text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/743

 PUBLIC LAW 98-369—JULY 18, 1984 "If the valuation claimed is the following percent of the correct valuation— 50 percent or more but not more than 66% percent 40 percent or more but less than 50 percent Less than 40 percent

98 STAT. 695 The applicable percentage is: 10 20 30.

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"

"(c) VALUATION UNDERSTATEMENT DEFINED.—For purposes of this section, there is a valuation understatement if the value of any property claimed on any return is 66% percent or less of the amount determined to be the correct amount of such valuation. "(d) UNDERPAYMENT MUST B E AT LEAST $1,000.—This section shall not apply if the underpayment is less than $1,000 for any taxable period (or, in the case of the tax imposed by chapter 11, with respect 26 USC 2001 et to the estate of the decedent). ^^Q"(e) AUTHORITY TO WAIVE.—The Secretary may waive all or any part of the addition to the tax provided by this section on a showing by the taxpayer that there was a reasonable basis for the valuation claimed on the return and that such claim was made in good faith." (B) CLERICAL AMENDMENT.—The table of sections for subchapter A of chapter 68 is amended by inserting after the item relating to section 6659 the following new item: "Sec. 6660. Addition to tax in the case of valuation understatement for purposes of estate or gift taxes." (d) EFFECTIVE DATES.— (1) SUBSECTIONS (a) AND (b).—The amendments made by

26 USC 6050L subsections (a) and O> shall apply to contributions made after note. t) December 31, 1984, in taxable years ending after such date. (2) SUBSECTION (C).—The amendments made by subsection (c) 26 USC 6659 shall apply to returns filed after December 31, 1984. note.

SEC. 156. AUTHORIZATION TO DISREGARD APPRAISALS OF PERSONS PENALIZED FOR AIDING IN UNDERSTATEMENTS OF TAX LIABILITY.

vr. ^ f a

(a) IN GENERAL.—Section 330 of title 31, United States Code, is amended by adding at the end thereof the following new subsection: "(c) After notice and opportunity for a hearing to any appraiser with respect to whom a penalty has been assessed under section 6701(a) of the Internal Revenue Code of 1954, the Secretary may— 26 USC 6701. "(1) provide that appraisals by such appraiser shall not have any probative effect in any administrative proceeding before the Department of the Treasury or the Internal Revenue Service, and "(2) bar such appraiser from presenting evidence or testimony in any such proceeding." (b) EFFECTIVE DATE.—The amendment made by subsection (a; 31 USC 330 note, shall apply to penalties assessed after the date of the enactment of this Act. SEC. 157. LIMITATION ON MAILING OF DEPOSITS OF TAXES. (a) IN GENERAL.—Subsection (e) of section 7502 (relating to mail- 26 USC 7502. ing of deposits) is amended by adding at the end thereof the following new paragraph: "(3) N O APPLICATION TO CERTAIN DEPOSITS.—Paragraph (1)

^ <

shall not apply with respect to any deposit of $20,000 or more by any person who is required to deposit the tax more than once a month." (b) EFFECTIVE DATE.—The amendment made by this section shall 26 USC 7502 apply to deposits required to be made after July 31, 1984. note.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/744

 98 STAT. 696

PUBLIC LAW 98-369—JULY 18, 1984 SEC. 158. INTEREST ON CERTAIN ADDITIONS TO TAX.

26 USC 6601.

(a) IN GENERAL,—Paragraph (2) of section 6601(e) (relating to interest on penalties and additions to tax) is amended to read as follows: "(2) INTEREST O N PENALTIES, ADDITIONAL AMOUNTS, OR ADDITIONS TO THE TAX.—

Ante, p. 694.

"(A) IN GENERAL.—Interest shall be imposed under subsection (a) in respect of any assessable penalty, additional amount, or addition to the tax (other than an addition to tax imposed under section 6651(a)(1), 6659, 6660, or 6661) only if such assessable penalty, additional amount, or addition to the tax is not paid within 10 days from the date of notice and demand therefor, and in such case interest shall be imposed only for the period from the date of the notice and demand to the date of payment. "(B) INTEREST ON CERTAIN ADDITIONS TO TAX.—Interest

26 USC 6601 note.

shall be imposed under this section with respect to any addition to tax imposed by section 6651(a)(1), 6659, 6660, or 6661 for the period which— "(i) begins on the date on which the return of the tax

with respect to which such addition to tax is imposed is required to be filed (including any extensions), and "(ii) ends on the date of payment of such addition to tax." (b) EFFECTIVE DATE.—The amendment made by this section shall apply to interest accrued after the date of the enactment of this Act, except with respect to additions to tax for which notice and demand is made before such date. SEC. 159. PENALTY FOR FRAUDULENT WITHHOLDING EXEMPTION CERTIFICATE OR FAILURE TO SUPPLY INFORMATION.

26 USC 7205.

26 USC 7205 note.

(a) IN GENERAL.—Section 7205 (relating to penalty for fraudulent withholding exemption certificate) is amended— (1) by striking out "in lieu o f each place it appears and inserting in lieu thereof "in addition to", and (2) by striking out "(except the penalty provided by section 6682)" each place it appears. (b) EFFECTIVE DATE.—The amendments made by this section shall apply to actions and failures to act occurring after the date of the enactment of this Act. SEC. 160. APPLICATION OF PENALTY FOR FRIVOLOUS PROCEEDINGS TO PENDING TAX COURT PROCEEDINGS.

26 USC 7430 note.

Ante, p. 494. 26 USC 446.

Paragraph (2) of section 292(e) of the Tax Equity and Fiscal Responsibility Act of 1982 is amended to read as follows: "(2) PENALTY.—The amendments made by subsections (b) and (d)(2) shall apply to any action or proceeding in the United States Tax Court which— "(A) is commenced after December 31, 1982, or "(B) is pending in the United States Tax Court on the day which is 120 days after the date of the enactment of the Tax Reform Act of 1984." SEC. 161. FAILURE TO REQUEST CHANGE OF METHOD OF ACCOUNTING. (a) IN GENERAL.—Section 446 (relating to general rule for methods of accounting) is amended by adding at the end thereof the following new subsection:

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


text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/745

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 697

"(f) FAILURE TO REQUEST CHANGE OF METHOD OF ACCOUNTING.—If

the taxpayer does not file with the Secretary a request to change the method of accounting, the absence of the consent of the Secretary to a change in the method of accounting shall not be taken into account— "(1) to prevent the imposition of any penalty, or the addition of any amount to tax, under this title, or "(2) to diminish the amount of such penalty or addition to '= tax." (b) EFFECTIVE DATE.—The amendment made by this section shall 26 USC 446 note. apply to taxable years beginning after the date of the enactment of this Act. SEC. 162. CLARIFICATION OF CHANGE OF VENUE FOR CERTAIN TAX OFFENSES. ,..-M -.^-j-.j,; Section 3237(b) of title 18 of the United States Code is amended to read as follows: "(b) Notwithstanding subsection (a), where an offense is described in section 7203 of the Internal Revenue Code of 1954, or where venue 26 USC 7203. for prosecution of an offense described in section 7201 or 7206 (1), (2), or (5) of such Code (whether or not the offense is also described in 26 USC 7201, another provision of law) is based solely on a mailing to the Internal 7206. Revenue Service, and prosecution is begun in a judicial district other than the judicial district in which the defendant resides, he may upon motion filed in the district in which the prosecution is begun, elect to be tried in the district in which he was residing at the time the alleged offense was committed: Provided, That the motion is filed within twenty days after arraignment of the defendant upon indictment or information." SEC. 163. EXTENSION OF STATUTE OF LIMITATIONS WITH RESPECT TO CERTAIN EXPENDITURES RELATING TO CONTRIBUTIONS IN AID OF CONSTRUCTION. (a) IN GENERAL.—Section 118 (relating to contributions to the 26 USC 118. capital of a corporation) is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: "(c) STATUTE OF LIMITATIONS.—If the taxpayer for any taxable

year treats an amount as a contribution to the capital of the taxpayer described in subsection (b), then— "(1) the statutory period for the assessment of any deficiency attributable to any part of such amount shall not expire before the expiration of 3 years from the date the Secretary is notified by the taxpayer (in such manner as the Secretary may prescribe) of— "(A) the amount of the expenditure referred to in subparagraph (A) of subsection (b)(2), "(B) the taxpayer's intention not to make the expenditures referred to in such subparagraph, or "(C) a failure to make such expenditure within the period described in subparagraph (B) of subsection (b)(2); and K "(2) such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment." (b) TECHNICAL AMENDMENTS.—

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Page:United States Statutes at Large Volume 98 Part 1.djvu/746

 98 STAT. 698 26 USC 6501.

PUBLIC LAW 98-369—JULY 18, 1984 (1) Section 6501 is amended by striking (o) and by redesignating subsection (m), tions (k), (1), and (m), respectively, and by tion (m) (as so redesignated) the following

out subsections (1) and (n), and (p) as subsecinserting after subsecnew subsection:

"(n) CROSS REFERENCES.— "(1) For period of limitations for assessment and collection in the case of a joint income return filed after separate returns have been filed, see section 6013(b)(3) and (4). "(2) For extension of period in the case of partnership items (as defined in section 6231(a)(3)), see section 6229. "(3) For extension of period in the case of certain contributions in aid of construction, see section 118(c)."

Ante, p. 697.

26 USC 6511.

(2) Subsection (f) of section 6511 is amended by striking out "section 6501(n)(l)" and inserting in lieu thereof "section 6501(1)(1)". 26 USC 118 note. (c) EFFECTIVE DATE.—The amendments made by this section shall apply to expenditures with respect to which the second taxable year described in section 118(b)(2)(B) of the Internal Revenue Code of 1954 ends after December 31, 1984.

Subtitle L—Miscellaneous Provisions SEC. 171. INCLUSION OF TAX BENEFIT ITEMS IN INCOME. (a) IN GENERAL.—Section 111 (relating to recovery of bad debts, prior taxes, and delinquency amounts) is amended to read as follows: "SEC. 111. RECOVERY OF TAX BENEFIT ITEMS. "(a) DEDUCTIONS.—Gross income does not include income attributable to the recovery during the taxable year of any amount deducted in any prior taxable year to the extent such amount did not reduce income subject to tax.

