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 90 STAT. 1904

PUBLIC LAW 94-455—OCT. 4, 1976 (c) BECAPTURE NOT TO APPLY WHERE TERMINATION I S RESULT OF

26 USC 50A.

DECLINING B U S I N E S S. — Subparagraph (A) of section 50A(c)(2) (relating to certain terminations of employment) is amended— (1^ by striking out " o r " at the end of clause ( i i i), (2) by striking out the period at the end of clause (iv) and inserting in lieu thereof a comma and "or", and (3) by a d d i n g at the end thereof the following: " (v) a termination of employment of an individual due to a substantial reduction in the trade or business operations of the tax p a y e r. " (d) Ex'raNSiON OF WELFARE EMPLOYEE INCENTIVES.—Paragrafth (2)

26 USC SOB.

of section SOB (a) (relating to definition of Federal welfare recipient employment incentive expenses) is amended by striking out "before July 1, 1976," and inserting in lieu thereof "before January 1, 1980,". (e) L I M I T A T I O N OF FEDERAL W E L F A R E R E C I P I E N T EMPLOYMENT INCENTIVE E X P E N S E S TO F I R S T 12 M O N T H S OF EMPLOYMENT. — S u b -

paragraph (B) of section 5 0 B (a)(1) is amended to read as follows: " (B) the amount of Federal welfare recipient employment incentive expenses paid or incurred by the taxpayer for services rendered during the first 12 months of employment (whether or not consecutive)." (f)

CERTIFICATION OF W E L F A R E R E C I P I E N T EMPLOYEES BY SECRE-

TARY OF LABOR.—Subparagraph (A) of section 5 0 B (g)(1) (relating to eligible employees) is amended by inserting "the Secretary of Labor or by " after "certified by". (g)

26 USC 6411.

TECHNICAL AMENDMENTS.—

(1) The second sentence of section 6411(a) (relating to application for adjustment) is amended by inserting " ( o r, in the case of a work incentive program carryback, to an investment credit c a r r y b a c k) " after "capital loss carryback". (2) The following provisions are each amended by inserting ", an investment credit carryback," after "net operating loss carryback": 26 USC 6501. (A) Section 6501(o). 26 USC 6511. (B) Section 6511(d)(7). 26 USC 6601. (C) Section 6601(d)(4). 26 USC 6611. (D) Section 6611(f)(4). SEC. 2108. REPEAL OF EXCISE TAX ON LIGHT-DUTY TRUCK PARTS. 26 USC 6416. (a) IN GENERAL.—Section 6416(b)(2) (relating to special cases in which tax payments are considered overpayments) is amended— (1) by striking "or" at the end of subparagraph (R); (2) by striking the period at the end of subparagraph (S) and inserting in lieu thereof "; or "; and (3) by a d d i n g a t the end thereof the following new subparagraph: " (T) in the case of any article taxable under section 4061 (b), sold on or in connection with the first retail sale of a . o n: c i:'• light-duty truck, as described in section 4061(a)(2), if credit or refund of such tax is not available under any other provisions of law." 26 USC 6416 (b) EFFECTIVE D A T E. — The amendments made by this section shall note. a p p l y to part s and accessories sold after the date of the enactment of this Act. SEC. 2109. EXCLUSION FROM EXCISE TAX ON CERTAIN ARTICLES RESOLD AFTER MODIFICATION. 26 USC 4063. (a) IN GENERAL.—Section 4063 (relating to exemptions from excise tax on motor vehicles) is amended by a d d i n g at the end thereof the following new subsection:
 * P i, '

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 PUBLIC LAW 94-455—OCT. 4, 1976 "(d)

9 0 STAT. 1905

RESALE A F T E R CERTAIN MODIFICATIONS.—Under regulations

Regulations,

prescribed by the Secretary, the tax imposed by section 4061 shall not a p p l y to the resale of any article described in section 4061(a)(1) if before such resale such article was merely combined with any coup l i n g device (including any fifth wheel), wrecker crane, loading and unloading equipment (including any crane, hoist, winch, or power liftgate), aerial ladder or tower, snow and ice control equipment, eartnmoving, excavation and construction equipment, spreader, sleeper cab, cab shield, or wood or metal floor." (b) EFFECTIVE D A T E. — The amendment made by this section shall 26 USC 4063 a p p l y to the resale of any article on or after the date of the enact- ^°^^ment of this Act. SEC. 2110. FRANCHISE TRANSFERS. (a) APPLICATION OF F R A N C H I S E RULES TO PARTNERSHIPS.—Section

751(c) (relating to unrealized receivables of a partnership), as amended by this Act, is amended— (1) by striking out " f a r m land (as defined in section 1252 (a)), " and inserting in lieu thereof "farm land (as defined in section 1 2 5 2 (a)), franchises, trademarks, or trade names (referred to in section 1253(a)), " and (2) by striking out " 1 2 5 2 (a) " and inserting in lieu thereof "1252(a), 1253(a)". (b) EFFECTIVE DATE.—Subsection (a) shall a p p l y to transactions described i n sections 731,736,741, or 751 of the I n t e r n a l Revenue Code of 1954 which occur after December 31, 1976, in taxable years ending after that date. SEC. 2111. EMPLOYER'S DUTIES IN CONNECTION WITH THE RECORDING AND REPORTING OF TIPS. (a) SUSPENSION OF RULINGS.—Until January 1, 1979, the law with respect to the duty of a n employer under section 6041(a) of the Intern a l Revenue Code of 1954 to report charge account tips of employees to the I n t e r n a l Revenue Service (other than charge account t i p s included in statements furnished to the employer under section 6053 (a) of such Code) shall be administered— ^1) without regard to Revenue Rulings 75-400 and 76-231, and (2) in accordance with the manner in which such law was administered before the issuance of such rulings. (b) EFFECTIVE D A T E. — T h i s section shall take effect on January 1, 1976. SEC. 2112. TREATMENT OF CERTAIN POLLUTION CONTROL FACILITIES.

26 USC 751.

26 USC 751 °o*®26 USC 6041 note-

(a) AVAILABILITY OF INVESTMENT CREDIT FOR CERTAIN POLLUTION CONTROL F A C I L I T I E S. —

(1) IN GENERAL.—Section 4 8 (a)(8) (relating to amortized 26 USC 48. property) is amended by striking out "169," and by striking out the second sentence thereof. (2) APPLICABLE

PERCENTAGE

IN

DETERMINING

AMOUNT OF

CREDIT.—Section 4 6 (c) (relating to qualified investment) is 26 USC 46. amended by a d d i n g a t the end thereof the following new paragraph: "(5)

APPLICABLE PERCENTAGE I N THE CASE OF CERTAIN POLLU-

TION CONTROL FACILITIES.—Notwithstanding subsection (c)(2), i n the case of property— " (A) with respect to which an election under section 169 applies, and

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 9 0 STAT. 1906 ...-i;',.

PUBLIC LAW 94-455—OCT. 4, 1976 (B) the useful life of which (determined without regard to section 169) is not less than 5 years, 50 percent shall be the applicable percentage for purposes of applying paragraph (1) with respect to so much of the adjusted basis of the property as (after the application of section 169(f)) constitutes the amortizable basis for purposes of section 169." (b) DEFINITION OF CERTIFIED POLLUTION CONTROL F A C I L I T I E S. — P a r -

26 USC 169.

a g r a p h (1) of section 169(d) (defining certified pollution control facilities) is amended— (1) by striking out " January 1, 1969," and inserting in lieu thereof ^'January 1, 1976,"; (2) by striking out " o r storing" and inserting in lieu thereof "storing, or preventing the creation or emission of"; and (3) by striking out " and " at the end of subparagraph (A), by striking out the period a t the end of subparagraph (B) and inserting in lieu thereof "; and", and by adding a t the end thereof the following new subparagraph: " (C) does not significantly— " (i) increase the output or capacity, extend the useful life, or reduce the total operating costs of such p l a n t or other property (or any unit thereof), or " ( i i) alter the n a t u r e of the manufacturing or production process or facility." (c) EXTENSION OF AMORTIZATION. — Paragraph (4) of section 1 6 9 (d)

(relating to new identifiable treatment facility) is amended to read as follows: " (4) N E W IDENTIFIABLE TREATMENT FACILITY.—

Definition.

" (A) IN GENERAL.—For purposes of paragraph (1), the term 'new identifiable treatment facility' includes only tangible property ( not including a building and its structural components, other than a building which is exclusively a treatment facility) which is of a character subject to the allowance for depreciation provided in section 167, which is identifiable as a treatment facility, and which is property— " (i) the construction, reconstruction, or erection of which is completed by the tax p a y e r after December 31, 1968, or " ( i i) acquired after December 31, 1968, if the original use of the property commences with the tax p a y e r and commences after such date. I n applying this section in the case of property described i n clause (i) there shall be taken into account only that portion of the basis which is properly attributable to construction, reconstruction, o r erection after December 31, 1968. "(B)

CERTAIN PLANTS, ETC., PLACED I N OPERATION AFTER

19 68.—In the case of any treatment facility used i n connection with any plant or other property not in operation before January 1, 1969, the preceding sentence shall be applied by substituting December 31, 1975, for December 31, 1968." (d) EFFECTIVE D A T E S. —

26 USC 46 note.

(1) The amendments made by subsection (a) shall a p p l y to— (A) property acquired by the tax p a y e r after December 3 1, 1976, and (B) property the construction, reconstruction, or erection of which was completed by the taxpayer after December 31, 1976, ( b u t only to the extent of the basis thereof attributable

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 PUBLIC LAW 94-455—OCT. 4, 1976

9 0 STAT. 1907

to construction, reconstruction, or erection after such date), in taxable years beginning after such date. (2) The amendments made by subsection (b) shall apply to 26 USC 169 taxable years beginning after December 31, 1975. Such amend- note, ments shall not apply in the case of any property with respect to which the amortization period under section 169 of the I n t e r n a l Revenue Code of 1954 has begun before January 1, 1976. SEC. 2113. CLARIFICATION OF STATUS OF CERTAIN FISHERMEN'S ORGANIZATIONS. (a) IN GENERAL.—Section 501 (relating to exemption from tax on 26 USC 501. corporations, etc.) is amended by redesignating subsection (g) as (h) and by inserting after subsection (f) the following new subsection: "(g)

