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 96 STAT. 402

PUBLIC LAW 97-248—SEPT. 3, 1982 "ALLOTMENTS FROM PAY FOR CHILD AND SPOUSAL SUPPORT OWED BY MEMBERS OF THE UNIFORMED SERVICES ON ACTIVE DUTY

42 USC 665.

"Authorized person."

"SEC. 465. (a)(1) In any case in which child support payments or child and spousal support payments are owed by a member of one of the uniformed services (as defined in section 101(3) of title 37, United States Code) on active duty, such member shall be required to make allotments from his pay and allowances (under chapter 13 of title 37, United States Code) as payment of such support, when he has failed to make periodic payments under a support order that meets the criteria specified in section 303(b)(1)(A) of the Consumer Credit Protection Act (15 U.S.C. 1673(b)(1)(A)) and the resulting delinquency in such payments is in a total amount equal to the support payable for two months or longer. Failure to make such payments shall be established by notice from an authorized person (as defined in subsection (b)) to the designated official in the appropriate uniformed service. Such notice (which shall in turn be given to the affected member) shall also specify the person to whom the allotment is to be payable. The amount of the allotment shall be the amount necessary to comply with the order (which, if the order so provides, may include arrearages as well as amounts for current support), except that the amount of the allotment, together with any other amounts withheld for support from the wages of the member, as a percentage of his pay from the uniformed service, shall not exceed the limits prescribed in sections 303(b) and (c) of the Consumer Credit Protection Act (15 U.S.C. 1673 (b) and (c)). An allotment under this subsection shall be adjusted or discontinued upon notice from the authorized person. "(2) Notwithstanding the preceding provisions of this subsection, no action shall be taken to require an allotment from the pay and allowances of any member of one of the uniformed services under such provisions (A) until such member has had a consultation with a judge advocate of the service involved (as defined in section 801(13) of title 10, United States Code), or with a law specialist (as defined in section 801(11) of such title) in the case of the Coast Guard, or with a legal officer designated by the Secretary concerned (as defined in section 101(5) of title 37, United States Code) in any other case, in person, to discuss the legal and other factors involved with respect to the member's support obligation and his failure to make payments thereon, or (B) until 30 days have elapsed after the notice described in the second sentence of paragraph (1) is given to the affected member in any case where it has not been possible, despite continuing good faith efforts, to arrange such a consultation. "(b) For purposes of this section the term 'authorized person' with respect to any member of the uniformed services means— "(1) any agent or attorney of a State having in effect a plan approved under this part who has the duty or authority under such plan to seek to recover any amounts owed by such member as child or child and spousal support (including, when authorized under the State plan, any official of a political subdivision); and "(2) the court which has authority to issue an order against such member for the support and maintenance of a child, or any agent of such court. "(c) The Secretary of Defense, in the case of the Army, Navy, Air Force, and Marine Corps, and the Secretary concerned (as defined in section 101(5) of title 37, United States Code) in the case of each of

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 PUBLIC LAW 97-248—SEPT. 3, 1982 the other uniformed services, shall each issue regulations applicable to allotments to be made under this section, designating the officials to whom notice of failure to make support payments, or notice to discontinue or adjust an allotment, should be given, prescribing the form and content of the notice and specifying any other rules necessary for such Secretary to implement this section.". (b) The amendment made by subsection (a) shall become effective on October 1, 1982.

96 STAT. 403

Effective date. 42 USC 665 note.

REIMBURSEMENT OF STATE AGENCY I N INITIAL MONTH OF INELIGIBILITY FOR AFDC

SEC. 173. (a) Section 454(5) of the Social Security Act is amended 42 USC 654. by inserting "following the first month" after "for any month". (b) The amendment made by this section shall become effective on Effective date. 42 USC 654 note. October 1, 1982. REDUCTION I N CERTAIN FEDERAL PAYMENTS TO STATES UNDER CHILD SUPPORT ENFORCEMENT PROGRAM

SEC. 174. (a) Section 455(a)(1) of the Social Security Act is amended by striking out "75 percent" and inserting in lieu thereof "70 percent". (b) Section 455(c) of such Act is repealed. (c) Section 458(a) of such Act is amended by striking out "15 per centum" and inserting in lieu thereof "12 percent". (d) The amendment made by subsection (a) shall apply with respect to quarters beginning on or after October 1, 1982. Subsection (b) shall apply with respect to quarters beginning on or after October 1, 1983; and the amendment made by subsection (c) shall apply with respect to amounts collected on or after October 1, 1983.

42 USC 655.

42 USC 658. 42 USC 655 note.

TECHNICAL AMENDMENTS TO CHILD SUPPORT ENFORCEMENT PROVISIONS I N RECONCILIATION ACT

SEC. 175. (a)(1) The first sentence of section 452(b) of the Social 42 USC 652 Security Act is amended by striking out "certify" and all that follows and inserting in lieu thereof "certify to the Secretary of the Treasury for collection pursuant to the provisions of section 6305 of the Internal Revenue Code of 1954 the amount of any child support 26 USC 6305. obligation (including any support obligation with respect to the parent who is living with the child and receiving aid under the State plan approved under part A) which is assigned to such State or is undertaken to be collected by such State pursuant to section 454(6)." 42 USC 654. (2) Section 303(e)(2)(A)(i) of such Act is amended by striking out "of 95 Stat. 863. this subsection" and inserting in lieu thereof "of paragraph (1)". 42 USC 503. (b) The amendments made by this section shall be effective as of Effective date. 42 USC 503 note. October 1, 1981. DELAYED EFFECTIVE DATE IN CASES REQUIRING STATE LEGISLATION

SEC. 176. In the case of a State with respect to which the Secretary of Health and Human Services has determined that State legislation is required in order to conform the State plan approved under part D of title IV of the Social Security Act to the requirements imposed by any amendment made by this subtitle, the State plan shall not be regarded as failing to comply with the requirements of such part

42 USC 654 note.

42 USC 601.

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 96 STAT. 404

'Session."

PUBLIC LAW 97-248—SEPT. 3, 1982 solely by reason of its failure to meet the requirements imposed by such amendment prior to the end of the first session of the State legislature which begins after October 1, 1982, or which began prior to October 1, 1982, and remained in session for at least twenty-five calendar days after such date. For purposes of the preceding sentence, the term "session" means a regular, special, budget, or other session of a State legislature.

Subtitle F—Supplemental Security Income EFFECTIVE DATE OF APPLICATION; PRORATION OF INITIAL SSI BENEFIT PAYMENT 95 Stat. 865. 42 USC 1382.

Effective date. 42 USC 1382 note.

SEC. 181. (a) Section 1611(c) of the Social Security Act is amended by striking out paragraphs (2) and (3) and inserting in lieu thereof the following new paragraphs: "(2) The amount of such benefit for the month in which an application for benefits becomes effective (or, if the Secretary so determines, for such month and the following month) and for any month immediately following a month of ineligibility for such benefits (or, if the Secretary so determines, for such month and the following month) shall— "(A) be determined on the basis of the income of the individual and the eligible spouse, if any, of such individual and other relevant circumstances in such month; and "(B) in the case of the month in which an application becomes effective or the first month following a period of ineligibility, if such application becomes effective, or eligibility is restored, after the first day of such month, bear the same ratio to the amount of the benefit which would have been payable to such individual if such application had become effective, or eligibility had been restored, on the first day of such month as the number of days in such month including and following the effective date of such application or restoration of eligibility bears to the total number of days in such month. "(3) For purposes of this subsection, an application of an individual for benefits under this title shall be effective on the later of— "(A) the date such application is filed, or "(B) the date such individual first becomes eligible for such benefits with respect to such application.". (b) The amendment made by this section shall become effective on October 1, 1982. ROUNDING OF SSI ELIGIBILITY AND BENEFIT AMOUNTS

42 USC 1382f.

SEC. 182. (a) Section 1617 of the Social Security Act is amended to read as follows: COST-OF-LIVING ADJUSTMENTS IN BENEFITS

42 USC 401. 42 USC 415.

42 USC 1382, 411.

"SEC. 1617. (a) Whenever benefit amounts under title II are increased by any percentage effective with any month as a result of a determination made under section 215(i)— "(1) each of the dollar amounts in effect for such month under subsections (a)(1)(A), (a)(2)(A), (b)(1), and (b)(2) of section 1611, and subsection (a)(1)(A) of section 211 of Public Law 93-66, as specified in such subsections or as previously increased under

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 PUBLIC LAW 97-248—SEPT. 3, 1982 this section, shall be increased by the amount (if any) by which— "(A) the amount which would have been in effect for such month under such subsection but for the rounding of such amount pursuant to paragraph (2), exceeds "(B) the amount in effect for such month under such subsection; and "(2) the amount obtained under paragraph (1) with respect to each subsection shall be further increased by the same percentage by which benefit amounts under title II are increased for such month (and rounded, when not a multiple of $12, to the next lower multiple of $12), effective with respect to benefits for months after such month. "(b) The new dollar amounts to be in effect under section 1611 of this title and under section 211 of Public Law 93-66 by reason of this section shall be published in the Federal Register together with, and at the same time as, the material required by section 215(i)(2)(D) to be published therein by reason of the determination involved.". (b) The amendment made by this section shall become effective on October 1, 1982.

96 STAT. 405

42 USC 401.

Publication in Federal Register. 42 USC 1382, 411. 42 USC 415. Effective date. 42 USC 1382f note.

COORDINATION OF SSI AND OASDI COST-OF-LIVING ADJUSTMENTS

SEC. 183. (a) Section 1611(c) of the Social Security Act (as amended by section 181 of this Act) is further amended— (1) in paragraph (1) by striking out "paragraph (2)" and inserting in lieu thereof "paragraphs (2), (3), and (4)"; (2) by redesignating paragraphs (3) and (4) as paragraphs (5) and (6), respectively; and (3) by inserting after paragraph (2) the following new paragraphs: "(3) For purposes of this subsection, an increase in the benefit amount payable under title II (over the amount payable in the preceding month, or, at the election of the Secretary, the second preceding month) to an individual receiving benefits under this title shall be included in the income used to determine the benefit under this title of such individual for any month which is— "(A) the first month in which the benefit amount payable to such individual under this title is increased pursuant to section 1617, or "(B) at the election of the Secretary, the month immediately following such month. "(4)(A) Notwithstanding paragraph (3), if the Secretary determines that reliable information is currently available with respect to the income and other circumstances of an individual for a month (including information with respect to a class of which such individual is a member and information with respect to scheduled cost-ofliving adjustments under other benefit programs), the benefit amount of such individual under this title for such month may be determined on the basis of such information. "(B) The Secretary shall prescribe by regulation the circumstances in which information with respect to an event may be taken into account pursuant to subparagraph (A) in determining benefit amounts under this title.". (b) The amendment made by subsection (a) shall become effective October 1, 1982.

42 USC 1382.

Effective date. 42 USC 1382 note.

