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 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1719

then, notwithstanding such decision or judgment, such organization shall be treated as having been described in section 170(c)(2) for purposes of section 170 for the period beginning on the date on which the notice of the revocation was published and ending on the date on which the court first determined in such proceeding that the organization was not described in section 170(c)(2). "(2) LIMITATION.—Paragraph (1) shall apply only— "(A) with respect to individuals, and only to the extent that the aggregate of the contributions made by any individual to or for the use of the organization during the period specified in paragraph (1) does not exceed $1,000 (for this purpose treating a husband and wife as one contributor), and "(B) with respect to organizations described in section 170(c)(2) which are exempt from tax under section 501(a) (for this purpose excluding any such organization with respect to which there is pending a proceeding to revoke the determination under section 170(c)(2)). "(3) ExcEPTiOK-.—This subsection shall not apply to any individual who was responsible, in whole or in part, for the activities (or failures to act) on the part of the organization which were the basis for the revocation.",

' * i

, V;

(b) TECHNICAL AND CONFORMING AMENDMENTS.—

(1) Section 7451 (relating to fee for filing petition) is amended by inserting before the period at the end thereof the following: "or under section 7428". (2) Section 7459(c) (relating to date of decision) is amended by inserting after "under part IV of this subchapter" the following: "or under section 7428". (3) Section 7476(c) (relating to use of Tax Court commissioners) is amended by striking out "this section" and inserting in lieu thereof "this section or section 7428". (4) Section 7482(b)(1) (relating to venue for review of Tax Court decisions) is amended by striking out "or" at the end of subparagraph (C), by striking out the period at the end of subparagraph (D) and inserting in lieu thereof ", or", and by inserting after subparagraph (D) the following new subparagraph: " (E) in the case of an organization seeking a declaratory decision under section 7428, the principal office or agency of the organization.". (5) Section 7482(b)(1) is further amended by striking out "section 7476" in the last sentence and inserting in lieu thereof "section 7428,7476,". (6) The table of sections for subchapter B of chapter 76 is amended by striking out the item relating to section 7428 and inserting in lieu thereof the following: "Sec. 7428. Declaratory judgments relating to status and classification of organizations under section 5 0 1 (c)(3), etc. "Sec. 7430. Cross references."

(7) Section 1346(e) of title 28, United States Code (relating to jurisdiction of district courts with the United States as defendant), is amended by inserting "or section 7428 (in the case of the United States district court for the District of Columbia)" immediately after "section 7426". (8) Section 2201 of title 28, United States Code (relating to creation of declaratory judgment remedy), is amended by striking out "taxes" and inserting in lieu thereof "taxes other than

'*

26 USC 7451. Ante, p. 1717. 26 USC 7459. 26 USC 7476. 26 USC 7482.

,

. "^'

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Page:United States Statutes at Large Volume 90 Part 2.djvu/252

 90 STAT. 1720 Ante, p. 1717.

28 USC 1507.

26 USC 7428 "°*^-

PUBLIC LAW 94-455—OCT. 4, 1976 actions brought under section 7428 of the I n t e r n a l Revenue Code of 1954". (9)(A) Chapter 92 of title 28, United States Code, is amended by adding at the end thereof the following new section: "§ 1507. Jurisdiction for certain declaratory judgments " The Court of Claims shall have jurisdiction to hear any suit for and issue a declaratory judgment under section 7428 of the I n t e r n a l Revenue Code of 1954.". (B) The table of sections for such chapter is amended by adding a t the end thereof the following new item: "1507. Jurisdiction for certain declaratory judgments." (c) EFFECTIVE DATE.—The amendments made by this section shall apply with respect to pleadings filed with the United States T a x Court, the district court of the United States for the District of Columbia, or the United States Court of Claims more than 6 months after the date of the enactment of this Act but only with respect to determinations (or requests for determinations) made after January 1, 1976. SEC. 1307. LOBBYING BY PUBLIC CHARITIES. (a) Loss OF E X E M P T S T A T U S. — (1) L o s s OF EXEMPT STATUS BECAUSE OF SUBSTANTIAL LOBBY-

26 USC 501.

iNG.—Section 501 (relating to exemption from income tax) is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection: "(h) EXPENDITURES BY P U B L I C CHARITIES To INFLUENCE LEGISLATION.— " (1) GENERAL RULE. — I n the case of a n organization to which

this subsection applies, exemption from taxation under subsection (a) shall be denied because a substantial part of the activities of such organization consists of carrying on propaganda, or otherwise attempting, to influence legislation, b u t only if such organization normally— " (A) makes lobbying expenditures in excess of the lobbying ceiling amount for such organization for each taxable year, or " (B) makes grass roots expenditures in excess of the grass roots ceiling amount for such organization for each taxable year. " (2) DEFINITIONS. — For purposes of this subsection— "(A)

Post, p. 1723.

LOBBYING

EXPENDITURES.—The

term

'lobbying

expenditures' means expenditures for the purpose of infiuencing legislation (as defined in section 4911(d)). "(B)

LOBBYING CEILING AMOUNT.—The lobbying

ceiling

amount for any organization for any taxable year is 150 percent of the lobbying nontaxable amount for such organization for such taxable year, determined under section 4911. "(C)

GRASS ROOTS EXPENDITURES.—The term 'grass roots

expenditures' means expenditures for the purpose of influencing legislation (as defined in section 4911(d) without regard to paragraph (1)(B) thereof). " (D) GRASS ROOTS CEILING AMOUNT.—The g r a s s roots ceiling

amount for any organization for any taxable year is 150 percent of the grass roots nontaxable amount for such organization for such taxable year, determined under section 4911. " (3) ORGANIZATIONS TO W H I C H THIS SUBSECTION APPLIES.—This

subsection shall apply to any organization which has elected (in such manner and at such time as the Secretary may prescribe) to have the provisions of this subsection apply to such organiza-

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license: Creative Commons - Attribution Share-Alike - https://creativecommons.org/licenses/by-sa/4.0/


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 PUBLIC LAW 94-455—OCT. 4, 1976

9 0 STAT. 1721

tion and which, for the taxable year which includes the date the election is made, is described in subsection (c)(3) and— " (A) is described in paragraph (4), and " (B) is not a disqualified organization under paragraph (5). "(4)

ORGANIZATIONS PERMITI'ED TO ELECT TO HAVE THIS SUB-

SECTION APPLY.—An organization is described in this paragraph if it is described in— " (A) section 170(b)(1)(A) (ii) (relating to educational institutions), " (B) section 1 7 0 (b)(1)(A) (iii) ( r e l a t i n g to hospitals and medical research organizations), " (C) section 1 7 0 (b)(1)(A) (iv) (relating to organizations supporting government schools), " (D) section 170(b)(1)(A) (vi) (relating to organizations publicly supported by charitable contributions), " (E) section 509(a)(2) ( r e l a t i n g to organizations publicly supported by admissions, sales, etc.), or " (F) section 5 0 9 (a)(3) (relating to organizations supp o r t i n g certain types of public charities) except that for purposes of this subparagraph, section 5 0 9 (a)(3) shall be applied without regard to the last sentence of section 509(a). "(5)

DISQUALIFIED ORGANIZATIONS.—For purposes of paragraph

(3) an organization is a disqualified organization if it is— " (A) described in section 170(b)(1)(A)(i) (relating to churches), " (B) an integrated auxiliary of a church or of a convention or association of churches, or " (C) a member of an affiliated group of organizations (within the meaning of section 4911(f)(2)) if one or more Post, p.l723. members of such group is described in subparagraph (A) or (B). "(6)

Z

YEARS FOR W H I C H ELECTION IS EFFECTIVE.—An election

by an organization under this subsection shall be effective for all taxable years of such organization which— " (A) end after the date the election is made, and " (B) begin before the date the election is revoked by such Regulations, organization (under regulations prescribed by the Secretary). "(7)

No EFFECT ON CERTAIN ORGANIZATIONS.—With respect to

any organization for a taxable year for which— " (A) such organization is a disqualified organization (within the meaning of paragraph (5)), or " (B) an election under this subsection is not in effect for such organization, nothing in this subsection or in section 4911 s' all bo construed to affect the interpretation of the phrase, 'no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation,' under subsection (c)(3). " (8) AFFILIATED ORGANIZATIONS.—

"For rules regarding affiliated organizations, see section 4911(f).". (2) STATUS OF ORGANIZATION W H I C H CEASES TO QUALIFY FOR 26 USC 504. E X E M P T I O N U N D E R SECTION 5 0 1 (C)(3) BECAUSE OF S U B S T A N T I A L

LOBBYING.—Part I of subchapter F of chapter 1 (relating to general rules as to exempt organizations) is amended by adding at the end thereof the following new section:

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Page:United States Statutes at Large Volume 90 Part 2.djvu/254

 90 STAT. 1722 26 USC 504.

PUBLIC LAW 94-455—OCT. 4, 1976 "SEC. 504. STATUS AFTER ORGANIZATION CEASES TO QUALIFY FOR EXEMPTION UNDER SECTION 501(c)(3) BECAUSE OF SUBSTANTIAL LOBBYING. " (a) GENERAL RULE.—An organization which— " (1) was exempt (or was determined by the Secretary to be exempt) from taxation under section 501(a) by reason of being an organization described in section 501(c)(3), and " (2) is not a n organization described in section 5 0 1 (c)(3) by reason of c a r r y i n g on p r o p a g and a, or otherwise attempting, to influence legislation, shall not at any time thereafter be treated as a n organization described in section 501(c)(4). " (b) REGULATIONS To PREVENT AVOIDANCE.—The Secretary shall

26 USC 504 note.

26 USC 6033.

Ante, p. 1720. Post, f.1723.

prescribe such regulations as may be necessary or a p p r o p r i a t e to prevent the avoidance of subsection (a), including regulations relating to a direct or indirect transfer of all or part of the assets of an organization to a n organization controlled (directly or indirectly) by the same person or persons who control the transferor organization. " (c) CHURCHES, ETC.—Subsection (a) shall not apply to any organization which is a disqualified organization within the meaning of section 5 0 1 (h)(5) (relating to churches, etc.) for the taxable year immediately preceding the first taxable year for which such organization is described in paragraph (2) of subsection (a). ". (3) RULES OF INTERPRETATION.—It is the intent of Congress that enactment of this section is not to be regarded in any way as a n approval or disapproval of the decision of the Court of Appeals for the T e n t h Circuit in Christian Echoes National Ministry, Inc. versus United States, 470 F.2d 849 (1972), or of the reasoning in any of the opinions leading to that decision. (4) DISCLOSURE.—Section 6033(b) (relating to information required to be furnished annually by certain exempt organizations) is amended by striking out " and " at the end of paragraph (6), by striking out the period at the end of paragraph (7) and inserting in lieu thereof ", and", and by a d d i n g at m e end thereof the following: " (8) in the case of an organization with respect to which a n election under section 501(h) is effective for the taxable year, the following amounts for such organization for such taxable year: " (A) the lobbying expenditures (as defined in section 4911 (c)(1)), " (B) the lobbying nontaxable amount (as defined in section 4911(c)(2)), " (C) the grass roots expenditures (as defined in section 4911(c)(3)), and " (D) the grass roots nontaxable amount (as defined in section 4911(c)(4)). For purposes of paragraph (8), if section 4911(f) applies to the organization for the taxable year, such organization shall furnish the amounts with respect to the alfiliated g r o u p as well as with respect to such organization.". (b) TAXES ON EXCESS EXPENDITURES TO I N F L U E N C E LEGISLATION.—

Subtitle D (relating to miscellaneous excise taxes) is amended by inserting before chapter 42 the following new chapter:

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Page:United States Statutes at Large Volume 90 Part 2.djvu/255

 90 STAT. 1723

PUBLIC LAW 94-455—OCT. 4, 1976 "CHAPTER 41—PUBLIC CHARITIES "Sec. 4911. Tax on excess expenditures to influence legislation.

