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 101 STAT. 1330-380 19 USC 3 note.

PUBLIC LAW 100-203—DEC. 22, 1987

(c) ANALYSIS REGARDING THE IMPLEMENTATION OF PROGRAM.—

CES

PROGRAM;

EFFECT

ON

(1) The Comptroller General of the United States shall conduct a comprehensive analysis, including a cost-benefit study, of the centralized cargo examination station (CES) concept from the perspective of both the United States Customs Service and business community users. The analysis shall be submitted on the same day to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate (hereinafter in this subsection referred to as the "Committees") not later than March 30, 1988, and shall include recommendations as to how best to implement cargo inspection procedures. (2) The United States Customs Service— (A) may not, after the date of the enactment of this Act, ixf. establish any new centralized cargo examination station at >,i any ocean port, airport, or land border location unless the Customs Service provides to the Committees advance notice, in writing, of not less than 90 days regarding the proposed establishment; and (B) shall, on such date of enactment, suspend operations at each centralized cargo examination station that was operating at an airport on the day before such date until the 90th day after a date— (i) that is not earlier than the date on which the analysis required under paragraph (1) is submitted to '- ' the Committees, and I. (ii) on which the Customs Service provides to the Committees notice, in writing, that it intends to resume such operations at the station. During the period of suspension of operations under subparagraph (B) at any centralized cargo examination station at an airport, the Secretary of the Treasury shall maintain customs ^ operations and staffing at that airport at a level not less than that which was in effect immediately before the suspension took effect. 19 USC 58c note.

(d) EFFECTIVE D A T E S. —

i '?

(1) Except as otherwise provided in this subsection, the provisions of this section take effect on the date of the enactment of this Act. (2) The amendments made by subsection (a)(1) apply with respect to articles entered, or withdrawn from warehouse for consumption, on or after the 15th day after the date of enactment of this Act. (3) The amendment made by subsection (a)(3) shall take effect on October 1, 1987.

SEC. 9502. UNITED STATES INTERNATIONAL AUTHORIZATIONS.

TRADE

COMMISSION

Section 330(e)(2) of the Tariff Act of 1930 (19 U.S.C. 1330(e)(2)) is amended— (1) by striking out "1986" and inserting "1988"; and (2) by striking out "$28,901,000;" and inserting "$35,386,000;". -»
 * . « o8a osi.

SEC. 9503. UNITED STATES CUSTOMS SERVICE AUTHORIZATIONS.

(a) AUTHORIZATION OF APPROPRIATIONS.—Section 301(b) of the Customs Procedural Reform and Simplification Act of 1978 (19 U.S.C. 20750t))) is amended to read as follows: "(b) AUTHORIZATION OF APPROPRIATIONS.—

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1175

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-381

"(1) FOR NONCOMMERCIAL OPERATIONS.—There are authorized to be appropriated for fiscal year 1988 not to exceed $348,192,000 for the salaries and expenses of the United States Customs Service that are incurred in noncommercial operations, of which $171,857.06 shall be available only for concluding Contract TC-82-54 that was awarded for the development and testing of an automatic license plate reader. "(2) FOR COMMERCIAL OPERATIONS.—There are authorized to be appropriated for fiscal year 1988 not to exceed $615,000,000 from the Customs User Fee Account for the salaries and expenses of the United States Customs Service that are incurred in commercial operations. "(3) FOR AIR INTERDICTION.—There are authorized to be appropriated for fiscal year 1988 not to exceed $118,309,000 for the operation (including salaries and expenses) and maintenance of the air interdiction program of the United States Customs Service.". (b) CONGRESSIONAL NOTICE OF CERTAIN ACTIONS.—Section 301 of

the Customs Procedural Reform and Simplification Act of 1978 (19 U.S.C. 2075) is amended— (1) by striking out " U S E OF SAVINGS RESULTING FROM ADMINISTRATIVE CoNSOUDATiONS.—" in subsection (f);

fh r "

3ii-!:-

(2) by striking out "ALLOCATION OF RESOURCES.—" in subsec-

tion (g) and inserting "(1)"; and (3) by adding at the end of subsection (g) the following new paragraph: "(2) The Commissioner of Customs shall notify the Committee on Finance of the Senate and the (Dommittee on Ways and Means of the House of Representatives at least 180 days prior to taking any action which would— "(A) result in any significant reduction in force of employees other than by means of attrition; "(B) result in any significant reduction in hours of operation or services rendered at any office of the United States Customs iService or any port of entry; '' "(C) eliminate or relocate any office of the United States Customs Service;, ^ "(D) eliminate any port of entry; or " ' ' "(E) significantly reduce the number of employees assigned to any office of the United States Customs Service or any port of entry.", (c) ADVISORY COMMITTEE ON COMMERCIAL OPERATIONS OF THE Establishment UNITED STATES CUSTOMS SERVICE.—

(1) The Secretary of the Treasury shall establish an advisory committee which shall be known as the "Advisory Committee on Commercial Operations of the United States Customs Service" (hereafter in this subsection referred to as the "Advisory Committee"). (2)(A) The Advisory Committee shall consist of 20 members appointed by the Secretary of the Treasury. (B) In making appointments under subparagraph (A), the Secretary of the Tresisury shall ensure that— (i) the membership of the Advisory Committee is representative of the individuals and firms affected by the commercial operations of the United States Customs Service; and

19 USC 2071 note.

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


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Page:United States Statutes at Large Volume 101 Part 2.djvu/1176

 101 STAT. 1330-382

Reports.

19 USC 2071 note.

PUBLIC LAW 100-203—DEC. 22, 1987

(ii) a majority of the members of the Advisory Committee do not belong to the same political party. (3) The Advisory Committee shall— (A) provide advice to the Secretary of the Treasury on all matters involving the commercial operations of the United States Customs Service; and (B) submit an annual report to the Committee on Finance i of the Senate and the Committee on Ways and Means of the W. House of Representatives that shall— (i) describe the operations of the Advisory Committee < during the preceding year, and (ii) set forth any recommendations of the Advisory sCommittee regarding the commercial operations of the United States Customs Service. (4) The Assistant Secretary of the Treasury for Enforcement shall preside over meetings of the Advisory Committee. (d) DISSOLUTION OF EXISTING ADVISORY COMMITTEE.—Section 13033 of the Consolidated Budget Reconciliation Act of 1985 is repealed. SEC. 9504. OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE AUTHORIZATIONS.
 * It,

Section 141(0(1) of the Trade Act of 1974 (19 U.S.C. 2171(f)(1)) is amended to read as follows: "(f)(l)(A) There are authorized to be appropriated for fiscal year 1988 to the Office for the purposes of carrying out its functions not to exceed $15,172,000. "(B) Of the amounts authorized to be appropriated under subparagraph (A) for fiscal year 1988— "(i) not to exceed $69,000 may be used for entertainment and representation expenses of the Office; and '(ii) not to exceed $1,000,000 shall remain available until expended.".

TITLE X—REVENUE PROVISIONS

Revenue Act of 1987.

SEC. 10000. SHORT TITLE: AMENDMENT OF THE 1986 CODE. 26 USC 1 note.

26 USC 1 et seq. 26 USC 15 note.

(a) SHORT TITLE.—This title may be cited as the "Revenue Act of 1987". (b) AMENDMENT OF 1986 CODE.—Except as otherwise expressly provided, whenever in this title an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986. (c) COORDINATION WITH SECTION 15.—No amendment made by this title shall be treated as a change in a rate of tax for purposes section 15 of the Internal Revenue Code of 1986. (d) TABLE OF CONTENTS.— '-'-

• '

TITLE X—REVENUE PROVISIONS

Sec. 10000. Short title; amendment of the 1986 Code. Subtitle A—Individual Income Tax Provisions Sec. Sec. Sec. Sec.

10101. 10102. 10103. 10104.

Expenses of overnight camps not allowable for dependent care credit Changes to deduction for qualified residence interest. Clarification of treatment of Federal judges. Treatment of regulated investment companies under 2-percent floor.

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1177

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-383

Subtitle B—Business Provisions PART I—ACCOUNTING PROVISIONS

Sec. 10201. Repeal of reserve for accrual of vacation pay. Sec. 10202. Provisions relating to installment sales. Sec. 10203. Reduction in percentage of items taken into account under completed contract method. Sec. 10204. Amortization of past service pension costs. Sec. 10205. Certain farm corporations required to use accrual method of accounting. Sec. 10206. Entities may elect taxable years other than required taxable year. PART II—PARTNERSHIP PROVISIONS

Sec. Sec. Sec. Sec. Sec.

10211. 10212. 10213. 10214. 10215.

Certain publicly traded partnerships treated as corporations. Treatment of publicly traded partnerships under section 469. Treatment of publicly traded partnerships for unrelated business tax. Treatment of certain partnership allocations. Study. PART III—CORPORATE PROVISIONS

Sec. 10221. Reduction in dividends received deduction for dividends from corporations not 20-percent owned. Sec. 10222. Certain earnings and profits adjustments not to apply for certain purposes. Sec. 10223. Treatment of mirror subsidiary transactions. Sec. 10224. Benefits of graduated corporate rates not allowed to personal service corporations. Sec. 10225. Amendments to section 382. Sec. 10226. Limitation on use of preacquisition losses to offset built-in gains. Sec. 10227. Recapture of LIFO amount in the case of elections by S corporations. Sec. 10228. Excise tax on receipt of greenmail. PART IV—FOREIGN TAX PROVISIONS

Sec. 10231. Denial of foreign tax credit for taxes paid or accrued to South Africa. PART V—INSURANCE PROVISIONS

Sec. 10241. Interest rate used in computing tax reserves for life insurance companies may not be less than applicable Federal rate. Sec. 10242. Treatment of foreign insurance. Sec. 10243. Treatment of mutual life insurance company policy holder dividends for purposes of book preference. Sec. 10244. Certain insurance sjmdicates. Subtitle C—Estimated Tax Provisions Sec. 10301. Revision of corporate estimated tax provisions. Sec. 10302. Revised withholding certificates required to be put into effect more promptly. Sec. 10303. Estimated tax penalties for 1987. Subtitle D—Estate and Gift Tax Provisions '

PART I—GENERAL PROVISIONS

Sec. 10401. 5-year extension of existing rates; phaseout of benefits of existing rates, and unified credit. Sec. 10402. Inclusion related to valuation freezes. PART II—ESTATE TAX PROVISIONS RELATING TO EMPLOYEE STOCK OWNERSHIP PLANS

Sec. 10411. Congressional clarification of estate tax deduction for sales of employer securities. Sec. 10412. Modifications of estate tax deduction for sale of employer securities. Sec. 10413. Excise tax on plans or cooperatives disposing of employer securities for which estate tax deduction was allowed. Subtitle E—Provisions Relating to Excise Taxes and User Fees PART I—EXCISE TAXES

Sec. 10501. Extension of telephone excise tax. Sec. 10502. Diesel fuel and aviation fuel taxes imposed at wholesale level. Sec. 10503. Extension of temporary increase in amount of tax imposed on coal producers.

'

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1178

 101 STAT. 1330-384

PUBLIC LAW 100-203—DEC. 22, 1987 PART II—TAX-RELATED USER FEES

Sec. 10511. Fees for request for ruling, determination, and similar letters. Sec. 10512. Occupational taxes relating to alcohol, tobacco, and firearms.