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 96 STAT. 406

PUBLIC LAW 97-248—SEPT. 3, 1982 PHASEOUT OF HOLD HARMLESS PROTECTION

42 USC 1382e note.

Effective date. 42 USC 1382e note.

SEC. 184. (a) Section 401 of the Social Security Amendments of 1972 (Public Law 92-603) is amended by adding at the end thereof the following new subsection: "(d) In addition to the amount which a State must pay to the Secretary for the fiscal year 1983 or the fiscal year 1984, as determined under subsection (a), the State shall also pay, for the fiscal year 1983, 60 percent of the further amount that would be payable but for the limit specified in subsection (a), and, for the fiscal year 1984, 80 percent of such further amount. For each fiscal year thereafter, the limit prescribed in subsection (a) shall be inapplicable and a State shall pay to the Secretary the full amount of any supplementary payments he makes on behalf of such State.". (b) The amendment made by subsection (a) shall become effective on the date of the enactment of this Act. EXCLUSION FROM RESOURCES OF BURIAL PLOTS AND CERTAIN FUNDS SET ASIDE FOR BURIAL EXPENSES

42 USC 1382b.

SEC. 185. (a) Section 1613(a)(2) of the Social Security Act is amended by inserting "(A)" after "(2)", by adding "and" after the semicolon, and by adding at the end thereof the following new subparagraph: "(B) the value of any burial space (subject to such limits as to size or value as the Secretary may by regulation prescribe) held for the purpose of providing a place for the burial of the individual, his spouse, or any other member of his immediate family;". O> Section 1613 of such Act is further amended by adding at the t) end thereof the following new subsection: "Funds Set Aside for Burial Expenses

42 USC 1382.

"(d)(1) In determining the resources of an individual, there shall be excluded an amount, not in excess of $1,500 each with respect to such individual and his spouse (if any), that is separately identifiable and has been set aside to meet the burial and related expenses of such individual or spouse if the inclusion of any portion of such amount or amounts would cause the resources of such individual, or of such individual and spouse, to exceed the limits specified in paragraph (1) or (2) (whichever may be applicable) of section 1611(a). "(2) The amount of $1,500, referred to in paragraph (1), with respect to an individual shall be reduced by an amount equal to (A) the total face value of all insurance policies on his life which are owned by him or his spouse and the cash surrender value of which has been excluded in determining the resources of such individual or of such individual and his spouse, and (B) the total of any amounts in an irrevocable trust (or other irrevocable arrangement) available to meet the burial and related expenses of such individual or his spouse. "(3) If the Secretary finds that any part of the amount excluded under paragraph (1) was used for purposes other than those for which it was set aside, he shall reduce any future benefits payable to the eligible individual (or to such individual and his spouse) by an amount equal to such part.

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 PUBLIC LAW 97-248—SEPT. 3, 1982 "(4) The Secretary may provide by regulations that whenever an amount set aside to meet burial and related expenses is excluded under paragraph (1) in determining the resources of an individual, any interest earned or accrued on such amount (and left to accumulate), and any appreciation in the value of prepaid burial arrangements for which such amount was set aside, shall also be excluded (to such extent and subject to such conditions or limitations as such regulations may prescribe) in determining the resources (and the income) of such individual.". (c) The amendment made by this section shall take effect on the first day of the second month after the month in which this Act is enacted.

96 STAT. 407

Effective date. 42 USC 1382b note.

MANDATORY PASSTHROUGH UNDER STATE SUPPLEMENTATION PROVISIONS

SEC. 186. Section 1618 of the Social Security Act is amended by 42 USC I382g. adding at the end thereof the following new subsection: "(c) Any State which satisfies the requirements of this section solely by reason of subsection (b) for a particular month or months in any 12-month period (described in such subsection) ending on or after June 30, 1982, may elect, with respect to any month in any subsequent 12-month period (so described), to apply subsection (a)(4) as though the reference to December 1976 in such subsection were a reference to the month of December which occurred in the 12-month period immediately preceding such subsequent period.". TREATMENT OF UNNEGOTIATED CHECKS UNDER SUPPLEMENTAL SECURITY INCOME PROGRAM

SEC. 187. (a) Section 1631(i)(2) of the Social Security Act (as added by section 2343(a) of the Omnibus Budget Reconciliation Act of 1981) is amended by striking out "included in all checks payable to individuals entitled to benefits under this title but" in the first sentence and inserting in lieu thereof "included in all such benefit checks". (b) The amendment made by subsection (a) shall become effective October 1, 1982.

95 Stat. 866. 42 USC 1383.

Effective date. 42 USC 1383 note.

Subtitle G—Unemployment Compensation ROUNDING OF BENEFIT AMOUNTS

SEC. 191. (a) Section 204(a)(2) of the Federal-State Extended Unemployment Compensation Act of 1970 is amended by striking out "or" at the end of clause (B), and by inserting before the period at the end thereof the following: ", or (D) paid to an individual with respect to a week of unemployment to the extent that such amount exceeds the amount of such compensation which would be paid to such individual if such State had a benefit structure which provided that the amount of compensation otherwise payable to any individual for any week shall be rounded (if not a full dollar amount) to the nearest lower full dollar amount". (b)(1) Except as provided in paragraph (2), the amendments made by this section shall apply in the case of compensation paid to individuals during eligibility periods beginning on or after October 1, 1983.

97-200 O—84—pt. 1

15: QL3

95 Stat. 884. 26 USC 3304 note.

Effective date. 42 USC 3304 note.

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 96 STAT. 408

"Session."

PUBLIC LAW 97-248—SEPT. 3, 1982

(2) In the case of a State with respect to which the Secretary of Labor has determined that State legislation is required in order to provide for rounding down of unemployment compensation amounts, the amendment made by this section shall apply in the case of compensation paid to individuals during eligibility periods which begin on or after October 1, 1983, and after the end of the first session of the State legislature which begins after the date of the enactment of this Act, or which began prior to the date of the enactment of this Act and remained in session for at least twentyfive Calendar days after such date of enactment. For purposes of the preceding sentence, the term "session" means a regular, special, budget, or other session of a State legislature. USE OF CERTAIN AMOUNTS TRANSFERRED TO STATE UNEMPLOYMENT FUNDS

42 USC 1103.

42 USC 1321.

SEC. 192. (a) Paragraph (2) of section 903(c) of the Social Security Act is amended— (1) by striking out "twenty-four" each place it appears and inserting in lieu thereof "thirty-four"; and (2) by striking out "twenty-fourth" in the second sentence and inserting in lieu thereof "thirty-fourth". O> Subsection (c) of section 903 of such Act is amended by adding t) at the end thereof the following new paragraph: "(3)(A) I f "(i) amounts transferred to the account of a State pursuant to subsections (a) and 0?) of this section were used in payment of unemployment benefits to individuals; and "(ii) the Governor of such State submits a request to the Secretary of Labor that such amounts be restored under this paragraph, then the amounts described in clause (i) shall be restored to the status of funds transferred under subsections (a) and (b) of this section which have not been used by eliminating any charge against amounts so transferred for the use of such amounts in the payment of unemployment benefits. "(B) Subparagraph (A) shall apply only to the extent that the amounts described in clause (i) of such subparagraph do not exceed the amount then in the State's account. "(C) Subparagraph (A) shall not apply if the State has a balance of advances made to its account under title XII of this Act. "(D) If the Secretary of Labor determines that the requirements of this paragraph are met with respect to any request, the Secretary shall notify the Governor of the State that such requirements are met with respect to such request and the amount restored under this paragraph. Such restoration shall be as of the first day of the first month following the month in which the notification is made.". TREATMENT OF CERTAIN EMPLOYEES OF INSTITUTIONS OF HIGHER EDUCATION —

26 USC 3304.

26 USC 3309.

SEC. 193. (a) Clause (ii) of section 3304(a)(6)(A) of the Internal Revenue Code of 1954 (relating to requirements for approval of State unemployment compensation laws) is amended to read as follows: "(ii) with respect to services in any other capacity for an educational institution to which section 3309(a)(l) applies—

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 PUBLIC LAW 97-248—SEPT. 3, 1982 "(I) compensation payable on the basis of such services may be denied to any individual for any week which commences during a period between 2 successive academic years or terms if such individual performs such services in the first of such academic years or terms and there is a reeisonable assurance that such individual will perform such services in the second of such academic years or terms, except that "(ID if compensation is denied to any individual for any week under subclause (I) and such individual was not offered an opportunity to perform such services for the educational institution for the second of such academic years or terms, such individual shall be entitled to a retroactive payment of the compensation for each week for which the individual filed a timely claim for compensation and for which compensation was denied solely by reason of subclause (I),". (b)(1) The amendment made by subsection (a) shall apply to weeks of unemployment beginning after the date of the enactment of this Act. (2) The amendment made by subsection (a), insofar as it requires retroactive payments of compensation to employees of educational institutions other than institutions of higher education (as defined in section 3304(f) of the Internal Revenue Code of 1954), shall not be a requirement for any State law before January 1, 1984.

96 STAT. 409

Effective date. 26 USC 3304 note.

SHORT-TIME COMPENSATION

SEC. 194. (a) It is the purpose of this section to assist States which 26 USC 3304 provide partial unemployment benefits to individuals whose work- note. weeks are reduced pursuant to an employer plan under which such reductions are made in lieu of temporary layoffs. (b)(l) The Secretary of Labor (hereinafter in this section referred to as the "Secretary") shall develop model legislative language which may be used by States in developing and enacting short-time compensation programs, and shall provide technical assistance to States to assist in developing, enacting, and implementing such short-time compensation program. (2) The Secretary shall conduct a study or studies for purposes of evaluating the operation, costs, effect on the State insured rate of unemployment, and other effects of State short-time compensation programs developed pursuant to this section. (3) This section shall be a three-year experimental provision, and the provisions of this section regarding guidelines shall terminate 3 years following the date of the enactment of this Act. (4) States are encouraged to experiment in carrying out the purpose and intent of this section. However, to assure minimum uniformity. States are encouraged to consider requiring the provisions contained in subsections (c) and (d). (c) For purposes of this section, the term "short-time compensa- Definitions. tion program" means a program under which— (1) individuals whose workweeks have been reduced pursuant to a qualified employer plan by at least 10 per centum will be eligible for unemployment compensation; (2) the amount of unemployment compensation payable to any such individual shall be a pro rata portion of the unemploy-