"SEC. 4911. TAX ON EXCESS EXPENDITURES TO INFLUENCE LEGISLA- 26 USC 4911 TION. " (a) T A X IMPOSED.—

" (1) IN GENERAL.—There is hereby imposed on the excess lobbyi n g expenditures of any organization to which this section applies a tax equal to 25 percent of the amount of the excess lobbying expenditures for the taxable year. "(2)

ORGANIZATIONS TO W H I C H T H I S SECTION APPLIES.—This

section applies to any organization with respect to which an election under section 501(h) (relating to lobbying expenditures by Ante, p. 1720 public charities) is in effect for the taxable year. " (b) EXCESS LOBBYING EXPENDITURES. — For purposes of t h i s section, "Excess the term 'excess lobbying expenditures' means, for a taxable year, the lobbying expenditures."

greater of— " (1) the amount by which the lobbying expenditures made by the organization during the taxable year exceed the lobbying nontaxable amount for such organization for such taxable year, or " (2) the amount by which the grass roots expenditures made by the organization during the taxable year exceed the grass roots nontaxable amount for such organization for such taxable year. " (c) DEFINITIONS. — For purposes of this section— " (1) LOBBYING EXPENDITURES.—The term 'lobbying expendi-

tures' means expenditures for the purpose of influencing legislation (as defined in subsection (d)). " (2) LOBBYING NONTAXABLE AMOUNT.—The lobbying nontaxable

amount for any organization for any taxable year is the lesser of (A) $1,000,000 or (B) the amount determined under the following table: "If the proposed expenditures are— Not over $500,000

The lobbying nontaxable amount is— 20 percent of the exempt purpose expenditures. Over $500,000 but not over $1,000,000— $100,000, plus 15 percent of the excess of the exempt puriwse expenditures over $500,000. Over $1,000,000 but not over $1,500,000__ $175,000 plus 10 percent of the excess of the exempt purpose expenditures over $1,000,000. Over $1,500,000 $225,000 plus 5 percent of the excess of the exempt purpose expenditures over $1,500,000. "(3)

GRASS

ROOTS

EXPENDITURES.—The

term

'grass

roots

expenditures' means expenditures for the purpose of influencing legislation (as defined in subsection (d) without regard to paragraph (1)(B) thereof). " (4) GRASS ROOTS NONTAXABLE A M O U N T. — The g r a s s roots non-

taxable amount for any organization for any taxable year is 25 percent of the lobbying nontaxable amount (determined under paragraph (2)) for such organization for such taxable year. " (d) INFLUENCING

LEGISLATION.—

" (1) GENERAL RULE.—Except as otherwise provided in para- "Influencing g r a p h (2), for purposes of this section, the term 'influencing leg- legislation." islation' means— " (A) any a t t e m p t to influence any legislation through an attempt to affect the opinions of the general public or any segment thereof, and

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 90 STAT. 1724

"Influencing legislation."

PUBLIC LAW 94-455—OCT. 4, 1976 " (B) any attempt to influence any legislation through communication with any member or employee of a legislative body, or with any government official or employee who may participate in the formulation of the legislation. " (2) EXCEPTIONS.—For purposes of this section, the term 'influencing legislation', with respect to a n organization, does not include— " (A) making available the results of nonpartisan analysis, study, or research; " (B) providing of technical advice or assistance (where such advice would otherwise constitute the influencing of legislation) to a governmental body or to a committee or other subdivision thereof in response to a written request by such body or subdivision, as the case may be; " (C) appearances before, or communications to, any legislative body with respect to a possible decision of such body which might affect the existence of the organization, its powers and duties, tax-exempt status, or the deduction of contributions to the organization; " (D) communications between the organization and i t s bona fide members with respect to legislation or proposed legislation of direct interest to the organization and such members, other than communications described in paragraph (3^; and (E) any communication with a government official or employee, other than — " (i) a communication with a member or employee of a legislative body (where such communication would otherwise constitute the influencing of legislation), or " ( i i) a communication the principal purpose of which is to influence legislation. "(3)

COMMUNICATIONS W I T H MEMBERS.—

" (A) A communication between an organization and any bona fide member of such organization to directly encourage such member to communicate as provided in paragraph (1) (B) shall be treated as a communication described in paragraph (1)(B). " (B) A communication between an organization and any bona fide member of such organization to directly encourage such member to urge persons other than members to communicate as provided m either subparagraph (A) or subparagraph (B) of paragraph (1) shall be treated as a communication described in paragraph (1)(A). " (e) OTHER DEFINITIONS AND SPECIAL RULES. — For purposes of t h i s

section— .

" (1) E X E M P T PURPOSE EXPENDITURES.—

26 USC 170.

" (A) IN GENERAL.—The term 'exempt purpose expenditures' means, with respect to any organization for any taxable year, the total of the amounts paid or incurred by such organization to accomplish purposes described in section 170(c) (2)(B) (relating to religious, charitable, educational, etc., purposes). " (B) CERTAIN AMOUNTS INCLUDED.—The term 'exempt p u r -

pose expenditures' includes— " (i) administrative expenses paid or incurred for purposes described in section 1 7 0 (c)(2)(B), and

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 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1725

'

"(ii) amounts paid or incurred for the purpose of influencing legislation (whether or not for purposes described in section 170(c)(2)(B)). 26 USC 170. "(C) CERTAIN" AMOUNTS EXCLUDED.—The term 'exempt purpose expenditures' does not include amounts paid or incurred to or for— "(i) a separate fundraising unit of such organization, or "(ii) one or more other organizations, if such amounts are paid or incurred primarily for fundraising. "(2) LEGISLATION.—The term 'legislation' includes action with respect to Acts, bills, resolutions, or similar items by the Congress, any State legislature, any local council, or similar governing body, or by the public in a referendum, initiative, constitutional amendment, or similar procedure. "(3) ACTION,—The term 'action' is limited to the introduction, amendment, enactment, defeat, or repeal of Acts, bills, resolutions, .,, or similar items. "(4) DEPRECIATION, ETC., TREATED AS EXPENDITURES.—In computing expenditures paid or incurred for the purpose of influencing legislation (within the meaning of subsection (b)(1) or (b)(2)) or exempt purpose expenditures (as defined in paragraph (1)), amounts properly chargeable to capital account shall not be taken into account. There shall be taken into account a reasonable allowance for exhaustion, wear and tear, obsolescence, or amortization. Such allowance shall be computed only on the basis of the straight-line method of depreciation. For purposes of this section, a determination of whether an amount is properly chargeable to capital account shall be made on the basis of the principles that apply under subtitle A to amounts which are paid or incurred 26 USC 1. in a trade or business. "(f) AFFILIATED ORGANIZATIONS.—

"(1) IN GENERAL.—Except as otherwise provided in paragraph (4), if for a taxable year two or more organizations described in section 501(c)(3) are members of an affiliated group of organizations as defined in paragraph (2), and an election under section 501(h) is effective for at least one such organization for Ante, p. 1720. such year, then— "(A) the determination as to whether excess lobbying expenditures have been made and the determination as to whether the expenditure limits of section 501(h)(1) have been exceeded shall be made as though such affiliated group is one organization, " (B) if such group has excess lobbying expenditures, each such organization as to which an election under section 501(h) is effective for such year shall be treated as an organization which has excess lobbying expenditures in an amount which equals such organization's proportionate share of such group's excess lobbying expenditures, ^"(C) if the expenditure limits of section 501(h)(1) are exceeded, each such organization as to which an election under section 501(h) is effective for such year shall be treated as an organization which is not described in section 501(c) (3) by reason of the application of 501 (h), and "(i)) subparagraphs (C) and (D) of subsection (d)(2), paragraph (3) of subsection (d), and clause (i) of subsec-

89-194 O—78—nt 9

17

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 90 STAT. 1726

PUBLIC LAW 94-455—OCT. 4, 1976 tion (e)(1)(C) shall be applied as if such affiliated group were one organization. " (2) DEFINITION OF AFFILIATION.—For purposes of paragraph

Regulations.

Ante, p. 1720.

(1), two organizations are members of an affiliated group of organizations but only if— "(A) the governing instrument of one such organization requires it to be bound by decisions of the other organization on legislative issues, or "(B) the governing board of one such organization includes persons who— "(i) are specifically designated representatives of another such organization or are members of the governing board, officers, or paid executive staff members of such other organization, and " (ii) by aggregating their votes, have sufficient voting power to cause or prevent action on legislative issues by the first such organization. "(3) DrFFERENT TAXABLE YEARS.—If members of an affiliated group of organizations have different taxable years, their expenditures shall be computed for purposes of this section in a manner to be prescribed by regulations promulgated by the Secretary. "(4) LIMITED CONTROL.—If two or more organizations are members of an affiliated group of organizations (as defined in paragraph (2) without regard to subparagraph (B) thereof), no two members of such affiliated group are affiliated (as defined in paragraph (2) without regard to subparagraph (A) thereof), and the governing instrument of no such organization requires it to be bound by decisions of any of the other such organizations on legislative issues other than as to action with respect to Acts, bills, resolutions, or similar items by the Congress, then— " (A) in the case of any organization whose decisions bind one or more members of such affiliated group, directly or indirectly, the determination as to whether such organization has paid or incurred excess lobbying expenditures and the determination as to whether such organization has exceeded f]^Q expenditure limits of section 501(h)(1) shall be made as though such organization has paid or incurred those amounts paid or incurred by such members of such affiliated group to influence legislation with respect to Acts, bills, resolutions, or similar items by the Congress, and "(B) in the case of any organization to which subparagraph (A) does not apply, but which is a member of such affiliated group, the determination as to whether such organization has paid or incurred excess lobbying expenditures and the determination as to whether such organization has exceeded the expenditure limits of section 501(h)(1) shall be made as though such organization is not a member of such affiliated group.", (c) DISALLOWING OF DEDUCTION FOR CONTRIBUTION To INFLUENCE

26 USC 170.

LEGISLATION.—Section 170(f) (relating to disallowance of charitable contribution deductions in certain cases) is amended by striking out paragraph (6) and inserting in lieu thereof the following: " (6) DEDUCTIONS FOR OUT-OF-POCKET EXPENDITURES.—No deduction shall be allowed under this section for an out-of-pocket expenditure made by any person on behalf of an organization described in subsection (c) (other than an organization described in section 501(h)(5) (relating to churches, etc.)) if the expendi-

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 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1727

ture is made for the purpose of influencing legislation (within the meaning of section 501(c)(3)).". (d)

TECHNICAL AMENDMENTS.—

(1) AMENDMENTS CONFORMING TO NEW SECTION 501(h).—

(2)

(A) Section 501(c)(3) is amended by striking out "no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation" and inserting in lieu thereof "no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in sub' section (h)),". (B) The following sections are amended by striking out "no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation," each place it appears and inserting in lieu thereojp in each such place "which is not disqualified for tax exemption under section 501(c)(3) by reason of attempting to influence legislation,": (i) section 170(c)(2)(D) (relating to the definition of charitable contributions); (ii) section 2055(a)(2) (relatingto transfers for publie, charitable, and religious uses); (iii) section 2106(a)(2)(A) (ii) (relatingto transfers for public, charitable, and religious uses); (iv) section 2522(a)(2) (relating to charitable and similar gifts of citizens or residents); and (v) section 2522(b)(2) (relating to charitable and similar gifts of nonresidents). (C) Sections 2055(a)(3) and 2106(a)(2)(A) (iii) (relating to transfers for public, charitable, and religious uses) are amended by striking out "no substantial part of the activities of such trustee or trustees, or of such fraternal society, order, or association, is carrying on propaganda, or otherwise attempting, to influence legislation," each place it appears and inserting m lieu thereof in each such place "such trust, fraternal society, order, or association would not be disqualified for tax exemption under section 501(c)(3) by reason of attempting to influence legislation,".

