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 PUBLIC LAW 98-369—JULY 18, 1984 m et

"(B) after the application of section 246 (but without regard to subsection (b) thereof), and "(C) after the appHcation of section 246A."

98 STAT. 5(35

Ante, p. 562.

(c) GROSS INCOME INCLUDES N E T SHORT-TERM CAPITAL GAIN.—

Paragraph (3)(A) of section 854(b) is amended to read as follows: "(A) In the case of 1 or more sales or other dispositions of stock and securities, the term 'gross income' includes only the excess of^ "(i) the net short-term capital gain from such sales or g,,. dispositions, over "(ii) the net long-term capital loss from such sales or dispositions." (d) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years of regulated investment companies beginning after the date of the enactment of this Act.

26 USC 854.

26 USC 854 note.

PART II—TREATMENT OF CERTAIN DISTRIBUTIONS SEC. 53. CORPORATE SHAREHOLDER'S BASIS IN STOCK REDUCED BY NONTAXED PORTION OF EXTRAORDINARY DIVIDENDS.

(a) GENERAL RULE.—Part IV of subchapter O of chapter 1 (relating to special rules for gain or loss on disposition of property) is amended by redesignating section 1059 as section 1060 and by inserting after section 1058 the following new section: "SEC. 1059. CORPORATE SHAREHOLDER'S BASIS IN STOCK REDUCED BY NONTAXED PORTION OF EXTRAORDINARY DIVIDENDS.

"(a) GENERAL RULE.—If any corporation— "(1) receives an extraordinary dividend with respect to any share of stock, and "(2) sells or otherwise disposes of such stock before such stock has been held for more than 1 year, the basis of such corporation in such stock shall be reduced by the nontaxed portion of such dividend. If the nontaxed portion of such dividend exceeds such basis, such excess shall be treated as gain from the sale or exchange of such stock. "(b) NONTAXED PORTION.—For purposes of this section— "(1) IN GENERAL.—The nontaxed portion of any dividend is the excess (if any) of— "(A) the amount of such dividend, over "(B) the taxable portion of such dividend. "(2) TAXABLE PORTION.—The taxable portion of any dividend

is— "(A) the portion of such dividend includible in gross income, reduced by "(B) the amount of any deduction allowable with respect to such dividend under section 243, 244, or 245. "(c) EXTRAORDINARY DIVIDEND DEFINED.—For purposes of this section— "(1) IN GENERAL.—The term 'extraordinary dividend' means any dividend with respect to a share of stock if the amount of such dividend equals or exceeds the threshold percentage of the taxpayer's adjusted basis in such share of stock (determined without regard to this section). I "(2) THRESHOLD PERCENTAGE.—The term 'threshold percentage' means—

26 USC 1060. 26 USC 1059.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/614

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 566 jiiorf; AH H

-/na'.

to- )6U 02

"(A) 5 percent in the case of stock which is preferred as to dividends, and "(B) 10 percent in the case of any other stock. "(3) AGGREGATION OF DIVIDENDS.— "(A) AGGREGATION WITHIN 85-DAY PERIOD.—All

dividends— "(i) which are received by the taxpayer (or a person described in subparagraph (O) with respect to any ic;3! i share of stock, and "(ii) which have ex-dividend dates within the same T '' O period of 85 consecutive days, ^, shall be treated as 1 dividend. aionit^'Fii Bi i: "(B) AGGREGATION WITHIN i YEAR WHERE DIVIDENDS EXCEED 20 PERCENT OF ADJUSTED BASIS.—All dividends— "(i) which are received by the taxpayer (or a person described in subparagraph (O) with respect to any share of stock, and "(ii) which have ex-dividend dates during the same •my period of 365 consecutive days, shall be treated as extraordinary dividends if the aggregate of such dividends exceeds 20 percent of the taxpayer's adjusted basis in such stock (determined without regard to this section). "(C) SUBSTITUTED BASIS TRANSACTIONS.—In the case of any ^, stock, a person is described in this subparagraph if— .eaoi:)BL' m "(i) the basis of such stock in the hands of such person is determined in whole or in part by reference to the basis of such stock in the hands of Ihe taxpayer, or '^^-" ^ ' "(ii) the basis of such stock in the hands of the taxpayer is determined in whole or in part by reference to the basis of such stock in the hands of such person. "(d) SPECIAL RULES.—For purposes of this section— "(1) TIME FOR REDUCTION.—Any reduction in basis under subsection (a) by reason of any distribution which is an extraordinary dividend shall occur at the beginning of the ex-dividend date for such distribution. "(2) DISTRIBUTIONS IN KIND.—To the extent any dividend consists of property other than cash, the amount of such dividend shall be treated as the fair market value of such property (as of the date of the distribution) reduced as provided in section 301(b)(2). "(3)

DETERMINATION OF HOLDING PERIOD.—For purposes of

determining the holding period of stock under subsection (a)(2), rules similar to the rules of paragraphs (3) and (4) of section 246(c) shall apply; except that '1 year' shall be substituted for the number of days specified in subparagraph (B) of section 246(c)(3). "(4) EX-DIVIDEND DATE.—The term 'ex-dividend date' means the date on which the share of stock becomes ex-dividend. "(5) EXTENSION TO CERTAIN PROPERTY DISTRIBUTIONS.—In the

case of any distribution of property (other than cash) to which section 301 applies— "(A) such distribution shall be treated as a dividend J J.. without regard to whether the corporation has earnings and profits, and

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


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Page:United States Statutes at Large Volume 98 Part 1.djvu/615

 PUBLIC LAW 98-369—JULY 18, 1984 "(B) the amount so treated shall be reduced by the amount of any reduction in basis under section 301(c)(2) by reason of such distribution. "(e) REGULATIONS.—The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including regulations providing for the application of this section in the case of stock dividends, stock splits, reorganizations, and other similar transactions."

98 STAT. 567

f •'

(b) HOLDING PERIODS.— (1) 45-DAY HOLDING PERIOD.—Subsection (c) of section 246 (re-

 * ii • J>T '•s

26 USC 246.

lating to the exclusion of certain dividends) is amended by striking out "15" each place it appears and inserting in lieu thereof "45". •

(2) RULES FOR COMPUTING HOLDING PERIODS.—Subsection (c) of section 246 (relating to the exclusion of certain dividends) is amended by a d d i n g a t the e n d thereof the following n e w p a r a -

I'-r,,; •:>•

graph: "(4) HOLDING PERIOD REDUCED FOR PERIODS WHERE RISK OF LOSS

DIMINISHED.—The holding periods determined under paragraph (3) shall be appropriately reduced (in the manner provided in regulations prescribed by the Secretary) for any period (during such periods) in which— '' "(A) the taxpayer has an option to sell, is under a contractual obligation to sell, or has made (and not closed) a short sale of, substantially identical stock or securities, "(B) the taxpayer is the grantor of an option to buy substantially identical stock or securities, or .i-^: "(C) under regulations prescribed by the Secretary, a ., taxpayer has diminished his risk of loss by holding 1 or more other positions with respect to substantially similar or related property. ^. The preceding sentence shall not apply in the case of any qualified covered call (as defined in section 1092(c)(4) but without regard to the requirement that gain or loss with respect to ,.; the option not be ordinary income or loss)." j (3) Subparagraph (B) of section 246(c)(1) is amended to read as follows: .. "(B) to the extent that the taxpayer is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property." (4) Paragraph (3) of section 246(c) is amended by striking out the last sentence. (c) APPLICATION OF RELATED PERSON RULES TO SECTION 246(c) AND

• •

.,

.r

Post, p. 616.

CERTAIN OTHER PROVISIONS.—Section 7701 is amended by redesig-

nating subsection (f) as (g) and by inserting after subsection (e) the Ante, p. 518. following new subsection: "(f) USE OF RELATED PERSONS OR PASS-THRU ENTITIES.—The Secre- Regulations, tary shall prescribe such regulations as may be necessary or appropriate to prevent the avoidance of those provisions of this title which deal with— "(1) the linking of borrowing to investment, or "(2) diminishing risks, through the use of related persons, pass-thru entities, or other intermediaries." (d) CONFORMING AMENDMENTS.—

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Page:United States Statutes at Large Volume 98 Part 1.djvu/616

 98 STAT. 568

PUBLIC LAW 98-369—JULY 18, 1984 (1) The table of sections for part IV of subchapter O of chapter 1 is amended by striking out the item relating to section 1059 and inserting in lieu thereof the following new items: "Sec. 1059. Corporate shareholder's basis in stock reduced by nontaxed portion of extraordinary dividends. "Sec. 1060. Cross references."

26 USC 246.

(2) Paragraph (1) of section 246(b) (relating to limitation on aggregate amount of deduction) is amended by striking out "and without regard" and inserting in lieu thereof "without regard to any adjustment under section 1059, and without regard". (3) Section 1016(a) (relating to adjustments to basis) is amended by striking out "and" at the end of paragraph (24), by striking out the period at the end of paragraph (25) and inserting in lieu thereof ", and" and by adding at the end thereof the following new paragraph: "(26) to the extent provided in section 1059 (relating to reduction in basis for extraordinary dividends)."

26 USC 1016.

Ante, p. 565. 26 USC 1059

note.

(e) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as provided in this subsection, the amendments made by this section shall apply to distributions after March 1, 1984, in taxable years ending after such date. (2) SUBSECTION (b).—The amendments made by subsection (b) shall apply to stock acquired after the date of the enactment of this Act in taxable years ending after such date. (3) RELATED PERSON PROVISIONS.—The amendment made by subsection (c) shall take effect on the date of the enactment of this Act. SEC. 54. DISTRIBUTIONS OF APPRECIATED PROPERTY BY CORPORATIONS. (a) GAIN PROPERTY.—

26 USC 311. ^, -d . -.

RECOGNIZED

ON

DISTRIBUTIONS

OF

APPRECIATED

(1) IN GENERAL.—Paragraph (1) of section 311(d) (relating to appreciated property used to redeem stock) is amended to read as follows: -- •

"(1) IN GENERAL.—If—

"(A) a corporation distributes property (other than an obligation of such corporation) to a shareholder in a distribution to which subpart A applies, and "(B) the fair market value of such property exceeds its adjusted bsisis (in the hands of the distributing corporation), then gain shall be recognized to the distributing corporation in an amount equal to such excess as if the property distributed had been sold at the time of the distribution. This subsection shall be applied after the application of subsections (b) and (c)." (2) EXCEPTIONS.—

' ' > ^ *i .taAm'-pj-<^iil

T'jiito /

(A) Paragraph (2) of section 311(d) is amended by striking out subparagraphs (A) and (B) and inserting in lieu thereof the following: "(A) a distribution which is made with respect to qualified stock if— "(i) section 302(b)(4) applies to such distribution, or "(ii) such distribution is a qualified dividend;". (B) Paragraph (2) of section 311(d) is amended by redesignating subparagraphs (C), (D), (E), and (F) as subparagraphs (B), (C), (D), and (E), respectively. (C) Subsection (e) of section 311 is amended by adding at the end thereof the following new paragraph:

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Page:United States Statutes at Large Volume 98 Part 1.djvu/617

 PUBLIC LAW 98-369—JULY 18, 1984

f '

98 STAT. 569

"(3) QUALIFIED DIVIDEND.—The term 'qualified dividend' means any distribution of property to a shareholder other than a corporation if— "(A) such distribution is a dividend, "(B) such property was used by the distributing corporation in the active conduct of a qualified business (as defined in paragraph (2)), and "(C) such property is not property described in paragraph (Dor (4) of section 1221." (3) CLERICAL AMENDMENT.—The subsection heading of subsection (d) of section 311 is amended to read as follows:

26 USC 311.

"(d) DISTRIBUTIONS OF APPRECIATED PROPERTY.—". (b) HOLDING PERIOD OF CORPORATE DISTRIBUTEE OF APPRECIATED

PROPERTY.—Section 301 (relating to distributions of property) is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection:

26 USC 301.

"(e) SPECIAL RULE FOR HOLDING PERIOD OF APPRECIATED PROPERTY DISTRIBUTED TO CORPORATION.—For purposes of this subtitle— "(1) WHERE GAIN RECOGNIZED UNDER SECTION 3ii(d).—If—

' l

"(A) property is distributed to a corporation, and "(B) gain is recognized on such distribution under paragraph (1) of section 311(d), then such corporation's holding period in the distributed property shall begin on the date of such distribution.