,

Subtitle F—Other Revenue Provisions PART I—TARGETED JOBS CREDIT

Sec. 10601. Denial of targeted jobs credit for wages paid during period of labor dispute. PART II—TREATMENT OF CERTAIN ILLEGAL IRRIGATION SUBSIDIES

Sec. 10611. Treatment of certain illegal irrigation subsidies.

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PART III—COMPLIANCE

Sec. 10621. State escheat laws not to apply to refunds of Federal tax. Sec. 10622. Sense of Congress as to increased Internal Revenue Service funding for taxpayer assistance and enforcement. PART IV—TAX EXEMPT BOND PROVISIONS

Sec. 10631. Issues used to acquire nongovernmental output property.

_. »

Sec. 10632. Bonds issued by Indian tribal governments. •"'^ Subtitle G—Lobbying and Political Activities of Tax-Exempt Organizations ^ •; PART I—DISCLOSURE REQUIREMENTS

Sec. 10701. Required disclosure of nondeductibility of contributions. Sec. 10702. Public inspection of annual returns and applications for tax-exempt status. Sec. 10703. Additional information required on annual returns of section 501(c)(3) organizations. Sec. 10704. Penalties. Sec. 10705. Required disclosure that certain information or service available from Federal Government. PART II—PoLrricAL AcTivrriES Sec. 10711. Clariflcation of prohibited political activities. Sec. 10712. Excise taxes on political expenditures by section 501(c)(3) organizations. Sec. 10713. Additional enforcement authority in the case of flagrant political expenditures. v », >. j. Sec. 10714. Tax on disqualifying lobbying expenditures.

Subtitle A—Individual Income Tax Provisions

26 USC 21 note.

SEC. 10101. EXPENSES OF OVERNIGHT CAMPS NOT ALLOWABLE FOR DEPENDENT CARE CREDIT. (a) GENERAL RULE.—Subparagraph (A) of section 21(b)(2) (defining employment-related expenses) is amended by adding at the end thereof the following new sentence: "Such term shall not include any amount paid for services ,4^ outside the taxpayer's household at a camp where the qualifying individual sta3rs overnight." (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to expenses paid in taxable years beginning after December 31, 1987. SEC. 10102. CHANGES TO DEDUCTION FOR QUALIFIED RESIDENCE INTEREST. (a) GENERAL RULE.—Paragraph (3) of section 163(h) (defining qualified residence interest) is amended to read as follows: los Copy read "Indian Tribal Governments.".

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1179

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-385

"(3) QuAUFiED RESIDENCE INTEREST.—For purposes of this subsection— "(A) IN GENERAL.—The term 'qualified residence interest' means any interest which is paid or accrued during the taxable year on— "(i) acquisition indebtedness with respect to any qualified residence of the taxpayer, or "(ii) home equity indebtedness with respect to any qualified residence of the taxpayer. For purposes of the preceding sentence, the determination of whether any property is a qualified residence of the taxpayer shall be made as of the time the interest is accrued. "(B) ACQUISITION INDEBTEDNESS.—

'^^^ • •o ^ - -*' ^ '

^t;-. r*.. ^?

"(i) IN GENERAL.—The term 'acquisition indebtedness' means any indebtedness which— "(I) is incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer, and "(II) is secured by such residence. Such term also includes any indebtedness secured by such residence resulting from the refinancing of indebtedness meeting the requirements of the preceding sentence (or this sentence); but only to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness. "(ii) $1,000,000 LIMITATION.—The aggregate amount treated as acquisition indebtedness for any period shall not exceed $1,000,000 ($500,000 in the case of a married individual filing a separate return). "(C) HOME EQUITY INDEBTEDNESS.—

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l o z:ss' vksi|6 Tf.11 r f \ CK K
 * c; f?

j /, ^^

"(i) IN GENERAL.—The term 'home equity indebtedness' means any indebtedness (other than acquisition indebtedness) secured by a qualified residence to the extent the aggregate amount of such indebtedness does not exceed— "(I) the fair m a r k e t value of such qualified residence, reduced by "(II) the a m o u n t of acquisition indebtedness with respect to such residence. "(ii) LIMITATION.—The aggregate a m o u n t t r e a t e d as h o m e equity indebtedness for any period shall not exceed $100,000 ($50,000 in the case of a s e p a r a t e return by a married individual). "(D) TREATMENT OF INDEBTEDNESS INCURRED ON OR BEFORE OCTOBER 13, 1987.—

"(i) IN GENERAL.—In the case of any pre-October 13, 1987, indebtedness— "(I) such indebtedness shall be treated as acquisition indebtedness, and "(II) the limitation of subparagraph (B)(ii) shall not apply. "(ii) REDUCTION IN $1,000,000 LIMITATION.—The limitation of subparagraph (B)(ii) shall be reduced Oaut not below zero) by the aggregate amount of outstanding pre-October 13, 1987, indebtedness.

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1180

 101 STAT. 1330-386

PUBLIC LAW 100-203—DEC. 22, 1987

'• '^ ^ •

"(iii) PRE-OCTOBER I 3, I 9 8 7, INDEBTEDNESS.—The term 'pre-October 13, 1987, indebtedness' means— jp^..-,. "(I) any indebtedness which was incurred on or - » t,:i J before October 13, 1987, and which was secured by , a qualified residence on October 13, 1987, and at all '^ times thereafter before the interest is paid or ,... ,, accrued, or ' ' "(ID any indebtedness which is secured by the qualified residence and was incurred after Octo;" .^.r ber 13, 1987, to refinance indebtedness described in " subclause (I) (or refinanced indebtedness meeting the requirements of this subclause) to the extent (immediately after the refinancing) the principal ..-.<(..».., amount of the indebtedness resulting from the refinancing does not exceed the principal amount ^^ of the refinanced indebtedness (immediately before the refinancing). "(iv)

LIMITATION

ON PERIOD

OF REFINANCING.—

Subclause (II) of clause (iii) shall not apply to any indebtedness after— "(I) the expiration of the term of the indebtedness described in clause (iiiXD, or "(II) if the principal of the indebtedness described in clause (iiiXD is not amortized over its term, the expiration of the term of the 1st refinancing of such indebtedness (or if earlier, the date which is 30 years after the date of such 1st refinancing)."

, ^j, .,iy- ,^,,

(b) CONFORMING AMENDMENTS.—Subsection (h) of section 163 is

26 USC 163 note. 26 USC 219 note.

amended by striking out paragraph (4) and by redesignating paragraph (5) as paragraph (4). (c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 1987. SEC. 10103. CLARIFICATION OF TREATMENT OF FEDERAL JUDGES.

(a) GENERAL RULE.—A Federal judge— (1) shall be treated as an active participant for purposes of section 219(g) of the Internal Revenue Code of 1986, and

(2) shall be treated as an employee for purposes of chapter 1 of such Code. (b) EFFECTIVE DATE.—The provisions of subsection (a) shall apply to taxable years beginning after December 31, 1987. SEC. 10104. TREATMENT OF REGULATED UNDER 2.PERCENT FLOOR. 26 USC 67 note.

INVESTMENT

COMPANIES

(a) 1 - Y E A R D E L A Y IN TREATMENT OF PUBLICLY OFFERED REGULATED INVESTMENT COMPANIES UNDER 2-PERCENT FLOOR.— (1) GENERAL RULE.—Section 67(c) of the Internal Revenue

' Code of 1986 to the extent it relates to indirect deductions through a publicly offered regulated investment company shall '' apply only to taxable years beginning after December 31, 1987. (2)

PUBLICLY

OFFERED

REGULATED

INVESTMENT COMPANY

-'^DEFINED.—For purposes of this subsection— (A) IN GENERAL.—The term "publicly offered regulated investment company" means a regulated investment company the shares of which are—

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1181

 PUBLIC LAW 100-203—DEC. 22, 1987

'• •'

101 STAT. 1330-387

(i) continuously offered pursuant to a public offering (within the meaning of section 4 of the Securities Act of 1933, as amended (15 U.S.C. 77a to 77aa)), (ii) regularly traded on an established securities market, or (iii) held by or for no fewer than 500 persons at all times during the taxable year.

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(B) SECRETARY MAY REDUCE 500 PERSON REQUIREMENT.—

•J

The Secretary of the Treasury or his delegate may by Regulations. regulation decrease the minimum shareholder requirement of subparagraph (A)(iii) in the case of regulated investment companies which experience a loss of shareholders through net redemptions of their shares,

(b) CHANGES IN DISTRIBUTION REQUIREMENTS.— (1) INCREASE IN REQUIRED DISTRIBUTION OF INCOME.—Para-

graph (1) of section 4982(b) (defining required distribution) is amended by striking out "90 percent in subparagraph (B) and inserting in lieu thereof "98 percent". (2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 4982 shall take effect as if included in the amendments made by ^°^section 651 of the Tax Reform Act of 1986.

Subtitle B—Business Provisions PART I—ACCOUNTING PROVISIONS SEC. 10201. REPEAL OF RESERVE FOR ACCRUAL OF VACATION PAY.

(a) GENERAL RULE.—Section 463 (relating to accrual of vacation pay) is hereby repealed. (b) TECHNICAL AMENDMENTS.—

(1) Section 81 is hereby repealed. (2) Subparagraph (B) of section 404(b)(2) is amended to read as follows: "(B) EXCEPTION.—Subparagraph (A) shall not apply to any benefit provided through a welfare benefit fund (as denned in section 419(e))." (3) Section 404(a)(5) is amended by adding at the end thereof the following new sentence: "For purposes of this section, any vacation pay which is treated as deferred compensation shall be deductible for the taxable year of the employer in which paid to the employee." (4) Paragraph (2) of section 419(e) is amended by inserting "or" at the end of subparagraph (B), by striking out, or" at the end of subparagraph (C), and inserting in lieu thereof a period, and by striking out subparagraph (D). (5) Paragraph (5) of section 461(h) is amended to read as follows: "(5) SUBSECTION NOT TO APPLY TO CERTAIN ITEMS.—This subsec-

tion shall not apply to any item for which a deduction is allowable under a provision of this title which specifically provides for a deduction for a reserve for estimated expenses." (6) The table of sections for part II of subchapter B of chapter 1 is amended by striking out the item relating to section 81. (7) The table of sections for subpart C of part II of subchapter E of chapter 1 is amended by striking out the item relating to section 463.

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1182

 101 STAT. 1330-388

PUBLIC LAW 100-203—DEC. 22, 1987

(c) EFFECTIVE DATE.—

26 USC 404 note. 26 USC 463 note.

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(1) IN GENERAL.—The amendments made by this section shall apply to taxable years beginning after December 31, 1987. (2) CHANGE IN METHOD OF ACCOUNTING.—In the case of any taxpayer who elected to have section 463 of the Internal Revenue Code of 1986 apply for such taxpayer's last taxable year „. beginning before January 1, 1988, and who is required to change V ^is method of accounting by reason of the amendments made by ir. this section— (A) such change shall be treated as initiated by the taxpayer, (B) such change shall be treated as having been made with the consent of the Secretary, and -m (C) the net amount of adjustments required by section 481 ai of such Code to be taken into account by the taxpayer— buB;o. 1 (i) shall be reduced by the balance in the suspense 1 account under section 463(c) of such Code as of the close 'i; of such last taxable year, and 1^ (ii) shall be taken into account over the 4-taxable year period beginning with the taxable year following such last taxable year as follows: In the case of the: 1st year 2nd year -. 3rd year 4th year

The percentage taken into account is: 25 5 ..^^...y^^ 3&.., «?rj, 35.

