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"(ii) all or substantially all of the proceeds of which are to be used to finance such facility or to refund previous financing under such plan. "(D) REFUNDING OBLIGATIONS.—No approval under subparagraph (A) shall be necessary with respect to any obligation which is issued to refund an obligation approved under subparagraph (A) (or treated as approved under subparagraph (C)) unless the maturity date of such obligation is later than the maturity date of the obligation to be refunded. "(E) APPLICABLE ELECTED REPRESENTATIVE.—For purposes

of this paragraph— "(i) IN GENERAL.—The term 'applicable elected representative' means with respect to any governmental unit— "(I) an elected legislative body of such unit, or "(II) the chief elected executive officer, the chief elected State legal officer of the executive branch, or any other elected official of such unit designated for purposes of this paragraph by such chief elected executive officer or by State law. "(ii) N o APPLICABLE ELECTED REPRESENTATIVE.—If (but

for this clause) a governmental unit has no applicable elected representative, the applicable elected representative for purposes of clause (i) shall be the applicable elected representative of the governmental unit— "(I) which is the next higher governmental unit with such a representative, and "(II) from which the authority of the governmental unit with no such representative is derived." (b) INFORMATION REPORTING.—

(1) IN GENERAL.—Section 103 is amended by redesignating 26 USC 103. subsection (1) as subsection (m) and by adding at the end thereof the following new subsection: "(1) INFORMATION BONDS.—

REPORTING

REQUIREMENTS

FOR

CERTAIN

"(1) IN GENERAL.—Notwithstanding subsection (b), any industrial development bond or any other obligation which is issued as part of an issue all or a major portion of the proceeds of which are to be used directly or indirectly— "(A) to finance loans to individuals for educational expenses, or "(B) by an organization described in section 501(c)(3) which is exempt from taxation by reason of section 501(a), shall be treated as an obligation not described in paragraph (1) or (2) of subsection (a) unless such bond satisfies the requirements of paragraph (2). "(2) INFORMATION REPORTING REQUIREMENT.—An obligation satisfies the requirement of this paragraph if the issuer submits to the Secretary, not later than the 15th day of the 2nd calendar month after the close of the calendar quarter in which the obligation is issued, a statement concerning the issue of which the obligation is a part which contains— "(A) the name and address of the issuer, "(B) the date of issue, the amount of lendable proceeds of the issue, and the stated interest rate, term, and face amount of each obligation which is part of the issue,

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 96 STAT. 470

26 USC 103.

26 USC 103 note.

95 Stat. 204.

PUBLIC LAW 97-248—SEPT. 3, 1982 "(C) where required, the name of the appHcable elected representative who approved the issue, or a description of the voter referendum by which the issue was approved, "(D) the name, address, and employer identification number of— "(i) each initial principal user of any facilities provided with the proceeds of the issue, "(ii) the common parent of any affiliated group of corporations (Within the meaning of section 1504(a)) of which such initial principal user is a member, and "(iii) if the issue is treated as a separate issue under subsection (b)(6)(K), any person treated as a principal user under subsection (b)(6)(L), and "(E) a description of any property to be financed from the proceeds of the issue. "(3) EXTENSION OF TIME.—The Secretary may grant an extension of time for the filing of any statement required under paragraph (2) if there is reasonable cause for the failure to file such statement in a timely fashion." (2) CONFORMING AMENDMENT.—Paragraph (2) of section 103(b) (defining industrial development bond) is amended by striking out "For purposes of this subsection" and inserting in lieu thereof "For purposes of this section". (c) EFFECTIVE D A T E S. — (1) PUBLIC APPROVAL.—The

amendment made by subsection (a) shall apply to obligations issued after December 31, 1982, other than obligations issued solely to refund any obligation which— (A) was issued before July 1, 1982, and (B) has a maturity which does not exceed 3 years. (2) INFORMATION REPORTING.—The amendments made by subsection (b) shall apply to obligations issued after December 31, 1982 (including any obligation issued to refund an obligation issued before such date). SEC. 216. COST RECOVERY FOR CERTAIN PROPERTY FINANCED WITH TAX-EXEMPT BONDS. (a) CosT RECOVERY METHOD.—Subsection (f) of section 168 (relating to special rules for the accelerated cost recovery system) is amended by adding at the end thereof the following new paragraph: "(12) LIMITATIONS ON PROPERTY FINANCED WITH TAX-EXEMPT BONDS.—

"(A) IN GENERAL.—Notwithstanding any other provision of this section, to the extent that any property is financed by the proceeds of an industrial development bond (within the meaning of section 10303)(2)) the interest of which is exempt from taxation under section 103(a), the deduction allowed under subsection (a) (and any deduction allowable in lieu of the deduction allowable under subsection (a)) for any taxable year with respect to such property shall be determined under subparagraph (B). "(B) RECOVERY METHOD.—

"(i) IN GENERAL.—Except as provided in clause (ii), the amount of the deduction allowed with respect to property described in subparagraph (A) shall be determined by using the straight-line method (with a halfyear convention and without regard to salvage value)

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96 STAT. 471

and a recovery period determined in accordance with the following table: "In the case of: 3-year property 5-year property 10-year property 15-year public utility property

The recovery period is: 3 years. 5 years. 10 years. 15 years.

"(ii) 15-YEAR REAL PROPERTY.—In the case of 15-year real property, the amount of the deduction allowed shall be determined by using the straight-line method (determined on the basis of the number of months in the year in which such property was in service and without regard to salvage value) and a recovery period of 15 years. "(C) EXCEPTIONS.—Subparagraph (A) shall not apply to any recovery property which is placed in service— "(i) in connection with projects for residential rental property financed by the proceeds of obligations described in section 103(b)(4)(A), Post, pp. 477, "(ii) in connection with a sewage or solid waste dis- ^^^• posal facility— "(I) which provides sewage or solid waste disposal services for the residents of part or all of 1 or more governmental units, and "(II) with respect to which substantially all of the sewage or solid waste processed is collected from the general public, "(iii) as an air or water pollution control facility which is— "(I) installed in connection with an existing facility, or "(II) installed in connection with the conversion of an existing facility which uses oil or natural gas (or any product of oil or natural gas) as a primary fuel to a facility which uses coal as a primary fuel, or "(iv) in connection with a facility with respect to which an urban development action grant has been made under section 119 of the Housing and Community Development Act of 1974. 42 USC 5318. "(D) EXISTING FACILITY.—For purposes of this paragraph, the term 'existing facility' means a plant or property in operation before July 1, 1982. "(E) EXCEPTION WHERE LONGER RECOVERY PERIOD APPLICA-

BLE.—Subparagraph (A) shall not apply to any recovery property if the recovery period which would be applicable to such property by reason of an election under subsection (b)(3) exceeds the recovery period for such property determined under subparagraph (B)." (b) EFFECTIVE DATES.— 26 USC 168 note. (1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply with respect to property placed in service after December 31, 1982, to the extent such property is financed by the proceeds of an obligation (including a refunding obligation) issued after June 30, 1982. (2) EXCEPTIONS.—

97-200 O-84-pt. 1

17: QL3

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 96 STAT. 472

PUBLIC LAW 97-248—SEPT. 3, 1982 (A) CONSTRUCTION OR BINDING AGREEMENT.—The amendments made by this section shall not apply with respect to facilities the original use of which commences with the taxpayer and— (i) the construction, reconstruction, or rehabilitation of which began before July 1, 1982, or (ii) with respect to which a binding agreement to incur significant expenditures was entered into before July 1, 1982. (B) REFUNDING.—

(i) IN GENERAL.—Except as provided in clause (ii), in the case of property placed in service after December 31, 1982 which is financed by the proceeds of an obligation which is issued solely to refund another obligation which was issued before July 1, 1982, the amendments made by this section shall apply only with respect to the basis in such property which has not been recovered before the date such refunding obligation is issued, (ii) SIGNIFICANT EXPENDITURES.—In the case of facilities the original use of which commences with the taxpayer and with respect to which significant expenditures are made before January 1, 1983, the amendments made by this section shall not apply with respect to such facilities to the extent such facilities are financed by the proceeds of an obligation issued solely to refund another obligation which was issued before July 1, 1982. In the case of an inducement resolution adopted by an issuing authority before July 1, 1982, for purposes of applying subparagraphs (A)(i) and (B)(ii) with respect to obligations described in such resolution, the term "facilities" means the facilities described in such resolution. (3) CERTAIN PROJECTS FOR RESIDENTIAL REAL PROPERTY.—For

Ante, p. 470. 26 USC 103A note. Post, pp. 477, 599.

95 Stat. 349.

purposes of clause (i) of section 168(f)(12)(C) of the Internal Revenue Code of 1954 (as added by this section), any obligation issued to finance a project described in the table contained in paragraph (1) of section 1104(n) of the Mortgage Subsidy Bond Tax Act of 1980 shall be treated as an obligation described in section 103(b)(4)(A) of the Internal Revenue Code of 1954. SEC. 217. MISCELLANEOUS. (a) EXEMPT OBLIGATIONS FOR LOCAL DISTRICT HEATING AND COOLING FACILITIES.—

(1) IN GENERAL.—Paragraph (4) of section 103(b) (relating to certain exempt activities) is amended— (A) by striking out "or" at the end of subparagraph (H), (B) by striking out the period at the end of subparagraph (I), and inserting in lieu thereof ", or", and (C) by inserting after subparagraph (I) the following new subparagraph: "(J) local district heating or cooling facilities." (2) LOCAL DISTRICT HEATING OR COOLING FACILITIES DEFINED.—

95 Stat. 349.

Subsection (b) of section 103 is amended by redesignating paragraph (10) as paragraph (13) and by inserting after paragraph (9) the following new paragraph: "(10) LOCAL DISTRICT HEATING OR COOLING FACILITY,—For purposes of this section—

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96 STAT. 473

"(A) IN GENERAL.—The term 'local district heating or cooling facility' means property used as an integral part of a local district heating or cooling system. "(B) LOCAL DISTRICT HEATING OR COOLING SYSTEM.—

"(i) IN GENERAL.—The term 'local district heating or cooling system' means any local system consisting of a pipeline or network (which may be connected to a heating or cooling source) providing hot water, chilled water, or steam to 2 or more users for— "(I) residential, commercial, or industrial heating or cooling, or "(II) process steam, "(ii) LOCAL SYSTEM.—For purposes of this subparagraph, a local system includes facilities furnishing heating and cooling to an area consisting of a city and one contiguous county." (3) CONFORMING AMENDMENT.—Subparagraph (C) of section

103(b)(6) is amended by striking out "paragraph (7)" and insert- 26 USC 103. ing in lieu thereof "paragraph (13)". (b) FACILITIES FOR THE LOCAL FURNISHING OF GAS.—Paragraph (4)

of section 103(b) is amended by striking out "electric energy from" in the last sentence and inserting in lieu thereof "electric energy or gas from". (c) QUALIFIED MASS COMMUTING VEHICLE.—Subparagraph (A) of

section 103(b)(9) (defining qualified mass commuting vehicle) is 95 Stat. 349. amended— (1) by inserting "ferry," after "rail car", and (2) by inserting after "mass commuting services" in clause (ii) the phrase "(or, in the case of a ferry, mass transportation services)". (d) POLLUTION CONTROL FACILITIES ACQUIRED BY REGIONAL POLLU-

TION CONTROL AUTHORITY.—Subsection (b) of section 103 is amended

by inserting after paragraph (10) (as added by subsection (a)) the following new paragraph: "(11) POLLUTION CONTROL FACILITIES ACQUIRED BY REGIONAL POLLUTION CONTROL AUTHORITIES.—

"(A) IN GENERAL.—For purposes of subparagraph (F) of paragraph (4), an obligation shall be treated as described in such subparagraph if it is part of an issue substantially all of the proceeds of which are used by a qualified regional pollution control authority to acquire existing air or water pollution control facilities which the authority itself will operate in order to maintain or improve the control of pollutants. "(B) RESTRICTIONS.—Subparagraph (A) shall apply only if— "(i) the amount paid, directly or indirectly, for the facilities does not exceed their fair market value, "(ii) the fees or charges imposed, directly or indirectly, on the seller for any use of the facilities after the sale are not less than the amounts that would be charged if the facilities were financed with obligations the interest on which is not exempt from tax, and "(iii) no person other than the qualified regional pollution control authority is considered after the sale as the owner of the facilities for purposes of Federal income taxes.