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 96 STAT. 410

29 USC 1002.

PUBLIC LAW 97-248—SEPT. 3, 1982 ment compensation which would be payable to the individual if the individual were totally unemployed; (3) eligible employees may be eligible for short-time compensation or regular unemployment compensation, as needed; except that no employee shall be eligible for more than the maximum entitlement during any benefit year to which he or she would have been entitled for total unemployment, and no employee shall be eligible for short-time compensation for more than twenty-six weeks in any twelve-month period; and (4) eligible employees will not be expected to meet the availability for work or work search test requirements while collecting short-time compensation benefits, but shall be available for their normal workweek. (d) For purposes of subsection (c), the term "qualified employer plan" means a plan of an employer or of an employers' association which association is party to a collective bargaining agreement (hereinafter referred to as "employers' association") under which there is a reduction in the number of hours worked by employees rather than temporary layoffs if— (1) the employer's or employers' association's short-time compensation plan is approved by the State agency; (2) the employer or employers' association certifies to the State agency that the aggregate reduction in work hours pursuant to such plan is in lieu of temporary layoffs which would have affected at least 10 per centum of the employees in the unit or units to which the plan would apply and which would have resulted in an equivalent reduction of work hours; (3) during the previous four months the work force in the affected unit or units has not been reduced by temporary layoffs of more than 10 per centum; (4) the employer continues to provide health benefits, and retirement benefits under defined benefit pension plans (as defined in section 3(35) of the Employee Retirement Income Security Act of 1974, to employees whose workweek is reduced under such plan as though their workweek had not been reduced; and (5) in the case of employees represented by an exclusive bargaining representative, that representative has consented to the plan. The State agency shall review at least annually any qualified employer plan put into effect to assure that it continues to meet the requirements of this subsection and of any applicable State law. (e) Short-time compensation shall be charged in a manner consistent with the State law. (f) For purposes of this section, the term "State" includes the District of Columbia, the Commonwealth of Puerto Rico, and the Virgin Islands. (g)(1) The Secretary shall conduct a study or studies of State shorttime compensation programs consulting with employee and employer representatives in developing criteria and guidelines to measure the following factors: (A) the impact of the program upon the unemployment trust fund, and a comparison with the estimated impact on the fund of layoffs which would have occurred but for the existence of the program;

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 PUBLIC LAW 97-248—SEPT. 3, 1982

96 STAT. 411

(B) the extent to which the program has protected and preserved the jobs of workers, with special emphasis on newly hired employees, minorities, and women; (C) the extent to which layoffs occur in the unit subsequent to initiation of the program and the impact of the program upon the entitlement to unemployment compensation of the employees; (D) where feasible, the effect of varying methods of administration; (E) the effect of short-time compensation on employers' State unemployment tax rates, including both users and nonusers of short-time compensation, on a State-by-State basis; (F) the effect of various State laws and practices under those laws on the retirement and health benefits of employees who are on short-time compensation programs; (G) a comparison of costs and benefits to employees, employers, and communities from use of short-time compensation and layoffs; (H) the cost of administration of the short-time compensation program; and (I) such other factors as may be appropriate. (2) Not later than October 1, 1985, the Secretary shall submit to Report to the Congress and to the President a final report on the implementa- congre^*^ tion of this section. Such report shall contain an evaluation of short-time compensation programs and shall contain such recommendations as the Secretary deems advisable, including recommendations as to necessary changes in the statistical practices of the Department of Labor.

TITLE II—REVENUE MEASURES Subtitle A—Provisions Relating to Individuals SEC. 201. ALTERNATIVE MINIMUM TAX ON TAXPAYERS OTHER THAN CORPORATIONS. (a) IN GENERAL.—Section 55 (relating to alternative minimum tax 26 USC 55. for taxpayers other than corporations) is amended to read as follows: "SEC. 55. ALTERNATIVE MINIMUM TAX FOR TAXPAYERS OTHER THAN CORPORATIONS. "(a) TAX IMPOSED.—In the case of a taxpayer other than a corporation, there is imposed (in addition to any other tax imposed by this subtitle) a tax equal to the excess (if any) of— "(1) an amount equal to 20 percent of so much of the alternative minimum taxable income as exceeds the exemption amount, over "(2) the regular tax for the taxable year. "(b) ALTERNATIVE MINIMUM TAXABLE INCOME.—For purposes of

this title, the term 'alternative minimum taxable income' means the adjusted gross income (determined without regard to the deduction allowed by section 172) of the taxpayer for the taxable year— "(1) reduced by the sum of— "(A) the alternative tax net operating loss deduction, plus "(B) the alternative tax itemized deductions, plus

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 96 STAT. 412 26 USC 667.

PUBLIC LAW 97-248—SEPT. 3, 1982 <'(C) any amount included in income under section 667, and "(2) increased by the amount of items of tax preference. "(c) CREDITS.—

26 USC 31.

"(1) IN GENERAL.—For purposes of determining any credit allowable under subpart A of part IV of this subchapter (other than the foreign tax credit allowed under section 33(a))— "(A) the tax imposed by this section shall not be treated as a tax imposed by this chapter, and "(B) the amount of the foreign tax credit allowed by section 33(a) shall be determined without regard to this section. "(2) FOREIGN TAX CREDIT ALLOWED AGAINST ALTERNATIVE MINI-

MUM TAX.— "(A) DETERMINATION OF FOREIGN TAX CREDIT.—The total amount of the foreign tax credit which can be taken against the tax imposed by subsection (a) shall be determined under subpart A of part III of subchapter N (section 901 and following). "(B) INCREASE IN AMOUNT OF FOREIGN TAXES TAKEN INTO

ACCOUNT.—For purposes of the determination provided by subparagraph (A), the amount of the taxes paid or accrued to foreign countries or possessions of the United States during the taxable year shall be increased by an amount equal to the lesser of— "(i) the foreign tax credit allowable under section 33(a) in computing the regular tax for the taxable year, or "(ii) the tax imposed by subsection (a). "(C) SECTION 904(a) LIMITATION.—For purposes of the determination provided by subparagraph (A), the limitation of section 904(a) shall be an amount equal to the same proportion of the sum of the tax imposed by subsection (a) against which such credit is taken and the regular tax as— "(i) the taxpayer's alternative minimum taxable income from sources without the United States (but not in excess of the taxpayer's entire alternative minimum taxable income), bears to "(ii) his entire alternative minimum taxable income. For such purpose, the amount of the limitation of section 904(a) shall not exceed the tax imposed by subsection (a). "(D) DEFINITION OF ALTERNATIVE MINIMUM TAXABLE INCOME FROM SOURCES WITHOUT THE UNITED STATES.—For

purposes of subparagraph (C), the term 'alternative minimum taxable income from sources without the United States' means adjusted gross income from sources without the United States, adjusted as provided in paragraphs (1) and (2) of subsection (b) (taking into account in such adjustment only items described in such paragraphs which are properly attributable to items of gross income from sources without the United States). "(E) SPECIAL RULE FOR APPLYING SECTION 904(C).—In

determining the amount of foreign taxes paid or accrued during the taxable year which may be deemed to be paid or accrued in a preceding or succeeding taxable year under section 904(c)--

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 PUBLIC LAW 97-248—SEPT. 3, 1982

96 STAT. 413

"(i) the limitation of section 904(a) shall be increased 26 USC 904. by the amount of the limitation determined under subparagraph (C), and "(ii) any increase under subparagraph (B) shall be taken into account. "(3) CARRYOVER AND CARRYBACK OF CERTAIN CREDITS.—

"(A) IN GENERAL.—In the case of any taxable year in which a tax is imposed by this section, for purposes of determining the amount of any carryback or carryover of any applicable credit to any other taxable year, the amount of the applicable credit limitation for such taxable year shall be deemed to be— "(i) the amount of the applicable credit allowable for such taxable year (determined without regard to this paragraph), reduced (but not below zero) by "(ii) the amount of the tax imposed by this section for the taxable year, reduced by— "(I) the amount of the credit allowable under section 33(a), and "(II) the amount of such tax taken into account under this clause with respect to any applicable credit having a lower number or letter designation. "(B) APPLICABLE CREDITS, ETC.—For purposes of this paragraph— "(i) APPLICABLE CREDIT.—The term 'applicable credit' means any credit Eillowable under section 38, 40, 44B, 44C, 44E, or 44F. "(ii) APPLICABLE CREDIT LIMITATION.—The term 'applicable credit limitation' means, with respect to any applicable credit, the limitation under section 46(a)(3), 53(a), 44C(b)(5), 44E(e)(l), 44F(g)(l), or 50A(a)(2), whichever is appropriate. "(d)

ALTERNATIVE

TAX

NET

OPERATING

LOSS

DEDUCTION

DEFINED.—For purposes of this section— "(1) IN GENERAL.—The term 'alternative tax net operating loss deduction' means the net operating loss deduction allowable for the taxable year under section 172, except that in determining the amount of such deduction— "(A) in the case of taxable years beginning after December 31, 1982, section 172(b)(2) shall be applied by substituting 'alternative minimum taxable income' for 'tsixable income' each place it appears, and "(B) the net operating loss (within the meaning of section 172(c)) for any loss year shall be adjusted as provided in paragraph (2). "(2)

ADJUSTMENTS TO NET OPERATING LOSS COMPUTATION.— "(A) PosT-1982 LOSS YEARS.—In the case of a loss year

beginning after December 31, 1982, the net operating loss for such year under section 172(c) shall— "(i) be reduced by the amount of the items of tax preference arising in such year which are taken into account in computing the net operating loss, and "(ii) be computed by taking into account only itemized deductions which are alternative tax itemized deductions for the taxable year and which are otherwise described in section 172(c).

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 96 STAT. 414

PUBLIC LAW 97-248—SEPT. 3, 1982 "(B) PRE-1983 YEARS.—In the case of loss years beginning before January 1, 1983, the amount of the net operating loss which may be carried over to taxable years beginning after December 31, 1982, for purposes of subparagraph (A), shall be equal to the amount which may be carried from the loss year to the first taxable year of the taxpayer beginning after December 31, 1982. "(e)

26 USC 165.

ALTERNATIVE TAX ITEMIZED DEDUCTIONS.—For purposes of

this section— "(1) IN GENERAL.—The term 'alternative tax itemized deductions' means an amount equal to the sum of any amount allowable as a deduction for the taxable year (other than a deduction allowable in computing adjusted gross income) under— "(A) section 165(a) for losses described in subsection (c)(3) or (d) of section 165, "(B) section 170 (relating to charitable deductions), "(C) section 213 (relating to medical deductions), "(D) this chapter for qualified interest, or "(E) section 691(c) (relating to deduction for estate teix). "(2) AMOUNTS WHICH MAY BE CARRIED OVER.—No amount shall be taken into account under paragraph (1) to the extent such amount may be carried to another taxable year for purposes of the regular tax. "(3) QUALIFIED INTEREST.—The term 'qualified interest' means the sum of— "(A) any qualified housing interest, and "(B) any amount allowed as a deduction for interest (other than qualified housing interest) to the extent such amount does not exceed the qualified net investment income of the taxpayer for the taxable year. "(4) QUALIFIED HOUSING INTEREST.—

' (A) IN GENERAL.—The term 'qualified housing interest' means interest which is paid or accrued during the taxable year on indebtedness which is incurred in acquiring, constructing, or substantially rehabilitating any property which— "(i) is the principal residence (within the meaning of section 1034) of the taxpayer at the time such interest accrues or is paid, or "(ii) is a qualified dwelling used by the taxpayer (or any member of his family within the meaning of section 267(c)(4)) during the taxable year. "(B) QuAUFiED DWELLING.—The term 'qualified dwelling'means any— "(i) house, "(ii) apartment, "(iii) condominium, or "(iv) mobile home not used on a transient basis (within the meaning of section 7701(a)(19XCXv)), including all structures or other property appurtenant thereto. "(C)