26 USC 111.

"(b) CREDITS.— "(1) IN GENERAL.—If—•

•

"(A) a credit was allowable with respect to any amount for any prior tsixable year, and "(B) during the taxable year there is a downward price adjustment or similar adjustment, the tax imposed by this chapter for the taxable year shall be increased by the amount of the credit attributable to the adjustment. (2) EXCEPTION WHERE CREDIT DID NOT REDUCE TAX.—Para-

graph (1) shall not apply to the extent that the credit allowable for the recovered amount did not reduce the amount of tax imposed by this chapter. "(3) EXCEPTION FOR INVESTMENT TAX CREDIT AND FOREIGN TAX

CREDIT.—This subsection shall not apply with respect to the credit determined under section 46 and the foreign tax credit. "(c) TREATMENT OF CARRYOVERS.—For purposes of this section, an increase in a carryover which has not expired before the beginning of the taxable year in which the recovery or adjustment takes place shall be treated as reducing income subject to tax or reducing tax imposed by this chapter, as the case may be. "(d) SPECIAL RULES FOR ACCUMULATED EARNINGS TAX AND FOR PERSONAL HOLDING COMPANY TAX.—In applying subsection (a) for

the purpose of determining the accumulated earnings tax under section 531 or the tax under section 541 (relating to personal holding companies)—

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text:
Author:George Murray Humphry

Works

 * The anatomy of spina bifida, 1855
 * A treatise on the human skeleton (including the joints), 1858
 * On the coagulation of the blood in the venous system during life, 1859
 * The human foot and the human hand, 1861
 * Observations in myology, 1872
 * The Hunterian oration, 1879 65pp
 * Vivisection: what good has it done?, 1882
 * The collective investigation recor with F. A. Mahomed, 1884
 * Remarks on the repair of wounds and fractures in aged persons, 1884
 * Old age, 1889
 * Observations on the angle of the neck of the thigh-bone, 1889
 * Senile hypertrophy and senile atrophy of the skull, 1890
 * Macrodactyly, 1891

title: Author:George Murray Humphry


text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/747

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 699

"(1) any excluded amount under subsection (a) allowed for the purposes of this subtitle (other than section 531 or section 541) shall be allowed whether or not such amount resulted in a reduction of the tax under section 531 or the tax under section 541 for the prior taxable year; and "(2) where any excluded amount under subsection (a) was not allowable as a deduction for the prior taxable year for purposes of this subtitle other than of section 531 or section 541 but was allowable for the same taxable year under section 531 or section 541, then such excluded amount shall be allowable if it did not result in a reduction of the tax under section 531 or the tax under section 541." (b) CLERICAL AMENDMENT.—The table of sections for part III of subchapter B of chapter 1 (relating to items specifically excluded from gross income) is amended by striking out the item relating to section 111 and inserting in lieu thereof: "Sec. 111. Recovery of tax benefit items."

'•- (c) EFFECTIVE DATE.—The amendments made by this section shall apply to amounts recovered after December 31, 1983, in taxable years ending after such date.

26 USC ill note,

SEC. 172. LOANS WITH BELOW-MARKET INTEREST RATES.

(a) GENERAL RULE.—Subchapter C of chapter 80 (relating to provisions affecting more than 1 subtitle) is amended by adding at the end thereof the following new section: "SEC. 7872. TREATMENT OF LOANS WITH BELOW-MARKET INTEREST RATES. "(a) TREATMENT OF GIFT LOANS AND DEMAND LOANS.—

I-

"(1) IN GENERAL.—For purposes of this title, in the case of any below-market loan to which this section applies and which is a gift loan or a demand loan, the foregone interest shall be treated as— "(A) transferred from the lender to the borrower, and "(B) retransferred by the borrower co the lender as interest. "(2) TIME WHEN TRANSFERS MADE.—Except as otherwise provided in regulations prescribed by the Secretary, any foregone interest attributable to periods during any calendar year shall be treated as transferred (and retransferred) under paragraph (1) on the last day of such calendar year.

, "(b) TREATMENT OF OTHER BELOW-MARKET LOANS.—

"(1) IN GENERAL.—For purposes of this title, in the case of any below-market loan to which this section applies and to which subsection (a)(1) does not apply, the lender shall be treated as having transferred on the date the loan was made (or, if later, on the first day on which this section applies to such loan), and the borrower shall be treated as having received on such date, cash in an amount equal to the excess of— "(A) the amount loaned, over "(B) the present value of all payments which are required to be made under the terms of the loan. "(2)

OBLIGATION TREATED AS HAVING ORIGINAL ISSUE DIS-

COUNT.—For purposes of this title— "(A) IN GENERAL.—Any below-market loan to which paragraph (1) applies shall be treated as having original issue

26 USC 7872.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/748

 98 STAT. 700

PUBLIC LAW 98-369—JULY 18, 1984 discount in an amount equal to the excess described in paragraph (1). "(B) AMOUNT IN ADDITION TO OTHER ORIGINAL ISSUE DIS-

COUNT.—Any original issue discount which a loan is treated as having by reason of subparagraph (A) shall be in addition to any other original issue discount on such loan (determined without regard to subparagraph (A)). "(c) BELOW-MARKET LOANS TO WHICH SECTION APPLIES.—

"(1) IN GENERAL.—Except as otherwise provided in this subsection, this section shall apply to— "(A) GIFTS.—Any below-market loan which is a gift loan. "(B) COMPENSATION-RELATED LOANS.—Any below-market loan directly or indirectly between— "(i) an employer and an employee, or "(ii) an independent contractor and a person for whom such independent contractor provides services. "(C)

CORPORATION-SHAREHOLDER

LOANS.—Any

below-

market loan directly or indirectly between a corporation and any shareholder of such corporation. "(D) TAX AVOIDANCE LOANS.—Any below-market loan 1 of the principal purposes of the interest arrangements of which is the avoidance of any Federal tax. "(E) OTHER BELOW-MARKET LOANS.—To the extent provided in regulations, any below-market loan which is not described in subparagraph (A), (B), or (C) if the interest arrangements of such loan have a significant effect on any Federal tax liability of the lender or the borrower. "(2) $10,000 DE MINIMIS EXCEPTION FOR GIFT LOANS BETWEEN INDIVIDUALS.—

"(A) IN GENERAL.—In the case of any gift loan directly between individuals, this section shall not apply to any day on which the aggregate outstanding amount of loans between such individuals does not exceed $10,000. "(B) D E MINIMIS EXCEPTION NOT TO APPLY TO LOANS ATTRIBUTABLE TO ACQUISITION OF INCOME-PRODUCING ASSETS.—Subparagraph (A) shall not apply to any gift loan directly attributable to the purchase or carrying of income-producing assets. "(C) CROSS REFERENCE.— "For limitation on amount treated as interest where loans do not exceed $100,000, see subsection (d)(1). "(3) $ 1 0, 0 0 0 DE MINIMIS EXCEPTION FOR COMPENSATION-RELATED AND CORPORATE-SHAREHOLDER LOANS.—

"(A) IN GENERAL.—In the case of any loan described in subparagraph (B) or (C) of paragraph (1), this section shall not apply to any day on which the aggregate outstanding amount of loans between the borrower and lender does not exceed $10,000. "(B)

EXCEPTION NOT TO APPLY WHERE i OF PRINCIPAL

PURPOSES IS TAX AVOIDANCE.—Subparagraph (A) shall not apply to any loan the interest arrangements of which have as 1 of their principal purposes the avoidance of any Federal tax. "(d) SPECIAL RULES FOR GIFT LOANS.— "(1) LIMITATION ON INTEREST ACCRUAL FOR PURPOSES OF I N C O M E TAXES WHERE LOANS DO NOT EXCEED $100,000.—

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/749

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 701

"(A) IN GENERAL.—For purposes of subtitle A, in the case of a gift loan directly between individuals, the amount treated as retransferred by the borrower to the lender as of the close of any year shall not exceed the borrower's net investment income for such year. "(B)

-^'

LIMITATION NOT TO APPLY WHERE i OF PRINCIPAL

PURPOSES IS TAX AVOIDANCE.—Subparagraph (A) shall not apply to any loan the interest arrangements of which have as 1 of their principal purposes the avoidance of any Federal tax. "(C) SPECIAL RULE WHERE MORE THAN i GIFT LOAN OUT-

STANDING.—For purposes of subparagraph (A), in any case ^' in which a borrower has outstanding more than 1 gift loan, the net investment income of such borrower shall be allocated among such loans in proportion to the respective amounts which would be treated as retransferred by the borrower without regard to this paragraph. ,, ,j^ii^ "(D) LIMITATION NOT TO APPLY WHERE AGGREGATE AMOUNT t- * •! • OF LOANS EXCEED $100,000.—This paragraph shall not apply to any loan made by a lender to a borrower for any day on ' which the aggregate outstanding amount of loans between the borrower and lender exceeds $100,000. "(E) N E T INVESTMENT INCOME.—For purposes of this " paragraph— "(i) IN GENERAL.—The term 'net investment income' ,,^l has the meaning given such term by section 163(d)(3). -' " "(ii) D E MINIMIS RULE.—If the net investment income of any borrower for any year does not exceed $1,000, the net investment income of such borrower for such year shall be treated as zero. "(iii) ADDITIONAL AMOUNTS TREATED AS INTEREST.—In determining the net investment income of a person for any year, any amount which would be included in the gross income of such person for such year by reason of J' section 1272 if such section applied to all deferred Ante, p. 533. payment obligations shall be treated as interest reIJ/TJ > ^ ceived by such person for such year. "(iv) DEFERRED PAYMENT OBLIGATIONS.—The term 'deferred payment obligation' includes any market disu ^,i count bond, short-term obligation. United States sav. q, A ings bond, annuity, or similar obligation. sc, "(2) SPECIAL RULE FOR GIFT TAX.—In the case of any gift loan which is a term loan, subsection (b)(1) (and not subsection (a)) shall apply for purposes of chapter 12. 26 USC 2501 et "(e) DEFINITIONS OF BELOW-MARKET LOAN AND FOREGONE INTER-

EST.—For purposes of this section— "(1) BELOW-MARKET LOAN.—The term 'below-market loan' means any loan if— "(A) in the case of a demand loan, interest is payable on the loan at a rate less than the applicable Federal rate, or "(B) in the case of a term loan, the amount loaned exceeds the present value of all payments due under the loan. "(2) FOREGONE INTEREST.—The term 'foregone interest' means, with respect to any period during which the loan is outstanding, the excess of—

S^9-

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Page:United States Statutes at Large Volume 98 Part 1.djvu/750

 98 STAT. 702

PUBLIC LAW 98-369—JULY 18, 1984 "(A) the amount of interest which would have been payable on the loan for the period if interest accrued on the loan at the applicable Federal rate and were payable annually on the day referred to in subsection (a)(2), over "(B) any interest payable on the loan properly allocable to such period. "(f) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) PRESENT VALUE.—The present value of any payment shall be determined in the manner provided by regulations prescribed by the Secretary— "(A) as of the date of the loan, and "(B) by using a discount rate equal to the applicable Federal rate. "(2) APPLICABLE FEDERAL RATE.— "(A) TERM LOANS.—In the

Ante, p. 538.

case of any term loan, the applicable Federal rate shall be the applicable Federal rate in effect under section 1274(d) (as of the day on which the loan was made), compounded semiannually. "(B) DEMAND LOANS.—In the case of a demand loan, the applicable Federal rate shall be the Federal short-term rate in effect under section 1274(d) for the period for which the amount of foregone interest is being determined. "(3) GIFT LOAN.—The term 'gift loan' means any belowmarket loan where the foregoing of interest is in the nature of a gift. "(4) AMOUNT LOANED.—The term 'amount loaned' means the amount received by the borrower. "(5) DEMAND LOAN.—The term 'demand loan' means any loan which is payable in full at any time on the demand of the lender. Such term also includes (for purposes other than determining the applicable Federal rate under paragraph (2)) any loan which is not transferable and the benefits of the interest arrangements of which is conditioned on the future performance of substantial services by an individual. "(6) TERM LOAN.—The term 'term loan' means any loan which is not a demand loan. "(7) HUSBAND AND WIFE TREATED AS i PERSON.—A husband

and wife shall be treated as 1 person. "(8)

Ante, pp. 553, 538. 26 USC 3401 et «^9-

26 USC 2501 et seg.

LOANS TO WHICH SECTION 483

OR 1274

APPLIES.—This

section shall not apply to any loan to which section 483 or 1274 applies. "(9) No WITHHOLDING.—No amount shall be withheld under chapter 24 with respect to any amount treated as transferred or retransferred under subsection (a). "(10) SPECIAL RULE FOR TERM LOANS.—If this section applies to any term loan on any day, this section shall continue to apply to such loan notwithstanding paragraphs (2) and (3) of subsection (c). In the case of a gift loan, the preceding sentence shall only apply for purposes of chapter 12. "(g) REGULATIONS.—

"(1) IN GENERAL.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including— "(A) regulations providing that where, by reason of varying rates of interest, conditional interest payments, waivers of interest, disposition of the lender's or borrower's interest

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Page:United States Statutes at Large Volume 98 Part 1.djvu/751

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 703

in the loan, or other circumstances, the provisions of this section do not carry out the purposes of this section, adjust,, ments to the provisions of this section will be made to the extent necessary to carry out the purposes of this section, ^nj i<: "(B) regulations for the purpose of assuring that the positions of the borrower and lender are consistent as to the application (or nonapplication) of this section, and "(C) regulations exempting from the application of this section any class of transactions the interest arrangements of which have no significant effect on any Federal tax If • liability of the lender or the borrower. "(2) ESTATE TAX COORDINATION.—Under regulations prescribed by the Secretary, any loan which is made with donative '"' I intent and which is a term loan shall be taken into account for purposes of chapter 11 in a manner consistent with the provi- 26 USC 2001 et sions of subsection (b)." seq. (b) CLERICAL AMENDMENT.—The table of sections for subchapter C of chapter 80 is amended by adding at the end thereof the following new item: "Sec. 7872. Treatment of loans with below-market interest rates."

