, foreign partnerships, or other foreign corporations), the taxable income for purposes of subsection (a) shall be the income which constitutes 78 Stat. 81. personal holding company income under section 543(a)(7), reduced by the deductions attributable to such income, and adjusted, with respect to such income, in the manner provided in subsection (b). " 26 USC 6671. (4)(A) Subchapter B of chapter 68 (relating to assessable penalties) is amended by adding at the end thereof the following new section: "SEC. 6683. FAILURE OF FOREIGN CORPORATION TO FILE RETURN OF PERSONAL HOLDING COMPANY TAX. "Any foreign corporation which— "(1) is a personal holding company for any taxable year, and " (2) fails to file or to cause to be filed with the Secretary or his delegate a true and accurate return of the tax imposed by section 541, shall, in addition to other penalties provided by law, pay a penalty 26 USC 1-1388. equal to 10 percent of the taxes imposed by chapter 1 (including the tax imposed by section 541) on such foreign corporation for such taxable year." (B) The table of sections for such subchapter B is amended by adding at the end thereof the following new item: "Sec. 6683. Failure of foreign corporation to file return of personal holding company tax."

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(i) AMENDMENTS ^YITH KESPECT TO FOREIGN CORPORATIONS CARRYING ON INSURANCE BUSINESS IN UNITED STATES.—

(1) Section 842 (relating to computation of gross income) is amended to read as follows: "SEC. 842. FOREIGN CORPORATIONS BUSINESS.

CARRYING

ON

68A Stat. 267.

INSURANCE

"If a foreign corporation carrying on an insurance business within the United States would qualify under part I, II, or III of this subchapter for the taxable year if (without regard to income not effectively connected with the conduct of any trade or business within the United States) it were a domestic corporation, such corporation shall be taxable under such part on its income effectively connected with its conduct of any trade or business within the United States. With respect to the remainder of its income, which is from sources within the United States, such a foreign corporation shall be taxable as provided in section 881." (2) The table of sections for part IV of subchapter L of chapter 1 is amended by striking out the item relating to section 842 and inserting in lieu thereof the following:

26 USC 801-832.

^"f^- P isss.

"Sec. 842. Foreign corporations carrying on insurance business."

(3) Section 819 (relating to foreign life insurance companies) is amended— (A) by striking out subsections (a) and (d) and by redesignating subsections (b) and (c) as subsections (a) and (b), (B) by striking out " I n the case of any company described in subsection (a), " in subsection (a)(1) (as redesignated by subparagraph (A)) and inserting in lieu thereof "In the case of any foreign corporation taxable under this part,", (C) by striking out "subsection (c) " in the last sentence of subsection (a)(2) (as redesignated by subparagraph (A)) and inserting in lieu thereof "subsection (b)", (D) by adding at the end of subsection (a) (as redesignated by subparagraph (A)) the following new paragraph: "(3) REDUCTION OF SECTION 881 TAX.—In the case of any foreign corporation taxable under this part, there shall be determined— " (A) the amount which would be subject to tax under section 881 if the amount taxable under such section were determined without regard to sections 103 and 894, and " (B) the amount of the reduction provided by paragraph (1)., The tax under section 881 (determined without regard to this paragraph) shall be reduced (but not below zero) by an amount which is the same proportion of such tax as the amount referred to in subparagraph (B) is of the amount referred to in subparagraph (A); but such reduction in tax shall not exceed the increase in tax under this part by reason of the reduction provided by paragraph (1).", (E) by striking out "for purposes of subsection (a) " each place it appears in subsection (b) (as redesignated by subparagraph (A)) and inserting in lieu thereof "with respect to a foreign corporation", (F) by striking out "foreign life insurance company" each place it appears in such subsection (b) and inserting in lieu thereof "foreign corporation", (G) by striking out "subsection (b)(2)(A) " each place it appears in such subsection (b) and inserting in lieu thereof "subsection (a)(2)(A) ",

^^ ^'^' ^^^

Po'^f^p^^isea

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(H) by striking out "subsection (b)(2)(B) " in paragraph (2)(B) ( i i) of such subsection (b) and inserting in lieu thereof "subsection (a)(2)(B) ", and (I) by adding at the end thereof the following new subsection: " (c) CROSS REFERENCE.— "For taxation of foreign corporations carrying on life insurance business within the United States, see section 842."

76 Stat. 989.

^^^ Section 821 (relating to tax on mutual insurance companies to which part II applies) is amended— (A) by striking,out subsection (e) and by redesignating subsections (f) and (g) as subsections (e) and (f), and (B) by adding at the end of subsection (f) (as redesignated by subparagraph (A)) the fallowing: "(3) For taxation of foreign corporations carrying on an insurance business within the United States, see section 842."

76^sfat^*992^^^'

(^) Section 822 (relating to determination of taxable investment income) is amended by striking out subsection (e) and by redesignating subsection (f) as subsection (e). (6) Section 831 (relating to tax on certain other insurance companies) is amended— (A) by striking out subsection (b) and by redesignating subsection (c) as subsection (b), and (B) by amending subsection (d) to read as follows: " (c) CROSS REFERENCES.— "(1) For alternative tax in case of capital gains, see section 1201(a). "(2) For taxation of foreign corporations carrying on an insurance business within the United States, see section 842."

76 Stat. 1008.

(7) Section 832 (relating to insurance company taxable income) is amended by striking out subsection (d) and by redesignating subsection (e) as subsection (d). (8) The second sentence of section 841 (relating to credit for foreign taxes) is amended by striking out "sentence," and inserting in lieu thereof "sentence (and for purposes of applying sec^JQJ^ QQQ yfYiY^ respect to a foreign corporation subject to tax under this subchapter),". ^j^ SiTBPART F INCOME.—Section 952(b) (relating to exclusion of United States income) is amended to read as follows: "(b) EXCLUSION OF UNITED STATES INCOME.—In the case of a controlled foreign corporation, subpart F income does not include any item of income from sources within the United States which is effectively connected with the conduct by such corporation of a trade or pusiness within the United States unless such item is exempt from taxation (or is subject to a reduced rate of tax) pursuant to a treaty obligation of the United States."

76 Stat. 1041.

(k) G A I N FROM CERTAIN SALES OR EXCHANGES OF STOCK IN CERTAIN FOREIGN CORPORATIONS.—Paragraph (4) of section 1248(d) (relating

Post, p. 1568.

to exclusions from earnings and profits) is amended to read as follows: "(4) UNITED STATES INCOME.—Any item includible in gross income of the foreign corporation under this chapter— " (A) for any taxable year beginning before January 1, 1967, as income derived from sources within the United States of a foreign corporation engaged in trade or business within the United States, or " (B) for any taxable year beginning after December 31, 1966, as income effectively connected with the conduct by such corporation of a trade or business within the United States.

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This paragraph shall not apply with respect to any item which is exempt from taxation (or is subject to a reduced rate of tax) pursuant to a treaty obligation of the United States." (1) DECLARATION OF ESTIMATED INCOME T A X BY CORPORATIONS.—

Section 6016 (relating to declarations of estimated income tax by corporations) is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection: " (f) CERTAIN FOREIGN CORPORATIONS.—For purposes of this section and section 6655, in the case of a foreign corporation subject to taxation under section 11 or 1201(a), or under subchapter L of chapter 1, the tax imposed by section 881 shall be treated as a tax imposed by section 11." (m)

68A Stat. 738; 78 Stat. 29.

Ante, p. 1557. 26 USC 801-843. Ante, p. 155 5.

TECHNICAL AMENDMENTS.—

(1) Section 884 is amended to read as follows: "SEC. 884. CROSS REFERENCES. "(1) For special provisions relating to unrelated business income of foreign educational, charitable, and certain other exempt organizations, see section 512(a). "(2) For special provisions relating to foreign corporations carrying on an insurance business within the United States, see section 842. "(3) For rules applicable in determining whether any foreign corporation is engaged in trade or business within the United States, see section 864(b). "(4) For adjustment of tax in case of corporations of certain foreign countries, see section 896. "(5) For allowance of credit against the tax in case of a foreign corporation having income effectively connected with the conduct of a trade or business within the United States, see section 906. "(6) For withholding at source of tax on income of foreign corporations, see section 1442." (2) Section 9 5 3 (b)(3)(F) is amended by striking out "832(b)(5) " and inserting in lieu thereof "832(c)(5) ". (3) Section 1249(a) is amended by striking out "Except as provided in subsection (c), gain" and inserting in lieu thereof "Gain". (n) EFFECTIVE DATES.—The amendments made by this section (other than subsection (k)) shall apply with respect to taxable years beginning after December 31, 1966. The amendment made by subsection (k) shall apply with respect to sales or exchanges occurring after December 31, 1966. SEC. 105. SPECIAL TAX PROVISIONS. (a) INCOME AFFECTED BY TREATY.—Section 894 (relating to income exempt under treaties) is amended to read as follows: "SEC. 894. INCOME AFFECTED BY TREATY. " (a) INCOME EXEMPT UNDER TREATY.—Income of any kind, to the extent required by any treaty obligation of the United States, shall not be included in gross income and shall be exempt from taxation under this subtitle. " (b) PERMANENT ESTABLISHMENT I N UNITED STATES.—For purposes of applying any exemption from, or reduction of, any tax provided by any treaty to which the United States is a party with respect to income which is not effectively connected with the conduct of a trade or business within the United States, a nonresident alien individual or a foreign corporation shall be deemed not to have a permanent establishment in the United States at any time during the taxable year. This subsection shall not apply in respect of the tax computed under section 877(b)."

76 Stat. 1009. 76 Stat. 1045.

68A Stat. 284.

Ante, p. 1551.

(b) ADJUSTMENT OF TAX BECAUSE OF BURDENSOME OR DISCRIMINATORY FOREIGN TAXES.—Subpart C of part II of subchapter N of chap-

ter 1 (relating to miscellaneous provisions applicable to nonresident

26 USC 891-895.

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aliens and foreign corporations) is amended by adding at the end thereof the following new section: "SEC. 896. ADJUSTMENT OF TAX ON NATIONALS, RESIDENTS, AND CORPORATIONS OF CERTAIN FOREIGN COUNTRIES. "(a)

ofi^ii'^^^ t=*;^ zO U b C

1-1503.