SPECIAL RULE FOR INDEBTEDNESS INCURRED BEFORE

JULY 1, 1982.—The term 'qualified housing interest' includes interest paid or accrued on indebtedness which— "(i) was incurred by the taxpayer before July 1, 1982, and

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"(ii) is secured by property which, a t the t i m e such indebtedness was incurred, was— "(I) the principal residence (within the m e a n i n g of section 1034) of the taxpayer, or 26 USC 1034. "(ID a qualified dwelling used by the tax p a y e r (or any m e m b e r of his family (within the m e a n i n g of section 267(c)(4))). "(5) QUALIFIED NET INVESTMENT I N C O M E. — For purposes of t h i s

subsection— "(A) IN GENERAL.—The term 'qualified n e t investment income' means the excess of— "(i) qualified investment income, over "(ii) qualified investment expenses. "(B) QUALIFIED INVESTMENT I N C O M E. — The term 'qualified

investment income' means the sum of— "(i) investment income (within the m e a n i n g of section 163(d)(3)(B) other than clause (ii) thereof), "(ii) any n e t capital gain a t t r i b u t a b l e to the disposition of property held for investment, and "(iii) the a m o u n t of items of tax preference described in paragraph (1) of section 57(a). "(C) QUALIFIED INVESTMENT E X P E N S E S. — The term 'quali-

fied investment expenses' means the deductions directly connected with the production of qualified investment income to the e x t e n t that— "(i) such deductions a r e allowable in computing adjusted gross income, and "(ii) such deductions a r e not items of tax preference. "(6) SPECIAL RULES FOR ESTATES AND TRUSTS.—

"(A) IN GENERAL.—In the case of a n estate or t r u s t, the a l t e r n a t i v e tax itemized deductions for any taxable year includes the deductions allowable under sections 642(c), 651(a), and 661(a). "(B) DETERMINATION OF ADJUSTED GROSS I N C O M E. — The

adjusted gross income of a n estate or t r u s t shall be computed in the s a m e m a n n e r as in the case of a n individual, except that the deductions for costs paid or incurred in connection with the administration of the estate or t r u s t shall be t r e a t e d as allowable in arriving a t adjusted gross income. "(7) LIMITATION ON MEDICAL DEDUCTION.—In a p p l y i n g s u b p a r -

a g r a p h (C) of paragraph (1), the a m o u n t allowable a s a deduction under section 213 shall be determined by substituting '10 percent' for '5 percent' in section 213(a). Post, p. 421. "(8) T R E A T M E N T OF INTERESTS I N LIMITED PARTNERSHIPS A N D SUBCHAPTER S CORPORATIONS.— "(A) CERTAIN INTEREST TREATED AS N O T ALLOWABLE I N

COMPUTING ADJUSTED GROSS INCOME.—Any a m o u n t allowable as a deduction for interest on indebtedness incurred or continued to purchase or c a r r y a limited business interest shall be t r e a t e d as not allowable in computing adjusted gross income. "(B) INCOME TREATED AS QUALIFIED INVESTMENT I N C O M E. —

Any income derived from a limited business interest shall be t r e a t e d as qualified investment income. "(C) LIMITED BUSINESS INTEREST.—The term 'limited busi-

ness interest' means a n interest—

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 96 STAT. 416

Post, pp. 509, Post, p. 585.

PUBLIC LAW 97-248—SEPT. 3, 1982 "(i) as a limited part n e r in a partnership, or "(ii) as a s h a r e h o l d e r in a n electing small business corporation (as defined in section 1371(b)) if the taxpayer does not actively participate in the m a n a g e m e n t of such corporation. "(t) OTHER DEFINITIONS.—For purposes of this section— "(1) EXEMPTION AMOUNT.—The term 'exemption a m o u n t ' means— "(A) $40,000 in the case of— "(i) a joint r e t u r n, or "(ii) a surviving spouse (as defined in section 2(a)), "(B) $30,000 in the case of a n individual who— "(i) is not a m a r r i e d individual (as defined in section 143), and "(ii) is not a surviving spouse (as so defined), and "(C) $20,000 in the case of— "(i) a m a r r i e d individual (as so defined) who files a s e p a r a t e r e t u r n, or "(ii) a n estate or t r u s t. "(2) REGULAR TAX.—The term 'regular tax ' means the taxes imposed by this chapter for the tax a b l e year (computed without regard to this section and without regard to the taxes imposed by sections 72(m)(5)(B), 72(q), 402(e), 408(f), 409(c), and 667(b)) reduced by the s u m of the credits allowable under subpart A of part IV of this subchapter (other than under sections 31, 39, and 43). For purposes of this paragraph, the a m o u n t of the credits allowable under such subpart shall be determined without regard to this section." (b) ITEMS OF T A X P R E F E R E N C E. —

26 USC 57.

(1) I^f GENERAL.—Subsection (a) of section 57 (relating to items of tax preference) is amended— (A) by striking out paragraph (1) and inserting in lieu thereof the following new paragraph: "(1)

EXCLUSION OF INTEREST AND DIVIDENDS.—Any

amount

excluded from gross income for the taxable year under section 116 or 128.", (B) by striking out paragraph s (5) and (6) and inserting in lieu thereof the following new paragraph s: "(5)

MINING

EXPLORATION

AND DEVELOPMENT

COSTS.—With

respect to each m i n e or other n a t u r a l deposit (other than a n oil or gas well) of the taxpayer, an a m o u n t equal to the excess of— "(A) the a m o u n t allowable as a deduction under section 616(a) or 617, over "(B) the a m o u n t which would h a v e been allowable if the expenditures had been capitalized and amortized r a t a b l y over the 10-year period beginning with the taxable year in which such expenditures were made. "(6) CIRCULATION AND RESEARCH AND EXPERIMENTAL EXPENDI-

TURES.—An a m o u n t equal to the excess of— "(A) the a m o u n t allowable as a deduction under section 173 or 174(a) for the taxable year, over "(B) the a m o u n t which would have been allowable for the taxable year if the circulation expenditures described in section 173 or the research and e x p e r i m e n t a l expenditures described in section 174 had been capitalized and amortized ratably over the 10-year period beginning with the taxable year in which such expenditures were made.", and

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(C) by striking out paragraph (10) and inserting in lieu thereof the following: "(10) INCENTIVE STOCK OPTIONS.—With respect to the transfer of a share of stock pursuant to the exercise of an incentive stock option (as defined in section 422A), the amount by which the fair market value of the share at the time of exercise exceeds the option price." (2) CONFORMING AMENDMENTS.—

(A) The next to last sentence of section 57(a) is amended 95 Stat. 224. by striking out "(3), (11), and (12)" and inserting in lieu ^6 USC 57. thereof "(1), (3), (5), (6), (11), and (12)(A)". (B) Section 57(a) is amended by striking out the last sentence. (c) OPTIONAL 10-YEAR WRITEOFF OF CERTAIN TAX PREFERENCES—

(1) Section 58 (relating to rules for application of minimum 26 USC 58. tax) is amended by adding at the end thereof the following new subsection: "(i) OPTIONAL 10-YEAR WRITEOFF OF CERTAIN TAX PREFERENCES.—

"(1) IN GENERAL.—For purposes of this title, in the case of an individual, any qualified expenditure to which an election under this paragraph applies shall be allowed as a deduction ratably over the 10-year period beginning with the taxable year in which such expenditure was made. "(2) QuAUFiED EXPENDITURE.—For purposes of this subsection, the term 'qualified expenditure' means any amount which, but for an election under this subsection, would have been allowable as a deduction for the taxable year in which paid or incurred under— "(A) section 173 (relating to circulation expenditures), "(B) section 174(a) (relating to research and experimental expenditures), "(C) section 263(c) (relating to intangible drilling and development expenditures), "(D) section 616(a) (relating to development expenditures), or "(E) section 617 (relating to deduction of certain mining exploration expenditures). "(3) OTHER SECTIONS NOT APPLICABLE.—Except as provided in

this subsection, no deduction shall be allowed under any other section for any qualified expenditure to which an election under this subsection applies. "(4) SPECIAL ELECTION FOR INTANGIBLE DRILLING A N D DEVELOPMENT COSTS NOT ALLOCABLE TO INTEREST AS LIMITED PARTNER.—

"(A) IN GENERAL.—In the case of any nonlimited partnership intangible drilling costs to which an election under this paragraph applies— "(i) the applicable percentage of such costs (adjusted as provided in section 48(q)) shall be allowed as a Post, p. 427. deduction for the taxable year in which paid or incurred and for each of the 4 succeeding taxable years, and "(ii) such costs shall be treated, for purposes of determining the amount of the credit allowable under section 38 for the taxable year in which paid or incurred, as qualified investment (within the meaning of subsections (c) and (d) of section 46) with respect to property placed in service during such year.

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 96 STAT. 418

PUBLIC LAW 97-248—SEPT. 3, 1982 "(B) APPLICABLE PERCENTAGE.—For purposes of subpara-

graph (A), the term 'applicable percentage' means the percentage determined in accordance with the following table: Applicable percentage: 15 22 21 21 21

"Taxable Year: 1 2 3 4 5 "(C)

NONLIMITED

PARTNERSHIP

INTANGIBLE DRILLING

COSTS.—For purposes of this paragraph, the term 'nonlimited partnership intangible drilling costs' means any qualified expenditure described in paragraph (2)(C) of an individual which is not allocable to such individual's interest as a limited partner in a limited partnership. "(5) ELECTION.—

"(A) IN GENERAL.—An election may be made under this subsection with respect to any qualified expenditure. "(B) REVOCABLE ONLY WITH CONSENT.—An election under this subsection with respect to any qualified expenditure may be revoked only with the consent of the Secretary. "(C) TIME AND MANNER.—An election under this subsection shall be made at such time and in such manner as the Secretary shall by regulations prescribe. "(D) PARTNERS.—In the case of a partnership, any election under this subsection shall be made separately by each partner with respect to the partner's allocable share of any qualified expenditure. "(6) DISPOSITIONS.— "(A) OIL, GAS, AND GEOTHERMAL PROPERTY.—In

the case of any disposition of any oil, gas, or geothermal property to which section 1254 applies (determined without regard to this section)— "(i) any deduction under paragraph (1) or (4)(A) with respect to costs which are allocable to such property shall, for purposes of section 1254, be treated as a deduction allowable under section 263(c), and "(ii) in the case of any credit allowable under section 38 by reason of paragraph (4)(B) which is allocable to such property, such disposition shall, for purposes of section 47, be treated as a disposition of section 38 recovery property which is not 3-year property. "(B) APPLICATION OF SECTION 617(d).—In the case of any disposition of mining property to which section 617(d) applies (determined without regard to this subsection), any amount allowable as a deduction under paragraph (1) which is allocable to such property shall, for purposes of section 617(d), be treated as a deduction allowable under section 617(a).