< (c) EFFECTIVE DATES.— (1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to— (A) term loans made after June 6, 1984, and (B) demand loans outstanding after June 6, 1984.

26 USC 7872 note. ^

(2) EXCEPTION FOR DEMAND LOANS OUTSTANDING ON JUNE 6, 1984, AND R E P A I D WITHIN 60 DAYS AFTER DATE OF ENACTMENT.—

The amendments made by this section shall not apply to any demand loan which— (A) was outstanding on June 6, 1984, and (B) was repaid before the date 60 days after the date of the enactment of this Act. ?

',. •^jau i'

(3) EXCEPTION FOR CERTAIN EXISTING LOANS TO CONTINUING

CARE FACILITIES.—Nothing in this subsection shall be construed to apply the amendments made by this section to any loan made before June 6, 1984, to a continuing care facility by a resident of such facility which is contingent on continued residence at such facility. (4) A P P U C A B L E FEDERAL RATE FOR PERIODS BEFORE JANUARY 1,

J

1985.—For periods before January 1, 1985, the applicable Federal rate under paragraph (2) of section 7872(f) of the Internal Revenue Code of 1954, as added by this section, shall be 10 Ante, p. 699. percent, compounded semiannually. (5) TREATMENT OF RENEGOTIATIONS, ETC.—For purposes of this subsection, any loan renegotiated, extended, or revised after June 6, 1984, shall be treated as a loan made after such date. (6) DEFINITION OF TERM AND DEMAND LOANS.—For purposes of

this subsection, the terms 'demand loan' and 'term loan' have the respective meanings given such terms by paragraphs (5) and (6) of section 7872(f) of the Internal Revenue Code of 1954, as added by this section, but the second sentence of such paragraph (5) shall not apply. SEC. 173. ELIGIBILITY FOR INCOME AVERAGING. (a) BASE PERIOD SHORTENED TO 3 YEARS.—Paragraph (2) of section 1302(c) (relating to definition of averagable income; related defini- 26 USC 1302.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/752

 98 STAT. 704

PUBLIC LAW 98-369—JULY 18, 1984 tions) is amended by striking out "4 taxable years" and inserting in lieu thereof "3 taxable years". (b) INCREASE IN PERCENTAGE OF AVERAGE BASE INCOME TAKEN

26 USC 1301.

INTO ACCOUNT.—Section 1301 (relating to limitation on tax) is amended by striking out "120 percent" and inserting in lieu thereof "140 percent". (c) TECHNICAL AND CONFORMING AMENDMENTS,—

26 USC 1302.

26 USC 1302 note.

(1) Section 1301 (relating to limitation on tax) is amended— (A) by striking out "5 times" and inserting in lieu thereof "4 times", and (B) by striking out "20 percent" and inserting in lieu thereof "25 percent". (2) Paragraph (1) of section 1302(a) (defining averagable income) is amended by striking out "120 percent" and inserting in lieu thereof "140 percent". (3) Paragraph (1) of section 1302(b) (defining average base period income) is amended by striking out "one-fourth" and inserting in lieu thereof "Va". (4) Paragraph (3) of section 1302(c) is amended by striking out "4 taxable years" and inserting in lieu thereof "3 taxable years". (d) EFFECTIVE DATE.—The amendments made by this section shall apply to computation years beginning after December 31, 1983, and to base period years applicable to such computation years. SEC. 174. AMENDMENTS TO SECTION 267. (a) ALLOWANCE OF DEDUCTION WHERE EXPENSES AND INTEREST ARE PAID TO RELATED CASH-BASIS TAXPAYERS AFTER 2y2-MoNTH PERIOD.—

26 USC 267.

(1) IN GENERAL.—Subsection (a) of section 267 (relating to losses, expenses, and interest with respect to transactions between related taxpayers) is amended to read as follows: "(a) IN GENERAL.— "(1) DEDUCTION FOR LOSSES DISALLOWED.—No deduction shall

be allowed in respect of any loss from the sale or exchange of property (other than a loss in case of a distribution in corporate liquidation), directly or indirectly, between persons specified in any of the paragraphs of subsection (b). "(2) MATCHING OF DEDUCTION AND PAYEE INCOME ITEM IN THE CASE OF EXPENSES AND INTEREST.—If—

"(A) by reason of the method of accounting of the person to whom the payment is to be made, the amount thereof is not (unless paid) includible in the gross income of such person, and "(B) at the close of the taxable year of the taxpayer for which (but for this paragraph) the amount would be deductible under this chapter, both the taxpayer and the person to whom the payment is to be made are persons specified in any of the paragraphs of subsection (b), then any deduction allowable under this chapter in respect of such amount shall be allowable as of the day as of which such amount is includible in the gross income of the person to whom the payment is made (or, if later, as of the day on which it would be so allowable but for this paragraph)." (2) CONFORMING AMENDMENT.—Subsection (e) of section 267

(relating to rule where last day of 2y2-month period falls on Sunday, etc.) is hereby repealed.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/753

 PUBLIC LAW 98-369—JULY 18, 1984 (b) EXTENSION OF SECTION 267 TO CERTAIN RELATED ENTRIES.— (1) PASS-THRU ENTITIES.—Section 267 is amended by striking

98 STAT. 705 26 USC 267.

out subsection (f) and inserting in lieu thereof the following: "(e) SPECIAL RULES FOR PASS-THRU ENTITIES.—

"(1) IN GENERAL.—In the case of any amount paid or incurred by, to, or on behalf of, a pass-thru entity, for purposes of applying subsection (a)(2)— "(A) such entity, "(B) in the case of— "(i) a partnership, any person who owns (directly or indirectly) any capital interest or profits interest of such partnership, or "(ii) an S corporation, any person who owns (directly or indirectly) any of the stock of such corporation, to ~ "(C) any person who owns (directly or indirectly) any capital interest or profits interest of a partnership in which such entity owns (directly or indirectly) any capital interest ' or profits interest, and "(D) any person related (within the meaning of subsection (b) of this section or section 707(b)(l)) to a person described in subparagraph (B) or (C), shall be treated as persons specified in a paragraph of subsection (b). Subparagraph (C) shall apply to a transaction only if such transaction is related either to the operations of the • partnership described in such subparagraph or to an interest in such partnership. "(2) PASS-THRU ENTITY.—For purposes of this section, the term 'pass-thru entity' means— "(A) a partnership, and "(B) an S corporation. "(3) CONSTRUCTIVE OWNERSHIP IN THE CASE OF PARTNERSHIPS.—

For purposes of determining ownership of a capital interest or profits interest of a partnership, the principles of subsection (c) shall apply, except that— (A) paragraph (3) of subsection (c) shall not apply, and "(B) interests owned (directly or indirectly) by or for a C corporation shall be considered as owned by or for any tos' shareholder only if such shareholder owns (directly or indirectly) 5 percent or more in value of the stock of such ^'^ corporation.

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"(4) SUBSECTION (a)(2) NOT TO APPLY TO CERTAIN GUARANTEED PAYMENTS OF PARTNERSHIPS.—In the case of any amount paid or

incurred by a partnership, subsection (a)(2) shall not apply to the extent that section 707(c) applies to such amount. "(5) EXCEPTION FOR CERTAIN EXPENSES A N D INTEREST OF PARTNERSHIPS OWNING LOW-INCOME HOUSING.—

"(A) IN GENERAL.—This subsection shall not apply with respect to qualified expenses and interest paid or incurred by a partnership owning low-income housing to— "(i) any qualified 5-percent or less partner of such partnership, or "(ii) any person related (within the meaning of subsection (b) of this section or section 7070t)Xl)) to any qualified 5-percent or less partner of such partnership. "(B) QUALIFIED 5-PERCENT OR LESS PARTNER.—For purposes of this paragraph, the term 'qualified 5-percerit or less partner' means any partner who has (directly or indirectly)

,

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Page:United States Statutes at Large Volume 98 Part 1.djvu/754

 98 STAT. 706

PUBLIC LAW 98-369—JULY 18, 1984 an interest of 5 percent or less in the aggregate capital and profits interests of the partnership but only if^ "(i) such partner owned the low-income housing at all times during the 2-year period ending on the date such housing was transferred to the partnership, or "(ii) such partnership acquired the low-income housing pursuant to a purchase, assignment, or other transfer from the Department of Housing and Urban Development or any State or local housing authority. For purposes of the preceding sentence, a partner shall be treated as holding any interest in the partnership which is held (directly or indirectly) by any person related (within the meaning of subsection (b) of this section or section 707(b)(1)) to such partner. "(C) QUALIFIED EXPENSES AND INTEREST.—For purpOSe of

this paragraph, the term 'qualified expenses and interest' means any expense or interest incurred by the partnership with respect to low-income housing held by the partnership but— "(i) only if the amount of such expense or interest (as the case may be) is unconditionally required to be paid by the partnership not later than 10 years after the date such amount was incurred, and "(ii) in the case of such interest, only if such interest is incurred at an annual rate not in excess of 12 percent. "(D) LOW-INCOME HOUSING.—For purposes of this paragraph, the term 'low-income housing' means— "(i) any interest in low-income housing (as defined in paragraph (5) of section 189(e)), and "(ii) any interest in a partnership owning low-income housing (as so defined)." (2) CERTAIN CONTROLLED GROUPS.—

26 USC 267.

(A) Paragraph (3) of section 267(b) is amended to read as follows: "(3) Two corporations which are members of the same controlled group (as defined in subsection (f));". (B) Section 267 is amended by adding at the end thereof the following new subsection: "(f) CONTROLLED GROUP DEFINED; SPECIAL RULES APPLICABLE TO CONTROLLED GROUPS.— "(1) CONTROLLED GROUP DEFINED.—For purposes of this sec-

tion, the term 'controlled group' has the meaning given to such term by section 1563(a), except that— (A) 'more than 50 percent' shall be substituted for 'at least 80 percent' each place it appears in section 1563(a), and "(B) the determination shall be made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. "(2) DEFERRAL (RATHER THAN DENIAL) OF LOSS FROM SALE OR EXCHANGE BETWEEN MEMBERS.—In the case of any loss from the

sale or exchange of property which is between members of the same controlled group and to which subsection (a)(1) applies (determined without regard to this paragraph but with regard to paragraph (3))— "(A) subsections (a)(1) and (d) shall not apply to such loss, but

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Page:United States Statutes at Large Volume 98 Part 1.djvu/755

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 707

"(B) such loss shall be deferred until the property is transferred outside such controlled group and there would be recognition of loss under consolidated return principles or until such other time as may be prescribed in regulations. "(3) Loss DEFERRAL RULES NOT TO APPLY IN CERTAIN CASES.— "(A) TRANSFER TO DISC.—For purposes of applying subsec-

"' ' •^ ^• " ^ -rtre.f; ^'^^ " '^

tion (a)(1), the term 'controlled group' shall not include a DISC. "(B) CERTAIN SALES OF INVENTORY.—Except to the extent provided in regulations prescribed by the Secretary, subsection (a)(1) shall not apply to the sale or exchange of property between members of the same controlled group if^ "(i) such property in the hands of the transferor is property described in section 1221(1), "(ii) such sale or exchange is in the ordinary course of the transferor's trade or business, "(iii) such property in the hands of the transferee is property described in section 1221(1), and "(iv) the transferee or the transferor is a foreign corporation. "(C) CERTAIN FOREIGN CURRENCY LOSSES.—To the extent provided in regulations, subsection (a)(1) shall not apply to any loss sustained by a member of a controlled group on the repayment of a loan made to another member of such group if such loan is payable in a foreign currency or is denominated in such a currency and such loss is attributable to a reduction in value of such foreign currency." (3) CORPORATION AND PARTNERSHIP OWNED BY SAME PERSONS.—

Paragraph (10) of section 2670t)) is amended— (A) by striking out "An S corporation" and inserting in lieu thereof "A corporation", and (B) by striking out "the S corporation" and inserting in lieu thereof "the corporation".