IMPOSITION OF MORE BURDENSOME TAXES BY FOREIGN COUN-

TRY.—Whenever the President finds that— " (1) under the laws of any foreign country, considering the tax system of such foreign country, citizens of the United States not residents of such foreign country or domestic corporations are being subjected to more burdensome taxes, on any item of income received by such citizens or corporations from sources within such foreign country, than taxes imposed by the provisions of this subtitle on similar income derived from sources within the United o

1

• 1

•

(

•

!

/

•

•

states by residents or corporations oi such foreign country, " (2) such foreign country, when requested by the United States to do so, has not acted to revise or reduce such taxes so that they are no more burdensome than taxes imposed by the provisions of this subtitle on similar income derived from sources within the United States by residents or corporations of such foreign country, and " (3) it is in the public interest to apply pre-1967 tax provisions in accordance with the provisions of this subsection to residents or corporations of such foreign country, the President shall proclaim that the tax on such similar income derived from sources within the United States by residents or corporations of such foreign country shall, for taxable years beginning after such proclamation, be determined under this subtitle without regard 26 144 5 USC 861-97 2, iQ amendments made to this subchapter and chapter 3 on or after the date of enactment of this section. " (b)

IMPOSITION or DISCRIMINATORY TAXES BY FOREIGN COUNTRY.—

Whenever the President finds that— "(1) under the laws of any foreign country, citizens of the United States or domestic corporations (or any class of such citizens or corporations) are, with respect to any item of income, being subjected to a higher effective rate of tax than are nationals, residents, or corporations of such foreign country (or a similar class of such nationals, residents, or corporations) under similar circumstances; " (2) such foreign country, when requested by the United States to do so, has not acted to eliminate such higher effective rate of tax; and "(3) it is in the public interest to adjust, in accordance with the provisions of this subsection, the effective rate of tax imposed by this subtitle on similar income of nationals, residents, or corporations of such foreign country (or such similar class of such nationals, residents, or corporations), the President shall proclaim that the tax on similar income of nationals, residents, or corporations of such foreign country (or such similar class of such nationals, residents, or corporations) shall, for taxable years beginning after such proclamation, be adjusted so as to cause the effective rate of tax imposed by this subtitle on such similar income to be substantially equal to the effective rate of tax imposed by such foreign country on such item of income of citizens of the United States or domestic corporations (or such class of citizens or corporations). I n implementing a proclamation made under this subsection, the effective rate of tax imposed by this subtitle on an item of income may be adjusted by the disallowance, in whole or in part, of any deduction, credit, or exemption which would otherwise

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be allowed with respect to that item of income or by increasing the rate of tax otherwise applicable to that item of income. " (c) ALLEVIATION

or

MORE

BURDENSOME

OR DISCRIMINATORY

TAXES.—Whenever the President finds that— "(1) the laws of any foreign country with respect to which the President has made a proclamation under subsection (a) have been modified so that citizens of the United States not residents of such foreign country or domestic corporations are no longer subject to more burdensome taxes on the item of income derived by such citizens or corporations from sources within such foreign country, or "(2) the laws of any foreign country with respect to which the President has made a proclamation under subsection (b) have been modified so that citizens of the United States or domestic corporations (or any class of such citizens or corporations) are no longer subject to a higher effective rate of tax on the item of income, he shall proclaim that the tax imposed hj this subtitle on the similar income of nationals, residents, or corporations of such foreign country shall, for any taxable year beginning after such proclamation, be determined under this subtitle without regard to such subsection. " (d) NOTIFICATION or CONGRESS REQUIRED.—No proclamation shall be issued by the President pursuant to this section unless, at least 30 days prior to such proclamation, he has notified the Senate and the House of Representatives of his intention to issue such proclamation. "(e)

IMPLEMENTATION BY REGULATIONS.—The Secretary

4. ^26^^50* 1-1563. 26 USC

or his

delegate shall prescribe such regulations as he deems necessary or appropriate to implement this section." (c) CLERICAL AMENDMENTS.—The table of sections for subpart C of part II of subchapter N of chapter 1 is amended— (1) by striking out the item relating to section 894 and inserting in lieu thereof "Sec. 894. Income affected by treaty."; (2) by adding at the end of such table the following: "Sec. 896. Adjustment of tax on nationals, residents, and corporations of certain foreign countries." (d) EFFECTIVE DATE.—The amendments made by this section (other than subsections (e) and (f)) shall apply with respect to taxable years beginning after December 31, 1966. (e) ELECTIONS BY NONRESIDENT UNITED STATES CITIZENS W H O ARE SUBJECT TO FOREIGN COMMUNITY PROPERTY LAWS.—

(1) Part III of subchapter N of chapter 1 (relating to income 76^|t^t^*ioo6^^' from sources without the United States) is amended by adding 26 USC 901-972. at the end thereof the following new subpart: "Subpart H—Income of Certain Nonresident United States Citizens Subject to Foreign Community Property Laws "Sec. 981. Election as to treatment of income subject to foreign community property laws. "SEC. 981. ELECTION AS TO TREATMENT OF INCOME SUBJECT TO FOREIGN COMMUNITY PROPERTY LAWS. " (a) GENERAL RULE. — I n the case of any taxable year beginning after December 31, 1966, if— "(1) an individual is (A) a citizen of the United States, (B) a bona fide resident of a foreign country or countries during the entire taxable year, and (C) married at the close of the taxable 65-300 0-67—101

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year to a spouse who is a nonresident alien during the entire taxable year, and "(2) such individual and his spouse elect to have subsection (b) apply to their community income under foreign community property^ laws, then subsection (b) shall apply to such income of such individual and such spouse for the taxable year and for all subsequent taxable years for which the requirements of paragraph (1) are met, unless the Secretary or his delegate consents to a termmation of the election. "(b) TREATMENT OF COMMUNITY INCOME.—For any taxable year to which an election made under subsection (a) applies, the community income under foreign community property laws of the husband and wife making the election shall be treated as follows: "(1) Earned income (within the meaning of the first sentence 76 Stat. 1004. ^f section 911(b)), other than trade or business income and a partner's distributive share of partnership income, shall be treated as the income of the spouse who rendered the personal services. "(2) Trade or business income, and a partner's distributive share of Dartnership income, shall be treated as provided in JlttTosj'"'' section 1402(a)(5). "(3) Community income not described in paragraph (1) or (2) which is derived from the separate property (as determined under the applicable foreign community property law) of one spouse shall be treated as the income of such spouse. "(4) All other such community income shall be treated as provided in the applicable foreign community property law. "(c)

53 Stat. 1.

ELECTION FOR P R E - 1967 YEARS.—

"(1) ELECTION.—If an individual meets the requirements of subsections (a)(1)(A) and (C) for any taxable year beginning before January 1, 1967, and if such individual and the spouse referred to in subsection (a)(1)(C) elect under this subsection, then paragraph (2) of this subsection shall apply to their community income under foreign community property laws for all open taxable years beginning before January 1, 1967 (whether under this chapter, the corresponding provisions of the Internal K«venu« Code of 1939, or the corresponding provisions of prior revenue laws), for which the requirements of subsection (a)(1) (A) and (C) are met. "(2) EFFECT OF ELECTION.—For any taxable year to which an election made under this subsection applies, the community income under foreign community property laws of the husband and wife making the election shall be treated as provided by subsection (b), except that the other community income described in paragraph (4) of subsection (b) shall be treated as the income of the spouse who, for such taxable year, had gross income under paragraphs (1), (2), and (3) of subsection (b), plus separate gross income, greater than that of the other spouse. "(d)

T I M E FOR MAKING ELECTIONS; PERIOD OF LIMITATIONS; ETC.—

"(1) TIME.—An election under subsection (a) or (c) for a taxable year may be made at any time while such year is still open, and shall be made in such manner as the Secretary or his delegate shall by regulations prescribe. "(2)

EXTENSION OF PERIOD FOR ASSESSING DEFICIENCIES AND

MAKING REFUNDS.—If any taxable year to which an election under subsection (a) or (c) applies is open at the time such election is made, the period for assessing a deficiency against, and the period for filing claim for credit or refund of any overpayment by, the husband and wife for such taxable year, to the extent such defi-

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ciency or overpayment is attributable to such an election, shall not expire before 1 year after the date of such election. IN

(3) A L I E N SPOUSE NEED NOT JOIN I N SUBSECTION (C) ELECTION CERTAIN CASES.—If the Secretary or his delegate determines—

" (A) that an election under subsection (c) would not affect the liability for Federal income tax of the spouse referred to in subsection (a)(1)(C) for any taxable year, or " (B) that the effect on such liability for tax cannot be ascertained and that to deny the election to the citizen of the United States would be inequitable and cause undue hardship, such spouse shall not be required to join in such election, and paragraph (2) of this subsection shall not apply with respect to such spouse. "(4) INTEREST.—To the extent that any overpayment or deficiency for a taxable year is attributable to an election made under this section, no interest shall be allowed or paid for any period before the day which is 1 year after the date of such election. "(e) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) DEDUCTIONS.—Deductions shall be treated in a manner consistent with the manner provided by this section for the income to which they relate. "(2) O P E N YEARS.—^A taxable year of a citizen of the United States and his spouse shall be treated as 'open' if the period for assessing a deficiency against such citizen for such year has not expired before the date of the election under subsection (a) or (c), as the case may be. " (3) ELECTIONS I N CASE OF DECEDENTS.—If a husband or wife is deceased his election under this section may be made by his executor, administrator, or other person charged with his property. " (4) DEATH or SPOUSE DURING TAXABLE YEAR.—In applying subsection (a)(1)(C), and in determining under subsection (c)(2) which spouse has the greater income for a taxable year, if a husband or wife dies the taxable year of the surviving spouse shall be treated as ending on the date of such death." (2) The table of subparts for such part III is amended by adding at the end thereof the following: "Subpart H. Income of certain nonresident United States citizens subject to foreign community property laws." (3) Section 911(d) (relating to earned income from sources without the United States) is amended— (A) by striking out "For administrative" and inserting in lieu thereof the following: "(1) For administrative"; and (B) by adding at the end thereof the following: "(2) For elections as to treatment of income subject to foreign community property laws, see section 981."

