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95 STAT. 311

section 2001 with respect to the estate of the decedent (as determined for purposes of section 6601)." (h) SPECIAL RULES FOR WOODLANDS.— (1) VALUE OF TIMBER INCLUDED IN VALUATION; ACTIVE MANAGE-

MENT TREATED AS MATERIAL PARTICIPATION.—SubsectiOD (e) of section 2032A is amended by adding at the end thereof the Ante, p. 308. following new paragraph: "(13) SPECIAL RULES FOR WOODLANDS.—

"(A) IN GENERAL.—In the case of any qualified woodland with respect to which the executor elects to have this subparagraph apply, trees growing on such woodland shall not be treated as a crop. "(B) QUALIFIED WOODLAND.—The term 'qualified woodland' means any real property which— "(i) is used in timber operations, and "(ii) is an identifiable area of land such as an acre or other area for which records are normally maintained in conducting timber operations. "(C) TIMBER OPERATIONS.—The term 'timber operations' means— "(i) the planting, cultivating, caring for, or cutting of trees, or "(ii) the preparation (other than milling) of trees for market. "(D) ELECTION.—An election under subparagraph (A) shall be made on the return of the tax imposed by section 2001. Such election shall be made in such manner as the Secretary shall by regulations prescribe. Such an election, once made, shall be irrevocable.' (2) RECAPTURE UPON DISPOSITION OF TIMBER.—Paragraph (2) of

section 2032A(c) (relating to amount of additional tax) is 26 USC 2032A. amended by adding at the end thereof the following new subparagraph: "(E) SPECIAL RULE FOR DISPOSITION OF TIMBER.—In the case of qualified woodland to which an election under subsection (e)(13)(A) applies, if the qualified heir disposes of (or severs) Supra. any standing timber on such qualified woodland— "(i) such disposition (or severance) shall be treated as a disposition of a portion of the interest of the qualified heir in such property, and "(ii) the amount of the additional tax imposed by paragraph (1) with respect to such disposition shall be an amount equal to the lesser of— "(I) the amount realized on such disposition (or, in any case other than a sale or exchange at arm's length, the fair market value of the portion of the interest disposed or severed), or "(II) the amount of additional tax determined under this paragraph (without regard to this subparagraph) if the entire interest of the qualified heir in the qualified woodland had been disposed of, less the sum of the amount of the additional tax imposed with respect to all prior transactions involving such woodland to which this subparagraph applied. For purposes of the preceding sentence, the disposition of a right to sever shall be treated as the disposition of the standing timber. The amount of additional tax imposed

89-194 O—82

22: QL3

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 95 STAT. 312

PUBLIC LAW 97-34—AUG. 13, 1981 under paragraph (1) in any case in which a qualified heir disposes of his entire interest in the qualified woodland shall be reduced by any amount determined under this subparagraph with respect to such woodland." (i) DEFINITION OF FAMILY MEMBER.—Paragraph (2) of section

26 USC 2032A.

2032A(e) (defining member of family) is amended to read as follows: "(2) MEMBER OF FAMILY.—The term 'member of the family' means, with respect to any individual, only— "(A) an ancestor of such individual, "(B) the spouse of such individual, "(C) a lineal descendant of such individual, of such individual's spouse, or of a parent of such individual, or "(D) the spouse of any lineal descendant described in subparagraph (C). For purposes of the preceding sentence, a legally adopted child of an individual shall be treated as the child of such individual by blood." (j) MISCELLANEOUS AMENDMENTS.— (1) PROPERTY TRANSFERRED TO

CERTAIN

DISCRETIONARY

TRUSTS.—Subsection (g) of section 2032A (relating to application of section 2032A and section 6324B to interests in partnerships, corporations, and trusts) is amended by adding at the end thereof the following new sentence: "For purposes of the preceding sentence, an interest in a discretionary trust all the beneficiaries of which are qualified heirs shall be treated as a present interest." (2) PROPERTY PURCHASED FROM DECEDENT'S ESTATE ELIGIBLE FOR SPECIAL VALUATION.—

(A) IN GENERAL.—Paragraph (9) of section 2032A(e) is amended by striking out subparagraphs (B) and (C) and inserting in lieu thereof the following: "(B) such property is acquired by any person from the estate, or "(C) such property is acquired by any person from a trust (to the extent such property is includible in the gross estate of the decedent)." (B) NONRECOGNITION OF GAIN.—The section heading and subsections (a) and (b) of section 1040 are amended to read as follows:

94 Stat. 300.

"SEC. 1040. TRANSFER OF CERTAIN FARM, ETC., REAL PROPERTY.

26 USC 2001 et

"(a) GENERAL RULE.—If the executor of the estate of any decedent transfers to a qualified heir (within the meaning of section 2032A(e)(l)) any property with respect to which an election was made under section 2032A, then gain on such transfer shall be recognized to the estate only to the extent that, on the date of such exchange, the fair market value of such property exceeds the value of such property for purposes of chapter 11 (determined without regard to section

««9-

2032A).