DEFINITION OF AGRICULTURAL.—For purposes of subsection

(c)(5), the term 'agricultural' includes the a r t or science of cultivating land, harvesting crops or aquatic resources, o r raising livestock." (b) EFFECTIVE D A T E. — The amendment made by this section applies to taxable years ending after December 31, 1975. SEC 2114. APPLICATION OF SECTION 6013(e) OF THE INTERNAL REVENUE CODE OF 1954. (a) IN GENERAL.—Section 3 of the Act of January 12, 1971, Public Law 91-679 (84 Stat. 2064), is amended by a d d i n g a t the end thereof the following new sentences: " Upon application by a taxpayer, the Secretary of the Treasury shall redetermine the liability for tax (including interest, penalties, and other amounts) of such taxpayer for taxable years beginning after December 31, 1961, and ending before January 13, 1971. The preceding sentence shall apply solely to a taxpayer to whom the application of the provisions of section 6013(e) of the I n t e r n a l Revenue Code of 1954, as added by this Act, for such taxable years is prevented by the operation of res judicata, and such redetermination shall be made without regard to such rule of law. Any overpayment of tax by such taxpayer for such taxable years resulting from the redetermination made under this Act shall be refunded to such taxpayer." (b) EFFECTIVE DATE.—The application permitted under the amendment made by subsection (a) of this section must be filed with the Secretary of the Treasury during the first calendar year beginning after the date of the enactment of this Act. SEC. 2115. AMENDMENTS TO RULES RELATING TO LIMITATION ON PERCENTAGE DEPLETION IN CASE OF OIL AND GAS WELLS, TRANSFERS OF OIL AND GAS PROPERTY WITHIN THE SAME CONTROLLED GROUP OR FAMILY. (a)

RETAILER E X C L U S I O N. — Paragraph

(2)

of section 6 1 3 A (d)

(relating to the retailer exclusion) is amended by inserting "(excludi n g bulk sales of such items to commercial o r industrial u s e r s) " after " n a t u r a l g a s " where it first appears, and by a d d i n g a t the end thereof the following: "Notwithstanding the preceding sentence this paragraph shall not a p p l y in any case where the combined gross receipts from the sale of such oil, n a t u r a l gas, o r any product derived therefrom, for the taxable year of all retail outlets taken into account for purposes of this paragraph do not exceed $5,000,000. For purposes of this paragraph, sales of oil, n a t u r a l gas, or any product derived from oil o r n a t u r a l g a s shall not include sales made of such items outside the United States, if no domestic production of the taxpayer

26 USC 501 note-

26 USC 6013 note.

26 USC 6013 note.

26 USC 613A.

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 90 STAT. 1908

PUBLIC LAW 94-455—OCT. 4, 1976 or a related person is exported during the taxable year or the immediately preceding taxable year." (b) TRANSFER RULE.—

26 USC 613A,

'

,^,,, ^ '''

•'

''

.

(1) IN GENERAL.—Subparagraph (B) of section 613A(c)(9) (relating to exceptions to the transfer rule) is amended by striking out "or" at the end of clause (i), by striking out the period at the end of clause (ii) and inserting in lieu thereof ", or", and by adding at the end thereof the following new clause: "(iii) a change of beneficiaries of a trust by reason of the death, birth, or adoption of any vested beneficiary if the transferee was a beneficiary of such trust or is a lineal descendant of the settlor or any other vested beneficiary of such trust, except in the case of any trust where any beneficiary of such trust is a member of the family (as defined in section 267(c)(4)) of a settlor who created inter vivos and testamentary trusts for members of the family and such settlor died within the last six days of the fifth month in 1970, and the law in the jurisdiction in which such trust was created requires all or a portion of the gross or net proceeds of any royalty or other interest in oil, §as, or other mineral representing any percentage depletion allowance to be allocated to the principal of the trust." (2) CONFORMING AMENDMENTS.—Paragraph (1) of section 613A (d) (relating to the limitation on percentage depletion based upon taxable income) is amended— (A) by striking out subparagraph (A) and inserting in lieu thereof the following: " (A) any depletion on production from an oil or gas property which is subject to the provisions of subsection (c),", (B) by striking out "and" at the end of subparagraph (B), (C) by striking out the period at the end of subparagraph (C) and inserting in lieu thereof ", and", and (D) by adding at the end thereof the following new subparagraph: "(D) in the case of a trust, any distributions to its beneficiary, except in the case of any trust where any beneficiary of such trust is a member of the family (as defined in section 267(c)(4)) of a settlor who created inter vivos and testamentary trusts for members of the family and such settlor died within the last six days of the fifth month in 1970, and the law in the jurisdiction in which such trust was created requires all or a portion of the gross or net proceeds of any royalty or other interest in oil, gas, or other mineral representing any percentage depletion allowance to be allocated to the principal of the trust." (c) PARTNERSHIP RULES.—

0

(1) Subparagraph (D) of section 613A(c)(7) (relating to the computation of depletion in the case of partnerships) is amended to read as follows: "(D) PARTNERSHIPS.—In the case of a partnership, the depletion allowance shall be computed separately by the partners and not by the partnership. The partnership shall allocate to each partner his proportionate share of the adjusted basis of each partnership oil or gas property. The allocation

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 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1909

is to be made as of the later of the date of acquisition of the oil or gas property by the partnership, or January 1, 1975. A partner's proportionate share of the adjusted basis of partnership property shall be determined in accordance with his interest in partnership capital or income and, in the case of an agreement described m section 704(c)(2) (relating to effect of a partnership agreement on contributed property), such share shall be determined by taking such agreement into account. Each partner shall separately keep records of his share of the adjusted basis in each oil and gas property of the partnership, adjust such share of the adjusted basis for any depletion taken on such property, and use such adjusted basis each year in the computation of his cost depletion or in the computation of his gain or loss on the disposition of such property by the partnership. For purposes of section /05 732 (relating to basis of distributed property other than money), the partnership's adjusted basis m mineral property shall be an amount equal to the sum of the partners' adjusted basis in such property as determined under this paragraph." (2) Subparagraph (G) of section 703(a)(2) (relating to 26 USC 703. deductions not allowed to a partnership) is amended by striking out "production subject to the provisions of section 613A(c)" and inserting in lieu thereof "wells". (3) Subsection (a) of section 705 (relating to the determination 26 USC 705. of basis of a partner's interest in a partnership) is amended— (A) by striking out "and" m paragraph (1)(C), (B) by striking out the period at the end of paragraph (2) and inserting in lieu thereof "; and", and -(C) by adding at the end thereof the following: "(3) decreased (but not below zero), by the amount of the partner's deduction for depletion under section 611 with respect to oil and gas wells." (d) RELATED PERSON.—Paragraph (3) of section 613A(d) (relating 26 USC 613A. to the definition of related person) is amended by adding at the end thereof the following: "For purposes of determining a significant ownership interest, an interest owned by or for a corporation, partnership, trust, or estate shall be considered as owned directly both by itself and proportionately by its shareholders, partners, or beneficiaries, as the case may be." (e) TRANSFERS or O I L AND GAS PROPERTY W I T H I N THE SAME CON-

TROLLED GROUP OR FAMILY.—Subparagraph (B) of section 613A(c)

(9) (relating to transfer of oil or gas property), as amended by subsection (b)(1), is amended— ^1^ by striking out "or" at the end of clause (ii), (2) by striking out the period at the end of clause (iii) and inserting in lieu thereof a comma, and (3) by adding at the end thereof the following: "(iv) a transfer of property between corporations which are members of the same controlled group of corporations (as defined in paragraph (8)(D)(i)), o r " (v) a transfer of property between business entities which are under common control (within the meaning of paragraph (8)(B)) or between related persons in the same family (within the meaning of paragraph (8) (C)),or

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 90 STAT. 1910

PUBLIC LAW 94-455—OCT. 4, 1976 "(vi) a transfer of property between a trust and related persons in the same family (within the meaning of paragraph (8)(C)) to the extent that the beneficiaries of that trust are and continue to be related persons in the family that transferred the property, and to the extent that the tentative oil quantity is allocated among the members of the family (within the meaning of paragraph (8)(C)). Clause (iv) or (v) shall apply only so long as the tentative oil quantity determined under the table contained in paragraph (3) (B) is allocated under paragraph (8) between the transferor and transferee." (f) EFFECTIVE DATE.—The amendments made by this section shall take effect on January 1, 1975, and shall apply to taxable years ending after December 31, 1974.

/

26 USC 613A note.

SEC. 2116. IMPLEMENTATION OF FEDERAL-STATE TAX COLLECTION ACT OF 1972. (a) ELECTIOK BY STATES To PARTICIPATE.—Section 204(b)(2) of

26 USC 6361

the Federal-State Tax Collection Act of 1972 is amended to read as

note.

follows:

"(2) the first January 1 which is more than one year after the first date on which at least one State has notified the Secretary of the Treasury or his delegate of an election to enter into an agreement under section 6363 of such Code." •

'

(b) ADJUSTMENTS TO QUALIFIED RESIDENT TAXES FOR PURPOSES OF FEDERAL COLLECTION or STATE INDIVIDUAL INCOME TAXES.— (1) QUALIFIED RESIDENT TAX BASED ON TAXABLE INCOME.— (A) REQUIRED ADJUSTMENTS.—Section 6362(b)(1) (relat-

26 USC 6362.

ing to required adjustments) is amended— (i) by striking out "and" at the end of subparagraph

' *

.

(ii) by striking out the period at the end of subparagrajjh (C) and inserting in lieu thereof ", and", and (iii) by adding at the end thereof the following new subparagraph: "(D) if a credit is allowed against such tax for State or local sales tax in accordance with paragraph (2)(C), by adding an amount equal to the amount of his deduction under section 164(a)(4) for such sales tax." (B) PERMITTED ADJUSTMENTS.—Section 6362(b)(2) (relating to permitted adjustments) is amended by adding at the end thereof the following new subparagraph: "(C) A credit is allowed against such tax for all or a portion of any general sales tax imposed by the same State or a political subdivision thereof with respect to sales to the taxpayer or his dependents." (2) Q U A L I F I E L D RESIDENT TAX W H I C H IS A PERCENTAGE OF THE FEDERAL TAX

(A) PERMITTED ADJUSTMENTS.—Section 6362(c)(3) (relating to permitted adjustments) is amended— (i) by striking out "both" and inserting in lieu thereof "all", (ii) by striking out "and" at the end of subparagraph (A),

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 PUBLIC LAW 94-455—OCT. 4, 1976 ,.>

90 STAT. 1911

(iii) by striking out the period at the end of subparagraph (B) and inserting in lieu thereof ", and", and (iv) by adding at the end thereof the following new subparagraph: "(C) if a credit is allowed against such tax for State or local sales tax in accordance with paragraph (4)(B), the . j -. liability for tax is increased by the increase in such liability which would result from including as an item of income an amount equal to the amount of his deduction under section 164(a)(4) for such sales tax." (B) FURTHER PERMITTED ADJUSTMENTS.—Section 6362(c) 26 USC 6362. (4) (relating to further permitted adjustments) is amended to read as follows: "(4) FURTHER PERMITTED ADJUSTMENTS.—A tax which otherwise meets the requirements of paragraphs (1) and (2) shall not be deemed to fail to meet such requirements solely because it provides for one or both of the following adjustments: "(A) A credit determined under rules prescribed by the Secretary is allowed against such tax for income tax paid to -^.,,,, ^ _ ^ another State or a political subdivision thereof. '" ^5,," "(B) A credit is allowed against such tax for all or a portion of any general sales tax imposed by the same State or a political subdivision thereof with respect to sales to the taxpayer or his dependents."