76 Stat. 1005.

(f) PRESUMPTIVE DATE OF PAYMENT FOR TAX W I T H H E L D UNDER CHAPTER 3.—

(1) Section 6513(b) (relating to time tax is considered paid in 68A Stat. 812. the case of prepaid income tax) is amended to read as follows: " (b) PREPAID INCOME TAX.—For purposes of section 65,11 or 6512— "(1) Any tax actually deducted and withheld a t the source during any calendar year under chapter 24 shall, in respect of the 3^^^ "^^ ^'*°^" recipient of the income, be deemed to have been paid by him on the 15th day of the fourth month following the close of his taxable year with respect to which such tax is allowable as a credit under section 31.

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[80 STAT.

"(2) Any amount paid as estimated income tax for any taxable year shall be deemed to have been paid on the last day prescribed 68A Stat. 732. JQJ. flijng the r e t u m under section 6012 for such taxable year (determined without regard to any extension of time for filing such r e t u m). 26 USC 1441 "(3) Any tax withheld at the source under chapter 3 shall, in 1465. respect of the recipient of the income, be deemed to have been paid by such recipient on the last day prescribed for filing the r e t u m under section 6012 for the taxable year (determined without regard to any extension of time for filing) with respect to which such tax is allowable as a credit under section 1462. For this purpose, any exemption granted under section 6012 from the requirement of filing a return shall be disregarded." (2) Section 6513(c) (relating to r e t u m and payment of Social Security taxes and income tax withholding) is amended— (A) by striking out "chapter 21 or 24" and inserting in lieu thereof "chapter 3, 21, or 24"; and (B) by striking out "remuneration" in paragraph (2) and inserting in lieu thereof "remuneration or other amount". (3) Section 6501(b) (relating to time returns deemed filed) is amended— (A) by striking out "chapter 21 or 24" in paragraphs (1) and (2) and inserting in lieu thereof "chapter 3, 21, or 24"; and (B) by inserting after "taxes" in the heading of paragraph (2) "and tax imposed by chapter 3". (4) The amendments made by this subsection shall take effect on the date of the enactment of this Act. SEC. 106. FOREIGN TAX CREDIT. (a) A L L O W A N C E OF C R E D I T TO CERTAIN N O N R E S I D E N T A L I E N S AND FOREIGN CORPORATIONS.—

26 USC 901-905.

76 Stat. 999.

(1) Subpart A of part III of subchapter N of chapter 1 (relating to foreign tax credit) is amended by adding at the end thereof the following new section: "SEC. 906. NONRESIDENT ALIEN INDIVIDUALS AND FOREIGN CORPORATIONS. " (a) ALLOWANCE OF CREDIT.—A nonresident alien individual or a foreign corporation engaged in trade or business within the United States during the taxable year shall be allowed a credit under section 901 for the amount of any income, war profits, and excess profits taxes paid or accrued during the taxable year (or deemed, under sec^^^^-^ QQ^^ p&,id OY accrued during the taxable year) to any foreign country or possession of the United States with respect to income effectively connected with the conduct of a trade or business within the United States, "(b)

Ante, pp. 1550,

SPECIAL RULES. —

" (1) For purposes of subsection (a) and for purposes of determining the deductions allowable under sections 873(a) and 882(c), in determining the amount of any tax paid or accrued to any foreign country or possession there shall not be taken into account any amount of tax to the extent the tax so paid or accrued is imposed with respect to income from sources within the United States which would not be taxed by such foreign country or possession but for the fact that— " (A) in the case of a nonresident alien individual, such individual is a citizen or resident of such foreign country or possession, or

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" (B) in the case of a foreign corporation, such corporation was created or organized under the law of such foreign country or possession or is domiciled for tax purposes in such country or possession. "(2) For purposes of subsection (a), in applying section 904 68A Stat. 287. the taxpayer's taxable income shall be treated as consisting only of the taxable income effectively connected with the taxpayer's conduct of a trade or business within the United States. "(3) The credit allowed pursuant to subsection (a) shall not be allowed against any tax imposed by section 871(a) (relating to Ante, p. 1547. income of nonresident alien individual not connected with United States business) or 881 (relating to income of foreign corporations Ante, p. 1555. not connected with United States business). " (4) For purposes of sections 902(a) and 78, a foreign corpora- ^JQ\ S*^* ^^^' tion choosing the benefits of this subpart which receives dividends shall, with respect to such dividends, be treated as a domestic corporation." (2) The table of sections for such subpart A is amended by adding at the end thereof the following: "Sec. 906. Nonresident alien individuals and foreign corporations."

(3) Section 874(c) is amended by strikingxjut "(c) FOREIGN TAX CREDIT NOT ALLOWED.—A nonresident" and inserting in lieu thereof the following: "(c) FOREIGN TAX CREDIT.—Except as provided in section 906, a nonresident". (4) Subsection (b) of section 901 (relating to amount allowed) is amended by redesignating paragraph (4) as paragraph (5), and by inserting after paragraph (3) the following new paragraph: "(4)

NONRESIDENT ALIEN INDIVIDUALS AND FOREIGN CORPORA-

TIONS.—In the case of any nonresident alien individual not described in section 876 and in the case of any foreign corporation, the amount determined pursuant to section 906; and". (5) Paragraph (5) (as redesignated) of section 901(b) is amended by striking out "or (3)," and inserting in lieu thereof " (3), or (4),". (6) The amendments made by this subsection shall apply with respect to taxable years beginning after December 31, 1966. In applying section 904 of the Internal Revenue Code of 1954 with respect to section 906 of such Code, no amount may be carried from or to any taxable year beginning before January 1, 1967, and no such year shall be taken into account. (b)

A L I E N RESIDENTS or THE UNITED STATES OR PUERTO RICO.—

(1) Paragraph (3) of section 901(b) (relating to amount of foreign tax credit allowed in case of alien resident of the United States or Puerto Rico) is amended by striking o u t ", if the foreign country of which such alien resident is a citizen or subject, in imposing such taxes, allows a similar credit to citizens of the United States residing in such country". (2) Section 901 is amended by redesignating subsections (c) and (d) as subsections (d) and (e), and by inserting after subsection (b) the following new subsection: "(c)

SIMILAR CREDIT REQUIRED FOR CERTAIN A L I E N RESIDENTS.—

Whenever the President finds that— "(1) a foreign country, in imposing income, war profits, and excess profits taxes, does not allow to citizens of the United States residing in such foreign country a credit for any such taxes paid

68A Stat. 28i Ante, p. i568

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68A Stat. 378.

PUBLIC LAW 89-809-NOV. 13, 1966

[80 STAT.

or accrued to the United States or any foreign country, as the case may be, similar to the credit allowed under subsection (b)(3), "(2) such foreign country, when requested by the United States to do so, has not acted to provide such a similar credit to citizens of the United States residing in such foreign country, and "(3) it is in the public interest to allow the credit under subsection (b)(3) to citizens or subjects of such foreign country only if it allows such a similar credit to citizens of the United States residing in such foreign country, the President shall proclaim that, for taxable years beginning while the proclamation remains in effect, the credit under subsection (b)(3) shall be allowed to citizens or subjects of such foreign country only if such foreign country, in imposing income, war profits, and excess profits taxes, allows to citizens of the United States residing in such foreign country such a similar credit." (3) Section 2014 (relating to credit for foreign death taxes) is amended by striking out the second sentence of subsection (a), and by adding at the end of such section the following new subsection: "(h)

SIMILAR CREDIT REQUIRED FOR CERTAIN A L I E N RESIDENTS.—

Whenever the President finds that— "(1) a foreign country, in imposing estate, inheritance, legacy, or succession taxes, does not allow to citizens of the United States resident in such foreign country at the time of death a credit similar to the credit allowed under subsection (a), " (2) such foreign country, when requested by the United States to do so has not acted to provide such a similar credit in the case of citizens of the United States resident in such foreign country at the time of death, and "(3) it is in the public interest to allow the credit under subsection (a) in the case of citizens or subjects of such foreign country only if it allows such a similar credit in the case of citizens of the United States resident in such foreign country at the time of death, the President shall proclaim that, in the case of citizens or subjects of such foreign country dying while the proclamation remains in effect, the credit under subsection (a) shall be allowed only if such foreign country allows such a similar credit in the case of citizens of the United States resident in such foreign country at the time of death." (4) The amendments made by this subsection (other than paragraph (3)) shall apply with respect to taxable years beginning after December 31, 1966. The amendment made by paragraph (3) shall apply with respect to estates of decedents dying after the date of the enactment of this Act. (c) FOREIGN TAX CREDIT I N RESPECT OF INTEREST RECEIVED FROM FOREIGN SUBSIDIARIES.—

76 Stat. 1002.

68A Stat. 369.

^]^^ Section 904(f)(2) (relating to application of limitations on foreign tax credit in case of certain interest income) is amended— (A) by striking out subparagraph (C) and inserting in lieu thereof the following: " (C) received from a corporation in which the taxpayer (or one or more includible corporations in an affiliated group, ^g defined in section 1504, of which the taxpayer is a member) owns, directly or indirectly, at least 10 percent of the voting stock,".

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PUBLIC LAW 89-809-NOV. 13, 1966

(B) by adding at the end thereof the following new sentence: " For purposes of subparagraph (C), stock owned, directly or indirectly, by or for a foreign corporation shall be considered as being proportionately owned by its shareholders." (2) The amendments made by paragraph (1) shall apply to interest received after December 31, 1965, in taxable years ending after such date. SEC. 107. AMENDMENT TO PRESERVE EXISTING LAW ON DEDUCTIONS UNDER SECTION 931. (a) DEDUCTIONS.—Subsection (d) of section 931 (relating to deduce tions) is amended to read as follows:

1571

^^^ ^*°* 291.