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 96 STAT. 474

PUBLIC LAW 97-248—SEPT. 3, 1982 "(C) QUALIFIED REGIONAL POLLUTION CONTROL AUTHORITY

26 USC 103 note.

26 USC 103.

DEFINED.—For purposes of this paragraph, the term 'qualified regional pollution control authority ' means a n authority which— "(i) is a political subdivision created by State law to control a i r or w a t e r pollution, "(ii) has within its jurisdictional boundaries all or part of a t least 2 counties (or equivalent political subdivisions), and "(iii) operates a i r or w a t e r pollution control facilities." (e) EFFECTIVE D A T E. — The amendments m a d e by this section shall apply to obligations issued after the date of the e n a c t m e n t of this Act. SEC. 218. TREATMENT OF CERTAIN REFUNDING OBLIGATIONS. (a) GENERAL RULE. — Paragraph (1) of section 103(b) of the I n t e r n a l Revenue Code of 1954 shall not apply to any qualified refunding obligation issued by a qualified issuer after the date of the enactm e n t of this Act. (b) QUALIFIED R E F U N D I N G O B L I G A T I O N. — For purposes of subsec-

tion (a), a qualified refunding obligation is any obligation issued a s part of a n issue if— (1) substantially all of the proceeds of such issue a r e used to defease refunded bonds which were issued under a pooled security a r r a n g e m e n t pursuant to a bond resolution which w a s adopted in 1974 and under which a t least 20 facilities h a v e been financed before 1978, and (2) each refunded bond is to be retired within 6 months after the first date on which the r e is no p r e m i u m for early retirement of such bond. (c) QUALIFIED ISSUER.—For purposes of subsection (a), a qualified issuer is a political subdivision created by a State in 1932 which is engaged primarily in promoting economic development. SEC. 219. LIMITATION ON MATURITY OF INDUSTRIAL DEVELOPMENT BONDS. (a) GENERAL RULE.—Subsection (b) of section 103 (relating to industrial development bonds) is amended by adding a t the e n d thereof the following new paragraph: "(14) MATURITY MAY NOT EXCEED 120 PERCENT O F ECONOMIC LIFE

Ante, p. 472.

"(A) GENERAL RULE.—Paragraphs (4), (5), (6), and (7) shall not apply to any obligation issued as part of a n issue if— "(i) the average m a t u r i t y of the obligations which a r e part of such issue, exceeds "(ii) 120 percent of the average reasonably expected economic life of the facilities being financed with the proceeds of such issue. "(B) DETERMINATION OF AVERAGES.—For purposes of sub-

paragraph (A)— "(i) the average m a t u r i t y of any issue shall be determined by taking into account the respective issue prices of the obligations which a r e issued a s part of such issue, and "(ii) the average reasonably expected economic life of the facilities being financed with any issue shall be

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96 STAT. 475

determined by taking into account the respective cost of such facilities. "(C) SPECIAL RULES.— "(i) DETERMINATION OF ECONOMIC LIFE.—For purposes

of this paragraph, the reasonably expected economic life of any facility shall be determined a s of the later of— "(I) the date on which the obligations a r e issued, or "(II) the date on which the facility is placed in service (or expected to be placed in service), "(ii) T R E A T M E N T OF L A N D. — "(I) L A N D NOT TAKEN INTO ACCOUNT.—Except a s

provided in subclause (II), land shall not be t a k e n into account under subparagraph (A)(ii). "(II) ISSUES WHERE 25 PERCENT OR MORE O F PRO-

CEEDS USED TO FINANCE LAND.—If 25 percent or more of the proceeds of any issue is used to finance land, such land shall be t a k e n into account under subparagraph (A)(ii) and shall be t r e a t e d as having an economic life of 50 year s. " (b) EFFECTIVE DATE.—The amendment m a d e by subsection (a) 26 USC 103 note. shall apply to obligations issued after December 31, 1982. SEC. 220. MORTGAGE SUBSIDY BONDS. (a) INCREASE IN A M O U N T OF MORTGAGE INTEREST L I M I T A T I O N. —

(1) IN GENERAL.—Subparagraph (A) of section 103A(i)(2) (relating to effective r a t e of mortgage interest) is amended by striking out " 1 percentage point" and inserting in lieu thereof "1.125 percentage points". (2) CLARIFICATION O F PREPAYMENT ASSUMPTIONS.—Clause (iv)

of section 103A(i)(2)(B) (relating to p r e payment assumptions) is amended to read as follows: "(iv) P R E P A Y M E N T ASSUMPTIONS.—In determining the

effective r a t e of interest— "(I) it shall be assumed that the mortgage prep a y m e n t r a t e will be the r a t e set forth in the most recent mortgage m a t u r i t y experience table published by the Federal Housing Administration for the State (or, if available, the a r e a within the State) in which the residences a r e located, and "(II) p r e payments of principal shall be t r e a t e d as received on the last day of the month in which the issuer reasonably expects to receive such prepayments." (3) CONFORMING AMENDMENTS. —

(A) The paragraph heading of paragraph (2) of section 103A(i) is amended by striking out " i PERCENTAGE P O I N T " and inserting in lieu the r e o f " 1.125 PERCENTAGE POINTS".

(B) Subparagraph (C) of section 103A(i)(4) is amended— (i) by striking out "1 percentage point" in clause (ii) and inserting in lieu thereof "1.125 percentage points", and (ii) by striking

out

"i

PERCENTAGE P O I N T "

in

the

caption and inserting in lieu thereof " 1.125 PERCENTAGE POINTS".

26 USC 103A.

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 96 STAT. 476

PUBLIC LAW 97-248—SEPT. 3, 1982 (b) DISPOSITION OF NONMORTGAGE INVESTMENT IN CASE OF LOSS.—

26 USC 103A.

Paragraph (3) of section 103A(i) (relating to n o n m o r t g a g e investment requirements) is amended by adding a t the end thereof the following new subparagraph: "(D)

N O DISPOSITION IN CASE OF LOSS.—This paragraph

shall not require the sale or disposition of any investment if such sale or disposition would result in a loss which exceeds the a m o u n t which would be paid or credited to the mortgagors under paragraph (4)(A) (but for such sale or disposition) at the time of such sale or disposition." (c)

REQUIREMENT

THAT

MORTGAGORS

BE

FIRST

TIME

HOME-

BUYERS.—Subsection (e) of section 103A (relating to 3-year requirement) is amended to read as follows: "(e) 3-YEAR REQUIREMENT. —

"(1) IN GENERAL.—An issue meets the requirements of this subsection only if 90 percent or more of the lendable proceeds of such issue a r e used to finance the residences of mortgagors who had no present ownership i n t e r e s t in the i r principal residences a t any t i m e during the 3-year period ending on the date the i r mortgage is executed. "(2) EXCEPTIONS.—For purposes of paragraph (1), the proceeds of a n issue which a r e used— "(A) to provide financing with respect to targeted a r e a residences, "(B) to provide qualified h o m e improvement loans, and "(C) to provide qualified rehabilitation loans, shall not be t a k e n into account. "(3) MORTGAGOR'S INTEREST I N RESIDENCE BEING F I N A N C E D. —

For purposes of paragraph (1), a mortgagor's i n t e r e s t in the residence with respect to which the financing is being provided shall not be t a k e n into account." (d)

INCREASE I N MAXIMUM P U R C H A S E P R I C E. — S u b s e c t i o n (f)

of

section 103A (relating to purchase price requirement) is amended— (1) by striking out "90 p e r c e n t " each place it a p p e a r s and inserting in lieu thereof "110 p e r c e n t " and (2) by striking out "110 p e r c e n t " in paragraph (5) and inserting in lieu thereof "120 percent". (e) T R E A T M E N T OF COOPERATIVE H O U S I N G CORPORATIONS.—Subsec-

tion (1) of section 103A (relating to other definitions and special rules) is amended by adding at the end thereof the following new paragraph: "(10) COOPERATIVE HOUSING CORPORATIONS.—

"(A) IN GENERAL.—In the case of any cooperative housing corporation— "(i) each dwelling u n i t shall be t r e a t e d as if it were actually owned by the person entitled to occupy such dwelling u n i t by reason of his ownership of stock in the corporation, and "(ii) any indebtedness of the corporation allocable to the dwelling u n i t shall be t r e a t e d as if it were indebtedness of the shareholder entitled to occupy the dwelling unit. "(B)

ADJUSTMENT TO TARGETED AREA REQUIREMENT. — I n

the case of any issue to provide financing to a cooperative housing corporation with respect to cooperative housing not located in a targeted area, to the extent provided in regulations, such issue may be combined with 1 or more other

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96 STAT. 477

issues for purposes of determining whether the requirements of subsection (h) are met. "(C) COOPERATIVE HOUSING CORPORATION.—The term 'cooperative housing corporation' has the meaning given to 26 USC 216. such term by section 216(b)(l)." (f) EFFECTIVE DATES.—

(1) IN GENERAL.—The amendments made by this section shall apply to obligations issued after the date of the enactment of this Act. (2) FIRST TIME HOMEBUYER REQUIREMENT.—The amendments made by subsection (c) shall also apply to obligations issued after April 24, 1979, and before the date of the enactment of this Act but only to the extent that the proceeds of such obligations are not committed as of the date of the enactment of this Act.

26 USC 103A note.

SEC. 221. INDUSTRIAL DEVELOPMENT BONDS FOR CERTAIN RESIDENTIAL RENTAL PROPERTY.

(a) IN GENERAL.—Subparagraph (A) of section 103(b)(4) (relating to Post, p. 599. certain exempt activities) is amended to read as follows: "(A) projects for residential rental property if each obligation issued pursuant to the issue is in registered form and if at all times during the qualified project period— "(i) 15 percent or more in the case of targeted area projects, or "(ii) 20 percent or more in the case of any other project, of the units in each project are to be occupied by individuals of low or moderate income,". (b) DEFINITIONS.—Subsection (b) of section 103 (relating to industrial development bonds) is amended by inserting after paragraph Ante, p. 473. (11) the following new paragraph: "(12) PROJECTS FOR RESIDENTIAL RENTAL PROPERTY.—For purposes of paragraph (4)(A)— "(A) TARGETED AREA PROJECT.—The term 'targeted area project' means— "(i) a project located in a qualified census tract (within the meaning of section 103A(k)(2)), or "(ii) an area of chronic economic distress (within the meaning of section 103A(k)(3)). "(B) QUALIFIED PROJECT PERIOD.—The term 'qualified project period' means the period beginning on the first day on which 10 percent of the units in the project are occupied and ending on the later of— "(i) the date which is 10 years after the date on which 50 percent of the units in the project are occupied, "(ii) the date which is a qualified number of days after the date on which any of the units in the project are occupied, or "(iii) the date on which any assistance provided with respect to the project under section 8 of the United 42 USC 1437f. States Housing Act of 1937 terminates. For purposes of clause (ii), the term 'qualified number' "Qualified means, with respect to an obligation described in paragraph number." (4)(A), 50 percent of the number of days which comprise the term of the obligation with the longest maturity. "(C) INDIVIDUALS OF LOW AND MODERATE INCOME.—Indi-

viduals of low and moderate income shall be determined by

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 96 STAT. 478

PUBLIC LAW 97-248—SEPT. 3, 1982 the Secretary in a manner consistent with determinations of lower income families under section 8 of the United States Housing Act of 1937 (or if such program is terminated, under such program as in effect immediately before such termination), except that the percentage of median gross income which qualifies as low or moderate income shall be 80 percent."