^ Notwithstanding subparagraph (C)(ii), if the period the adjust- „ ments are required to be taken into account under section 481 of such Code is less than 4 years, such adjustments shall be taken g. into account ratably over such shorter period. SEC. 10202. PROVISIONS RELATING TO INSTALLMENT SALES. (a) REPEAL OF PROPORTIONATE DISALLOWANCE OF INSTALLMENT METHOD.—

,,, (1) IN GENERAL.—Section 453C (relating to certain indebted7 ness treated as payment on installment obligations) is hereby "repealed. J (2) CONFORMING AMENDMENT.—The table of sections for subpart B of part II of subchapter E of chapter 1 is amended by striking out the item relating to section 453C. (b) REPEAL OF INSTALLMENT METHOD FOR DEALERS IN PROPERTY.—

(1) IN GENERAL.—Subparagraph (A) of section 453(b)(2) (defining installment sale) is amended to read as follows: & "(A) DEALER DISPOSITIONS.—Any dealer disposition (as defined in subsection (1))." -.

(2) DEALER DISPOSITION DEFINED.—Section 453

(relating

to

6ti installment method) is amended by adding at the end thereof the following new subsection: "(1) DEALER DISPOSITIONS.—For purposes of subsection (b)(2)(A)— "(1) IN GENERAL.—The term 'dealer disposition' means any of the following dispositions: "(A) PERSONAL PROPERTY.—Any disposition of personal ' property by a person who regularly sells or otherwise disposes of personal property on the installment plan.

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 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-389

"(B) REAL PROPERTY.—Any disposition of real property which is held by the taxpayer for sale to customers in the ordinary course of the taxpayer's trade or business. "(2) EXCEPTIONS.—The term 'dealer disposition' does not include— •Hm'^

"^^^ FARM PROPERTY.—The disposition on the installment

plan of any property used or produced in the trade or business of farming (within the meaning of section 2032A(e) (4) or (5)). "(B) TiMESHARES AND RESIDENTIAL LOTS.— "(i) IN GENERAL.—Any dispositions described in clause (ii) on the installment plan if the taxpayer elects to have paragraph (3) apply to any installment obligations which arise from such dispositions. An election under this paragraph shall not apply with respect to an installment obligation which is guaranteed by any person other than an individual.

"(ii) DISPOSITIONS TO WHICH SUBPARAGRAPH APPLIES.—

A disposition is described in this clause if it is a disposition in the ordinary course of the taxpayer's trade or business to an individual of— "(I) a timeshare right to use or a timeshare ownership interest in residential real property for not more than 6 weeks per year, or a right to use specified campgrounds for recreational purposes,

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0J itos.ifc.,* V.; v

or

"(II) any residential lot, but only if the taxpayer (QJ. g^jjy related person) is not to make any improvements with respect to such lot. For purposes of subclause (I), a timeshare right to use (or timeshare ownership interest in) property held by the spouse, children, grandchildren, or parents of an individual shall be treated as held by such individual. "(C) CARRYING CHARGES OR INTEREST.—Any

carrying

charges or interest with respect to a disposition described in subparagraph (A) or (B) which are added on the books of account of the seller to the established cash selling price of the property shall be included in the total contract price of the property and, if such charges or interest are not so included, any payments received shall be treated as applying first against such carrying charges or interest. "(3) PAYMENT OF INTEREST ON TIMESHARES AND RESIDENTIAL LOTS.—

r

"(A) IN GENERAL.—In the case of any installment obligation to which paragraph (2)(B) applies, the tax imposed by this chapter for any taxable year for which payment is received on such obligation shall be increased by the amount of interest determined in the manner provided under subparagraph (B). "(B) COMPUTATION OF INTEREST.—

j \™ i', ztae^ Qf^

"(i) IN GENERAL.—The amount of interest referred to in subparagraph (A) for any taxable year shall be determined— "(I) on the amount of the tax for such taxable year which is attributable to the payments received during such teixable year on installment obligations to which this subsection applies.

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1184

 101 STAT. 1330-390

PUBLIC LAW 100-203—DEC. 22, 1987

"(II) for the period beginning on the date of sale, ^ and ending on the date such payment is received, and '* -'' "(III) by using the applicable Federal rate under section 1274 (without regard to subsection (d)(2) ? mii " thereoO in effect at the time of the sale compounded semiannually, "(ii) INTEREST NOT TAKEN INTO ACCOUNT.—For purposes of clause (i), the portion of any tax attributable to the receipt of any payment shall be determined ^ without regard to any interest imposed under subparagraph (A). "(iii) TAXABLE YEAR OF SALE.—No interest shall be determined for any payment received in the taxable year of the disposition from which the installment obligation arises. "(C) TREATMENT AS INTEREST.—Any amount payable under this paragraph shall be taken into account in computing the amount of any deduction allowable to the taxpayer for interest paid or accrued during such taxable year.' (c) TREATMENT OF INSTALLMENT OBLIGATIONS OF NONDEALERS.—

Section 453A (relating to installment method for dealers in personal property) is amended to read as follows: "SEC. 453A. SPECIAL RULES FOR NONDEALERS OF REAL PROPERTY.

"(a) GENERAL RULE.—In the case of an installment obligation to which this section applies— "(1) interest shall be paid on the deferred tax liability with respect to such obligation in the manner provided under subsection (c), and "(2) the pledging rules under subsection (d) shall apply. "(b) INSTALLMENT OBLIGATIONS TO WHICH SECTION APPLIES.—

"(1) IN GENERAL.—This section shall apply to any obligation which arises from the disposition of real property under the installment method which is property used in the taxpayer's trade or business or property held for the production of rental income, but only if the sales price of such property exceeds $150,000. "(2) SPECIAL RULE FOR INTEREST PAYMENTS.—For purposes of

subsection (a)(D, this section shall apply to an obligation described in paragraph (1) arising during a taxable year only if— "(A) such obligation is outstanding as of the close of such taxable year, and "(B) the face amount of all obligations of the taxpayer described in paragraph (1) which arose during, and are outstanding as of the close of, such taxable year exceeds $5,000,000. Except as provided in regulations, all persons treated as a single employer under subsection (a) or (b) of section 52 shall be treated as one person for purposes of this paragraph. "(3) EXCEPTION FOR PERSONAL USE AND FARM PROPERTY.—An

installment obligation shall not be treated as described in paragraph (1) if it arises from the disposition— "(A) by an individual of personal use property (within the meaning of section 1275fll)X3)), or

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 PUBLIC LAW 100-203—DEC. 22, 1987
 * H.;

101 STAT. 1330-391

"(B) of any property used or produced in the trade or business of farming (within the meaning of section 2032A(e) (4) or (5)). "(4) SPECIAL RULE FOR TIMESHARES AND RESIDENTIAL LOTS.—An

^' '

installment obligation shall not be treated as described in paragraph (1) if it arises from a disposition described in section 453(1)(2)(B), but the provisions of section 453(1)(3) (relating to interest payments on timeshares and residential lots) shall apply to such obligation. "(5) SALES PRICE.—For purposes of paragraph (1), all sales or exchanges which are part of the same transaction (or a series of related transactions) shall be treated as 1 sale or exchange. "(c) INTEREST ON DEFERRED TAX LIABILITY.—

"(1) IN GENERAL.—If an obligation to which this section applies is outstanding as of the close of any taxable year, the tax imposed by this chapter for such taxable year shall be increased by the amount of interest determined in the manner provided under paragraph (2). "(2) COMPUTATION OF INTEREST.—For purposes of paragraph

(1), the interest for any taxable year shall be an amount equal to the product of— "(A) the applicable percentage of the deferred tax liability with respect to such obligation, multiplied by "(B) the underpayment rate in effect under section 6621(a)(2) for the month with or within which the taxable year ends. "(3) DEFERRED TAX LIABILITY.—For purposes of this section, the term 'deferred tax liability' means, with respect to any taxable year, the product of— "(A) the amount of gain with respect to an obligation which has not been recognized as of the close of such taxable year, multiplied by "(B) the maximum rate of tax in effect under section 1 or ^j^ 11, whichever is appropriate, for such taxable year. y|^; "(4) APPLICABLE PERCENTAGE.—For purposes of this subsection, the term 'applicable percentage' means, with respect to obligations arising in any taxable year, the percentage determined by dividing— "(A) the portion of the aggregate face amount of such obligations outstanding as of the close of such taxable year in excess of $5,000,000, by "(B) the aggregate face amount of such obligations outstanding as of the close of such taxable year. "(5) REGULATIONS.*"^—The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this subsection including regulations providing for the application of this subsection in the case of contingent payments, short taxable years, and pass-thru entities. "(d) PLEDGES, ETC., OF INSTALLMENT OBLIGATIONS.—

y

"(1) IN GENERAL.—For purposes of section 453, if any indebtedness (hereinafter in this subsection referred to as 'secured indebtedness') is secured by an installment obligation to which this section applies, the net proceeds of the secured indebted">• Copy read "REGULATIONS—".

91-194 O - 90 - 38: QL.3 Part 2

a;c)

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1186

 101 STAT. 1330-392

PUBLIC LAW 100-203—DEC. 22, 1987

ness shall be treated as a payment received on such installment {.^ obligation as of the later of— "(A) the time the indebtedness becomes secured indebtedness, or "(B) the proceeds of such indebtedness are received by the taxpayer. "(2)

LIMITATION

BASED ON TOTAL CONTRACT

PRICE.—The

amount treated as received under paragraph (1) by reason of any secured indebtedness shall not exceed the excess (if any) of— "(A) the total contract price, over "(B) any portion of the total contract price received under the contract before such secured indebtedness was incurred (including amounts previously treated as received under paragraph (1) but not including amounts not taken into account by reason of paragraph (3)).

,

!'

"(3) LATER

PAYMENTS TREATED AS RECEIPT OF TAX PAID

AMOUNTS.—If any amount is treated as received under paragraph (1) with respect to any installment obligation, subsequent payments received on such obligation shall not be taken into account for purposes of section 453 to the extent that the aggregate of such subsequent payments does not exceed the aggregate amount treated as received under paragraph (1). "(4) SECURED INDEBTEDNESS.—For purposes of this subsection indebtedness is secured by an installment obligation to the extent that payment of principal or interest on such indebtedness is directly secured (under the terms of the indebtedness or any underlying arrangements) by any interest in such installment obligation." (2) CLERICAL AMENDMENT.—The table of sections for subpart B of part II of subchapter E of chapter 1 is amended by striking out the item relating to section 453A and inserting in lieu thereof the following new item:

a' ' n^ i n i' "'•

"Sec. 453A. Special rules for nondealers of real property." ' (3) CONFORMING AMENDMENTS.—Sections 381(c)(8) and 691(a)

''^_ place it appears. (d) MINIMUM TAX.—Paragraph (6) of section 56(a) (relating to
 * (4) and (5) are each amended by striking out "or 453A" each

installment sales of certain property) is amended to read as follows: "(6) INSTALLMENT SALES OF CERTAIN PROPERTY.—In the

'

'

.i) f K d:.K 26 USC 453 note.

case of any disposition after March 1, 1986, of any property described in section 1221(1), income from such disposition shall be determined without regard to the installment method under section 453. This paragraph shall not apply to any disposition with respect to which an election is in effect under section 453(1)(2)(B)."