" (d) DEDUCTIONS.— "(1) GENERAL RULE.—Except as otherwise provided in this sub-

section and subsection (e), in the case of persons entitled to the benefits of this section the deductions shall be allowed only if and to the extent that they are connected with income from sources within the United States; and the proper apportionment and allocation of the deductions with respect to sources of income within and without the United States shall be determined as provided in part I, under regulations prescribed by the Secretary or his delegate. "(2) EXCEPTIONS.—The following deductions shall be allowed whether or not they are connected with income from sources within the United States: " (A) The deduction, for losses not connected with the trade or business if incurred in transactions entered into for profit, allowed by section 165(c)(2), but only if the profit, if suclji transaction had resulted in a profit, would be taxable under this subtitle. " (B) The deduction, for losses of property not connected with the trade or business if arising from certain casualties or theft, allowed by section 165(c)(3), but only if the loss is of property within the United States. " (C) The deduction for charitable contributions and gifts allowed by section 170.

26 USC 861-864.

78 Stat. 4 3.

" (3) DEDUCTION DISALLOWED.—

"For disallowance of standard deduction, see section 142(b)(2)." (b) EEFECTIVE DAI"E.—The amendment made by this section shall apply with respect to taxable years beginning after December 31, 1966. SEC. 108. ESTATES OF NONRESIDENTS NOT CITIZENS. (a) RATE OF TAX.—Subsection (a) of section 2101 (relating to tax

imposed in case of estates of nonresidents not citizens) is amended to read as follows: " (a) RATE or TAX.—Except as provided in section 2107, a tax

computed in accordance with the following table is hereby imposed on the transfer of the taxable estate, determmed as provided' in section 2106, of every decedent nonresident not a citizen of the United States: "If the taxable estate is: The tax shall be: Not over $100,000 5% of the taxable estate. Over $100,000 but not over $500,000 Over $500,000 but not over $1,000,000 Over $1,000,000 but not over $2,000,000 Over $2,000,000

$5,000, plus 10% of excess over $100,000. $45,000, plus 15% of excess over $500,000. $120,000, plus 20% of excess over $1,000,000. $320,000, plus 25% of excess over $2,000,000."

^o*'- P 1573.

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 1572 68A Stat. 397.

Ante, p. 1571.

PUBLIC LAW 89-809-NOV. 13, 1966

^^^ CREDITS A G A I N S T T A X. — S e c t l o n 2102 ( r e l a t i n g to credits allowed a g a i n s t estate tax) is amended to read as f o l l o w s: "SEC. 2102. CREDITS AGAINST TAX. u ^^^^ j ^ GENERAL. — The tax i m p o s e d by section 2101 s h a l l b e credited w i t h the a m o u n t s determined in accordance w i t h sections 2011 to 2013, inclusive ( r e l a t i n g to State death taxes, gift tax, and tax on p r i o r transfers), subject to the special l i m i t a t i o n provided i n subsection (b). " (b) S P E C I A L L I M I T A T I O N. — The maximum c r e d i t allowed under section 2011 a g a i n s t the tax imposed by section 2101 for State death taxes paid shall be a n amount which bears the same ratio to the credit c o m p u t e d as provided i n section 2 0 1 1 (b) as the v a l u e of the property, as determined for purposes of t h i s chapter, upon which State death tax e s were p a i d and which is i n c l u d e d i n the gross estate under section 2103 b e a r s to the v a l u e of the to t a l g r o s s estate under section 2103. For purposes of t h i s subsection, the term ' State death tax e s ' means the taxes described i n section 2 0 1 1 (a). " (c)

Post, p. 1573.

Ante, p. 1542.

[80 STAT.

PROPERTY W I T H I N THE UNITED STATES. — S e c t i o n 2104

(relat-

i n g to property w i t h i n the United States) is amended by a d d i t i g a t the e n d thereof the following n e w s u b s e c t i o n: u^Q^ D E B TO B L I G A T I O N S. — For purposes of t h i s subchapter, debt obligations of— " (1) a United States person, or " (2) the United States, a State o r any political subdivision thereof, o r the District of C o l u m b i a, owned and held by a n o n r e s i d e n t not a citizen of the United States s h a l l be deemed property w i t h i n the United States. W i t h respect to estates of decedents d y i n g after December 31, 1972, deposits w i t h a domestic b r a n c h of a foreign corporation, if such b r a n c h is e n g a g e d i n the commercial b a n k i n g business, shall, for purposes of t h i s subchapter, be deemed property w i t h i n the United States. T h i s subsection shall not a p p l y to a debt obligation to which section 2105(b) a p p l i e s o r to a debt o b l i g a t i o n of a domestic corporation if any interest on such obligation, were such interest received by the decedent a t the t i m e of his death, w o u l d be t r e a t e d by reason of section 8 6 1 (a)(1)(B) a s income from sources w i t h o u t the United States. " (d)

PROPERTY W I T H O U T THE UNITED STATES.—Subsection

(b)

of

section 2105 ( r e l a t i n g to b a n k deposits) is amended to read as f o l l o w s: "(b) Ante, p. 1541.

74 Stat. 1000.

CERTAIN B A N K D E P O S I T S, E T C. — For purposes of t h i s sub-

chapter— " (1) a m o u n t s described i n section 861(c) if any interest the r e o n, were such interest received by the decedent a t the t i m e of h i s death, w o u l d be t r e a t e d by reason of section 8 6 1 (a)(1)(A) as income from sources w i t h o u t the United States, and " (2) deposits w i t h a foreign b r a n c h of a domestic corporation or domestic partnership, if such b r a n c h is e n g a g e d i n the commercial b a n k i n g business, shall not be deemed property w i t h i n the United States. " (e)

DEFINITION o r TAXABLE E S T A T E. — Paragraph

(3)

of

section

2 1 0 6 (a) ( r e l a t i n g to deduction of e x e m p t i o n from g r o s s estate) is amended to read as f o l l o w s: "(3)

EXEMPTION.—

"(A) "(B)

74 Stat. 999.

68A Stat. 389.

GENERAL RULE. — A n e x e m p t i o n of $30,000. R E S I D E N T S OF POSSESSIONS O F THE UNITED STATES.—•

I n the case of a decedent w h o is considered to be a 'nonr e s i d e n t not a citizen of the United States ' under the provisions of section 2209, the e x e m p t i o n shall be the g r e a t e r of (i) $30,000, o r ( i i) that proportion of the e x e m p t i o n a u t h o H z e d by section 2052 which the v a l u e of that part of

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the decedent's gross estate which at the time of his death is situated in the United States bears to the value of his entire gross estate wherever situated." (f) SPECIAL METHODS OF COMPUTING TAX.—Subchapter B of chapter 11 (relating to estates of nonresidents not citizens) is amended by 26'\js*c*2fo/adding at the end thereof the following new sections: 2loe. "SEC. 2107. EXPATRIATION TO AVOID TAX. " (a) RATE OF TAX.—A tax computed in accordance with the table

contained in section 2001 is hereby imposed on the transfer of the taxable estate, determined as provided in section 2106, of every decedent nonresident not a citizen of the United States dying after the date of enactment of this section, if after March 8, 1965, and within the 10-year period ending with the date of death such decedent lost United States citizenship, unless such loss did not have for one of its principal purposes the avoidance of taxes under this subtitle or subtitle A. " (b) GROSS ESTATE.—For purposes of the tax imposed by subsection (a), the value of the gross estate of every decedent to whom subsection (a) applies shall be determined as provided in section 2103, except that— "(1) if such decedent owned (within the meaning of section 958(a)) at the time of his death 10 percent or more of the total combined voting power of all classes of stock entitled to vote of a foreign corporation, and "(2) if such decedent owned (within the meaning of section 958(a)), or is considered to have owned (by applying the ownership rules of section 958(b)), at the time of his death, more than 50 percent of the total combined voting power of all classes of stock entitled to vote of such foreign corporation, then that proportion of the fair market value of the stock of such foreign corporation owned (within the meaning of section 958(a)) by such decedent at the time of his death, which the fair market value of any assets owned by such foreign corporation and situated in the United States, at the time of his death, bears to the total fair market value of all assets owned by such foreign corporation at the time of his death, shall be included in the gross estate of such decedent. For purposes of the preceding sentence, a decedent shall be treated as owning stock of a foreign corporation at the time of his death if, at the time of a transfer, by trust or otherwise, within the meaning of sections 2035 to 2038, inclusive, he owned such stock. "(c) CREDITS.—The tax imposed by subsection (a) shall be credited with the amounts determined in accordance with section 2102. " (d) EXCEPTION FOR Loss OF CITIZENSHIP FOR CERTAIN CAUSES.— Subsection (a) shall not apply to the transfer of the estate of a decedent whose loss of United States citizenship resulted from the application of section 301(b), 350, or 355 of the Immigration and Nationality Act, as amended (8 U.S.C. 1401 (b), 1482, or 1487). "(e) BURDEN or PROOF.—If the Secretary or his delegate establishes that it is reasonable to believe that an individual's loss of United States citizenship would, but for this section, result in a substantial reduction in the estate, inheritance, legacy, and succession taxes in respect of the transfer of his estate, the burden of proving that such loss of citizenship did not have for one of its principal purposes the avoidance of taxes under this subtitle or subtitle A shall be on the executor of such individual's estate. "SEC. 2108. APPLICATION OF PRE-1967 ESTATE TAX PROVISIONS. "(a)

IMPOSITION OF MORE BURDENSOME TAX BY FOREIGN COUN-

TRY.—Whenever the President finds that— "(1) under the laws of any foreign country, considering the tax system of such foreign country, a more burdensome tax is

76 Stat. 1018.

Ante, p. 1572.