26 USC 267.

(4) S CORPORATION AND CORPORATION OWNED BY SAME PER-

SONS.—Paragraph (12) of section 2670?) is amending by striking out "the same individual" and inserting in lieu thereof "the same persons".

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V

(5)'TECHNICAL AMENDMENTS.—

(A) Paragraph (3) of section 170(a) is amended by striking 26 USC 170. out "section 267(b)" and inserting in lieu thereof "section 267(b) or 707(b)". (B) Clause (iii) of section 514(c)(9)(B) is amended by strik- Post, p. 1039. .«a ing out "section 2670t))" and inserting in lieu thereof "sec;; tion 267(b) or 707(b)". j^^,, (C) Subsection (d) of section 1235 is amended— 26 USC 1235. (i) by striking out "section 267(b)" in the matter preceding paragraph (1) and inserting in lieu thereof K-,;^ jr "section 267(b) or persons described in section 70703)", (ii) by striking out "section 267(b) and (c)" and ., inserting in lieu thereof "section 267(b) and (c) and section 707(b)", and (iii) by striking out "section 2670t))" in paragraph (1) and inserting in lieu thereof "section 267(b) or 7070t))". (D) Subparagraph (F) of section 368(a)(2) is amended by 26 USC 368. striking out clause (viii). (c) EFFECTIVE DATES.— 26 USC 267 note.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/756

 98 STAT. 708

26 USC 1 et seq.

PUBLIC LAW 98-369—JULY 18, 1984 (1) SUBSECTIONS (a) AND (b)(i).—The amendments made by subsections (a) and (b)(1) shall apply to amounts allowable as deductions under chapter 1 of the Internal Revenue Code of 1954 for taxable years beginning after December 31, 1983. For purposes of the preceding sentence, the allowability of a deduction shall be determined without regard to any disallowance or postponement of deductions under section 267 of such Code. (2) SUBSECTION (b) (OTHER THAN PARAGRAPH (D). —

(A) IN GENERAL.—Except as provided in subparagraph (B), the amendments made by subsection (b) (other than paragraph (1) thereof) shall apply to transactions after December 31, 1983, in taxable years ending after such date. (B) EXCEPTION FOR TRANSFERS TO FOREIGN CORPORATIONS

ON OR BEFORE MARCH 1, 1984.—The amendments made by subsection (b)(2) shall not apply to property transferred to a foreign corporation on or before March 1, 1984. (3) EXCEPTION FOR EXISTING INDEBTEDNESS, ETC.—

(A) IN GENERAL.—The amendments made by this section shall not apply to any amount paid or incurred— (i) on indebtedness incurred on or before September 29, 1983, or (ii) pursuant to a contract which was binding on September 29, 1983, and at all times thereafter before the amount is paid or incurred. (B) TREATMENT OF RENEGOTIATIONS, EXTENSIONS, ETC.—If

any indebtedness (or contract described in subparagraph (A)) is renegotiated, extended, renewed, or revised after September 29, 1983, subparagraph (A) shall not apply to any amount paid or incurred on such indebtedness (oi pursuant to such contract) after the date of such renegoti ation, extension, renewal, or revision. SEC. 175. AMENDMENTS TO SECTION 1239. (a) PATENT APPLICATIONS TREATED AS DEPRECIABLE PROPERTY.—

Post, p. 898.

Section 1239 (relating to gain from sale of depreciable property between certain related taxpayers) is amended by adding at the end thereof the following new subsection: "(e) PATENT APPLICATIONS TREATED AS DEPRECIABLE PROPERTY.—

For purposes of this section, a patent application shall be treated as property which, in the hands of the transferee, is of a character which is subject to the allowance for depreciation provided in section 167." (b) TAXPAYER AND CERTAIN TRUSTS TREATED AS RELATED PER-

26 USC 1239 note.

SONS.—Subsection (b) of section 1239 is amended to read as follows: "(b) RELATED PERSONS.—For purposes of subsection (a), the term 'related persons' means— "(1) a husband and wife, "(2) a person and all entities which are 80-percent owned entities with respect to such person, "(3) a taxpayer and any trust in which such taxpayer (or his spouse) is a beneficiary, unless such beneficiary's interest in the trust is a remote contingent interest (within the meaning of section 318(a)(3)(B)(i))." (c) EFFECTIVE DATE.—The amendments made by this section shall apply to sales or exchanges after March 1, 1984, in taxable years ending after such date.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/757

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 709

SEC. 176. RECAPTURE OF NET ORDINARY LOSSES UNDER SECTION 1231. (a) GENERAL RULE.—Section 1231 (relating to property used in the 26 USC 1231.

trade or business and involuntary conversions) is amended by adding at the end thereof the following new subsection: "(c) RECAPTURE OF NET ORDINARY LOSSES.—

-

"(1) IN GENERAL.—The net section 1231 gain for any taxable year shall be treated as ordinary income to the extent such gain does not exceed the non-recaptured net section 1231 losses. "(2) NON-RECAPTURED NET SECTION 1231 LOSSES.—For purpOSes

• 3i

of this subsection, the term 'non-recaptured net section 1231 losses' means the excess of— "(A) the aggregate amount of the net section 1231 losses for the 5 most recent preceding taxable years beginning after December 31, 1981, over "(B) the portion of such losses t a k e n into account under

paragraph (1) for such preceding taxable years. ' "(3) NET SECTION 1231 GAIN.—For purposes of this subsection, t the term 'net section 1231 gain' means the excess of— "(A) the section 1231 gains, over J^ • < "(B) the section 1231 losses. "(4) NET SECTION 1231 LOSS.—For purposes of this subsection, the term 'net section 1231 loss' means the excess of^ "(A) the section 1231 losses, over "(B) the section 1231 gains. "(5) SPECIAL RULES.—For purposes of determining the amount 1 of the net section 1231 gain or loss for any taxable year, the Post, p. 944. • rules of paragraph (4) of subsection (a) shall apply." (b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 USC I23i shall apply to net section 1231 gains for taxable years beginning note. after December 31, 1984. SEC. 177. REPEAL OF EXEMPTION FROM FEDERAL TAX OF THE FEDERAL HOME LOAN MORTGAGE CORPORATION.

(a) REPEAL OF EXEMPTION.—Subsection (d) of section 303 of the

Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1452(d)) is amended— (1) by striking out "by the United States,", (2) by striking out "possession thereof," and inserting in lieu thereof "possession of the United States", and (3) by striking out the last sentence.

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(b) TREATMENT OF DIVIDENDS PAID BY FEDERAL HOME LOAN BANK WHICH ARE ALLOCABLE TO DIVIDENDS FROM THE FEDERAL HOME LOAN MORTGAGE CORPORATION.—Subsection (a) of section 246 (relat-

26 USC 246.

ing to denial of dividends received deduction for dividends from certain corporations) is amended to read as follows: "(a) DEDUCTION NOT ALLOWED FOR DIVIDENDS FROM CERTAIN CORPORATIONS.—

"(1) IN GENERAL.—The deductions allowed by sections 243, 244, and 245 shall not apply to any dividend from a corporation which, for the taxable year of the corporation in which the distribution is made, or for the next preceding taxable year of the corporation, is a corporation exempt from tax under section 501 (relating to certain charitable, etc., organizations) or section 521 (relating to farmers' cooperative associations). "(2) SUBSECTION NOT TO APPLY TO CERTAIN DIVIDENDS OF FEDERAL HOME LOAN BANKS.—

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Page:United States Statutes at Large Volume 98 Part 1.djvu/758

 98 STAT. 710

PUBLIC LAW 98-369—JULY 18, 1984 "(A) DIVIDENDS OUT OF CURRENT EARNINGS AND PROFITS,—

In the case of any dividend paid by any FHLB out of earnings and profits of the FHLB for the taxable year in which such dividend was paid, paragraph (1) shall not apply to that portion of such dividend which bears the same ratio to the total dividend as— "(i) the dividends received by the FHLB from the FHLMC during such taxable year, bears to "(ii) the total earnings and profits of the FHLB for such taxable year. "(B) DIVIDENDS OUT OF ACCUMULATED EARNINGS AND PROF-

ITS.—For purposes of subparagraph (A), in the case of any dividend which is paid out of any accumulated earnings and profits of any FHLB, paragraph (1) shall not apply to that portion of the dividend which bears the same ratio to the total dividend as— "(i) the amount of dividends received by such FHLB from the FHLMC which are out of earnings and profits of the FHLMC— "(I) for taxable years ending after December 31, 1984, and "(II) which were not taken into account under subparagraph (A), bears to "(ii) the total accumulated earnings and profits of the FHLB as of the time such dividend is paid. For purposes of clause (ii), the accumulated earnings and profits of the FHLB as of January 1, 1985, shall be treated as equal to its retained earnings as of such date. "(C) DEFINITIONS.—For purposes of this paragraph— "(i) FHLB.—The term 'FHLB' means any Federal Home Loan Bank. "(ii) FHLMC—The term 'FHLMC means the Federal Home Loan Mortgage Corporation. "(iii) TAXABLE YEAR OF FHLB.—The taxable year of an FHLB shall, except as provided in regulations prescribed by the Secretary, be treated as the calendar year." (c) TREATMENT OF NET OPERATING LOSSES OF THE FEDERAL HOME LOAN MORTGAGE CORPORATION.—

26 USC 172.

(1) IN GENERAL.—Subparagraph (H) of section 172(b)(1) (relating to years to which net operating losses may be carried) is amended— (A) by inserting ", or a net operating loss of the Federal Home Loan Mortgage Corporation for any taxable year beginning after December 31, 1984" after "1981", (B) by striking out "the FNMA mortgage disposition loss (within the meaning of subsection (i))" in clause (i) and inserting in lieu thereof "the mortgage disposition loss (within the meaning of subsection (i))", and (C) by striking out "FNMA mortgage disposition loss" in clause (ii) and inserting in lieu thereof "mortgage disposition loss". (2) CONFORMING AMENDMENT.—Subsection (i) of section 172 is

amended— (A) by striking out "FNMA mortgage disposition loss" each place it appears in paragraphs (1) and (2) (including in

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Page:United States Statutes at Large Volume 98 Part 1.djvu/759

 ^PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 711

headings) and inserting in lieu thereof "mortgage disposition loss", and (B) by striking out "FNMA MORTGAGE DISPOSITION Loss" in the subsection heading and inserting in lieu thereof •

"MORTGAGE DISPOSITION LOSS OF THE FEDERAL NATIONAL MORTGAGE ASSOCIATION OR THE FEDERAL HOME LOAN MORTGAGE CORPORATION". (d) EFFECTIVE DATES.—

26 USC 172 note.

(1) IN GENERAL.—The amendments made by this section shall take effect on January 1, 1985. (2) ADJUSTED BASIS OF ASSETS.—

, ^- ' ri-"

(A) IN GENERAL.—Except as otherwise provided in subparagraph (B), the adjusted basis of any asset of the Federal Home Loan Mortgage Corporation held on January 1, 1985, shall— (i) for purposes of determining any loss, be equal to the lesser of the adjusted basis of such asset or the fair market value of such asset as of such date, and (ii) for purposes of determining any gain, be equal to the higher of the adjusted basis of such asset or the fair market value of such asset as of such date.