(e) EFFECTIVE D A T E S. —

(1) IN GENERAL.—Except as provided in this subsection, the amendments made by this section shall apply to dispositions in taxable years beginning after December 31, 1987. ^/ (2) SPECIAL RULES FOR DEALERS.—

':' > ./;«.! 5

(A) IN GENERAL.—In the case of dealer dispositions (within the meaning of section 453A of the Internal Revenue Code of 1986), the amendments made by subsections (a) and (b) shall apply to installment obligations arising from dispositions after December 31, 1987. ,;.,,,,,.,,

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1187

 PUBLIC LAW 100-203—DEC. 22, 1987 ^...,. j..,.

(B) S P E C I A L RULES FOR OBLIGATIONS ARISING FROM DEALER DISPOSITIONS AFTER FEBRUARY 28, 1986, AND BEFORE JANUARY 1, 1988.—

*•^^• '>f' ';• •OA. J

" '/ . J; "^ l7 -. y|j ^-t ' jl^^yg t,^ ,

101 STAT. 1330-393

(i) IN GENERAL.—In the case of an applicable installment obligation arising from a disposition described in subclause (I) or (II) of section 453C(e)(l)(A)(i) of the Internal Revenue Code of 1986 (as in effect before the amendments made by this section) before January 1, 1988, the amendments made by subsections (a) and (b) shall apply to taxable years beginning after December 31, 1987. ^'' (ii) CHANGE IN METHOD OF ACCOUNTING.—In the case of any taxpayer who is required by clause (i) to change its method of accounting for any taxable year with respect to obligations described in clause (i)— (I) such change shall be treated as initiated by the taxpayer, (II) such change shall be treated as made with the consent of the Secretary of the Treasury or his delegate, and (III) the net amount of adjustments required by section 481 of the Internal Revenue Code of 1986 shall be taken into account over a period not longer than 4 taxable years.

' "

(3) SPECIAL RULE FOR NONDEALERS.—

'3r''- ^ s

(A) ELECTION.—A taxpayer may elect, at such time and in such manner as the Secretary of the Treasury or his delegate may prescribe, to have the amendments made by subsections (a) and (c) apply to taxable years ending after December 31, 1986, with respect to dispositions and pledges occurring after August 16, 1986. (B) PLEDGING RULES.—Except as provided in subpara-

j

f-

graph (A)— (i) IN GENERAL.—Section 453A(d) of the Internal Revenue Code of 1986 shall apply to any installment obligation which is pledged to secure any secured ''••• indebtedness (within the meaning of section 453A(d)(4) of such Code) after December 17, 1987, in taxable years ending after such date. (ii) COORDINATION WITH SECTION 453C.—For purposes

-*

'

of section 453C of such Code (as in effect before its repeal), the face amount of any obligation to which section 453A(d) of such Code applies shall be reduced by the amount treated as payments on such obligation j^ under section 453A(d) of such Code and the amount of 9X. • Y" " any indebtedness secured by it shall not be taken into ^ account. " (4) MINIMUM TAX.—The amendment made by subsection (d) shall apply to dispositions in taxable years beginning after December 31, 1986. (5) COORDINATION WITH TAX REFORM ACT OF 1986.—The amend-

ments made by this section shall not apply to any installment obligation or to any taxpayer during any period to the extent the amendments made by section 811 of the Tax Reform Act of 1986 do not apply to such obligation or during such period.

00; '

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1188

 101 STAT. 1330-394

PUBLIC LAW 100-203—DEC. 22, 1987

SEC. 10203. REDUCTION IN PERCENTAGE OF ITEMS TAKEN INTO ACCOUNT UNDER COMPLETED CONTRACT METHOD.

(a) IN GENERAL.—Section 460(a) (relating to percentage of completion—capitalized cost method) is amended— (1) by striking out "40 percent" each place it appears in the ,„,, text and heading thereof and inserting in lieu thereof "70 £ „ percent", and .^ I (2) by striking out "60 percent" and inserting in lieu thereof " "30 percent". 26 USC 460 note.

(b) EFFECTIVE D A T E S. —

(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to contracts entered into after October 13, 1987.

(2) SPECIAL RULE FOR CERTAIN SHIP CONTRACTS.—

(A) IN GENERAL.—The amendments made by this section ' ''• shall not apply in the case of a qualified ship contract. (B) QUALIFIED SHIP CONTRACT.—For purposes of subpara, graph (A), the term "qualified ship contract" ^ ° ' means any "^ contract for the construction in the United States of not more than 5 ships if^ '' "T' (i) such ships will not be constructed (directly or indirectly) for the Federal Government, and ^ ^ >" ' < (ii) the taxpayer reasonably expects to complete such contract within 5 years of the contract commencement date (as defined in section 460(g) of the Internal Rever-r. k....: nueCodeof 1986). 26 USC 263A "°*®

SEC. 10204. AMORTIZATION OF PAST SERVICE PENSION COSTS. (a) IN GENERAL. — For purposes of sections 263A and 460 of the

Internal Revenue Code of 1986, the allocable costs (within the meaning of section 263A(a)(2) or section 460(c) of such Code, whichever is applicable) with respect to any property shall include contributions paid to or under a pension or annuity plan whether or not such contributions represent past service costs. (b) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as provided in paragraph (2), subsection (a) shall apply to costs incurred after December 31, 1987, in ,,ii taxable years ending after such date. (2) SPECIAL RULE FOR INVENTORY PROPERTY.—In the case of any ... property which is inventory in the hands of the taxpayer— (A) IN GENERAL.—Subsection (a) shall apply to taxable years beginning after December 31, 1987. (B) CHANGE IN METHOD OF ACCOUNTING.—If the taxpayer

is required by this section to change its method of accounting for any taxable year— ,,,. (i) such change shall be treated as initiated by the taxpayer, ,,.,, (ii) such change shall be treated as made with the J,..,.., consent of the Secretary of the Treasury or his delegate, and (iii) the net amount of adjustments required by section 481 of the Internal Revenue Code of 1986 shall be taken into account over a period not longer than 4 taxable years. "" Copy read " 'qualined ship contract' ".

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1189

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-395

SEC. 10205. CERTAIN FAKM CORPORATIONS REQUIRED TO USE ACCRUAL METHOD OF ACCOUNTING.

(a) GENERAL RULE.—Section 447 (relating to method of accounting for corporations engaged in farming) is amended by striking out subsections (c) and (e), by redesignating subsection (d) as subsection (e), and by inserting after subsection (b) the following new subsections: "(c) EXCEPTION FOR CERTAIN CORPORATIONS.—For purposes of subsection (a), a corporation shall be treated as not being a corporation if it is— "(1) an S corporation, or "(2) a corporation the gross receipts of which meet the requirements of subsection (d). „, "(d) GROSS RECEIPTS REQUIREMENTS.—

"(1) IN GENERAL.—A corporation meets the requirements of this subsection if, for each prior taxable year beginning after December 31, 1975, such corporation (and any predecessor corporation) did not have gross receipts exceeding $1,000,000. For purposes of the preceding sentence, all corporations which are members of the same controlled group of corporations (within the meaning of section 1563(a)) shall be treated as 1 corporation. "(2) SPECIAL RULES FOR FAMILY CORPORATIONS.—

^'

"(A) IN GENERAL.—In the case of a family corporation, paragraph (1) shall be applied— "(i) by substituting 'December 31, 1985,' for 'December 31, 1975,'; and "(ii) by substituting '$25,000,000' for '$1,000,000'. "(B) GROSS RECEIPTS TEST.— "(i) CONTROLLED GROUPS.—Notwithstanding the last

sentence of paragraph (1), in the case of a family corporation— "(I) except as provided by the Secretary, only the applicable percentage of gross receipts of any other member of any controlled group of corporations of which such corporation is a member shall be taken '•'"/"' into account, and '•'''* "(II) under regulations, gross receipts of such corporation or of another member of such group '; ' " •' ^ shall not be taken into account by such corporation ^ ' more than once. "(ii) PASS-THRU ENTITIES.—For purposes of paragraph (1), if a family corporation holds directly or indirectly any interest in a partnership, estate, trust or other pass-thru entity, such corporation shall take into " account its proportionate share of the gross receipts of such entity. ^ "(iii) APPLICABLE PERCENTAGE.—For purposes of ' ^ clause (i), the term 'applicable percentage' means the percentage equal to a fraction— ^ "(I) the numerator of which is the fair market value of the stock of another corporation held directly or indirectly as of the close of the taxable "'" year by the family corporation, and " "(II) the denominator of which is the fair market value of all stock of such corporation as of such time.

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1190

 101 STAT. 1330-396

PUBLIC LAW 100-203—DEC. 22, 1987

,..^,

For purposes of this clause, the term 'stock' does not include stock described in section 1563(c)(1). *°* ^^, "(C) FAMILY CORPORATION.—For purposes of this /* ^ ' section,'"*" the term 'family corporation' means— "(i) any corporation if at least 50 percent of the total combined voting power of all classes of stock entitled to vote, and at least 50 percent of all other classes of stock -s J ^,,^ of the corporation, are owned by members of the same L,^^ r family, and "(ii) any corporation described in subsection (h)." (b) SUSPENSE ACCOUNT IN LIEU OF 481 ADJUSTMENTS.—Section 447

is amended by adding at the end thereof the following new subsection: "(i) SUSPENSE ACCOUNT FOR FAMILY CORPORATIONS.—

"(1) IN GENERAL.—If any family corporation is required by this section to change its method of accounting for any taxable year (hereinafter in this subsection referred to as the 'year of the change'), notwithstanding subsection (f), such corporation shall establish a suspense account under this subsection in lieu of taking into account adjustments under section 481(a) with respect to amounts included in the suspense account. "(2) INITIAL OPENING BALANCE.—The initial opening balance

of the account described in paragraph (1) shall be the lesser of— "(A) the net adjustments which would have been required to be taken into account under section 481 but for this subsection, or ., "(B) the amount of such net adjustments determined as of the beginning of the taxable year preceding the year of change. 1^ If the amount referred to in subparagraph (A) exceeds the amount referred to in subparagraph (B), notwithstanding paragraph (1), such excess shall be included in gross income in the ^; year of the change. ijj "(3) REDUCTION IN ACCOUNT IF FARMING BUSINESS CON'*'[ TRACTS.—If—

"•^ ^. ^ .«3.

"(A) the gross receipts of the corporation from the trade or business of farming for the year of the change or any subsequent taxable year, is less than "(B) such gross receipts for the taxpayer's last taxable year beginning before the year of the change (or for the ,^ most recent taxable year for which a reduction in the the amount in the suspense account (after taking into account prior reductions) shall be reduced by the percentage by which the amount described in subparagraph (A) is less than the amount described in subparagraph (B).
 * ' suspense account was made under this paragraph),

^

"(4) INCOME INCLUSION.—Any

reduction

in

the

suspense

if account under paragraph (3) shall be included in gross income ^ for the taxable year of the reduction. "(5) INCLUSION WHERE CORPORATION CEASES TO BE A FAMILY "' CORPORATION.—

 * j,

"(A) IN GENERAL.—If the corporation ceases to be a family ''"^^~ corporation during any taxable year, the amount in the suspense account (after taking into account prior reduc'"•Copy read "1563(cKl)." """Copy read "section.".