66 Stat, 236.

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PUBLIC LAW 89-809-NOV. 13, 1966

[80 STAT.

imposed by such foreign country on the transfer of estates of decedents who were citizens of the United States and not residents of such foreign country than the tax imposed by this subchapter on the transfer of estates of decedents who were residents of such foreign country, " (2) such foreign country, when requested by the United States to do so, has not acted to revise or reduce such tax so that it is no more burdensome than the tax imposed by this subchapter on the transfer of estates of decedents who were residents of such foreign country, and " (3) it is in the public interest to apply pre-1967 tax provisions in accordance with this section to the transfer of estates of decedents who were residents of such foreign country, the President shall proclaim that the tax on the transfer of the estate of every decedent who was a resident of such foreign country at the time of his death shall, in the case of decedents dying after the date of such proclamation, be determined under this subchapter without regard to amendments made to sections 2101 (relating to tax imposed), xsri^' ^^ ^^^^' ^^^^ (relating to credits against tax), 2106 (relating to taxable estate), and 6018 (relating to estate tax returns) on or after the date of enactment of this section. " (b) ALLEVIATION OF MORE BURDENSOME TAX.—Whenever

68A Stat. 739.

the

President finds that the laws of any foreign country with respect to which the President has made a proclamation under subsection (a) have been modified so that the tax on the transfer of estates of decedents who were citizens of the United States and not residents of such foreign country is no longer more burdensome than the tax imposed by this subchapter on the transfer of estates of decedents who were residents of such foreign country, he shall proclaim that the tax on the transfer of the estate of every decedent who was a resident of such foreign country at the time of his death shall, in the case of decedents dying after the date of such proclamation, be determined under this subchapter without regard to subsection (a). "(c) NOTIFICATION OF CONGRESS REQUIRED.—No proclamation shall be issued by the President pursuant to this section unless, at least 30 days prior to such proclamation, he has notified the Senate and the House of Representatives of his intention to issue such proclamation. " (d) IMPLEMENTATION BY REGULATIONS.—The Secretary or his delegate shall prescribe such regulations as may be necessary or appropriate to implement this section." ^„) EsTATE TAX RETURNS.—Paragraph (2) of section 6018(a) (relating to estates of nonresidents not citizens) is amended by striking out "$2,000" and inserting in lieu thereof "$30,000". (h) CLERICAL AMENDMENT.—The table of sections for subchapter B of chapter 11 (relating to estates of nonresidents not citizens) is amended by adding at the end thereof the following: "Sec. 2107. Expatriation to avoid tax. "Sec. 2108. Application of pre-1967 estate tax provisions." (i) EFFECTIVE DATE.—The amendments made by this section shall

apply with respect to estates of decedents dying alter the date of the enactment of this Act. SEC. 109. TAX ON GIFTS OF NONRESIDENTS NOT CITIZENS. (a) IMPOSITION OF TAX.—Subsection (a) of section 2501 (relating

to general rule for imposition of tax) is amended to read as follows: " (a) TAXABLE TRANSFERS.— "(1) GENERAL RULE.—For the calendar year 1955 and each

calendar year thereafter a tax, computed as provided in section 2502, is hereby imposed on the transfer of property by gift during such calendar year by any individual, resident or nonresident.

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 80 STAT.]

PUBLIC LAW 8 9 - 8 0 9 - N O V. 13, 1966

" (2) TRANSFERS or INTANGIBLE PROPERTY.—Except as provided in paragraph (3), paragraph (1) shall not appl^ to the transfer of intangible property by a nonresident not a citizen of the United States. "(3) EXCEPTIONS.—Paragraph (2) shall not apply in the case of a donor who at any time after March 8, 1965, and within the 10-year period ending with the date of transfer lost United States citizenship unless— " (A) such donor's loss of United States citizenship resulted from the application of section 301(b), 350, or 355 of the Immigration and Nationality Act, as amended (8 U.S.C. 1401(b), 1482, or 1487), or " (B) such loss did not have for one of its principal purposes the avoidance of taxes under this subtitle or subtitle A. " (4) BURDEN OF PROOF.—If the Secretary or his delegate estab-

lishes that it is reasonable to believe that an individual's loss of United States citizenship would, but for paragraph (3), result in a substantial reduction for the calendar year in the taxes on the transfer of property by gift, the burden of proving that such loss of citizenship did not have for one of its principal purposes the avoidance of taxes under this subtitle or subtitle A shall be on such individual." (b) TRANSFERS IN GENERAL.—Subsection (b) of section 251,1 (relating to situs rule for stock in a corporation) is amended to read as follows: " (b) INTANGIBLE PROPERTY.—For purposes of this chapter, in the case of a nonresident not a citizen of the United States who is excepted from the application of section 2501(a)(2)— "(1) shares of stock issued by a domestic corporation, and " (2) debt obligations of— " (A) a United States person, or " (B) the United States, a State or any political subdivision thereof, or the District of Columbia, which are owned and held by such nonresident shall be deemed to be property situated within the United States." (c) EFFECTIVE DATE.—The amendments made by this section shall apply with respect to the calender year 1967 and all calendar years thereafter.

1575

66 Stat. 236. 68A Stat. 4. 26 USC 1-2524.

Ante, p. 1574.

SEC. 110. TREATY OBLIGATIONS.

No amendment made by this title shall apply in any case where its application would be contrary to any treaty obligation of the United States. For purposes of the preceding sentence, the extension of a benefit provided by any amendment made by this title shall not be deemed to be contrary to a treaty obligation of the United States.

TITLE II—OTHER AMENDMENTS TO INTERNAL REVENUE CODE SEC. 201. APPLICATION OF INVESTMENT CREDIT TO PROPERTY USED IN POSSESSIONS OF THE UNITED STATES. (a) PROPERTY USED BY DOMESTICORPORATIONS, ETC.—Section

48(a)(2)(B) (relating to property used outside the United States) is amended— (1) by striking out "and" at the end of clause (v); (2) by striking out the period at the end of clause (vi) and inserting in lieu thereof "; and"; and (3) by adding at the end thereof the following new clause: "(vii) any property which is owned by a domestic corporation (other than a corporation entitled to the

76 Stat. 967.

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68A Stat. 291; 74 Stat. 998.

76 Stat. 963.

PUBLIC LAW 89-809-NOV. 13, 1966

[80 STAT.

benefits of section 931 or 934(b)) or by a United States citizen (other than a citizen entitled to the benefits of section 931, 932, 933, or 934(c)) and which is used predominantly in a possession of the United States by such a corporation or such a citizen, or by a corporation created or organized in, or under the law of, a possession of the United States." (b) EFFECTIVE DATE.—The amendments made by subsection (a) shall apply to taxable years ending after December 31, 1965, but only with respect to property placed in service after such date. I n applying section 46(b) of the Internal Revenue Code of 1954 (relating to carryback and carryover of unused credits), the amount of any investment credit carryback to any taxable year ending on or before December 31, 1965, shall be determined without regard to the amendments made by this section. SEC. 202. BASIS OF PROPERTY RECEIVED ON LIQUIDATION OF SUBSIDIARY. (a) DEFINITION OF PURCHASE.—Section 334(b)(3) (relating to

definition of purchase) is amended by adding at the end thereof the following new sentence: "Notwithstanding subparagraph (C) of this paragraph, for purposes of paragraph (2)(B), the term 'purchase' also means an acquisition of stock from a corporation when ownership of such stock would be attributed under section 318(a) to the person acquiring such stock, if the stock of such corporation by reason of which such ownership would be attributed was acquired by purchase (within the meaning of the preceding sentence)." (b) PERIOD OF ACQUISITION.—Section 3 3 4 (b)(2)(B) (relating to exception) is amended by striking out "during a period of not more than 12 months," and inserting in lieu thereof "during a 12-month period beginning with the earlier of— " (i) the date of the first acquisition by purchase of such stock, or "(ii) if any of such stock was acquired in an acquisition which is a purchase within the meaning of the second sentence of paragraph (3), the date on which the distributee is first considered under section 318(a) as owning stock owned by the corporation from which such acquisition was made,". (c) DISTRIBUTION OF INSTALLMENT OBLIGATIONS.—Section 453(d)

(4)(A) (relating to distribution of installment obligations in certain liquidations) is amended to read as follows: " (A) LIQUIDATIONS TO W H I C H SECTION 332 A P P L I E S. — I f —

" (i) an installment obligation is distributed in a liquidation to which section 332 (relating to complete liquidations of subsidiaries) applies, and "(ii) the basis of such obligation in the hands of the distributee is determined under section 334(b)(1), then no gain or loss with respect to the distribution of such obligation shall be recognized by the distributing corporation." (d) EFFECTIVE DATES.—The amendment made by subsection (a) shall apply only with respect to acquisitions of stock after December 31, 1965. The amendments made by subsections (b) and (c) shall apply only with respect to distributions made after the date of the enactment of this Act.

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 80 STAT.]

PUBLIC LAW 89-809-NOV. 13, 1966

SEC. 203. TRANSFERS OF PROPERTY TO INVESTMENT COMPANIES CONTROLLED BY TRANSFERORS. (a) TRANSFERS TO INVESTMENT COMPANIES.—The first sentence of

section 351(a) (relating to transfer to corporation controlled by the transferor) is amended by striking out "to a corporation" and inserting in lieu thereof "to a corporation (including, in the case of transfers made on or before June 30, 196Y, an investment company)".

1577

68A Stat. 111.

(b) INVESTMENT COMPANIES REQUIRED TO F I L E REGISTRATION STATEMENT W I T H THE S.E.C.—Section 351 is amended by redesig-

nating subsection (d) as subsection (e) and by inserting after subsection (c) the following new subsection: " (d) APPLICATION or J U N E 30, 1967, DATE.—For purposes of this section, if, in connection with the transaction, a registration statement is required to be filed with the Securities and Exchange Commission, a transfer of property to an investment company shall be treated as made on or before June 30, 1967, only if— " (1) such transfer is made on or before such date, "(2) the registration statement was filed with the Securities and Exchange Commission before January 1, 1967, and the aggregate issue price of the stock and securities of the investment company which are issued in the transaction does not exceed the aggregate amount therefor specified in the registration statement as of the close of December 31, 1966, and "(3) the transfer of property to the investment company in the transaction includes only property deposited before May 1, 1967." (c) EFFECTIVE DATE.—The amendments made by subsections (a) and (b) shall apply with respect to transfers of property to investment companies whether made before, on, or after the date of the enactment of this Act. SEC. 204. REMOVAL OF SPECIAL LIMITATIONS WITH RESPECT TO DEDUCTIBILITY OF CONTRIBUTIONS TO PENSION PLANS BY SELF-EMPLOYED INDIVIDUALS. (a) REMOVAL OF SPECIAL LIMITATIONS.—Paragraph (10) of section ^^p^^i

404(a) (relating to special limitation on amount allowed as deduction for self-employed individuals for contributions to certain pension, etc., plans) is repealed.