(c) PROHIBITION ON CHARGES FOR FEDERAL COLLECTION OF STATE INCOME TAXES.—Section 6361(a) (relating to general rules for Fed-

26 USC 6361.

eral collection and administration of State individual income taxes) is amended by inserting, after the first sentence thereof, the following: "No fee or other charge shall be imposed upon any State for the collection or administration of the qualified State individual income taxes of such State or any other State.". (d) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 6361 take effect on the date of the enactment of this Act. note. SEC. 2117. CANCELLATION OF CERTAIN STUDENT LOANS.

26 USC 61 note.

(a) IN GENERAL.—In the case of an individual, no amount shall be included in gross income for purposes of section 61 of the Internal Revenue Code of 1954 by reason of the discharge of all or part of the indebtedness of the individual under a student loan if such discharge was pursuant to a provision of such loan under which all or part of the indebtedness of the individual would be discharged if the individual worked for a certain period of time in certain geographical areas or for certain classes of employers. (b) STUDENT LOAN.—For purposes of this section the term "student "Student loan." loan" means any loan to an individual to assist the individual in attending an educational organization described in section 170(b)(1) (A) (ii) of such Code— (1) by the United States, or an instrumentality or agency thereof, or a State, territory, or possession of the United States, or any political subdivision thereof, or the District of Columbia, or (2)by any such educational organization pursuant to an agrees ment with the United States, or an instrumentality or agency thereof, or a State, territory, or possession of the United States, or any political subdivision thereof, or the District of Columbia under which the funds from which the loan was made were' provided to such educational organization. '.••.•v\-'-

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 9 0 STAT. 1912 26 USC 61 note.

26 USC 337.

_

26 USC 337 note. 26 USC 61 note.

'^'" *

PUBLIC LAW 94-455—OCT. 4, 1976 (c) EFFECTIVE D A T E. — The provisions of this section shall apply to discharges of indebtedness made before January 1, 1979. SEC. 2118. TREATMENT OF GAIN OR LOSS ON SALES OR EXCHANGES IN CONNECTION WITH SIMULTANEOUS LIQUIDATION OP A PARENT AND SUBSIDIARY CORPORATION. (a) I N GEXERAL.—Section 337 (relating to gain or loss on sales o r exchanges in connection with certain liquidations) is amended by adding the following sentence a t the end of subsection (c)(2) thereof: "This paragraph shall not apply to a sale or exchange by a member of an affiliated group of corporations, as defined in section 1504(a) (but without regard to the exceptions contained in section 1 5 0 4 (b)), if each member of such group (including the common parent corporation) which receives, within the 12-month period beginning on the date of the adoption of a plan of complete liquidation by the corporation which made the sale or exchange, a distribution in complete liquidation from any other member of such group is itself completely liquidated within such 12-month period." (b) EFFECTIVE D A T E. — The amendment made by subsection (a) shall apply to sales or exchanges made pursuant to a plan of complete liquidation adopted after December 31, 1975. SEC. 2119. REGULATIONS RELATING TO TAX TREATMENT OF CERTAIN PREPUBLICATION EXPENDITURES OF PUBLISHERS. (a) GENERAL RULE. — W i t h respect to taxable years beginning on or before the date on which regulations dealing w i t h prepublication expenditures are issued after the date of the enactment of this Act, the application of sections 61 (as i t relates to cost of goods s o l d), 162,174, 263, and 471 of the I n t e r n a l Revenue Code of 1954 to any prepublication expenditure shall be administered— (1) without regard to Revenue R u l i n g 73-395, and (2) in the manner in which such sections were applied consistently by the tax p a y e r to such expenditures before the date of the issuance of such revenue ruling. (b)

REGULATIONS TO B E PROSPECTIVE ONLY.—Any

regulations

issued after the date of the enactment of this Act which deal with the application of sections 61 (as it relates to cost of goods s o l d), 162,174, 263, and 471 of the I n t e r n a l Revenue Code of 1954 to prepublication expenditures shall apply only with respect to taxable years beginning after the date on which such regulations are issued. (c) PREPUBLICATION EXPENDITURES D E F I N E D. — For purposes of t h i s

"'

26 USC 118.

section, the term "prepublication expenditures" means expenditures paid or incurred by the taxpayer (in connection with his trade o r business of publishing) for the writing, editing, compiling, illustrating, designing, or other development o r improvement of a book, teaching aid, or similar product. SEC. 2120. CONTRIBUTIONS IN AID OF CONSTRUCTION FOR CERTAIN UTILITIES. (a) IN GENERAL.—Section 118 (relating to contributions to the capital of a corporation) is amended by redesignating subsection (b) as subsection (c) and inserting immediately after subsection (a) the following new subsection: "(b)

Definition.

CONTRIBUTIONS I N A I D OF CONSTRUCTION.—

" (1) GENERAL RULE.—For purposes of this section, the term 'contribution to the capital of the taxpayer' includes any amount

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 PUBLIC LAW 94-455—OCT. 4, 1976 of money or other property received from any person (whether or not a shareholder) by a regulated public utility which provides water or sewerage disposal services if— "(A) such amount is a contribution in aid of construction, " (B) where the contribution is in property which is other than water or sewerage disposal facilities, such amount meets the requirements of the expenditure rule of paragraph (2), and "(C) such amounts (or any property acquired or constructed with such amounts) are not included in the taxpayer's rate base for rate-making purposes. "(2) EXPENDITURE RULE.—An amount meets the requirements of this paragraph if— "(A) an amount equal to such amount is expended for the acquisition or construction of tangible property described in section 1231(b)— "(i) which was the purpose motivating the contribution, and " (ii) which is used predominantly in the trade or business of furnishing water or sewerage disposal services, "(B) the expenditure referred to in subparagraph (A) occurs before the end of the second taxable year after the year in which such amount was received, and ij "(C) accurate records are kept of the amounts contributed and expenditures made on the basis of the project for which the contribution was made and on the basis of the year of contribution or expenditure. "(3) DEFiNrnoNS.—For purposes of this section— "(A) CONTRIBUTION IN AID OF CONSTRUCTION.—The term 'contribution in aid of construction'shall be defined by regulations prescribed by the Secretary; except that such term " shall not include amounts paid as customer connection fees (including amounts paid to connect the customer's property to a main water or sewer line and amounts paid as service charges for starting or stopping services). "(B) PREDOMINANTLY.—The term 'predominantly' means 80 percent or more. "(C) REGULATED PUBLIC UTILITY.—The term 'regulated public utility' has the meaning given such term by section 7701(a) (33); except that such term shall not include any such utility which is not required to provide water or sewerage disposal services to members of the general public in its service area. "(4)

90 STAT. 1913

' '' •'

,,. •

.^

DISALLOWANCE OF DEDUCTIONS AND INVESTMENT CREDIT;

ADJUSTED BASIS.—Notwithstanding any Other provisiou of this Subtitle, no deduction or credit shall be allowed for, or by reason of, the expenditure which constitutes a contribution in aid of construction to which this subsection applies. The adjusted basis of any property acquired with contributions in aid of construction to which this subsection applies shall be zero." (b) CONFORMING AMENDMENT.—Section 362(c) (relating to special 26 USC 362. rule for contributions to capital) is amended by adding the following new paragraph immediately after paragraph (2): "(3)

EXCEPTION FOR CONTRIBUTIONS IN AID OF CONSTRUCTION.—

The provisions of this subsection shall not apply to contributions in aid of construction to which section 118(b) applies." (c) EFFECTIVE DATE.—The amendments made by tins section apply to contributions made after January 31, 1976.

Ante, p. 1912. 26 USC 118 note.

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 90 STAT. 1914

PUBLIC LAW 94-455—OCT. 4, 1976 SEC. 2121. PROHIBITION OF DISCRIMINATORY STATE TAXES ON PRODUCTION AND CONSUMPTION OF ELECTRICITY. (a) IN GENERAL.—The Act entitled " A n Act relating to the power of the States to impose net income taxes on income derived from interstate commerce, and authorizing studies by congressional committees of matters pertaining thereto", approved September 14, 1959 (73 Stat. 555; 15 U.S.C. 381 et seq.) is amended by striking out title II (relating to studies) and inserting in lieu thereof the following:

"TITLE II—DISCRIMINATORY TAXES 15 USC 391.

15 USC 391

note.

26 USC 190.

"Sec. 201. No State, or political subdivision thereof, may impose o r assess a tax on or with respect to the generation or transmission of electricity which discriminates against out-of-State manufacturers, producers, wholesalers, retailers, or consumers of that electricity. For purposes of this section a tax is discriminatory if it results, either directly or indirectly, in a greater tax burden on electricity which is generated and transmitted in interstate commerce than on electricity which is generated and transmitted i n intrastate commerce." (b)

EFFECTIVE D A T E. — The amendment m a d e by subsection

shall take effect beginning June 30, 1974. SEC. 2122. ALLOWANCE OF DEDUCTION FOR ELIMINATING TURAL AND TRANSPORTATION BARRIERS HANDICAPPED. (a) IN GENERAL. — Part VI of subchapter B of chapter to itemized deductions for individuals and corporations) by adding a t the end thereof the following new section;

(a)

ARCHITECFOR THE 1 (relating is amended

"SEC. 190. EXPENDITURES TO REMOVE ARCHITECTURAL AND TRANSPORTATION BARRIERS TO THE HANDICAPPED AND ELDERLY. " (a) TREATMENT AS E X P E N S E S. —

" (1) IN GENERAL.—A tax p a y e r may elect to treat qualified architectural and transportation barrier removal expenses which are paid or incurred by h i m during the taxable year as expenses which are not chargeable to capital account. The expenditures so treated shall be allowed as a deduction. " (2) ELECTION.—An election under paragraph (1) shall be made at such time and in such manner as the Secretary prescribes by regulations. " (b) DEFINITIONS. — For purposes of this section— "(1)

ARCHITECTURAL AND TRANSPORTATION BARRIER REMOVAL

EXPENSES.—The term 'architectural and transportation barrier removal ex{)enses' means a n expenditure for the purpose of making any facility or public transportation vehicle owned o r leased by the taxpayer for use in connection with his trade or business more accessible to, and usable by, handicapped and elderly individuals. "(2)

QUALIFIED ARCHITECTURAL AND TRANSPORTATION BARRIER

REMOVAL EXPENSE.—The term 'qualified architectural and transportation barrier removal expense' means, with respect to any such facility or public transportation vehicle, an architectural or transportation barrier removal expense with respect to which the taxpayer establishes, to the satisfaction of the Secretary, that the resulting removal of any such b a r r i e r meets the standards promulgated by the Secretary with the concurrence of the Archi-