42 USC 1437f.

(c) CONFORMING AMENDMENTS.—

26 USC 103. 26 USC 103A 26 USC 103 note.

26 USC 103.

(1) Paragraph (4) of section 103(b) is amended by striking out the second sentence thereof. (2) Subsection (k) of section 1104 of the Mortgage Subsidy Bond Tax Act of 1980 is hereby repealed. ^^ ^^ GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to obligations issued after the date of the enactment of this Act. (2) EXCEPTION.—The amendments made by this section shall not apply with respect to any obligation to which the amendments made by section 1103 of the Mortgage Subsidy Bond Tax Act of 1980 do not apply by reason of section 1104 of such Act. PART V—MERGERS AND ACQUISITIONS Subpart A—Changes in Tax Treatment of Partial Liquidations and of Certain Distributions of Appreciated Property SEC. 222. PARTIAL LIQUIDATIONS.

(a) SECTION 331 (WHICH PROVIDES CAPITAL GAIN OR Loss TREATMENT FOR SHAREHOLDERS IN LIQUIDATIONS) LIMITED TO COMPLETE

26 USC 331.

LIQUIDATIONS.—Subsection (a) of section 331 (relating to gain or loss to shareholders in corporate liquidations) is amended to read as follows: "(a)

DISTRIBUTIONS

IN

COMPLETE

LIQUIDATION

TREATED

AS

EXCHANGES.—Amounts received by a shareholder in a distribution in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock." 26 USC 336.

(b) SECTION 336 (WHICH PROVIDES NONRECOGNITION OF GAIN AND Loss ON DISTRIBUTIONS BY LIQUIDATING CORPORATION) LIMITED TO COMPLETE LIQUIDATIONS.—Subsection (a) of section 336 (relating to

distributions of property in liquidation) is amended by striking out "partial or complete liquidation" and inserting in lieu thereof "complete liquidation". (c) DISTRIBUTIONS TO NONCORPORATE SHAREHOLDERS WHICH QUALIFY AS PARTIAL LIQUIDATIONS UNDER EXISTING LAW TREATED AS REDEMPTIONS.—

26 USC 302.

(1) Subsection (b) of section 302 (relating to redemptions treated as exchanges) is amended by redesignating paragraph (4) as paragraph (5) and by inserting after paragraph (3) the following new paragraph: "(4) REDEMPTION FROM NONCORPORATE SHAREHOLDER IN PAR-

TIAL LIQUIDATION.—Subsection (a) shall apply to a distribution if such distribution is— "(A) in redemption of stock held by a shareholder who is not a corporation, and "(B) in partial liquidation of the distributing corporation."

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96 STAT. 479

(2) Section 302 is amended by redesignating subsection (e) a s 26 USC 302. subsection (f) and by inserting after subsection (d) the following new subsection: "(e) P A R T I A L LIQUIDATION D E F I N E D. —

"(1) IN GENERAL.—For purposes of subsection (b)(4), a distribution shall be t r e a t e d as in partial liquidation of a corporation if— "(A) the distribution is not essentially equivalent to a dividend (determined a t the corporate level r a the r than a t the shareholder level), and "(B) the distribution is pursuant to a plan and occurs within the taxable year in which the plan is adopted or within the succeeding taxable year. "(2) TERMINATION OF BUSINESS.—The d i s t r i b u t i o n s which m e e t

the requirements of paragraph (1)(A) shall include (but shall not be limited to) a distribution which meets the requirements of subparagraph s (A) and (B) of this paragraph: "(A) The distribution is a t t r i b u t a b l e to the distributing corporation's ceasing to conduct, or consists of the assets of, a qualified trade or business. "(B) Immediately after the distribution, the distributing corporation is actively engaged in the conduct of a qualified trade or business. "(3) QUALIFIED TRADE OR BUSINESS.—For purposes of p a r a -

g r a p h (2), the term 'qualified trade or business' means any trade or business which— "(A) was actively conducted throughout the 5-year period ending on the date of the redemption, and "(B) was not acquired by the corporation within such period in a t r a n s a c t i o n in which gain or loss was recognized in whole or in part. "(4)

REDEMPTION

MAY BE PRO R A T A. — W h e the r

or

not

a

redemption meets the requirements of subparagraph s (A) and (B) of paragraph (2) shall be determined without regard to w h e the r or not the redemption is pro r a t a with respect to all of the shareholders of the corporation. "(5) T R E A T M E N T OF CERTAIN PASS-THRU ENTITIES.—For

pur-

poses of determining under subsection (b)(4) w h e the r any stock is held by a shareholder who is not a corporation, any stock held by a partnership, estate, or t r u s t shall be treated as if it were actually held proportionately by its part n e r s or beneficiaries." (3) Subsection (a) of section 302 is amended by striking o u t " paragraph (1), (2), or (3)" and inserting in lieu thereof "paragraph (1), (2), (3), or (4)". (4) Paragraph (5) of section 302(b) (as redesignated by paragraph (1)) is amended— (A) by striking out " paragraph (2) or (3)" and inserting in lieu thereof " paragraph (2), (3), or (4)", and (B) by striking out " paragraph (1) or (2)" and inserting in lieu thereof " paragraph (1), (2), or (4)". (d) DEFINITION AND SPECIAL RULE. — S e c t i o n 346 (defining partial

liquidation) is amended to read as follows: "SFX\ 346. DEFINITION AND SPECIAL RULE. "(a) COMPLETE L I Q U I D A T I O N. — For purposes of t h i s subchapter, a

distribution shall be t r e a t e d as in complete liquidation of a corpora-

26 USC 346.

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 96 STAT. 480

PUBLIC LAW 97-248—SEPT. 3, 1982 tion if the distribution is one of a series of distributions in redemption of all of the stock of the corporation pursuant to a plan.

Regulations.

"(b) TRANSACTIONS W H I C H M I G H T R E A C H S A M E R E S U L T AS PARTIAL

LIQUIDATIONS.—The Secretary shall prescribe such regulations as may be necessary to ensure that the purposes of subsections (a) and (b) of section 222 of the Tax Equity and Fiscal Responsibility Act of Ante, p. 478. 1982 (which repeal the special tax treatment for partial liquidations) 26 USC 355, 351, may not be circumvented through the use of section 355, 351, 337, or ^^'^any other provision of law or regulations (including the consolidated return regulations)." (e) TECHNICAL AND CONFORMING AMENDMENTS.—

26 USC 306. 26 USC 331. 26 USC 334. 26 USC 336. 26 USC 306.

26 USC 312.

(1) The following provisions are each amended by striking out "partial or complete liquidation" and inserting in lieu thereof "complete liquidation": (A) Paragraph (2) of section 306(b) (relating to exceptions). (B) Subsection (b) of section 331 (relating to nonapplication of section 301). (C) Subsection (a) of section 334 (relating to basis of property received in liquidations). (D) Paragraph (1) of section 336(b) (relating to distributions of LIFO inventory). (2) Subparagraph (B) of section 306(b)(1) (relating to exception for redemptions) is amended by striking out "section 302(b)(3)" and inserting in lieu thereof "paragraph (3) or (4) of section 302(b)". (3) Subsection (e) of section 312 (relating to special rule for partial liquidation and certain redemptions) is amended— (A) by striking out "in partial liquidation (whether before, on, or after June 22, 1954) or"; and (B) by striking out "PARTIAL LIQUIDATIONS AND" in the

26 USC 338. 26 USC 341.

Ante, p. 479. Ante, p. 478. 26 USC 543.

26 USC 562.

heading thereof. (4) Section 338 (as in effect on the day before the date of the enactment of this Act) is hereby repealed. (5) Paragraph (2) of section 341(a) (relating to collapsible corporations) is amended to read as follows: "(2) a distribution— "(A) in complete liquidation of a collapsible corporation if such distribution is treated under this part as in part or full payment in exchange for stock, or '(B) in partial liquidation (within the meaning of section 302(e)) of a collapsible corporation if such distribution is treated under section 302(b)(4) as in part or full payment in exchange for the stock, and". (6) Paragraph (1) of section 543(a) (relating to personal holding company income) is amended— (A) by striking out "and" at the end of subparagraph (A), (B) by striking out the period at the end of subparagraph (B) and inserting in lieu thereof ", and", and (C) by adding at the end thereof the following new subparagraph: "(C) dividends to which section 302(b)(4) would apply if the corporation were an individual." (7) Paragraph (1) of section 562(b) (relating to distributions in liquidation) is amended by adding at the end thereof the following new sentence: "For purposes of subparagraph (A), a liquidation includes a redemption of stock to which section 302 applies."

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(8)(A) The heading and table of sections for subpart D of part II of subchapter C of chapter 1 a r e amended to read as follows: " Subpart D—Definition and Special Rule "Sec. 346. Definition and special rule."

(B) The item relating to subpart D in table of subparts for such part II is amended to read a s follows: "Subpart D—Definition and special rule." (f) EFFECTIVE D A T E S. —

26 USC 302 note.

(1) IN GENERAL.—The amendments made by this section shall apply to distributions after August 31, 1982. (2) EXCEPTIONS. — (A) R U L I N G REQUESTS.—The amendments

m a d e by t h i s

section shall not apply to distributions made by any corporation if— (i)(l) on July 22, 1982, the r e was a ruling request by such corporation pending with the I n t e r n a l Revenue Service as to w h e the r such distributions would qualify as a partial liquidation, or (II) within the period beginning on July 12, 1981, and ending on July 22, 1982, the I n t e r n a l Revenue Service g r a n t e d a ruling to such corporation that the distributions would qualify a s a partial liquidation, and (ii) such distributions a r e pursuant to a plan of partial liquidation adopted before October 1, 1982 (or, if later, 90 days after the date on which the I n t e r n a l Revenue Service g r a n t e d a ruling pursuant to the request described in clause (i)(I)). (B) P L A N S ADOPTED BEFORE JULY 23, 1982.—The amend -

m e n t s made by this section shall not apply to distributions made pursuant to a plan of partial liquidation adopted before July 23, 1982. (C) CONTROL ACQUIRED AFTER I 9 8 1 AND BEFORE JULY 23,

1982 —The amendments made by this section shall not apply to distributions made pursuant to a plan of partial liquidation adopted before October 1, 1982, w h e r e control of the corporation making the distributions was acquired after December 31, 1981, and before July 23, 1982. (D) T E N D E R OFFER OR BINDING CONTRACT OUTSTANDING ON JULY 22, 1982.—

(i) IN GENERAL.—The amendments made by this section shall not apply to distributions made by a corporation if— (I) such distributions a r e pursuant to a plan of liquidation adopted before October 1, 1982, and (II) control of such corporation was acquired after July 22, 1982, pursuant to a tender offer or binding contract outstanding on such date. (ii) EXTENSION OF TIME FOR ADOPTING PLAN WHERE ACQUISITION SUBJECT TO FEDERAL REGULATORY

APPROVAL.—If the acquisition described in clause (i)(II) is subject to approval by a Federal regulatory agency, clause (i) shall be applied by substituting for "October 1, 19S2" the date which is 90 days after the date on

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which approval by the Federal regulatory agency of such acquisition becomes final. (iii) SPECIAL RULE WHERE OFFER SUBJECT TO APPROVAL B FOREIGN REGULATORY BODY.—In any case where an Y

offer to acquire stock in a corporation was subject to intervention by a foreign regulatory body and a public announcement of such an offer resulted in the intervention by such foreign regulatory body before July 23, 1982— (I) such public announcement shall be treated as a tender offer, and (II) clause (i) shall be applied by substituting for "October 1, 1982" the date which is 90 days after the date on which such regulatory body approves a public offer to acquire stock in such corporation. (iv) SPECIAL RULE WHERE ONE-THIRD OF ACQUIRED DURING MARCH AND APRIL 1982.—If—

"Control."