"(b) SIMILAR RULE FOR CERTAIN TRUSTS.—To the extent provided in regulations prescribed by the Secretary, a rule similar to the rule provided in subsection (a) shall apply where the trustee of a trust (any portion of which is included in the gross estate of the decedent) transfers property with respect to which an election was made under section 2032A." (C) CLERICAL AMENDMENT.—The table of sections for part III of subchapter O of chapter 1 is amended by striking out

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the item relating to section 1040 and inserting in lieu thereof the following: "Sec. 1040. Transfer of certain farm, etc., real property." (3) ELECTION MAY BE MADE ON LATE RETURNS.—Paragraph (1) of

section 2032A(d) (relating to election) is amended to read as 26 USC 2032A. follows: "(1) ELECTION.—The election under this section shall be made on the return of the tax imposed by section 2001. Such election shall be made in such manner as the Secretary shall by regulations prescribe. Such an election, once made, shall be irrevocable." (4) TREATMENT OF REPLACEMENT PROPERTY.—Subsection (e) of

section 2032A is amended by adding at the end thereof the Ante, p. 311. following new paragraph: "(14) TREATMENT OF REPLACEMENT PROPERTY ACQUIRED IN SECTION 1031 OR 1033 TRANSACTIONS.—

"(A) IN GENERAL.—In the case of any qualified replacement property, any period during which there was ownership, qualified use, or material participation with respect to the replaced property by the decedent or any member of his family shall be treated as a period during which there was such ownership, use, or material participation (as the case may be) with respect to the qualified replacement property. "(B) LIMITATION.—Subparagraph (A) shall not apply to the extent that the fair market value of the qualified replacement property (as of the date of its acquisition) exceeds the fair market value of the replaced property (as of the date of its disposition). "(C) DEFINITIONS.—For purposes of this paragraph— "(i) QUALIFIED REPLACEMENT PROPERTY.—The term

'qualified replacement property' means any real property which is— "(I) acquired in an exchange which qualifies under section 1031, or "(II) the acquisition of which results in the nonrecognition of gain under section 1033. Such term shall only include property which is used for the same qualified use as the replaced property was being used before the exchange. "(ii) REPLACED PROPERTY.—The term 'replaced property' means— "(I) the property transferred in the exchange which qualifies under section 1031, or "(II) the property compulsorily or involuntarily converted (within the meaning of section 1033). (k) EFFECTIVE DATES.—

(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply with respect to the estates of decedents dying after December 31, 1981. (2) INCREASE IN LIMITATION.—The amendment made by subsection (a) shall apply with respect to the estates of decedents dying after December 31, 1980. (3) SUBSECTION (d).—The amendments made by subsection (d) shall apply with respect to exchanges after December 31, 1981. (4) SUBSECTION (e).—The amendments made by subsection (e) shall apply with respect to involuntary conversions after December 31,198L

26 USC 2032A note.

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 95 STAT. 314 26 USC 2032A ^°^-

PUBLIC LAW 97-34—AUG. 13, 1981 (5) CERTAIN AMENDMENTS MADE RETROACTIVE TO 1976.— (A) IN GENERAL.—The amendments made by subsections (b)(1), (c)(2), (j)(l), and Cj)(2) shall apply with respect to the estates of decedents dying after December 31, 1976. (B) TIMELY ELECTION REQUIRED.—Subparagraph (A) shall only apply in the case of an estate if a timely election under section 2032A was made with respect to such estate. If the time for making an election under section 2032A with respect to any estate would have otherwise expired after July 28, 1980, the time for making such election shall not expire before the date 6 months after the date of the enactment of this Act. (C) REINSTATEMENT OF ELECTIONS.—If any election under section 2032A was revoked before the date of the enactment of this Act, such election may be reinstated within 6 months after the date of the enactment of this Act. (D) STATUTE OF LIMITATIONS.—If on the date of the enactment of this Act (or at any time within 6 months after such date of enactment) the making of a credit or refund of any overpayment of tax resulting from the amendments described in subparagraph (A) is barred by any law or rule of law, such credit or refund shall nevertheless be made if claim therefor is made before the date 6 months after such date of enactment. SEC. 422. COORDINATION OF EXTENSIONS OF TIME FOR PAYMENT OF ESTATE TAX WHERE ESTATE CONSISTS LARGELY OF INTEREST IN CLOSELY HELD BUSINESS. (a) ELIGIBILITY REQUIREMENTS.—

26 USC 6166.

(1) IN GENERAL.—Paragraph (1) of section 6166(a) (relating to alternate extension of time for payment of estate tax where estate consists largely of interest in closely held business) is amended by striking out "65 percent" and inserting in lieu thereof "35 percent". (2) INTERESTS IN 2 OR MORE CLOSELY HELD BUSINESSES.—Subsec-

26 USC 303.

tion (c) of section 6166 (relating to interests in 2 or more closely held businesses) is amended by striking out "more than 20 percent" and inserting in lieu thereof 20 percent or more". (b) COORDINATION WITH SECTION 303.— (1) IN GENERAL.—Subparagraph (A) of section 303(b)(2) (relating to relationship of stock to decedent's estate) is amended by striking out "50 percent" and inserting in lieu thereof "35 percent". (2) CONFORMING AMENDMENT.—Subparagraph (B) of section

303(b)(2) is amended to read as follows: "(B) SPECIAL RULE FOR STOCK IN 2 OR MORE CORPORATIONS.—

For purposes of subparagraph (A), stock of 2 or more corporations, with respect to each of which there is included in determining the value of the decedent's gross estate 20 percent or more in value of the outstanding stock, shall be treated as the stock of a single corporation. For purposes of the 20-percent requirement of the preceding sentence, stock which, at the decedent's death, represents the surviving spouse's interest in property held by the decedent and the surviving spouse as community property or as joint tenants, tenants by the entirety, or tenants in common shall be treated as having been included in determining the value of the decedent's gross estate."