Ante, p. 1720.

26 USC 501.

' 'N-- >:•) - 3 - («s .1 26 USC 170. 26 USC 2055. 26 USC 2106. 26 USC 2522.

26 USC 2055, 2106.

AMENDMENTS CONFORMING TO NEW CHAPTER 41.—

(A) Paragraph (6) of section 275(a) (denying deductions for certain taxes), as amended by this Act, is amended to read as follows: " (6) Taxes imposed by chapters 41, 42, 43, and 44." (B) Section 6104(c)(1)(B) (relating to notification of state officers regarding taxes imposed on certain exempt organizations), is amended by striking out "chapter 42" and inserting in lieu thereof "chapter 41 or 42". (C) Section 6161 ('b) (relating to extensions of time for paying tax) is amended— (i) in paragraph (1) by striking out "12" and inserting in lieu thereof "12, 41"; and (ii) in the second sentence by striking out "42," and inserting in lieu thereof "41, 42,". (D) Section 6201(d) (relating to assessment authority) is amended by striking out "chapter 42, and chapter 43 taxes" and inserting in lieu thereof "and certain excise taxes".

26 USC 275. !n.^^?,?^^^' t '^7^, '*^' P' ^6 USC 6104. 26 USC 6161.

26 USC 6201.

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 90 STAT. 1728 26 USC 6211.

26 USC 6212. 26 USC 6213. 26 USC 6214. 26 USC 6344. 26 USC 6501. 26 USC 6512. 26 USC 7422. 26 USC 6212.

PUBLIC LAW 94-455—OCT. 4, 1976 (E) Section 6211(a) (defining deficiency) is amended by striking out "chapters 42" and inserting in lieu thereof "chapters 41, 42,''. (F) The following sections are amended by striking out "chapter 42" each place it appears and inserting in lieu thereof in each such place "chapter 41,42,"; (i) subsections (a) and (b)(2) of section 6211 (defining deficiency); (ii) section 6212(a) (relating to notice of deficiency); (iii) section 6213(a) (relating to restrictions applicable to deficiencies and petitions to Tax Court); (iv) subsections (c) and (d) of section 6214 (relating to determinations by Tax Court); (v) section 6344(a)(1) (relating to cross references); (vi) section 6501(e)(3) (relating to limitations on assessment and collection); (vii) subsections (a) and (b)(1) of section 6512 (relating to limitations in case of petition to Tax Court); and (viii) section 7422(e) (relating to civil actions for refund). (G) Section 6212 (relating to notice of deficiency) is amended— (i) in subsection (b)(1) by striking out "chapter 42" each place it appears and inserting in lieu thereof in each place "chapter 41, chapter 42"; and (ii) in subsection (c)(1) by striking out "of chapter 43 tax for the same taxable years," and inserting in lieu thereof "of chapter 41 tax for the same taxable year, of chapter 43 tax for the same taxable year,". (H) The headings of section 6214(c) (relating to determinations by Tax Court) and 6601(c) (relating to interest on underpayments, etc.) are amended by striking out "Chapter 42" and inserting in lieu thereof in each such place "Chapter 41, 42.". (3) AMENDMENTS TO TABLES OF CHAPTERS AND SECTIONS.—

26 USC 501 note. 26 USC 1.

26 USC 2001. 26 USC 2501.

(A) The table of chapters for subtitle D is amended by inserting before the item relating to chapter 42 the following: "Chapter 41. Public charities." (B) The table of sections for part I of subchapter F of chapter 1 is amended by adding at the end thereof the following: "Sec. 504. Status after organization ceases to qualify for exemption under section 501(c)(3) because of substantial lobbying." (e) EFFECTIVE DATE.—The amendments made by this section shall a-pply— (1) except as otherwise specified in paragraph (2), in the case of amendments to subtitle A, to taxable years beginning after December 31, 1976; (2) in the case of the amendments made by subsection (a)(2), to activities occurring after the date of the enactment of this Act; (3) in the case of amendments to chapter 11, to the estates of decedents dying after December 31, 1976; (4) in the case of amendments to chapter 12, to gifts in calendar years beginning after December 31, 1976;

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 90 STAT. 1729

PUBLIC LAW 94-455—OCT. 4, 1976

(5) i n the case of amendments to subtitle D, to taxable years 26 USC 4001. beginning after December 31, 1976; and (6) in the case of amendments to subtitle F, on and after the 26 USC 6001. date of the enactment of t h i s Act. SEC. 1308. TAX LIENS, ETC., NOT TO CONSTITUTE ACQUISITION INDEBTEDNESS. (a) GENERAL RULE.—Section 5 1 4 (c)(2) (relating to property 26 USC 514. acquired subject to mortgages, etc.) is amended by a d d i n g a t the end thereof the following new subparagraph: " (C) L I E N S FOR TAXES OR ASSESSMENTS.—Where State law

provides that — " (i) a lien for taxes, or " (ii) a lien for assessments, m a d e by a State or a political subdivision thereof attaches to property p r i o r to the time when such taxes or assessments become due and payable, the n such lien shall be treated as similar to a mortgage (within the meaning of subparagraph (A)) b u t only after such taxes or assessments become due and payable and the organization has h a d a n opportunity to p a y such taxes or assessments i n accordance w i t h State law.". (b) EFFECTIVE D A T E. — The amendment made by this section shall apply to taxable years ending after December 31, 1969. SEC. 1309. EXTENSION OF SELF-DEALING TRANSITION RULES FOR PRIVATE FOUNDATIONS. (a) EXTENSION OF RULE.—Section 101(1)(2)(B) of the T a x Reform

Act of 1969 is amended by striking out " January 1, 1975" and inserting in lieu thereof " January 1, 1977". (b) EFFECTIVE D A T E. — The amendment m a d e by this section shall a p p l y to dispositions made after the date of the enactment of this Act. SEC. 1310. IMPUTED INTEREST. (a) GENERAL RULE.—Section 4942(f)(2) (relating to income modifications) is amended— (1) by striking out " and " a t the end of subparagraph (B), (2) by striking out the period a t the end of subparagraph (C) and inserting in lieu thereof "; and ", and (3) by a d d i n g at the end thereof the following new subparagraph: " (D) section 483 (relating to imputed interest) shall not Pply ill the case of a binding contract made in a taxable year beginning before January 1, 1970.". (b) EFFECTIVE D A T E. — The amendments made by this section shall a p p l y to taxable years ending after the date of the enactment of this Act. SEC. 1311. CERTAIN HOSPITAL SERVICES. (a) IN GENERAL.—Section 513 (relating to unrelated trade o r business) is amended by a d d i n g a t the end thereof the following new subsection: "(e)

CERTAIN

HOSPITAL SERVICES.—In the

case of

a

..

»

,j

,

,,,.

26 USC 514 note.

26 USC 4940 note.

26 USC 4942.

26 USC 4942 note.

26 USC 513.

hospital "Unrelated trade described in section 170(b)(1)(A) ( i i i), the term 'unrelated trade o r or business."

business' does not include the furnishing of one or more of the services described in section 501(e)(1)(A) to one or more hospitals described in section 170(b)(1)(A) (iii) if—

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Page:United States Statutes at Large Volume 90 Part 2.djvu/262

 90 STAT. 1730

26 USC 513 note. 26 USC 1. 26 USC 501. 26 USC 501 note.

26 USC 501.

PUBLIC LAW 94-455—OCT. 4, 1976 " (1) such services are furnished solely to such hospitals which have facilities to serve not more than 100 i n p a t i e n t s; " (2) such services, if performed on its own behalf by the recipient hospital, would constitute activities in exercising or performing the purpose or function constituting the basis for its exemption; and " (3) such services are provided at a fee or cost which does not exceed the actual cost of providing such services, such cost including straight line depreciation and a reasonable amount for r e t u r n on capital goods used to provide such services," (b) ErrECTivE D A T E. — The amendment made by this section shall a,pply to all taxable years to which the I n t e r n a l Revenue Code of 1954 applies. SEC. 1312. CLINICAL SERVICES OF COOPERATIVE HOSPITALS. (a) IN GENERAL.—Section 501(e)(1)(A) (relating to cooperative hospital service organizations) is amended by inserting "clinical," after "food,". (b) EFFECTIVE D A T E. — The amendment made by this section shall apply to taxable years ending after December 31, 1976. SEC. 1313. EXEMPTION OF CERTAIN AMATEUR ATHLETIC ORGANIZATIONS FROM TAX. (a) IN GENERAL. — Paragraph (3) of section 501(c) (relating to exempt religious, charitable, etc., organizations) is amended by inserting after "or educational purposes," the following: "or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment),". (b) TREATMENT OF G I F T S TO S U C H ORGANIZATIONS FOR INCOME, ESTATE AND G I F T T A X PURPOSES.—

26 USC 170.

26 USC 2055.

26 USC 2522.

26 USC 501 "°^-

26 USC 501 note.

(1) Subparagraph (B) of section 170(c)(2) (relating to definition of charitable contribution) is amended by inserting after "or educational purposes" the following: ", or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment),". (2) Paragraph (2) of section 2055(a) (relating to transfers for public, charitable, and religious uses) is amended by inserting after "the encouragement of a r t " the following: ", or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment),". (3) Paragraph (2) of section 2522(a) (relating to charitable and similar gifts) is amended by inserting after "or educational purposes" the following: ", or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment),". (c) A n organization which (without regard to the amendments made by this section) is an organization described in section 170(c)(2) (B), 501(c)(3), 2055(a)(2), or 2522(a)(2) of the I n t e r n a l Revenue Code of 1954 shall not be treated as an organization not so described as a result of the amendments made by this section. (d) EFFECTIVE D A T E. — The amendments made by this section shall apply on the d a y following the date of the enactment of this Act.