26 USC 368.

SHARES

(I) one-third or more of the shares of a corporation were acquired by another corporation during March and April 1982, and (II) during March or April 1982, the acquiring corporation filed with the Federal Trade Commission notification of its intent to acquire control of the acquired corporation, subclause (II) of clause (i) shall not apply with respect to distributions made by the acquired corporation. (E) INSURANCE COMPANIES.—The amendments made by this section shall not apply to distributions made by an insurance company pursuant to a plan of partial liquidation adopted before October 1, 1982, where control was acquired by the distributee or its parent after December 31, 1980, and before July 23, 1982, and the conduct of the insurance business by the distributee is conditioned on approval by a State regulatory authority. For purposes of this paragraph, the term "control" has the meaning given to such term by section 368(c) of the Internal Revenue Code of 1954. (3) APPROVAL OF PLAN BY BOARD OF DIRECTORS.—For purposes

of—

Post, p. 485.

(A) paragraph (2), and (B) applying section 346(a)(2) of the Internal Revenue Code of 1954 (as in effect on the day before the date of the enactment of this Act) to distributions to which (but for paragraph (2)) the amendments made by this section would apply, a plan of liquidation shall be treated as adopted when approved by the corporation's board of directors. (4) COORDINATION WITH AMENDMENTS MADE BY SECTION 224.— For purposes of section 338(e)(2)(C) of the Internal Revenue Code of 1954 (as added by section 224), any property acquired in a distribution to which the amendments made by this section do not apply by reason of paragraph (2) shall be treated as acquired before September 1, 1982.

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SEC. 223. DISTRIBUTION OF APPRECIATED PROPERTY IN REDEMPTION OF STOCK. (a) AMENDMENTS GAIN.—

TO CERTAIN

EXCEPTIONS

TO RECOGNITION O F

(1) IN GENERAL.—Subparagraphs (A), (B), and (C) of section 311(d)(2) (relating to appreciated property used to redeem stock) 26 USC 311. a r e amended to read as follows: "(A) a distribution to a corporate s h a r e h o l d e r if the basis of the property distributed is determined under section 301(d)(2); "(B) a distribution to which section 302(b)(4) applies and Ante, p. 478. which is made with respect to qualified stock; "(C) a distribution of stock or a n obligation of a corporation if the requirements of paragraph (2) of subsection (e) a r e m e t with respect to the distribution;". (2) DEFINITIONS AND SPECIAL RULES.—Section 311 is amended

by adding a t the e n d thereof the following new subsection: "(e) DEFINITIONS AND SPECIAL RULES FOR SUBSECTION (d)(2).—For

purposes of subsection (d)(2) and this subsection— "(1) QUALIFIED STOCK.—

"(A) IN GENERAL.—The term 'qualified stock' means stock held by a person (other than a corporation) who a t all times during the lesser of— "(i) the 5-year period ending on the date of distribution, or "(ii) the period during which the distributing corporation (or a predecessor corporation) was in existence, held a t least 10 percent in value of the o u t s t and i n g stock of the distributing corporation (or predecessor corporation). "(B) DETERMINATION OF STOCK HELD.—Section 318 shall

apply in determining ownership of stock under subparagraph (A); except that, in applying section 318(a)(1), the term 'family' includes any individual described in section 267(c)(4) and any spouse of any such individual. "(2) DISTRIBUTIONS OF STOCK OR OBLIGATIONS OF CONTROLLED CORPORATIONS.—

"(A) REQUIREMENTS.—A distribution of stock or a n obligation of a corporation (hereinafter in this paragraph referred to as the 'controlled corporation') meets the requirements of this paragraph if— "(i) such distribution is made with respect to qualified stock, "(ii) substantially all of the assets of the controlled corporation consists of the assets of 1 or more qualified businesses, "(iii) no substantial part of the controlled corporation's nonbusiness assets were acquired from the dist r i b u t i n g corporation, in a transaction to which section 351 applied or as a contribution to capital, within the 5-year period ending on the date of the distribution, and "(iv) more than 50 percent in value of the outstanding stock of the controlled corporation is distributed by the distributing corporation with respect to qualified stock. "(B) DEFINITIONS.—For purposes of subparagraph (A)—

26 USC 311.

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 96 STAT. 484

PUBLIC LAW 97-248—SEPT. 3, 1982 "(i) QUALIFIED BUSINESS.—The term

'qualified

busi-

ness' means any trade or business which— "(I) was actively conducted throughout the 5-year period ending on the date of the distribution, and "(II) was not acquired by any person within such period in a transaction in which gain or loss w a s recognized in whole or in part. "(ii)

N O N B U S I N E S S ASSET.—The

term

'nonbusiness

asset' means any asset not used in the active conduct of a trade or business." 26 USC 311.

(3) CONFORMING AMENDMENT. — S e c t i o n 311(d)(2) is amended —

(A) by inserting " and " a t the e n d of subparagraph (E), (B) by striking out the semicolon and " and " a t the e n d of subparagraph (F) and inserting in lieu thereof a period, and (C) by striking out subparagraph (G). 26 USC 311 note.

(b) EFFECTIVE D A T E S. —

(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to distributions after August 31, 1982. (2)

DISTRIBUTIONS PURSUANT TO RULING

REQUESTS BEFORE

JULY 23, 1982.—In the case of a ruling request under section 311(d)(2)(A) of the I n t e r n a l Revenue Code of 1954 (as in effect before the amendments made by this section) made before July 23, 1982, the amendments made by this section shall not apply to distributions made— (A) pursuant to a ruling g r a n t e d pursuant to such request, and (B) within 90 days after the date of such ruling. (3) DISTRIBUTIONS PURSUANT TO FINAL J U D G M E N T S OF COURT.—

In the case of a final j u d g m e n t described in section 311(d)(2)(C) of such Code (as in effect before the amendments made by this section) rendered before July 23, 1982, the amendments made by this section shall not apply to distributions made before January 1, 1986, pursuant to such j u d g m e n t. (4) CERTAIN DISTRIBUTIONS WITH RESPECT TO STOCK ACQUIRED

BEFORE MAY 1982.—The amendments made by this section shall not apply to distributions— (A) which meet the requirements of section 311(d)(2)(A) of such Code (as in effect on the day before the date of the e n a c t m e n t of this Act), (B) which a r e made on or before August 31, 1983, and (C) which a r e made with respect to stock acquired after 1980 and before May 1982. (5) DISTRIBUTIONS OF TIMBERLAND WITH RESPECT TO STOCK OF FOREST PRODUCTS COMPANY.—If—

(A) a forest products company distributes timberland to a shareholder in redemption of the common and preferred stock in such corporation held by such shareholder, (B) section 311(d)(2)(A) of the I n t e r n a l Revenue Code of 1954 (as in effect before the amendments made by this section) would have applied to such distributions, and (C) such distributions a r e made pursuant to 1 of 2 options contained in a contract between such company and such shareholder which is binding on August 31, 1982, and a t all times thereafter.

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96 STAT. 485

the n such distributions of timberland having a n aggregate fair m a r k e t value on August 31, 1982, not in excess of $10,000,000 shall be treated as distributions to which section 311(d)(2)(A) of such Code (as in effect before the date of the e n a c t m e n t of this Act) applies. Subpart B—Certain Stock Purchase s Treated as Asset Purchase s SEC. 224. CERTAIN STOCK PURCHASES TREATED AS ASSET PURCHASES. (a) GENERAL RULE. — Subpart B of part

II of subchapter

C of

chapter 1 (relating to effects on corporation) is amended by adding at the end thereof the following new section: "SEC. 338. CERTAIN STOCK PURCHASES TREATED AS ASSET ACQUISITIONS.

"(a) GENERAL RULE. — For purposes of this subtitle, if a purchasing corporation m a k e s a n election under this section (or is t r e a t e d under subsection (e) as having m a d e such a n election), then, in the case of any qualified stock purchase, the t a r g e t corporation— "(1) shall be t r e a t e d a s h a v i n g sold all of its assets a t the close of the acquisition date in a single transaction to which section 337 applies, and "(2) shall be t r e a t e d a s a new corporation which purchased all of the assets referred to in paragraph (1) as of the beginning of the day after the acquisition date. "(b) P R I C E AT W H I C H D E E M E D SALE M A D E. —

"(1) IN GENERAL.—For purposes of subsection (a), the assets of the target corporation shall be t r e a t e d as sold (and purchased) at a n a m o u n t equal to— "(A) the grossed-up basis of the purchasing corporation's stock in the target corporation on the acquisition date, "(B) properly adjusted under regulations prescribed by the Secretary for liabilities of the t a r g e t corporation and other relevant items. "(2) GROSSED-UP BASIS.—For purposes of paragraph (1), the

grossed-up basis shall be an a m o u n t equal to the basis of the purchasing corporation's stock in the target corporation on the acquisition date multiplied by a fraction— "(A) the n u m e r a to r of which is 100 percent, and "(B) the denominator of which is the percentage of stock (by value) of the t a r g e t corporation held by the purchasing corporation on the acquisition date. "(3) ALLOCATION

AMONG

ASSETS.—The

amount

determined

under paragraph (1) shall be allocated among the assets of the target corporation under regulations prescribed by the Secretary "(c) SPECIAL RULES. — "(1) C O O R D I N A T I O N W I T H S E C T I O N 337 W H E R E PURCHASING CORPORATION HOLDS LESS THAN 100 PERCENT OF STOCK.—If during the

1-year period beginning on the acquisition date the maximum percentage (by value) of stock in the target corporation held by the purchasing corporation is less than 100 percent, the n in applying section 337 for purposes of subsection (a)(1), the nonrecognition of gain or loss shall be limited to a n a m o u n t determined by applying such maximum percentage to such gain or loss. The preceding sentence shall not apply if the target corporation is liquidated during such 1-year period.