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95 STAT. 315

(c) ACCELERATION OF PAYMENT.—

(1) AMOUNT OF DISPOSITION.—Subparagraph (A) of section

6166(g)(1) (relating to acceleration of payment in the case of 26 USC 6166. disposition of interest or withdrawal of funds from business) is amended to read as follows: "(A)If— "(i)(I) any portion of an interest in a closely held business which qualifies under subsection (a)(1) is distributed, sold, exchanged, or otherwise disposed of, or "(II) money and other property attributable to such an interest is withdrawn from such trade or business, and "(ii) the aggregate of such distributions, sales, exchanges, or other dispositions and withdrawals equals or exceeds 50 percent of the value of such interest, then the extension of time for payment of tax provided in subsection (a) shall cease to apply, and the unpaid portion of the tax payable in installments shall be paid upon notice and demand from the Secretary." (2) FAILURE TO MAKE PAYMENTS.—Paragraph (3) of section

6166(g) (relating to failure to pay installments) is amended to read as follows: "(3) FAILURE TO MAKE PAYMENT OF PRINCIPAL OR INTEREST.—

"(A) IN GENERAL.—Except as provided in subparagraph (B), if any payment of principal or interest under this section is not paid on or before the date fixed for its payment by this section (including any extension of time), the unpaid portion of the tax payable in installments shall be paid upon notice and demand from the Secretary. "(B) PAYMENT WITHIN 6 MONTHS.—If any

payment of

principal or interest under this section is not paid on or before the date determined under subparagraph (A) but is paid within 6 months of such date— "(i) the provisions of subparagraph (A) shall not apply with respect to such payment, "(ii) the provisions of section 6601(j) shall not apply with respect to the determination of interest on such payment, and "(iii) there is imposed a penalty in an amount equal to the product of— "(I) 5 percent of the amount of such payment, multiplied by "(II) the number of months (or fractions thereof) after such date and before payment is made. The penalty imposed under clause (iii) shall be treated in the same manner as a penalty imposed under subchapter B of chapter 68." 26 USC 6671. (3) N o DISQUAUFICATION IN CASE OF SUBSEQUENT DEATHS.—

Subparagraph (D) of section 6166(g)(l) is amended by adding at the end thereof the following new sentence: "A similar rule shall apply in the case of a series of subsequent transfers of the property by reason of death so long as each transfer is to a member of the family (within the meaning of section 267(c)(4)) of the transferor in such transfer." (d) REPEAL OF SECTION 6166A.—Section 6166A (relating to exten- Repeal. sion of time for payment of estate tax where estate consists largely of 26 USC 6166A. interest in a closely held business) is hereby repealed. (e) TECHNICAL AMENDMENTS.—

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 95 STAT. 316 26 USC 303, 2204, 6161. 26 USC 2011. 26 USC 2204. 26 USC 2621.

26 USC 6166.

PUBLIC LAW 97-34—AUG. 13, 1981 (1) Sections 303(b)(1)(C), 2204(c), and 6161(a)(2)(B) are each amended by striking out "or 6166A" each place it appears. (2) Paragraph (2) of section 2011(c) is amended by striking out "6161, 6166 or 6166A" and inserting in lieu thereof "6161 or 6166". (3) Subsections (a) and (b) of section 2204 are each amended by striking out "6166 or 6166A" and inserting in lieu thereof "or 6166". (4) Subsection (b) of section 2621 is amended— (A) by striking out "sections 6166 and 6166A (relating to extensions" and inserting in lieu thereof "section 6166 (relating to extension", and (B) by striking out "SECTIONS 6166 AND 6166A" in the subsection heading and inserting in lieu thereof "SECTION 6166". (5)(A) Subsection (a) of section 6166 is amended by striking out paragraph (4). (B) The section heading for section 6166 is amended by striking out "ALTERNATE".

(C) The table of sections for subchapter B of chapter 62 is amended by striking out the items relating to sections 6166 and 6166A and inserting in lieu thereof the following: "Sec. 6166. Extension of time for payment of estate tax where estate consists largely of interest in closely held business." 26 USC 6324A.

26 USC 6503. 26 USC 7403. 26 USC 6166 note.

(6)(A) Subsections (a), (c)(2), and (e) of section 6324A are each amended by striking out "or 6166A" each place it appears. (B) Paragraphs (3) and (5) of section 6324A(d) are each amended by striking out "or 6166A(h)". (C) The section heading for section 6324A is amended by striking out "OR 6166A". (D) The table of sections for subchapter C of chapter 64 is amended by striking out "or 6166A" in the item relating to section 6324A. (7) Subsection (d) of section 6503 is amended by striking out "6163, 6166, or 6166A" and inserting in lieu thereof "6163 or 6166". (8) Subsection (a) of section 7403 is amended by striking out "or 6166A(h)". (f) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to the estates of decedents dying after December 31, 1981. (2) ACCELERATION BY REASON OF SUBSEQUENT DEATH.—The

amendment made by subsection (c)(3) shall apply to transfers after December 31, 1981.

26 USC 2055.

SEC. 423. TREATMENT OF CERTAIN CONTRIBUTIONS OF WORKS OF ART, ETC. (a) ESTATE TAX.—Subsection (e) of section 2055 (relating to disallow-

ance of deduction in certain cases) is amended by adding at the end thereof the following new paragraph:

"(4) WORKS OF ART AND THEIR COPYRIGHTS TREATED AS SEPARATE PROPERTIES IN CERTAIN CASES.—

"(A) IN GENERAL.—In the case of a qualified contribution of a work of art, the work of art and the cop5nright on such work of art shall be treated as separate properties for purposes of paragraph (2).