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1191

 PUBLIC LAW 100-203—DEC. 22, 1987 Hi ^ad 2 _

101 STAT. 1330-397

tions) shall be included in gross income for such taxable year. "(B) SPECIAL RULE FOR CERTAIN TRANSFERS.—For purposes

", .g,

of subparagraph (A), any transfer in a corporation after December 15, 1987, shall be treated as a transfer to a person whose ownership could not qualify such corporation as a family corporation unless it is a transfer— ,,,r., "(i) to a member of the family of the transferor, or Y,o~ "(ii) in the case of a corporation described in subsection (h), to a member of a family which on December 15, 1987, held stock in such corporation which qualified the corporation under subsection (h). ^' "(6) SUBCHAPTER C TRANSACTIONS.—The application of this subsection with respect to a taxpayer which is a party to any transaction with respect to which there is nonrecognition of gain or loss to any party by reason of subchapter C shall be determined under regulations prescribed by the Secretary." (c) TECHNICAL AMENDMENTS.—

(1) Subsection (e) of section 447 (as redesignated by subsection (a)) is amended by striking out "subsection (c)(2)" and inserting in lieu thereof "subsection (d)". (2) Paragraph (1) of section 447(h) is amended— ^i (A) by striking out "This section shall not apply to any ?£ I corporation" and inserting in lieu thereof "A corporation is described in this subsection", (B) by striking out "subsection (d)" each place it appears llBtia ( and inserting in lieu thereof "subsection (e)', and iO,««; (C) by striking out "subsection (d)(1)" each place it appears and inserting in lieu thereof "subsection (e)(1)". (d) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 447 note. apply to taxable years beginning after December 31, 1987. SEC. 10206. ENTITIES MAY ELECT TAXABLE YEARS OTHER THAN REQUIRED TAXABLE YEAR. (a) ELECTION OF DIFFERENT Y E A R. —

(1) IN GENERAL.—Part I of subchapter E of chapter 1 (relating, to accounting periods) is amended by adding at the end thereof J,, the following new section: * °^ •SEC. 444. ELECTION OF TAXABLE YEAR OTHER THAN REQUIRED TAXABLE YEAR.

"(a) GENERAL RULE.—Except as provided in subsections (b) and (c), a partnership, S corporation, or personal service corporation may elect to have a taxable year other than the required taxable year. "(b) LIMITATIONS ON TAXABLE YEARS WHICH MAY B E ELECTED.—

"(1) IN GENERAL.—Except as provided in paragraphs (2) and ' (3), an election may be made under subsection (a) only if the deferral period of the taxable year elected is not longer than 3 '^i months. "(2) CHANGES IN TAXABLE YEAR.—Except as provided in para<• graph (3), in the case of an entity changing a taxable year, an election may be made under subsection (a) only if the deferral A period of the taxable year elected is not longer than the shorter iii- of—

"(A) 3 months, or "" Copy read "section.".

26 USC 444.

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1192

 101 STAT. 1330-398

PUBLIC LAW 100-203—DEC. 22, 1987 "(B) the deferral period of the taxable year which is being changed.

»''

"(3)

SPECIAL RULE FOR ENTITIES RETAINING 1986 TAXABLE

"*['- YEARS.—In the case of an entity's 1st taxable year beginning • after December 31, 1986, an entity may elect a taxable year taxable year beginning in 1986. 'J "(4) DEFERRAL PERIOD.—For purposes of this subsection, the /^ the entity, the months between— "(A) the beginning of such year, and "(B) the close of the 1st required taxable year ending within such year. "(c) EFFECT OF ELECTION.—If an entity makes an election under subsection (a), then— "(1) in the case of a partnership or S corporation, such entity shall make the payments required by section 7519, and "(2) in the case of a personal service corporation, such cor« poration shall be subject to the deduction limitations of section 280H. "(d) ELECTIONS.— —••-/^ • vj "(1) PERSON MAKING ELECTION.—An
 * under subsection (a) which is the same as the entity's last
 * ^ term 'deferral period' means, with respect to any taxable year of

,.,

election under subsection •;. (a) shall be made by the partnership, S corporation, or personal service corporation. tj-i

"(2) PERIOD OF ELECTION.—

"(A) IN GENERAL.—Any election under subsection (a) shall .i remain in effect until the partnership, S corporation, or personal service corporation changes its taxable year. Any jif r^ au '* IV change to a required taxable year may be made without the consent of the Secretary. 3>l V "(^^ No FURTHER ELECTION.—If an election is terminated under subparagraph (A), the partnership, S corporation, or personal service corporation may not make another election under subsection (a). •y. "(3) TIERED STRUCTURES, ETC.—No election may be made under subsection (a) with respect to an entity which is part of a tiered structure other than a tiered structure comprised of 1 or more 4^^!;*?.!)' partnerships or S corporations all of which have the same taxable year. "(e) REQUIRED TAXABLE YEAR.—For purposes of this section, the term 'required taxable year' means the taxable year determined under section 706(b), 1378, or 441(i) without taking into account any taxable year which is allowable by reason of business purposes. Solely for purposes of the preceding sentence, sections 706(b), 1378, and 441(i) shall be treated as in effect for taxable years beginning before January 1, 1987. "(f) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section, including regulations to prevent the avoidance of subsection (b)(2)(B) or (d)(2)(B) through the change in form of an entity." (2) CONFORMING AMENDMENT.—The table of sections for part I of subchapter E of chapter 1 is amended by adding at the end thereof the following new item: "Sec. 444. Election of taxable year other than required taxable year." (b) REQUIRED PAYMENTS.—

-»

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1193

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-399

(1) IN GENERAL.—Chapter 77 is amended by adding at the end thereof the following new section: "SEC. 7519. REQUIRED PAYMENTS FOR ENTITIES ELECTING NOT TO HAVE REQUIRED TAXABLE YEAR.

26 USC 7519.

"(a) GENERAL RULE.—This section applies to a partnership or S corporation for any taxable year, if^ "(1) an election under section 444 is in effect for the taxable r year, and "(2) the required payment determined under subsection (b) for such taxable year (or any preceding taxable year) exceeds $500. "(b) REQUIRED PAYMENT.—For purposes of this section, the term 'required payment' means, with respect to any applicable election year of a partnership or S corporation, an amount equal to— "(1) the excess of the product of— "(A) the applicable percentage of the adjusted highest section 1 rate, multiplied by "(B) the net base year income of the entity, over .1, „-,« "(2) the amount of the required payment for the preceding applicable election year. For purposes of paragraph (I)(A), the term 'adjusted highest section 1 rate' means the highest rate of tax in effect under section 1 as of the end of the base year plus 1 percentage point (or, in the case of applicable election years beginning in 1987, 36 percent). "(c) REFUND OF PAYMENTS.—If the amount determined under subsection (b)(2) exceeds the amount determined under subsection (b)(1), then the entity shall be entitled to a refund of such excess. "(d) NET BASE YEAR INCOME.—For purposes of this section— "(1) IN GENERAL.—An entity's net base year income shall be equal to the sum of^ "(A) the deferral ratio multiplied by the entity's net income for the base year, plus "(B) the excess (if any) of— "(i) the deferral ratio multiplied by the aggregate amount of applicable payments made by the entity Vf *• during the base year, over "(ii) the aggregate amount of such applicable payments made during the deferral period of the base year. • For purposes of this paragraph, the term 'deferral ratio' means « the ratio which the number of months in the deferral period of •=>. the base year bears to the number of months in the partnership's or S corporation's taxable year. "(2) NET INCOME,—Net income is determined by taking into < account the aggregate amount of the following items— "(A) PARTNERSHIPS.—In the case of a partnership, net income shall be the amount (not below zero) determined by X taking into account the aggregate amount of the partner> ship's items described in section 702(a) (other than credits). t ' (B) S CORPORATIONS.—In the case of an S corporation, f net income shall be the amount (not below zero) determined H. by taking into account the aggregate amount of the S corporation's items described in section 1366(a) (other than credits). If the S corporation was a C corporation for the base year, its taxable income for such year shall be treated V. as its net income for such year. "(C) CERTAIN LIMITATIONS DISREGARDED.—For purposes of

subparagraph (A) or (B), any limitation on the amount of

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1194

 101 STAT. 1330-400

,^, ». i M i.::

PUBLIC LAW 100-203—DEC. 22, 1987

i •,* «jr any item described in either such paragraph which may be taken into account for purposes of computing the taxable income of a partner or shareholder shall be disregarded. J«

"(3) A P P L I C A B L E PAYMENTS.—

"(A) IN GENERAL.—The term 'applicable payment' means 8 fo C amounts paid or incurred by a partnership or S corporation f which are includible in gross income of a partner or share&(:<; a holder. "(B) EXCEPTIONS.—The term 'applicable payment' shall Gl '.# not include any— M'':'"' "(i) gain from the sale or exchange of property beixf tween the partner or shareholder and the partnership r>Qor S corporation, and "(ii) dividend paid by the S corporation. "(4) APPLICABLE PERCENTAGE.—The applicable percentage is -' the percentage determined in accordance with the following table: • > "If the applicable election year »f- of the partnership or S corporation begins during: m 1987 %r, 1988 •' 1989

^^ "

/'' •i

.,'

'

1990 or thereafter"!!!"!'"!!!!!!"!!!!!!!!!!!!!!!!!!!!!!!!!!"!!!"!"!^

^

The applicable percentage is: 25 50 75

loo.

"(e) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this section— ,;,: "(1) DEFERRAL PERIOD.—The term 'deferral period' has the meaning given to such term by section 444(b)(4). ac

"(2) YEARS.— "(A) BASE YEAR.—The

term 'base year' means, with reiso a spect to any applicable election year, the taxable year of the partnership or S corporation preceding such applicable election year. If "(B) APPLICABLE ELECTION YEAR.—The term 'applicable /t. election year' means any taxable year of a partnership or S corporation with respect to which an election is in effect •V; under section 444. 3

"(3) REQUIREMENT OF REPORTING.—Each partnership or S cor-

 * poration which makes an election under section 444 shall inia elude on any required return or statement such information as

•' the Secretary shall prescribe as is necessary to carry out the provisions of this section.

"(f) ADMINISTRATIVE PROVISIONS.—

Regulations. fe v; 1 M » ) b' 'C in hc

"(1) IN GENERAL.—Except as Otherwise provided in this subsection or in regulations prescribed by the Secretary, any payment required by this section shall be assessed and collected in the same manner as if it were a tax imposed by subtitle C, "(2) DUE DATE.—The amount of any payment required by this section shall be paid on or before April 15 of the calendar year following the calendar year in which the applicable election year begins (or such later date as may be prescribed by the Secretary). "(3) INTEREST.—For purposes of determining interest, any payment required by this section shall be treated as a tax; except that no interest shall be allowed with respect to any refund of a payment made under this section. "(4) PENALTIES.—

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1195

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-401

' d> A;

"(A) IN GENERAL.—In the case of any failure by any person to pay on the date prescribed therefor any amount required by this section, there shall be imposed on such "''^"' person a penalty of 10 percent of the underpayment. For ' purposes of the preceding sentence, the term 'underpayment' means the excess of the amount of the "> •>' i payment required under this section over the amount (if any) of such payment paid on or before the date prescribed - N > "(B)
 * • ' " therefor.