"(7) AMOUNTS TO WHICH ELECTION APPLY NOT TREATED AS TAX

95 Stat. 239. 26 USC 1016.

PREFERENCE.—Any qualified expenditure to which an election under paragraph (1) or (4) applies shall not be treated as an item of tax preference under section 57(a)." (2) Subsection (a) of section 1016 (relating to adjustments to basis) is amended by striking out "and" at the end of paragraph (23), by striking out the period at the end of paragraph (24) and

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96 STAT. 419

inserting in lieu thereof ", and", and by adding at the end thereof the following new paragraph: "(25) for amounts allowed as deductions under section 58(i) (relating to optional 10-year writeoff of certain tax preferences)." (c) CONFORMING AMENDMENTS.—

(1) Section 56 (relating to corporate minimum tax) is 26 USC 56. amended— (A) by striking out "person" each place it appears and inserting in lieu thereof "corporation", (B) by striking out "one-half (or in the case of a corporation, an amount equal to)" in subsection (c), (C) by striking out "sections 72(m)(5)(B), 402(e), 408(f), 531, and 541" in subsection (c) and inserting in lieu thereof "sections 531 and 541" (D) by striking out "31, 39, 43, and 440" in subsection (c) 95 Stat. 293. and inserting in lieu thereof "39 and 44G", and (E) by striking out the section heading and inserting in lieu thereof the following: "SEC. 56. CORPORATE MINIMUM TAX."

(2) The table of sections for part IV of subchapter A of chapter 1 is amended by striking out the item relating to section 56 and inserting in lieu thereof the following: "Sec. 56. Corporate minimum tax."

(3) Section 58 (relating to rules for application of minimum taxes) is amended— (A) by striking out subsection (a), (B) by striking out subsection (c) and inserting in lieu thereof the following: "(c) ESTATES AND TRUSTS.—In the case of an estate or trust, the items of tax preference for any taxable year shall be apportioned between the estate or trust and the beneficiaries in accordance with regulations prescribed by the Secretary.", and (C) in subsection (g)— (i) by striking out "paragraphs (6) and" in paragraph (1) and inserting in lieu thereof "paragraph", and (ii) by striking out so much of paragraph (2) as precedes the last two sentences thereof and inserting in lieu thereof the following: "(2) CAPITAL GAINS.—For purposes of section 56, the items of tax preference set forth in section 57(a)(9) which are attributable to sources within any foreign country or possession of the United States shall not be taken into account if preferential treatment is not accorded gain from the sale or exchange of capital assets (or property treated as capital assets)." (4) Section 5(a)(4) is amended by striking out "sections 55 and 56" and inserting in lieu thereof "section 55". (5) Section 511(d)(2) is amended by striking out "and section 56 (as the case may be)". (6) Subparagraph (A) of section 897(a)(2) (relating to 20-percent minimum tax on nonresident alien individuals) is amended to read as follows: "(A) IN GENERAL.—In the case of any nonresident alien individual, the amount determined under section 55(a)(l)

26 USC 58.

26 USC 5. 26 USC 511. 26 USC 897.

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 96 STAT. 420

26 USC 6015, 6362, 6654. 26 USC 46, 53, ^^^26 USC 936. 26 USC 173.

PUBLIC LAW 97-248—SEPT. 3, 1982 for the taxable year shall not be less than 20 percent of the lesser of— "(i) the individual's alternative minimum taxable income (as defined in section 550))) for the taxable year, or "(ii) the individual's net United States real property gain for the taxable year." (7) Sections 6015(d)(l), 6362(b)(2)(A), and 6654(g)(l) are each amended by striking out "or 56". (8)(A) Sections 46(a)(4), 53(a), and 901(a) are each amended by striking out "(relating to minimum tax for tax preferences)" and inserting in lieu thereof "(relating to corporate minimum tax)". (B) Subparagraph (A) of section 936(a)(3) is amended by striking out "(relating to minimum tax)" and inserting in lieu thereof "(relating to corporate minimum tax)". (9)(A) Section 173 (relating to circulation expenditures) is amended— (i) by striking out "Notwithstanding section 263" and inserting in lieu thereof "(a) GENERAL RULE.—Notwithstanding section 263", and

(ii) by adding at the end thereof the following new subsection: "(b) CROSS REFERENCE.— "For election of 10-year amortization of expenditures allowable as a deduction under subsection (a), see section 58(i)."

26 USC 174.

(B) Subsection (e) of section 174 (relating to research and experimental expenditures) is amended— (i) by striking out "For adjustments" and inserting in lieu thereof "(1) For adjustments",

(ii) by adding at the end thereof the following new paragraph: "(2) For election of 10-year amortization of expenditures allowable as a deduction under subsection (a), see section 58(i).",

and (iii) by striking out "CROSS REFERENCE" and inserting in

26 USC 616.

lieu thereof "CROSS REFERENCES". (C) Section 616 (relating to development expenditures) is amended by adding at the end thereof the following new subsection: "(d) CROSS REFERENCE.— "For election of 10-year amortization of expenditures allowable as a deduction under subsection (a), see section 58(i)."

26 USC 617.

(D) Section 617 (relating to deduction of certain mining exploration expenditures) is amended by adding at the end thereof the following new subsection: "(j) CROSS REFERENCE.—

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"For election of 10-year amortization of expenditures allowable as a deduction under this section, see section 58(i)."

(10) Subsection (a) of section 7701 (relating to definitions) is 26 USC 7701. amended by adding at the end thereof the following new paragraph: "(38) JOINT RETURN.—The term 'joint return' means a single return made jointly under section 6013 by a husband and wife." (e) EFFECTIVE DATE.—

(1) IN GENERAL.—The amendments made by this section shall 26 USC 55 note. apply to taxable years beginning after December 31, 1982. (2) SPECIAL RULE FOR PRE-1983 SECTION 56 (b) TAX DEFERRALS.— 26 USC 56 note. The amendments made by subsection (c)(1) of this section to section 56(b) of the Internal Revenue Code of 1954 shall not apply to any net operating loss carryover from any taxable year beginning before January 1, 1983, which is attributable to any excess described in section 56(b)(1)(B) of such Code for such taxable year. SEC. 202. LIMITATION ON MEDICAL DEDUCTION.

(a) GENERAL RULE.—Subsection (a) of section 213 (relating to 26 USC 213. deduction for medical, dental, etc., expenses) is amended to read as follows: "(a) ALLOWANCE OF DEDUCTION.—There shall be allowed as a deduction the expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, his spouse, or a dependent (as defined in section 152), to the extent that such expenses exceed 5 percent of adjusted gross income." (b) TREATMENT OF MEDICINE AND DRUGS.—

(1) IN GENERAL.—Subsection (b) of section 213 (relating to limitation with respect to medicine and drugs) is amended to read as follows: "(b) LIMITATION WITH RESPECT TO MEDICINE AND DRUGS.—An

amount paid during the taxable year for medicine or a drug shall be taken into account under subsection (a) only if such medicine or drug is a prescribed drug or is insulin." (2) DEFINITION OF PRESCRIBED DRUG.—Subsection (e) of section

213 is amended by inserting after paragraph (1) the following new paragraphs: "(2) PRESCRIBED DRUG.—The term 'prescribed drug' means a drug or biological which requires a prescription of a physician for its use by an individual. "(3) PHYSICIAN.—The term 'physician' has the itieaning given to such term by section 1861(r) of the Social Security Act (42 U.S.C. 1395x(r))." (3) CONFORMING AMENDMENTS.—

(A) Subsection (e) of section 213 (as in effect before the amendment made by paragraph (2)) is amended by redesignating paragraphs (2), (3), and (4) as paragraphs (4), (5), and (6), respectively. (B) Subsections (d), (e), and (f) of section 213 are redesignated as subsections (c), (d), and (e), respectively. (C) Subsection (b) of section 105 is amended by striking 26 USC 105. out "section 213(e)" and inserting in lieu thereof "section 213(d)". (c) EFFECTIVE DATES.— 26 USC 213 note.

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 96 STAT. 422

PUBLIC LAW 97-248—SEPT. 3, 1982 (1) SUBSECTION (a).—The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1982. (2) SUBSECTION (b).—The amendments made by subsection (b) shall apply to taxable years beginning after December 31, 1983.

26 USC 165.

SEC. 203. LIMITATION ON DEDUCTION FOR NONBUSINESS CASUALTY LOSSES. (a) GENERAL RULE.—Section 165 (relating to losses) is amended by striking out subsection (h), by redesignating subsection (i) as subsection (j). and by inserting after subsection (g) the following new subsections: "(h) CASUALTY AND THEFT LOSSES.— "(1) GENERAL RULE.—Any loss of an individual described in

subsection (c)(3) shall be allowed for any taxable year only to the extent that— "(A) the amount of loss to such individual arising from each casualty, or from each theft, exceeds $100, and "(B) the aggregate amount of all such losses sustained by such individual during the taxable year (determined after application of subparagraph (A)) exceeds 10 percent of the adjusted gross income of the individual. "(2) SPECIAL RULES.—

"(A) JOINT RETURNS.—For purposes of the $100 and 10

percent limitations described in paragraph (1), a husband and wife making a joint return for the taxable year shall be treated as one individual. "(B) COORDINATION WITH ESTATE TAX.—No loss described in subsection (c)(3) shall be allowed if, at the time of filing the return, such loss has been claimed for estate tax purposes in the estate tax return. "(i) DISASTER LOSSES.— "(1) ELECTION TO TAKE DEDUCTION FOR PRECEDING YEAR.—

Notwithstanding the provisions of subsection (a), any loss attributable to a disaster occurring in an area subsequently determined by the President of the United States to warrant assistance by the Federal Government under the Disaster Relief Act of 1974 may, at the election of the taxpayer, be taken into account for the taxable year immediately preceding the taxable year in which the disaster occurred. "(2) YEAR OF LOSS.—If an election is made under this subsection, the casualty resulting in the loss shall be treated for purposes of this title as having occurred in the taxable year for which the deduction is claimed. "(3) AMOUNT OF LOSS.—The amount of the loss taken into account in the preceding taxable year by reason of paragraph (1) shall not exceed the uncompensated amount determined on the basis of the facts existing at the date the taxpayer claims the (b) CONFORMING AMENDMENT.—Subsection (c) of section 165 (relating to limitation on losses of individuals) is amended— (1) by inserting "except as provided in subsection (h)," before "losses" the first place it appears in paragraph (3) thereof, and (2) by striking out the last three sentences. 26 USC 165 note. (c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 1982. Such amendments shall also apply to the taxpayer's last taxable year beginning before January 1, 1983, solely for purposes of determining

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the amount allowable as a deduction with respect to any loss taken into account for such year by reason of an election under section 165(i) of the Internal Revenue Code of 1954 (as amended by this section).