Ante, p. 568.

"(2) WHERE GAIN NOT RECOGNIZED UNDER SECTION 3ii(d).—

If— i J c

"(A) property is distributed to a corporation, "(B) gain is not recognized on such distribution under paragraph (1) of section 311(d), and "(C) the basis of such property in the hands of such corporation is determined under subsection (d)(2)(B), then (except for purposes of section 1248) such corporation shall not be treated as holding the distributed property during any period before the date on which such corporation's holding period in the stock began." (c) CROSS REFERENCE.—Paragraph (13) of section 1223 (relating to

ja^,-. t. A

Post, p. 890.

holding period of property) is amended to read as follows: "(13) CROSS REFERENCES.— "(A) For special holding period provision relating to certain partnership distributions, see section 735(b). "(B) For special holding period provision relating to distributions of appreciated property to corporations, see section 301(e)."

(d) EFFECTIVE DATES.— (1) SUBSECTION (a).—Except as otherwise provided in this subsection, the amendments made by subsection (a) shall apply to distributions declared on or after June 14, 1984, in taxable years ending after such date. (2) SUBSECTION (b).—The amendment made by subsection (b) f shall apply to distributions after the date of the enactment of this Act in taxable years ending after such date. (

(3) EXCEPTION FOR DISTRIBUTIONS BEFORE JANUARY i, 1985, TO 80-PERCENT CORPORATE SHAREHOLDERS.—

(A) IN GENERAL.—The amendments made by subsection (a) shall not apply to any distribution before January 1, 1985, to an 80-percent corporate shareholder if the basis of

Supra.

26 USC 3ii note.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/618

 98 STAT. 570

PUBLIC LAW 98-369—JULY 18, 1984 ..

the property distributed is determined under section 301(d)(2) of the Internal Revenue Code of 1954. (B) 80-PERCENT CORPORATE SHAREHOLDER.—The term "80-

, J. i 1 'jj^. 1 ai. ,,,.,p J J f

percent corporate shareholder" means, with respect to any distribution, any corporation which owns— (i) stock in the corporation making the distribution possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote, and (ii) at least 80 percent of the total number of shares of all other classes of stock of the distributing corporation (except nonvoting stock which is limited and preferred as to dividends). (C) SPECIAL RULE FOR AFFILIATED GROUP FIUNG CONSOLIDATED RETURN.—For purposes of this paragraph and para-

graph (4), all members of the same affiliated group (as defined in section 1504 of the Internal Revenue Code of 1954) which file a consolidated return for the taxable year which includes the date of the distribution shall be treated as 1 corporation. (4) EXCEPTION FOR CERTAIN DISTRIBUTIONS WHERE TENDER OFFER COMMENCED ON MAY 23, 1984.—

(A) IN GENERAL.—The amendments made by subsection (a) shall not apply to any distribution made before September 1, 1986, if— (i) such distribution consists of qualified stock held " '^' * (directly or indirectly) on June 15, 1984, by the distributing corporation, (ii) control of the distributing corporation (as defined Post, p. 584. lebnrj r in section 368(c) of the Internal Revenue Code of 1954) is acquired other than in a tax-free transaction after ( 3' f. • ^ ^ January 1, 1984, but before January 1, 1985, (iii) a tender offer for the shares of the distributing corporation was commenced on May 23, 1984, and was amended on May 24, 1984, and 3iiK>, (iv) the distributing corporation and the distributee corporation are members of the same affiliated group ,; 8 - c A r* (as defined in section 1504 of such Code) which filed a consolidated return for the taxable year which includes the date of the distribution. If the common parent of any affiliated group filing a consolidated return meets the requirements of clauses (ii) and (iii),, each other member of such group shall be treated as meeting .«,>!i ' such requirements. (B) QUALIFIED STOCK.—For purposes of subparagraph (A), -4o;::< ki i ifii the term "qualified stock" means any stock in a corporation which on June 15, 1984, was a member of the same affiliated group as the distributing corporation and which filed a consolidated return with the distributing corporation for the taxable year which included June 15, 1984. ^ * " —"'" '

(5) EXCEPTION FOR CERTAIN DISTRIBUTIONS.—

(A) IN GENERAL.—The amendments made by this section shall not apply to distributions before February 1, 1986, if— or, '.Si (i) the distribution consists of property held on March 7, 1984 (or property acquired thereafter in the ordinary nc.; + «>" course of a trade or business) by— (I) the controlled corporation, or (II) any subsidiary controlled corporation,

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Page:United States Statutes at Large Volume 98 Part 1.djvu/619

 PUBLIC LAW 98-369—JULY 18, 1984 ?3r i• h

(ii) a group of 1 or more shareholders (acting in concert)— (I) acquired, during the 1-year period ending on February 1, 1984, at least 10 percent of the out10 > } r: standing stock of the controlled corporation, (II) held at least 10 percent of the outstanding ?>"^eoq '• stock of the common parent on February 1, 1984, lo

98 STAT. 571

-

I

sr> ''A-jHS

and

(III) submitted a proposal for distributions of interests in a royalty trust from the common r. parent or the controlled corporation, and (iii) the common parent acquired control of the conK;,o >,. trolled corporation during the 1-year period ending on •;February 1, 1984. (B) DEFINITIONS.—For purposes of this paragraph— (i) The term "common parent" has the meaning given such term by section 1504(a) of the Internal j^ Revenue Code of 1954. , (ii) The term "controlled corporation" means a corporation with respect to which 50 percent or more of the outstanding stock of its common parent is tendered for pursuant to a tender offer outstanding on March 7, 1984. (iii) The term "subsidiary controlled corporation" ^''. means any corporation with respect to which the controlled corporation has control (within the meaning of section 368(c) of such Code) on March.7, 1984.
 * , ^, 1,

r^a A.'«;. ?

Post, p. 577.

„.

,,,,.,^,

^''-' "'^' (6) EXCEPTION FOR CERTAIN DISTRIBUTION OF PARTNERSHIP IN-

TERESTS.—The amendments made by this section shall not apply to any distribution before February 1, 1986, of an interest in a partnership the interests of which were being traded on a national securities exchange on March 7, 1984, if— (A) such interest was owned by the distributing corporation (or any member of an affiliated group within the meaning of section 1504(a) of such Code of which the distrib'• uting corporation was a member) on March 7, 1984, • (B) the distributing corporation (or any such affiliated member) owned more than 80 percent of the interests in such partnership on March 7, 1984, and !<) (C) more than 10 percent of the interests in such partnership was offered for sale to the public during the 1-year period ending on March 7, 1984.

'i »*«"

SEC. 55. EXTENSION OF HOLDING PERIOD FOR LOSSES ATTRIBUTABLE TO CAPITAL GAIN DIVIDENDS OF REGULATED INVESTMENT COMPANIES OR REAL ESTATE INVESTMENT TRUSTS. (a) REGULATED INVESTMENT COMPANIES.—

1

(1) IN GENERAL.—Subparagraph (A) of section 852(b)(4) (relating to loss attributable to capital gain dividend) is amended to read as follows:

26 USC 852.

"(A) Loss ATTRIBUTABLE TO CAPITAL GAIN DIVIDEND.—If—

ihu'-

"(i) subparagraph (B) or (D) of paragraph (3) provides that any amount with respect to any share is to be treated as long-term capital gain, and "(ii) such share is held by the taxpayer for 6 months or less,

y

MJ i

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Page:United States Statutes at Large Volume 98 Part 1.djvu/620

 98 STAT. 572

PUBLIC LAW 98-369—JULY 18, 1984 fii.

then any loss (to the extent not disallowed under subparagraph (B)) on the sale or exchange of such share shall, to the extent of the amount described in clause (i), be treated as a long-term capital loss." (2) DETERMINATION OF HOLDING PERIODS.—Subparagraph (C) of

26 USC 852.

section 852(b)(4) is amended to read as follows: "(C) DETERMINATION OF HOLDING PERIODS.—For purposes

of this paragraph, the rules of paragraphs (3) and (4) of section 246(c) shall apply in determining the period for which the taxpayer held any share of stock; except that for the number of days specified in subparagraph (B) of section 246(c)(3) there shall be substituted— "(i)'6 months'for purposes of subparagraph (A), and "(ii) '30 days' for purposes of subparagraph (B)."

Ante, p. 567.

(3) EXCEPTION FOR LOSSES INCURRED UNDER PERIODIC LIQUIDA-

TION PLANS.—Paragraph (4) of section 852(b) is amended by adding at the end thereof the following new subparagraph: '

' -^'-

"(D) LOSSES INCURRED UNDER A PERIODIC LIQUIDATION

PLAN.—To the extent provided in regulations, subparagraph (A) shall not apply to losses incurred on the sale or exchange of shares of stock in a regulated investment company pursuant to a plan which provides for the periodic liquidation of such shares." (b) REAL ESTATE INVESTMENT TRUST.—Paragraph (7) of section

26 USC 857.

857(b) (relating to loss on sale or exchange of stock in real estate investment trust) is amended to read as follows: "(7) Loss ON SALE OR EXCHANGE OF STOCK HELD 6 MONTHS OR LESS.—

"(A) IN GENERAL.—If—

"(i) subparagraph (B) of paragraph (3) provides that any amount with respect to any share or beneficial interest is to be treated as a long-term capital gain, and "(ii) the taxpayer has held such share or interest for 6 months or less, then any loss on the sale or exchange of such share or interest shall, to the extent of the amount described in clause (i), be treated as a long-term capital loss. "(B) DETERMINATION OF HOLDING PERIOD.—For purposes of

this paragraph, the rules of paragraphs (3) and (4) of section 246(c) shall apply in determining the period for which the taxpayer has held any share of stock or beneficial interest; except that '6 months' shall be substituted for the number of days specified in subparagraph (B) of section 246(c)(3).

Ante, p. 567.

"(C) EXCEPTION FOR LOSSES INCURRED UNDER PERIODIC LIQUIDATION PLANS.—To the extent provided in regulations,

subparagraph (A) shall not apply to any loss incurred on the sale or exchange of shares of stock of, or beneficial v i interest in, a real estate investment trust pursuant to a ^ plan which provides for the periodic liquidation of such shares or interests." (c) EFFECTIVE DATE.—The amendments made by this section shall apply to losses incurred with respect to shares of stock and beneficial interests with respect to which the taxpayer's holding period begins after the date of the enactment of this Act.