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Page:United States Statutes at Large Volume 90 Part 2.djvu/263

 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1731

TITLE XIV—TREATMENT OF CERTAIN CAPITAL LOSSES; HOLDING PERIOD FOR CAPITAL GAINS AND LOSSES

'

SEC. 1401. INCREASE IN AMOUNT OF ORDINARY INCOME AGAINST WHICH CAPITAL LOSS MAY BE OFFSET. (a) GENERAL RULE. — Subparagraph (B) of section 1211(b)(1) 26 USC 1211. (relating to limitation on capital losses for taxpayers other than corporations) is amended by striking out "$1,000" and inserting in lieu . „,.thereof "the applicable amount". (b)

APPLICABLE

AMOUNT

DEFINED.—Paragraph

(2)

of

section

,

^

1211(b) (relating to limitation on capital losses for taxpayers other than corporations) is amended to read as follows: " (2) APPLICABLE AMOUNT.—For purposes of paragraph (1)(B), the term 'applicable amount' means— " (A) $2,000 in the case of any taxable year beginning in -...-• 1977; and " (]3) $3,000 in the case of any taxable year beginning after 1977. I n the case of a separate return by a husband or wife, the applicable amount shall be one-half of the amount determined under the preceding sentence." »£ (c) EFFECTIVE D A T E. — The amendments made by this section shall 26 USC 1211 apply to taxable years beginning after December 31, 1976. note. SEC. 1402. INCREASE IN HOLDING PERIOD REQUIRED FOR CAPITAL GAIN OR LOSS TO BE LONG TERM. (a) INCREASE I N T w o S T E P S F R O M 6 M O N T H S TO 1 Y E A R. —

.i.

(1) TAXABLE YEARS BEGINNING I N 1977.—Effective with respect

to taxable years beginning in 1977, paragraph s (1), (2), (3), and (4) of section 1222 (relating to other terms relating to capital 26 USC 1222. gains and losses) a r e each amended by striking out "6 months " and inserting in lieu thereof "9 months. (2)

TAXABLE YEARS BEGINNING AFTER

1977.—Effective w i t h

respect to taxable years beginning after December 31, 1977, paragraph s (1), (2), (3), and (4) of section 1222 are each amended by striking out "9 months " and inserting in lieu thereof "1 year".

S

^ eg

(b) CONFORMING AMENDMENTS. —

(1) TAXABLE YEARS BEGINNING I N 1977.—Effective with respect

to taxable years beginning in 1977, the following provisions are each amended by striking out "6 months " each place it appears and inserting in lieu thereof "9 months ": (A) Paragraph (1)(B) of section 166(d) (relating to nonbusiness debts). (B) Subsection (a) of section 341 (relating to treatment of gain to shareholders in the case of collapsible corporations). (C) Paragraph (2) of subsection (a) of section 402 (relating to capital gains treatment for certain distributions in the case of a beneficiary of an exempt employees' trust) and subparagraph (L) of paragraph (4) of section 402(e) (relating to election to t r e a t pre-1974 participation as post-1973 participation). (D) Subparagraph (A) of section 403(a)(2) (relating to capital gains treatment for certain distributions in the case of a beneficiary under a qualified a n n u i t y p l a n).

-^

" ''"^

26 USC 166. 26 USC 341. •' 26 USC 402. , 26 USC 403.

v-

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Page:United States Statutes at Large Volume 90 Part 2.djvu/264

 90 STAT. 1732 26 USC 423. 26 USC 424. 26 USC 582. 26 USC 584. 26 USC 631. 26 USC 642. 26 USC 644. 26 USC 702. 26 USC 817.

26 USC 852. 26 USC 856. 26 USC 857. 26 USC 1223. 26 USC 1231. 26 USC 1232. 26 USC 1233. Post, p. 1929. 26 USC 1235. 26 USC 1246. 26 USC 1247.

26 USC 1248. 26 USC 1251.

PUBLIC LAW 94-455—OCT. 4, 1976 (E) Paragraph (1) of section 423(a) (relating to employee stock purchase plans). (F) Paragraph (1) of subsection (a) and paragraphs (1) and (2) of subsection (c) of section 424 (relating to restricted stock options). (G) Paragraph (2) of section 582(c) (relating to capital gains of banks). (H) Subparagraphs (A) and (B) of section 584(c)(1) (relating to inclusions in taxable income of participants in common trust funds). (I) Section 631 (relating to gain or loss in the case of timber, coal, or domestic iron ore). (J) Paragraphs (3) and (4) of section 642(c) (relating to charitable deductions for certain trusts). (K) Section 644 (relating to special holding period rules for gain on property transferred to trust at less than fair market value). (L) Paragraphs (1) and (2) of section 702(a) (relating to income and credits of partner). (M) Subparagraph (A) of section 817(a)(1) (relating to certain gains and losses in the case of life insurance companies). (N) Subparagraph (B) of paragraph (3). and paragraph (4), of section 852(b) (relating to taxation or shareholders of regulated investment companies). (O) Subparagraph (A) of section 856(c)(4) (relating to definition of real estate investment trust). (P) Subparagraph (B) of paragraph (3), and paragraph (5), of section 857(b) (relating to taxation of shareholders of real estate investment trusts). (Q) Paragraph (11) of section 1223 (relating to holding period of property). (R) Section 1231 (relating to property used in the trade or business and involuntary conversions). (S) Paragraph (2) of section 1232(a) (relating to sale or exchange in the case of bonds and other evidences of indebtedness). (T) Subsections (b), (d), and (e) of section 1233 (relating to gains and losses from short sales). (U) Paragraph (1) of section 1234(b) (relating to special rule for gain on lapse of an option granted as part of a straddle), as amended by this Act. (V) Subsection (a) of section 1235 (relating to sale or exchange of patents). (W) Paragraph (4) of section 1246(a) (relating to holding period in the case of gain on foreign investment company stock). (X) Subsection (i) of section 1247 (relating to loss on sale or exchange of certain stock in the case of foreign investment companies electing to distribute income currently). (Y) Subsection (b), and subparagraph (C) of subsection ("f) C^)? of section 1248 (relating to gain from certain sales or exchanges of stock in certain foreign corporations). '^Z) Paragraph (1) of section 1251(6) (defining farm recapture property). (2) TAXABLE TEARS BEGINNING AFTER 1977.—Effective with respect to taxable years beginning after December 31, 1977, each

�


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Page:United States Statutes at Large Volume 90 Part 2.djvu/265

 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1733

provision referred to in paragraph (1) is amended by striking out Ante, p. 1731. "9 months " each place it appears and inserting in lieu thereof " 1 year". (3) TECHNICAL AMENDMENT.—Effective with respect to taxable years beginning after December 31, 1976, section 631(a) (relating 26 USC 631. to gain or loss in the case of timber) is amended by striking out "before the beginning of such year". (c) TRANSITIONAL RULE FOR CERTAIN INSTALLMENT OBLIGATIONS.—

26 USC 453

I n the case of amounts received from sales or other dispositions of note, capital assets pursuant to binding contracts, including sales or other dispositions the income from which is returned on the basis and in the m a n n e r prescribed in section 453(a)(1) of the I n t e r n a l Revenue Code of 1954, if the gain or loss was treated as long-term for the taxable year for which the amount was realized, such gain or loss shall be treated a s long-term for the taxable year for which the g a i n or loss is returned o r otherwise recognized. (d)

R E T E N T I O N OF 6 - M O N T H PERIOD FOR F U T U R E S TRANSACTIONS

IN COMMODITIES.—Section 1222 (relating to other terms relating to capital gains and losses) is amended by a d d i n g at the end thereof the following new sentence: " For purposes of this subtitle, in the case of futures transactions in any commodity subject to the rules of a board of trade or commodity exchange, the length of the holding period taken into account under this section or under any other section amended by section 1402 of the T a x Reform Act of 1976 shall be determined without regard to the amendments made by subsections (a) and (b) of such section 1402." SEC. 1403. ALLOWANCE OF 8-YEAR CAPITAL LOSS CARRYOVER IN CASE OF REGULATED INVESTMENT COMPANIES. (a) GENERAL RULE. — Paragraph (1) of section 1212(a) (relating to capital loss carrybacks and carryovers for corporations) is amended by striking out " and " at the end of subparagraph (A) and by striking out subparagraph (B) and inserting in lieu thereof the following: " (B) except as provided in subparagraph (C), a capital loss carryover to each of the 5 taxable years succeeding the loss year; and " (C) a capital loss carryover— " (i) in the case of a regulated investment company (as defined in section 851) to each of the 8 taxable years succeeding the loss year, and " (ii) to the extent such loss is attributable to a foreign expropriation capital loss, to each of the 10 taxable years exceeding the loss year." (b) EFFECTIVE D A T E. — The amendments made by this section shall a p p l y to loss years (within the meaning of section 1212(a)(1) of the I n t e r n a l Revenue Code of 1954) ending on or after January 1, 1970. SEC. 1404. SALE OF RESIDENCE BY ELDERLY. (a) IN GENERAL.—Section 121(b)(1) (relating to gain from sale or exchange of residence of individual who has attained age 65) is amended by striking out "$20,000" each place it appears therein and inserting in lieu thereof "$35,000". (b) EFFECTIVE D A T E. — The amendment made by subsection (a) shall a p p l y to taxable years beginning after December 31, 1976.

26 USC 1222.

26 USC 1212.

26 USC 1212 note.

26 USC 121.

26 USC 121 note.

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Page:United States Statutes at Large Volume 90 Part 2.djvu/266

 90 STAT. 1734

PUBLIC LAW 94-455—OCT. 4, 1976

TITLE XV—PENSION AND INSURANCE TAXATION
 * ^3;i

SEC. 1501. RETIREMENT SAVINGS FOR CERTAIN MARRIED INDIVIDUALS. (a) ALLOWANCE OF DEDUCTION.—Part VII of subchapter B of chapa 4„; ter 1 (relating to additional itemized deductions for individuals) is amended by redesignating section 220 as 221 and by inserting after section 219 the following new section: 26 USC 220. «SEC. 220. RETIREMENT SAVINGS FOR CERTAIN MARRIED INDIVIDUALS. "(a) DEDUCTION ALLOWED.—In the case of an individual, there is allowed as a deduction amounts paid in cash for a taxable year by or on behalf of such individual for the benefit of himself and his spouse— "(1) to an individual retirement account described in section 408(a), ~ *'"' ' "(2) for an individual retirement annuity described in section 408(b),or "(3) for a retirement bond described in section 409 (but only if the bond is not redeemed within 12 months of the date of its issuance). For purposes of this title, any amount paid by an employer to such a retirement account or for such a retirement annuity or retirement bond constitutes payment of compensation to the employee (other than a self-employed individual who is an employee within the meaning of section 401(c)(1)) includible in his gross income, whether or not a deduction for such payment is allowable under this section to the employee after the application of subsection (b). ^ J -.

i

"(b) LIMITATIONS AND RESTRICTIONS.— "(1) MAXIMUM DEDUCTION.—The amount

allowable as a deduction under subsection (a) to an individual for any taxable year may not exceed— "(A) twice the amount paid to the account or annuity, or for the bond, established for the individual or for his spouse to or for which the lesser amount was paid for the taxable year, "(B) an amount equal to 15 percent of the compensation includible in the individual's gross income for the taxable year, or "(C) $1,750, whichever is the smallest amount. " (2) ALTERNATIVE DEDUCTION.—No deduction is allowed under subsection (a) for the taxable year if the individual claims the deduction allowed by section 219 for the taxable year.

,,,

"(3)

'* -•' * ^

'•

"*^'

COVERAGE UNDER CERTAIN OTHER PLANS.—No deduction is

allowed under subsection (a) for an individual for the taxable year if for any part of such year— "(A.) he or his spouse was an active participant in— "(i) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a), " (ii) an annuity plan described in section 403(a), " (iii) a qualified bond purchase plan described in sec- tion 405(a), or , -

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Page:United States Statutes at Large Volume 90 Part 2.djvu/267

 PUBLIC LAW 94-455—OCT. 4, 1976.