76 Stat. 820.

(b) CONFORMING AMENDMENTS.—

(1) Each of the following provisions of section 401 is amended by striking out "(determined without regard to section 404(a) ( 1 0)) " each place it appears: (A) Subsection (a) (10)(A) ( i i). (B) Subparagraphs (A) and (B) of subsection (d)(5). (C) Subparagraph (A) of subsection (d)(6). (D) Subparagraphs (A) and (B)(i) of subsection (e)(1). (E) Subparagraphs (B) and (C) and the last sentence of subsection (e)(3). (2) Subparagraph (A) of section 404(e)(2) is amended by striking out "(determined without regard to subsection (a) (10))". (3) Paragraph (1) and subparagraph (B) of paragraph (2) of section 404(e) are each amended by striking out "(determined without regard toi^aragraph (10) thereof)". (c) DEFINITION OF EARNED INCOME.—Section 401(c)(2) (relating

to definition of earned income for certain pension and profit-sharing plans) is amended by striking out subparagraphs (A) and (B) and inserting in lieu thereof the following:

76 Stat. 811.

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68A Stat. 353.

79 Stat. 3 8 1.

74 Stat. 945.

PUBLIC LAW 89-809-NOV. 13, 1966

[80 STAT.

" (A) IN GENERAL.—The term 'earned income' means the net earnings from self-employment (as defined in section 1402(a)), but such net earnings shall be determined— " (i) only with respect to a trade or business in which personal services of the taxpayer are a material incomeproducing factor, "(ii) without regard to paragraphs (4) and (5) of section 1402(c), "(iii) in the case of any individual who is treated as an employee under sections 3121(d)(3)(A), (C), or (D), without regard to paragraph (2) of section 1402(c), and "(iv) without regard to items which are not included in gross income for purposes of this chapter, and the deductions properly allocable to or chargeable against such items. For purposes of this subparagraph, section 1402, as in effect for a taxable year ending on December 31, 1962, shall be treated as having been in effect for all taxable years ending before such date." (d) EFFECTIVE DATE.—The amendments made by subsections (a) and (b) shall apply with respect to taxable years beginning after December 31, 1967. SEC. 205. TREATMENT OF CERTAIN INCOME OF AUTHORS, INVENTORS, ETC., AS EARNED INCOME FOR RETIREMENT PLAN PURPOSES. (a) INCOME FROM DISPOSITION OF PROPERTY CREATED BY T A X -

Ante, p. 1577.

p^yER.—Section 401(c)(2) (relating to definition of earned income) is amended by adding at the end thereof the following new subparagraph: " (C) INCOME FROM DISPOSITION OF CERTAIN PROPERTY.—For

purposes of this section, the term 'earned income' includes gains (other than any gain which is treated under any provision of this chapter as gain from the sale or exchange of a capital asset) and net earnings derived from the sale or other disposition of, the transfer of any interest in, or the licensing of the use of property (other than good will) by an individual whose personal efforts created such property. (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to taxable years ending after the date of the enactment of this Act.

SEC. 2 6 EXCLUSION OF CERTAIN RENTS FROM PERSONAL HOLDING 0. COMPANY INCOME. 78 Stat. 84.

(a) RENTS FROM LEASES OF CERTAIN TANGIBLE PERSONAL PROP-

ERTY.—Section 543(b)(3) (relating to adjusted income from rents) is amended by striking out "but does not include amounts constituting personal holding company income under subsection (a)(6), nor copyright royalties (as defined in subsection (a)(4) nor produced film rents (as defined in subsection (a)(5)(B)). " and inserting in lieu thereof the following: "but such term does not include— " (A) amounts constituting personal holding company income under subsection (a)(6), " (B) copyright royalties (as defined in subsection (a)(4)), " (C) produced film rents (as defined in subsection (a) (5)(B)), or ' (D) compensation, however designated, for the use of, or the right to use, any tangible personal property manu-

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factured or produced by the taxpayer, if during the taxable year the taxpayer is engaged in substantial manufacturing or production of tangible personal property of the same type." (b) TECHNICAL AMENDMENTS.—

(1) Section 543(a)(2) (relating to adjusted income from rents included in personal holding company income) is amended by striking out the last sentence thereof. (2) Section 543(b)(2) (relating to definition of adjusted ordinary gross income) is amended by adding at the end thereof the following new subparagraph: " (D) CERTAIN EXCLUDED RENTS.—From the gross income consisting of compensation described in subparagraph (D) of paragraph (3) subtract the amount allowable as deductions for the items described in clauses (i), (ii), (iii), and (iv) of subparagraph (A) to the extent allocable, under regulations prescribed by the Secretary or his delegate, to such gross income. The amount subtracted under this subparagraph shall not exceed such gross income." (c) EFFECTIVE DATE.—The amendments made by subsections (a) and (b) shall apply to taxable years beginning after the date of the enactment of this Act. Such amendments shall also apply, at the election of the taxpayer (made at such time and in such manner as the Secretary or his delegate may prescribe), to taxable years beginning on or before such date and ending after December 31, 1965.

^^ ^*^' ^^•

SEC. 207. PERCENTAGE DEPLETION RATE FOR CERTAIN CLAY BEARING ALUMINA. (a) 23 PERCENT EATE.—Section 613(b) (relating to percentage depletion rates) is amended— (1) by inserting "clay, laterite, and nephelite syenite" after "anorthosite" in paragraph (2)(B); and (2) by striking out "if paragraph (5)(B) does not apply" in paragraph (3)(B) and inserting in lieu thereof "if neither paragraph (2)(B) nor (5)(B) applies". (b) EFFECTIVE DATE.—The amendments made by subsection (a) shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 208. PERCENTAGE DEPLETION RATE FOR CLAM AND OYSTER SHELLS. (a) 15 PERCENT RATE.—Section 613(b) (relating to percentage depletion rates) is amended— (1) by striking out "moUusk shells (including clam shells and oyster shells)," in paragraph (5)(A), and (2) by inserting "mollusk shells (including clam shells and oyster shells)," after "marble," in paragraph (6). (b) EFFECTIVE DATE.—The amendments made by subsection (a) shall apply to taxable years beginning after the date of the enactment of this Act. SEC. 209. PERCENTAGE DEPLETION RATE FOR CERTAIN CLAY, SHALE, AND SLATE. (a) 71/^ PERCENT RATE.—Section 613(b) (relating to percentage depletion rates) is amended— (1) by renumbering paragraphs (5) and (6) as (6) and (7), respectively, and by inserting after paragraph (4) the following new paragraph; " (5) 714 percent—clay and shale used or sold for use in the manufacture of sewer pipe or brick, and clay, shale, and slate used or sold for use as sintered or burned lightweight aggregates.";

j^lf'J^fgi^^^'

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74 Stat. 293.

72 Stat. 1644.

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[80 STAT.

(2) by striking out in paragraph (3)(B) (as amended by section 2 0 7 (a)(2)) "if neither paragraph (2)(B) nor (5)(B) applies" and inserting in lieu thereof "if neither paragraph (2) (B), (5), o r (6)(B) applies"; (3) by striking out m paragraph (6) (as renumbered by paragraph (1)) "shale, and stone, except stone described in paragraph (6) " and inserting in lieu thereof "shale (except shale described in paragraph (5)), and stone (except stone described in paragraph (7)) "; (4) by striking out, in subparagraph (B) of paragraph (6) (as so renumbered), "building or paving brick," and by striking out "sewer pipe,"; and (5) by inserting after "any such other mineral" in paragraph (7) (as so renuinbered) "(other than slate to which paragraph (5) applies)". ^]jj CONFORMING AMENDMENT.—Section 613(c)(4)(G) (relating to treatment processes) is amended by striking out "paragraph (5) (B) " and inserting in lieu thereof "paragraph (5) or (6)(B) ". (c) EFFECTIVE DATE.—The amendments made by subsections (a) and (b) shall apply to taxable years beginning after the date of the enactment of this Act. SEC. 210. STRADDLES. (a)

TREATMENT AS SHORT-TERM

CAPITAL

GAIN.—Section

1234

(relating to options) is amended by redesignating subsection (c) as subsection (d) and by inserting alter subsection (b) the following new subsection: "(c)

68A Stat. 330.