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 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1911:

tectural and Transportation Barriers Compliance Board and set forth in regulations prescribed by the Secretary. "(3) HANDICAPPED INDIVIDUAL.—The term 'handicapped individual' means any individual who has a physical or mental disability (including, but not limited to, blindness or deafness) which for such individual constitutes or results in a functional limitation to employment, or who has any physical or mental impairment (including, but not limited to, a sight or hearing impairment) which substantially limits one or more major life activities of such individual. "(c) LIMITATION.—The deduction allowed by subsection (a) for any taxable year shall not exceed $25,000. "(d) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section within 180 days after the date of the enactment of the Tax Reform Act of 1976." Ante, p. 1520. (b)

TECHNICAL AND CONFORMING AMENDMENTS.—

(1) The table of sections for such part VI is amended by adding at the end thereof the following new item: "Sec. 190. Expenditures to remove architectural and transportation barriers to the handicapped and elderly," (2) Section 263(a)(1) (relating to capital expenditures) is amended— (A) by striking out "or" at the end of subparagraph (D) thereof, (B) by striking out the period at the end of subsection (E) thereof and inserting in lieu thereof a comma and the word "or", and (C) by adding at the end thereof the following new subparagraph: " (F) expenditures for removal of architectural and transportation barriers to the handicapped and elderly which the taxpayer elects to deduct under section 190." (3) Section 1245(a) (relating to gain from dispositions of certain depreciable property) is amended— (A) by striking out "or 188" each place it appears in paragraphs (2) and (3)(D) and inserting in lieu thereof "188, or 190^ (B) by striking out "or 185" in paragraph (2)(D) and inserting in lieu thereof "185, or 190"; and (C) by adding at the end of paragraph (2) the following new sentence: "For purposes of this section, any deduction allowable under section 190 shall be treated as if it were a deduction allowable for amortization." (4) Section 1250(b)(3) (relating to depreciation adjustments) is amended by striking out "or 188" and inserting in lieu thereof "188, or 190". (c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 1976, and before January 1, 1980. SEC. 2123. HIGH INCOME TAXPAYER REPORT. The Secretary of the Treasury shall publish annually information on the amount of tax paid by individual taxpayers with high total incomes. Total income for this purpose is to be calculated and set forth in three ways:

,,

s;

26 USC 263.

^ 26 USC 1245.

26 USC 1250. 26 USC 190 note. 26 USC 56 note.

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 9 0 STAT. 1916

PUBLIC LAW 94-455—OCT. 4, 1976 (1) by adding to adjusted gross income any items of tax preference excluded from, o r deducted in arriving at, adjusted gross income, (2) by subtracting any investment expenses incurred i n the production of such, income to the extent of the investment income, and (3) by making both of the adjustments referred to i n paragraph s (1) and (2). I n any event these data are to include the number of such individuals with total income over $200,000 who owe no Federal income tax (after credits) and the deductions, exclusions or credits used by them to avoid tax. SEC. 2124. TAX INCENTIVES TO ENCOURAGE THE PRESERVATION OF HISTORIC STRUCTURES. (a) AMORTIZATION o r REHABILITATION EXPENDITURES. — (1) ALLOWANCE OF DEDUCTION.—Part VI of subchapter B of

26 USC 191.

chapter 1 (relating to itemized deductions) is amended by a d d i n g at the end thereof the following new section: "SEC. 191. AMORTIZATION OF CERTAIN REHABILITATION EXPENDITURES FOR CERTIFIED HISTORIC STRUCTURES. "(a)

V

ALLOWANCE o r DEDUCTION. — E v e r y person, a t his election,

shall be entitled to a deduction with respect to the amortization of the amortizable basis of any certified historic structure (as defined i n subsection (d)) based on a period of 60 months. Such amortization deduction shall be an amount, with respect to each month of such period within the taxable year, equal to the amortizable basis a t the end of such month divided by the number of months (including the month for which the deduction is computed) remaining i n the period. Such amortizable basis at the end of the month shall be computed without regard to the amortization deduction for such month. The amortization deduction provided by this section with respect to any month shall be in lieu of the depreciation deduction with respect to such basis for such month provided by section 167. The 60-month period shall begin, as to any historic structure, a t the election of the taxpayer, with the month following the month in which the basis is acquired, or with the succeeding taxable year. "(b)

ELECTION OF AMORTIZATION.—The election of the tax p a y e r to

take the amortization deduction and to begin the 60-month period with the month following the month i n which the basis is acquired, o r with the taxable year succeeding: the taxable year in which such basis is ac(iuired, shall be made by filing with the Secretary, i n such manner, in such form, and within such time as the Secretary may by regulations prescribe, a statement of such election. "(c)

TERMINATION o r AMORTIZATION DEDUCTION. — A tax p a y e r who

has elected under subsection (b) to take the amortization deduction provided in subsection (a) may, a t any time after making such election, discontinue the amortization deduction with respect to the remainder of the amortization period, such discontinuance to begin as of the beginning of any month specified by the taxpayer i n a notice in writing filed with the Secretary before the beginning of such month. The depreciation deduction provided under section 167 shall be allowed, beginning with the first month as to which the amortization deduction does not apply, and the tax p a y e r shall not be entitled to any further amortization deduction under this section with respect to such certified historic structure. \.

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 PUBLIC LAW 94-455—OCT. 4, 1976

9 0 STAT. 1917

" (d) DEFINITIONS. — For purposes of this section— " (1) CERTIFIED HISTORIC STRUCTURE.—The term 'certified his-

toric structure' means a building or structure which is of a character subject to the allowance for depreciation provided in section 167 which— " (A) is listed in the National Register, " (B) is located in a Registered Historic District and is certified by the Secretary of the Interior as being of historic significance to the district, or " (C) is located in an historic district designated under a statute of the a p p r o p r i a t e State or local government if such statute is certified by the Secretary of the Interior to the Secretary as containing criteria which will substantially achieve the purpose of preserving and rehabilitating buildings of historic significance to the district. " (2) AMORTIZABLE BASIS.—The term 'amortizable basis' means the portion of the basis attributable to amounts expended in connection with certified rehabilitation. " (3) CERTIFIED REHABILITATION.—The term 'certified rehabilitation' means any rehabilitation of a certified historic structure which the Secretary of the Interior has certified to the Secretary as being consistent with the historic character of such property or the district in which such property is located.

,,,,;

" (e) DEPRECIATION DEDUCTION.—The depreciation deduction p r o -

vided by section 167 shall, despite the provisions of subsection (a), be allowed with respect to the portion of the adjusted basis which is not the amortizable basis. "(f)

L I F E T E N A N T AND R E M A I N D E R M A N. — I n the case of property

held by one person for life with remainder to another person, the deduction under this section shall be computed as if the life tenant were the absolute owner of the property and shall be allowable to the life tenant. "(g)

CROSS REFERENCES.— "(1) For rules relating to the listing of buildings and structures in the National Register and for definitions of 'National Register* and 'Registered Historic District', see section 470 et seq. of title 16 of the United States Code. "(2") For special rule with respect to certain gain derived from the disposition of property the adjusted basis of which is determined with regard to this section, see section 1245." (2) G A I N ON DISPOSITION.—Section 1245(a)

(relating to gain

26 USC 1245.

from dispositions of certain depreciable property) is amended by strikina: out "or 190" each place it appears and inserting in lieii thereof "190, or 191". (3) CONFORMING AMENDMENTS.—•

(A) The table of sections for part VI of subchapter B of chapter 1 is amended by inserting a t the end thereof the following new item: "Sec. 191. Amortization of certain rehabilitation expenditures for certified historic structures."

(B) Section 642(f) (relating to amortization deductions 26 USC 642. of estates and trust) is amended by striking out " and 188" and inserting in lieu thereof "188, and 191". (C) Section 1082(a)(2)(B) (relating to basis for deter- 26 USC 1082. mining gain or loss) is amended by striking out " o r 188" and inserting in lieu thereof "188, or 191".

89-194 O—78—pt. 2

29

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 90 STAT. 1918 26 USC 1250. Ante, pp. 1914, 1916. 26 USC 191 note.

PUBLIC LAW 94-455—OCT. 4, 1976 (D) Section 1250(b)(3) (relating to depreciation adjustments) is amended by striking out " o r 190" and inserting in lieu thereof "190 or 191". (4) EFFECTIVE DATE.—The amendments made by this subsection shall apply with respect to additions to capital account made after June 14, 1976 and before June 15, 1981. (b) DEMOLITION.— (1) DISALLOWANCE OF DEDUCTIONS.—Part IX of subchapter B

26 USC 280B.

of chapter 1 (relating to items not deductible) is amended by adding at the end thereof the following new section: "SEC. 280B. DEMOLITION OF CERTAIN HISTORIC STRUCTURES. " (a) GENERAL RULE. — I n the case of the demolition of a certified

historic structure (as defined in section 191(d)(1)) — " (1) no deduction otherwise allowable under this chapter shall be allowed to the owner or lessee of such structure for— " (A) any amount expended for such demolition, or " (B) any loss sustained on account of such demolition; and " (2) amounts described in paragraph (1) shall be treated as properly chargeable to capital account with respect to the land on which the demolished structure was located. " (b) SPECIAL RULE FOR REGISTERED HISTORIC D I S T R I C T S. — For p u r -

poses of this section, any building or other structure located in a Registered Historic District shall be treated as a certified historic structure unless the Secretary of the Interior has certified, p r i o r to the demolition of such structure, that such structure is not of historic significance to the district." (2) CLERICAL AMENDMENT.—The table of sections for part IX

of subchapter B of chapter 1 is amended by a d d i n g a t the end thereof the following new item: "Sec. 280B. Demolition of certain historic structures."

26 USC 280B note. 26 USC 167.

(3) EFFECTIVE DATE.—The amendments made by this subsection shall apply with respect to demolitions commencing after June 30, 1976, and before January 1, 1981. (c) DEPRECIATION OF IMPROVEMENTS.— (1) M E T H O D OF DEPRECIATION.—Section 167 ( r e l a t i n g to depre-

ciation) is amended by redesignating subsection (n) as (p), and by inserting after subsection (m) the following new subsection: " (n) STRAIGHT L I N E METHOD I N CERTAIN CASES.—

"Reasonable allowance."