Subtitle B—Provisions Primarily Relating to Business PART I—REDUCTION IN CERTAIN DEDUCTIONS AND CREDITS SEC. 204. 15 PERCENT REDUCTION IN CERTAIN CORPORATE PREFERENCE ITEMS.

(a) IN GENERAL.—Subchapter B of chapter 1 (relating to computation of taxable income) is amended by adding at the end thereof the following new part: "PART XI—SPECIAL RULES RELATING TO CORPORATE PREFERENCE ITEMS "Sec. 291. Special rules relating to corporate preference items. "SEC. 291. SPECIAL RULES RELATING TO CORPORATE PREFERENCE ITEMS. "(a) 15-PERCENT REDUCTION IN CERTAIN PREFERENCE ITEMS, ETC.—

For purposes of this subtitle, in the case of an applicable corporation— "(1) SECTION 1250 CAPITAL GAIN TREATMENT.—In the case of section 1250 property which is disposed of during the taxable year, 15 percent of the excess (if any) of— "(A) the amount which would be treated as ordinary income if such property was section 1245 property or section 1245 recovery property, over "(B) the amount treated as ordinary income under section 1250, shall be treated as gain which is ordinary income and shall be recognized notwithstanding any other provision of this title. "(2) REDUCTION IN PERCENTAGE DEPLETION.—In the case of iron ore and coal (including lignite), the amount allowable as a deduction under section 613 with respect to any property (as defined in section 614) shall be reduced by 15 percent of the amount of the excess (if any) of— "(A) the amount of the deduction allowable under section 613 for the taxable year (determined without regard to this paragraph), over "(B) the adjusted basis of the property at the close of the taxable year (determined without regard to the depletion deduction for the taxable year). "(3) CERTAIN FINANCIAL INSTITUTION PREFERENCE ITEMS.—The

amount allowable as a deduction under this chapter (determined without regard to this section) with respect to any financial institution preference item shall be reduced by 15 percent. "(4) CERTAIN DEFERRED DISC INCOME.—If an applicable corporation is a shareholder of a DISC, in the case of taxable years beginning after December 31, 1982, section 995(b)(l)(F)(i) shall be

26 USC 291.

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PUBLIC LAW 97-248—SEPT. 3, 1982 applied with respect to such corporation by substituting '57.5 percent' for 'one-half. "(5) AMORTIZATION OF POLLUTION CONTROL FACILITIES.—If an

26 USC 169.

election is made under section 169 with respect to any certified pollution control facility, the amortizable basis of such facility for purposes of such section shall be reduced by 15 percent. "(b) SPECIAL RULES FOR TREATMENT OF INTANGIBLE DRILLING COSTS AND MINERAL EXPLORATION AND DEVELOPMENT COSTS.—For pur-

poses of this subtitle, in the case of an applicable corporation— "(1) IN GENERAL.—The amount allowable as a deduction for any taxable year (determined without regard to this section)— "(A) under section 263(c) in the case of an integrated oil company, or "(B) under section 616(a) or 617, shall be reduced by 15 percent. "(2) Special rule for amounts not allowable as deductions under paragraph (1).— "(A) INTANGIBLE DRILLING COSTS.—The amount not allowable as a deduction under section 263(c) for any taxable year by reason of paragraph (1) shall be allowable as a deduction ratably over the 36-month period beginning with the month in which the costs are paid or incurred. "(B) MINERAL EXPLORATION AND DEVELOPMENT COSTS.—In

the case of any amount not allowable as a deduction under section 616(a) or 617 for any taxable year by reason of paragraph (1)— "(i) the applicable percentage of the amount not so allowable as a deduction shall be allowable as a deduction for the taxable year in which the costs are paid or incurred and in each of the 4 succeeding taxable years, and "(ii) such costs shall be treated, for purposes of determining the amount of the credit allowable under section 38 for the taxable year in which paid or incurred, as qualified investment (within the meaning of subsections (c) and (d) of section 46) with respect to property placed in service during such year. "(3) APPLICABLE PERCENTAGE.—For purposes of paragraph

(2)(B), the term 'applicable percentage' means the percentage determined in accordance with the following table: "Taxable Year: 1 2 3 4 5 "(4) DISPOSITIONS.— "(A) OIL, GAS, AND GEOTHERMAL PROPERTY.—In

Applicable Percentage: 15 22 21 21 21.

the case of any disposition of any oil, gas, or geothermal property to which section 1254 applies (determined without regard to this section) any deduction under paragraph (2)(A) with respect to intangible drilling and development costs under section 263(c) which are allocable to such property shall, for purposes of section 1254, be treated as a deduction allowable under section 263(c).

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"(B) APPLICATION O F SECTION 617(d).—In the case of any

disposition of mining property to which section 617(d) applies (determined without regard to this section), any a m o u n t allowable as a deduction under paragraph (2)(B) which is allocable to such property shall, for purposes of section 617(d), be t r e a t e d a s a deduction allowable under section 617(a).

26 USC 617.

"(C) RECAPTURE O F INVESTMENT CREDIT.—In the case of

any disposition of any property to which the credit allowable under section 38 by reason of paragraph (2)(B) is allocable, such disposition shall, for purposes of section 47, be t r e a t e d a s a disposition of section 38 recovery property which is not 3-year property. "(5) INTEGRATED OIL COMPANY D E F I N E D. — For purposes of t h i s

subsection, the term 'integrated oil company' means, with respect to any taxable year, any producer (within the m e a n i n g of section 4996(a)(1)) of crude oil other than a n independent producer (within the m e a n i n g of section 4992(b)). "(6) COORDINATION WITH COST DEPLETION.—The p o r t i o n of the

adjusted basis of any property which is a t t r i b u t a b l e to intangible drilling and development costs or mining exploration and development costs shall not be t a k e n into account for purposes of determining depletion under section 611. "(c) SPECIAL RULES R E L A T I N G TO P O L L U T I O N CONTROL FACILITIES.—

For purposes of this subtitle— "(1) ACCELERATED COST RECOVERY DEDUCTION.—For purposes of

subclause (I) of section 168(d)(l)(A)(ii), a tax p a y e r shall not be 95 Stat. 204. t r e a t e d as electing the amortization deduction under section 169 with respect to that portion of the basis not t a k e n into account under section 169 by reason of subsection (a)(5). "(2) 1250 RECAPTURE.—Subsection (a)(1) shall not apply to any section 1250 property which is part of a certified pollution control facility (within the m e a n i n g of section 169(d)(1)) with respect to which a n election under section 169 was made. "(d) SPECIAL RULE FOR R E A L ESTATE INVESTMENT T R U S T S. — I n the

case of a real estate investment t r u s t (as defined in section 856), the difference between the a m o u n t s described in subparagraph s (A) and (B) of subsection (a)(1) shall be reduced to the e x t e n t that a capital gain dividend (as defined in section 857(b)(3)(C), applied without regard to this section) is t r e a t e d a s paid o u t of such difference. Any capital gain dividend t r e a t e d as having been paid o u t of such difference to a shareholder which is a n applicable corporation retains its c h a r a c t e r in the h and s of the shareholder a s gain from the disposition of section 1250 property for purposes of applying subsection (a)(1) to such shareholder. "(e) DEFINITIONS.—For purposes of this section— "(1)

FINANCIAL

INSTITUTION PREFERENCE I T E M. — The

term

'financial institution preference item' includes the following: "(A) EXCESS RESERVES FOR LOSSES O N BAD DEBTS O F FINANCIAL

INSTITUTIONS.—In the case of a financial institution to which section 585 or 593 applies, the excess of— "(i) the a m o u n t which would, b u t for this section, be allowable as a deduction for the taxable year for a reasonable addition to a reserve for bad debts, over "(ii) the a m o u n t which would have been allowable h a d such institution m a i n t a i n e d its b a d debt reserve for all taxable years on the basis of actual experience.

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 96 STAT. 426

PUBLIC LAW 97-248—SEPT. 3, 1982 "(B) INTEREST ON DEBT TO CARRY TAX-EXEMPT OBLIGATIONS ACQUIRED AFTER DECEMBER 31, 1982.—

"(i) IN GENERAL.—In the case of a financial institution to which section 585 or 593 applies, the amount of interest on indebtedness incurred or continued to purchase or carry obligations acquired after December 31, 1982, the interest on which is exempt from taxes for the taxable year, to the extent that a deduction would (but for this paragraph) be allowable with respect to such interest for such taxable year. "(ii) DETERMINATION OF INTEREST ALLOCABLE TO INDEBTEDNESS ON TAX-EXEMPT OBLIGATIONS.—UnleSS the

95 Stat. 222. 9 TT^r ^7^^' R

26 UbC 57.

taxpayer (under regulations prescribed by the Secretary) establishes otherwise, the amount determined under clause (i) shall be an amount which bears the same ratio to the aggregate amount allowable (determined without regard to this section) to the taxpayer as a deduction for interest for the taxable year as— "(I) the taxpayer's average adjusted basis (within the meaning of section 1016) of obligations described in clause (i), bears to "(II) such average adjusted basis for all assets of the taxpayer. "(2) APPLICABLE CORPORATION.—For purposes of this section, the term 'applicable corporation' means any corporation other than an electing small business corporation (as defined in section 1371(b)). "(3) SECTION 1245 AND 1250 PROPERTY.—The terms 'section 1245 property', 'section 1245 recovery property', and 'section 1250 property' have the meanings given such terms by sections 1245(a)(3), 1245(a)(5), and 1250(c), respectively." ^^^ COORDINATION WITH MINIMUM TAX.—Section 57(b) (relating to

adjusted itemized deductions) is amended to read as follows: "(b) APPLICATION WITH SECTION 291.—

Ante, p. 423.

"(1) IN GENERAL.—In the case of any item of tax preference of an applicable corporation described in— "(A) paragraph (4) or (7) of subsection (a), or "(B) paragraph (8) of subsection (a) (but only to the extent such item is allocable to a deduction for depletion for iron ore and coal (including lignite)), only 71.6 percent of the amount of such item of tax preference (determined without regard to this subsection) shall be taken into account as an item of tax preference. "(2) CERTAIN CAPITAL GAINS.—In determining the net capital gain of any applicable corporation for purposes of paragraph (9)(B) of subsection (a), there shall be taken into account only 71.6 percent of any gain from the sale or exchange of section 1250 property which is equal to 85 percent of the excess determined under section 291(a)(1) with respect to such property. "(3) APPLICABLE CORPORATION DEFINED.—For purposes of this subsection, the term 'applicable corporation' has the meaning given such term by section 291(e)(2)." (c) CONFORMING AMENDMENTS.—

26 USC 263.

(1) Subsection (c) of section 263 (relating to intangible drilling and development costs) is amended by adding at the end thereof the following new sentence: "This subsection shall not apply

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96 STAT. 427

with respect to any costs to which any deduction is allowed under section 58(i) or 291." (2) The table of part s for subchapter B of chapter 1 is amended by adding a t the e n d thereof the following:

Ante, pp. 417, 423.