'^-'^ ^ ^ ' " <

(B) SPECIAL RULE FOR TANGIBLE DEPRECIABLE PROPERTY.—

In the case of any tangible property which— ^' -* • > (i) is of a character subject to the allowance for B' depreciation provided by section 167 of the Internal Revenue Code of 1954, and (ii) is held by the Federal Home Loan Mortgage !iu f: * Corporation on January 1, 1985, the adjusted basis of such property shall be equal to the I lesser of the basis of such property or the fair market value of such property as of such date. diiw (3) TREATMENT OF PARTICIPATION CERTIFICATES.— (A) IN GENERAL.—Paragraph (2) shall not apply to any right to receive income with respect to any mortgage pool participation certificate or other similar interest in any mortgage (not including any mortgage).

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(B) TREATMENT OF CERTAIN SALES AFTER MARCH 15, 1984, AND BEFORE JANUARY 1, 1985.—If any gain is realized on the

f—

sale or exchange of any right described in subparagraph (A) after March 15, 1984, and before January 1, 1985, the gain shall not be recognized when realized but shall be recognized on January 1, 1985. (4) N O ACCUMULATED EARNINGS AND PROFITS ON JANUARY i,

1985.—For purposes of the Internal Revenue Code of 1954, the 26 USC i et seq. accumulated profits of the Federal Home Loan Mortgage Corporation as of January 1, 1985, shall be treated as zero. (5) ADJUSTED BASIS.—For purposes of this subsection, the adjusted basis of any asset shall be determined under part II of subchapter O of the Internal Revenue Code of 1954. , » >^ j,« (6) No CARRYBACKS FOR YEARS BEFORE 1985.—No net Operating loss, capital loss, or excess credit of the Federal Home Loan Mortgage Corporation for any taxable year beginning after December 31, 1984, shall be allowed as a carryback to any taxable year beginning before January 1, 1985. (7) N o DEDUCTION ALLOWED FOR INTEREST ON REPLACEMENT OBLIGATIONS.—

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Page:United States Statutes at Large Volume 98 Part 1.djvu/760

 98 STAT. 712

PUBLIC LAW 98-369—JULY 18, 1984 (A) IN GENERAL.—The Federal Home Loan Mortgage Corporation shall not be allowed any deduction for interest accruing after December 31, 1984, on any replacement obligation. (B) REPLACEMENT OBLIGATION DEFINED.—For purposes of

subparagraph (A), the term "replacement obligation" means any obligation to any person created after March 15, 1984, which the Secretary of the Treasury or his delegate determines replaces any equity or debt interest of a Federal Home Loan Bank or any other person in the Federal Home Loan Mortgage Corporation existing on such date. The preceding sentence shall not apply to any obligation with respect to which the Federal Home Loan Mortgage Corporation establishes that there is no tax avoidance effect.

26 USC 631.

26 USC 631 note.

SEC. 178. SPECIAL RULE RELATING TO SALES OR EXCHANGES OF CERTAIN ECONOMIC INTERESTS IN COAL BETWEEN RELATED PARTIES. (a) IN GENERAL.—The last sentence of section 631(c) (relating to disposal of coal or domestic iron ore with a retained economic interest) is amended by inserting "or coal" after "iron ore" each place it appears. (b) EFFECTIVE D A T E S. —

(1) IN GENERAL.—Except as provided in paragraph (2), the amendment made by subsection (a) shall apply to dispositions after September 30, 1985. (2) SPECIAL RULE FOR FIXED CONTRACTS.—

(A) IN GENERAL.—The amendment made by subsection (a) shall not apply to any disposition of an interest in coal by a person to a related person if such coal is subsequently sold before January 1, 1990, by either such person— (i) to a person who is not a related person with respect to either such person, and (ii) pursuant to a qusdified fixed contract. (B) ALLOCATION WHERE MORE THAN i CONTRACT.—If, for

26 USC 1 et seq.

any taxable year, there is a disposition described in subparagraph (A) which is not specifically allocable to a qualified fixed contract or to a contract which is not a qualified fixed contract, such disposition shall be treated as first allocable to the qualified fixed contract. (C) QuAUFiED FIXED CONTRACT DEFINED.—The term "qualified fixed contract" means any contract for the sale of coal which— (i) was entered into before June 12, 1984, (ii) is binding at all times thereafter, and (iii) cannot be adjusted to reflect to any extent the increase in liabilities of the person disposing of the coal for tax under chapter 1 of the Internal Revenue Code of 1954 by reason of the amendment made by subsection (a). (D) RELATED PERSON.—For purposes of this paragraph, the term "related person" means a person who bears a relationship to another person described in the last sentence of section 631(c).

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Page:United States Statutes at Large Volume 98 Part 1.djvu/761

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 713

SEC. 179. LIMITATION ON AMOUNT OF DEPRECIATION AND INVESTMENT TAX CREDIT FOR LUXURY AUTOMOBILES; LIMITATION WHERE CERTAIN PROPERTY USED FOR PERSONAL PURPOSES. (a) IN GENERAL.—Part IX of subchapter B of chapter 1 (relating to items not deductible) is amended by adding after section 280E the following new section: "SEC. 280F. LIMITATION ON INVESTMENT TAX CREDIT AND DEPRECIA- 26 USC 280F. TION FOR LUXURY AUTOMOBILES; LIMITATION WHERE CERTAIN PROPERTY USED FOR PERSONAL PURPOSES. "(a) LIMITATION ON AMOUNT OF INVESTMENT TAX CREDIT AND DEPRECIATION FOR LUXURY AUTOMOBILES.—

"(1) INVESTMENT TAX CREDIT.—The amount of the credit determined under section 46(a) for any passenger automobile shall Post, p. 834. not exceed $1,000. "(2) DEPRECIATION.—

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"(A) LIMITATION.—The amount of the recovery deduction for any taxable year for any passenger automobile shall not exceed— "(i) $4,000 for the first taxable year in the recovery period, and "(ii) $6,000 for each succeeding taxable year in the recovery period.

r

"(B) DISALLOWED DEDUCTIONS ALLOWED FOR YEARS AFTER RECOVERY PERIOD.—

f

"(i) IN GENERAL.—Except as provided in clause (ii), the unrecovered basis of any passenger automobile shall be treated as an expense for the 1st taxable year after the recovery period. Any excess of the unrecovered basis over the limitation of clause (ii) shall be treated as an expense in the succeeding taxable year. "(ii) $6,000 LIMITATION.—The amount treated as an expense under clause (i) for any taxable year shall not exceed $6,000. "(iii) PROPERTY MUST BE DEPRECIABLE.—No amount shall be allowable as a deduction by reason of this subparagraph with respect to any property for any taxable year unless a depreciation deduction would be allowable with respect to such property for such taxable year.

V •

"(iv) AMOUNT TREATED AS RECOVERY DEDUCTION.—For

(

purposes of this subtitle, any amount allowable as a deduction by reason of this subparagraph shall be treated as a recovery deduction allowable under section 168. "(3) COORDINATION WITH REDUCTIONS IN AMOUNT ALLOWABLE

BY REASON OF PERSONAL USE, ETC.—This subsection shall be applied before— "(A) the application of subsection (b), and "(B) the application of any other reduction in the amount of the credit determined under section 46(a) or any recovery deduction allowable under section 168 by reason of any use not qualifying the property for such credit or recovery deduction. "(4) SPECIAL RULE WHERE ELECTION OF REDUCED CREDIT IN UEU

OF THE BASIS ADJUSTMENT.—In the case of any election under section 48(q)(4) with respect to any passenger automobile, the

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Page:United States Statutes at Large Volume 98 Part 1.djvu/762

 98 STAT. 714

PUBLIC LAW 98-369—JULY 18, 1984 limitation of paragraph (1) applicable to such passenger automobile shall be % of the amount which would be so applicable but for this paragraph. "(b) LIMITATION WHERE BUSINESS USE OF LISTED PROPERTY NOT GREATER THAN 50 PERCENT.— "(1) INVESTMENT TAX CREDIT.—For purposes of this subtitle,

Post, p. 827.

any listed property shall not be treated as section 38 property for any taxable year unless such property is predominantly used in a qualified business use for such taxable year. "(2) DEPRECIATION.—If any listed property is not predominantly used in a qualified business use for any taxable year, the deduction allowed under section 168 with respect to such property for such taxable year and any subsequent taxable year shall be determined under the straight line method over the earnings and profits life for such property. "(3) RECAPTURE.— "(A) WHERE BUSINESS USE PERCENTAGE DOES NOT EXCEED 50 PERCENT.—If—

"(i) property is predominantly used in a qualified business use in a taxable year in which it is placed in service, and "(ii) such property is not predominantly used in a qualified business use for any subsequent taxable year, then any excess depreciation shall be included in gross income for the taxable year referred to in clause (ii), and the recovery deduction for the taxable year referred to in clause (ii) and any subsequent taxable years shall be determined under the straight line method over the earnings and profits life. "(B) EXCESS DEPRECIATION.—For purposes of subpara-

graph (A), the term 'excess depreciation means the excess (if any) of— "(i) the amount of the recovery deductions allowable with respect to the property for taxable years before the 1st taxable year in which the property was not predominantly used in a qualified business use, over "(ii) the amount which would have been so allowable if the property had not been predominantly used in a qualified business use for the taxable year in which it was placed in service. "(4) DEFINITIONS.—For purposes of this subsection— "(A) PROPERTY PREDOMINANTLY USED IN QUALIFIED BUSINESS USE.—Property shall be treated as predominantly used

in a qualified business use for any taxable year if the business use percentage for such taxable year exceeds 50 percent. "(B) STRAIGHT LINE METHOD OVER EARNINGS AND PROFITS

LIFE.—The amount determined under the straight line method over the earnings and profits life with respect to any property shall be the amount which would be determined with respect to such property under the principles of section 312(k)(3). If the recovery period applicable to any property under section 168 is longer than the recovery period applicable to such property under section 312(k)(3), such longer recovery period shall be used for purposes of the preceding sentence. "(c) TREATMENT OF LEASES.—

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Page:United States Statutes at Large Volume 98 Part 1.djvu/763