NEGUGENCE

AND

FRAUD

PENALTIES

MADE

AP-

pla.r, PUCABLE.—For purposes of section 6653, any payment re• ypivo-i quired by this section shall be treated as a tax. "(C) WILLFUL **° FAILURE.—If any partnership or S cor^ poration willfully fails to comply with the requirements of this section, section 444 shall cease to apply with respect to such partnership or S corporation. "(g) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the provisions of this section and section 280H, including regulations for annualizing the income and applicable payments of an entity if the base year is a taxable year of less than 12 months." (2) CONFORMING AMENDMENT.—The table of sections for chapI ter 77 is amended by adding at the end thereof the following new item: .|j

"Sec. 7519. Required payments for entities electing not to have required taxable year." (c) DEDUCTION LIMITATIONS.—

(1) IN GENERAL.—Part IX of subchapter B of chapter 1 (relating to items not deductible) is amended by adding at the end thereof the following new section: "SEC. 280H. LIMITATION ON CERTAIN AMOUNTS PAID TO EMPLOYEE- 26 USC 280H. OWNERS BY PERSONAL SERVICE CORPORATIONS ELECTING ALTERNATIVE TAXABLE YEARS. ,^ ^ "(a) GENERAL RULE.—If^

"(1) an election by a personal service corporation under sec, tion 444 is in effect for a taxable year, and ^' "(2) such corporation does not meet the minimum distribution requirements of subsection (c) for such taxable year, then the deduction otherwise allowed under this chapter for applicable amounts paid or incurred by such corporation to employeeowners shall not exceed the maximum deductible amount. The preceding sentence shall not apply for purposes of subchapter G (relating to personal holding companies). "(b) CARRYOVER OF NONDEDUCTIBLE AMOUNTS.—If any amount is not allowed as a deduction for a taxable year under subsection (a), such amount shall be treated as paid or incurred in the succeeding taxable year. "(c) MINIMUM DISTRIBUTION REQUIREMENT.—For purposes of this section— "(1) IN GENERAL.—A personal service corporation meets the minimum distribution requirements of this subsection if the applicable amounts paid or incurred during the deferral period ' Copy read "WILLFULL"

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1196

 101 STAT. 1330-402

PUBLIC LAW 100-203—DEC. 22, 1987

, of the taxable year (determined without regard to subsection (b)) ^ equal or exceed the lesser of— '. "(A) the product of— "(i) the applicable amounts paid or incurred during '} the preceding taxable year, divided by the number of r* " months in such taxable year, multiplied by "(ii) the number of months in the deferral period of \9n.the preceding taxable year, or "(B) the applicable percentage of the adjusted taxable income for the deferral period of the taxable year. "(2) APPLICABLE PERCENTAGE.—**°*The term 'applicable percentage' means the percentage (not in excess of 95 percent) -^ determined by dividing— ir, "(A) the applicable amounts paid or incurred during the 3 6t }•:-,- taxable years immediately preceding the taxable year, by "(B) the adjusted taxable income of such corporation for such 3 taxable years. "(d) MAXIMUM DEDUCTIBLE AMOUNT.—For purposes of this section, the term 'maximum deductible amount' means the sum of— "(1) the applicable amounts paid or incurred during the deferral period, plus ,,. "(2) an amount equal to the product of^ .-. "(A) the amount determined under paragraph (1), divided by the number of months in the deferral period, multiplied by "(B) the number of months in the nondeferral period. "(e) DISALLOWANCE OF N E T OPERATING LOSS CARRYBACKS.—No net

'

operating loss carryback shall be allowed to (or from) any taxable year of a personal service corporation to which an election under section 444 applies. "(f) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) APPLICABLE AMOUNT.—The term 'applicable amount' " means any amount paid to an employee-owner which is includible in the gross income of such employee, other than— "(A) any gain from the sale or exchange of property <. between the owner-employee and the corporation, or "(B) any dividend paid by the corporation. is "(2) EMPLOYEE-OWNER.—The term 'employee-owner' has the meaning given such term by section 296A(b)(2). ^, ^"'I „; / ^ ^ ' ^ ^

"(3) NONDEFERRAL AND DEFERRAL PERIODS.— "(A) DEFERRAL PERIOD.—The term 'deferral

period' has the meaning given to such term by section 444(b)(4). "(B) NONDEFERRAL PERIOD.—The term 'nondeferral period' means the portion of the taxable year of the per;..-. sonal service corporation which occurs after the portion of such year constituting the deferral period. * ^ * "(4) ADJUSTED TAXABLE INCOME.—The term 'adjusted taxable income' means taxable income increased by any amount paid or incurred to an employee-owner which was includible in the gross income of such employee-owner." (2) CLERICAL AMENDMENT.—The table of sections for part IX of subchapter B of chapter 1 is cunended by adding at the end thereof the following item:

'""•Copy read "PERCENTAGE.—". ' ' ' Copy read "period." ".

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1197

 PUBLIC LAW 100-203—DEC. 22, 1987.

101 STAT. 1330-403

r

, "Sec. 280H. Limitation on certain amounts paid to owner-employees by personal service corporations electing alternative taxable years." (d) EFFECTIVE DATES.—

26 USC 444 note.

(1) IN GENERAL.—Except as provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 1986. (2) REQUIRED PAYMENTS.—The amendments made by subsection (b) shall apply to applicable election years beginning after December 31, 1986. (3) ELECTIONS.—Any election under section 444 of the Internal Revenue Code of 1986 (as added by subsection (a)) for an entity's 1st taxable year beginning after December 31, 1986, shall not be required to be made before the 90th day after the date of the enactment of this Act.

p;3j

(4) SPECIAL RULE FOR EXISTING ENTITIES ELECTING S CORPORA-

.J,. ^,

f, ^

TION STATUS.—If a C corporation (within the meaning of section 1361(a)(2) "2 of the Internal Revenue Code of 1986) with a taxable year other than the calendar year— (A) made an election after September 18, 1986, and before »,, January 1, 1988, under section 1362 of such Code to be treated as an S corporation, and (B) elected to have the calendar year as the taxable year of the S corporation, then section 444(b)(2)(B) of such Code shall be applied by taking into account the deferral period of the last taxable year of the C corporation rather than the deferral period of the taxable year being changed.

PART II—PARTNERSHIP PROVISIONS SEC. 10211. CERTAIN PUBLICLY TRADED PARTNERSHIPS TREATED AS CORPORATIONS.

(a) GENERAL RULE.—Chapter 79 (relating to definitions) is amended by adding at the end thereoif the following new section: "SEC. 7704. CERTAIN PUBLICLY TRADED PARTNERSHIPS TREATED AS 26 USC 7704. CORPORATIONS. "(a) GENERAL RULE.—For purposes of this title, except as provided in subsection (c), a publicly traded partnership shall be treated as a corporation. "(b) PUBLICLY TRADED PARTNERSHIP.—For purposes of this section, the term 'publicly traded partnership' means any partnership if— "(1) interests in such partnership are traded on an established securities market, or "(2) interests in such partnership are readily tradable on a secondary market (or the substantial equivalent thereof). "(c) EXCEPTION FOR PARTNERSHIPS WITH PASSIVE-TYPE INCOME.—

"(1) IN GENERAL.—Subsection (a) shall not apply to any pub.VI licly traded partnership for any taxable year if such partnership f met the gross income requirements of paragraph (2) for such taxable year and each preceding taxable year beginning after December 31, 1987, during which the partnership (or any predecessor) was in existence. ,.. "(2) GROSS INCOME REQUIREMENTS.—A partnership meets the gross income requirements of this paragraph for any taxable " * Copy read "1361(a)(2))".

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1198

 101 STAT. 1330-404

PUBLIC LAW 100-203—DEC. 22, 1987

year if 90 percent or more of the gross income of such partnership for such taxable year consists of quahfying income. .^

':t

.,.

' i dS;

"(3) EXCEPTION NOT TO APPLY TO CERTAIN PARTNERSHIPS WHICH COULD QUALIFY AS REGULATED INVESTMENT COMPANIES.—This

•:! PJ subsection shall not apply to any partnership which would be described in section 851(a) if such partnership were a domestic -^ corporation. To the extent provided in regulations, the precedi^ ing sentence shall not apply to any partnership a principal activity of which is the buying and selling of commodities (not described in section 1221(1)), or options, futures, or forwards with respect to commodities. "(d) QUALIFYING INCOME.—For purposes of this section— "Ai "(1) IN GENERAL.—Except as otherwise provided in this subsection, the term 'qualifying income' means— "(A) interest, - ^^ K "(B) dividends, 1, r'."(C) real property rents, "(D) gain from the sale or other disposition of real prop>io*%u erty (including property described in section 1221(1)), xl *^j ' (E) income and gains derived from the exploration, development, mining or production, processing, refining, " ^ -' transportation (including pipelines transporting gas, oil, or V products thereof), or the marketing of any mineral or natui- ^' ral resource (including fertilizer, geothermal energy, and '-'-"•" timber), s* tt^Y) any gain from the sale or disposition of a capital asset (or property described in section 1231(b)) held for the production of income described in any of the foregoing subparagraphs of this paragraph, and "(G) in the case of a partnership described in the second ^ commodities (not described in section 1221(1)) or futures, ir forwards, and options with respect to commodities. J "(2) CERTAIN INTEREST NOT QUALIFIED.—Interest shall not be ,> • (i '.f treated as qualifying income if— .T "(A) such interest is derived in the conduct of a financial or insurance business, or '. L.1. "(B) such interest would be excluded from the term « 'interest* under section 856(f). "(3) REAL PROPERTY RENT.—The term 'real property rent' ' means amounts which would qualify as rent from real property - under section 856(d) if such section were applied without regard •' to paragraph (2)(C) thereof (relating to independent contractor requirements). B
 * sentence of subsection (c)(3), income and gains from

"(4) CERTAIN INCOME QUALIFYING UNDER REGULATED INVESTMENT COMPANY OR REAL ESTATE TRUST PROVISIONS.—The term

~ «

'qualifying income' also includes any income which would qualify under section 851(b)(2) or 856(c)(2).

•|i

"(5) SPECIAL RULE FOR DETERMINING GROSS INCOME FROM CERTAIN REAL PROPERTY SALES.—In the case of the sale or other

^•' "' disposition of real property described in section 1221(1), gross income shall not be reduced by inventory costs. "(e) INADVERTENT TERMINATIONS.—If^

»i

"(1) a partnership fails to meet the gross income requirements of subsection (c)(2), "(2) the Secretary determines that such failure was inadvertent,

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1199

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-405

^

"(3) no later than a reasonable time after the discovery of such failure, steps are taken so that such partnership once more ' meets such gross income requirements, and "(4) such partnership agrees to make such adjustments (including adjustments with respect to the partners) as may be required by the Secretary with respect to such period, then, notwithstanding such failure, such entity shall be treated as continuing to meet such gross income requirements for such period. "(f) EFFECT OF BECOMING CORPORATION.—As of the 1st day that a partnership is treated as a corporation under this section, for purposes of this title, such partnership shall be treated as— "(1) transferring all of its assets (subject to its liabilities) to a newly formed corporation in exchange for the stock of the corporation, and "(2) distributing such stock to its partners in liquidation of their interests in the partnership." i (b) CLERICAL AMENDMENT.—The table of sections for chapter 79 is amended by adding at the end thereof the following new item: "Sec. 7704. Certain publicly traded partnerships treated as corporations." (c) EFFECTIVE DATE.—

f

(1) IN GENERAL.—The amendments made by this section shall apply— (A) except as provided in subparagraph (B), to taxable ,- ^, years beginning after December 31, 1987, or (B) in the case of an existing partnership, to taxable years beginning after December 31, 1997. - - . • (2) EXISTING PARTNERSHIP.—For purposes of this subsection— (A) IN GENERAL.—The term "existing partnership" means any partnership if— " • '• • (i) such partnership was a publicly traded partner^ ship on December 17, 1987, (ii) a registration statement indicating that such partnership was to be a publicly traded partnership was filed with the Securities and Exchange Commission with respect to such partnership on or before such date, or (iii) with respect to such partnership, an application • was filed with a State regulatory commission on or before such date seeking permission to restructure a portion of a corporation as a publicly traded partner(B) SPECIAL RULE WHERE SUBSTANTIAL NEW U N E OF BUSINESS ADDED AFTER DECEMBER 17, 1987.—A partnership

•^ '^•; -'^ •'

which, but for this subparagraph, would be treated as an existing partnership shall cease to be treated as an existing partnership as of the 1st day after December 17, 1987, on which there has been an addition of a substantial new line of business with respect to such partnership.