. >; OHi- f ^ « '.. 26 USC 852 note.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/621

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 573

PART III—MISCELLANEOUS PROVISIONS SEC. 56. DENIAL OF DEDUCTIONS FOR CERTAIN EXPENSES INCURRED IN CONNECTION WITH SHORT SALES. (a) SHORT SALE PAYMENTS ATTRIBUTABLE TO DIVIDENDS.—Section

263 (relating to capital expenditures) is amended by adding at the end thereof the following new subsection:

26 USC 263.

"(h) PAYMENTS IN LIEU OF DIVIDENDS IN CONNECTION WITH SHORT SALES.— "(1) IN GENERAL.—If—

,.

5

"(A) a taxpayer makes any payment with respect to any stock used by such taxpayer in a short sale and such payment is in lieu of a dividend payment on such stock, and "(B) the closing of such short sale occurs on or before the 45th day after the date of such short sale, then no deduction shall be allowed for such payment. The basis of the stock used to close the short sale shall be increased by the amount not allowed as a deduction by reason of the preceding sentence.

Mii:pro '-,'-.

"(2) LONGER PERIOD IN CASE OF EXTRAORDINARY DIVIDENDS.—If

the payment described in paragraph (1)(A) is in respect of an extraordinary dividend, paragraph (1)(B) shall be applied by substituting 'the day 1 year after the date of such short sale' for 'the 45th day after the date of such short sale'. "(3) EXTRAORDINARY DIVIDEND.—For purposes of this subseci tion, the term 'extraordinary dividend' has the meaning given to such term by section 1059(c); except that such section shall be applied by treating the amount realized by the taxpayer in the short sale as his adjusted basis in the stock. "(4) SPECIAL RULE WHERE RISK OF LOSS DIMINISHED.—The running of any period of time applicable under paragraph (1)(B) (as •' modified by paragraph (2)) shall be suspended during any period in which— "(A) the taxpayer holds, has an option to buy, or is under \: a contractual obligation to buy, substantially identical stock rw. H Qj. securities, or "(B) under regulations prescribed by the Secretary, a .*fO H taxpayer has diminished his risk of loss by holding 1 or more other positions with respect to substantially similar or ^^.. related property. "(5) DEDUCTION ALLOWABLE TO EXTENT OF ORDINARY INCOME FROM AMOUNTS PAID BY LENDING BROKER FOR USE OF COL-

LATERAL.— "(A) IN GENERAL.—Paragraph (1) shall apply only to the extent that the payments or distributions with respect to any short sale exceed the amount which— "(i) is treated as ordinary income by the taxpayer, and "(ii) is received by the taxpayer as compensation for the use of any collateral with respect to any stock used in such short sale. "(B)

EXCEPTION NOT TO APPLY TO EXTRAORDINARY DIVI-

DENDS.—Subparagraph (A) shall not apply if one or more payments or distributions is in respect of an extraordinary dividend.

Ante, p. 565.

-too fjBl 'JSII K

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Page:United States Statutes at Large Volume 98 Part 1.djvu/622

 98 STAT. 574

PUBLIC LAW 98-369—JULY 18, 1984 "(6) APPLICATION OF THIS SUBSECTION WITH SUBSECTION (g).—

In the case of any short sale, this subsection shall be applied before subsection (g)." (b) INVESTMENT INTEREST TO INCLUDE CERTAIN EXPENSES INVOLV-

26 USC 163.

iNG SHORT SALES.—Subparagraph (D) of section 163(d)(3) (defining investment interest) is amended to read as follows: "(D) INVESTMENT INTEREST.— "(i) IN GENERAL.—The term 'investment interest' means interest paid or accrued on indebtedness incurred or continued to purchase or carry property held for investment. "(ii) CERTAIN EXPENSES INCURRED IN CONNECTION

26 USC 265.

WITH SHORT SALES.—For purposes of clause (i), the term 'interest' includes any amount allowable as a deduction in connection with personal property used in a short sale." (c) APPLICATION OF SECTION 265(2) TO SHORT SALES.—Section 265 (relating to denial of deduction of interest relating to tax-exempt income) is amended by adding at the end thereof the following new paragraph: "(5) SPECIAL RULES FOR APPLICATION OF PARAGRAPH (2) IN THE

CASE OF SHORT SALES.—For purposes of paragraph (2)—

"(A) IN GENERAL.—The term 'interest' includes any amount paid or incurred— "(i) by any person making a short sale in connection with personal property used in such short sale, or "(ii) by any other person for the use of any collateral with respect to such short sale.

.:? • q ittk y,;

"(B) EXCEPTION WHERE NO RETURN ON CASH COLLATERAL.—

If— "(i) the taxpayer provides cash as collateral for any short sale, and "(ii) the taxpayer receives no material earnings on such cash during the period of the sale, subparagraph (A)(i) shall not apply to such short sale." 26 USC 163 note. (d) EFFECTIVE DATE.—The amendments made by this section shall apply to short sales after the date of the enactment of this Act in taxable years ending after such date.

26 USC 1032.

26 USC 1032 ^°^^-

26 USC 532.

SEC. 57. NONRECOGNITION OF GAIN OR LOSS BY CORPORATION ON OPTIONS WITH RESPECT TO ITS STOCK. (a) GENERAL RULE.—Subsection (a) of section 1032 (relating to exchange of stock of property) is amended by adding at the end thereof the following new sentence: "No gain or loss shall be recognized by a corporation with respect to any lapse or acquisition of an option to buy or sell its stock (including treasury stock)." (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to options acquired or lapsed after the date of the enactment of this Act in taxable years ending after such date. SEC. 58. AMENDMENTS TO ACCUMULATED EARNINGS TAX. (a) CLARIFICATION THAT TAX APPLIES TO CORPORATIONS WHICH ARE NOT CLOSELY HELD.—Section 532 (relating to corporations subject to

accumulated earnings tax) is amended by adding at the end thereof the following new subsection: "(c) APPLICATION DETERMINED WITHOUT REGARD TO NUMBER OF

SHAREHOLDERS.—The application of this part to a corporation shall

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Page:Notes and Queries - Series 1 - Volume 1.djvu/456

446

I should have taken the whole,' said Shelley, 'for a rough sketch of Campbell's.'

No,' replied Lord Byron, 'Campbell would have claimed it, had it been his.'

"The Memoir contains the fullest details on the subject of the authorship, Mr. Wolfe's claim to which was also fully established by the Rev. Dr. Miller, late Fellow of Trinity, Dublin, and author of Lectures on the Philosophy of Modern History."

As the removal of the iron railing which surrounds St. Paul's Churchyard is now said to be in contemplation, P. C. S. S. imagines that it may not be unacceptable to the readers of "," if he transcribes the following account of it from Hasted's Kent, vol. ii. p. 382, which is to be found in his description of the Parish of Lamberhurst:—

P.C.S.S.

If there was any ground, and we are inclined to believe there was, for the objection urged by the judicious few against that interesting series of illustrations of English history, Lodge's Illustrious Portraits, namely, that in engraving the portraits selected, truth had often times been sacrificed to effect; so that one had a better picture, though a less faithful copy,—such an objection cannot be urged against a work to which our attention has just been directed, Harding's Historical Portraits. In this endeavour to bring before us the men of past time, each "in his habit as he lived," the scrupulous accuracy with which Mr. Harding copies an old portrait has been well seconded by the engravers, so that this work is unrivalled for the fidelity with which it exhibits, as by a Daguerrotype, copies in little of some very curious portraits of old-world worthies. The collection is limited in extent; but, as it contains plates of individuals of whom no other engraving exists, will be a treasure to illustrators of Clarendon, Granger, &c. Among the most interesting subjects are Henry VIII. and Charles V., from the remarkable picture formerly at Strawberry Hill; Sir Robert Dudley, son of Elizabeth's favourite; Lord Russel of Thornhaugh, from the picture at Woburn; Speaker Lenthall; and the remarkable portrait of Henry Carey Viscount Falkland, dressed in white, painted by Van Somer, which suggested to Horace Walpole his Castle of Otranto.

Messrs. Sotheby and Co. will sell on Thursday next, a small but superb collection of drawings by modern artists; and on the following Monday will commence a six days' sale of the third portion of the important stock of prints of Messrs. Smith; comprising some of the works of the most eminent engravers of the continental and English schools, including a matchless collection of the works of the Master of Fontainebleau, engravers' proofs of book plates, and a few fine drawings.

We have received the following Catalogues:—J. Petheram's (94. High Holborn) Catalogue, Part CXI., No. 5. for 1850 of Old and New Books; and J. Miller's (43. Chandos Street) Catalogue No. 5. for 1850 of Books Old and New.


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98 STAT. 575

be determined without regard to the number of shareholders of such corporation." (b) TREATMENT OF CAPITAL GAINS AND LOSSES.—Subsection (b) of

section 535 (defining accumulated taxable income) is amended by striking out paragraphs (5), (6), and (7) and inserting in lieu thereof the following:

26 USC 535.

"(5) CAPITAL LOSSES.—

"(A) IN GENERAL.—Except as provided in subparagraph (B), there shall be allowed as a deduction an amount equal to the net capital loss for the taxable year (determined without regard to paragraph (7)(A)).

,^ "..,,.

"(B) RECAPTURE OF PREVIOUS DEDUCTIONS FOR CAPITAL

Hi) •: ,,,^1

GAINS.—The aggregate amount allowable as a deduction under subparagraph (A) for any taxable year shall be reduced by the lesser of— "(i) the nonrecaptured capital gains deductions, or "(ii) the amount of the accumulated earnings and profits of the corporation as of the close of the preceding taxable year. "(C)

crrDStja'

NONRECAPTURED CAPITAL GAINS DEDUCTIONS.—For

purposes of subparagraph (B), the term 'nonrecaptured capital gains deductions' means the excess of— "(i) the aggregate amount allowable as a deduction under paragraph (6) for preceding taxable years beginning after the date of the enactment of the Tax Reform ' ' Act of 1984, over >irate, p. 494. "(ii) the aggregate of the reductions under subparagraph (B) for preceding taxable years.

''

"(6) NET CAPITAL GAINS.—

^' * J ^\ "• -n:.

"(A) IN GENERAL.—There shall be allowed as a deduction— "(i) the net capital gain for the taxable year (determined with the application of paragraph (7)), reduced by '(ii) the taxes attributable to such net capital gain.

— ar

"(B) ATTRIBUTABLE TAXES.—For purposes of subparagraph

'c'QQ

(A), the taxes attributable to the net capital gain shall be an amount equal to the difference between— "(i) the taxes imposed by this subtitle (except the tax imposed by this part) for the taxable year, and tc.:,;.',, "(ii) such taxes computed for such year without including in taxable income the net capital gain for the taxable year (determined without the application of I paragraph (7)). "(7) CAPITAL LOSS CARRYOVERS.— "(A) UNLIMITED CARRYFORWARD.—The net capital loss for

'^^:•^

any taxable year shall be treated as a short-term capital loss in the next taxable year. "(B) SECTION 1212 INAPPLICABLE.—No allowance shall be made for the capital loss carryback or carryforward provided in section 1212. "(8) SPECIAL RULES FOR MERE HOLDING OR INVESTMENT COMPA-

NIES.—In the case of a mere holding or investment company— "(A) CAPITAL LOSS DEDUCTION, ETC., NOT ALLOWED.—Para-

r»>

,.,/ ^

graphs (5) and (7)(A) shall not apply. "(B) DEDUCTION FOR CERTAIN OFFSETS.—There shall be allowed as a deduction the net short-term capital gain for

\<» 10 i '?8iJ n

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 98 STAT. 576

PUBLIC LAW 98-369—JULY 18, 1984

the taxable year to the extent such gain does not exceed the amount of any capital loss carryover to such taxable year under section 1212 (determined without regard to para.Sgd:>P-jn graph (7)(B)). "(C) EARNINGS AND PROFITS.—For purposes of subchapter C, the accumulated earnings and profits at any time shall not be less than they would be if this subsection had applied to the computation of earnings and profits for all taxable years beginning after the date of the enactment of the T^x Ante, p. 494. Reform Act of 1984." 26 USC 532 note. (c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act. SEC. 59. REPEAL OF STOCK FOR DEBT EXCEPTION FOR PURPOSES OF DETERMINING INCOME FROM DISCHARGE OF INDEBTEDNESS. 26 USC 108.