90 STAT. 1735

-^

" (iv) a plan established for its employees by the United States, by a State or political subdivision thereof, or by an agency or instrumentality of any of the foregoing, or " (B) amounts were contributed by his employer, or his spouse's employer, for a n annuity contract described i n section 403(b) (whether or not his, o r his spouse's, rights in such 26 USC 403. contract are nonforfeitable).

" (4) CONTRIBUTIONS AFTER AGE 70^/4.—No deduction is allowed

under subsection (a) with respect to any payment which is made for a taxable year of a n individual if either the individual or his spouse has attained age 701/^ before the close of such taxable year. " (5) EECONTRIBUTED AMOUNTS.—No deduction is allowed under this section with respect to a rollover contribution described i n section 4 0 2 (a)(5), 4 0 3 (a)(4), 4 0 8 (d)(3), or 4 0 9 (b)(3)(C). " (6) A M O U N T S CONTRIBUTED UNDER ENDOWMENT CONTRACT.—In

the case of an endowment contract described i n section 4 0 8 (b), no deduction is allowed under subsection (a) for that portion of the amounts paid under the contract for the taxable year properly allocable, under regulations prescribed by the Secretary, to the cost of life insurance. " (7) EMPLOYED SPOUSES.—No deduction is allowed under subsection (a) with respect to a payment described in subsection (a) made for any taxable year of the individual if the spouse of the individual has any compensation (determined without regard to section 911) for the taxable year of such spouse ending with or within such taxable year. " (c) DEFINITIONS AND SPECIAL RULES. —

" (1) COMPENSATION.—For purposes of this section, the term 'compensation' includes earned income as defined in section 401 (c)(2). " (2) MARRIED INDIVIDUALS.—This section shall be applied without regard to any community property laws.

• <•••>

" (3) DETERMINATION OF MARITAL STATUS.—The determination of

whether an individual is married for purposes of this section shall be made i n accordance with the provisions of section 143(a). " (4) T I M E W H E N CONTRIBUTIONS DEEMED MADE.—-For purposes of

this section, a taxpayer shall be deemed to have made a contribution on the last d a y of the preceding taxable year if the contribution is made on account of such taxable year and is made not later than 45 days after the end of such taxable year.

] "

" (5) PARTICIPATION I N GOVERNMENTAL PLANS BY CERTAIN INDI-

VIDUALS.—A member of a reserve component of the armed forces or a volunteer firefighter is not considered to be a n active p a r ticipant in a plan described in subsection (b)(3)(A) (iv) if, under section 2 1 9 (c)(4), he is not considered to be a n active participant in such a plan."

(b) CONFORMING AMENDMENTS. —

(1) Paragraph (10) of section 62 (relating to retirement sav- 26 USC 62. ings) is amended by inserting before the period the following: "and the deduction allowed by section 220 (relating to retirement savings for certain married individuals)". (2) Paragraph (2) of section 408(c) is amended by inserting 26 USC 408. " ( o r spouse of a n employee or m e m b e r) " after "member". (3) Subsection (a) of section 415 (relating to limitations on 26 USC 415. benefits and contributions under qualified plans) is amended— (A) by striking out " I n the case" i n paragraph (2) and inserting i n lieu thereof " E x c e p t as provided i n paragraph (3), in the case", and

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Page:United States Statutes at Large Volume 90 Part 2.djvu/268

 90 STAT. 1736

PUBLIC LAW 94-455—OCT. 4, 1976 (B) by adding at the end thereof the following new paragraph: " (3) ACCOUNTS, ETC., ESTABLISHED FOR NON-EMPLOYED SPOUSE.—

> • Ante, p. 1734. 26 USC 219.

Paragraph (2) shall not apply for any year to an account, annuity, or bond described in section 408(a), 408(b), or 409, respectively, established for the benefit of the spouse of the individual contributing to such account, or for such annuity or bond. if a deduction is allowed under section 220 to such individual with respect to such contribution for such year.". (4) Section 219 (relating to retirement savings) is amended— (A) by striking out "during" in subsection (a) and inserting in lieu thereof "for", (B) by adding at the end of subsection (b) the following new paragraph: "(6) ALTERNATIVE DEDUCTION.—No deduction is allowed under subsection (a) for the taxable year if the individual claims the deduction allowed by section 220 for the taxable year.", (C) by adding at the end of subsection (c)(2) the following new sentence: "For purposes of this section, the determination of whether an individual is married shall be made in accordance with the provisions of section 143(a).", and (D) by adding at the end of subsection (c) the following new paragraph: "(3)

26 USC 408.

26 USC 409. 26 USC 3401. 26 USC 4973.

'.«..'.

-n;; - -

'

T I M E WHEN CONTRIBUTIONS DEEMED MADE.—For purposes

of this section, a taxpayer shall be deemed to have made a contribution on the last day of the preceding taxable year if the contribution is made on account of such taxable year and is made not later than 45 days after the end of such taxable year." (5) Paragraph (4) of section 408(d) (relating to excess contributions returned before due date of return) is amended— (A) by inserting "or 220" after "219", and (B) by striking out the last sentence and inserting in lieu thereof the following: "In the case of such a distribution, for purposes of section 61, any net income described in subparagraph (C) shall be deemed to have been earned and receivable in the taxable year in which such excess contribution is made." (6) Paragraph (4) of section 409(a) (relating to retirement bonds) is amended by striking out "in any taxable year" and inserting in lieu thereof "for any taxable year". (7) Paragraph (12) of section 3401(a) (relating to definition of wages) is amended by inserting "or 220(a)" after "219(a)". (8) Section 4973 (relating to tax on excess contributions to individual retirement accounts, etc.) is amended— (A) by striking out "such individual" in the last sentence of subsection (a) and inserting in lieu thereof the following: "the individual to whom a deduction is allowed for the taxable year under section 219 (determined without regard to subsection (b)(1) thereof) or section 220 (determined without regard to subsection (b)(1) thereof), wnichever is appropriate"; (B) by inserting "or 220" after "219" in subsection (b)(1) (B);and (C) by striking out paragraph (2) of subsection (b) and inserting in lieu thereof the following: "(2) the amount determined under this subsection for the preceding taxable year, reduced by the excess (if any) of the maximum amount allowable as a deduction under section 219

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Page:United States Statutes at Large Volume 90 Part 2.djvu/269

 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1737

or 220 for the taxable year over the amount contributed to the Ante, p. 1734. accounts or for the annuities or bonds for the taxable year and reduced by the sum of the distributions o u t of the account ( for the taxable year and all prior taxable years) which were included in the gross income of the payee under section 408(d)(1). For purposes of this subsection, any contribution which is distributed from the individual retirement account, individual retirement annuity, or bond in a distribution to which section 4 0 8 (d)(4) applies shall be treated as an amount not contributed if such distribution consists of an excess contribution solely because of employer contributions to a plan or contract described in section 219(b)(2) or by reason of the application of section 2 1 9 (b)(1) (without regard to the $1,500 limitation) or section 220(b)(1) (without regard to the $1,750 limitation) and only if such distribution does not exceed the excess of $1,500 or $1,750 if applicable, over the amount described in paragraph (1)(B)." (9) Subsection (d) of section 6047 (relating to other p r o - 26 USC 6047. grams) is amended by inserting "or 2 2 0 (a) " after " 2 1 9 (a) ". (10) Paragraph (1) of section 408(d) (relating to tax treat- 26 USC 408. ment of distributions) is amended by striking out the second sentence and inserting in lieu thereof the following: "Notwithstanding any other provision of this title (including chapters 11 and 12), the basis any person in such a n account or annuity is zero.". (c) CLERICAL AMENDMENT. — The table of sections for part VII of

subchapter B of chapter 1 is amended by striking out the item relating to section 220 and inserting in lieu thereof the following: "Sec. 220. Retirement savings for certain married individuals. "Sec. 221. Cross references.". (d) EFFECTIVE D A T E. — The amendments made by this section, other 26 USC 220 than the amendment made by subsection (b)(3), shall apply to taxa- note. ble years beginning after December 31, 1976. The amendment made by subsection (b)(3) shall apply to years beginning after December 31, 1976. SEC. 1502. LIMITATION ON CONTRIBUTIONS TO CERTAIN PENSION, ETC., PLANS. (a) IN GENERAL.— (1) L I M I T ON CONTRIBUTIONS.—Section 415(c) ( r e l a t i n g to limi-

"

26 USC 415.

tation for defined contribution plans) is amended by adding a t the end thereof the following new paragraph:

I

/

" (5) APPLICATION W I T H SECTION 404(e)(4). — I n the case of a

plan which provides contributions or benefits for employees some or all of whom are employees within the meaning of section 401 (c)(1), the amount determined under paragraph (1)(B) with respect to any participant shall not be less than the amount deductible under section 404(e) with respect to any individual who is an employee within the meaning of section 4 0 1 (c)(1). " (2)

MINIMUM DEDUCTION LIMITATION.—Section 4 0 4 (e)(4)

of

such Code (relating to minimum deductible amount for pension plan contributions by self-employed individuals) is amended by a d d i n g after subparagraph (B) the following: " T h i s paragraph does not apply for any taxable year to any employee whose adjusted gross income for such taxable year (determined separately for each individual, without regard to any community property laws, and without regard to the deduction allowable under subsection (a)) exceeds $15,000,"

26 USC 404.

,;

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Page:United States Statutes at Large Volume 90 Part 2.djvu/270

 9 0 STAT. 1738 26 USC 415 note.

PUBLIC LAW 94-455—OCT. 4, 1976

(b) EFFECTIVE D A T E. — The amendment made by subsection (a)(1) sball apply to years beginning after December 31, 1975. The amendment made by subsection (a)(2) shall apply to taxable years beginning after December 31, 1975. SEC. 1503. PARTICIPATION BY MEMBERS OF RESERVES OR NATIONAL GUARD, AND VOLUNTEER FIREFIGHTERS IN INDIVIDUAL RETIREMENT ACCOUNTS, ETC. (a) GENERAL RULE.—Section 219(c) (relating to definitions and special rules for retirement savings deduction) is amended by adding at the end thereof the following new paragraph:

26 USC 219.

" (4) PARTICIPATION I N GOVERNMENTAL PLANS BY CERTAIN INDIVIDUALS. " (A) MEMBERS o r RESERVE COMPONENTS.—A member of a

•" * "^ ~ '

'"-

reserve component of the armed forces (as defined in section 261 (a) of title 10) is not considered to be an active participant in a p l a n described in subsection (b)(3)(A) ( i v) for a taxable year solely because he is a member of a reserve component unless he has served in excess of 90 days on active duty (other than active duty for t r a i n i n g) during the year. "(B)

26 USC 219 °<*t®26 USC 403.

26 USC 403 °°*®' .; '

VOLUNTEER

FIREFIGHTERS.—An

individual

whose

participation in a plan described in subsection (b)(3)(A) (iv) is based solely upon his activity as a volunteer firefighter and whose accrued benefit as of the beginning of the taxable year is not more than an annual benefit of $1,800 (when expressed as a single life annuity commencing at age 65) is not considered to be an active participant in such a plan for the taxable year." (b) EFFECTIVE D A T E. — The amendment made by this section shall a.pply to taxable years beginning after December 31, 1975. SEC. 1504. CERTAIN INVESTMENTS BY ANNUITY PLANS. (a) IN GENERAL. — Paragraph (7) of section 403(b) (relating to custodial accounts for regulated investment company stock) is amended by striking out ", and which issues only redeemable stock" in subparagraph (C). (b) EFFECTIVE D A T E. — The amendment made by this section applies to taxable j^ears beginning after December 31, 1975. SEC. 1505. SEGREGATED ASSET ACCOUNTS. (a) SEGREGATED ASSET ACCOUNTS OF L I F E INSURANCE C O M P A N I E S. —

26 USC 801.

?,{•;. >; 26 USC 401.