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 715

"(1) LESSOR'S CREDITS AND DEDUCTIONS NOT AFFECTED.—This

section shall not apply to any listed property leased or held for leasing by any person regularly engaged in the business of leasing such property. "(2) LESSEE'S DEDUCTIONS REDUCED.—For purposes of determining the amount allowable as a deduction under this chapter for rentals or other payments under a lease for a period of 30 days or more of listed property, only the allowable percentage of such payments shall be taken into account. "(3) ALLOWABLE PERCENTAGE.—For purposes of paragraph (2), the allowable percentage shall be determined under tables prescribed by the Secretary. Such tables shall be prescribed so that the reduction in the deduction under paragraph (2) is substantially equivalent to the applicable restrictions contained in subsections (a) and (b). "(4) LEASE TERM.—In determining the term of any lease for purposes of paragraph (2), the rules of section 168(j)(6)(B) shall Ante, p. 509. apply. "(5) LESSEE RECAPTURE.—Under regulations prescribed by the Secretary, rules similar to the rules of subsection (b)(3) shall apply to any lessee to which paragraph (2) applies. "(d) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) COORDINATION WITH SECTION 179.—Any deduction allowable under section 179 with respect to any listed property shall be subject to the limitations of subsections (a) and (b) in the same manner as if it were a recovery deduction allowable under section 168. "(2) SUBSEQUENT DEPRECIATION DEDUCTIONS REDUCED FOR DEDUCTIONS ALLOCABLE TO PERSONAL USE.—Solely for purposes of

determining the amount of the recovery deduction for subsequent taxable years, if less than 100 percent of the use of any listed property during any taxable year is not use described in section 168(c)(1) (defining recovery property), all of the use of such property during such taxable year shall be treated as use so described. "(3) DEDUCTIONS OF EMPLOYEE.—

"o r i J

"(A) IN GENERAL.—Any employee use of listed property shall not be treated as use in a trade or business for purposes of determining the amount of any credit allowable under section 38 to the employee or the amount of any recovery deduction allowable to the employee unless such use is for the convenience of the employer and required as a condition of employment. "(B) EMPLOYEE USE.—For purposes of subparagraph (A), the term 'employee use' means any use in connection with the performance of services as an employee.

Post, p. 827.

"(4) LISTED PROPERTY.—

"(A) IN GENERAL.—Except as provided in subparagraph -^ Ok i (B), the term 'listed property' means— y»« "(i) any passenger automobile, "(ii) any other property used as a means of transportation, "(iii) any property of a type generally used for purposes of entertainment, recreation, or amusement, "(iv) any computer or peripheral equipment (as defined in section 168(j)(5)(D)), and Ante, p. 509.

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/764

 98 STAT. 716

PUBLIC LAW 98-369—JULY 18, 1984 "(v) any other property of a type specified by the Secretary by regulations. "(B) ExciSPTiON FOR CERTAIN COMPUTERS.—The term 'listed property' shall not include any computer or peripheral equipment (as so defined) used exclusively at a regular business establishment. For purposes of the preceding sentence, any portion of a dwelling unit shall be treated as a regular business establishment if (and only if) the requirements of section 280A(c)(l) are met with respect to such portion. "(5) PASSENGER AUTOMOBILE.—

"(A) IN GENERAL.—Except as provided in subparagraph (B), the term 'passenger automobile' means any 4-wheeled vehicle— "(i) which is manufactured primarily for use on public streets, roads, and highways, and "(ii) which is rated at 6,000 pounds gross vehicle weight or less. "(B) EXCEPTION FOR CERTAIN VEHICLES.—The term 'passenger automobile' shall not include— "(i) any ambulance, hearse, or combination ambulance-hearse used by the taxpayer directly in a trade or business, "(ii) any vehicle used by the taxpayer directly in the trade or business of transporting persons or property for compensation or hire, and "(iii) under regulations, any truck or van. "(6) BUSINESS USE PERCENTAGE.—

"(A) IN GENERAL.—The term 'business use percentage' means the percentage of the use of any listed property during any taxable year which is a qualified business use. "(B) QuAUFiED BUSINESS USE.—Exccpt as provided in subparagraph (C), the term 'qualified business use' means anyuse in a trade or business of the taxpayer. "(C) EXCEPTION FOR CERTAIN USE BY 5-PERCENT OWNERS AND RELATED PERSONS.—

26 USC 3401 et seq.

.evS:,i si'

"(i) IN GENERAL.—The term 'qualified business use' shall not include— "(I) leasing property to any 5-percent owner or related person, "(II) use of property provided as compensation for the performance of services by a 5-percent owner or related person, or "(III) use of property provided as compensation for the performance of services by any person not described in subclause (II) unless an amount is included in the gross income of such person with respect to such use, and, where required, there was withholding under chapter 24. "(ii) SPECIAL RULE FOR AIRCRAFT.—Clause (i) shall not apply with respect to any aircraft if at least 25 percent of the total use of the aircraft during the taxable year consists of qualified business use not described in claused). "(D) DEFINITIONS.—For purposes of this paragraph— "(i) 5-PERCENT OWNER.—The term '5-percent owner' means any person who is a 5-percent owner with re-

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/765

 PUBLIC LAW 98-369—JULY 18, 1984 -'

-

98 STAT. 717

spect to the taxpayer (as defined in section 416(i)(l)(B)(i)). "(ii) RELATED PERSON.—The term 'related person' means any person related to the taxpayer (within the meaning of section 267(b)). "(7) AUTOMOBILE PRICE INFLATION ADJUSTMENT,—

"(A) IN GENERAL.—In the case of any passenger automobile, subsection (a) shall be applied by increasing each dollar amount contained in such subsection by the automobile price inflation adjustment for the calendar year in which such automobile is placed in service. Any increase under the preceding sentence shall be rounded to the nearest multiple of $100 (or if the increase is a multiple of $50, such increase shall be increased to the next higher multiple of $100). "(B) AUTOMOBILE PRICE INFLATION ADJUSTMENT.—For pur-

•> '

poses of this paragraph— "(i) IN GENERAL.—The automobile price inflation adjustment for any calendar year is the percentage (if any) by which— "(I) the CPI automobile component for October of the preceding calendar year, exceeds "(II) the CPI automobile component for October of 1983. In the case of calendar year 1984, the automobile price ^ inflation adjustment shall be zero. '^' "(ii) CPI AUTOMOBILE COMPONENT.—The term 'CPI automobile component' means the automobile component of the Consumer Price Index for All Urban Con**'-^ sumers published by the Department of Labor. "(8) UNRECOVERED BASIS.—For purposes of subsection (a)(2), the term 'unrecovered basis' means the excess (if any) of— "(A) the unadjusted basis (as defined in section 168(d)(1)(A)) of the passenger automobile, over "(B) the amount of the recovery deductions which would have been allowable for taxable years in the recovery period determined after the application of subsection (a) and as if all use during the recovery period were use described in section 168(c)(1). "(9) ALL TAXPAYERS HOLDING INTERESTS IN PASSENGER AUTOMO-

BILE TREATED AS 1 TAXPAYER.—All taxpayers holding interests in any passenger automobile shall be treated as 1 taxpayer for purposes of applying subsection (a) to such automobile, and the limitations of subsection (a) shall be allocated among such taxpayers in proportion to their interests in such automobile, "(10) SPECIAL RULE FOR PROPERTY ACQUIRED IN NONRECOGNI-

TION TRANSACTIONS.—For purposes of subsection (a)(2), notwithstanding any regulations prescribed under section 168(f)(7), any property acquired in a nonrecognition transaction shall be treated as a single property originally placed in service in the taxable year in which it was placed in service after being so acquired. "(e) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations with respect to items properly included in, or excluded from, the adjusted basis of any listed property."

''

-'^

-' -

'HS.

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/766

 98 STAT. 718 26 USC 274.

PUBLIC LAW 98-369—JULY 18, 1984 (b) COMPLIANCE PROVISIONS.— (1) AMENDMENT OF SECTION

274 (d).—Subsection (d) of section 274 (relating to substantiation requirements) is amended— (A) by striking out "No deduction" and inserting in lieu thereof "No deduction or credit", (B) by striking out "or" at the end of paragraph (2), by inserting "or" at the end of paragraph (3), and by inserting after paragraph (3) the following new paragraph: "(4) with respect to any listed property (as defined in section 280F(d)(4)),", (C) by striking out "adequate records or by sufficient evidence corroborating his own statement" and inserting in lieu thereof "adequate contemporaneous records", and (D) by striking out "the facility" each place it appears following paragraph (4) (as added by subparagraph (B)) and inserting in lieu thereof "the facility or property. (2) DUTIES OF RETURN PREPARERS.—Subsection (b) of section

26 USC 6695.

6695 (relating to failure to sign return) is amended to read as follows: "(b) FAILURE TO INFORM TAXPAYER OF CERTAIN RECORDKEEPING REQUIREMENTS OR TO SIGN RETURN.—Any person who is an income

tax return preparer with respect to any return or claim for refund and who is required by regulations to sign such return or claim— "(1) shall advise the taxpayer of the substantiation requirements of section 274(d) and obtain written confirmation from the taxpayer that such requirements were met with respect to any deduction or credit claimed on such return or claim for refund, and "(2) shall sign such return or claim for refund. Any person who fails to comply with the requirements of the preceding sentence with respect to any return or claim shall pay a penalty of $25 for such failure, unless it is shown that such failure is due to reasonable cause and not to willful neglect." (3) UNDERPAYMENT ATTRIBUTABLE TO FAILURE TO MEET SUBSTANTIATION REQUIREMENTS TREATED AS DUE TO NEGLIGENCE.—

26 USC 6653.

Section 6653 (relating to failure to pay tax) is amended by adding at the end thereof the following new subsection: "(h) SPECIAL RULE IN THE CASE OF UNDERPAYMENT ATTRIBUTABLE TO FAILURE TO MEET CERTAIN SUBSTANTIATION REQUIREMENTS.—

"(1) IN GENERAL.—Any portion of an underpayment attributable to a failure to comply with the requirements of section 274(d) shall be treated, for purposes of subsection (a), as due to negligence in the absence of clear and convincing evidence to the contrary. "(2) PENALTY TO APPLY ONLY TO PORTION OF UNDERPAYMENT DUE TO F A I L U R E TO MEET SUBSTANTIATION REQUIREMENTS.—If any

penalty is imposed under subsection (a) by reason of paragraph (1), the amount of the penalty imposed by paragraph (1) of subsection (a) shall be 5 percent of the portion of the underpayment which is attributable to the failure described in paragraph (1)." (c) CLERICAL AMENDMENT.—The table of sections for part IX of subchapter B of chapter 1 is amended by adding after the item relating to section 280E the following new item: "Sec. 280F. Limitation on investment tax credit and depreciation for luxury automobiles; limitation where certain property used for personal purposes."

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/767

 PUBLIC LAW 98-369—JULY 18, 1984 (d) EFFECTIVE DATES.— (1) IN GENERAL.—

98 STAT. 719 26 USC 280F note.

(A) Except as provided in subparagraph (B), the amendments made by subsections (a) and (c) shall apply to— (i) property placed in service after June 18, 1984, in taxable years ending after such date, and (ii) property leased after June 18, 1984, in taxable years ending after such date. (B) The amendments made by subsections (a) and (c) shall not apply to any property— (i) acquired by the taxpayer pursuant to a binding '4 ^ contract in effect on June 18, 1984, and at all times thereafter (or under construction on such date) but only if the property is placed in service before January 1, 1985 (January 1, 1987, in the case of 15-year real property), or (ii) of which the taxpayer is the lessee but only if the lease is pursuant to a binding contract in effect on June 18, 1984, and at all times thereafter and only if the taxpayer first uses such property under the lease before January 1, 1985 (January 1, 1987, in the case of 15-year real property). For purposes of the preceding sentence, the term "15-year real property" includes 18-year real property. (2) CoMPUANCE PROVISIONS.—The amendments made by subsection (b) shall apply to taxable years beginning after December 31, 1984.