(a) GENERAL RULE.—Subsection (e) of section 108 (relating to

income from discharge of indebtedness) is amended by adding at the end thereof the following new paragraph: "(10) INDEBTEDNESS SATISFIED BY CORPORATION'S STOCK.—

"*

"(A) IN GENERAL.—For purposes of determining income of a debtor from discharge of indebtedness, if a debtor corporation transfers stock to a creditor in satisfaction of its indebtedness, such corporation shall be treated as having satisfied the indebtedness with an amount of money equal to the fair market value of the stock.

•

"(B) EXCEPTION FOR TITLE i i CASES AND INSOLVENT DEBT-

11 USC 101 et

,,

s^9-

ORS.—Subparagraph (A) shall not apply in the case of a debtor in a title 11 case or to the extent the debtor is

"

insolvent." (b) EXCEPTION FOR CERTAIN WORKOUTS.— (1) IN GENERAL. — Paragraph (10) of section 108(e) (as added by subsection (a)) is amended by adding a t the e n d thereof the following n e w subparagraph: "(C) EXCEPTION FOR TRANSFERS I N CERTAIN WORKOUTS.— "(i) IN GENERAL. — Subparagraph (A) shall not apply to any transfer of stock in a qualified workout. "(ii) QUALIFIED WORKOUT.—For purposes of clause (i), the term 'qualified workout' means any plan under which stock is transfer r e d to creditors in satisfaction of indebtedness if— K;; "(I) because of cash flow and credit problems, the

f ^ ' -

-w

-fc

corporation making such transfer will have trouble in meeting liabilities coming due during the next 12 months to such an extent that there is a substantial threat of involuntary proceedings relating to insolvency or bankruptcy, "(II) such corporation in any report to its shareholders for the period during which such transfer occurs includes a statement that such corporation believes it meets the requirement of subclause (I) and that it is availing itself of the workout provisions of this subparagraph, "(III) the holders of more than 50 percent of the total indebtedness of the corporation approve such plan, and

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98 STAT. 577

"(IV) at least 25 percent of the total indebtedness of the corporation is extinguished by transfers pursuant to such plan." 26 USC 108 note. (2) EFFECTIVE DATE.—The amendment made by paragraph (1) shall take effect as if it had been included in the amendments made by subsections (e) and (f) of section 806 of the Tax Reform 26 USC 368, 382, 383. Act of 1976. (b) EFFECTIVE DATE.—

26 USC 108 note.

(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendment made by subsection (a) shall apply to transfers after the date of the enactment of this Act in taxable years ending after such date. (2) TRANSITIONAL RULE.—The amendment made by subsection (a) shall not apply to the transfer by a corporation of its stock in exchange for debt of the corporation after the date of the enactment of this Act if such transfer is— (A) pursuant to a written contract requiring such transfer which was binding on the corporation at all times on June 7, 1984, and at all times after such date but only if the transfer takes place before January 1, 1985, and only if the transferee held the debt at all times on June 7, 1984, or (B) pursuant to the exercise of an option to exchange debt for stock but only if such option was in effect at all times on June 7, 1984, and at all times after such date and only if at all times on June 7, 1984, the option and the debt were held by the same person. (3) CERTAIN TRANSFERS TO CONTROLLING SHAREHOLDER.—The

amendment made by subsection (a) shall not apply to any transfer before January 1, 1985, by a corporation of its stock in exchange for debt of such corporation if— (A) such transfer is to another corporation which at all times on June 7, 1984, owned 75 percent or more of the total value of the stock of the corporation making such transfer, and (B) immediately after such transfer, the transferee corporation owns 80 percent or more of the total value of the stock of the transferor corporation. (4)

CERTAIN

TRANSFERS PURSUANT TO DEBT RESTRUCTURE

AGREEMENT.—The amendment made by subsection (a) shall not apply to the transfer by a corporation of its stock in exchange for debt of the corporation after the date of the enactment of this Act and before January 1, 1985, if— (A) such transfer is covered by a debt restructure agreement entered into by the corporation during November 1983, and (B) such agreement was specified in a registration statement filed with the Securities and Exchange Commission by the corporation on March 7, 1984. SEC. 60. AFFILIATED GROUP DEFINED.

(a) IN GENERAL.—Subsection (a) of section 1504 (defining affiliated 26 USC 1504. group) is amended to read as follows: "(a) AFFILIATED GROUP DEFINED.—For purposes of this subtitle— "(1) IN GENERAL.—The term 'affiliated group' means— "(A) 1 or more chains of includible corporations connected through stock ownership with a common parent corporation which is an includible corporation, but only if—

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Page:United States Statutes at Large Volume 98 Part 1.djvu/626

 98 STAT. 578

PUBLIC LAW 98-369—JULY 18, 1984 J

a o. ^6Z .9 » ^

- •

•

"(B)(i) the common parent owns directly stock meeting the requirements of paragraph (2) in at least 1 of the other includible corporations, and "(ii) stock meeting the requirements of paragraph (2) in each of the includible corporations (except the common parent) is owned directly by 1 or more of the other includible corporations. "(2) 80-PERCENT VOTING AND VALUE TEST.—The Ownership of stock of any corporation meets the requirements of this paragraph if it— "(A) possesses at least 80 percent of the total voting power of the stock of such corporation, and "(B) has a value equal to at least 80 percent of the total value of the stock of such corporation. "(3) 5 YEARS MUST ELAPSE BEFORE RECONSOLIDATION.— "(A) IN GENERAL.—If— "(i) a corporation is included (or required to be included) in a consolidated return filed by an affiliated group for a taxable year which includes any period after December 31, 1984, and "(ii) such corporation ceases to be a member of such group in a taxable year beginning after December 31, 1984, with respect to periods after such cessation, such corporation (and any successor of such corporation) may not be included in any consolidated return filed by the affiliated group (or by another affiliated group with the same common parent or a successor of such common parent) before the 61st month beginning after its first taxable year in which it ceased to be a member of such affiliated group. "(B)

SECRETARY MAY WAIVE APPLICATION OF SUBPARA-

GRAPH (A).—The Secretary may waive the application of subparagraph (A) to any corporation for any period subject to such conditions as the Secretary may prescribe. "(4) STOCK NOT TO INCLUDE CERTAIN PREFERRED STOCK.—For

t

purposes of this subsection, the term 'stock' does not include any stock which— "(A) is not entitled to vote, "(B) is limited and preferred as to dividends and does not participate in corporate growth to any significant extent, "(C) has redemption and liquidation rights which do not exceed the paid-in capital or par value represented by such stock (except for a reasonable redemption premium in excess of such paid-in capital or par value), and "(D) is not convertible into another class of stock. "(5) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including (but not limited to) regulations— i.)^ "(A) which treat warrants, obligations convertible into stock, and other similar interests as stock, and stock as not stock, "(B) which treat options to acquire or sell stock as having .f.A'. been exercised, "(C) which provide that the requirements of paragraph (2)(B) shall be treated as met if the affiliated group, in

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Page:United States Statutes at Large Volume 98 Part 1.djvu/627

 PUBLIC LAW 98-369—JULY 18, 1984

to b-r oi

98 STAT. 579

reliance on a good faith determination of value, treated such requirements as met, "(D) which disregard an inadvertent ceasing to meet the requirements of paragraph (2)(B) by reason of changes in relative values of different classes of stock, "(E) which provide that transfers of stock within the group shall not be taken into account in determining whether a corporation ceases to be a member of an affiliated group, and "(F) which disregard changes in voting power to the extent such changes are disproportionate to related changes in value."

(b) EFFECTIVE DATE.—

^..„

26 USC 1504

(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1984.

note.

(2) SPECIAL RULE FOR CORPORATIONS AFFIUATED ON JUNE 22,

1984.—In the case of a corporation which on June 22, 1984, is a bm member of an affiliated group which files a consolidated return 1984, for purposes of determining whether such corporation continues to be a member of such group for taxable years r beginning before January 1, 1988, the amendment made by subsection (a) shall not apply. (3) SPECIAL RULE NOT TO APPLY TO SELL-DOWNS AFTER JUNE 22,
 * v:! • for such corporation's taxable year which includes June 22,

1984.—If— (A) the requirements of subsection (b)(2) are satisfied with respect to a corporation, (B) more than a de minimis amount of the stock of such corporation is sold or exchanged (including in a redemption), or issued (other than in the ordinary course of busiKroiTi ffc ness) after June 22, 1984, and (C) the requirements of the amendment made by subsec/^rfJQ.Krd tion (a) are not satisfied after such sale, exchange, or issuance, then the amendments made by subsection (a) shall apply for purposes of determining whether such corporation continues to be a member of such group. (4) EXCEPTION FOR CERTAIN SELL-DOWNS.—Subsection

(b)(2)

(and not subsection (b)(3)) will apply to a corporation if such corporation issues or sells stock after June 22, 1984, pursuant to a registration statement filed with the Securities and Exchange Commission on or before June 22, 1984, but only if the requirements of the amendment made by subsection (a) (substituting "more than 50 percent" for "at least 80 percent" in paragraph (2)(B) of section 1504(a) of the Internal Revenue Code of 1954) Ante, p. 577. «fi* are satisfied immediately after such issuance or sale and at all times thereafter until the first day of the first taxable year ?rt; beginning after December 31, 1987. (5) NATIVE CORPORATIONS.—The amendments made by subsecpu tion (a) shall not apply to any Native Corporation established under the Alaska Native Claims Settlement Act (43 U.S.C. 1601 et seq.) during any taxable year beginning before 1992 or any part thereof in which such Corporation is subject to the provisions of section 7(h)(l) of such Act (43 U.S.C. 1606 (h)(D). SEC. 61. PROVISIONS RELATING TO EARNINGS AND PROFITS. (a) ADJUSTMENTS TO EARNINGS AND PROFITS.—

,

,,

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Page:United States Statutes at Large Volume 98 Part 1.djvu/628

 98 STAT. 580

PUBLIC LAW 98-369—JULY 18, 1984

26 USC 312.

(1) IN GENERAL.—Section 312 (relating to effect on earnings and profits) is amended by adding at the end thereof the following new subsection: "(n) ADJUSTMENTS TO EARNINGS AND PROFITS TO MORE ACCURATELY REFLECT ECONOMIC GAIN AND LOSS.—For purposes of com-

puting the earnings and profits of a corporation, the following adjustments shall be made: "(1) CONSTRUCTION PERIOD CARRYING CHARGES.—

"(A) IN GENERAL.—In the case of any amount paid or incurred for construction period carrying charges— "(i) no deduction shall be allowed with respect to such amount, and "(ii) the basis of the property with respect to which such charges are allocable shall be increased by such amount.