Paragraph (1)(B) of section 801(g) is amended— (1) by striking out clause (ii) and inserting in lieu thereof the following: " ( i i) which is described in subparagraph (A), (B), (C), (D), o r (E) of section 805(d)(1) ( other than a l i f e, health or accident, property, casualty, or liability insurance contract) or which provides for the payment of annuities, and ", and ^': (2) by striking out "as annuities" i n clause (iii) and inserting i n lieu thereof "out". (b) CONFORMING AMENDMENT.—Section 401 (relating to qualified pension, etc. plans) is amended by striking out subsection (f) and inserting in lieu thereof the following: " (f) CERTAIN CUSTODIAL ACCOUNTS AND CONTRACTS.—For purposes

of this title, a custodial account, an a n n u i t y contract, o r a contract (other than a life, health o r accident, property, casualty, o r liability insurance contract) issued by a n insurance company qualified to d o

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 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1739

business in a State shall be treated as a qualified t r u s t under this section if— " (1) the custodial account or contract would, except for the fact that i t is not a trust, constitute a qualified trust under this section, and " (2) in the case of a custodial account the assets thereof are held by a bank (as defined in subsection (d)(1)) or another person who demonstrates, to the satisfaction of the Secretary, that the manner in which he will hold the assets will be consistent with the requirements of this section. , . * '. <: For purposes of this title, in the case of a custodial account or contract treated as a qualified trust under this section by reason of this subsection, the person holding the assets of such account or holding such contract shall be treated as the trustee thereof.". (c) EFFECTIVE D A T E. — The amendments made by this section apply 26 USC 801 for taxable years beginning after December 31, 1975. note. SEC. 1506. STUDY OF SALARY REDUCTION PENSION PLANS. Section 2006 of the Employee Retirement Income Security Act of 1974 is amended— 26 USC 401 (1) by striking out " January 1, 1977" each place it appears and note, inserting in lieu thereof " January 1, 1978", and (2) by striking out "December 31, 1976" in subsection (d) and inserting in lieu thereof "December 31, 1977". SEC. 1507. CONSOLIDATED RETURNS FOR LIFE AND OTHER INSURANCE COMPANIES. (a) IN GENERAL.—Section 1504(c) (relating to the definition of 26 USC 1504. includible insurance companies) is amended to read as follows: " (c) INCLUDIBLE INSURANCE COMPANIES.—Notwithstanding the pro-

visions of paragraph (2) of subsection (b) — " (1) T w o or more domestic insurance companies each of which is subject to tax under section 802 shall be treated as includible corporations for purposes of applying subsection (a) to such insurance companies alone. " (2)(A) I f an affiliated g r o u p (determined without regard to subsection (b)(2) includes one o r more domestic insurance companies taxed under section 802 or 821, the common parent of such g r o u p may elect (pursuant to regulations prescribed by the Secretary) to treat all such companies as includible corporations for purposes of a p p l y i n g subsection (a) except that no such company shall be so treated until it has been a member of the affiliated g r o u p for the 5 taxable years immediately preceding the taxable year for which the consolidated return is filed. " (B) I f an election under this paragraph is in effect for a taxable year— " (i) section 243(b)(6) and the exception provided under section 243(b)(5) with respect to subsections (b)(2) and (c) of this section, " ( i i) section 542(b)(5), and " ( i i i) subsection (a)(4) and (b)(2)(D) of section 1563, and the reference to section 1563(b)(2)(D) contained in section 1563(b)(3)(C), shall not be effective for such taxable year. (b)

SPECIAL RULES AND CONFORMING AMENDMENTS, —

(1) Section 821 (relating to tax on mutual insurance companies 26 USC 821. to which part II applies, as amended by section 1901(a) (104)(C) of this Act,) is amended by redesignating subsection (e) as sub- Post, p. 1764.

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 9 0 STAT. 1740

PUBLIC LAW 94-455—OCT. 4, 1976 i

section (f), and by a d d i n g after subsection (d) the following new subsection: "(e)

Ante, p. 1606. 26 USC 843.

26 USC 1503.

T A X APPLICABLE TO MEMBER o r GROUP F I L I N G CONSOLIDATED

RETURN.—Notwithstanding any other provision of this section, if a mutual insurance company to which this section applies joins in the filing of a consolidated return (or is required to so file), the applicable tax shall consist of a normal tax and a surtax computed as provided i^^ section 11 as t h o u g h the mutual insurance company taxable income of such company were the taxable income referred to in section 11.". (2) Section 843 (relating to annual accounting period) is amended by a d d i n g at the end thereof the following sentence: " Under regulations prescribed by the Secretary, an insurance company which joins in the filing of a consolidated r e t u r n (or is required to so file) may adopt the taxable year of the common parent corporation even though such year is not a calendar year." (3) Section 1503 (relating to computation and payment of tax) is amended by adding the following new subsection: " (c) SPECIAL RULE FOR APPLICATION o r CERTAIN LOSSES A G A I N S T INCOME OF INSURANCE COMPANIES TAXED U N D E R SECTION 802.—

" (1) IN GENERAL.—If an election under section 1504(c)(2) is in effect for the taxable year and the consolidated taxable income of the members of the group not taxed under section 802 results in a consolidated net operating loss for such taxable year, then under regulations prescribed by the Secretary, the amount of such loss which cannot be absorbed in the applicable carryback periods against the taxable income of such members not taxed under section 802 shall be taken into account in determining the consolidated taxable income of the affiliated g r o u p for such taxable year to the extent of 35 percent of such loss or 35 percent of the taxable income of the members taxed under section 802, whichever is less. The unused portion of such loss shall be available as a carryover, subject to the same limitations (applicable to the sum of the loss for the carryover year and the loss (or losses) carried over to such year), in applicable carryover years. For purposes of this subsection, in determining the taxable income of each insurance company subject to tax under section 802, section 802(b)(3) shall not be taken into account. For taxable years ending with or within calendar year 1981, '25 percent' shall be substituted for '35 percent' each place it appears in the first sentence of this subsection. For taxable years ending with or within calendar year 1982, '30 percent' shall be substituted for '35 percent' each place it appears in that sentence.

.

"(2)

LOSSES o r RECENT NONLIFE AFFILIATES.—Notwithstanding

the provisions of paragraph (1), a net operating loss for a taxable year of a member of the g r o u p not taxed under section 802 shall not be taken into account in determining the taxable income of a member taxed under section 802 (either for the taxable year or as a carryover or carryback) if such taxable year precedes the sixth taxable year such members have been members of the same affiliated g r o u p (determined without regard to section 1504(b)(2)). " 26 USC 1504

(c)

note.

 * '«>T>

EFFECTIVE D A T E AND TRANSITIONAL RULES. —

(1) EFFECTIVE DATE.—The amendments made by subsections (a) and (b) shall apply to taxable years beginning after December 31, 1980. i. 1

(2) TRANSITION RULES W I T H RESPECT TO CARRYOVERS OR CARRYBACKS RELATING TO PRE-ELECTION TAXABLE YEARS AND NONTERMINATiON OF G R O U P. —

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 PUBLIC LAW 94-455—OCT. 4, 1976 (A)

90 STAT. 1741

L I M I T A T I O N S ON CARRYOVERS OR CARRYBACKS FOR GROUPS

ELECTING UNDER SECTION 1504(c)(2).—If an affiliated g r o u p elects to file a consolidated r e t u r n pursuant to section 1504 (c)(2) of the I n t e r n a l Revenue Code of 1954, a carryover of a loss or credit from a taxable year ending before January 1, 1981, and losses or credits which may be carried back to tax able years ending before such date, shall be taken into account as if this section h a d not been enacted. (B) NoNTERMiNATioN OF AFFILIATED GROUP.—The mere election to file a consolidated return pursuant to such section 1504(c)(2) shall not cause the termination of an affiliated g r o u p filing consolidated returns. SEC. 1508. TREATMENT OF CERTAIN LIFE INSURANCE CONTRACTS GUARANTEED RENEWABLE. (a) IN GENERAL. — Paragraph (d)(5) of section 809 (relating to certain nonparticipating contracts) is amended by a d d i n g a t the end thereof the following sentence: " For purposes of this paragraph, the period for which any contract is issued or renewed includes the period for which such contract is guaranteed renewable." (b) EFFECTIVE D A T E. — The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1957. SEC. 1509. STUDY OF EXPANDED PARTICIPATION IN INDIVIDUAL RETIREMENT ACCOUNTS. The Joint Committee on Taxation shall carry out a study with respect to broadening the class of individuals who are eligible to claim a deduction for retirement savings under section 219 or 220 of the I n t e r n a l Revenue Code of 1954 to include individuals who are particip a n t s in pension plans described in section 401(a) of such Code (relating to qualified pension, profit-sharing, and stock bonus plans) or similar plans established for its employees by the United States, by a State or political division thereof, or by an agency or instrumentality of the United States or a State or political division thereof. The Joint Committee shall report its findings to the Committee on W a y s and Means of the House of Representatives and to the Committee on Finance of the Senate.

-

26 USC 809.

26 USC 809 note. 26 USC 8022 note-

26 USC 219. Ante, p. 1734.

Report to congressional committees.