26 USC 167 note.

" (1) IN GENERAL.—In the case of any property in whole or in part constructed, reconstructed, erected, o r used on a site which was, on or after June 30, 1976, occupied by a certified historic structure (as defined in section 191(d)(1)) which is demolished or substantially altered (other than by virtue of a certified rehabilitation as defined in section 191(d)(3)) after such date— " (A) subsections (b), (j), (k), and (1) shall not apply, " (B) the term 'reasonable allowance' as used in subsection (a) shall mean only an allowance computed under the s t r a i g h t line method. " (2) EXCEPTION.—The limitations imposed by t h i s subsection shall not apply to personal property." (2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to that portion of the basis which is attributable to construction, reconstruction, or erection after December 31, 1975, and before January 1, 1981. (d) SUBSTANTIALLY REHABILITATED PROPERTY.—

(1) Section 167 (relating to depreciation) is amended by insert-

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 PUBLIC LAW 94-455—OCT. 4, 1976

9 0 STAT. 1919

ing" after subsection (n) (as added by subsection (c) of this section) the following new subsection: " (o) SUBSTANTIALLY REHABILITATED HISTORIC PROPERTY.— " (1) GENERAL RULE. — Pursuant to regulations prescribed by the

Secretary, the taxpayer may elect to compute the depreciation deduction attributable to substantially rehabilitated historic property as t h o u g h the original use of such property commenced with him. The election shall be effective with respect to the taxable year referred to in paragraph (2) and all succeeding taxable years. "(2)

y

'

SUBSTANTIALLY REHABILITATED PROPERTY.—For purposes

of paragraph (1), the term 'substantially rehabilitated historic property ' means any certified historic structure (as defined in sec.ition 191(d)(1)) with respect to which the additions to capital Ante, p. 1916. m account for any certified rehabilitation (as defined in section 1 9 1 (d)(3)) during the 24-month period ending on the last day of any taxable year, reduced by any amounts allowed or allowable as depreciation or amortization with respect thereto, exceeds the greater of— ,,,„i. " (A) the adjusted basis of such property, or " (B) $5,000. _ ,: v.|. The adjusted basis of the property shall be determined as of the beginning of the first day of such 24-month period, or of the holding period of the property (within the meaning of section 1250 ,.(e)), whichever is later." (2) EFFECTIVE DATE.—The amendment made by this subsection 26 USC 167 shall apply with respect to additions to capital account occurring note, after June 30, 1976, and before July 1, 1981. at (e) TRANSFERS OF PARTIAL INTERESTS I N PROPERTY FOR CONSERVATION PURPOSES.— (1) INCOME TAX DEDUCTIONS FOR CHARITABLE CONTRIBUTIONS OF PARTIAL INTERESTS I N PROPERTY FOR CONSERVATION PURPOSES. SEC-

tion 1 7 0 (f)(3) (relating to charitable contributions) is 26 USC 170. amended— (A) by striking out " o r " a t the end of subparagraph (B)(i), (B) by striking out "property.", a t the end of subparagraph (B) (ii) and inserting in lieu thereof "property,, (C) by a d d i n g after clause ( i i) of subparagraph (B) the following new clauses: " ( i i i) a lease on, option to purchase, or easement with respect to real property of not less than 30 years' duration granted to an organization described in subsection (b)(1)(A) exclusively for conservation purposes, or " ( i v) a remainder interest in real property which is granted to an organization described in subsection (b) (1)(A) exclusively for conservation purposes.", and (D) by a d d i n g a t the end thereof the following new subparagraph: "(C)

CONSERVATION PURPOSES DEFINED.—For purposes of

subparagraph (B), the term 'conservation purposes' means—• " (i) the preservation of land areas for public outdoor recreation or education, or scenic enjoyment; " ( i i) the preservation of historically important land areas or structures; or " ( i i i) the protection of n a t u r a l environmental systems.". (2) ESTATE TAX DEDUCTION FOR TRANSFER OF PARTIAL INTERESTS I N PROPERTY FOR CONSERVATIONS PURPOSES.—Section 2 0 5 5 (e)(2)

26 USC 2055.

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 90 STAT. 1920

PUBLIC LAW 94-455—OCT. 4, 1976

Ante, p. 1919.

(relating to deductions from gross estate) is amended by striking out " ( other than a remainder interest in a personal residence or farm or an undivided portion of the decedent's entire interest in property) " and inserting in lieu thereof " ( other than a n inter^gt described in section 170(f)(3)(B)) ».

26 USC 2522.

(3) G I F T TAX DEDUCATION FOR TRANSFERS OF PARTIAL INTERESTS I N PROPERTY FOR CONSERVATION PURPOSES.—Section 2522(c)(2)

26 USC 170 jjQ^g

Ante, p. 782. 42 USC 1382a.

26 USC 172.

26 USC 1033.

(relating to deductions from taxable gifts) is amended by striking out " ( other than a remainder interest in a personal residence or farm or a n undivided portion of the donor's entire interest in property) " and inserting i n lieu thereof " ( other than a n inter^^ described in section 170(f)(3)(B)) ". (4) EFFECTIVE DATE.—The amendments made by this subsection shall apply with respect to contributions or transfers made after June 13, 1976, and before June 14, 1977. SEC. 2125. AMENDMENT TO SUPPLEMENTAL SECURITY INCOME PROGRAM. Section 1612(a)(2)(A) (iii) of the Social Security Act is amended by striking out "fifth month " and inserting i n lieu thereof "seventeenth month". SEC. 2126. EXTENSION OF CARRY-OVER PERIOD FOR CUBAN EXPROPRIATION LOSSES Subparagraph (D) of section 172(b)(1) (relating to years to which loss may be carried) is amended by striking out " 1 5 " and inserting i n lieu thereof "20". SEC. 2127. OUTDOOR ADVERTISING DISPLAYS. (a) IN GENERAL.—Section 1033(g) (relating to condemnation of real property held for productive use in trade or business or for investment) is amended by a d d i n g a t the end thereof the following new paragraph: " (3) ELECTION TO TREAT OUTDOOR ADVERTISING DISPLAYS AS REAL PROPERTY.

" (A) IN GENERAL.—^A taxpayer may elect, at such time and in such manner as the Secretary may prescribe, to treat property which constitutes an outdoor advertising display as real property for purposes of this chapter. The election provided by this subparagraph may not be made with respect to any property with respect to which the credit allowed by section 38 (relating to investment in certain depreciable property) is or has been claimed or with respect to which an election under section 179(a) (relating to additional firstyear depreciation allowance for small business) is in effect. " (B) ELECTION.—An election made under subparagraph (A) may not be revoked without the consent of the Secretary. " (C) OUTDOOR ADVERTISING DISPLAY.—For purposes of this

^

paragraph, the term 'outdoor advertising display' means a rigidly assembled sign, display, or device permanently affixed to the ground or permanently attached to a building or other inherently permanent structure constituting, or used for the display of, a commercial or other advertisement to the public. " (D) CHARACTER OF REPLACEMENT PROPERTY.—For purposes

of this subsection, a n interest in real property purchased as replacement property for a compulsorily or involuntarily converted outdoor advertising display defined in subparagraph (C) (and treated by the taxpayer as real property) shall oe

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Page:United States Statutes at Large Volume 90 Part 2.djvu/453

 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1921

considered property of a like kind as the property converted without regard to whether the taxpayer's interest in the replacement property is the same kind of interest the taxpayer held in the converted property. " (b) EFFECTIVE D A T E. — The amendment made by this section shall apply to taxable years beginning after December 31, 1970. SEC. 2128. TAX TREATMENT OF LARGE CIGARS. (a) IN GENERAL.—So much of section 5701(a) (relating to the manner of taxation and the rates of tax on cigars) as follows paragraph (1) is amended to read as follow: " (2) LARGE CIGARS.—On cigars weighing more than 3 pounds per thousand, a tax equal to 81/^ percent of the wholesale price, but not more than $20 per thousand. Cigars not exempt from tax under this chapter which are removed but not intended for sale shall be taxed at the same rate as similar cigars removed for sale." (b) DEFINITION OF WHOLESALE PRICE.—Section 5702 is amended by adding at the end thereof the following new subsection: " (m) WHOLESALE PRICE.—'Wholesale price' means the manufacturer's, or importer's, suggested delivered price at which the cigars are to be sold to retailers, inclusive of the tax imposed by this chapter or section 7652, but exclusive of any State or local taxes imposed on cigars as a commodity, and before any trade, cash, or other discounts, or any promotion, advertising, display, or similar allowances. W h e r e the manufacturer's or importer's suggested delivered price to retailers is not adequately supported by bona fide arm's length sales, or where the manufacturer or importer has no suggested delivered price to retailers, the wholesale price shall be the price for which cigars of comparable retail price are sold to retailers in the ordinary course of trade as determined by the Secretary." (c) RECORDKEEPING REQUIREMENT.—Section 5741 is amended to read as follows: "SEC. 5741. RECORDS TO BE MAINTAINED. " E v e r y manufacturer of tobacco products or cigarette papers and tubes, every importer, and every export warehouse proprietor shall keep such records in such manner as the Secretary shall by regulation prescribe. The records required under this section shall be available for inspection by any internal revenue officer during business hours." (d)

26 USC 1033 note. 26 USC 5701.

26 USC 5702.

,

26 USC 5741,

CLERICAL AMENDMENTS. —

(1) The heading of subchapter D of chapter 52 is amended to read as follows: "Subchapter D—Records of Manufacturers and Importers of Tobacco P r o d u c t s and Cigarette P a p e r s and Tubes, and Export Warehouse Proprietors". (2) The table of subchapters for chapter 52 is amended by striking out the item relating to subchapter D and inserting in lieu thereof the following: "SxjBCHAPTEE D. Records of manufacturers and importers of tobacco products and cigarette papers and tubes, and export warehouse proprietors." (e) EFFECTIVE D A T E. — The amendments made by this section shall take effect on the first month which begins more than 90 days after the date of the enactment of this Act.

26 USC 5701 note.

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 90 STAT. 1922

26 USC 1239.

PUBLIC LAW 94-455—OCT. 4, 1976 SEC. 2129. TREATMENT OF GAIN FROM SALES OR EXCHANGES BETWEEN RELATED PARTIES. (a) I x GEXERAL.—Section 1239 (relating to gain from sale of certain property between spouses or between an individual and a controlled corporation) is amended to read as follows: "SEC. 1239. GAIN FROM SALE OF DEPRECIABLE PROPERTY BETWEEN CERTAIN RELATED TAXPAYERS. "(a)

TREATMKXT OF G A IX AS ORDINARY IX C O M E, — I n the case of a

sale or exchange of property, directly or indirectly, between related persons, any gain recognized to the transferor shall be treated as ordinary income if such property is, in the hands of the transferee, subject to the allowance l o r depreciation provided in section 167. " (b) RELATED PERSOXS.—For purposes of subsection (a), the term 'related persons' means— " (1) a husband and wife, " (2) an individual and a corporation 80 percent or more in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual, or " (3) t w o or more corporations 80 percent or more in value of the outstanding stock of each of which is owned, directly or indirectly, by or for the same individual.