26 USC 338.

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 96 S T A T. 4 8 6

P U B L I C L A W 9 7 - 2 4 8 — S E P T. 3, 1982 "(2) CERTAIN REDEMPTIONS WHERE ELECTION MADE.—If, in con-

26 USC 302.

nection with a qualified stock purchase with respect to which a n election is m a d e under this section, the t a r g e t corporation m a k e s a distribution in complete redemption of all of the stock of a shareholder which qualifies under section 302(b)(3) (determined without regard to the application of section 302(c)(2)(A)(ii)), section 336 shall apply to such distribution a s if it were a distribution in complete liquidation. "(d) PURCHASING CORPORATION; T A R G E T CORPORATION; QUALIFIED STOCK P U R C H A S E. — For purposes of t h i s section— "(1) PURCHASING CORPORATION.—The term ' purchasing corpo-

ration' means any corporation which m a k e s a qualified stock purchase of stock of a n other corporation. "(2) T A R G E T

CORPORATION.—The

term

'target

corporation'

means any corporation the stock of which is acquired by a n other corporation in a qualified stock purchase. "(3) QUALIFIED STOCK P U R C H A S E. — The term 'qualified

stock

purchase' means any transaction or series of t r a n s a c t i o n s in which stock of 1 corporation possessing— "(A) a t least 80 percent of total combined voting power of all classes of stock entitled to vote, and "(B) a t least 80 percent of the total n u m b e r of s h a r e s of all other classes of stock (except nonvoting stock which is limited and preferred as to dividends), is acquired by a n other corporation by purchase during the 12-month acquisition period. "(e) DEEMED ELECTION WHERE PURCHASING ACQUIRES ASSET OF T A R G E T CORPORATION.—

CORPORATION

"(1) IN GENERAL.—A purchasing corporation shall be t r e a t e d as having m a d e a n election under this section with respect to any t a r g e t corporation if, a t any t i m e during the consistency period, it acquires any asset of the t a r g e t corporation (or a t a r g e t affiliate). "(2) EXCEPTIONS.—Paragraph (1) shall not apply with respect to any acquisition by the purchasing corporation if— "(A) such acquisition is pursuant to a sale by the t a r g e t corporation (or the t a r g e t affiliate) in the ordinary course of its trade or business, "(B) the basis of the property acquired is determined (in whole or in part) by reference to the adjusted basis of such property in the h and s of the person from whom acquired, "(C) such acquisition w a s before September, 1, 1982, "(D) to the extent provided in regulations, the property acquired is located outside the United States, or "(E) such acquisition is described in regulations prescribed by the Secretary. "(3) ANTI-AVOIDANCE RULE. — W h e n e v e r n e c e s s a r y to c a r r y out

the purpose of this subsection and subsection (f), the Secretary may t r e a t stock acquisitions which a r e pursuant to a plan and which meet the 80 percent requirements of subparagraph s (A) and (B) of subsection (d)(3) as qualified stock purchases. "(f) CONSISTENCY REQUIRED FOR A L L STOCK ACQUISITIONS F R O M S A M E AFFILIATED G R O U P. — I f a purchasing corporation m a k e s quali-

fied stock purchases with respect to the t a r g e t corporation and 1 or more t a r g e t affiliates during any consistency period, the n (except a s otherwise provided in subsection (e))—

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"(1) any election under this section with respect to the first such purchase shall apply to each other such purchase, and "(2) no election may be m a d e under this section with respect to the second or subsequent such purchase if such a n election was not m a d e with respect to the first such purchase. "(g) ELECTION. —

"(1) W H E N MADE.—Except a s otherwise provided in regulations, a n election under this section shall be m a d e not later than 75 days after the acquisition date. "(2) M A N N E R. — A n election by the purchasing corporation under this section shall be m a d e in such m a n n e r as the Secretary shall by regulations prescribe. "(3) ELECTION

IRREVOCABLE.—An

election

by a

purchasing

corporation under this section, once made, shall be irrevocable. "(h)

DEFINITIONS

AND SPECIAL

RULES.—For

purposes

of

this

section— "(1) 12-MONTH ACQUISITION PERIOD.—The term '12-month acquisition period' means the 12-month period beginning with the date of the first acquisition by purchase of stock included in a qualified stock purchase. "(2) ACQUISITION DATE.—The term 'acquisition date' means, with respect to any corporation, the first day on which the r e is a qualified stock purchase with respect to the stock of such corporation. "(3) P U R C H A S E. —

"(A) IN GENERAL.—The term ' purchase ' means any acquisition of stock, b u t only if— "(i) the basis of the stock in the h and s of the purchasing corporation is not determined (I) in whole or in part by reference to the adjusted basis of such stock in the h and s of the person from whom acquired, or (II) under section 1014(a) (relating to property acquired from a 26 USC 1014. decedent), "(ii) the stock is not acquired in a n exchange to which section 351 applies, and "(iii) the stock is not acquired from a person the ownership of whose stock would, under section 318(a) (other than p a r a g a r a p h (4) thereof), be a t t r i b u t e d to the person acquiring such stock. "(B)

DEEMED

PURCHASE

OF STOCK

OF SUBSIDIARIES.—If

stock in a corporation is acquired by purchase (within the m e a n i n g of subparagraph (A)) and, as a result of such acquisition, the corporation making such purchase is t r e a t e d (by reason of section 318(a)) as owning stock in a 3rd corporation, the corporation making such purchase shall be t r e a t e d as having purchased such stock in such 3rd corporation. The corporation making such purchase shall be t r e a t e d as purchasing stock in the 3rd corporation by reason of the preceding sentence on the first day on which the purchasing corporation is considered under section 318(a) as owning such stock. "(4) CONSISTENCY PERIOD.—

"(A) IN GENERAL.—Except as provided in subparagraph (B), the term 'consistency period' means the period consisting o f ^ "(i) the 1-year period before the beginning of the 12-month acquisition period for the t a r g e t corporation,

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 96 STAT. 488

PUBLIC LAW 97-248—SEPT. 3, 1982 "(ii) such acquisition period (up to and including the acquisition date), and "(iii) the 1-year period beginning on the day after the acquisition date. "(B)

26 USC 1504.

EXTENSION

WHERE

THERE

IS P L A N. — The

period

referred to in subparagraph (A) shall also include any period during which the Secretary determine s that the r e was in effect a plan to m a k e a qualified stock purchase plus 1 or more other qualified stock purchases (or asset acquisitions described in subsection (e)) with respect to the t a r g e t corporation or any t a r g e t affiliate. "(5) AFFILIATED GROUP.—The term 'affiliated group' has the m e a n i n g given to such term by section 1504(a) (determined without regard to the exceptions contained in section 1504(b)). "(6) T A R G E T AFFILIATE.—

"(A) IN GENERAL.—A corporation shall be t r e a t e d as a t a r g e t affiliate of the t a r g e t corporation if each of such corporations was, a t any t i m e during so m u c h of the consistency period as ends on the acquisition date of the t a r g e t corporation, a m e m b e r of a n affiliated group which h a d the same common p a r e n t. "(B) CERTAIN FOREIGN CORPORATIONS, ETC.—Except as oth-

erwise provided in regulations (and subject to such conditions as may be provided in regulations)— "(i) the term 'target affiliate' does not include a foreign corporation, a DISC, a corporation described in section 934(b), or a corporation to which a n election under section 936 applies, and "(ii) stock held by a t a r g e t affiliate in a foreign corporation or a domestic corporation which is a DISC or described in section 1248(e) shall be excluded from the operation of this section. "(7) ACQUISITIONS BY PURCHASING CORPORATION INCLUDE ACQUISITIONS BY CORPORATIONS AFFILIATED WITH PURCHASING

CORPORATION.—Except as otherwise provided in regulations, a n acquisition of stock or assets by any m e m b e r of a n affiliated group which includes a purchasing corporation shall be t r e a t e d as made by the purchasing corporation. "(i) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to e n s u r e that the purposes of this section to require consistency of t r e a t m e n t of stock and asset purchases with respect to a t a r g e t corporation and its t a r g e t affiliates (whether by t r e a t i n g all of the m as stock purchases or as asset purchases) may not be circumvented through the use of any provision of law or regulations (including the consolidated r e t u r n regulations)." 26 USC 334.

(b) R E P E A L OF SECTION 334(b)(2).—Subsection (b) of section

334

(relating to limitation of subsidiary) is amended to read as follows: "(b) LIQUIDATION OF SUBSIDIARY.— "(1) DISTRIBUTION I N COMPLETE LIQUIDATION.—If property

is

received by a corporation in a distribution in a complete liquidation to which section 332(a) applies, the basis of the property in the h and s of the distributee shall be the same as it would be in the h and s of the transferor. "(2) TRANSFERS TO WHICH SECTION 3 3 2 (C) APPLIES.—If property

is received by a corporation in a transfer to which section 332(c) applies, the basis of the property in the h and s of the transferee shall be the s a m e a s it would be in the h and s of the transferor.

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96 STAT. 489

"(3) DISTRIBUTEE DEFINED.—For purposes of t h i s subsection,

the term 'distributee' means only the corporation which meets the 80-percent stock ownership requirements specified in section 332(b)." (c) T E C H N I C A L AMENDMENTS. —

(1) Subparagraph (E) of section 168(e)(4) (relating to liquida- 95 Stat. 204. tion of subsidiary, etc.) is amended by adding a t the end thereof the following new sentence: "A similar rule shall apply in the case of a deemed liquidation under section 338." (2) Clause (i) of section 168(f)(10)(B) is amended by striking out "(other than a transaction with respect to which the basis is determined under section 334(b)(2))". (3) Paragraph (4) of section 318(b) is amended to read as 26 USC 318. follows: "(4) section 338(h)(3)(B) (relating to purchase of stock from subsidiaries, etc.);". (4) Paragraph (2) of section 336(b) is amended by striking out 26 USC 336. "334(b)(1)" each place it a p p e a r s and inserting in lieu thereof "334(b)". (5) Paragraph (2) of section 337(c) (relating to liquidations to 26 USC 337. which section 332 applies) is amended to read as follows: "(2) LIQUIDATIONS TO WHICH SECTION 332 APPLIES.—In the case

of any sale or exchange following the adoption of a plan of complete liquidation, if section 332 applies with respect to such liquidation, this section shall not apply." (6) Subsection (d) of section 337 is amended by striking out "subsection (c)(2)(A)" each place it a p p e a r s and inserting in lieu thereof "subsection (c)(2)". (7) Paragraph (1) of section 381(a) is amended by striking out ^6 USC 381. ", except in a case in which the basis of the assets distributed is determined under section 334(b)(2)". (8) Subparagraph (B) of section 617(h)(3) is amended by insert- 26 USC 617. ing "338," after "334(b),". (9) The table of sections for subpart B of part II of subchapter C of chapter 1 is amended by striking out the item relating to section 338 and inserting in lieu thereof the following: "Sec. 338. Certain stock purchases treated as asset acquisitions." (d) EFFECTIVE D A T E S. —

(1) IN GENERAL.—The amendments made by this section shall apply to any target corporation (within the m e a n i n g of section 338 of the I n t e r n a l Revenue Code of 1954 as added by this section) with respect to which the acquisition date (within the meaning of such section) occurs after August 31, 1982. (2) CERTAIN ACQUISITIONS BEFORE SEPTEMBER i,

1982.—If—

(A) an acquisition date under paragraph (1) occurred after August 31, 1980, and before September 1, 1982, (B) the target corporation (within the meaning of section 338 of such Code) is not liquidated before September 1, 1982, and (C) the purchasing corporation (within the meaning of section 338 of such Code) makes, not later than November 15, 1982, an election under section 338 of such Code, then the amendments made by this section shall apply to the acquisition of such target corporation. (3) CERTAIN ACQUISITIONS OF FINANCIAL INSTITUTIONS.—In any

case in which—

26 USC 338 note.

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 96 STAT. 490

PUBLIC LAW 97-248—SEPT. 3, 1982 (A) the r e is, on July 22, 1982, a binding contract to acquire control (within the m e a n i n g of section 368(c) of such Code) of any financial institution, (B) the approval of one or more regulatory a u t h o r i t i e s is required in order to complete such acquisition, and (C) within 90 days after the date of the final approval of the last such regulatory authority g r a n t i n g final approval, a plan of complete liquidation of such financial institution is adopted, the n the purchasing corporation may elect not to have the amendments m a d e by this section apply to the acquisition pursuant to such contract. Subpart C—Miscellaneous Provisions SEC. 225. CLARI^MCATION OF SECTION 368(a)(1)(F).