"Part XI. Special rules relating to corporate preference items." (d) EFFECTIVE D A T E S. —

26 USC 291 note.

(1) IN GENERAL.—Except as provided in this subsection, the amendments m a d e by this section shall apply to taxable years beginning after December 31, 1982. (2) 1250 GAIN.—Section 291(a)(1) of the I n t e r n a l Revenue Code Ante, p. 423. of 1954 shall apply to sales or other dispositions after December 31, 1982, in taxable years ending after such date. (3) POLLUTION CONTROL FACILITIES.—Section 291(a)(5) of such

Code shall apply to property placed in service after December 31, 1982, in tax a b l e years ending after such date. (4) DRILLING AND M I N I N G COSTS.—Section 291(b) of such Code

shall apply to expenditures after December 31, 1982, in taxable years ending after such date. (5) REDUCTION I N PERCENTAGE DEPLETION FOR COAL AND IRON

ORE.—Section 291(a)(2) of such Code shall apply to taxable years beginning after December 31, 1983. (6) MINIMUM TAX.—The amendment m a d e by subsection (b) shall apply to tax a b l e year s ending after December 31, 1982, with respect to items of tax preference described in section 57(b) Ante, p. 426. of such Code to which section 291 of such Code applies; except that in the case of a n item described in section 291(a)(2) of such Code, such amendment shall apply to taxable year s beginning after December 31, 1983. SEC. 205. AMENDMENTS TO INVESTMENT CREDIT. (a) BASIS ADJUSTMENT TO REFLECT INVESTMENT T A X C R E D I T. —

(1) IN GENERAL.—Section 48 (relating to definitions and special rules involving section 38 property) is amended by redesignating subsection (q) a s subsection (r) and by inserting after subsection (p) the following new subsection:

26 USC 48.

"(q) BASIS ADJUSTMENT TO SECTION 38 PROPERTY. —

"(1) IN GENERAL.—For purposes of this subtitle, if a credit is determined under section 46(a)(2) with respect to section 38 property, the basis of such property shall be reduced by 50 percent of the a m o u n t of the credit so determined. "(2) CERTAIN DISPOSITIONS.—If during any taxable year the r e is a r e c a p t u r e a m o u n t determined with respect to any section 38 property the basis of which w a s reduced under paragraph (1), the basis of such property (immediately before the event resulting in such recapture) shall be increased by a n a m o u n t equal to 50 percent of such r e c a p t u r e a m o u n t. For purposes of the "Recapture preceding sentence, the term ' r e c a p t u r e a m o u n t ' means any amounts." increase in tax (or adjustment in c a r r y b a c k s or carryovers) determined under section 47. "(3) SPECIAL RULE FOR QUALIFIED REHABILITATED BUILDINGS.—

In the case of any credit determined under section 46(a)(2) for any qualified rehabilitation expenditure in connection w i t h a qualified r e h a b i l i t a t e d building other than a certified historic s t r u c t u r e, paragraph s (1) and (2) shall be applied w i t h o u t r e g a r d to the p h r a s e '50 p e r c e n t of.

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 96 STAT. 428

PUBLIC LAW 97-248—SEPT. 3, 1982 "(4) ELECTION OF REDUCED CREDIT I N LIEU OF BASIS ADJUSTMENT FOR REGULAR PERCENTAGE.—

26 USC 46.

"(A) IN GENERAL.—If the tax p a y e r elects to h a v e t h i s paragraph apply with respect to any recovery property— "(i) paragraph s (1) and (2) shall not apply to so m u c h of the credit determined under section 46(a)(2) with respect to such property as is a t t r i b u t a b l e to the regular percentage set forth in section 46(a)(2)(B); and "(ii) the a m o u n t of the credit allowable under section 38 with respect to such property shall be determined under subparagraph (B). "(B) REDUCTION I N CREDIT.—In the case of any recovery

95 Stat. 204.

property to which a n election under subparagraph (A) applies— "(i) solely for the purposes of applying the regular percentage, the applicable percentage under subsection (c) or (d) of section 46 shall be deemed to be 100 percent, and "(ii) notwithstanding section 46(a)(2)(B), the regular percentage shall be— "(I) 8 percent in the case of recovery property other than 3-year property, or "(II) 4 percent in the case of recovery property which is 3-year property. For purposes of the preceding sentence, RRB r e p l a c e m e n t property (within the m e a n i n g of section 168(f)(3)(B)) shall be t r e a t e d as property which is not 3-year property. "(C) T I M E AND M A N N E R OF M A K I N G ELECTION.—

"(i) IN GENERAL.—An election under this subsection with respect to any property shall be m a d e on the tax p a y e r ' s r e t u r n of the tax imposed by this chapter for the tax p a y e r ' s taxable year in which such property is placed in service (or in the case of property to which a n election under section 46(d) applies, for the first taxable year for which qualified progress expenditures were t a k e n into account with respect to such property). "(ii) REVOCABLE ONLY WITH C O N S E N T. — A n

election

under t h i s subsection with respect to any property, once made, may be revoked only with the consent of the Secretary. "(5) RECAPTURE OF REDUCTIONS.—

"(A) IN GENERAL.—For purposes of sections 1245 and 1250, any reduction under this subsection shall be t r e a t e d as a deduction allowed for depreciation. "(B) SPECIAL RULE FOR SECTION 1 2 5 0. — For purposes of

section 1250(b), the determination of w h a t would have been the depreciation adjustments under the s t r a i g h t line method shall be m a d e a s if the r e h a d been no reduction under this section." (2) A L L O W A N C E O F DEDUCTION FOR CERTAIN U N U S E D INVEST-

MENT CREDITS.—Part VI of subchapter B of chapter 1 (relating to itemized deductions for individuals and corporations) is amended by adding a t the end thereof the following new section: 26 USC 196.

"SEC. 196. DEDUCTION FOR CERTAIN UNUSED INVESTMENT CREDITS. "(a) A L L O W A N C E OF DEDUCTIONS.—If—

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96 STAT. 429

"(1) the amount of the credit determined under section 46(a)(2) for any taxable year exceeds the limitation provided by 26 USC 46. section 46(a)(3) for such taxable year, and "(2) the amount of such excess has not, after the application of section 46(b), been allowed to the taxpayer as a credit under section 38 for any taxable year, then an amount equal to 50 percent of the amount of such excess (to the extent attributable to property the basis of which is reduced under section 48(q)) not so allowed as a credit shall be allowed to the Ante, p. 427. taxpayer as a deduction for the first taxable year following the last taxable year in which such excess could under section 46(b) have been allowed as a credit. "(b) TAXPAYERS DYING OR CEASING TO EXIST.—If a taxpayer dies or ceases to exist prior to the first taxable year following the last taxable year in which the excess described in subsection (a) could under section 46(b) have been allowed as a credit, the amount described in subsection (a), or the proper portion thereof, shall, under regulations prescribed by the Secretary, be allowed to the taxpayer as a deduction for the taxable year in which such death or cessation occurs. "(c) SPECIAL RULE FOR QUALIFIED REHABILITATED BUILDINGS.—In

the case of any credit to which section 48(q)(3) applies, subsection (a) shall be applied without regard to the phrase '50 percent of." (3) BASIS ADJUSTMENT NOT TAKEN INTO ACCOUNT FOR PURPOSES OF EARNINGS AND PROFITS.—Section 312(k) (relating to effect of

26 USC 312.

depreciation on earnings and profits) is amended by adding at the end thereof the following new paragraph: "(5) BASIS ADJUSTMENT NOT TAKEN INTO ACCOUNT.—In comput-

ing the earnings and profits of a corporation for any taxable year, the allowance for depreciation (and amortization, if any) shall be computed without regard to any basis adjustment under section 48(q)." (4) SPECIAL RULES FOR CERTAIN LEASED PROPERTY.—Section

48(d) (relating to certain leased property) is amended by adding 26 USC 48. at the end thereof the following new paragraph: "(5) COORDINATION WITH BASIS ADJUSTMENT.—In the case of any property with respect to which an election is made under this subsection— "(A) subsection (q) (other than paragraph (4)) shall not apply with respect to such property, "(B) the lessee of such property shall include ratably in gross income over the shortest recovery period which could be applicable under section 168 with respect to such property an amount equal to 50 percent of the amount of the credit allowable under section 38 to the lessee with respect to such property, and "(C) in the case of a disposition of such property to which section 47 applies, this paragraph shall be applied in accordance with regulations prescribed by the Secretary." (5) CONFORMING AMENDMENTS.—

(A) Section 48(g) (relating to special rules for qualified rehabilitated buildings) is amended by striking out paragraph (5). (B) Paragraph (24) of section 1016(a) (relating to adjust- 95 Stat. 239. ments to basis) is amended by striking out "section 48(g)(5)" and inserting in lieu thereof "section 48(q)"

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 96 STAT. 430

PUBLIC LAW 97-248—SEPT. 3, 1982 (C) The table of sections for part VI of subchapter B of chapter 1 is amended by adding at the end thereof the following new item: "Sec. 196. Deduction for certain unused investment credits." (b) INVESTMENT CREDIT LIMITED TO 85 PERCENT OF TAX LIABILITY INSTEAD OF 90 PERCENT.—

26 USC 46.

(1) IN GENERAL.—Subparagraph (B) of section 46(a)(3) (relating to limitation based on amount of tax) is amended to read as follows: "(B) 85 percent of so much of the liability for tax for the taxable year as exceeds $25,000." (2) TECHNICAL AMENDMENTS.—

(A) Subsection (a) of section 46 is amended by striking out paragraphs (7) and (8) and by redesignating paragraph (9) as paragraph (7). (B) Clause (i) of section 46(a)(7)(B), as redesignated by subparagraph (A), is amended to read as follows: "(i) paragraph (3)(B) shall be applied by substituting '100 percent' for '85 percent', and". (C) Subparagraph (B) of section 46(a)(7), as redesignated by subparagraph (A), is amended by striking clause (ii) and by redesignating clause (iii) as clause (ii). 26 USC 196 note.

Post, p. 442.

(c) EFFECTIVE DATES.— (1) SUBSECTION (a). — (A) GENERAL RULE.—Except as otherwise provided in this

paragraph, the amendments made by subsection (a) shall apply to periods after December 31, 1982, under rules similar to the rules of section 48(m) of the Internal Revenue Code of 1954. (B) EXCEPTION.—The amendments made by subsection (a) shall not apply to any property which— (i) is constructed, reconstructed, erected, or acquired pursuant to a contract which was entered into after August 13, 1981, and was, on July 1, 1982, and at all times thereafter, binding on the taxpayer, (ii) is placed in service after December 31, 1982, and before January 1, 1986, (iii) with respect to which an election under section 168(f)(8)(A) of such Code is not in effect at any time, and (iv) is not described in section 167(1)(3)(A) of such Code. (C) SPECIAL RULE FOR INTEGRATED MANUFACTURING FACILITIES.—

(i) IN GENERAL.—In the case of any integrated manufacturing facility, the requirements of clause (i) of subparagraph (B) shall be treated as met if— (I) the on-site construction of the facility began before July 1, 1982, and (II) during the period beginning after August 13, 1981, and ending on July 1, 1982, the taxpayer constructed (or entered into binding contracts for the construction of) more than 20 percent of the cost of such facility.