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95 STAT. 317

"(B) WORK OF ART DEFINED.—For purposes of this paragraph, the term 'work of art' means any tangible personal property with respect to which there is a copyright under Federal law. "(C) QUALIFIED CONTRIBUTION DEFINED.—For purposes of this paragraph, the term 'qualified contribution' means any transfer of property to a qualified organization if the use of the property by the organization is related to the purpose or function constituting the basis for its exemption under section 501. "(D) QUALIFIED ORGANIZATION DEFINED.—For purposes of this paragraph, the term 'qualified organization' means any organization described in section 501(c)(3) other than a private foundation (as defined in section 509). For purposes of the preceding sentence, a private operating foundation (as defined in section 4942(j)(3)) shall not be treated as a private Post, p. 351. foundation." (b) GIFT TAX.—Subsection (c) of section 2522 is amended by adding 26 USC 2522. at the end thereof the following new paragraph: "(3) Rules similar to the rules of section 2055(e)(4) shall apply Ante, p. 316. for purposes of paragraph (2)." (c) EFFECTIVE DATES.— (1) SUBSECTION (a).—The amendment made by subsection (a) 26 USC 2055

shall apply to the estates of decedents dying after December 31, 1981. (2) SUBSECTION (b).—The amendment made by subsection 0)) shall apply to transfers after December 31, 1981. SEC. 424. GIFTS MADE WITHIN 3 YEARS OF DECEDENT'S DEATH NOT INCLUDED IN GROSS ESTATE. (a) GENERAL RULE.—Section 2035 (relating to adjustments for gifts made within 3 years of decedent's death) is amended by adding at the end thereof the following new subsection: "(d) DECEDENTS DYING AFTER 1981.— "(1) IN GENERAL.—Except as otherwise provided in this subsection, subsection (a) shall not apply to the estate of a decedent dying after December 31, 1981. "(2) EXCEPTIONS FOR CERTAIN TRANSFERS.—Paragraph (1) shall not apply to a transfer of an interest in property which is included in the value of the gross estate under section 2036, 2037, 2038, 2041, or 2042 or would have been included under any of such sections if such interest had been retained by the decedent.

"° ^ 26 USC 2522 "°*^^

26 USC 2035.

"(3) 3-YEAR RULE RETAINED FOR CERTAIN PURPOSES.—Paragraph

(1) shall not apply for purposes of— "(A) section 30303) (relating to distributions in redemption of stock to pay death taxes), "(B) section 2032A (relating to special valuation of certain farm, etc., real property), "(C) section 6166 (relating to extension of time for payment of estate tax where estate consists largely of interest in closely held business), and "(D) subchapter C of chapter 64 (relating to lien for 26 USC 6321. taxes)." Qo) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 USC 2035 apply to the estates of decedents dying after December 31, 1981. "°^^

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 95 STAT. 318

26 USC 1014.

PUBLIC LAW 97-34—AUG. 13, 1981 SEC. 425. BASIS OF CERTAIN APPRECIATED PROPERTY TRANSFERRED TO DECEDENT BY GIFT WITHIN 1 YEAR OF DEATH. (a) GENERAL RULE.—Section 1014 (relating to basis of property

acquired from a decedent) is amended by adding at the end thereof the following new subsection: "(e) APPRECIATED PROPERTY ACQUIRED BY DECEDENT BY GIFT WITHIN 1 YEAR OF DEATH.—

"(1) IN GENERAL.—In the case of a decedent dying after December 31, 1981, if— "(A) appreciated property was acquired by the decedent by gift during the 1-year period ending on the date of the decedent's death, and "(B) such property is acquired from the decedent by (or passes from the decedent to) the donor of such property (or the spouse of such donor), the basis of such property in the hands of such donor (or spouse) shall be the adjusted basis of such property in the hands of the decedent immediately before the death of the decedent. "(2) DEFINITIONS.—For purposes of paragraph (1)— "(A) APPRECIATED PROPERTY.—The term 'appreciated

property' means any property if the fair market value of such property on the day it was transferred to the decedent by gift exceeds its adjusted basis. "(B) TREATMENT OF CERTAIN PROPERTY SOLD BY ESTATE.—In

26 USC 1014 "°^26 USC 2518.

26 USC 2518 ^°^-

the case of any appreciated property described in subparagraph (A) of paragraph (1) sold by the estate of the decedent or by a trust of which the decedent was the grantor, rules similar to the rules of paragraph (1) shall apply to the extent the donor of such property (or the spouse of such donor) is entitled to the proceeds from such sale." (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to property acquired after the date of the enactment of this Act by decedents dying after December 31, 1981. SEC. 426. DISCLAIMERS. (a) IN GENERAL.—Subsection (c) of section 2518 (relating to disclaimers) is amended by adding at the end thereof the following new paragraph: "(3) CERTAIN TRANSFERS TREATED AS DISCLAIMERS.—For purposes of subsection (a), a written transfer of the transferor's entire interest in the property— "(A) which meets requirements similar to the requirements of paragraphs (2) and (3) of subsection (b), and "(B) which is to a person or persons who would have received the property had the transferor made a qualified disclaimer (within the meaning of subsection (b)), shall be treated as a qualified disclaimer." (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to transfers creating an interest in the person disclaiming made after December 31, 1981. SEC. 427. REPEAL OF DEDUCTION FOR BEQUESTS, ETC., TO CERTAIN MINOR CHILDREN.

Repeal. 26 USC 2057.

(a) IN GENERAL.—Section 2057 (relating to bequests, etc., to certain minor children) is hereby repealed. (b) CLERICAL AMENDMENT.—The table of sections for part IV of subchapter A of chapter 11 is amended by striking out the item relating to section 2057.