H'-, •.,:••.

"(B) CONSTRUCTION PERIOD CARRYING CHARGES DEFINED.—

For purposes of this paragraph, the term 'construction period carrying charges means all— "(i) interest paid or accrued on indebtedness incurred or continued to acquire, construct, or carry property, "(ii) property taxes, and "(iii) similar carrying charges, to the extent such interest, taxes, or charges are attributable to the construction period for such property and would be allowable as a deduction in determining taxable income under this chapter for the taxable year in which paid or incurred (determined without regard to section 189). "(C) CONSTRUCTION PERIOD.—The term 'construction period' has the meaning given such term by section 189(e)(2) (determined without regard to any real property limitation). "(2) INTANGIBLE DRILLING COSTS AND MINERAL EXPLORATION AND DEVELOPMENT COSTS.— "(A) INTANGIBLE DRILLING COSTS.—Any amount allowable

as a deduction under section 263(c) in determining taxable income (other than costs incurred in connection with a nonproductive well)— "(i) shall be capitalized, and "(ii) shall be allowed as a deduction ratably over the 60-month period beginning with the month in which the production from the well begins. "(B)

,?T<' q !

3

MINERAL EXPLORATION AND DEVELOPMENT COSTS.—

Any amount allowable as a deduction under section 616(a) or 617 in determining taxable income— "(i) shall be capitalized, and "(ii) shall be allowed as a deduction ratably over the 120-month period beginning with the later of— "(I) the month in which production from the deposit begins, or "(II) the month in which such amount was paid or incurred. "(3) CERTAIN AMORTIZATION PROVISIONS NOT TO APPLY.—Sec-

tions 173,177, and 248 shall not apply. "(4)

Ante, p. 568.

CERTAIN UNTAXED APPRECIATION OF DISTRIBUTED PROP-

ERTY.—In the case of any distribution of property by a corporation described in section 311(d), earnings and profits shall be increased by the amount of any gain which would be includible

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Page:United States Statutes at Large Volume 98 Part 1.djvu/629

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 581

in gross income for any taxable year if section 311(d)(2) did not apply. "(5) LIFO INVENTORY ADJUSTMENTS.—Earnings and profits shall be increased or decreased by the amount of any increase or decrease in the LIFO recapture amount (determined under section 336(b)(3)) as of the close of each taxable year; except that any decrease below the LIFO recapture amount as of the close of the taxable year preceding the first taxable year to which this paragraph applies to the taxpayer shall be taken into account only to the extent provided in regulations prescribed by the Secretary. "(6) INSTALLMENT SALES.—In the case of any installment sale, earnings and profits shall be computed as if the corporation did not use the installment method. "(7) COMPLETED CONTRACT METHOD OF ACCOUNTING.—In

Ante, p. 568.

 * -^.<i, M-.K

the

case of a taxpayer who uses the completed contract method of accounting, earnings and profits shall be computed as if such taxpayer used the percentage of completion method of accounting. "(8) REDEMPTIONS.—If a corporation distributes amounts in a redemption to which section 302(a) or 303 applies, the part of such distribution which is properly chargeable to earnings and profits shall be an amount which is not in excess of the ratable share of the earnings and profits of such corporation accumulated after February 28, 1913, attributable to the stock so redeemed.

/ r.^

aj^

"(9) SPECIAL RULE FOR CERTAIN FOREIGN CORPORATIONS.—In

the case of a foreign corporation described in subsection (k)(4), paragraphs (5), (6), and (7) shall apply only in the case of taxable years beginning after December 31, 1985." (2) CONFORMING AMENDMENTS.—

(A) Section 312(j) (relating to earnings and profits of 26 USC 312. foreign investment companies) is amended by striking out paragraph (3). (B) Subsection (e) of section 312 is hereby repealed. (b) ADJUSTMENT TO EFFECT OF DEPRECIATION ON EARNINGS AND

CQ^I?: w j a:

PROFITS.—The table contained in section 312(k)(3)(A) (relating to recovery property), as amended by this Act, is amended by striking out "35 years" in the item relating to 15-year real property and 20year real property and inserting in lieu thereof "40 years".

.;}»...i fiink

(c) DISTRIBUTIONS OF OBLIGATIONS HAVING DISCOUNT.— (1) EFFECT ON EARNINGS AND PROFITS.—

ORIGINAL

ISSUE

(A) Paragraph (2) of section 312(a) (relating to effect of earnings and profits) is amended to read as follows: "(2) the principal amount of the obligations of such corporation (or, in the case of obligations having original issue discount, ^-'^ • >sti the aggregate issue price of such obligations), and". (B) Section 312, as amended by subsection (a), is amended Ante, p. 580. by adding at the end thereof the following new subsection: "(o) DEFINITION OF ORIGINAL ISSUE DISCOUNT AND ISSUE PRICE FOR PURPOSES OF SUBSECTION (a)(2).—For purposes of subsection (a)(2),

the terms 'original issue discount' and 'issue price' have the same respective meanings as when used in subpart A of part V of subchapter P of this chapter." Ante, p. 531. (2) TREATMENT UNDER ORIGINAL ISSUE DISCOUNT RULES.—Sub-

section (a) of section 1275 (relating to other definitions and

Ante, p. 540.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/630

 98 STAT. 582 -

PUBLIC LAW 98-369—JULY 18, 1984

-;

special rules), as added by this Act, is amended by adding at the end thereof the following new paragraph: "(4)

TREATMENT OF OBLIGATIONS DISTRIBUTED TO CORPORA-

TIONS.—Any debt obligation of a corporation distributed by such corporation with respect to its stock shall be treated as if it had been issued by such corporation for property." (d) SPECIAL RULE IN CASE OF DISTRIBUTIONS RECEIVED BY 20 PER-

Ante, p. 569.

CENT CORPORATE SHAREHOLDER.—Section 301 (relating to distributions of property) is amended by redesignating subsection (0 as subsection (g) and by inserting after subsection (e) the following new subsection: "(f) SPECIAL RULE FOR CERTAIN DISTRIBUTIONS RECEIVED BY 20 PERCENT CORPORATE SHAREHOLDER.—

"(1) IN GENERAL.—Except to the extent otherwise provided in regulations, solely for purposes of determining the taxable income of any 20 percent corporate shareholder (and its adjusted basis in the stock of the distributing corporation), section 312 shall be applied with respect to the distributing corporation as if it did not contain subsection (n) thereof.

Ante, p. 580.

"(2) 2 0 PERCENT CORPORATE SHAREHOLDER.—For purpOSeS of

this subsection, the term '20 percent corporate shareholder' means, with respect to any distribution, any corporation which owns (directly or through the application of section 318)— "(A) stock in the corporation making the distribution possessing at least 20 percent of the total combined voting power of all classes of stock entitled to vote, or "(B) at least 20 percent of the total value of all stock of the distributing corporation (except nonvoting stock which is limited and preferred as to dividends), but only if, but for this subsection, the distributee corporation would be entitled to a deduction under section 243, 244, or 245 with respect to such distribution. "(3) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section."

.£' 8 J

26 USC 312 note.

(e) EFFECTIVE D A T E S. — (1) ADJUSTMENTS TO EARNINGS AND PROFITS.— (A) PARAGRAPHS (i), (2), AND (3) OF SECTION 3i2(n).—

Ante, p. 580.

Ante, p. 568. i

i IK5 i: Mnh ty '

, ^

i

The provisions of paragraphs (1), (2), and (3) of section 312(n) of the Internal Revenue Code of 1954 (as added by subsection (a)) shall apply to amounts paid or incurred in taxable years beginning after September 30, 1984. (B) PARAGRAPH (4) OF SECTION 3 1 2 (n).—The provisions of paragraph (4) of section 312(n) of such Code (as so added) shall apply to distributions after September 30, 1984; except that such provisions shall not apply to any distribution to which the amendments made by section 54(a) of this Act do not apply. (C) LIFO INVENTORY.—The provisions of paragraph (5) of section 312(n) of such Code (as so added) shall apply to taxable years beginning after September 30, 1984. (D) INSTALLMENT SALES.—The provisions of paragraph (6) of section 312(n) of such (Dode (as so added) shall apply to sales after September 30, 1984, in taxable years ending after such date. (E) COMPLETED CONTRACT METHOD.—The provisions of paragraph (7) of section 312(n) of such Code (as so added)

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 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 583

shall apply to contracts entered into after September 30, 1984, in taxable years ending after such date. (2) SUBSECTION (b).—The amendments made by subsection (b) shall apply to property placed in service in taxable years beginning after September 30, 1984. (3) SUBSECTION ( O.—The amendments made by subsection (c) shall apply with respect to distributions declared after March 15, 1984, in taxable years ending after such date. (4) SUBSECTION (d).—The amendment made by subsection (d) 26 USC 30i note, shall apply to distributions after the date of the enactment of this Act in taxable years ending after such date. SEC. 62. 2-YEAR DELAY IN APPLICATION OF THE NET OPERATING LOSS RULES ADDED BY THE TAX REFORM ACT OF 1976. (a) IN GENERAL.—Subsection (g) of section 806 of the Tax Reform Act of 1976 (26 U.S.C. 382 note) (relating to effective dates for the amendments to sections 382 and 383 of the Internal Revenue Code of 1954) is amended— (1) by striking out "June 30, 1984" in paragraph (2) and inserting in lieu thereof "December 31, 1985"; (2) by striking out "January 1, 1984" in paragraph (2)(B) and inserting in lieu thereof "January 1, 1986"; and (3) by striking out "January 1, 1984" in paragraph (3) and inserting in lieu thereof "January 1, 1986".

''

80 9;

26 USC 382, 383. v jv

(b) TECHNICAL AMENDMENT.—

(1) Paragraph (1) of section 382(b) (as amended by the Tax 26 USC 382. Reform Act of 1976) is amended by striking out "section 368(a)(1)(A), (B), (C), (D) (but only if the requirements of section 354(b)(1) are met), or (F)" and inserting in lieu thereof "subparagraph (A), (B), (C), or (F) of section 368(a)(1) or subparagraph (D) or (G) of section 368(a)(1) (but only if the requirements of section 354(b)(1) are met)". (2) The amendment made by paragraph (1) shall take effect as 26 USC 382 note. if included in the amendments made by section 4 of the Bankruptcy Tax Act of 1980. 94 Stat. 3401. i SEC. 63. TARGET CORPORATION MUST DISTRIBUTE ASSETS AFTER REORGANIZATION DESCRIBED IN SECTION 368(a)(1)(C). (a) IN GENERAL.—Paragraph (2) of section 368(a) (relating to spe- 26 USC 368. cial rules for paragraph (1)) is amended by adding at the end thereof cS the following new subparagraph: "(G)

'

DISTRIBUTION

REQUIREMENT

FOR

PARAGRAPH

(1)(C).— "(i) IN GENERAL.—A transaction shall fail to meet the requirements of paragraph (1)(C) unless the acquired corporation distributes the stock, securities, and other properties it receives, as well as its other properties, in pursuance of the plan of reorganization. "(ii) EXCEPTION.—The Secretary may waive the application of clause (i) to any transaction subject to any conditions the Secretary may prescribe." (b) ALLOCATION IN CERTAIN CORPORATE SEPARATIONS AND REORGA-

NIZATIONS.—Subsection (h) of section 312 (relating to allocation in certain corporate separations) is amended to read as follows: "(h) ALLOCATION IN CERTAIN CORPORATE SEPARATIONS AND REORGANIZATIONS.—

26 USC 312. ^

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 98 STAT. 584

PUBLIC LAW 98-369—JULY 18, 1984

"(1) SECTION 355.—In the case of a distribution or exchange to which section 355 (or so much of section 356 as relates to section 355) applies, proper allocation with respect to the earnings and profits of the distributing corporation and the controlled corporation (or corporations) shall be made under regulations prescribed by the Secretary. "(2) SECTION 368(a)(i)(c) OR (D).—In the case of a reorganization described in subparagraph (C) or (D) of section 368(a)(1), proper allocation with respect to the earnings and profits of the acquired corporation shall, under regulations prescribed by the Secretary, be made between the acquiring corporation and the acquired corporation (or any corporation which had control of the acquired corporation before the reorganization)." 26 USC 312 note. (c) EFFECTIVE DATE.—The amendment made by this section shall apply to transactions pursuant to plans adopted after the date of the enactment of this Act.