26 USC 368. 26 USC 368 note.

(a) GENERAL RULE. — Subparagraph (F) of section 368(a)( 1) (defining reorganization) is amended by inserting "of one corporation" after "place of organization". (b) EFFECTIVE D A T E. — (1) IN GENERAL.—Except as provided in paragraph (2), the amendment made by subsection (a) shall apply with respect to transactions occurring after August 31, 1982. (2) P L A N S

ADOPTED ON OR BEFORE

AUGUST

SI,

1982.—The

amendment m a d e by subsection (a) shall not apply with respect to plans of reorganization adopted on or before August 31, 1982, but only if the transaction occurs before January 1, 1983. SEC. 226. AMENDMENTS RELATING TO BAILOUTS THROUGH USE OF HOLDING COMPANIES. (a) AMENDMENTS TO SECTION 304.— (1) COORDINATION OF SECTIONS 304 AND 351.—

26 USC 304.

(A) Subsection (b) of section 304 (relating to special rules for application of subsection (a)) is amended by adding a t the end thereof the following new p a r a g a p h: "(3) COORDINATION WITH SECTION 3 5 1. — "(A) PROPERTY TREATED AS RECEIVED IN REDEMPTION.—

Except as otherwise provided in this paragraph, subsection (a) (and not part III) shall apply to any property received in a distribution described in subsection (a). "(B) CERTAIN ASSUMPTIONS OF LIABILITY, ETC.—

"(i) IN GENERAL.—Subsection (a) shall not apply to any liability— "(I) assumed by the acquiring corporation, or "(II) to which the stock is subject, if such liability was incurred by the transferor to acquire the stock. For purposes of the preceding sentence, the term 'stock' means stock referred to in paragraph (1)(B) or (2)(A) of subsection (a).

"Stock."

"(ii) EXTENSION OF OBLIGATIONS, ETC.—For

purposes

of clause (i), a n extension, renewal, or refinancing of a liability which meets the requirements of clause (i) shall be treated as meeting such requirements. "(C) DISTRIBUTIONS INCIDENT TO FORMATION O F BANK HOLDING COMPANIES.—If—

,

"(i) pursuant to a plan, control of a b a n k is acquired and within 2 years after the date on which such control

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 PUBLIC LAW 97-248—SEPT. 3, 1982

96 STAT. 491

is acquired, stock constituting control of such b a n k is transferred to a BHC in connection with its formation, "(ii) incident to the formation of the BHC the r e is a distribution of property described in subsection (a), and "(iii) the shareholders of the BHC who receive distributions of such property do not have control of such BHC, then, subsection (a) shall not apply to any securities received by a qualified minority shareholder incident to the formation of such BHC. "(D) DEFINITIONS A N D SPECIAL RULE.—For

purposes

of

subparagraph (C) and this subparagraph — "(i) QUALIFIED

MINORITY

SHAREHOLDER.—The

term

'qualified minority shareholder' means any shareholder who owns less than 10 percent (in value) of the stock of the BHC. For purposes of the preceding sentence, the rules of paragraph (3) of subsection (c) shall apply. "(ii) B H C — The term ' B H C means a b a n k holding company (within the m e a n i n g of section 2(a) of the Bank Holding Company Act of 1956).

12 USC 1841.

"(iii) SPECIAL RULE I N CASE OF BHC'S FORMED BEFORE

1985.—In the case of a BHC which is formed before 1985, clause (i) of subparagraph (C) shall not apply." (B) Subsection (f) of section 351 (relating to cross references) is amended by adding a t the e n d thereof the following new paragraph:

26 USC 351.

"(5) For coordination of this section with section 304, see section 304(b)(3)." (2) APPLICATION OF SECTION 3 0 4 WHERE STOCK IS ACQUIRED I N THE TRANSACTION.—

(A) Subsection (c) of section 304 is amended by redesignating paragraph (2) as paragraph (3) and by inserting after paragraph (1) the following new paragraph: "(2) STOCK ACQUIRED I N THE TRANSACTION.—For purposes of

subsection (a)(1)— "(A) GENERAL RULE.—Where 1 or more persons in control of the issuing corporation transfer stock of such corporation in exchange for stock of the acquiring corporation, the stock of the acquiring corporation received shall be t a k e n into account in determining w h e the r such person or persons a r e in control of the acquiring corporation. "(B) DEFINITION OF CONTROL G R O U P. — W h e r e 2 or more

persons in control of the issuing corporation transfer stock of such corporation to the acquiring corporation and, after the transfer, the transferors a r e in control of the acquiring corporation, the person or persons in control of each corporation shall include each of the persons who so transfer stock." (B) Paragraph (3) of section 304(c) (as redesignated by paragraph (D) is amended by striking out " paragraph (1)" and inserting in lieu thereof "this section". (3) DETERMINATION OF EARNINGS AND P R OF I T S. — Subparagraph

(A) of section 304(b)(2) (relating to a m o u n t constituting dividend) is amended to read as follows:

26 USC 304.

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 96 STAT. 492

PUBLIC LAW 97-248—SEPT. 3, 1982 "(A) W H E R E SUBSECTION

(a)(1)

APPLIES.—In the case of

any acquisition of stock to which paragraph (1) (and not paragraph (2)) of subsection (a) of this section applies, the determination of the a m o u n t which is a dividend shall be made as if the property were distributed by the issuing corporation to the acquiring corporation and immediately thereafter distributed by the acquiring corporation." 26 USC 306.

(b) APPLICATION OF SECTION 306 TO CERTAIN STOCK ACQUIRED IN SECTION 351 EXCHANGES.—Subsection (c) of section 306 (defining

section 306 stock) is amended by adding a t the end thereof the following new paragraph: "(3) CERTAIN STOCK ACQUIRED IN SECTION 351 E X C H A N G E. — The

26 USC 304 note.

term 'section 306 stock' also includes any stock which is not common stock acquired in a n exchange to which section 351 applied if receipt of money (in lieu of the stock) would have been treated as a dividend to any extent. In the case of such stock, rules similar to the rules of section 304(b)(2) shall apply for purposes of this section." (c) EFFECTIVE DATE.— (1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to transfers occurring after August 31, 1982, in taxable years ending after such date. (2) APPROVAL BY FEDERAL RESERVE BOARD.—The amendments

made by this section shall not apply to transfers pursuant to a n application to form a BHC filed with the Federal Reserve Board before August 16, 1982, if the BHC was formed not later than the later of— (A) the 90th day after the date of the last required approval of any regulatory authority to form such BHC, or (B) January 1, 1983. For purposes of this paragraph, the term " B H C " means a bank holding company (within the m e a n i n g of section 2(a) of the Bank Holding Company Act of 1956).

12 USC 1841. SEC.

227. APPLICATION OF.ATTRIBUTION RULES FOR PURPOSES OF SECTIONS 306 AND 356(a)(2).

(a) APPLICATION FOR P U R P O S E S OF SECTION 306.—Subsection (c) of

26 USC 306.

section 306 is amended by adding a t the e n d thereof the following new paragraph: "(4) APPLICATION OF ATTRIBUTION RULES FOR CERTAIN PUR-

POSES.—For purposes of paragraph s (l)(B)(ii) and (3), section 318(a) shall apply. For purposes of applying the preceding sentence to paragraph (3), sections 318(a)(2)(C) and 318(a)(3)(C) shall be applied without regard to the 50 percent limitation contained therein." (b) APPLICATION FOR PURPOSES OF SECTION 356(a)(2).—Paragraph

26 USC 356.

(2) of section 356(a) (relating to t r e a t m e n t as dividend) is amended by inserting "(determined with the application of section 318(a)'" after "distribution of a dividend" (c) EFFECTIVE D A T E S. —

26 USC 306 note. 26 USC 356 note.

(1) shall years (2) shall years

SECTION 306.—The amendment made by subsection (a) apply to stock received after August 31, 1982, in taxable ending after such date. SECTION 356.—The amendment made by subsection (b) applv to distributions after August 31, 1982, in taxable ending after such date.

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 PUBLIC LAW 97-248—SEPT. 3, 1982

96 STAT. 493

SEC. 228. WAIVER OF FA.MILY ATTRIBUTION BY ENTITIES.

(a) GENERAL RULE. — Paragraph (2) of section 302(c) (relating to constructive ownership of stock) is amended by adding at the end thereof the following new subparagraph:

26 USC 302.

"(C) SPECIAL RULE FOR WAIVERS BY ENTITIES.—

"(i) IN GENERAL.—Subparagraph (A) shall not apply to a distribution to any entity unless— "(I) such entity and each related person meet the requirements of clauses (i), (ii), and (iii) of subparagraph (A), and "(II) each related person agrees to be jointly and severally liable for any deficiency (including interest and additions to tax) resulting from an acquisition described in clause (ii) of subparagraph (A). In any case to which the preceding sentence applies, the second sentence of subparagraph (A) and subparagraph (B)(ii) shall be applied by substituting 'distributee or any related person' for 'distributee' each place it appears. "(ii) DEFINITIONS.—For purposes of this subparagraph— "(I) the term 'entity' means a partnership, estate, trust, or corporation; and "(II) the term 'related person' means any person to whom ownership of stock in the corporation is (at the time of the distribution) a t t r i b u t a b l e under section 318(a)(1) if such stock is further a t t r i b u t a ble to the entity under section 318(a)(3).". (b) EFFECTIVE D A T E. — The amendment m a d e by subsection (a) shall apply with respect to distributions after August 31, 1982, in taxable years ending after such date.

26 USC 302 note,

PART VI—METHODS OF ACCOUNTING SEC.

229.

MODIFICATION OF REGULATIONS ON CONTRACT METHOD OF ACCOUNTING.

THE

COMPLETED

(a) IN GENERAL. — The Secretary of the Treasury shall modify the income tax regulations relating to accounting for long-term contracts to— (1) clarify the time at which a contract is to be considered completed, (2) clarify when— (A) one a g r e e m e n t will be t r e a t e d as more than one contract, and (B) two or more a g r e e m e n t s will be t r e a t e d as one contract, and (3) properly allocate all costs which directly benefit, or a r e incurred by reason of, the extended period long-term contract activities of the taxpayer. (b) EXTENDED PERIOD L O N G - T E R M CONTRACTS D E F I N E D. — For pur-

poses of this section— (1) IN GENERAL.—The term "extended period long-term contract " means any long-term contract which the tax p a y e r estim a t e s (at the time such contract is entered into) will not be completed within the 2-year period beginning on the contract c o m m e n c e m e n t date of such contract.