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(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 2057 apply to estates of decedents dying after December 31, 1981. "°^® SEC. 428. POSTPONEMENT OF GENERATION-SKIPPING TAX EFFECTIVE DATE. Section 2006(c) of the Tax Reform Act of 1976 (relating to the effective dates of generation-skipping provisions), as amended by section 702(n)(l) of the Revenue Act of 1978 is amended by striking 26 USC 2601 out "January 1, 1982" in paragraph (2)(B) of such section and ^°^^inserting in lieu thereof "January 1, 1983". SEC. 429. CREDIT AGAINST ESTATE TAX FOR TRANSFER TO SMITHSONIAN. Upon transfer to the Smithsonian Institution, within thirty days following the date of the enactment of this Act, of all right, title, and interests held by the Dorothy Meserve Kunhardt trust and the estate of Dorothy Meserve Kunhardt in the collection of approximately seven thousand two hundred and fifty Mathew Brady glass plate negatives and the Alexander Gardner imperial portrait print of Abraham Lincoln, there shall be allowed as a credit, effective as of the date upon which the return was due to be filed, against the tax imposed by section 2001 (relating to the imposition of estate tax) on such estate an amount equal to the lesser of— (1) such tax, (2) the fair market value of such negatives and such print, or (3) $700,000.

Subtitle C—Other Gift Tax Provisions SEC. 441. INCREASE IN ANNUAL GIFT TAX EXCLUSION; UNLIMITED EXCLUSION FOR CERTAIN TRANSFERS. (a) INCREASE IN ANNUAL EXCLUSION.—Subsection (b) of section 2503 26 USC 2503. (relating to annual gift tax exclusion) is amended by striking out "$3,000^ and inserting in lieu thereof "$10,000". (b) UNUMITED EXCLUSION FOR CERTAIN TRANSFERS.—Section 2503 (defining taxable gifts) is amended by adding at the end thereof the following new subsection: "(e) EXCLUSION FOR CERTAIN EXPENSES OR MEDICAL EXPENSES.—

TRANSFERS

FOR EDUCATIONAL

"(1) IN GENERAL.—Any qualified transfer shall not be treated as a transfer of property by gift for purposes of this chapter. "(2) QuAUFiED TRANSFER.—For purposes of this subsection, the term 'qualified transfer' means any amount paid on behalf of an individual— "(A) as tuition to an educational organization described in section 170(b)(l)(A)(ii) for the education or training of such individual, or "(B) to any person who provides medical care (as defined in section 213(e)) with respect to such individual as payment for such medical care." (c) EFFECTIVE DATES.— 26 USC 2503 (1) IN GENERAL.—Except as provided in paragraph (2), the ^°^amendments made by this section shall apply to transfers after December 31, 1981. (2) TRANSITIONAL RULE.—If—

(A) an instrument executed before the date which is 30 days after the date of the enactment of this Act provides for a

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 95 STAT. 320

PUBLIC LAW 97-34—AUG. 13, 1981 power of appointment which may be exercised during any period after December 31, 1981, (B) such power of appointment is expressly defined in terms of, or by reference to, the amount of the gift tax exclusion under section 2503(b) of the Internal Revenue C!ode of 1954 (or the corresponding provision of prior law), (C) the instrument described in subparagraph (A) ha:s not been amended on or after the date which is 30 days after the date of the enactment of this Act, and (D) the State has not enacted a statute applicable to such gift under which such power of appointment is to be construed as being defined in terms of, or by reference to, the amount of the exclusion under such section 2503(b) after its amendment by subsection (a), then the amendment made by subsection (a) shall not apply to such gift. SEC. 442. TIME FOR PAYMENT OF GIFT TAXES.

26 USC 2501.

26 USC 2502.

(a) AMENDMENTS TO SUBCHAPTER A OF CHAPTER 12.— (1) SECTION 2501.—Subsection (a) of section 2501 (relating

to imposition of gift tax) is amended by striking out "calendar quarter" each place it appears and inserting in lieu thereof calendar year". (2) SECTION 2502.—Section 2502 (relating to rate of tax) is amended to read as follows: "SEC. 2502. RATE OP TAX. "(a) COMPUTATION OP TAX.—The tax imposed by section 2501 for

Ante, p. 300.

each calendar year shall be an amount equal to the excess of— "(1) a tentative tax, computed in accordance with the rate schedule set forth in section 2001(c), on the aggregate sum of the taxable gifts for such c^endar year and for each of the preceding calendar periods, over "(2) a tentative tax, computed in accordance with such rate schedule, on the aggregate sum of the taxable gifts for each of the preceding calendar periods. "(b) PRECEDING CALENDAR PERIOD.—Whenever used in this title in connection with the gift tax imposed by this chapter, the term 'preceding calendar period' means— "(1) calendar years 1932 and 1970 and all calendar years intervening between calendar year 1932 and calendar year 1970, "(2) the first calendar quarter of calendar year 1971 and all calendar quarters intervening between such calendar queirter and the first calendar quarter of calendar year 1982, and "(3) all calendar years after 1981 and before the calendar year for which the tax is being computed. For purposes of paragraph (1), the term 'calendar year 1932' includes only that portion of such year after June 6, 1932. "(c) TAX TO B E PAID BY DONOR.—The tax imposed by section 2501

26 USC 2503.

shall be paid by the donor." (3) SECTION 2503.— (A) Subsection (a) of section 2503 is amended to read as follows: "(a) GENERAL DEFINITION.—The term 'taxable gifts' means the total amount of gifts made during the calendar year, less the deductions provided in subchapter C (section 2522 and following)." (B) The first sentence of subsection (b) of section 2503 is amended to read as follows: "In the case of gifts (other than

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gifts of future interests in property) made to any person by the donor during the calendar year, the first $10,000 of such gifts to such person shall not, for purposes of subsection (a), be included in the total amount of gifts made during such year." (4) SECTION 2504.—