> • >SIJ 'fH

TITLE II—LIFE INSURANCE PROVISIONS SEC. 201. TABLE OF SECTIONS FOR PART I OF SUBCHAPTER L.

Under the amendment to part I of subchapter L made by section 211(a), the subparts and sections of such part I will be as follows: PART I—LIFE INSURANCE COMPANIES SUBPART A—TAX IMPOSED

Sec. 801. Tax imposed. SUBPART B — L I F E INSURANCE GROSS INCOME

Sec. 803. Life insurance gross income. SUBPART C — L I F E INSURANCE DEDUCTIONS

Sec. Sec. Sec. Sec. Sec. Sec. Sec.

804. 805. 806. 807. 808. 809. 810.

Life insurance deductions. General deductions. Special deductions. Rules for certain reserves. Policyholder dividends deduction. Reduction in certain deductions of mutual life insurance companies. Operations loss deduction.

Sec. Sec. Sec. Sec. Sec.

811. 812. 813. 814. 815.

Accounting provisions. Definition of company's share and policyholders' share. Foreign life insurance companies. Contiguous country branches of domestic life insurance companies. Distributions to shareholders from pre-1984 policyholders surplus account.

SUBPART D—ACCOUNTING, ALLOCATION, AND FOREIGN PROVISIONS

,... .;--•.-'•

SUBPART E—DEFINITIONS AND SPECIAL RULES

Sec. 816. Life insurance company defined.

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/768

 98 STAT. 720

PUBLIC LAW 98-369—JULY 18, 1984 Sec. 817. Treatment of variable contracts. Sec. 818. Other definitions and special rules.

" -8

Subtitle A—Taxation of Life Insurance Companies PART I—AMENDMENT OF SUBCHAPTER L SEC. 211. AMENDMENT OF SUBCHAPTER L.

(a) GENERAL RULE.—Part I of subchapter L of chapter 1 is amended to read as follows: "PART I—LIFE INSURANCE COMPANIES

^'; '-'

"Subpart "Subpart "Subpart "Subpart "Subpart

A. Tax imposed. B. Life insurance gross income. C. Life insurance deductions. D. Accounting, allocation, and foreign provisions. E. Definitions and special rules.

"Subpart A—Tax Imposed "Sec. 801. Tax imposed. 26 USC 801.

"SEC. 801. TAX IMPOSED. "(a) TAX IMPOSED.—

"(1) IN GENERAL.—A tax is hereby imposed for each taxable year on the life insurance company taxable income of every life insurance company. Such tax shall consist of a tax computed as provided in section 11 as though the life insurance company taxable income were the taxable income referred to in section 11"(2) ALTERNATIVE TAX IN CASE OP CAPITAL GAINS.—

"(A) IN GENERAL.—If a life insurance company has a net capital gain for the taxable year, then (in lieu of the tax imposed by paragraph (1)), there is hereby imposed a tax (if such tax is less than the tax imposed by paragraph (1)). "(B) AMOUNT OF TAX.—The amount of the tax imposed by

this paragraph shall be the sum of— "(i) a partial tax, computed as provided by paragraph (1), on the life insurance company taxable income reduced by the amount of the net capital gain, and "(ii) an amount determined as provided in section 1201(a) on such net capital gain. "(C) N E T CAPITAL GAIN NOT TAKEN INTO ACCOUNT IN DETERMINING SPECIAL U F E INSURANCE COMPANY DEDUCTION AND SMALL U F E INSURANCE COMPANY DEDUCTION.—For p u r -

Post, p. 722.

poses of subparagraph (B)(i), the amounts allowable as deductions under paragraphs (2) and (3) of section 804 shall be determined by reducing the tentative LICTI by the amount of the net capital gain (determined without regard to items attributable to noninsurance businesses). "(b) LIFE INSURANCE COMPANY TAXABLE INCOME.—For purposes of this part, the term 'life insurance company taxable income' means— "(1) life insurance gross income, reduced by "(2) life insurance deductions.

�


text: Author:Maurice Jametel

title: Author:Maurice Jametel


text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/769

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 721

"(c) TAXATION OF DISTRIBUTIONS FROM PRE-1984 POLICYHOLDERS SURPLUS ACCOUNT.—

'^

"For provision taxing distributions to shareholders from pre-1984 policyholders surplus account, see section 815.

"Subpart B—Life Insurance Gross Income

Post, p. 747.

...

"Sec. 803. Life insurance gross income. "SEC. 803. LIFE INSURANCE GROSS INCOME.

26 USC 803.

"(a) IN GENERAL.—For purposes of this part, the term 'life insurance gross income' means the sum of the following amounts: "(1) PREMIUMS.—

-3

"(A) The gross amount of premiums and other consideration on insurance and annuity contracts, less "(B) return premiums, and premiums and other consideration arising out of indemnity reinsurance. "(2) DECREASES IN CERTAIN RESERVES.—Each net decrease in reserves which is required by section 807(a) to be taken into Post, p. 726. account under this paragraph.

-'^

"(3) OTHER AMOUNTS.—All amounts not includible

'

under

paragraph (1) or (2) which under this subtitle are includible in gross income. "(b) SPECIAL RULES FOR PREMIUMS.— "(1) CERTAIN ITEMS INCLUDED.—For

purposes of subsection (a)(1)(A), the term 'gross amount of premiums and other consideration' includes— "(A) advance premiums, "(B) deposits, "(C) fees, "(D) assessments, • "(E) consideration in respect of assuming liabilities under j_ contracts not issued by the taxpayer, and O It f <<^p) Yie amount of policyholder dividends reimbursable to the taxpayer by a reinsurer in respect of reinsured '^ policies, on insurance and annuity contracts. "(2) POLICYHOLDER DIVIDENDS EXCLUDED FROM RETURN PREMI-

UMS.—For purposes of subsection (a)(1)(B)— "(A) IN GENERAL.—Except as provided in subparagraph (B), the term 'return premiums'does not include any policy' holder dividends.

"'

"(B) EXCEPTION FOR INDEMNITY REINSURANCE.—Subpara-

' *

graph (A) shall not apply to amounts of premiums or other consideration returned to another life insurance company in respect of indemnity reinsurance.

"Subpart C—Life Insurance Deductions "Sec. "Sec. "Sec. "Sec. "Sec. "Sec.

' '

804. Life insurance deductions. 805. General deductions. 806. Special deductions. 807. Rules for certain reserves. 808. Policyholder dividends deduction. 809. Reduction in certain deductions of mutual life insurance compa, nies. "Sec. 810. Operations loss deduction.

31-194 0 - 8 6

25: QL. 3 Part 1

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/770

 98 STAT. 722 26 USC 804.

PUBLIC LAW 98-369—JULY 18, 1984 "SEC. 804. LIFE INSURANCE DEDUCTIONS.

"For purposes of this part, the term 'life insurance deductions' means— T V q JMA f "(1) the general deductions provided in section 805, "(2) the special life insurance company deduction determined Post, p. 724. under section 806(a), and "(3) the small life insurance company deduction (if any) determined under section 806(b). 26 USC 805.

Post, p. 726.

"SEC. 805. GENERAL DEDUCTIONS. "(a) GENERAL RULE.—For purposes of this part, there shall be

allowed the following deductions: "(1) DEATH BENEFITS, ETC.—All claims and benefits accrued, and all losses incurred (whether or not ascertained), during the taxable year on insurance and annuity contracts. "(2) INCREASES IN CERTAIN RESERVES.—The net increase in reserves which is required by section 807(b) to be taken into account under this paragraph. "(3) POLICYHOLDER DIVIDENDS.—The deduction for policy-

Post, p. 732.

holder dividends (determined under section 808(c)). "(4) DIVIDENDS RECEIVED BY COMPANY.—

"(A) IN GENERAL.—The deductions provided by sections 243, 244, and 245 (as modified by subparagraph (B))— "(i) for 100 percent dividends received, and "(ii) for the life insurance company's share of the dividends (other than 100 percent dividends) received. "(B) APPLICATION OF SECTION 246 (b).—In applying section

246(b) (relating to limitation on aggregate amount of deductions for dividends received) for purposes of subparagraph (A), the limit on the aggregate amount of the deductions allowed by sections 243(a)(1), 244(a), and 245 shall be 85 percent of the life insurance company taxable income, computed without regard to— "(i) the special life insurance company deduction and the small life insurance company deduction, "(ii) the operations loss deduction provided by section 810, "(iii) the deductions allowed by sections 243(a)(1), 244(a), and 245, and "(iv) any capital loss carryback to the taxable year under section 1212(a)(1), but such limit shall not apply for any taxable year for which there is a loss from operations. "(C) 100 PERCENT DIVIDEND.—For purposes of subpara-

graph (A), the term '100 percent dividend' means any dividend if the percentage used for purposes of determining the deduction allowable under section 243 or 244 is 100 percent. Such term does not include any dividend to the extent it is a distribution out of tax-exempt interest or out of dividends which are not 100 percent dividends (determined with the application of this sentence). "(D) CERTAIN DIVIDENDS RECEIVED BY FOREIGN CORPORA-

TIONS.—Subparagraph (A)(i) (and not subparagraph (A)(ii)) shall apply to any dividend received by a foreign corporation from a domestic corporation which would be a 100 percent dividend if section 1504(b)(3) did not apply for purposes of applying section 243(b)(5).

jl t

..;-):.::

-C - 0 i-^'l-Jc

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/771

 PUBLIC LAW 98-369—JULY 18, 1984 -

"(5) OPERATIONS LOSS DEDUCTION.—The operations loss deduction (determined under section 810).

98 STAT. 723 Post, p. 738.

"(6) ASSUMPTION BY ANOTHER PERSON OF LIABILITIES UNDER

INSURANCE, ETC., CONTRACTS.—The consideration (other than consideration arising out of indemnity reinsurance) in respect of the assumption by another person of liabilities under insurance and annuity contracts. "(7) REIMBURSABLE DIVIDENDS.—The amount of policyholder

dividends which— "(A) are paid or accrued by another insurance company in respect of policies the taxpayer has reinsured, and "(B) are reimbursable by the taxpayer under the terms of the reinsurance contract. "(8) OTHER DEDUCTIONS.—Subject to the modifications provided by subsection (b), all other deductions allowed under this subtitle for purposes of computing taxable income. Except as provided in paragraph (3), no amount shall be allowed as a deduction under this part in respect of policyholder dividends. "(b) MODIFICATIONS.—The modifications referred to in subsection (a)(8) are as follows: "(1) INTEREST.—In applying section 163 (relating to deduction for interest), no deduction shall be allowed for interest in i respect of items described in section 807(c). Post, p. 726. "(2) BAD DEBTS.—Section 166(c) (relating to reserve for bad -i debts) shall not apply. "(3) CHARITABLE, ETC., CONTRIBUTIONS AND GIFTS.—In applying

1'

section 170— "(A) the limit on the total deductions under such section t? provided by section 170(b)(2) shall be 10 percent of the life ii> 1. insurance company taxable income computed without regard to— iiMA £ "(i) the deduction provided by section 170, "(ii) the deductions provided by paragraphs (3) and (4) 3fi loo of subsection (a), "(iii) the special life insurance company deduction and the small life insurance company deduction, "(iv) any operations loss carryback to the taxable year under section 810, and "(v) any capital loss carryback to the taxable year under section 1212(a)(1), and u-, " "(B) under regulations prescribed by the Secretary, a rule similar to the rule contained in section 170(d)(2)(B) (relating biiK,; to special rule for net operating loss carryovers) shall be applied. "(4) AMORTIZABLE BOND PREMIUM.—

"(A) IN GENERAL.—Section 171 shall not apply. '>

"(B) CROSS REFERENCE.— "For rules relating to amortizable bond premium, see section 811(b).