76 Stat. 1046.

SPECIAL RULE FOR GRANTORS OF STRADDLES.— " (1) G A I N ON LAPSE.—In the case of gain on lapse of an option

granted by the taxpayer as part of a straddle, the gain shall be deemed to be gain from the sale or exchange of a capital asset held for not more than 6 months on the day that the option expired. (2) EXCEPTION.—This subsection shall not apply to any person who holds securities for sale to customers in the ordinary course of his trade or business. "(3) DEFINITIONS.—For purposes of this subsection— " (A) The term 'straddle' means a simultaneously granted combination of an option to buy, and an option to sell, the same quantity of a security at the same price during the same period of time. " (B) The term 'security' has the meaning assigned to such term by section 1236(c)." (b) EFFECTIVE DATE.—The amendments made by subsection (a) shall apply to straddle transactions entered into after January 25, 1965, in taxable years ending after such date. SEC. 211. TAX TREATMENT OF PER-UNIT RETAIN ALLOCATIONS. (a) TAX TREATMENT OF COOPERATIVES.—

(1) Section 1382(a) (relating to gross income of cooperatives) is amended by striking out the period at the end thereof and inserting "or by reason of any amount paid to a patron as a per-unit retain allocation (as defined in section 1388(f))." (2) Section 1382(b) is amended— (A) by striking out " (b) PATRONAGE DIVIDENDS.—" and inserting in lieu thereof " (b) PATRONAGE DIVIDENDS AND P E R - U N I T RETAIN ALLOCATIONS.—",

(B) by striking out "or" at the end of paragraph (1),

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(C) by striking out the period at the end of paragraph (2) and inserting a semicolon in lieu thereof, (D) by striking out the sentence following paragraph (2) and inserting in lieu thereof the following: " (3*) as per-unit retain allocations, to the extent paid in qualified per-unit retain certificates (as defined in section 1388(h)) with respect to marketing occurring during such taxable year; or "(4) in money or other property (except per-unit retain certificates) in redemption of a nonqualified per-unit retain certificate which was paid as a per-unit retain allocation during the payment period for the taxable year during which the marketing occurred. For purposes of this title, any amount not taken into account under the preceding sentence shall, in the case of an amount described in paragraph (1) or (2), be treated in the same manner as an item of gross income and as a deduction therefrom, and in the case of an amount described in paragraph (3) or (4), be treated as a deduction in arriving at gross income." (3) Section 1382(e) is amended to read as follows: "(e)

PRODUCTS MARKETED UNDER POOLING ARRANGEMENTS.—For

purposes of subsection (b), in the case of a pooling arrangement for the marketing of products— " (1) the patronage shall (to the extent provided in regulations prescribed by the Secretary or his delegate) be treated as patronage occurring during the taxable year in which the pool closes, and "(2) the marketing of products shall be treated as occurring during any of the taxable years in which the pool is open." (4) Section 1382(f) is amended by striking out "subsection (b) " and inserting in lieu thereof "paragraphs (1) and (2) of subsection (b)". (5) The heading for section 1383 is amended by striking out the period at the end thereof and inserting "OR NONQUALIFIED PER-UNIT RETAIN CERTIFICATES." (6) Section 1383(a) is amended— (A) by striking out "section 1382(b)(2)" and inserting in lieu thereof "section 1382(b)(2) or (4),", (B) by striking out "nonqualified written notices of allocation" each place it appears and inserting in lieu thereof "nonqualified written notices of allocation or nonqualified perunit retain certificates", and (C) by striking out "qualified written notices of allocation" and inserting in lieu thereof "qualified written notices of allocation or qualified per-unit retain certificates (as the case may be)". (7) Section 1383(b)(2) is amended— (A) by striking out "nonqualified written notice of allocation" and inserting in lieu thereof "nonqualified written notice of allocation or nonqualified per-unit retain certificate", (B) by striking out "qualified written notice of allocation" and inserting in lieu thereof "qualified written notice of allocation or qualified per-unit retain certificate (as the case may be)", (C) by striking out "such written notice of allocation" and inserting in lieu thereof "such written notice of allocation or per-unit retain certificate", and (D) by striking out "section 1382(b)(2) " and inserting in lieu thereof "section 1382(b)(2) or (4),". 65-300 0-67—102

1581

^°®'' P- ^^^^•

^^ Stat. io47.

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[80 STAT.

(8) The table of sections for part I of subchapter T of chapter 1 is amended by striking out— "Sec. 1383. Computation of tax where cooperative redeems nonqualified written notices of allocation."

and inserting in lieu thereof— "Sec. 1383. Computation of tax where cooperative redeems nonqualified written notices of allocation or nonqualified per-unit retain certificates." (b) 76 Stat. 1048.

T A X T R E A T M E N T BY P A T R O N S. —

(1) Section 1385(a) is amended by striking out "and" at the end of paragraph (1), by striking out the period at the end of paragraph (2) and inserting in lieu thereof ", and", and by adding at the end thereof the following new paragraph: " (3) the amount of any per-unit retain allocation which is paid in qualified per-unit retain certificates and which is received by him during the taxable year from an organization described in section 1381(a)." (2) The heading for section 1385(c) is amended by striking out "ALLOCATION" and inserting in lieu thereof "ALLOCATION AND CERTAIN NONQUALIFIED P E R - U N I T R E T A I N CERTIFICATES".

(3) Section 1385(c)(1) is amended to read as follows: "(1) APPLICATION OF SUBSECTION.—This subsection shall apply to— " (A) any nonqualified written notice of allocation which— " (i) was paid as a patronage dividend, or "(ii) was paid by an organization described in section 1381 (a)(1) on a patronage basis with respect to earnings derived from business or sources described in section 1382(c)(2)(A), and " (B) any nonqualified per-unit retain certificate which was paid as a per-unit retain allocation." (4) Section 1385(c)(2) is amended— (A) by striking out "nonqualified written notice of allocation" and inserting in lieu thereof "nonqualified written notice of allocation or nonqualified per-unit retain certificate", and (B) by striking out "such written notice of allocation" each place it appears and inserting in lieu thereof "such written notice of allocation or per-unit retain certificate". (5) The table of parts for subchapter T of chapter 1 is amended by striking out— "Part II. Tax treatment by patrons of patronage dividends."

and inserting in lieu thereof— "Part II. Tax treatment by patrons of patronage dividends and perunit retain allocations." (c)

DEFINITIONS.—

(1)(A) Section 1388(e)(1) is amended by striking out "allocation)" and inserting in lieu thereof "allocation or a per-unit retain certificate)". (B) Section 1388(e)(2) is amended by striking out "allocation" and inserting in lieu thereof "allocation or qualified per-unit retain certificate". (2) Section 1388 is amended by adding at the end thereof the following new subsections: " (f) P E R - U N I T R E T A I N ALLOCATION.—For purposes of this subchapter, the term 'per-unit retain allocation' means any allocation, by an organization to which part I of this subchapter applies, other than

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by payment in money or other property (except per-unit retain certificates) to a patron with respect to products marketed for him, the amount of which is fixed without reference to the net earnings of the organization pursuant to an agreement between the organization and the patron, " (g) P E R - U N I T RETAIN CERTIFICATE.—For purposes of this subchapter, the term 'per-unit retain certificate' means any written notice which discloses to the recipient the stated dollar amount of a per-unit retain allocation to him by the organization. " (h) QUALIFIED P E R - U N I T RETAIN CERTIFICATE.—

" (1) DEFINED.—For purposes of this subchapter, the term 'qualified per-unit retain certificate' means any per-unit retain certificate which the distributee has agreed, in the manner provided in paragraph (2), to take into account at its stated dollar amount as provided in section 1385(a). "(2) MANNER OF OBTAINING AGREEMENT.—^A distributee shall agree to take a per-unit retain certificate into account as provided in paragraph (1) only by— ' ' (A) making such agreement in writing, or " (B) obtaining or retaining membership in the organization after— " (i) such organization has adopted (after the date of the enactment of this subsection) a bylaw providing that membership in the organization constitutes such agreement, and "(ii) he has received a written notification and copy of such bylaw.

^^ ^*^* ^°^^

" (3) PERIOD FOR WHICH AGREEMENT IS EFFECTIVE.— " (A) GENERAL RULE.—Except as provided in subpara-

graph (B) — " (i) an agreement described in paragraph (2)(A) shall be an agreement with respect to all products delivered by the distributee to the organization during the taxable year of the organization during which such agreement is made and all subsequent taxable years of the organization; and "(ii) an agreement described in paragraph (2)(B) shall be an agreement with respect to all products delivered by the distributee to the organization after he received the notification and copy described in paragraph(2)(B)(ii). " (B) REVOCATION, ETC.—

" (i) Any agreement described in paragraph (2)(A) may be revoked (in writing) by the distributee at any time. Any such revocation shall be effective with respect to products delivered by the distributee on or after the first day of the first taxable year of the organization beginning after the revocation is filed with the organization; except that in the case of a pooling arrangement described in section 1382(e) a revocation made by a distributee shall not be effective as to any products which were delivered to the organization by the distributee before such revocation. "(^ii) A n v agreement described in paragraph (2)(B) shall not be effective with respect to any products delivered after the distributee ceases to be a member of the organization or after the bylaws of the organization cease to contain the provision described in paragraph (2)(B)(i).

'^^ s ^ ^ ^°'*^**-

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[80 STAT.

" (i) NONQUALIFIED P E R - U N I T RETAIN CERTIFICATE.—For purposes

of this subchapter, the term 'nonqualified per-unit retain certificate' means a per-unit retain certificate which is not described in subsection (h). " 76 Stat. 1054.

Ante, p. 1582. Ante,

p. 1581.

(d) INFORMATION REPORTING.— ^-[^^ A M O U N T S SUBJECT TO REPORTING.

SectioU 6 0 4 4 (b)(1)

is

amended by striking out "and" at the end of subparagraph (B), by striking out the period at the end of subparagraph (C) and inserting in lieu thereof ", and", and by adding after subparagraph (C) the following new subparagraphs: " (D) the amount of any per-unit retain allocation (as defined in section 1388(f)) which is paid in qualified per-unit retain certificates (as defined in section 1388(h)), and " (E) any amount described in section 1382(b)(4) (relating to redemption of nonqualified per-unit retain certificates)." (2)

DETERMINATION OF AMOUNT PAID.—

(A) Section 6044(d)(1) is amended by striking out "allocation)" and inserting in lieu thereof "allocation or a qualified per-unit retain certificate)". (B) Section 6044(d)(2) is amended by striking out "allocation" and inserting in lieu thereof "allocation or a qualified per-unit retain certificate". (e)

76 Stat. 1045.

EFFECTIVE DATES.—

(1) The amendments made by subsections (a), (b), and (c) shall apply to per-unit retain allocations made during taxable years of an organization described in section 1381(a) (relating to organizations to which part I of subchapter T of chapter 1 applies) beginning after April 30, 1966, with respect to products delivered during such years. (2) The amendments made by subsection (d) shall apply with respect to calendar years after 1966. (f) TRANSITION RULE. —

(1) Except as provided in paragraph (2), a written agreement between a patron and a cooperative association— (A) which clearly provides that the patron agrees to treat the stated dollar amounts of all per-unit retain certificates issued to him by the association as representing cash distributions which he has, of his own choice, reinvested in the cooperative association, (B) which is revocable by the patron at any time after the close of the taxable year in which it was made, (C) which was entered into after October 14, 1965, and before the date of the enactment of this Act, and (D) which is in effect on the date of the enactment of this Act, and with respect to which a written notice of revocation has not been furnished to the cooperative association, shall be effective (for the period prescribed in the agreement) for purposes of section 1388(h) of the Internal Revenue Code of 1954 as if entered into, pursuant to such section, after the date of the enactment of this Act. (2) An agreement described in paragraphs (1)(A) and (C) which was included in a by-law of the cooperative association and which is in effect on the date of the enactment of this Act shall be effective for purposes of section 1388(h) of such Code only for taxable years of the association beginning before May 1, 1967.