-'

" (c) CONSTRUCTIVE O W N E R S H I P OF STOCK.—Section 318 shall a p p l y

26 USC 1239 note.

' ^^ ' ^<

26 USC 117 note ^

26 USC 368.

in determining the ownership of stock for purposes of this section, except that sections 318(a)(2)(C) and 318(a)(3)(C) shall be applied without regard to the 50-percent limitation contained therein." (b) EFFECTIVE D A T E. — The amendment made by this section shall apply to sales or exchanges after the date of the enactment of this Act. For purposes of the preceding sentence, a sale or exchange is considered to have occurred on or before such date of enactment if such sale or exchange is made pursuant to a binding contract entered into on or before that date. SEC. 2130. APPLICATION OF SECTION 117 TO CERTAIN EDUCATION PROGRAMS FOR MEMBERS OF THE UNIFORMED SERVICES. Subsection (c) of section 4 of the Act entitled an Act to suspend until the close of June 30. 1975, the duty on certain carboxymethyl cellulose salts, and for other purposes, approved October 26, 1974 (88 Stat. 1457; Public Law 93-483). is amended by striking out " and 1975'' and inserting in lieu thereof the following: " and 1975, and, in the case of a member of a uniformed service receiving t r a i n i n g in programs described in subsection (a) during calendar year 1976, with respect to amounts received during calendar years 1976, 1977, 1978, and 1979." SEC. 2131. EXCHANGE FUNDS. (a) CORPORATE REORGANIZATIONS.—Paragraph (2) of section 368(a) (special rules relating to definition of reorganization) is amended by adding at the end thereof the following new subparagraph: " (F) CERTAIN TR^VNSACTIONS IXVOLVIXG 2 OR MORE IX\I-:STM E X T COMPAXIES.

,/. •*' '

" (i) I f immediately before a transaction described in paragraph (1) (other than subparagraph (E) thereof), 2 or more parties to the transaction were investment companics, then the transaction shall not be considered to be a reorganization with respect to any such investment company ( and its shareholders and security holders)

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 PUBLIC LAW 94-455—OCT. 4, 1976 unless it was a regulated investment company, a real estate investment trust, or a corporation which meets the requirements of clause (ii). "(ii) A corporation meets the requirements of this clause if not more than 25 percent of the value of its total assets is invested in the stock and securities of any one issuer, and not more than 50 percent of the value of its total assets is invested in the stock and securities of 5 or fewer issuers. For purposes of this clause, all members of a controlled group of corporations (within the meaning of section 1563(a)) shall be treated as one issuer. "(iii) For purposes of this subparagraph the term 'investment company' means a regulated investment company, a real estate investment trust, or a corporation more than 50 percent of the value of whose total assets are stock and securities and more than 80 percent of the value of whose total assets are assets held for investment. In making the 50-percent and 80-percent determinations under the preceding sentence, stock and securities in any subsidiary corporation shall be disregarded and the parent corporation shall be deemed to own its ratable share of the subsidiary's assets, and a corporation shall be considered a subsidiary if the parent owns 50 percent or more of the combined voting power of all classes of stock entitled to vote, or 50 percent or more of the total value of shares of all classes of stock outstanding. "(iv) For purposes of this subparagraph, in determining total assets there shall be excluded cash and cash items (including receivables). Government securities, and, under regulations prescribed by the Secretary, assets acquired (through incurring indebtedness or otherwise^ for purposes of meeting the requirements of clause (ii) or ceasing to be an investment company. " (v) This subparagraph shall not apply if the stock of each investment company is owned substantially by the same persons in the same proportions. "(vi) If an investment company which is not diversified within the meaning of clause (ii) acquires assets of another corporation, clause (i) shall be applied to such investment company and its shareholders and security holders as though its assets had been acquired by such other corporation. If such investment company acquires stock of another corporation in a reorganization described in section 368(a)(1)(B) (hereafter referred to as the 'actual acquisition'), clause (i) shall be applied to the shareholders and security holders of such investment company as though they had exchanged with such other corporation all of their stock in such investment company for a percentage of the value of the total outstanding stock of the other corporation equal to the percentage of the value of the total outstanding stock of such investment company which such shareholders own immediately after the actual acquisition. For purposes of section 1001, the deemed acquisition or exchange referred to in the two preceding sentences shall be treated as a sale or exchange of property by the corporation and by the shareholders and security holders to which clause (i) is applied."

90 STAT. 1923

26 USC 1563. "Investment company."

Total assets,

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ft-

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Page:United States Statutes at Large Volume 90 Part 2.djvu/456

 90 STAT. 1924

PUBLIC LAW 94-455—OCT. 4, 1976

26 USC 721.

(b) PARTNERSHIPS.—Section 721 (relating to nonrecognition of gain or loss on transfers to partnerships) is amended to read as follows: "SEC. 721. NONRECOGNITION OF GAIN OR LOSS ON CONTRIBUTION. " (a) GENERAL RULE. — N o gain or loss shall be recognized to a partnership or to any of its part n e r s in the case of a contribution of property to the partnership m exchange for an interest in the partnership. " (b) SPECIAL RULE.—Subsection (a) shall not apply to gain realized on a transfer of property to a partnership which would be treated as a n investment company (within the meaning of section 351) if the partnership were incorporated."

^^ u s e 722,

(c) CONFORMING AMENDMENT.—Sections 722 and 723 ( r e l a t i n g to

tax basis) are each amended by striking out "contribution." and inserting in lieu thereof "contribution increased by the amount (if any) of gain recognized to the contributing part n e r at such time." 26 USC 584.

((J) COMMON TRUST FUNDS.—Subsection (e) of section 584 ( r e l a t i n g

to admission to and withdrawal from a common t r u s t fund) is amended by inserting after the first sentence the following new sentence: " The admission of a participant shall be treated with respect to the participant as the purchase of, or an exchange for, the participating interest." 26 USC 683

^^^ TRUSTS.

•

(1) IN GENERAL.—Section 683 (relating to applicability of provisions) is amended to read as follows;

"SEC. 683. USE OF TRUST AS AN EXCHANGE FUND.

X

" (a) GENERAL RULE. — E x c e p t as provided in subsection (b), if property is transferred to a trust in exchange for an interest in other trust property and if the trust would be an investment company (within the meaning of section 351) if it were a corporation, then gain shall be recognized to the transferor. "(b)

EXCEPTION FOR POOLED INCOME FUNDS.—Subsection (a) shall

not apply to any transfer to a pooled income fund (within the meaning of section 642(c)(5)). " (2) CONFORMING AMENDMENT.—The table of sections for subpart F of part I of subchapter J of chapter 1 is amended by striking out the item relating to section 683 and inserting in lieu thereof the following: "Sec. 683. Use of trust as an exchange fund." (f) EFFECTIVE D A T E S. —

26 USC 368 note.

26 USC 721 note.

(1) Except as provided in paragraph (2), the amendment made by subsection (a) shall apply to transfers made after February 17, 1976, in taxable years ending after such date. (2) The amendment made by subsection (a) shall not apply to transfers made in accordance with a r u l i n g issued by the I n t e r n a l Revenue Service before February 18, 1976, holding that a proposed transaction would be a reorganization described in paragraph (1) of section 368(a) of the I n t e r n a l Revenue Code of 1954. (3) Except as provided in paragraph (4), the amendments made by subsections (b) and (c) shall apply to transfers made after February 17, 1976, in taxable years ending after such date. (4) The amendments made by subsections (b) and (c) shall not apply to transfers to a partnership made on or before the 90th day after the date of the enactment of this Act if— (A) either—

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Page:United States Statutes at Large Volume 90 Part 2.djvu/457

 PUBLIC LAW 94-455—OCT. 4, 1976 (i) a ruling request with respect to such transfers was filed with the Internal Revenue Service before March 27, 1976, or (ii) a registration statement with respect to such transfers was filed with the Securities and Exchange f Commission before March 27, 1976, (B) the securities transferred were deposited on or before the 60th day after the date of the enactment of this Act, and (C) either— (i) the aggregate value (determined as of the close of the 60th day referred to in subparagraph (B), or, if '" earlier, the close of the deposit period) of the securities so transferred does not exceed $100,000,000, or (ii) the securities transferred were all on deposit on February 29, 1976, pursuant to a registration statement referred to in subparagraph (A) (ii). (5) If no registration statement was required to be filed with the Securities and Exchange Commission with respect to the transfer of securities to any partnership, then paragraph (4) shall be applied to such transfers— (A) as if paragraph (4) did not contain subparagraph (A) (ii) thereof, and (B) by substituting "$25,000,000" for "$100,000,000" in subparagraph (C)(i) thereof. (6) The amendments made by subsections (d) and (e) shall take effect on April 8, 1976, in taxable years ending on or after such date. SEC. 2132. CONTRIBUTIONS OF CERTAIN GOVERNMENT PUBLICATIONS. (a) IN GENERAL.—Section 1221 (relating to definition of capital asset) is amended by— (1) striking out "or" at the end of paragraph (4); (2) striking out the period at the end of paragraph (5) and inserting in lieu thereof "; or", and (3) adding after paragraph (5) the following new paragraph: "(6) a publication of the United States Government (including the Congressional Record) which is received from the United States Government or any agency thereof, other than by purchase at the price at which it is offered for sale to the public, and which is held by— "(A) a taxpayer who so received such publication, or "(B) a taxpayer in whose hands the basis of such publication is determined, for purposes of determining gain from a sale or exchange, in whole or in part by reference to the basis of such publication in the hands of a taxpayer described in subparagraph (A).". (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to sales, exchanges, and contributions made after the date of enactment of this Act. SEC. 2133. TAX INCENTIVES STUDY. (a) STUDY.—The Joint Committee on Taxation, in consultation with the Treasury, shall make a full and complete study and comparative analysis of the cost effectiveness of different kinds of tax incentives, including an analysis and study of the most effective way to use tax cuts in a period of business recession to provide a stimulus to the economy.

90 STAT. 1925

26 USC 721 note,

26 USC 584 note, 26 USC 1221.

^ 26 USC 1221 note. 26 USC 8022 note,

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Page:United States Statutes at Large Volume 90 Part 2.djvu/458

 90 STAT. 1926

26 USC 120.

\

PUBLIC LAW 94-455—OCT. 4, 1976

(b) REPORT.—The Joint Committee on Taxation shall submit to the Committee on Finance of the Senate and to the Committee on W a y s and Means of the House of Representatives a final report of its study and investigation together with its recommendations, including recommendations for legislation, as it deems advisable. (c) REPORTING D A T E. — The final report called for in subsection (b) of this section shall be submitted no later than September 30, 1977., SEC. 2134. PREPAID LEGAL EXPENSES. (a) E X C L U S I O N. — Part III of subchapter B of chapter 1 is amended by inserting after section 119 the following new section: "SEC. 120. AMOUNTS RECEIVED UNDER QUALIFIED GROUP LEGAL SERVICES PLANS. " (a) EXCLUSION BY EMPLOYEE FOR CONTRIBUTIONS AND LEGAL SERVICES PROVIDED BY EMPLOYER.—Gross income of an employee, his spouse,

or his dependents, does not include— " (1) amounts contributed by an employer on behalf of an employee, h i s spouse, or his dependents under a qualified group legal services plan (as defined in subsection (b)); or " (2) the value of legal services provided, or amounts paid for legal services, under a qualified g r o u p legal services plan (as defined i n subsection (b)) to, or with respect to, an employee, his spouse, or his dependents. "(b)

QUALIFIED GROUP LEGAL SERVICES P L A N. — For purposes of

this section, a qualified group legal services plan is a separate written plan of an employer for the exclusive benefit of his employees or their spouses or dependents to provide such employees, spouses^ or dependents with specified benefits consisting of personal legal services through prepayment of, or provision in advance for, legal fees in whole or in part by the employer, if the plan meets the requirements of subsection (c). " (c) REQUIREMENTS.—

!S J >'

" (1) DISCRIMINATION.—The contributions or benefits provided under the plan shall not discriminate in favor of employees who are officers, shareholders, self-employed individuals, or highly compensated. " (2) ELIGIBILITY.—The plan shall benefit employees who qualify under a classification set u p by the employer and found by the Secretary not to be discriminatory in favor of employees who are described in paragraph (1). For purposes of this paragraph, there shall be excluded from consideration employees not included in the plan who a r e included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, if there is evidence that group legal services plan benefits were the subject of good faith bargaining between such employee representatives and such employer or employers. " (3) CONTRIBUTION LIMITATION.—Not more than 25 percent of

-

the amounts contributed under the plan during the year may be provided for the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the year) owns more than 5 percent of the stock or of the capital or profits interest in the employer. " (4) NOTIFICATION.—The plan shall give notice to the Secretary, i n such manner as the Secretary may by regulations prescribe, that it is applying for recognition of the status of a qualified group legal services plan.