SEC. 10212. TREATMENT OF PUBLICLY TRADED PARTNERSHIPS UNDER SECTION 469.

' (a) GENERAL RULE.—Section 469 (relating to passive activity losses and credits limited) is amended by redesignating subsections (k) and (1) as subsections (1) and (m), respectively, and by inserting after subsection (j) the following new subsection:

26 USC 7704 note,

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1200

 101 STAT. 1330-406

PUBLIC LAW 100-203—DEC. 22, 1987

"(k) SEPARATE APPLICATION OF SECTION IN CASE OF PUBLICLY TRADED PARTNERSHIPS.—

'^"\

"(1) IN GENERAL.—This section shall be applied separately with respect to items attributable to each publicly traded partnership (and subsection (i) shall not apply with respect to items attributable to any such partnership). The preceding sentence shall not apply to any credit determined under section 42, or any rehabilitation investment credit (within the meaning of section 48(o)), attributable to a publicly traded partnership to " the extent the amount of any such credits exceeds the regular '" tax liability attributable to income from such partnership. ^ "(2) PUBLICLY TRADED PARTNERSHIP.—For purposes of this sec'^ tion, the term 'publicly traded partnership' means any partner"•* ship if— "(A) interests in such partnership are traded on an estab* lished securities market, or "(B) interests in such partnership are readily tradable on a secondary market (or the substantial equivalent thereof)." (b) CONFORMING AMENDMENTS.—Paragraph (3) of section 58(b) and

26 USC 58 note.

subparagraph (E) of section 163(d)(4) are each amended by striking out "469(1)" and inserting in lieu thereof "469(m)". (c) EFFECTIVE DATE.—The amendments made by this section shall take effect as if included in the amendments made by section 501 of the Tax Reform Act of 1986. SEC. 10213. TREATMENT OF PUBLICLY TRADED PARTNERSHIPS FOR UNRELATED BUSINESS TAX. (a) GENERAL RULE.—Subsection (c) of section 512 (relating to

special rules for partnerships) is amended to read as follows: "(c) SPECIAL RULES FOR PARTNERSHIPS.—

"(1) IN GENERAL.—If a trade or business regularly carried on by a partnership of which an organization is a member is an jA^,. unrelated trade or business with respect to such organization, such organization in computing its unrelated business taxable income shall, subject to the exceptions, additions, and limitations contained in subsection (b), include its share (whether or not distributed) of the gross income of the partnership from such unrelated trade or business and its share of the partnership deductions directly connected with such gross income. '^,^

"(2) SPECIAL RULE FOR PUBLICLY TRADED PARTNERSHIPS.—Not-

, withstanding any other provision of this section— "(A) any organization's share (whether or not distributed) of the gross income of a publicly traded partnership (as defined in section 469(k)(2)) shall be treated as gross income derived from an unrelated trade or business, and "(B) such organization's share of the partnership deductions shall be allowed in computing unrelated business taxable income. "(3) SPECIAL RULE WHERE PARTNERSHIP YEAR IS DIFFERENT FROM ORGANIZATION'S YEAR.—If the taxable year of the organiza-

• '. tion is different from that of the partnership, the amounts to be included or deducted in computing the unrelated business taxable income under paragraph (1) or (2) shall be based upon the income and deductions of the partnership for any taxable year \ of the partnership ending within or with the taxable year of the organization."

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1201

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-407

(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 USC 512 note, shall apply to partnership interests acquired after December 17, 1987. SEC. 10214. TREATMENT OF CERTAIN PARTNERSHIP ALLOCATIONS.

"

(a) GENERAL RULE.—Clause (vi) of section 514(c)(9)(B) is amended to read as follows: "(vi) the real property is held by a partnership unless the partnership meets the requirements of clauses (i) .* .: through (v) and unless— "(I) all of the partners of the partnership are qualified organizations, "(II) each allocation to a partner of the partners fc j;pno ik ship which is a qualified organization is a qualified allocation (within the meaning of section 168(h)(6)), o r "(III) such partnership meets the requirements of subparagraph (E)." (b) CERTAIN ALLOCATIONS PERMITTED.—Paragraph (9) of section
 * •.', -^fcrLVi

514(c) is amended by adding at the end thereof the following new subparagraph: (E) CERTAIN ALLOCATIONS PERMITTED.—

' -' ^;

f.;i.•

H^..i '- \ .,) 1 t A-tt

"(i) IN GENERAL.—A partnership meets the requirements of this subparagraph if— "(I) the allocation of items to any partner other than a qualified organization cannot result in such partner having a share of the overall partnership loss for any taxable year greater than such partner's share of the overall partnership income for the taxable year for which such partner's income share will be the smallest, "(II) the allocation of items to any partner which IS a qualified organization cannot result in such partner having a share of the overall partnership income for any taxable year greater than such partner's share of the overall partnership loss for the taxable year for which such partner's loss share will be the smallest, and "(III) each allocation with respect to the partnership has substantial economic effect within the meaning of section 704(b)(2). For purposes of this clause, items allocated under section 704(c) shall not be taken into account, "(ii) SPECIAL RULES.—

.5,..., y: FT:J:'-:>. _ A: rs

/..

"(I) CHARGEBACKS.—Except as provided in regulations, a partnership may without violating the requirements of this subparagraph provide for chargebacks with respect to disproportionate losses previously allocated to qualified organizations and disproportionate income previously allocated to other partners. Any chargeback rererred to in the preceding sentence shall not be at a ratio in excess of the ratio under which the loss or income (as the case may be) was allocated. "(II) PREFERRED RATES OF RETURN, ETC.—To the

extent provided in regulations, a partnership may without violating the requirements of this subpara-

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1202

 101 STAT. 1330-408 >>m::;ir: r '

{B]^

PUBLIC LAW 100-203—DEC. 22, 1987 i

graph provide for reasonable preferred returns or reasonable guaranteed payments." 26 USC 514 note. (c) EFFECTIVE DATE.—The amendments made by this section shall apply to— (1) property acquired by the partnership after October 13, 1987, and (2) partnership interests acquired after October 13, 1987, except that such amendments shall not apply in the Case of any property (or partnership interest) acquired pursuant to a written binding contract in effect on October 13, 1987, and at all times thereafter before such property (or interest) is acquired. SEC. 10215. STUDY. The Secretary of the Treasury or his delegate shall conduct a study of— (1) the issue of treating publicly traded limited partnerships (and other partnerships which significantly resemble corporations) as corporations for Federal income tax purposes, including the issues of disincorporation and opportunities for avoidvvt^; ance of the corporate tax, and (2) the administrative and compliance issues related to the tax treatment of publicly traded partnerships and other large partnerships. Reports. Not later than January 1, 1989, the Secretary of the Treasury or his delegate shall submit a report on such study to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate, together with such recommendations as he may deem appropriate. Not later than May 1, 1988, an interim report with respect to the issues referred to in paragraph (2) shall be submitted to such Committees.

) PART III—CORPORATE PROVISIONS SEC. 10221. REDUCTION IN DIVIDENDS RECEIVED DEDUCTION FOR DIVIDENDS FROM CORPORATIONS NOT 20-PERCENT OWNED.

(a) GENERAL RULE.—The following provisions are each amended by striking out "80 percent" and inserting in lieu thereof "70 percent": (1) Section 243(a)(l) (relating to dividends received by corporations). (2) Subsections (a)(3) and 0)X2) of section 244 (relating to ^^ dividends received on certain preferred stock). (b) RETENTION OF 80-PERCENT DIVIDENDS RECEIVED DEDUCTION FOR DIVIDENDS FROM 20-PERCENT OWNED CORPORATIONS.—Section 243 is

amended by redesignating subsections (c) and (d) as subsections (d) and (e), respectively, and by inserting after subsection 0)) the following new subsection: (c) RETENTION OF 80-PERCENT DIVIDENDS RECEIVED DEDUCTION FOR DIVIDENDS FROM 20-PERCENT OWNED CORPORATIONS.—

"(1) IN GENERAL.—In the c€ise of any dividend received from a 20-percent owned corporation— "(A) subsection (a)(1) of this section, and ^^-"(B) subsections (a)(3) and m2) of section 244, shall be applied by substituting '80 percent' for '70 percent'. •i "(2) 20-PERCENT OWNED CORPORATION.—For purposes of this "' section, the term '20-percent owned corporation means any • corporation if 20 percent or more of the stock of such corpora-

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1203

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-409

tion (by vote and value) is owned by the taxpayer. For purposes of the preceding sentence, stock described in section 1504(a)(4) shall not be taken into account." (c) MODIFICATIONS TO TAXABLE YEAR LIMITATIONS.—

(1) Subsection (b) of section 246 (relating to limitation on aggregate amount of deductions) is amended— ^ (A) by striking out "80 percent" in paragraph (1) and inserting in lieu thereof "the percentage determined under paragraph (3)", and (B) by adding at the end thereof the following new paragraph: "(3) SPECIAL RULES.—The provisions of paragraph (1) shall be applied— "(A) first separately with respect to dividends from 20percent owned corporations (as defined in section 243(c)(2)) and the percentage determined under this paragraph shall be 80 percent, and "(B) then separately with respect to dividends not from 20-percent owned corporations and the percentage determined under this paragraph shall be 70 percent and the taxable income shall be reduced by the aggregate amount of dividends from 20-percent owned corporations (as so defined)." (2) Subparagraph (B) of section 805(a)(4) is amended by striking out "shall be 80 percent of the life insurance company taxable income" and inserting in lieu thereof "shall be the percentage determined under section 246(b)(3) of the life insurance company taxable income (and such limitation shall be " applied as provided in section 2460)X3))". (d) CONFORMING AMENDMENTS.—

(1) Subparagraph (B) of section 245(c)(l) is amended by striking out "85 percent" and inserting in lieu thereof "70 percent (80 percent in the case of dividends from a 20-percent owned corporation as defined in section 243(c)(2))". (2) Paragraph (1) of section 246A(a) is amended by striking out "80 percent" and inserting in lieu thereof "70 percent (80 percent in the case of any dividend from a 20-percent owned ,,^, corporation as defined in section 243(c)(2))". ' '' V,,: (3) Subparagraph (A) of section 8540t)Xl) is amended by inserting before the period at the end thereof the following: "and such dividend shall be treated as received from a corporation which is not a 20-percent owned corporation". (4) Paragraph (2) of section 861(a) is amended— (A) by striking out "100/85th" and inserting in lieu r; (B) by adding at the end thereof the following new sentence: "In the case of any dividend from a 20-p)ercent owned corporation (as defined in section 243(c)(2)), subparagraph (B) shall be applied by substituting '100/80th' for *100/70th'." (e) EFFECTIVE DATES.— 26 USC 243 note. (1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to dividends received or accrued after December 31, 1987, in taxable years ending after such date.
 * i,,, thereof "100/70th", and

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1204

 101 STAT. 1330-410

PUBLIC LAW 100-203—DEC. 22, 1987

(2) AMENDMENTS RELATING TO LIMITATIONS.—The amendments made by subsection (b) shall apply to taxable years beginning after December 31, 1987.