26 USC 368.

SEC. 64. DEFINITION OF CONTROL FOR PURPOSES OF NONDIVISIVE REORGANIZATIONS UNDER SECTION 368(a)(1)(D). (a) IN GENERAL.—Subsection (c) of section 368 (defining control) is amended to read as follows: "(c) CONTROL DEFINED.—

26 USC 301. 26 USC 331, 351,

"(1) IN GENERAL.—For purposes of part I (other than section 304), part II, this part, and part V, the term 'control' means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation. "(2) SPECIAL RULE FOR DETERMINING WHETHER CERTAIN TRANSACTIONS ARE DESCRIBED IN SUBSECTION (a)(i)(D).—In the case of

any transaction with respect to which the requirements of subparagraphs (A) and (B) of section •354(b)(1) are met, for purposes of determining whether such transaction is described in subparagraph (D) of subsection (a)(1), the term 'control' has the meaning given to such term by section 304(c)." 26 USC 368 note. (b) EFFECTIVE DATE.—The amendment made by this section shall apply to transactions pursuant to plans adopted after the date of the enactment of this Act. 26 USC 341.

SEC. 65. COLLAPSIBLE CORPORATIONS. (a) DEFINITION.—Subparagraph (A) of section 341(b)(1) (relating to collapsible corporations) is amended by striking out "a substantial part" and inserting in lieu thereof "%". (b) LIMITATIONS.—Subsection (d) of section 341 (relating to limitations on application of section) is amended by adding at the end thereof the following sentence: "In determining whether property is described in subsection (b)(1) for purposes of applying paragraph (2), all property described in section 1221(1) shall, to the extent provided in regulations prescribed by the Secretary, be treated as one item of property." (c) CONFORMING AMENDMENT.—Paragraph (2) of section 341(d) is

amended by striking out "so manufactured, constructed, produced, or purchased" and inserting in lieu thereof "described in subsection (b)(1)". 26 USC 341 note. (d) EFFECTIVE DATE.—The amendments made by this section shall apply with respect to sales, exchanges, and distributions made after the date of the enactment of this Act.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/633

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 585

SEC. 66. PHASE-OUT OF GRADUATED RATES FOR LARGE CORPORATIONS. (a) IN GENERAL.—Subsection (b) of section 11 (relating to amount 26 USC li. of tax imposed on corporations) is amended by adding at the end thereof the following new flush sentence: "In the case of a corporation with taxable income in excess of $1,000,000 for any taxable year, the amount of tax determined under the preceding sentence for such taxable year shall be increased by the lesser of (A) 5 percent of such excess, or (B) $20,250." (b) C!oNFORMiNG AMENDMENT.—Section 1561(a) (relating to limita- 26 USC 1561. tions on certain multiple tax benefits in the case of certain control corporations) is amended by adding at the end thereof the following new sentence: "Notwithstanding paragraph (1), in applying the last sentence of section 11(b) to such component members, the taxable income of all such component members shall be taken into account and any increase in tax under such last sentence shall be divided among such component members in the same manner as amounts under paragraph (1)." (c) EFFECTIVE DATE.— 26 USC ii note. (1) IN GENERAL.—The amendments made by this section shall apply to taxable years beginning after December 31, 1983. (2) AMENDMENTS NOT TREATED AS CHANGED IN RATE OF TAX.—

The amendments made by this subsection shall not be treated as a change in a rate of tax for purposes of section 21 of the Internal Revenue Code of 1954. Post, p. 830. SEC. 67. RESTRICTIONS ON GOLDEN PARACHUTE PAYMENTS. (a) DENIAL OF DEDUCTION.—Part IX of subchapter B of chapter 1 (relating to items not deductible) is amended by adding after section 280F the following new section: "SEC. 280G. GOLDEN PARACHUTE PAYMENTS. "(a) GENERAL RULE.—No deduction shall be allowed under this chapter for any excess parachute payment. "(b) EXCESS PARACHUTE PAYMENT.—For purposes of this section— "(1) IN GENERAL.—The term 'excess parachute payment' means an amount equal to the excess of any parachute payment over the portion of the base amount allocated to such payment. "(2) PARACHUTE PAYMENT DEFINED.—

"(A) IN GENERAL.—The term 'parachute payment' means any payment in the nature of compensation to (or for the benefit of) a disqualified individual if— "(i) such payment is contingent on a change— "(I) in the ownership or effective control of the corporation, or "(II) in the ownership of a substantial portion of bmulBmthe assets of the corporation, and "(ii) the aggregate present value of the payments in i • ! the nature of compensation to (or for the benefit of) such individual which are contingent on such change equals or exceeds an amount equal to 3 times the base amount. a "(B) AGREEMENTS.—The term 'parachute payment' shall also include any payment in the nature of compensation to (or for the benefit of) a disqualified individual if such payment is pursuant to an agreement which violates any .&uli securities laws or regulations.

g«A5

26 USC 280G.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/634

 98 STAT. 586

PUBLIC LAW 98-369—JULY 18, 1984 "(C) TREATMENT OF CERTAIN AGREEMENTS ENTERED INTO WITHIN 1 YEAR BEFORE CHANGE OF OWNERSHIP.—For pur-

poses of subparagraph (A)(i), any payment pursuant to— "(i) an agreement entered into within 1 year before the change described in subparagraph (A)(i), or "(ii) an amendment made within such 1-year period of a previous agreement, shall be presumed to be contingent on such change unless the contrary is established by clear and convincing evidence. "(3) BASE AMOUNT.—

"(A) IN GENERAL.—The term 'base amount' means the individual's annualized includible compensation for the base period. "(B) ALLOCATION.—The portion of the base amount allocated to any parachute payment shall be an amount which bears the same ratio to the base amount as— "(i) the present value of such payment, bears to "(ii) the aggregate present value of all such payments. "(4) EXCESS PARACHUTE PAYMENTS REDUCED TO EXTENT TAXPAYER ESTABLISHES REASONABLE COMPENSATION.—In the case of

any parachute payment described in paragraph (2)(A), the amount of any excess parachute payment shall be reduced by the portion of such payment which the taxpayer establishes by clear and convincing evidence is reasonable compensation for personal services actually rendered. For purposes of the preceding sentence, reasonable compensation shall be first offset against the base amount. "(c) DISQUALIFIED INDIVIDUALS.—For purposes of this section, the term 'disqualified individual' means any individual who is— "(1) an employee, independent contractor, or other person specified in regulations by the Secretary who performs personal services for any corporation, and "(2) is an officer, shareholder, or highly-compensated individual. For purposes of this section, a personal service corporation (or similar entity) shall be treated as an individual. "(d) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1)

ANNUALIZED

INCLUDIBLE

COMPENSATION

FOR BASE

PERIOD.—The term 'annualized includible compensation for the base period' means the average annual compensation which— "(A) was payable by the corporation with respect to which the change in ownership or control described in paragraph (2)(A) of subsection (b) occurs, and "(B) was includible in the gross income of the disqualified individual for taxable years in the base period. "(2) BASE PERIOD.—The term 'base period' means the period consisting of the most recent 5 taxable years ending before the date on which the change in ownership or control described in paragraph (2)(A) of subsection (b) occurs (or such portion of such period during which the disqualified individual was an employee of the corporation). ' (3) PROPERTY TRANSFERS.—Any transfer of property—

"(A) shall be treated as a payment, and "(B) shall be taken into account as its fair market value.

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Page:Notes and Queries - Series 1 - Volume 1.djvu/256

246 of a "London magistrate," and to have "died in 1738, at 93 or 95, immensely rich." I should be glad of any clue to Pope's allusion.

Will your correspondent "P. C. S. S," (No. 13.), evidently a critical reader of Pope, and probably rich in the possession of various editions of his works, kindly inform me whether any commentator on the poet has traced the well-known lines that I have quoted to the "Corcillum est, quod homines facit, cætera quisquilia omnia" of Petronius Arbiter, cap. 75.? Pope had certainly both read and admired the Satyricon, for he says:—

I find no note on the lines either in the edition of Warton, 9 vols. 8vo., London, 1797, or in Gary's royal 8vo., London, 1839; but the similarity strikes me as curious, and deserving further examination.

In Nichol's History and Antiquities of the County of Leicester, vol. ii., part i., containing the Framland Hundred, p. 45. of the folio ed. 1795, occurs the following quotation, in reference to the rebuilding of Belvoir Castle by Henry, second Earl of Rutland, in 1555:—

The description goes on for a few more lines; but it matters not to continue them. I should be much obliged by any of your readers giving an account of who this "ingenious writer" was, and on what authority he founded the foregoing observations, as it is a subject of much interest to me and others at the present time.

''MSS. formerly belonging to Dr. Hugh Todd.''—I shall feel most grateful to any of your correspondents who can afford me any information, however imperfect, respecting the MSS. of Dr. Hugh Todd, Vicar of Penrith, and Prebendary of Carlisle, in the beginning of the last century. In the Cat. MSS. Angliæ, &c., 1697, is a catalogue of nineteen MSS. then in his possession, five of which are especially the subject of the present inquiry. One is a Chartulary of the Abbey of Fountains, in 4to.; another is an Act Book of the Consistory Court of York, in the fifteenth century, in folio; the third is the Chapter Book of the Collegiate Church of Ripon, from 1452 to 1506; the fourth contains Extracts and Manuscripts from Records relating to the Church of Ripon; and the last is apparently a Book of the Acts of the Benefactors to that foundation. In a letter to Humphrey Lawley, dated in 1713, Dr. Todd says he was engaged in a work relating to the province of York, and the greater part of the MSS. in the catalogue above mentioned appear to have been collected as the materials.

French Leave.—In No. 5. I perceive several answers to the query respecting Flemish Account, which I presume to be the same as Dutch Account. Can you inform me how the very common expression French leave originated?

Portugal.—Can any of your geographical readers inform me if a Gazetteer of Portugal has been published within these twenty years? If there has been one, in what language, and where published? Information of the title of any good modern works on Portugal, giving an account of the minor places, would be acceptable.

Tureen.—How or whence is the term "tureen" derived?—and when was it introduced?