26 USC 451 note.

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 96 STAT. 494

PUBLIC LAW 97-248—SEPT. 3, 1982 (2) CERTAIN CONSTRUCTION CONTRACTS.—

(A) IN GENERAL.—The term "extended period long-term contract" does not include any construction contract entered into by a taxpayer— (i) who estimates (at the time such contract is entered into) that such contract will be completed within the 3-year period beginning on the contract c o m m e n c e m e n t date of such contract, or (ii) whose average annual gross receipts over the 3 taxable years preceding the taxable year in which such contract is entered into do not exceed $25,000,000. (B) DETERMINATION OF TAXPAYER'S GROSS RECEIPTS.—For

26 USC 52.

Regulations.

purposes of subparagraph (A), the gross receipts of— (i) all trades or businesses (whether or not incorporated) which a r e under common control with the taxpayer (within the m e a n i n g of section 52(b)), and (ii) all m e m b e r s of any controlled group of corporations of which the tax p a y e r is a member, for the 3 taxable years of such persons preceding the taxable year in which the contract described in subparagraph (A) is entered into shall be included in the gross receipts of the tax p a y e r for the period described in subparagraph (A). The Secretary shall prescribe regulations which provide attribution rules that t a k e into account, in addition to the persons and entities described in the preceding sentence, taxpayers who engage in construction contracts through partnerships, joint ventures, and corporations. (C) CONTROLLED GROUP OF CORPORATIONS.—The term "con-

trolled group of corporations" has the m e a n i n g given to such term by section 1563(a), except that— (i) "more than 50 p e r c e n t " shall be substituted for " a t least 80 p e r c e n t " each place it a p p e a r s in section 153(a)(l), and (ii) the determination shall be made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. (3) CONSTRUCTION CONTRACT.—The term

"construction

con-

t r a c t " means any contract for the building, construction, reconstruction, or rehabilitation of, or the installation of any integral component to, improvements to real property. (4) CONTRACT COMMENCEMENT DATE.—The

term

"contract

commencement date " means, with respect to any contract, the first date on which any costs (other than costs such as bidding expenses or expenses incurred in connection with negotiating the contract) allocable to such contract a r e incurred. (c) EFFECTIVE DATES; SPECIAL RULES. —

(1) IN GENERAL.—The modifications to regulations which a r e required to be made under paragraph s (1) and (2) of subsection (a) shall apply with respect to taxable years ending after December 31, 1982. (2) COST ALLOCATION.—

(A) IN GENERAL.—Any modification to Income Tax Regulation 1.451-3 made under subsection (a)(3) which requires additional costs to be allocated to a contract shall apply only to the applicable percentage of such additional costs incurred in taxable years beginning after December 31, 1!)82, with respect to contracts entered into after such date.

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 P U B L I C L A W 9 7 - 2 4 8 — S E P T. 3, 1982

96 S T A T. 4 9 5

(B) APPLICABLE PERCENTAGE.—For purposes of s u b p a r a -

g r a p h (A), the applicable percentage shall be determined in accordance with the following table: "If the taxable year begins in calendar year: 1983 1984 1985 or thereafter

The applicable percentage is: 33Vii 66% 100.".

(3) SPECIAL RULES.— (A) T I M E OF COMPLETION.—Any contract of a tax p a y e r

which would (but for this paragraph) be t r e a t e d as having been completed prior to the first taxable year of such tax p a y e r ending after December 31, 1982, solely by reason of any modification to regulations made under subsection (a)(1), shall be t r e a t e d as having been completed on the first day of such taxable year. (B) AGGREGATION A N D SEVERANCE.—Any contract of a

tax p a y e r which would (but for this paragraph) be treated as having been completed prior to the first taxable year of such tax p a y e r ending after December 31, 1982— (i) solely by reason of any modification to regulations made under subsection (a)(2), or (ii) solely by reason of any modifications to regulations made under both paragraph s (1) and (2) of subsection (a), shall be treated as having been completed on the first d a y after December 31, 1982, on which any contract which w a s severed from such contract (by reason of the modifications made by subsection (a)(2)) is completed (determined after the application of any modifications to regulations made under subsection (a)(1)). SEC. 230. ANNUAL ACCRUAL METHOD OF ACCOUNTING EXTENDED TO CERTAIN PARTNERSHIPS.

(a) IN GENERAL.—Section 447(g) (relating to certain annual accrual accounting methods) is amended— (1) by inserting "or qualified partnership " after "corporation" each place it appears in paragraph (1), (2) by amending paragraph (3) to read as follows: "(3) CERTAIN NONRECOGNITION TRANSFERS.—For purposes of

this subsection, if— "(A) a corporation acquired substantially all the assets of a qualified farming trade or business from a n other corporation in a transaction in which no gain or loss was recognized to the transferor or transferee corporation, or "(B) a qualified partnership acquired substantially all the assets of a qualified farming trade or business from one of its part n e r s in a transaction to which section 721 applies, the transferee corporation or qualified partnership shall be deemed to have computed its taxable income on a n annual accrual method of accounting during the period for which the transferor corporation or partnership computed its taxable income from such trade or business on a n annual accrual method.", and (3) by adding a t the end thereof the following new paragraph: "(4) QUALIFIED PARTNERSHIP DEFINED.—For purposes of t h i s

subsection—

^^ ^SC 447.

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 96 STAT. 496

PUBLIC LAW 97-248—SEPT. 3, 1982 "(A) QUALIFIED PARTNERSHIP.—The term 'qualified

26 USC 1371.

part-

nership' means a partnership which is engaged in a qualified farming trade or business and each of the part n e r s of which is a corporation other than — "(i) a n electing small business corporation (within the m e a n i n g of section 1371(b)), or "(ii) a personal holding company (within the m e a n i n g of section 542(a)). "(B) QUALIFIED FARMING TRADE OR BUSINESS.—The term

26 USC 447 note.

'qualified farming trade or business' means the trade or business of farming sugar cane.". (b) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 1981. PART VII—ORIGINAL ISSUE DISCOUNT SEC. 231. ORIGINAL ISSUE DISCOUNT TAKEN INTO ACCOUNT ON BASIS OF CONSTANT INTEREST RATE.

(a) IN GENERAL. — Part IV of subchapter P of chapter 1 (relating to special rules for determining capital gains and losses) is amended by inserting after section 1232 the following new section: 26 USC 1232A.

"SEC. 1232A. ORIGINAL ISSUE DISCOUNT. "(a) ORIGINAL ISSUE DISCOUNT ON BONDS ISSUED AFTER J U L Y 1, 1982, INCLUDED IN INCOME ON BASIS O F CONSTANT INTEREST R A T E. —

"(1) GENERAL RULE.—For purposes of this subtitle, the r e shall be included in the gross income of the holder of any bond having an original issue discount issued after July 1, 1982 (and which is a capital asset in the h and s of the holder) a n a m o u n t equal to the s u m of the daily portions of the original issue discount for each day during the taxable year on which such holder held such bond. "(2) EXCEPTIONS.—Paragraph (1) shall not apply to— "(A) NATURAL PERSONS.—Any obligation issued by a n a t u -

ral person. "(B) TAX-EXEMPT OBLIGATIONS.—Any obligation if—

"(i) the interest on such obligation is not includible in gross income under section 103, or "(ii) the interest on such obligation is exempt from tax (without regard to the identity of the holder) under any other provision of law. "(C) SHORT-TERM GOVERNMENT OBLIGATIONS.—Any short-

term Government obligation (within the m e a n i n g of section 1232(a)(3)). "(D) UNITED STATES SAVINGS BONDS.—Any United States

savings bond. "(3) DETERMINATION

OF DAILY

PORTIONS.—For

purposes

of

paragraph (1), the daily portion of the original issue discount on any bond shall be determined by allocating to each day in any bond period its ratable portion of the increase during such bond period in the adjusted issue price of the bond. For purposes of the preceding sentence, the increase in the adjusted issue price for any bond period shall be a n a m o u n t equal to the excess (if any) of— "(A) the product of— "(i) the adjusted issue price of the bond a t the beginning of such bond period, and

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 PUBLIC LAW 97-248—SEPT. 3, 1982 "(ii) the yield to m a t u r i t y (determined on the basis of compounding a t the close of each bond period), over "(B) the s u m of the a m o u n t s payable as interest on such bond during such bond period. "(4) ADJUSTED ISSUE PRICE.—For purposes of this subsection,

the adjusted issue price of any bond a t the beginning of any bond period is the s u m of— "(A) the issue price of such bond, plus "(B) the adjustments under this subsection to such issue price for all periods before the first day of such bond period. "(5) BOND PERIOD.—Except as otherwise provided in regulations prescribed by the Secretary, the term 'bond period' means a 1-year period (or the shorter period to m a t u r i t y) beginning on the day in the calendar year which corresponds to the date of original issue of the bond. "(6) REDUCTION IN CASE OF CERTAIN SUBSEQUENT HOLDERS.—

For purposes of this subsection, in the case of any purchase of a bond to which this subsection applies after its original issue, the daily portion shall not include an a m o u n t (determined a t the time of purchase) equal to the excess (if any) of— "(A) the cost of such bond incurred by the purchaser, over "(B) the issue price of such bond, increased by the s u m of the daily portions for such bond for all days before the date of purchase (computed without regard to this paragraph), divided by the n u m b e r of days beginning on the date of such purchase and ending on the day before the stated m a t u r i t y date. "(7) REGULATION AUTHORITY.—The Secretary may prescribe

regulations providing that w h e r e, by reason of varying rates of interest, put or call options, or other circumstances, the inclusion under paragraph (1) for the taxable year does not accurately reflect the income of the holder, the program o u n t of income shall be included for such taxable year (and a p p r o p r i a t e adjustments shall be made in the a m o u n t s included for subsequent taxable years). "(b) RATABLE INCLUSION R E T A I N E D FOR CORPORATE BONDS ISSUED BEFORE J U L Y 2, 1982.—

"(1) GENERAL RULE.—There shall be included in the gross income of the holder of any bond issued by corporation after May 27, 1969, and before July 2, 1982 (and which is a capital asset in the h and s of the holder)— "(A) the r a t a b l e monthly portion of original issue discount, multiplied by "(B) the n u m b e r of complete months (plus any fractional part of a month determined under paragraph (3)) such holder held such bond during the taxable year. "(2) DETERMINATION OF RATABLE MONTHLY PORTION —Except

as provided in paragraph (4), the r a t a b l e monthly portion of original issue discount shall equal— "(A) the original issue discount, divided by "iB) the n u m b e r of complete months from the date of original issue to the stated m a t u r i t y date of the bond. "(3) M O N T H DEFINED.—For purposes of this subsection, a complete month commences with the date of original issue and the corresponding day of each succeeding calendar month (or the last day of a c a l e n d a r month in which the r e is no corresponding day). In any case w h e r e a bond is acquired on any day other than a day determined under the preceding sentence, the rat-

96 STAT. 497

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 96 STAT. 498

PUBLIC LAW 97-248—SEPT. 3, 1982 able monthly portion of original issue discount for the complete month (or partial month) in which such acquisition occurs shall be allocated between the transferor and the transferee in accordance with the n u m b e r of days in such complete (or partial) month each held the bond. "(4) REDUCTION IN CASE OF CERTAIN SUBSEQUENT HOLDERS.—