"(5) N E T OPERATING LOSS DEDUCTION.—Except as provided by section 844, the deduction for net operating losses provided in section 172 shall not be allowed. "(6) DIVIDENDS RECEIVED DEDUCTION.—Except as provided in subsection (a)(4), the deductions for dividends received provided by sections 243, 244, and 245 shall not be allowed.

Post, p. 740.

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/772

 98 STAT. 724 26 USC 806.

PUBLIC LAW 98-369—JULY 18, 1984 "SEC. 806. SPECIAL DEDUCTIONS.

"(a) SPECIAL LIFE INSURANCE COMPANY DEDUCTION.—For purposes of section 804, the special life insurance company deduction for any taxable year is 20 percent of the excess of the tentative LICTI for such taxable year over the small life insurance company deduction (if any).

Ante, p. 722.

"(h) SMAIX LIFE INSURANCE COMPANY DEDUCTION.—

"(1) IN GENERAL.—For purposes of section 804, the small life insurance company deduction for any taxable year is 60 percent of so much of the tentative LICTI for such taxable year as does not exceed $3,000,000. "(2) PHASEOUT

BETWEEN

$3,OOO,OOO

A N D $15,000,000.—The

amount of the small life insurance company deduction determined under paragraph (1) for any taxable year shall be reduced (but not below zero) by 15 percent of so much of the tentative LICTI for such taxable year as exceeds $3,000,000. "(3) SMALL U F E INSURANCE COMPANY DEDUCTION NOT ALLOWABLE TO COMPANY WITH ASSETS OP $500,000,000 OR MORE.—

"(A) IN GENERAL.—The small life insurance company deduction shall not be allowed for any taxable year to any life insurance company which, at the close of such taxable year, has assets equal to or greater than $500,000,000. "(B) ASSETS.—For purposes of this paragraph, the term 'assets' means all assets of the company. "(C) VALUATION OF ASSETS.—For purposes of this paragraph, the amount attributable to— "(i) real property and stock shall be the fair market value thereof, and "(ii) any other asset shall be the adjusted basis of such asset for purposes of determining gain on sale or other disposition. "(D) SPECIAL RULE FOR INTERESTS IN PARTNERSHIPS AND

TRUSTS.—For purposes of this paragraph— "(i) an interest in a partnership or trust shall not be treated as an asset of the company, but "(ii) the company shall be treated as actually owning its proportionate share of the assets held by the partnership or trust (as the case may be). "(c) TENTATIVE LICTI.—For purposes of this part— "(1) IN GENERAL.—The term 'tentative LICTI' means life insurance company taxable income determined without regard to— "(A) the special life insurance company deduction, and "(B) the small life insurance company deduction. "(2) EXCLUSION OF ITEMS ATTRIBUTABLE TO NONINSURANCE

BUSINESSES.—The amount of the tentative LICTI for any taxable year shall be determined without regard to all items attributable to noninsurance businesses.

^, ^ ' ' * ••' "

"

"(3) NONINSURANCE BUSINESS.—

"v

"(A) IN GENERAL.—The term 'noninsurance business' means any activity which is not an insurance business. "(B)

CERTAIN ACTIVITIES TREATED AS INSURANCE BUSI-

NESSES.—For purposes of subparagraph (A), any activity which is not an insurance business shall be treated as an insurance business if—

�


text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/773

 PUBLIC LAW 98-369—JULY 18, 1984 rWj|,, ^'

98 STAT. 725

«^^ -^ j^g Q£ ^ ^ypg traditionally carried on by life insurance companies for investment purposes, but only if the carrying on of such activity (other than in the case of real estate) does not constitute the active conduct of a trade or business, or "(ii) it involves the performance of administrative services in connection with plans providing life insurance, pension, or accident and health benefits.

^

"(C) LIMITATION ON AMOUNT OF LOSS FROM NONINSURANCE

c>i

BUSINESS WHICH MAY OFFSET INCOME FROM INSURANCE BUSINESS.—In computing the life insurance company taxable income of any life insurance company, any loss from a noninsurance business shall be limited under the principles of section 1503(c). "(d) SPECIAL RULE FOR CONTROLLED GROUPS.— "(1) SPECIAL LIFE INSURANCE COMPANY DEDUCTION AND SMALL LIFE INSURANCE COMPANY DEDUCTION DETERMINED ON CON-

TROLLED GROUP BASIS.—For purposes of subsections (a) and (b)— "(A) all life insurance companies which are members of the same controlled group shall be treated as 1 life insurance company, and !i "(B) any special life insurance company deduction and any small life insurance company deduction determined ^ic with respect to such group shall be allocated among the life insurance companies which are members of such group in proportion to their respective tentative LICTI's.

„,

\

"(2) NONLIFE INSURANCE MEMBERS INCLUDED FOR ASSET TEST.—

For purposes of subsection (b)(3), all members of the same controlled group (whether or not life insurance companies) shall be treated as 1 company. "(3) CONTROLLED GROUP.—For purposes of this subsection, the term 'controlled group' means any controlled group of corporations (as defined in section 1563(a)); except that subsections (a)(4) and (b)(2)(D) of section 1563 shall not apply.

,.,,;.

"(4) ELECTION WITH RESPECT TO LOSS FROM OPERATIONS OF MEMBER OF GROUP.—

^

"(A) IN GENERAL.—Any life insurance company which is a member of a controlled group may elect to have its loss from operations for any taxable year not taken into account for purposes of determining the amount of the special life insurance company deduction for the life insurance companies which are members of such group and which do not file a consolidated return with such life insurance company for the taxable year.

'"

NONLiFE INCOME.—In the case of that portion of any loss from operations for any taxable year of a life insurance company which (but for subparagraph (A)) would have reduced tentative LICTI of other life insurance companies for such taxable year— "(i) only 80 percent of such portion may be used to offset nonlife income, and "(ii) to the extent such portion is used to offset nonlife income, the loss shall be treated as used at a rate of $1 for each 80 cents of income so offset. For purposes of the preceding sentence, any such portion shall be used before the remaining portion of the loss from

,j^,

"(B) LIMITATION ON AMOUNT OF LOSS WHICH MAY OFFSET

iLV vij.a't.r J"..

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/774

 98 STAT. 726

PUBLIC LAW 98-369—JULY 18, 1984 the same year and shall be treated as first being offset against income which is not nonlife income. "(C) NONLIFE INCOME.—

"(i) IN GENERAL.—The term 'nonlife income' means the portion of the life insurance company's taxable income for which the special life insurance company deduction was not allowable and any income of a corporation not subject to tax under this part. "(ii) SPECIAL RULE FOR TAXABLE YEARS BEGINNING

BEFORE JANUARY 1, 1984.—In the case of a taxable year beginning before January 1, 1984, all life insurance company taxable income shall be treated as nonlife income. "(5) ADJUSTMENTS TO PREVENT EXCESS DETRIMENT OR BENE-

FIT.—Under regulations prescribed by the Secretary, proper adjustments shall be made in the application of this subsection to prevent any excess detriment or benefit (whether from yearto-year or otherwise) arising from the application of this subsection. 26 USC 807.

Post, p. 733. Ante, p. 721.

Ante, p. 722.

"SEC. 807. RULES FOR CERTAIN RESERVES. "(a) DECREASE TREATED AS GROSS INCOME.—If for any taxable year— "(1) the opening balance for the items described in subsection (c), exceeds "(2)(A) the closing balance for such items, reduced by "(B) the sum of (i) the amount of the policyholders' share of tax-exempt interest, plus (ii) any excess described in section 809(a)(2) for the taxable year. such excess shall be included in gross income under section 803(a)(2). "(b) INCREASE TREATED AS DEDUCTION.—If for any teixable year— "(1)(A) the closing balance for the items described in subsection (c), reduced by "(B) the sum of (i) the amount of the policyholders' share of tax-exempt interest, plus (ii) any excess described in section 809(a)(2) for the taxable year, exceeds "(2) the opening balance for such items, such excess shall be taken into account as a deduction under section 805(a)(2). "(c) ITEMS TAKEN INTO ACCOUNT.—The items referred to in subsec-

Post, p. 748.

tions (a) and (b) are as follows: "(1) The life insurance reserves (as defined in section 816(b)). "(2) The unearned premiums and unpaid losses included in total reserves under section 816(c)(2). "(3) The amounts (discounted at the appropriate rate of interest) necessary to satisfy the obligations under insurance and annuity contracts, but only if such obligations do not involve (at the time with respect to which the computation is made under this paragraph) life, accident, or health contingencies. "(4) Dividend accumulations, and other amounts, held at interest in connection with insurance and annuity contracts. "(5) Premiums received in advance, and liabilities for premium deposit funds. "(6) Reasonable special contingency reserves under contracts of group term life insurance or group accident and health insurance which are established and maintained for the provi-

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/775

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 727

5

sion of insurance on retired lives, for premium stabilization, or for a combination thereof. For purposes of paragraph (3), the appropriate rate of interest for any obligation is the higher of the prevailing State assumed interest rate as of the time such obligation first did not involve life, accident, or health contingencies or the rate of interest assumed by the company (as of such time) in determining the guaranteed benefit. "(d) METHOD OF COMPUTING RESERVES FOR PURPOSES OF DETERMINING INCOME.—

^ g 3 -1,

"(1) IN GENERAL.—For purposes of this part (other than section 816), the amount of the life insurance reserves for any Post, p. 748. contract shall be the greater of— "(A) the net surrender value of such contract, or "(B) the reserve determined under paragraph (2). In no event shall the reserve determined under the preceding sentence for any contract as of any time exceed the amount which would be taken into account with respect to such contract as of such time in determining statutory reserves (as defined in section 809(b)(4)(B)). Post, p. 733. "(2) AMOUNT OF RESERVE.—The amount of the reserve deter-

mined under this paragraph with respect to any contract shall J be determined by using— "(A) the tax reserve method applicable to such contract, "(B) the prevailing State assumed interest rate, and "(C) the prevailing commissioners' standard tables for mortality and morbidity adjusted as appropriate to reflect the risks (such as substandard risks) incurred under the contract which are not otherwise taken into account. "(3) TAX RESERVE METHOD.—For purposes of this subsection— "(A) IN GENERAL.—The term 'tax reserve method' means— "(i) LIFE INSURANCE CONTRACTS.—The CRVM in the case of a contract covered by the CRVM. "(ii) ANNUITY CONTRACTS.—The CARVM in the case j ix. • of a contract covered by the CARVM. "(iii) NONCANCELLABLE ACCIDENT AND HEALTH INSURANCE CONTRACTS.—In the case of any noncancellable accident and health insurance contract, a 2-year full preliminary term method. "(iv) OTHER CONTRACTS.—In the case of any contract not described in clause (i), (ii), or (iii)— "(I) the reserve method prescribed by the National Association of Insurance Commissioners which covers such contract (as of the date of issuance), or "(II) if no reserve method has been prescribed by -m f *ti>1the National Association of Insurance Commissioners which covers such contract, a reserve method Vi which is consistent with the reserve method required under clause (i), (ii), or (iii) or under subclause (I) of this clause as of the date of the issuance of such contract (whichever is most appropriate). "(B) DEFINITION OF CRVM AND CARVM.—For purposes of

this paragraph— "(i) CRVM.—The term 'CRVM' means the Commissioners' Reserve Valuation Method prescribed by the

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