{{block center|{{smaller block|"At the top there was tripe in a swinging tureen." {{right|Goldsmith's Haunch of Venison.}}}}

{{right|G. W.}}

Military Execution.—I am very anxious to be referred to the authority for the following anecdote, and remark made on it:—

{{smaller block|"Some officer, or state prisoner, on being led out to be shot, refused either to listen to a confessor, or to cover his eyes with a handkerchief."}}

The remark was, that "he had refused a bandage for either mind or body."

It smacks somewhat of Voltaire. {{float right|{{sc|Melanion.}}}}

Change of Name.—If, as it appears by a recent decision, based, perhaps, on a former one by Lord Tenterden, that a man may alter his name


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Page:United States Statutes at Large Volume 98 Part 1.djvu/635

 PUBLIC LAW 98-369—JULY 18, 1984 "(4) PRESENT VALUE.—Present value shall be determined in accordance with section 1274(b)(2). "(e) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section (including regulations for the application of this section in the case of related corporations and in the case of personal service corporations)."

98 STAT. 587

M^

Ante, p. 538. ,•^,,., ^^

(b) EXCISE TAX ON AMOUNTS RECEIVED.—

(1) IN GENERAL.—Subtitle D (relating to miscellaneous excise taxes) is amended by adding at the end thereof the following new chapter: S^O,<| ^irAfl.

'CHAPTER 46—GOLDEN PARACHUTE PAYMENTS "Sec. 4999. Grolden parachute payments. "SEC. 4999. GOLDEN PARACHUTE PAYMENTS.

26 USC 4999.

"(a) IMPOSITION OF TAX.—There is hereby imposed on any person who receives an excess parachute payment a tax equal to 20 percent of the amount of such paionent. "(b) EXCESS PARACHUTE PAYMENT DEFINED.—For purposes of this section, the term 'excess parachute payment' has the meaning given to such term by section 280Gr(b).

Ante, p. 585.

"(c) ADMINISTRATIVE PROVISIONS.—

"(1) WITHHOLDING.—In the case of any excess parachute payment which is wages (within the meaning of section 3401) the amount deducted and withheld under section 3402 shall be increased by the amount of the tax imposed by this section on such payment. "(2) OTHER ADMINISTRATIVE PROVISIONS.—For purposes of subtitle F, any tax imposed by this section shall be treated as a tax 26 USC 6001. imposed by subtitle A." 26 USC l. (2) DENIAL OF DEDUCTION.—Paragraph (6) of section 275(a) 26 USC 275. (relating to denial of deduction for certain taxes) is amended by striking out "and 44" and inserting in lieu thereof "44, and 46'. (c) FICA TAXES.—Subparagraph (A) of section 3121(v)(2) (relating 97 Stat 122. to treatment of certain nonqualified deferred compensation plans) is 26 USC 3121. amended by adding at the end thereof the following new sentence: "The preceding sentence shall not apply to any excess parachute payment (as defined in section 280Gr(b))." (d) CLERICAL AMENDMENTS.—

^^ « -«- ^^'^

(1) The table of sections for part IX of subchapter B of chapter 1 is amended by adding after the item relating to section 280F the following new item: t

^ ,

"Sec. 280G. Golden parachute payments."

(2) The table of chapters for subtitle D is amended by adding at the end thereof the following new item: "CHAPTER 46. Golden parachute payments."

(e) EFFECTIVE DATES.— (1) IN GENERAL.—The amendments made by this section shall apply to payments under agreements entered into or renewed after June 14, 1984, in taxable years ending after such date. (2) SPECIAL RULE FOR CONTRACT AMENDMENTS.—Any contract

'

entered into before June 15, 1984, which is amended after June 14, 1984, in any significant relevant aspect shall be treated as a contract entered into after June 14, 1984.

26 USC 280G note.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/636

 98 STAT. 588

PUBLIC LAW 98-369—JULY 18, 1984 SEC. 68. INCREASE IN REDUCTION IN CERTAIN CORPORATE PREFERENCE ITEMS FROM 15 PERCENT TO 20 PERCENT.

26 USC 291.

Post, p. 986.

(a) IN GENERAL.—Each subsection (other than subsection (a)(2)) of section 291 (relating to special rules for corporate preference items) is amended by striking out "15 percent" each place it appears and inserting in lieu thereof "20 percent". (b) DEFERRED F S C INCOME.—Paragraph (4) of section 291(a) (relating to certain deferred DISC income) is amended to read as follows: "(4) CERTAIN DEFERRED FSC INCOME.—If a corporation is a shareholder of the FSC, in the case of taxable years beginning after December 31, 1984, section 923(a) shall be applied with respect to such corporation by substituting— "(A) '30 percent' for '32 percent' in paragraph (2), and "(B) '15/23' for '16/23' in paragraph (3). (c) MINIMUM TAX.—

26 USC 57.

(1) IN GENERAL.—Paragraph (1) of section 57(b) is amended to read as follows: "(1) IN GENERAL.— "(A) POLLUTION CONTROL FACILITIES; BAD DEBT RESERVES.—

In the case of any item of tax preference of a corporation described in paragraph (4) or (7) of subsection (a), only 59% percent of the amount of such item of tax preference (determined without regard to this subsection) shall be taken into account as an item of tax preference. "(B) IRON ORE AND COAL.—In the case of any item of tax preference of a corporation described in paragraph (8) of subsection (a) (but only to the extent such item is allocable to a deduction for depletion for iron ore and coal (including legnite)), only 71.6 percent of the amount of such item of tax preference (determined without regard to this subsection) shall be taken into account as an item of tax preference.". (2) CERTAIN CAPITAL GAINS.—Paragraph (2) of section 57(h)

(relating to capital gains) is amended by striking out "71.6 percent" and inserting in lieu thereof "59% percent". 26 USC 995.

(d) DEFERRED DISC INCOME.—Section 995(b)(l)(F)(i) (relating to

deemed distributions) is amended by striking out "one/half and inserting in lieu thereof "one-seventeenth". 26 USC 291 note.

(e) EFFECTIVE D A T E S. —

(1) IN GENERAL.—Except as provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 1984. (2) 1250 GAIN.—The amendments made by this section to section 291(a)(1) of the Internal Revenue Code of 1954 shall apply to sales or other dispositions after December 31, 1984, in taxable years ending after such date. (3) POLLUTION CONTROL FACILITIES.—The amendments made by this section to section 291(a)(5) of such Code shall apply to property placed in service after December 31, 1984, in taxable years ending after such date. (4) DRILLING AND MINING COSTS.—The amendments made by this section to section 291(b) of such Code shall apply to expenditures after December 31, 1984, in taxable years ending after such date.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/637

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 589

Subtitle E—Partnership Provisions SEC. 71. PARTNERSHIP ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTY. (a) GENERAL RULE.—Subsection (c) of section 704 (relating to

26 USC 704.

contributed property) is amended to read as follows: "(c) CONTRIBUTED PROPERTY.—Under regulations prescribed by the Secretary, income, gain, loss, and deduction with respect to property contributed to the partnership by a partner shall be shared among partners so as to take account of the variation between the basis of the property to the partnership and its fair market value at the time of contribution. Under regulations prescribed by the Secretary, rules similar to the rules of the preceding sentence shall apply to contributions by a partner (using the cash receipts and disbursements method of accounting) of accounts payable and other accrued but unpaid items." (b) CONFORMING AMENDMENTS.—The fourth sentence of section

613A(c)(7)(D) and the third sentence of section 743(b) are each amended by striking out "an agreement described in section 704(c)(2) (relating to effect of partnership agreement on contributed property), such share shall be determined by taking such agreement into account" and inserting in lieu thereof "property contributed to the partnership by a partner, section 704(c) (relating to contributed property) shall apply in determining such share". (c) EFFECTIVE DATE.—The amendments made by this section shall apply with respect to property contributed to the partnership after March 31, 1984, in taxable years ending after such date. SEC. 72. DETERMINATION OF DISTRIBUTIVE SHARES WHEN PARTNER'S INTEREST CHANGES. (a) GENERAL RULE.—Section 706 (relating to taxable years of partner and partnership) is amended by adding at the end thereof the following new subsection: "(d) DETERMINATION OF DISTRIBUTIVE SHARE W H E N PARTNER'S INTEREST CHANGES.—

^

"(1) IN GENERAL.—Except as provided in paragraphs (2) and (3), if during any taxable year of the partnership there is a change in any partner's interest in the partnership, each partner's distributive share of any item of income, gain, loss, deduction, or credit of the partnership for such taxable year shall be determined by the use of any method prescribed by the Secretary by regulations which takes into account the varying interests of the partners in the partnership during such taxable year. "(2) CERTAIN CASH BASIS ITEMS PRORATED OVER PERIOD TO WHICH ATTRIBUTABLE.—

"(A) IN GENERAL.—If during any taxable year of the partnership there is a change in any partner's interest in the partnership, then (except to the extent provided in regulations) each partner's distributive share of any allocable cash basis item shall be determined— "(i) by assigning the appropriate portion of each such item to each day in the period to which it is attributable, and "(ii) by allocating the portion assigned to any such day among the partners in proportion to their interests in the partnership at the close of such day.

26 USC 613A, 743.

26 USC 704 note.

26 USC 706.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/638

 98 STAT. 590

PUBLIC LAW 98-369—JULY 18, 1984 "(B) ALLOCABLE CASH BASIS ITEM.—For purposes of this paragraph, the term 'allocable cash basis item' means any of the following items which are described in paragraph (1) and with respect to which the partnership uses the cash receipts and disbursements method of accounting: "(i)Interest. "(ii) Taxes. "(iii) Payments for services or for the use of property. "(iv) Any other item of a kind specified in regulations prescribed by the Secretary as being ein item with respect to which the application of this paragraph is appropriate to avoid significant misstatements of the income of the partners.

A-ifi ji^j i?'

"(C) ITEMS ATTRIBUTABLE TO PERIODS NOT WITHIN TAXABLE

• -AJ^io

YEAR.—If any portion of any allocable cash basis item is attributable to— "(i) any period before the beginning of the taxable year, such portion shall be assigned under subparagraph (A)(i) to the first day of such taxable year, or "(ii) any period after the close of the taxable year, such portion shall be assigned under subparagraph (A)(i) to the last day of the taxable year. "(D)

,:«0f) t-ftTOB^J^

SOV

J 8 ' J 3S

TREATMENT OF DEDUCTIBLE ITEMS ATTRIBUTABLE TO

PRIOR PERIODS.—If any portion of a deductible cash basis item is assigned under subparagraph (C)(i) to the first day of any taxable year— "(i) such portion shall be allocated among persons who are partners in the partnership during the period RUtfi'Tif to which such portion is attributable in accordance with their varying interests in the partnership during such period, and "(ii) any amount allocated under clause (i) to a person who is not a partner in the partnership on such first day shall be capitalized by the partnership and treated in the manner provided for in section 755. "(3) ITEMS ATTRIBUTABLE TO INTEREST I N LOWER TIER PARTNER-

SHIP PRORATED OVER ENTIRE TAXABLE YEAR.—If—

"(A) during any taxable year of the partnership there is a change in any partner's interest in the partnership (hereinafter in this paragraph referred to as the 'upper tier partnership'), and "(B) such partnership is a partner in another partnership (hereinafter in this paragraph referred to as the 'lower tier partnership'), then (except to the extent provided in regulations) each partner's distributive share of any item of the upper tier partnership attributable to the lower tier partnership shall be determined by assigning the appropriate portion (determined by applying principles similar to the principles of subparagraphs (C) and (D) of paragraph (2)) of each such item to the appropriate days during which the upper tier partnership is a partner in the lower tier partnership and by allocating the portion assigned to any such day among the partners in proportion to their interests in the upper tier partnership at the close of such day. "(4) TAXABLE YEAR DETERMINED WITHOUT REGARD TO SUBSECTION (c)(2)(A).—For purposes of this subsection, the taxable

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Page:United States Statutes at Large Volume 98 Part 1.djvu/639

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 591

year of a partnership shall be determined without regard to subsection (c)(2)(A)." (b) CONFORMING AMENDMENTS.—Paragraph (2) of section 706(c) is

26 USC 706.

amended— (1) by striking out the last sentence of subparagraph (A), and (2) by striking out ", but such partner's distributive share of items described in section 702(a) shall be determined by taking into account his varying interests in the partnership during the taxable year" in subparagraph (B). (c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 706 note. apply— (1) in the case of items described in section 706(d)(2) of the Internal Revenue Code of 1954 (as added by subsection (a)), to Ante, p. 589. amounts attributable to periods after March 31, 1984, and (2) in the case of items described in section 706(d)(3) of such Code (as added by subsection (a)), to amounts paid or accrued by the other partnership after March 31, 1984. SEC. 73. PAYMENTS TO PARTNERS FOR PROPERTY OR CERTAIN SERVICES.