For purposes of this subsection, the r a t a b l e monthly portion of original issue discount shall not include a n a m o u n t, determined at the time of any purchase after the original issue of the bond, equal to the excess of— "(A) the cost of such bond incurred by the holder, over "(B) the issue price of such bond, increased by the portion of original discount previously includible in the gross income of any holder (computed without regard to this paragraph), divided by the n u m b e r of complete months (plus any fractional part of a month) from the date of such purchase to the stated m a t u r i t y date of such bond. "(c) DEFINITIONS AND SPECIAL RULES. — "(1) B O N D INCLUDES OTHER EVIDENCES OF INDEBTEDNESS.—For

purposes of this section, the term 'bond' means a bond, debenture, note, or certificate or other evidence of indebtedness. "(2) P U R C H A S E DEFINED.—For purposes of t h i s section,

26 USC 1014.

term 'purchase' means any acquisition basis of the bond is not determined reference to the adjusted basis of such person from whom acquired, or under to property acquired from a decedent).

the

of a bond, b u t only if the in whole or in part by bond in the h and s of the section 1014(a) (relating

"(3) O R I G I N A L ISSUE DISCOUNT, ETC.—For purposes of t h i s sec-

tion, the term s 'original issue discount', 'issue price', and 'date of original issue' shall have the respective m e a n i n g s given to such term s by section 1232(b). "(4) EXCEPTIONS.—This section shall not apply to any holder— "(A) w h o has purchased the bond a t a p r e m i u m, or "(B) which is a life insurance company to which section 818(b) applies. "(5) BASIS ADJUSTMENTS. — The basis of any bond in the h and s

of the holder thereof shall be increased by the a m o u n t included in his gross income pursuant to this section." (b) DEDUCTION

26 USC 163.

DETERMINED

ON BASIS

OF CONSTANT

INTEREST

RATE.—Section 163 (relating to deduction for interest) is amended by redesignating subsection (e) as subsection (0 and by inserting after subsection (d) the following new subsection: "(e) O R I G I N A L ISSUE D I S C O U N T. —

"(1) IN GENERAL.—In the case of any bond issued after July 1, 1982, by a n issuer (other than a n a t u r a l person), the portion of the original issue discount with respect to such bond which is allowable as a deduction to the issuer for any taxable year shall be equal to the aggregate daily portions of the original issue discount for days during such taxable year. "(2) DEFINITIONS AND SPECIAL RULES.—For purposes of t h i s

section— "(A) BOND.—The term 'bond' has the m e a n i n g given to such term by section 1232A(c)(l). "(B) DAILY PORTIONS.—The daily portion of the original

issue discount for any day shall be determined under section 1232A(a) (without regard to paragraph s (2)(B) and (6)

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96 STAT. 499

thereof and without regard to the second sentence of section 1232(b)(1))." (c) CONFORMING AMENDMENTS. —

(1) Subparagraph (A) of section 1232(a)(2) is amended— (A) by striking out "by a corporation after May 27, 1969" and inserting in lieu thereof "by a corporation after May 27, 1969, or by a government or political subdivision thereof after July 1, 1982", (B) by striking out " a s provided in paragraph (3)(B)" and inserting in lieu thereof "without regard to subsection (a)(6) or (b)(4) of section 1232A (or the corresponding provisions of prior law)", and (C) by striking out the subparagraph heading and inserting in lieu thereof the following:

26 USC 1232.

"(A) CORPORATE BONDS ISSUED AFTER MAY 27, 1969, A N D GOVERNMENT BONDS ISSUED AFTER JULY 1, 1982.—".

(2) Subparagraph (B) of section 1232(a)(2) is amended— (A) by striking out "by a government or political subdivision thereof after December 31, 1954" and inserting in lieu thereof "by a government or political subdivision thereof after December 31, 1954, and on or before July 1, 1982,", and (B) by striking out " G O V E R N M E N T BONDS" in the s u b p a r a -

g r a p h heading and inserting in lieu thereof "GOVERNMENT BONDS ISSUED ON OR BEFORE JULY 1, 1982 ".

(3) Subparagraph (D) of section 1232(a)(2) is amended by striking out "This section" and inserting in lieu thereof "This section and sections 1232A and 1232B". (4) Subsection (a) of section 1232 is amended by striking o u t paragraph (3) and by redesignating paragraph (4) a s paragraph (3). (d) CLERICAL AMENDMENT. — The table of sections for such part IV is amended by inserting after the item relating to section 1232 the following: "Sec. 1232A. Original issue discount."

(e) TRANSITIONAL RULE. — For purposes of the amendments made 26 USC 1232A by this section, any evidence of indebtedness issued pursuant to a "°*'^' written c o m m i t m e n t which was binding on July 1, 1982, and a t all times thereafter shall be t r e a t e d as issued on July 1, 1982. SEC. 232. TAX TREATMENT OF STRIPPED BONDS.

(a) IN GENERAL. — Part IV of subchapter P of chapter 1 (relating to special rules for determining capital gains and losses) is amended by inserting after section 1232A the following new section: "SEC. 1232B. TAX TREATMENT OF STRIPPED BONDS,

26 USC 1232B.

"(a) INCLUSION IN INCOME AS IF B O N D AND C O U P O N S W E R E O R I G I NAL ISSUE DISCOUNT BONDS.—If any person purchase s after July 1,

1982, a stripped bond or a stripped coupon, the n such bond or coupon while held by such purchase r (or by any other person whose basis is determined by reference to the basis in the h and s of such purchaser) shall be treated for purposes of section 1232A(a) as a bond originally issued by a corporation on the purchase date and having a n original issue discount equal to the excess (if any) of— "(1) the stated redemption price a t m a t u r i t y (or, in the case of a coupon, the a m o u n t payable on the due date of such coupon), over

•^"^«. P- 496.

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Page:United States Statutes at Large Volume 96 Part 1.djvu/542

 96 STAT. 500

PUBLIC LAW 97-248—SEPT. 3, 1982 "(2) such bond's or coupon's ratable s h a r e of the purchase price. For purposes of paragraph (2), ratable s h a r e s shall be determined on the basis of the i r respective fair m a r k e t values on the date of purchase. "(b) T A X T R E A T M E N T OF P E R S O N S T R I P P I N G B O N D. — For purposes of

this subtitle, if any person strips 1 or more coupons from a bond and after July 1, 1982, disposes of the bond or such coupon— "(1) such person shall include in gross income a n a m o u n t equal to the interest accrued on such bond before the time that such coupon or bond was disposed of (to the extent such interest has not theretofore been included in such person's gross income), "(2) the basis of the bond and coupons shall be increased by the a m o u n t of the accrued interest described in paragraph (1), "(3) the basis of the bond and coupons immediately before the disposition (as adjusted pursuant to paragraph (2)) shall be allocated among the items retained by such person and the items disposed of by such person on the basis of the i r respective fair m a r k e t values, and "(4) for purposes of subsection (a), such person shall be t r e a t e d as having purchased on the date of such disposition each such item which he r e t a i n s for a n a m o u n t equal to the basis allocated to such item under paragraph (3). A rule similar to the rule of paragraph (4) shall apply in the case of any person whose basis in any bond or coupon is determined by reference to the basis of the person described in the preceding sentence. "(c) R E T E N T I O N OF E X I S T I N G L A W FOR STRIPPED BONDS P U R C H A S E D

26 USC 1232.

BEFORE J U L Y 2, 1982.—If a bond issued a t any time with interest coupons— "(1) is purchased after August 16, 1954, and before January 1, 1958, and the purchaser does not receive all the coupons which first become payable more than 12 months after the date of the purchase, or "(2) is purchased after December 31, 1957, and before July 2, 1982, and the purchaser does not receive all the coupons which first become payable after the date of the purchase, then the gain on the sale or other disposition of such bond by such purchaser (or by a person whose basis is determined by reference to the basis in the h and s of such purchaser) shall be considered as ordinary income to the extent that the fair m a r k e t value (determined as of the time of the purchase) of the bond with coupons attached exceeds the purchase price. If this subsection and section 1232(a)(2)(A) apply with respect to gain realized on the sale or exchange of any evidence of indebtedness, then section 1232(a)(2)(A) shall apply with respect to that part of the gain to which this subsection does not apply. "(d) SPECIAL RULES FOR T A X - E X E M P T OBLIGATIONS.—In the case of

any obligation the interest on which is not includible in gross income under section 103 or is exempt from tax (without regard to the identity of the holder) under any other provision of law— "(1) subsections (a) and (b)(1) shall not apply, "(2) the rules of subsection (b)(4) shall apply for purposes of subsection (c), and "(3) subsection (c) shall be applied without regard to the requirement that the bond be purchased before July 2, 1982.

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Page:United States Statutes at Large Volume 96 Part 1.djvu/543

 PUBLIC LAW 97-248—SEPT. 3, 1982 "(e)

DEFINITIONS

AND SPECIAL

RULES.—For

purposes

96 STAT. 501 of

this

section— "(1) BOND.—The term 'bond' means a bond, debenture, note, or certificate or other evidence of indebtedness. "(2) STRIPPED BOND.—The term 'stripped bond' means a bond issued a t any time with interest coupons w h e r e the r e is a separation in ownership between the bond and any coupon which has not yet become payable. "(3) STRIPPED COUPON.—The term 'stripped coupon' means any coupon relating to a stripped bond. "(4)

STATED

REDEMPTION

PRICE

AT MATURITY.—The

term

'stated redemption price a t m a t u r i t y ' has the m e a n i n g given such term by the t h i r d sentence of section 1232(b)(1). "(5) COUPON.—The term 'coupon' includes any right to receive interest on a bond (whether or not evidenced by a coupon). This paragraph shall apply for purposes of subsection (c) only in the case of purchases after July 1, 1982. "(f) REGULATION AUTHORITY. — The Secretary may prescribe regu-

lations providing that where, by reason of varying r a t e s of interest, put or call options, extendable m a t u r i t i e s, or other circumstances, the tax t r e a t m e n t under this section does not accurately reflect the income of the bolder of a stripped coupon or stripped bond, or of the person disposing of such bond or coupon, a s the case may be, for any period, such t r e a t m e n t shall be modified to r e q u i r e that the proper a m o u n t of income be included for such period." (b) CONFORMING AMENDMENT. — S e c t i o n 1232 is amended by strik-

26 USC 1232.

ing out subsections (c) and (d). (c) CLERICAL AMENDMENT. — The table of sections for such part IV is amended by inserting after the item r e l a t i n g to section 1232A the following: "Sec. 1232B. Tax treatment of stripped bonds."

PART VIII—OTHER BUSINESS PROVISIONS SEC. 233. TARGETED JOBS TAX CREDIT.

(a) 2-YEAR E X T E N S I O N. — Paragraph (3) of section 51(c) (relating to termination of credit for employment of certain new employees) is amended by striking out "1982" and inserting in lieu thereof "1984". (b) QUALIFIED S U M M E R Y O U T H EMPLOYEE.—Subsection (d) of sec-

tion 51 (defining m e m b e r s of targeted groups) is amended— (1) by striking out " o r " a t the end of subparagraph (H), (2) by striking out the period a t the end of subparagraph (I) and inserting in lieu thereof ", or", (3) by inserting after subparagraph (I) the following n e w subparagraph: "(J) a qualified s u m m e r youth employee.", (4) by redesignating paragraph s (12), (13), (14), and (15) as paragraph s (13), (14), (15), and (16), respectively, and (5) by inserting after paragraph (11) the following new paragraph: "(12) QUALIFIED SUMMER YOUTH EMPLOYEE.—

"(A) IN GENERAL.—The term 'qualified s u m m e r youth employee' means a n individual— "(i) who performs services for the employer between May 1 and September 15,

95 Stat. 260.

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