26 USC 2504.

(A) Subsection (a) of section 2504 is amended to read as follows: "(a) IN GENERAL.—In computing taxable gifts for preceding calendar periods for purposes of computing the tax for any calendar year— "(1) there shall be treated as gifts such transfers as were considered to be gifts under the g&t tax laws applicable to the calendar period in which the transfers were made, "(2) there shall be allowed such deductions as were provided for under such laws, and "(3) the specific exemption in the amount (if any) allowable under section 2521 (as in effect before its repeal by the Tax Reform Act of 1976) shall be applied in all computations in respect of preceding calendar periods ending before January 1, 1977, for purposes of computing the tax for any calendar year." (B) Subsection (b) of section 2504 is amended— (i) by striking out "preceding calendar years and calendar quarters" and inserting in lieu thereof "preceding calendar periods", (ii) by striking out "the years and calendar quarters" and inserting in lieu thereof "the periods", (iii) by striking out "such years and calendar quarters" and inserting in lieu thereof "such preceding calendar periods", and (iv) by striking out "PRECEDING YEARS AND QUARTERS" in the subsection heading and inserting in lieu thereof "PRECEDING CALENDAR PERIODS".

(C) Subsection (c) of section 2504 is amended— (i) by striking out "preceding calendar year or calendar quarter" each place it appears and inserting in lieu thereof "preceding calendar period", (ii) by striking out "under this chapter for any calendar quarter" and inserting in lieu thereof "under this chapter for any calendar year", (iii) by striking out "section 2502(c)" and inserting in lieu thereof "section 2502(b)", and (iv) by striking out "PRECEDING CALENDAR YEARS AND QUARTERS" in the subsection heading and inserting in lieu thereof "PRECEDING CALENDAR PERIODS".

(D) The section heading for section 2504 is amended by striking out "PRECEDING YEARS AND QUARTERS" and inserting in lieu thereof "PRECEDING CALENDAR PERIODS". (E) The table of sections for subchapter A of chapter 12 is amended by striking out "preceding years and quarters" in the item relating to section 2504 and inserting in lieu thereof "preceding calendar periods". (5) SECTION 2505.— 26 USC 2505. (A) Subsection (a) of section 2505 is amended— (i) by striking out "each calendar quarter" and inserting in lieu thereof "each calendar year", and (ii) by striking out "preceding calendar quarters" and inserting in lieu thereof "preceding calendar periods".

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PUBLIC LAW 97-34—AUG. 13, 1981 (B) Subsection (d) of section 2505 is amended by striking out "calendar quarter" each place it appears and inserting in lieu thereof calendar year'.

26 USC 2512. 26 USC 2513.

26 USC 2522.

(b) AMENDMENTS TO SUBCHAPTER B OF CHAPTER 12.— (1) SECTION 2512.—Subsection (b) of section 2512 is amended

by striking out "calendar quarter" and inserting in lieu thereof "calendar year". (2) SECTION 2513.— (A) Section 2518(a) is amended by striking out "calendar quarter" each place it appears and inserting in lieu thereof calendar year. (B) Paragraph (2) of section 2513(b) is amended by striking out "calendar quarter" in the matter preceding subparagraph (A) and inserting in lieu thereof "calendar year". (C) Subparagraph (A) of subsection (b)(2) of section 2513 is amended to read as follows: "(A) The consent may not be signified after the 15th day of April following the close of such year, unless before such 15th day no return has been filed for such year by either spouse, in which case the consent may not be signified after a return for such year isfiledby either spouse." (D) Subparagraph (B) of subsection (b)(2) of section 2513 is amended— (i) by striking out "the consent" and inserting in lieu thereof "The consent", and (ii) by striking out "such calendar quarter" and inserting in lieu thereof "such year". (E) Subsection (c) of section 2513 is amended— (i) by striking out "calendar quarter" and inserting in lieu thereof "calendar year", and (ii) by striking out "15th day of the second month following the close of such quarter" and inserting in lieu "15th day of April following the close of such year". (F) Subsection (d) of section 2513 is amended— (i) by striking out "any calendar quarter" and inserting in lieu thereof "any calendar year", and (ii) by striking out "such calendar quarter" and inserting in lieu thereof "such year". (c) AMENDMENT TO SUBCHAPTER C OF CHAPTER 12.—Soction 2522 is amended by striking out "quarter" each place it appears and inserting in lieu thereof "year". (d) MISCELLANEOUS AMENDMENTS.—

26 USC 1015.

26 USC 6019. 26 USC 6075.

(1) Paragraph (2) of subsection (d) of section 1015 (relating to increased basis for gift tax paid) is amended— (A) by striking out "calendar quarter (or calendar year if the gift was made before January 1, 1971)" and inserting in lieu thereof "calendar year (or preceding calendar period)", and (B) by striking out "calendar quarter or year" each place it appears and inserting in lieu thereof "calendar year or period". (2) Section 6019 (relating to gift tax returns) is amended by striking out subsection (b). (3) Subsection (b) of section 6075 (relating to time for filing gift tax returns) is amended to read as follows: "(b) GIFT TAX RETURNS.—

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95 STAT. 323

"(1) GENERAL RULE.—Returns made under section 6019 (relating to gift taxes) shall be filed on or before the 15th day of April following the close of the calendar year. "(2)

EXTENSION WHERE TAXPAYER GRANTED EXTENSION FOR

FILING INCOME TAX RETURN.—Any extension of time granted the taxpayer for filing the return of income taxes imposed by subtitle A for any taxable year which is a calendar year shall be deemed to be also an extension of time granted the taxpayer for filing the return under section 6019 for such calendar year. "(3) COORDINATION WITH DUE DATE FOR ESTATE TAX RETURN.—

Notwithstanding paragraphs (1) and (2), the time for filing the return made under section 6019 for the calendar year which includes the date of death of the donor shall not be later than the time (including extensions) for filing the return made under section 6018 (relating to estate tax returns) with respect to such donor." (4) Paragraph (1) of section 6212(c) (relating to notice of 26 USC 6212. deficiency) is amended by striking out "calendar quarter" and inserting in lieu thereof "calendar year", (e) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 2501 note. apply with respect to gifts made after December 31, 1981.