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SEC. 212. EXCISE TAX RATE ON AMBULANCES AND HEARSES. (a) CLASSIFICATION AS AUTOMOBILES.—Section 4062 (relating to yg^st'lt^'iose^^' definitions applicable to the tax on motor vehicles) is amended by adding at the end thereof the following new subsection: " (b) AMBULANCES, HEARSES, E T C. — For purposes of section 4061 (a), a sale of an ambulance, hearse, or combination ambulance-hearse shall be considered to be a sale of an automobile chassis and an automobile body enumerated in subparagraph (B) of section 4061(a)(2)." 79 Stat. 136. (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply with respect to articles sold after the date of the enactment of this Act. SEC. 213. APPLICABILITY OF EXCLUSION FROM INTEREST EQUALIZATION TAX OF CERTAIN LOANS TO ASSURE RAW MATERIALS SOURCES. (a) EXCEPTION TO EXCLUSION.—Section 4914(d) (relating to loans 78 Stat. 813. to assure raw materials sources) is amended by adding at the end thereof the following new paragraph: "(3) EXCEPTION.—The exclusion from tax provided by paragraph (1) shall not apply in any case where the acquisition of the debt obligation of the foreign corporation is made with an intent to sell, or to offer to sell, any part of such debt obligation to United States persons." (b) TECHNICAL AMENDMENTS.—(1) Section 4914(j)(1) (relating to loss of entitlement to exclusion in case of certain subsequent transfers) is amended— (A) by striking out in subparagraph (A) ", or the exclusion provided by subsection (d),", and (B) by striking out "subsection (d) or (f) " in subparagraph (D) and inserting in lieu thereof "subsection (r) ". (2) Section 4918 (relating to exemption for prior American 78 Stat. 831. ownership) is amended by adding at the end thereof the following new subsection: " (g) CERTAIN DEBT OBLIGATIONS ARISING O U T OF LOANS TO ASSURE E A W MATERIAL SOURCES.—Under regulations prescribed by the Secre-

tary or his delegate, subsection (a) shall not apply to the acquisition by a United States person of any debt obligation to which section 4914(d) applied where the acquisition of the debt obligation by such person is made with an intent to sell, or to offer to sell, any part of such debt obligation to United States persons. The preceding sentence shall not apply if the tax imposed by section 4911 has applied to any prior acquisition of such debt obligation." (c) EFFECTIVE DATE.—The amendments made by subsections (a) and (b) shall apply with respect to acquisitions of debt obligations made after the date of the enactment of this Act. SEC. 214. EXCLUSION FROM INTEREST EQUALIZATION TAX FOR CERTAIN ACQUISITIONS BY INSURANCE COMPANIES. (a) N E W COMPANIES AND COMPANIES OPERATING IN FORMER LESS DEVELOPED COUNTRIES.-—Section 4914(e) (relating to acquisitions by

insurance companies doing business in foreign countries) is amended— (1) by striking out "at the time of the initial designation" in the last sentence of paragraph (2); (2) by striking out "An" in the first sentence of paragraph (3)(A)(i) and inserting in lieu thereof "Except as provided in clause ( i i i), a n "; (3) by striking out "under this subparagraph" in paragraph (3)(A) ( i i) and inserting in lieu thereof "under clause (i) "; (4) by adding after clause (ii) of paragraph (3)(A) the following new clauses:

78 Stat. 809.

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[80 STAT.

" ( i i i) I N I T I A L DESIGNATION A F T E R O C TO B E R 2, 1964. — A n

insurance company which was not in existence on October 2, 1964, or was otherwise ineligible to establish a fund (or funds) of assets described in paragraph (2) by making an initial designation under clause (i) on or before such date, may e s t ^ l i s h (and thereafter currently maintain) such fund (or funds) of assets at any time after the enactment or this clause by designating stock of a foreign issuer or a debt obligation of a foreign obligor as a part of such fund in accordance with the provisions of clause (iv) (if applicable) and subparagraph (B)(i). " ( i v) FUNDS INVOLVING CURRENCIES OF FORMER LESS

78 Stat. 827.

79 Stat. 959.

78 Stat. 819.

DEVELOPED COUNTRIES.—An insurance company desiring to establish a fund under clause (iii) with respect to insurance contracts payable in the currency of a country designated as a less developed country on October 2, 1964, which thereafter has such designation terminated ^^ ^^ Executive order issued under section 4916(b), shall designate as assets of such fund, to the extent permitted by subparagraph (E), the stock of foreign issuers or debt obligations of foreign obligors as follows: First, stock and debt obligations having a period remaining to maturity of at least 1 year (other than stock or a debt obligation described in section 4916(a)) acquired before July 19, 1963, and owned by the company on the date which the President, in accordance with section 4916(b), communicates to Congress his intention to terminate the status of such country as a less developed country; second, stock and debt obligations having a period remaining to maturity of at least 1 year described m section 4916(a) (and owned by the company on the date of such termination) which, at the time of acquisition, qualified for the exclusion provided in such section because of the status of such country as a less developed country; and third, such stock or debt obligations as the company may elect to d e s i ^ a t e under subparagraph (B)(i). The period remaining to maturity referred to in the preceding sentence shall be determined as of the date of the President's communication to Congress."; (5) by striking out "TO MAINTAIN FUND" in the heading of paragraph (3)(B); (6) by striking out "as provided in subparagraph (A) ( i i) " in paragraph (3)(B)(i) and inserting in lieu thereof "under subparagraphs (A)(i) and ( i i) "; (7) by inserting before the period at the end of the first sentence of paragraph (3)(C) the following:"; except that, with respect to a fund established under subparagraph (A) (iii), stock or debt obligations acquired before the establishment of such fund may not be designated as part of such fund under this subparagraph"; (8) by striking out "subparagraph (B), " in paragraph (3)(E)(i) and inserting in lieu thereof "subparagraph (A) (iv), (B),"; (9) by striking out "subparagraph (A) " in paragraph (4)(B)(i) and inserting in lieu thereof "subparagraph (A)(i) "; (10) by striking out "paragraph (3)(A) " in paragraph (4)(B) (ii) and inserting in lieu thereof "paragraph (3)(A) (i)";and

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 80 STAT.]

PUBLIC LAW 8 9 - 8 0 9 - N O V. 13, 1966

(11) by adding at the end of paragraph (4) the following new paragraph: " (C) SPECIAL RULE.—For purposes of subparagraph (A), if a country designated as a less developed country on September 2, 1964, thereafter has such designation terminated by an Executive order issued under section 4916(b), all insurance contracts payable in the currency of such country which were entered into before such designation was terminated shall be treated as insurance contracts payable in the currency of a country other than a less developed country." (b) EFFECTIVE DATE.—The amendments made by subsection (a) shall take effect on the day after the date of the enactment of this Act. SEC. 215. EXCLUSION FROM INTEREST EQUALIZATION TAX OF CERTAIN ACQUISITIONS BY FOREIGN BRANCHES OF DOMESTIC BANKS.

1587

^* ^*^*- *^°

78 Stat. 827.

(a) AUTHORITY FOR MODIFICATION OF EXECUTIVE ORDERS.—Section

4931 (a) (relating to commercial bank loans) is amended by adding at the end thereof the following new sentence: "Clause (A) of the preceding sentence shall not prevent a modification of such Executive order (or any modification thereof) to exclude from the application of subsection (b) acquisitions by commercial banks, through branches located outside the United States, of debt obligations of foreign obligors payable in currency of the United States." (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply with respect to acquisitions of debt obligations made after the date of the enactment of this Act.

^^ Stat. 839.

TITLE III—PRESIDENTIAL ELECTION CAMPAIGN FUND ACT SEC. 301. SHORT TITLE. This title may be cited as the "Presidential Election Campaign F u n d Act of 1966". SEC. 302. AUTHORITY FOR DESIGNATION OF $1 OF INCOME TAX PAYMENTS TO PRESIDENTIAL ELECTION CAMPAIGN FUND. (a) Subchapter A of chapter 61 of the Internal Revenue Code of 26'^sc^*6oo^i-' 1954 (relating to returns and records) is amended by adding at the 6091. end thereof the following new part:

"PART VIII—DESIGNATION OF INCOME TAX PAYMENTS TO PRESIDENTIAL ELECTION CAMPAIGN FUND "Sec. 6096. Designation by individuals. "SEC. 6096. DESIGNATION BY INDIVIDUALS.

" (a) IN GENERAL.—Every individual (other than a nonresident alien) whose income tax liability for any taxable year is $1 or more may designate that $1 shall be paid into the Presidential Election Campaign F u n d established by section 303 of the Presidential Election Campaign Fund Act of 1966. " (b) INCOME TAX LIABILITY.—For purposes of subsection (a), the income tax liability of an individual for any taxable year is the amount of the tax imposed by chapter 1 on such individual for such taxable year (as shown on his return), reduced by the sum of the credits (as shown in his return) allowable under sections 32(2), 33,35, 37, and 38. "(c) MANNER AND T I M E OF DESIGNATION.—A designation under subsection (a) may be made with respect to any taxable year, in such manner as the Secretary or his delegate may prescribe by regulations—

26 USC 1-1388.

76 Stat. 962.

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