(a) GENERAL RULE.—Subsection (a) of section 707 (relating to transactions between partner and partnership) is amended to read as follows:

26 USC 707.

"(a) PARTNER NOT ACTING IN CAPACITY AS PARTNER.—

"(1) IN GENERAL.—If a partner engages in a transaction with a partnership other than in his capacity as a member of such partnership, the transaction shall, except as otherwise provided in this section, be considered as occurring between the partnership and one who is not a partner. "(2) TREATMENT OF PAYMENTS TO PARTNERS FOR PROPERTY OR

SERVICES.—Under regulations prescribed by the Secretary— "(A) TREATMENT OF CERTAIN SERVICES AND TRANSFERS OF PROPERTY.—If —

"(i) a partner performs services for a partnership or transfers property to a partnership, "(ii) there is a related direct or indirect allocation ^ and distribution to such partner, and "(iii) the performance of such services (or such transfer) and the allocation and distribution, when viewed together, are properly characterized as a transaction occurring between the partnership and a partner acting other than in his capacity as a member of the partnership, such allocation and distribution shall be treated as a transaction described in paragraph (1).

- • ''

"(B) TREATMENT OF CERTAIN PROPERTY TRANSFERS.—If— ^flfc

iO

"(i) there is a direct or indirect transfer of money or other property by a partner to a partnership, "(ii) there is a related direct or indirect transfer of money or other property by the partnership to such partner (or another partner), and "(iii) the transfers described in clauses (i) and (ii), when viewed together, are properly characterized as a sale of property, such transfers shall be treated either as a transaction described in paragraph (1) or as a transaction between 2 or more partners acting other than in their capacity as members of the partnership."

liST ORIJ 0'ii

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Page:United States Statutes at Large Volume 98 Part 1.djvu/640

 98 STAT. 592 26 USC 707 note.

^"te, P-591.

^•'> « • " • * • •

PUBLIC LAW 98-369—JULY 18, 1984 (b) EFFECTIVE D A T E. — '"^'"---' ^^ -'••'•* ->irir>vayi.m

(3)

rOT DS-

u.0 ^r,;.;

(1) IN GENERAL.—The amendment made by subsection (a) shall apply— (A) in the case of arrangements described in section 707(a)(2)(A) of the Internal Revenue Code of 1954 (as amended by subsection (a)), to services performed or property transferred after February 29, 1984, and (B) in the case of transfers described in section 707(a)(2)(B) of such Code (as so amended), to property transferred after March 31, 1984. (2) BINDING CONTRACT EXCEPTION.—The amendment made by subsection (a) shall not apply to a transfer of property described in section 707(a)(2)(B)(i) if such transfer is pursuant to a binding contract in effect on March 31, 1984, and at all times thereafter before the transfer. EXCEPTION FOR CERTAIN TRANSFERS.—The

amendment

made by subsection (a) shall not apply to a transfer of property described in section 707(a)(2)(B)(i) that is made before December 31, 1984, if— (A) such transfer was proposed in a written private offering memorandum circulated before February 28, 1984; (B) the out-of-pocket costs incurred with respect to such offering exceeded $250,000 as of February 28, 1984; (C) the encumbrances placed on such property in anticipation of such transfer all constitute obligations for which neither the partnership nor any partner is liable; and (D) the transferor of such property is the sole general partner of the partnership. SEC. 74. CONTRIBUTIONS TO A PARTNERSHIP OF UNREALIZED RECEIVABLES, INVENTORY ITEMS, OR CAPITAL LOSS PROPERTY.

(a) GENERAL RULE.—Subpart A of part II of subchapter K of chapter 1 (relating to contributions to a partnership) is amended by adding at the end thereof the following new section: 26 USC 724.

"SEC. 724. CHARACTER OF GAIN OR LOSS ON CONTRIBUTED UNREALIZED RECEIVABLES, INVENTORY ITEMS, AND CAPITAL LOSS PROPERTY.

"(a) CONTRIBUTIONS OF UNREALIZED RECEIVABLES.—In the case of any property which— "(1) was contributed to the partnership by a partner, and "(2) was an unrealized receivable in the hands of such partner immediately before such contribution, any gain or loss recognized by the partnership on the disposition of such property shall be treated as ordinary income or ordinary loss, as the case may be. "(b) CONTRIBUTIONS OF INVENTORY ITEMS.—In the case of any property which— "(1) was contributed to the partnership by a partner, and "(2) was an inventory item in the hands of such partner immediately before such contribution, any gain or loss recognized by the partnership on the disposition of such property during the 5-year period beginning on the date of such contribution shall be treated as ordinary income or ordinary loss, as the case may be. "(c) CONTRIBUTIONS OF CAPITAL Loss PROPERTY.—In the case of any property which—.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/641

 PUBLIC LAW 98-369—JULY 18, 1984 "(1) was contributed by a partner to the partnership, and "(2) was a capital asset in the hands of such partner immediately before such contribution, any loss recognized by the partnership on the disposition of such property during the 5-year period beginning on the date of such contribution shall be treated as a loss from the sale of a capital asset to the extent that, immediately before such contribution, the adjusted basis of such property in the hands of the partner exceeded the fair market value of such property. "(d) DEFINITIONS.—For purposes of this section— "(1) UNREALIZED RECEIVABLE.—The term 'unrealized receivable' has the meaning given such term by section 751(c) (determined by treating any reference to the partnership as referring to the partner). "(2) INVENTORY ITEM.—The term 'inventory item' has the meaning given such term by section 751(d)(2) (determined by treating any reference to the partnership as referring to the partner and by applying section 1231 without regard to any holding period therein provided).

98 STAT. 593 '' '

K sHfig

"(3) SUBSTITUTED BASIS PROPERTY.—

5 '•

"(A) IN GENERAL.—If any property described in subsection (a), (b), or (c) is disposed of in a nonrecognition transaction, the tax treatment which applies to such property under such subsection shall also apply to any substituted basis property resulting from such transaction. A similar rule shall also apply in the case of a series of non-recognition transactions. "(B) EXCEPTION FOR STOCK IN CORPORATION.—Subpara-

gaph (A) shall not apply to any stock in a C corporation received in an exchange described in section 351." (b) AMENDMENT OF SECTION 735.—Section 735 (relating to charac- 26 USC 735. ter of gain or loss on disposition of distributed property) is amended by adding at the end thereof the following new subsection: "(c) SPECIAL RULES.— "(1) WAIVER OF HOLDING PERIODS CONTAINED IN SECTION

1231.—For purposes of this section, section 751(d)(2) (defining inventory item) shall be applied without regard to any holding period in section 1231(b). "(2) SUBSTITUTED BASIS PROPERTY.—

"(A) IN GENERAL.—If any property described in subsection (a) is disposed of in a nonrecognition transaction, the tax treatment which applies to such property under such subsection shall also apply to any substituted basis property resulting from such transaction. A similar rule shall also apply in the case of a series of nonrecognition transactions. "(B) EXCEPTION FOR STOCK IN CORPORATION.—Subpara-

graph (A) shall not apply to any stock in a C corporation received in an exchange described in section 351." (c) CLERICAL AMENDMENT.—The table of sections for subpart A of part II of subchapter K of chapter 1 is amended by adding at the end thereof the following new item: "Sec. 724. Character of gain or loss on contributed unrealized receivables, inventory items, and capital loss property." (d) EFFECTIVE DATES.—

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/642

 98 STAT. 594 26 USC 724 note. 26 USC 735 note.

PUBLIC LAW 98-369—JULY 18, 1984 (1) SUBSECTION (a).—The amendment made by subsection (a) shall apply to property contributed to a partnership after March 31, 1984, in taxable years ending after such date. (2) SUBSECTION (b).—The amendment made by subsection (b) shall apply to property distributed after March 31, 1984, in taxable years ending after such date. SEC. 75. TRANSFERS OF PARTNERSHIP AND TRUST INTERESTS BY CORPORATIONS. (a) GENERAL RULE.—Subchapter C of chapter 1 (relating to corporate distributions and adjustments) is amended by adding at the end thereof the following new part:

PART VII—MISCELLANEOUS CORPORATE PROVISIONS "Sec. 386. Transfers of partnership and trust interests by corporations. 26 USC 386.

"SEC. 386. TRANSFERS OF PARTNERSHIP AND TRUST INTERESTS BY CORPORATIONS.

"(a) CORPORATE DISTRIBUTIONS.—For purposes of determining the amount (and character) of gain recognized by a corporation on any distribution of an interest in a partnership, the distribution shall be treated in the same manner as if it included a property distribution consisting of the corporation's proportionate share of the recognition property of such partnership. "(b) SALES OR EXCHANGE TO WHICH SECTION 337 APPLIES.—For

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26 USC 761.

purposes of determining the amount (and character) of gain recognized on a sale or exchange described in section 337, any sale or exchange by a corporation of an interest in a partnership shall be treated as a sale or exchange of the corppration's proportionate share of the recognition property of such partnership. "(c) RECOGNITION PROPERTY.—For purposes of this section, the term 'recognition property' means any property with respect to which gain would be recognized to the corporation if such property— "(1) were distributed by the corporation in a distribution described in section 311 or 336, or "(2) were sold in a sale described in section 337, whichever is appropriate. In determining whether property of a partnership is recognition property, such partnership shall be treated as owning its proportionate share of the property of any other partnership in which it is a partner. "(d) EXTENSION TO TRUSTS.—Under regulations, rules similar to the rules of this section shall also apply in the case of the distribution or sale or exchange by a corporation of an interest in a trust." (b) DISTRIBUTIONS TREATED AS EXCHANGES FOR PURPOSES OF SUBCHAPTER K.—Section 761 (relating to definitions) is amended by

redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection: "(e) DISTRIBUTIONS TREATED AS EXCHANGES.—For purposes of—

"(1) section 708 (relating to continuation of partnership), "(2) section 743 (relating to optional adjustment to basis of partnership property), and "(3) any other provision of this subchapter specified in regulations prescribed by the Secretary, any distribution (not otherwise treated as an exchange) shall be treated as an exchange."

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