TITLE V—TAX STRADDLES SEC. 501. POSTPONEMENT OF RECOGNITION OF LOSSES, ETC.

(a) GENERAL RULE.—Part VII of subchapter O of chapter 1 (relating to wash sales of stock or securities) is amended by adding at the end thereof the following new section: "SEC. 1092. STRADDLES. "(a) RECOGNITION OF LOSS IN CASE OF STRADDLES, ETC.— "(1) LIMITATION ON RECOGNITION OF LOSS.—

"(A) IN GENERAL.—Any loss with respect to 1 or more positions shall be taken into account for any taxable year only to the extent that the amount of such loss exceeds the unrealized gain (if any) with respect to 1 or more positions which— "(i) were acquired by the taxpayer before the disposition giving rise to such loss, "(ii) were offsetting positions with respect to the 1 or more positions from which the loss arose, and "(iii) were not part of an identified straddle as of the close of the taxable year. "(B) CARRYOVER OF LOSS.—Any loss which may not be taken into account under subparagraph (A) for any taxable year shall, subject to the limitations under subparagraph (A), be treated as sustained in the succeeding taxable year. "(2) SPECIAL RULE FOR IDENTIFIED STRADDLES.—

"(A) IN GENERAL.—In the case of any straddle which is an identified straddle as of the close of any taxable year— "(i) paragraph (1) shall not apply for such taxable year, and "(ii) any loss with respect to such straddle shall be treated as sustained not earlier than the day on which all of the positions making up the straddle are disposed of.

26 USC 1092.

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PUBLIC LAW 97-34—AUG. 13, 1981 "(B) IDENTIFIED STRADDLE.—The term 'identified straddle' means any straddle— "(i) which is clearly identified on the taxpayer's records, before the close of the day on which the straddle is acquired, as an identified straddle, "(ii) all of the original positions of which (as identified by the taxpayer) are acquired on the same day and with respect to which— "(I) all of such positions are disposed of on the same day during the taxable year, or "(II) none of such positions has been disposed of as of the close of the taxable year, and "(iii) which is not part of a larger straddle. "(3) UNREAUZED GAIN.—For purposes of this subsection— "(A) IN GENERAL.—The term 'unrealized gain' means the amount of gain which would be taken into account with respect to any position held by the taxpayer as of the close of the taxable year if such position were sold on the last business day of such taxable year a t its fair market value. "(B) REPORTING OF GAIN.—

"(i) IN GENERAL.—Each taxpayer shall disclose to the Secretary, at such time and in such manner and form as the Secretary may prescribe by regulations— "(I) each position (whether or not part of a straddle) which is held by such taxpayer as of the close of the taxable year and with respect to which there is unrealized gain, and "(II) the amount of such unrealized gain, "(ii) REPORTS NOT REQUIRED IN CERTAIN CASES.—Clause

Post, p. 327.

(i) shall not apply— "(I) to any position which is part of an identified straddle, "(II) to any position which, with respect to the taxpayer, is property described in paragraph (1) or (2) of section 1221 or to any position which is part of a hedging transaction (as defined in section 1256(e)), or "(III) with respect to any taxable year if no loss on a position (including a regulated futures contract) has been sustained during such taxable year or if the only loss sustained on such position is a loss described in subclause (II). "(b) CHARACTER OF GAJN OR Loss; WASH SALES.—Under regulations prescribed by the Secretary, in the case of gain or loss with respect to any position of a straddle, rules which are similar to the rules of subsections (a) and (d) of section 1091 and of subsections (b) and (d) of section 1233 and which are consistent with the purposes of this section shall apply. "(c) STRADDLE DEFINED.—For purposes of this section— "(1) IN GENERAL.—The term 'straddle' means offsetting positions with respect to personal property. "(2) OFFSETTING POSITIONS.—

"(A) IN GENERAL.—A taxpayer holds offsetting positions with respect to personal property if there is a substantial diminution of the taxpayer's risk of loss from holding any position with respect to personal property by reason of his holding 1 or more other positions with respect to personeil property (whether or not of the same kind).

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"(B) ONE SIDE LARGER THAN OTHER SIDE.—If 1 or more positions offset only a portion of 1 or more other positions, the Secretary shall by regulations prescribe the method for determining the portion of such other positions which is to be taken into account for purposes of this section. "(C) SPECIAL RULE FOR IDENTIFIED STRADDLES.—In the case of any position which is not part of an identified straddle (within the meaning of subsection (a)(3)(B)), such position shall not be treated as offsetting with respect to any position which is part of an identified straddle. "(3) PRESUMPTION.—