SEC. 1510. TAXABLE STATUS OF PENSION BENEFIT GUARANTY CORPORATION. (a) IN GENERAL.—Section 4002(g)(1) of the Employee Retirement ' Income Security Act of 1974 (29 U.S.C. 1302(f)(1)) is amended by inserting "by the United States (other than taxes imposed under chapter 21 of the I n t e r n a l Revenue Code of 1954, relating to Federal 26 USC 3101. Insurance Contributions Act, and chapter 23 of such Code, relating to 26 USC 3301. Federal Unemployment T a x Act), o r " immediately after "imposed". (b) EFFECTIVE D A T E. — The amendment made by subsection (a) shall 29 USC 1302 take effect on September 2, 1974. note. SEC. 1511. LEVEL PREMIUM PLANS COVERING OWNER-EMPLOYEES. (a) IN GENERAL.—Section 415(c) (relating to limitation for defined 26 USC 415. contribution plans) is amended by a d d i n g after paragraph (6) the following new paragraph: " (7) CERTAIN LEVEL PREMIUM A N N U I T Y CONTRACTS UNDER P L A N S

BENEFITING

OWNER-EMPLOYEES.—Paragraph

(1)(B)

shall

not

a p p l y to a contribution described in section 401(e) which is made on behalf of a part i c i p a n t for a year to a plan which benefits an owner-employee (within the meaning of section 401(c)(3)), if—

89-194 O—78—pt. 2

18

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 90 STAT. 1742

PUBLIC LAW 94-455—OCT. 4, 1976 •i^^'C""'' •

" (A) the annual addition determined under this section with respect to the participant for such year consists solely of such contribution, and " (B) the participant is not an active participant at any time during such year in a defined benefit plan maintained by the employer. For purposes of this section and section 401(e), in the case of a plan which provides contributions or benefits for employees who are not owner-employees, such plan will not be treated as failing to satisfy section 4 0 1 (a)(4) merely because contributions made on behalf of employees w h o a r e not owner-employees a r e not permitted to exceed the limitations of paragraph (1)(B). " (b) ErrECTivE D A T E. — The amendment made by this section shall apply for years beginning after December 31, 1975. SEC. 1512. LUMP-SUM DISTRIBUTIONS FROM QUALIFIED PENSION, ETC., PLANS. (a) IN GENERAL.—Section 4 0 2 (e)(4) (relating to definitions and special rules) is amended by a d d i n g a t the end thereof the following new subparagraph:

26 USC 401.

26 USC 415 note.

26 USC 402. f»,)p;^;. !

V.,

26 USC 402 note

" (L) ELECTION TO TREAT P R E - I 9 74 PARTICIPATION AS POST-

1973 PARTICIPATION.—For purposes of subparagraph (E), subsection (a)(2), and section 403(a)(2), if a taxpayer elects (at the time and in the manner provided under regulations prescribed by the Secretary), all calendar years of an employee's active participation in all plans in which the employee has been an active participant shall be considered years of active participation by such employee after December 31, 1973. A n election made under this subparagraph, once made, shall be irrevocable and shall apply to all lump-sum distributions received by the tax p a y e r with respect to the employee. This subparagraph shall not apply if the tax p a y e r received a lump-sum distribution in a previous taxable year of the ^ employee beginning after December 31, 1975, unless no portion of such lump-sum distribution was treated under subsection (a)(2) or section 403(a)(2) as gain from the sale or exchange of a capital asset held for more than 6 months." (^) EFFECTIVE D A T E. — The amendment made by this section shall apply to distributions and payments made after December 31, 1975, in taxable years beginning after such date.

TITLE XVI—REAL ESTATE INVESTMENT TRUSTS '

"

SEC. 1601. DEFICIENCY DIVIDEND PROCEDURE. (a) IN GENERAL.—

26 USC 859.
 * ?J.# v*^j ii^

(1) Part II of subchapter M of chapter 1 (relating to real estate investment trusts) is amended by adding a t the end thereof the following new section: "SEC. 859. DEDUCTION FOR DEFICIENCY DIVIDENDS. "(a)

GENERAL RULE. — I f a determination

(as defined in subsec-

tion (c)) with respect to a real estate investment t r u s t results in any adjustment (as defined in subsection (b)(1)) for any taxable year, a deduction shall be allowed to such t r u s t for the amount of deficiency dividends (as defined in subsection (d)) for purposes of determining

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 90 STAT. 1743

PUBLIC LAW 94-455—OCT. 4, 1976

the deduction for dividends paid (for purposes of section 857) for 26 USC 857. such year. " (b) RULES FOR APPLICATION OF S E C T I O N. —

" (1) ADJUSTMENT. — For purposes of this section, the term "Adjustment." 'adjustment' means— " (A) any increase in the sum of— " (i) the real estate investment t r u s t taxable income .,,!:, t,;' of the real estate investment trust (determined without regard to the deduction for dividends paid ( a s defined in section 561) and by excluding any n e t capital g a i n), and " ( i i) the excess of the n e t income from foreclosure property (as defined in section 857(b)(4)(B)) over the tax on such income imposed by section 8 5 7 (b)(4)(A), " (B) any increase in the amount of the excess described in section 857(b)(3)(A) (ii) (relating to the excess of the Post, p. 1756. net capital gain over the deduction for capital gains dividends p a i d), and " (C) any decrease in the deduction for dividends paid (as defined i n section 561) determined without regard to capital gains dividends. "(2) INTEREST AND ADDITIONS TO TAX DETERMINED W I T H RESPECT TO THE AMOUNT OF DEFICIENCY DIVIDEND DEDUCTION

ALLOWED.—For purposes of determining interest, additions to tax, and additional amounts— " (A) the tax imposed by this chapter (after taking into account the deduction allowed by subsection (a)) on the real estate investment trust for the taxable year with respect to which the determination is made shall be deemed to be increased by a n amount equal to the deduction allowed by subsection (a) with respect to such taxable year, " (B) the last date prescribed for payment of such increase in tax shall be deemed to have been the last date prescribed for the payment of tax (determined i n the manner provided by section 6601(c)) for the taxable year with respect to which the determination is made, and " (C) such increase in tax shall be deemed to be paid as of the date the claim for the deficiency dividend deduction is filed. "(3)

CREDIT OR REFUND.—If

the allowance

of

a

deficiency

dividend deduction results in an overpayment of tax for any taxable year, credit or refund with respect to such overpayment shall be made as if on the date of the determination 2 years remained before the expiration of the period of limitations on the filing of claim for refund for the taxable year to which the overpayment relates. " (c) DETERMINATION.—For purposes of this section, the term "Determina'determination' means— tion." " (1) a decision by the T a x Court, or a judgment, decree, or other order by any court of competent jurisdiction, which has become final; " (2) a closing agreement made under section 7121; or " (3) under regulations prescribed by the Secretary, an agree- Regulations. ment signed by the Secretary and by, or on behalf of, the real estate investment trust relating to the liability of such trust for tax.

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Page:United States Statutes at Large Volume 90 Part 2.djvu/276

 9 0 STAT. 1 7 4 4

PUBLIC LAW 94-455—OCT. 4, 1976 " (d) D E F I C I E N C T DIVIDENDS.—

'"' 26 USC 561.

M.?(

'

.

~

..^

" (1) DEFINITION. — For purposes of this section, the term 'deficiency dividends' means a distribution of property made by the real estate investment t r u s t on or after the date of the determination and before filing claim under subsection (e), which would have been includible in the computation of the deduction for dividends paid under section 561 for the taxable year with respect to which the liability for tax resulting from the determination exists, if distributed during such taxable year. N o distribution of property shall be considered as deficiency dividends for purposes of subsection (a) unless distributed within 90 days after the determination, and unless a claim for a deficiency dividend deduction with respect to such distribution is filed pursuant to subsection (e). ^ " (2) LIMITATIONS.—

"(A)

ORDINARY DIVIDENDS.—The amount of

deficiency

dividends (other than deficiency dividends qualifying as capital gain dividends) paid by a real estate investment t r u s t for the taxable year with respect to which the liability for tax resulting from the determination exists shall not exceed the sum of— " (i) the excess of the amount of increase referred to in subparagraph (A) of subsection (b)(1) over the amount of any increase i n the deduction for dividends paid (computed without regard to capital gain dividends) for such taxable year which results from such determination, and " ( i i) the amount of decrease referred to i n subparagraph (C) of subsection (b)(1). " (B) CAPITAL GAIN DIVIDENDS.—The a m o u n t of deficiency

dividends qualifying as capital gain dividends paid by a real estate investment t r u s t for the taxable year with respect to which the liability for tax resulting from the determination exists shall not exceed the amount by which (i) the increase referred to in subparagraph (B) of subsection (b)(1) exceeds (ii) the amount of any dividends paid during such taxable year which are designated as capital gain dividends after such determination. " (3) E F F E C T ON DIVIDENDS PAID DEDUCTION.— " (A) FOR TAXABLE YEAR I N W H I C H

PAID.—Deficiency

dividends p a i d i n any taxable year shall not be included i n the amount of dividends paid for such year for purposes of computing the dividends paid deduction for such year. " (B) FOR PRIOR TAXABLE YEAR.—Deficiency dividends p a i d

in any taxable year shall not be allowed for purposes of section 858(a) in the computation of the dividends p a i d deduction for the taxable year preceding the taxable year i n which paid. " (e) CLAIM REQUIRED.—No deficiency dividend deduction shall be allowed under subsection (a) unless (under regulations prescribed by the Secretary) claim therefor is filed within 120 days after the date of the determination. " (f) SUSPENSION OF STATUTE OF LIMITATIONS AND S T A Y OF COLLECTION.— " (1) SUSPENSION OF R U N N I N G OF STATUTE.—If the r e a l estate

investment t r u s t files a claim as provided i n subsection (e), the

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Page:United States Statutes at Large Volume 90 Part 2.djvu/277

 PUBLIC LAW 94-455—OCT. 4, 1976 r u n n i n g of the statute of limitations provided i n section 6501 on the making of assessments, and the bringing of distraint or a proceeding in court for collection, in respect of the deficiency established by a determination under this section, and all interest, additions to tax, additional amounts, or assessable penalties i n respect thereof, shall be suspended for a period of 2 years after the date of the determination. " (2) STAY o r COLLECTION.—In the case of any deficiency established by a determination under this section— " (A) the collection of the deficiency, and all interest, additions to tax, additional amounts, and assessable penalties i n respect thereof, shall, except i n cases of jeopardy, be stayed until the expiration of 120 days after the date of the determination, and " (B) if claim for a deficiency dividend deduction is filed under subsection (e), the collection of such part of the deficiency as is not reduced by the deduction for deficiency dividends provided i n subsection (a) shall be stayed u n t i l the date the claim is disallowed (in whole or in part), and if disallowed i n part collection shall be made only with respect to the part disallowed. No distraint or proceeding in court shall be begun for the collection of a n amount the collection of which is stayed under subparagraph (A) or (B) during the period for which the collection of such amount is stayed.

9 0 STAT. 1745

v

r'*' C

' j.

" (g) DEDUCTION D E N I E D I N CASE OF F R A U D. — N o deficiency dividend

deduction shall be allowed under subsection (a) if the determination contains a finding that any part of any deficiency attributable to an adjustment with respect to the taxable year is due to fraud with intent to evade tax o r to willful failure to file a n income tax return within the time prescribed by law or prescribed by the Secretary i n pursuance of law. "(h)

r'

,., iv

PENALTY.—

"For assessable penalty with respect to liability for tax of real estate investment trust which is allowed a deduction under subsection (a), see section 6697." (2) The table of sections for such part II is amended by a d d i n g at the end thereof the following new item: "Sec. 859. Deduction for deficiency dividends." (b) PENALTY.—

(1) Subchapter B of chapter 68 (relating to assessable penalties) is amended by a d d i n g a t the end thereof the following new section: "SEC. 6697. ASSESSABLE PENALTIES WITH RESPECT TO LIABILITY FOR 26 USC 6697. TAX OF REAL ESTATE INVESTMENT TRUSTS. " (a) CIVIL P E N A L T Y. — I n addition to any other penalty provided by law, any real estate investment t r u s t whose tax liability for any taxable year is deemed to be increased pursuant to section 859(b)(2)(A) Anu, p. 1742. (relating to interest and additions to tax determined with respect to the amount of the deduction for deficiency dividends allowed) shall p a y a penalty in an amount equal to the amount of interest for which such t r u s t is liable that is attributable solely to such increase. " (b) 50-PERCENT LIMITATION.—The penalty payable under this section w i t h respect to any determination shall not exceed one-half of the amount of the deduction allowed by section 859(a) for such taxable year.