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96 STAT. 431

(ii) INTEGRATED MANUFACTURING FACILITY.—For purposes of clause (i), the term 'integrated manufacturing facility' means 1 or more facilities— (I) located on a single site, (II) for the manufacture of 1 or more manufactured products from raw materials by the application of 2 or more integrated manufacturing processes. (D) SPECIAL RULE FOR HISTORIC STRUCTURES.—In the case of any certified historic structure (as defined in section 48(g)(3) of the Internal Revenue Code of 1954), clause (i) of 26 USC 48. subparagraph (B) shall be applied by substituting "December 31, 1980" for "August 13, 1981." (E) CERTAIN PROJECTS WITH RESPECT TO HISTORIC STRUC-

TURES.—In the case of any certified historic structure (as so defined), the requirements of clause (i) of subparagraph (B) shall be treated as met with respect to such property— (i) if the rehabilitation begins after December 31, 1980, and before July 1, 1982, or (ii) i f (I) before July 1, 1982, a public offering with respect to interests in such property was registered with the Securities and Exchange Commission, (II) before such date an application with respect to such property was filed under section 8 of the United States Housing Act of 1937, and 42 USC 1437f, (III) such property is placed in service before July 1, 1984. (2) SUBSECTION (b).—The amendments made by subsection (b) 26 USC 46 note, shall apply to taxable years beginning after December 31, 1982. SEC. 206. REPEAL OF 1985 AND 1986 INCREASES IN ACCELERATED COST RECOVERY DEDUCTIONS.

(a) IN GENERAL.—Paragraph (1) of section 168(b) (relating to amount of accelerated cost recovery deduction) is amended— (1) by striking out "tables" and inserting in lieu thereof "table"; (2) by striking out:

95 Stat. 204.

"(A) FOR PROPERTY PLACED IN SERVICE AFTER DECEMBER 31, 1980, AND BEFORE JANUARY 1, 1985.—"; and

(3) by striking out subparagraphs (B) and (C). (b) CONFORMING AMENDMENTS.—Paragraph (4) of section 168(e) (relating to property excluded from application of section) is amended— (1) by striking out subparagraph (H); and (2) by striking out "1986" in the heading thereof and inserting in lieu thereof "i98i". SEC. 207. SECTION 189 MADE APPLICABLE TO CERTAIN CORPORATIONS FOR NONRESIDENTIAL REAL PROPERTY,

(a) IN GENERAL.—Subsection (a) of section 189 is amended to read 26 USC 189. as follows: "(a)

CAPITALIZATION OF CONSTRUCTION PERIOD INTEREST AND

TAXES.—Except as otherwise provided in this section or in section 266 (relating to carrying charges), no deduction shall be allowed for real property construction period interest and taxes."

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Page:United States Statutes at Large Volume 96 Part 1.djvu/474

 96 STAT. 432 95 Stat. 264.

26 USC 189.

PUBLIC LAW 97-248—SEPT. 3, 1982 (b) EXCLUSION OF CERTAIN PROPERTY.—Subsection (d) of section 189 (relating to certain property excluded) is amended— (1) by striking out "or" a t the end of paragraph (1), (2) by redesignating paragraph (2) as paragraph (3), and (3) by inserting after paragraph (1) the following new paragraph: "(2) residential real property (other than low income housing) acquired, constructed, or carried by a corporation other than a n electing small business corporation (within the m e a n i n g of section 1371(b)), a personal holding company (within the m e a n i n g of section 542), or a foreign personal holding company (within the m e a n i n g of section 552), or". (c) ALLOCATION

OF I N T E R E S T. — Paragraph

(1) of section

189(e)

(relating to construction period interest and taxes) is amended by adding a t the end thereof the following sentence: " The Secretary shall prescribe regulations which provide for the allocation of interest to real property under construction." (d) CONFORMING

AMENDMENT. — Paragraph (1) of section

189(e)

(relating to construction period interest and taxes) is amended— (1) by striking o u t "construction period interest and tax e s " and inserting in lieu thereof "real property construction period interest and taxes", and (2) by striking o u t the caption thereof and inserting in lieu thereof: 26 USC 189 note.

"(1) R E A L PROPERTY TAXES.—". (e) EFFECTIVE D A T E. —

CONSTRUCTION

PERIOD

INTEREST AND

(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 1982, with respect to construction which commences after such date. (2) CERTAIN PLANNED CONSTRUCTION.—The amendments m a d e

by this section shall not apply with respect to construction of property which is used in a trade or business described in section 48(a)(3)(B) of the I n t e r n a l Revenue Code of 1954 or which is a hospital or n u r s i n g home if— (A) such construction is conducted pursuant to a written plan of the tax p a y e r which was in existence on July 1, 1982, and as to which approval from a government a l unit has been requested in writing, and (B) such construction commences before January 1, 1984, and shall not apply to the Alaska N a t u r a l G a s Transportation System (15 U.S.C. 719) and its related facilities. P A R T II—LEASING SEC. 208. LIMITATIONS AND ADDITIONAL REQUIREMENTS ON LEASES UNDER THE ACCELERATED COST RECOVERY SYSTEM. (a) LIMITATIONS ON LEASES U N D E R THE ACCELERATED COST RECOVERY SYSTEM.—

95 Stat. 204. Post, p. 445.

(1) IN GENERAL.—Section 168 (relating to the accelerated cost recovery system) is amended by redesignating subsection (i) a s subsection (j) and by inserting after subsection (h) the following new subsection:

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96 STAT. 433

"(i) LIMITATIONS RELATING TO LEASES OF QUALIFIED LEASED PROP-

ERTY.—For purposes of this subtitle, in the case of safe harbor lease property, the following limitations shall apply: "(1) LESSOR MAY NOT REDUCE TAX LIABILITY BY MORE THAN 50 PERCENT.—

"(A) IN GENERAL.—The aggregate amount allowable as deductions or credits for any taxable year which are allocable to all safe harbor lease property with respect to which the taxpayer is the lessor may not reduce the liability for tax of the taxpayer for such taxable year (determined without regard to safe harbor lease items) by more than 50 percent of such liability. "(B) CARRYOVER OF AMOUNTS NOT ALLOWABLE AS DEDUCTIONS O CREDITS.—Any amount not allowable as a deducR

tion or credit under subparagraph (A)— "(i) may be carried over to any subsequent taxable year, and "(ii) shall be treated as a deduction or credit allocable to safe harbor lease property in such subsequent taxable year. "(C) ALLOCATION AMONG DEDUCTIONS AND CREDITS.—The

Secretary shall prescribe regulations for determining the amount— "(i) of any deduction or credit allocable to safe harbor lease property for any taxable year to which subparagraph (A) applies, and "(ii) of any carryover of any such deduction or credit under subparagraph (B) to any subsequent taxable year. "(D) LIABILITY FOR TAX AND SAFE HARBOR LEASE ITEMS

DEFINED.—For purposes of this paragraph— "(i) LIABILITY FOR TAX DEFINED.—Except as provided in this subparagraph, the term 'liability for tax' means the tax imposed by this chapter, reduced by the sum of the credits allowable under subpart A of part IV of subchapter A of this chapter. "(ii) SAFE HARBOR LEASE ITEMS DEFINED.—The term 'safe harbor lease items' means any of the following items which are properly allocable to safe harbor lease property with respect to which the taxpayer is the lessor: "(I) Any deduction or credit allowable under this chapter (other than any deduction for interest). "(II) Any rental income received by the taxpayer from any lessee of such property. "(Ill) Any interest allowable as a deduction under this chapter on indebtedness of the taxpayer (or any related person within the meaning of subsection (e)(4)(D)) which is paid or incurred to the lessee of such property (or any person so related to the lessee), "(iii) CERTAIN TAXES NOT INCLUDED.—The term 'tax imposed by this chapter' shall not include any tax treated as not imposed by this chapter under the last sentence of section 53(a) (other than the tax imposed by 26 USC 53. section 56).

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 96 STAT. 434

PUBLIC LAW 97-248—SEPT. 3, 1982 "(2) METHOD OF COST RECOVERY.—The deduction allowable

under subsection (a) with respect to any safe harbor lease property shall be determined by using the 150 percent declining balance method, switching to the straight-line method at a time to maximize the deduction (with a half-year convention in the first recovery year and without regard to salvage value) and a recovery period determined in accordance with the following table: "In the case of: The recovery period is: 3-year property 5 years. 5-year property 8 years. 10-year property 15 years. "(3) INVESTMENT CREDIT ALLOWED ONLY OVER 5-YEAR PERIOD.—

In the case of any credit which would otherwise be allowable under section 38 with respect to any safe harbor lease property for any taxable year (determined without regard to this paragraph), only 20 percent of the amount of such credit shall be allowable in such taxable year and 20 percent of such amount shall be allowable in each of the succeeding 4 taxable years. "(4) N o CARRYBACKS OF CREDIT OR NET OPERATING LOSS ALLOCABLE TO ELECTED QUALIFIED LEASED PROPERTY.— "(A) CREDIT CARRYBACKS.—In determining the amount of

any credit allowable under subpart A of part IV of subchapter A of this chapter which may be carried back to any preceding taxable year— "(i) the liability for tax for the taxable year from which any such credit is to be carried shall be reduced first by any credit not properly allocable to safe harbor lease property, and "(ii) no credit which is properly allocable to safe harbor lease property shall be taken into account in determining the amount of any credit which may be carried back. "(B) NET OPERATING LOSS CARRYBACKS.—The net operating

26 USC 172.

loss carryback provided in section 172(b) for any taxable year shall be reduced by that portion of the amount of such carryback which is properly allocable to the items described in paragraph (IXDXii) with respect to all safe harbor lease property with respect to which the taxpayer is the lessor. "(5) LIMITATION ON DEDUCTION FOR INTEREST PAID BY THE

LESSOR TO THE LESSEE.—In the case of interest described in paragraph (l)(D)(ii)(III), the amount allowable as a deduction for any taxable year with respect to such interest shall not exceed the amount which would have been computed if the rate of interest under the agreement were equal to the rate of interest in effect under section 6621 at the time the agreement was entered into. "(6) COMPUTATION OF TAXABLE INCOME OF LESSEE FOR PURPOSES OF PERCENTAGE DEPLETION.—

"(A) IN GENERAL.—For purposes of section 613 or 613A, the taxable income of any taxpayer who is a lessee of any safe harbor lease property shall be computed as if the taxpayer was the owner of such property, except that the amount of the deduction under subsection (a) of this section shall be determined after application of paragraph (2) of this subsection.

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