'

SEC. 10222. CERTAIN EARNINGS AND PROFITS ADJUSTMENTS NOT TO APPLY FOR CERTAIN PURPOSES. (a) SPECIAL RULE FOR DETERMINING ADJUSTED BASIS OF STOCK OF, MEMBERS OF AFFILIATED GROUP.—

(1) IN GENERAL.—Section 1503 (relating to computation and payment of tax by affiliated group) is amended by adding at the end thereof the following new subsection: "(e) SPECIAL RULE FOR DETERMINING ADJUSTMENTS TO BASIS.—

"(1) IN GENERAL.—Solely for purposes of determining gain or loss on the disposition of intragroup stock, in determining the aciyustments to the basis of such intragroup stock on account of Ij; the earnings and profits of any member of an affiliated group icBui; fQj. g^jjy consolidated year— "(A) such earnings and profits shall be determined as if ermn: >; section 312 were applied for such taxable year (and all " ^ preceding consolidated years of the member with respect to such group) without regard to subsections (k) and (n) thereof, and e "(B) earnings and profits shall not include any amount excluded from gross income under section 108 to the extent -''"'S "•' the amount so excluded was not applied to reduce tax attributes (other than basis in property). » t "(2) DEFINITIONS.—For purposes of this subsection— "(A) INTRAGROUP STOCK.—The term 'intragroup stock' -^ f. means any stock which— "(i) is in a corporation which is or was a member of an affiliated group of corporations, and ,... > ^_-i "(ii) is held by another member of such group. ^f«, /-,> '^ ' Such term includes any other property the basis of which is .,. /. determined (in whole or in part) by reference to the basis of stock described in the preceding sentence. J,,,,,-j "(B) CONSOUDATED YEAR.—The term 'consolidated year' means any taxable year for which the affiliated group makes a consolidated return." 26 USC 1503

"°te-

(2) EFFECTIVE DATE.—

^.

(A) IN GENERAL.—Except as provided in Subparagraph (B), the amendment made by paragraph (1) shall apply to any intragroup stock disposed of after December 15, 1987. For purposes of determining the adjustments to the basis of such stock, such amendment shall be deemed to have been in effect ^ ^ ^ for all periods whether before, on, or after -^-" December 15, 1987. (B) EXCEPTION.—The amendment made by paragraph (1) Y'aii r^^' shall not apply to any intragroup stock disposed of after December 15, 1987, and before January 1, 1989, if such -;^io0^:': disposition is pursuant to a written binding contract, id lift'.a governmental order, letter of intent or preliminary agreement, or stock acquisition agreement, in effect on or before 5*>oi. m. O U K K December 15, 1987. (b) DISTRIBUTIONS RECEIVED BY 20-PERCENT CORPORATE SHARE'• HOLDERS.— " Copy read "been effect".

Ji;K<.

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1205

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-411

(1) IN GENERAL.—Paragraph (1) of section 301(f) (relating to special rule for certain distributions received by 20-percent corporate shareholders) is amended by striking out "subsection (n) thereof and inserting in lieu thereof "subsections (k) and (n) (2) EFFECTIVE DATES.— 26 USC 30i note. (A) IN GENERAL.—The amendment made by paragraph (1) ^ shall apply to distributions after December 15, 1987. For purposes of applying such amendment to any such distribution— . ^ (i) for purposes of determining earnings and profits, ' '' such amendment shall be deemed to be in effect for all periods whether before, on, or after December 15, 1987, Q''' ^ but •J as. (ii) such amendment shall not affect the determination of whether any distribution on or before December 15, 1987, is a dividend and the amount of any reduction in accumulated earnings and profits on account of any >-^b.H.t such distribution. ^"(B) EXCEPTION.—The amendment made by paragraph (1) shall not apply for purposes of determining gain or loss on any disposition described in subsection (a)(2)(B) of this section. SEC. 10223. TREATMENT OF MIRROR SUBSIDIARY TRANSACTIONS. (a) CONSOUDATED RETURN REGULATIONS NOT To APPLY FOR*^* PURPOSES OF NONRECOGNITION UNDER SECTION 337.—Subsection (c)
 * ' thereof.

of section 337 (defining 80-percent distributee) is amended by adding at the end thereof the following new sentence: "For purposes of this section, the determination of whether any corporation is an 80percent distributee shall be made without regard to any consolidated return regulation." (b) AMENDMENT TO SECTION 355.—Subparagraph (D) of section 3550t)X2) (relating to requirements as to active business) is amended— (1) by amending clause (i) to read as follows: "(i) was not acquired by any distributee corporation directly (or through 1 or more corporations, whether through the distributing corporation or otherwise) within the period described in subparagraph (B), or", (2) by striking out "by another corporation" in clause (ii) and , inserting in lieu thereof "such distributee corporation", and (3) by adding at the end thereof the following new sentence: "For purposes of subparagraph (D), all distributee corporations which are members of the same affiliated group (as defined in section 1504(a) without regard to section 15040t))) shall be treated as 1 distributee corporation." (c) AMENDMENT TO SECTION 304.—Subsection (b) of section 304 (relating to redemption through use of related corporations) is amended by adding at the end thereof the following new paragraph: "(4) TREATMENT OF CERTAIN INTRAGROUP TRANSACTIONS.—

^

"(A) IN GENERAL.—In the case of any transfer described in subsection (a) of stock of 1 member of an affiliated group .^^ to another member of such group, proper adjustments shall be made to— '• Copy read "TO APPLY FOR PURPOSBB".

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1206

 101 STAT. 1330-412 ^ I''" I' '"' ' At-.n;;">ni?,5 ^v 4 '"^ " ' ' I' ^;^ "^' * t 26 USC 304 note.

PUBLIC LAW 100-203—DEC. 22, 1987 "(i) the adjusted basis of any intragroup stock, and "(ii) the earnings and profits of any member of such group, to the extent necessary to carry out the purposes of this section. "(B) DEFINITIONS.—For purposes of this paragraph— "(i) AFFILIATED GROUP.—The term 'affiliated group' has the meaning given such term by section 1504(a). "(ii) INTRAGROUP STOCK.—The term 'intragroup stock' means any stock which— "(I) is in a corporation which is a member of an affiliated group, and "(II) is held by another member of such group."

(d) EFFECTIVE D A T E S. —

(1) IN GENERAL.—The amendments made by this section shall apply to distributions or transfers after December 15, 1987. (2) EXCEPTIONS.—

, (, '

Contracts.

Contracts.

(A) DISTRIBUTIONS.—The amendments made by this section shall not apply to any distribution after December 15, 1987, and before January 1, 1993, if— / (i) 80 percent or more of the stock of the distributing corporation was acquired by the distributee before December 15, 1987, or "^ (ii) 80 percent or more of the stock of the distributing '^^ corporation was acquired by the distributee before • January 1, 1989, pursuant to a binding written contract or tender offer in effect on December 15, 1987. For purposes of the preceding sentence, stock described in -h section 1504(a)(4) of the Internal Revenue Code of 1986 shall \ ^'-i" not be taken into account. (B) SECTION 304 TRANSFERS.—The amendment made by . oi" • subsection (c) shall not apply to any transfer after Decem' i ber 15, 1987, and before January 1, 1993, if such transfer is— (i) between corporations which are members of the
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game affiliated group on December 15, 1987, or " ^ (ii) between corporations which become members of ^ the same affiliated group before January 1, 1989, pursuant to a binding written contract or tender offer ~ in effect on December 15, 1987. •iJt. (C) DISTRIBUTIONS COVERED BY PRIOR TRANSITION RULE.— '^ " The amendments made by this section shall not apply to any distribution to which the amendments made by subtitle D of title VI of the Tax Reform Act of 1986 do not apply. SEC. 10224. BENEFITS OF GRADUATED CORPORATE RATES NOT ALLOWED r TO PERSONAL SERVICE CORPORATIONS.

(a) GENERAL RULE.—Subsection (b) of section 11 (relating to corporate tax rates) is amended to read as follows: "(b) AMOUNT OF TAX.—

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"(1) IN GENERAL.—The amount of the tax imposed by subsection (a) shall be the sum of— "(A) 15 percent of so much of the taxable income as does not exceed $50,000, "(B) 25 percent of so much of the taxable income as exceeds $50,000 but does not exceed $75,000, and ^

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text:
Page:United States Statutes at Large Volume 101 Part 2.djvu/1207

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-413

"(C) 34 percent of so much of the taxable income as exceeds $75,000. In the case of a corporation which has taxable income in excess of $100,000 for any taxable year, the amount of tax determined under the preceding sentence for such taxable year shall be increased by the lesser of (i) 5 percent of such excess, or (ii) $11,750.

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"(2) CERTAIN PERSONAL SERVICE CORPORATIONS NOT ELIGIBLE FOR GRADUATED RATES.—Notwithstanding paragraph (1), the

amount of the tax imposed by subsection (a) on the taxable income of a qualified personal service corporation (as defined in section 448(d)(2)) shall be equal to 34 percent of the taxable income." (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1987.

26 USC ii note,

SEC. 10225. AMENDMENTS TO SECTION 382.

(a) TREATMENT OF WORTHLESS STOCK.—Paragraph (4) of section 382(g) (defining ownership change) is amended by adding at the end thereof the following new subparagraph: "(D) TREATMENT OF WORTHLESS STOCK.—If any stock held by a 50-percent shareholder is treated by such shareholder jQ r as becoming worthless during any taxable year of such ^. ^ shareholder and such stock is held by such shareholder as of the close of such taxable year, for purposes of determin^^,^; ing whether an ownership change occurs after the close of such taxable year, such shareholder— "(i) shall be treated as having acquired such stock on the 1st day of his 1st succeeding taxable year, and "(ii) shall not be treated as having owned such stock during any prior period. For purposes of the preceding sentence, the term '50-percent shareholder' means any person owning 50 percent or more of the stock of the corporation at any time during the 3-year period ending on the last day of the taxable year with respect to which the stock was so treated." Ob) TREATMENT OF DEPRECIATION UNDER BUILT-IN Loss RULES.— Subparagraph (B) of section 382(h)(2) (defining recognized built-in loss) is amended by adding at the end thereof the following new sentence: "Such term includes any amount allowable as depreciation,, ji. amortization, or depletion for any period within the recognition period except to the extent the new loss corporation establishes that the amount so allowable is not attributable to the excess described in clause (ii)." (c) EFFECTIVE DATES.— 26 USC 382 note. (1) SUBSECTION (a).—The amendment made by subsection (a) shall apply in the case of stock treated as becoming worthless in taxable years beginning after December 31, 1987. (2) SUBSECTION (b).—The amendment made by subsection (b) Contracts. shall apply in the case of ownership changes (as defined in section 382 of the Internal Revenue Code of 1986 as amended by subsection (a)) after December 15, 1987; except that such amendment shall not apply in the case of any ownership change pursuant to a binding written contract which was in effect on December 15, 1987, and at all times thereafter before such ownership change.

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