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 9 0 STAT. 1746

PUBLIC LAW 94-455—OCT. 4, 1976 "(c)

26 USC 6211.

D E F I C I E N C Y PROCEDURES N O T TO A P P L Y. — Subchapter B

of

chapter 63 (relating to deficiency procedure for income, estate, gift, and certain excise taxes) shall not apply in respect of the assessment or collection of any penalty^ imposed by subsection (a). " (2) The table of sections for such subchapter B is amended by a d d i n g at the end thereof the following: "Sec. 6697. Assessable penalties with respect to liability for tax of real ( estate investment trusts." (c) L A T E DESIGNATION AND P A Y M E N T OF CAPITAL G A I N DIVIDEND.—

26 USC 857.

26 USC 316.

The first sentence of subparagraph (C) of section 857(b)(3) (defining capital g a i n dividend) is amended by inserting before the period at the end thereof the following: "; except that, if there is an increase in the excess described in subparagraph (A) (ii) of this paragraph for such year which results from a determination (as defined in section 8 5 9 (c)), such designation may be made with respect to such increase at any time before the expiration of 120 days after the date of such determination". (d)

DEFINITION

OF DIVIDEND.—Subsection

(b)

of

section

316

(relating to the definition of dividend) is amended by a d d i n g a new paragraph (3) at the end thereof, to read as follows: "(3)

D E F I C I E N C Y DIVIDEND DISTRIBUTIONS BY A REAL ESTATE

INVESTMENT TRUST.—The term 'dividend' also means any distribution of property (whether or not a dividend as defined in subsection (a)) which constitutes a 'deficiency dividend' as defined in section 8 5 9 (d). " 26 USC 381.

(e) CARRYOVER OF DEFICIENCY DIVIDEND.—Section 381(c) ( r e l a t i n g

to carryovers in certain corporate acquisitions) is amended by a d d i n g a new paragraph (25) at the end thereof, to read as follows: " (25) D E F I C I E N C Y DIVIDEND OF REAL ESTATE INVESTMENT TRUST.—

Ante, p. 1742.

I f the acquiring corporation pays a deficiency dividend (as defined in section 8 5 9 (d)) with respect to the distributor or transferor corporation, such distributor or transferor corporation shall, with respect to such payments, be entitled to the deficiency dividend deduction provided in section 859." (f) T E C H N I C A L AMENDMENTS. —

26 USC 6422.

26 USC 6503.

26 USC 6515. ^,_

26 USC 856.

(1) Section 6422 (relating to certain cross references) is amended by a d d i n g a new paragraph (14) at the end thereof to read as follows: "(14) for credit or refund in case of deficiency dividends paid by a real estate investment trust, see section 859." (2) Section 6503(i) (relating to certain cross references) is amended by a d d i n g a new paragraph (5) at the end thereof, to read as follows: "(5) Deficiency dividends of a real estate investment trust, see section 859(f).'' (3) Section 6515 (relating to certain cross references) is amended by a d d i n g a new paragraph (8) a t the end thereof, to read as follows: "(8) Deficiency dividends of a real estate investment trust, see section 859." SEC. 1602. TRUST NOT DISQUALIFIED IN CERTAIN CASES WHERE INCOME TESTS WERE NOT MET. (a) DISQUALIFICATION N o r APPLIED.—Section 856(c) (relating to limitations) is amended by a d d i n g a t the end thereof the following new paragraph: ,,

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 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1747

" (7) A corporation, trust, or association which fails to meet the requirements of paragraph (2) or (3), or of both such paragraphs, for any taxable year shall nevertheless be considered to nave satisfied the requirements of such paragraphs for such taxable year if— "(A) the nature and amount of each item of its gross income described in such paragraphs is set forth in a schedule attached to its income tax return for such taxable year; "(B) the inclusion of any incorrect information in the schedule referred to in subparagraph (A) is not due to fraud with intent to evade tax; and "(C) the failure to meet the requirements of paragraph (2) or (3), or of both such paragraphs, is due to reasonable cause and not due to willful neglect.", (b)

S

IMPOSITION or SPECIAL TAXES.—

(1) Section 857(b) (relating to method of taxation of real 26 USC 857. estate investment trusts, etc.) is amended by redesignating paragraph (5) as paragraph (7) and by inserting after paragraph (4) the following new paragraph: "(6)

IMPOSITION or TAX IN CASE or FAILURE TO MEET CERTAIN

REQUIREMENTS.—If section 856(c)(7) applies to a real estate investment trust for any taxable year, there is hereby imposed on such trust a tax in an amount equal to the greater of— "(A) the excess of— " (i) 95 percent (90 percent in the case of taxable years beginning before January 1, 1980) of the gross income (excluding gross income from prohibited transactions) of the real estate investment trusty over " (ii) the amount of such gross income which is derived from sources referred to in section 856(c)(2); or "(B) the excess of— "(i) 75 percent of the gross income (excluding gross income from prohibited transactions) of the real estate investment trust, over " (ii) the amount of such gross income which is derived from sources referred to in section 856(c)(3), multiplied by a fraction the numerator of which is the real estate investment trust taxable income for the taxable year (determined without regard to the deductions provided in paragraphs (2)(B) and (2)(E), without regard to any net operating loss deduction, and by excluding any net capital gain) and the denominator of which is the gross income for the taxable year (excluding gross income from prohibited transactions; gross income and gain from foreclosure property (as defined in section 856(e), but only to the extent such gross income and gain is not described in subparagraph (A), (B), (C), (D), (E), or (G) of section 856(c)(3)); longterm capital gain; and short-term capital gain to the extent of any short-term capital loss)." (2) Section 857(b)(2) (relating to real estate investment trust taxable income) is amended by inserting after subparagraph (D) (as redesignated by section 1606(a) of this Act) the following new subparagraph: " (E) There shall be deducted an amount equal to the tax imposed by paragraph (5) for the taxable year.".

Ante, p. 174-2.

26 USC 856. Post, p. 1750. 26 USC 857.

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Page:United States Statutes at Large Volume 90 Part 2.djvu/280

 90 STAT. 1748

PUBLIC LAW 94-455—OCT. 4, 1976 SEC. 1603. TREATMENT OF PROPERTY HELD FOR SALE TO CUSTOMERS. (a)

ELIMINATION OF HOLDING FOR SALE RULE AS QUALIFICATION

26 USC 856.

REQUIREMENT.—Section 856(a) (defining real estate investment trust) is amended by striking out paragraph (4). (b) TAX ON INCOME FROM PROPERTY DESCRIBED IN SECTION 1221(1)

26 USC 857.

THAT I S NOT FORECLOSURE PROPERTY.—Section 857(b) (relating to

method of taxation of real estate investment trusts, etc.) is amended by inserting after paragraph (5) (as added by section 1602(b)(1) of this Act) the following new paragraph: " (6) I N C O M E FROM P R O H I B I T E D TRANSACTIONS.—

i > • t? '>.i. »

"(A) IMPOSITION OF TAX.—There is hereby imposed for each taxable year of every real estate investment trust a tax equal to 100 percent of the net income derived from prohibited transactions. " (B) DEFINITIONS.—For purposes of this part— "(i) the term 'net income derived from prohibited transactions' means the excess of the gain from prohibited transactions over the deductions allowed by this chapter which are directly connected with prohibited transactions; "(ii) the term 'net loss derived from prohibited transactions' means the excess of the deductions allowed by this chapter which are directly connected with prohibited transactions over the gain from prohibited transactions; and "(iii) the term 'prohibited transaction' means a sale or other disposition of property described in section 1221 (1) which is not foreclosure property." (c) TECHNICAL AMENDMENTS.—

26 USC 856.

26 USC 857.

(1) So much of paragraph (3) of section 856(c) (relating to limitations) as precedes subparagraph (A) thereof is amended to read as follows: "(3) at least 75 percent of its gross income (excluding gross income from prohibited transactions) is derived from—". (2) Section 856(c)(2) (relating to limitations) is amended by inserting before the semicolon m subparagraph (D) thereof "which is not property described in section 1221(1)". (3) Section 856(c)(3) (relating to limitations) is amended by inserting before the semicolon in subparagraph (C) thereof "which IS not property described in section 1221(1)". (4) Section 856(e)(1) (defining foreclosure property) is amended by adding at the end thereof the following sentence: "Such term does not include property acquired by the real estate investment trust as a result of indebtedness arising from the sale or other disposition of property of the trust described in section 1221(1) which was not originally acquired as foreclosure property." (5) Section 857(b)(2) (relating to real estate investment trust taxable income) is amended by adding a new subparagraph (F) immediately after subparagraph (E) (as added by section 1602 (b)(2) of this Act), to read as follows: " (F) There shall be excluded an amount equal to any net income derived from prohibited transactions and there shall be included an amount equal to any net loss derived from prohibited transactions."

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Page:United States Statutes at Large Volume 90 Part 2.djvu/281

 PUBLIC LAW 94-455—OCT. 4, 1976

9 0 STAT. 1749

SEC. 1604. OTHER CHANGES IN LIMITATIONS AND REQUIREMENTS. (a)

INCREASE I N 9 0 - P E R C E N T GROSS INCOME REQUIREMENT TO 95

PERCENT.—Section 856(c)(2) (relating to limitations) is amended by 26 USC 856. striking out "90 percent of its gross income" and inserting in lieu thereof "95 percent (90 percent for taxable years beginning before January 1, 1980) of its gross income (excluding gross income from prohibited transactions)". (b) APPORTIONMENT OF R E N T A L INCOME AND CHARGES FOR CUSTOMARY SERVICES; C H A N G E I N DEFINITION OF INDEPENDENT CONTRACTOR.—

Subsection (d) of section 856 (defining rents from real property) is amended to read as follows: " (d) R E N T S F R O M R E A L PROPERTY D E F I N E D. — " (1) A M O U N T S INCLUDED.—For purposes of paragraph s (2) and

(3) of subsection (c), the term 'rents from real property' includes (subject to paragraph (2)) — " (A) rents from interests in real property, " (B) charges for services customarily furnished or rendered in connection with the rental of real property, whether or not such charges are separately stated, and " (C) rent attributable to personal property which is leased under, or in connection with, a lease of real property, b u t only if the rent attributable to such personal property for the taxable year does not exceed 15 percent of the total rent for the taxable year attributable to both the real and personal property leased under, o r in connection with, such lease. For purposes of subparagraph (C), with respect to each lease of real property, rent attributable to personal property for the taxable year is that amount which bears the same ratio to total rent for the taxable year as the average of the adjusted bases of the personal property a t the beginning and at the end of the taxable year bears to the average of the aggregate adjusted bases of both the real property and the personal property a t the beginning and at the end of such taxable year. " (2) A M O U N T S EXCLUDED.—For purposes of paragraph s (2) and

(3) of subsection (c), the term 'rents from real property' does not include— " (A) except as provided i n paragraph (4), any amount received or accrued, directly or indirectly, with respect to any real or personal property, if the determination of such amount depends in whole or in part on the income o r profits derived by any person from such property (except that any amount so received o r accrued shall not be excluded from the term 'rents from real property' solely by reason of being based on a fixed percentage or percentages of receipts or s a l e s); " (B) any amount received or accrued directly or indirectly from any person if the real estate investment t r u s t owns, directly or indirectly— stock of such person possessing 10 percent o r more of the total combined voting power of all classes of stock entitled to vote, o r 10 percent or more of the total number of shares of all classes of stock of such person; or " ( i i) i n the case of any person which is not a corporation, an interest of 10 percent or more i n the assets or net profits of such person; and " (C) any amount received or accrued, directly or indirectly, with respect to any real or personal property if the real
 * '(i) i n the case of any person which is a corporation,

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