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Page:United States Statutes at Large Volume 90 Part 2.djvu/459

 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1927

" (5) CONTRIBUTIONS.—Amounts contributed under the plan shall be paid only (A) to insurance companies, or to organizations or persons that provide personal legal services, or indemnification against the cost of personal legal services, in exchange for a prepayment or payment of a premium, (B) to organizations or trusts described in section 501(c) (20), (C) to organizations Infra. described in section 501(c) which are permitted by that section to receive payments from an employer for s u p p o r t of one or more qualified group legal services plan or plans, except that such organizations shall p a y or credit the contribution to an organization or trust described in section 501(c) ( 2 0), (D) as prepayments to providers of legal services under the plan, or (E) a combination of the above. '"^

^ ' '.;

" (d) OTHER DEFINITIONS AND SPECIAL RULES. — For purposes of t h i s

section— "(1)

SELF-EMPLOYED INDIVIDUAL; EMPLOYEE.—The term 'self-

employed individual' means, and the term 'employee' includes, for any year, an individual who is an employee within the meaning of section 401(c)(1) (relating to self-employed individuals). " (2) EMPLOYER.—An individual who owns the entire interest in an unincorporated trade or business shall be treated as his own employer. A partnership shall be treated as the employer of each part n e r who is an employee within the meaning of paragraph (1). ' " (3) ALLOCATIONS.— Allocations of amounts contributed under the plan shall be made in accordance with regulations prescribed by the Secretary and shall take into account the expected relative utilization of benefits to be provided from such contributions or plan assets and the manner in which any premium or other charge was developed. " (4) DEPENDENT.—The term 'dependent' has the meaning given "Dependent." to it by section 152. " (5) EXCLUSIVE BENEFIT.—In the case of a plan to which contributions are made by more than one employer, i n determining whether the plan is for the exclusive benefit of an employer's employees or their spouses or dependents, the employees of any employer who maintains the plan shall be considered to be the employees of each employer who maintains the plan. " (6) ATTRIBUTION RULES.—For purposes of t h i s section—

" (A) ownership of stock in a corporation shall be determined in accordance with the rules provided under subsections (d) and (e) of section 1563 (without regard to section 1563(e)(3)(C)), and " (B) the interest of an employee in a trade or business which is not incorporated shall be determined in accordance with regulations prescribed by the Secretary, which shall be based on principles similar to the principles which apply in the case of subparagraph (A).

^

" (7) T I M E OF NOTICE TO SECRETARY.—A p l a n shall not be a quali-

fied group legal services plan for any period prior to the time notification was provided to the Secretary in accordance with subsection (c)(4), if such notice is given after the time prescribed by the Secretary by regulations for giving such notice." (b) E X E M P T STATUS.—Section 501(c) (relating to exempt organi- 26 USC 501. zations) is amended by a d d i n g a t the end thereof the following new paragraph: " ( 2 0) an organization or t r u s t created or organized in the United States, the exclusive function of which is to form part of

\r 'tfiJ^ ' ««*-5P'^L,-V^,«S - > J

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Page:United States Statutes at Large Volume 90 Part 2.djvu/460

 90 STAT. 1928 Ante, p. 1926. Ante, p. 1927.

PUBLIC LAW 94-455—OCT. 4, 1976 a qualified group legal services plan or plans, within the meaning of section 120. A n organization or trust which receives contributions because of section 120(c)(5)(C) shall not be prevented from qualifying as an organization described in section 501(c) (20) merely because i t provides legal services or indemnification against the cost of legal services unassociated with a qualified group legal services plan." (c) T E C H N I C A L AMENDMENT. — The table of sections for part III of

subchapter B of chapter 1 is amended by inserting after the item relating to section 119 the following new item: "Sec. 120. Amounts received under qualified group legal services plans."

26 USC 120 note.

Report to President and Congress.

26 USC 120 note.

(d) STUDY AND REPORT BY SECRETARIES OF TREASURY AND LABOR.—

(1) A complete study and investigation with respect to the desirability and feasibility of continuing the exclusion from income of certain prepaid group legal services benefits under section 120 of the I n t e r n a l Revenue Code of 1954 shall be made by the Secretary of Labor and by the Secretary of the Treasury. (2) The Secretary of Labor and the Secretary of the Treasury shall report to the President and the Congress with respect to the study and investigation conducted under paragraph (1) not later than December 31, 1980. (e) EFFECTIVE D A T E S. —

(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 1976, and ending before January 1, 1982. (2) NOTICE REQUIREMENT. — For purposes of section 120(d)(6)

of the I n t e r n a l Revenue Code of 1954, the time prescribed by the Secretary of the Treasury by regulations for giving the notice required by section 120(c)(4) of such Code shall not expire before the 90th d a y after the day on which regulations prescribed under such section 120(c)(4) first become final. (3) EXISTING PLANS.—

"Compliance date."

26 USC 170.

(A) For purposes of section 120 of the I n t e r n a l Revenue Code of 1954, a written group legal services plan which was in existence on June 4, 1976, shall be considered as satisfying the requirements of subsections (b) and (c) of such section 120 for the period ending with the compliance date (determined under subparagraph (B)). (B) COMPLIANCE DATE.—For purposes of this paragraph, the term "compliance date " means— (i) the date occurring 180 days after the date of the enactment of this Act, o r (ii) if later, in the case of a plan which is maintained pursuant to one or more agreements which the Secretary of Labor finds to be collective bargaining agreements, the earlier of December 31, 1981, or the date on which the last of the collective bargaining agreements relating to the plan terminates (determined without regard to any extension thereof agreed to after the date of the enactment of this Act). JSEC. 2135. SPECIAL RULE FOR CERTAIN CHARITABLE CONTRIBUTIONS OF INVENTORY AND OTHER PROPERTY. (a) IN GENERAL.—Section 170(e) (relating to certain contributions of ordinary income and capital gain property) is amended by a d d i n g at the end thereof the following new paragraph:

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Page:United States Statutes at Large Volume 90 Part 2.djvu/461

 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1929

" (3) SPECIAL RULE FOR CERTAIN CONTRIBUTIONS OF INVENTORY AND OTHER PROPERTY. " (A) QUALIFIED CONTRIBUTIONS.—For purposes of t h i s

paragraph, a qualified contribution shall mean a charitable contribution of property described in paragraph (1) or (2) of section 1221, hj a corporation (other than a corporation 26 USC 1221. which is an electing small business corporation within the meaning of section 1371(b)) to an organization which is described in section 501(c)(3) and is exempt under section 501 (a^ (other than a private foundation, as defined in section 5 0 9 (a), which is not an operating foundation, as defined i n section 4942(j)(3)), but only if— " (i) the use of the property by the donee is related to the purpose or function constituting the basis for its exemption under section 501 and the property is to be used by the donee solely for the care of the ill, the needy, or infants; " ( i i) the property is not transferred by the donee in exchange for money, other property, o r services; " ( i i i) the tax p a y e r receives from the donee a written statement representing that its use and disposition of the property will be in accordance with the provisions of clauses (i) and ( i i); and " (iv) in the case where the property is subject to regulation under the Federal Food, D r u g, and Cosmetic Act, 26 USC 301. as amended, such property must fully satisfy the applicable requirements of such Act and regulations promulgated thereunder on the date of transfer and for one hundred and eighty days prior thereto. " (B) A M O U N T OF REDUCTION.—The reduction under p a r a -

g r a p h (1)(A) for any qualified contribution (as defined in subparagraph (A)) shall be n o greater than the sum of— " (i) one-half of the amount computed under paragraph (1)(A) (computed without regard to this paragraph), and " (ii) the amount (if any) by which the charitable contribution deduction under this section for any qualified contribution (computed by taking into account the t^;..:., amount determined in clause (i), b u t without regard to this clause) exceeds twice the basis of such property. " (C) This paragraph shall not apply to so much of the amount of the gain described in paragraph (1)(A) which would be long-term capital gain but for the application of sections 617, 1245.1250, 1251, or 1252." (b) EFFECTIVE DATE.—The amendment made by this section applies 26 USC 170 to charitable contributions made after the date of enactment of this note. Act, in taxable years ending after such date. SEC. 2136. TAX TREATMENT OF THE GRANTOR OF OPTIONS OF STOCK, SECURITIES, AND COMMODITIES. (a) Section 1234 (relating to options to buy or sell) is amended to 26 USC 1234. read a s follows: "SEC. 1234. OPTIONS TO BUY OR SELL. " (a) TREATMENT o r G A I N OR Loss I N THE CASE OF THE P U R C H A S E R. —

" (1) GENERAL RULE.—Gain or loss attributable to the sale or exchange of, or loss attributable to failure to exercise, an option

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Page:United States Statutes at Large Volume 90 Part 2.djvu/462

 90 STAT. 1930

PUBLIC LAW 94-455—OCT. 4, 1976 to buy or sell property shall be considered gain or loss from the sale or exchange of property which has the same character as the property to which the option relates has i n the h and s of the taxpayer (or would have i n the hands of the taxpayer if acquired by h i m). " (2) SPECIAL RULE FOR LOSS ATTRIBUTABLE TO FAILURE TO EXERCISE OPTION".—For purposes of paragraph (1), if loss is attributable to failure to exercise an option, the option shall be deemed to have been sold or exchanged on the day it expired. " (3) NoNAppLiCATiON" OF SUBSECTION.—This subsection shall not apply to— " (A) a n option which constitutes property described in paragraph (1) of section 1221; " (B) i n the case of gain attributable to the sale o r exchange of an option, any income derived in connection with such option which, without regard to this subsection, is treated as other than gain from the sale or exchange of a capital asset; and " (C) a loss attributable to failure to exercise a n option described in section 1233(c).

.,;;;: r

'

,

" (b) TREATMENT OF GRANTOR OF O P T I O N I N THE CASE or STOCK, SECURITIES, OR COMMODITIES.— " (1) GENERAL RULE. — I n the case of the g r a n to r of the option,

^

gain or loss from any closing transaction with respect to, and gain on lapse of, an option i n property shall be treated as a gain or loss from the sale or exchange of a capital asset held not more than 6 months. " (2) DEFINITIONS. — For purposes of this subsection—

'IS

"(A)

"^

26 USC 1234 note.

26 USC 852.

4f,

CLOSING TRANSACTION.—The term 'closing transac-

tion' means any termination of the taxpayer's obligation under an option in property other than through the exercise or lapse of the option. " (B) PROPERTY.—The term 'property' means stocks and securities (including stocks and securities dealt with on a 'when issued' basis), commodities, and commodity futures. " (3) NoNAPPLICATION OF SUBSECTION.—This subsection shall not apply to any option granted in the ordinary course of the taxpayer's trade or business of g r a n t i n g options. (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to options granted after September 1, 1976. SEC. 2137. EXEMPT-INTEREST DIVIDENDS OF REGULATED INVESTMENT COMPANIES. (a) GENERAL.—Section 852(a)(1) (relating to regulated investment companies) is amended to read as follows: " (1) the deduction for dividends paid during the taxable year (as defined i n section 561, b u t without regard to capital gain dividends^ equals or exceeds the sum of— " (A) 90 percent of its investment company taxable income for the taxable year determined without regard to subsection (b)(2)(D); and " (B) 90 percent of the excess of (i) its interest income excludable from gross income under section 103(a)(1) over (ii) its deductions disallowed under sections 265, 171 (a)(2), and". (b) DIVIDENDS P A I D DEDUCTION.—Section 852(b)(2)(D)

to taxable income) is amended to read as follows:

(relating

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Page:United States Statutes at Large Volume 90 Part 2.djvu/463

 PUBLIC LAW 94-455—OCT. 4, 1976

'

90 STAT. 1931

" (D) the deduction for dividends paid (as defined in section 561) shall be allowed, but shall be computed without regard to capital gain dividends and exempt-interest dividends." (c) E X E M P T - I N T E R E S T

DIVIDENDS.—Section

852(b)

(relating

to

26 USC 852.

method of taxation of regulated investment companies and shareholders) is amended by inserting after paragraph (4) the following new paragraph (5): " (5) EXEMPT-INTEREST DIVIDENDS.—If, at the close of each quar-

ter of its taxable year, at least 50 percent of the value (as defined in section 851(c)(4)) of the total assets of the regulated investment company consists of obligations described in section 103 (a)(1), such company shall be qualified to pay exempt-interest dividends, as defined herein, to its shareholders. " (A) DEFINITION. — A n exempt-interest dividend means any dividend or part thereof (other than a capital gain dividend) paid by a regulated investment company and des;.,, ignated by it as an exempt-interest dividend in a written notice mailed to its shareholders not later than 45 days after the close of its taxable year. I f the aggregate amount so designated with respect to a taxable year of the company (including exempt-interest dividends paid after the close of the taxable year as described in section 855) is greater than the excess of— " (i) the amount of interest excludable from gross income under section 1 0 3 (a)(1), over " ( i i) the amounts disallowed as deductions under sections 265 and l 7 l (a)(2), the portion of such distribution which shall constitute a n exempt-interest dividend shall be only that proportion of the amount so designated as the amount of such excess for such taxable year bears to the amount so designated. "(B)

ill

?":.

^,

,.:

TREATMENT o r EXEMPT-INTEREST DIVIDENDS BY SHARE-

HOLDERS.—An exempt-interest dividend shall be treated by the shareholders for all purposes of this subtitle as an item of interest excludable from gross income under section 103(a) (1). Such purposes include but are not limited to— " (i) the determination of gross income and taxable income, " ( i i) the determination of distributable net income under subchapter J, " ( i i i) the allowance of, or calculation of the amount of, any credit or deduction, and " ( i v) the determination of the basis in the hands of any shareholder- of any share of stock of the company." (d) TECHNICAL AMENDMENT. — S e c t i o n 1 0 3 (g), as redesignated by

' •

''~ "' '

26 USC 103.

section 1305 of this Act (relating to exclusions from gross income of interest on certain government obligations) is amended by inserting after paragraph (23) the following new paragraph: "(24) Exempt-interest dividends.—For treatment of exempt-interest dividends, see section 852(b)(5)(B)." (e) DISALLOWANCE OF DEDUCTIONS.—Section 265 ( r e l a t i n g to non-

allowance of deductions for expenses and interest relating to tax exempt income) is amended by a d d i n g a t the end thereof the following new paragraph s:

' ' 26 USC 265.

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 PUBLIC LAW 94-455—OCT. 4, 1976

9 0 STAT. 1932

" (3) CERTAIN REGULATED INVESTMENT COMPANIES.—In the case

Ante, p. 1787.

of a regulated investment company which distributes during the taxable year an exempt-interest dividend (including exemptinterest dividends paid after the close of the taxable year as described in section 855), that portion of any amount othervfise allowable as a deduction which the amount of the income of such company wholly exempt from taxes under this subtitle bears to the total of such exempt income and its gross income (excluding from gross income, for this purpose, capital gain net income, as defined in section 1222(9)). " (4) INTEREST RELATED TO EXEMPT-INTEREST DIVIDENDS.—Inter-

26 USC 852 note.

26 USC 584.

26 USC 152. 26 USC 152 note.

26 USC 1033.

est on indebtedness incurred or continued to purchase or carry shares of stock of a regulated investment company which during the taxable year of the holder thereof distributes exempt-interest dividends." (e) EFFECTIVE D A T E. — The amendments made by this section shall apply to taxable years beginning after December 31, 1975. SEC. 2138. COMMON TRUST FUND TREATMENT OF CERTAIN CUSTODIAL ACCOUNTS. (a) IN GENERAL.—Section 584(a)(1) (relating to definition of common trust fund) is amended to read as follows: " (1) exclusively for the collective investment and reinvestment of moneys contributed thereto by the bank in its capacity— " (A) as a trustee, executor, administrator, or guardian, or " (B) as a custodian of accounts— " (i) which the Secretary determines are established pursuant to a State law which is substantially similar to the Uniform Gifts to Minors Act as published by the American Law Institute, and " (ii) with respect to which the bank establishes, to the satisfaction of the Secretary, that it has duties and responsibilities similar to duties and responsibilities of a trustee or g u a r d i a n; and". SEC. 2139. SUPPORT TEST FOR DEPENDENT CHILDREN OF DIVORCED ETC., PARENTS. (a) IN GENERAL.—Section 152 (relating to definition of dependents) is amended by striking the word "all in subsection (e)(2)(B) (i) thereof and inserting in lieu thereof "each". (b) EFFECTIVE D A T E. — The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act. SEC. 2140. INVOLUNTARY CONVERSION OF REAL PROPERTY. (a) IN GENERAL.—Section 1033(g) (relating to involuntary conversions), as amended by this Act, is amended by a d d i n g a t the end thereof the following new paragraph: "(4)

26 USC 1033 note.

SPECIAL RULE. — I n the case of a compulsory or involun-

t a r y conversion described in paragraph (1), subsection (a)(3) (B)(i) shall be applied by substituting '3 years' for '2 year s ' ". (b) EFFECTIVE D A T E. — The amendment made by this section shall apply with respect to any disposition of converted property (within the meaning of section 1033(a)(2) of the I n t e r n a l Revenue Code of 1954) after December 31, 1974, unless a condemnation proceeding with respect to such property began before the date of the enactment of this Act.

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 he cannot or will not stay legislation by the use of his extraordinary power as a branch of the legislature, is plainly bound in duty to render unquestioning obedience to Congress. And if it be his duty to obey, still more is obedience the bounden duty of his subordinates. The power of making laws is in its very nature and essence the power of directing, and that power is given to Congress. The principle is without drawback, and is inseparably of a piece with all Anglo-Saxon usage; the difficulty, if there be any, must lie in the choice of means whereby to energize the principle. The natural means would seem to be the right on the part of the representative body to have all the executive servants of its will under its close and constant supervision, and to hold them to a strict accountability: in other words, to have the privilege of dismissing them whenever their service became unsatistactory. This is the matter-of-course privilege of every other master; and if Congress does not possess it, its mastery is hampered without being denied. The executive officials are its servants all the same; the only difference is that if they prove negligent, or incapable, or deceitful servants Congress must rest content with the best that can be got out of them until its chief administrative agent, the President, chooses to appoint better. It cannot make them docile, though it

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Page:United States Statutes at Large Volume 90 Part 2.djvu/465

 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1933

SEC. 2141. UVESTOCK SOLD ON ACCOUNT OF DROUGHT. (a) IN GENERAL.—Section 451 (relating to general rules for taxable 26 USC 451. year of inclusion) is amended by adding at the end thereof the following new subsection: " (e) SPECIAL RULE FOB PROCEEDS FROM LIVESTOCK SOLD ON ACCOUNT OF DROUGHT.—

"(1) IN GENERAL.—In the case of income derived from the sale or exchange of livestock (other than livestock described in section 1231(b)(3)) in excess of the number the taxpayer would sell if he followed his usual business practices, a taxpayer reporting on the cash receipts and disbursements method of accounting may elect to include such income for the taxable year following the taxable year in which such sale or exchange occurs if he establishes that, under his usual business practices, the sale or exchange •; would not have occurred in the taxable year in which it occurred if it were not for drought conditions, and that these drought con^ ditions had resulted in the area being designated as eligible for ' assistance by the Federal Government. "(2) LIMITATION.—Paragraph (1) shall apply only to a taxpayer whose principal trade or business is farming (within the meaning of section 6420(c)(3)). " (b) EFFECTIVE DATE.—The amendment made by this section applies 26 USC 451 note. to taxable years beginning after December 31, 1975. Approved October 4, 1976.

LEGISLATIVE HISTORY: HOUSE REPORTS: No. 94-658 (Comm. on Ways and Means) and No. 94-1515 (Coram, of Conference). SENATE REPORTS: No. 94-938 and No. 94-938, Part 2 (Coram, on Finance) and No. 94-1236 (Comra. of Conference). CONGRESSIONAL RECORD: Vol. 121 (1975): Dec. 3, 4, considered and passed House. Vol. 122 (1976): June 16-18, 21-25, 28-30, July 1, 20-23, 26-30, Aug. 3-6, considered and passed Senate, amended. Sept. 16, House and Senate agreed to conference report, resolved amendments in disagreement. WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS: Vol. 12, No. 41 (1976): Oct. 4, Presidential stateraent.

89-194 O—78—pt. 2

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