"(A) IN GENERAL.—For purposes of paragraph (2), 2 or more positions shall be presumed to be offsetting if— "(i) the positions are in the same personal property (whether established in such property or a contract for such property), "(ii) the positions are in the same personal property, even though such property may be in a substantially altered form, "(iii) the positions are in debt instruments of a similar maturity or other debt instruments described in regulations prescribed by the Secretary, "(iv) the positions are sold or marketed as offsetting positions (whether or not such positions are called a straddle, spread, butterfly, or any similar name), "(v) the aggregate margin requirement for such positions is lower than the sum of the margin requirements for each such position (if held separately), or "(vi) there are such other factors (or satisfaction of subjective or objective tests) as the Secretary may by regulations prescribe as indicating that such positions are offsetting. For purposes of the preceding sentence, 2 or more positions shall be treated as described in clause (i), (ii), (iii), or (vi) only if the value of 1 or more of such positions ordinarily varies inversely with the value of 1 or more other such positions. "(B) PRESUMPTION MAY BE REBUTTED.—Any presumption

established pursuant to subparagraph (A) may be rebutted. "(d) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) PERSONAL PROPERTY.—The term 'personal property' means any personal property (other than stock) of a type which is actively traded. "(2) POSITION.—

"(A) IN GENERAL.—The term 'position' means an interest (including a futures or forward contract or option) in personal property. "(B) SPECIAL RULE FOR STOCK OPTIONS.—The term 'position' includes any stock option which is a part of a straddle and which is an option to buy or sell stock which is actively traded, but does not include a stock option which— "(i) is traded on a domestic exchange or on a similar foreign exchange designated by the Secretary, and "(ii) is of a type with respect to which the maximum period during which such option may be exercised is less than the minimum period for which a capital asset must be held for gain to be treated as long-term capital gain under section 1222(3).

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PUBLIC LAW 97-34—AUG. 13, 1981 "(3) POSITIONS HELD BY RELATED PERSONS, ETC.—

"(A) IN GENERAL.—In determining whether 2 or more positions are offsetting, the taxpayer shall be treated as holding any position held by a related person. "(B) RELATED PERSON.—For purposes of subparagraph (A), a person is a related person to the taxpayer if with respect to any period during which a position is held by such person, such person— "(i) is the spouse of the taxpayer, or "(ii) files a consolidated return (within the meaning of section 1501) with the taxpayer for any taxable year which includes a portion of such period. "(C) CERTAIN FLOWTHROUGH ENTITIES.—If part or all of the gain or loss with respect to a position held by a partnership, trust, or other entity would properly be taken into account for purposes of this chapter Dy a taxpayer, then, except to the extent otherwise provided in regulations, such position shall be treated as held by the taxpayer.

"(4) SPECIAL RULE FOR REGULATED FUTURES CONTRACTS.—In the

Post, p. 327.

case of a straddle— "(A) at least 1 (but not all) of the positions of which are regulated futures contracts, and (B) with respect to which the taxpayer has elected not to have the provisions of section 1256 apply, the provisions of this section shall apply to any regulated futures contract and any other position making up such straddle. "(5) REGULATED FUTURES CONTRACT.—The term 'regulated futures contract' has the same meaning given such term by section 1256(b). "(e) EXCEPTION FOR HEDGING TRANSACTIONS.-This section shall not apply in the case of any hedging transaction (as defined in section 1256(e)). "(f) CROSS REFERENCE.—

"For provision requiring capitalization of certain interest and carrying charges where there is a straddle, see section 263(g)."

26 USC 6653.

(b) PENALTY FOR FAILURE To DISCLOSE.—Soction 6653 (relating to failure to pay tax) is amended by adding at the end thereof the following new subsection: "(g) SPECIAL RULE IN CASES OF FAILURE TO REPORT UNREALIZED GAIN ON POSITION IN PERSONAL PROPERTY.—If—

Ante, p. 323.

26 USC 1233.

"(1) a taxpayer fails to make the report required under section 1092(a)(3)(B) in the manner prescribed by such section and such failure is not due to reasonable cause, and "(2) such taxpayer has an underpayment of any tax attributable (in whole or in part) to the denial of a deduction of a loss with respect to any position (within the meaning of section 1092(d)(2)), then such underpayment shall, for purposes of subsection (a), be treated as an underpayment due to negligence or intentional disregard of rules and regulations (but without intent to defraud)." (c) AppucATiON WiTH SECTION 1233.—Paragraph (2) of section 1233(e) (defining property to which section applies) is amended by inserting ", but does not include any position to which section 1092(b) applies" after "taxpayer" in subparagraph (A), (d) CLERICAL AMENDMENTS.—

(1) The table of sections for such part VII is amended by adding at the end thereof the following new item: "Sec. 1092. Straddles."

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(2) The heading for such part VII is amended to read as follows: "PART VII—WASH SALES; STRADDLES". (3) The table of parts for subchapter O of chapter 1 is amended by striking out the item relating to part VII and inserting in lieu thereof the following: "Part VII. Wash sales; straddles." SEC. 502. CAPITALIZATION OF CERTAIN INTEREST AND CARRYING CHARGES IN THE CASE OF STRADDLES.

Section 263 (relating to capital expenditures) is amended by adding 26 USC 263. at the end thereof the following new subsection: "(g) CERTAIN INTEREST AND CARRYING COSTS IN THE CASE OF STRADDLES.— "(1) GENERAL RULE.—No deduction shall be allowed for interest

and carrying charges properly allocable to personal property which is part of a straddle (as defined in section 1092(c)). Any Ante, p. 323. amount not allowed as a deduction by reason of the preceding sentence shall be chargeable to the capital account with respect to the personal property to which such amount relates. "(2) INTEREST AND CARRYING CHARGES DEFINED.—For purposes of paragraph (1), the term 'interest and carrying charges' means the excess of— "(A) the sum of— "(i) interest on indebtedness incurred or continued to purchase or carry the personal property, and "(ii) amounts paid or incurred to insure, store, or transport the personal property, over "(B) the sum of— "(i) the amount of interest (including original issue discount) includible in gross income for the taxable year with respect to the property described in subparagraph (A), and "(ii) any amount treated as ordinary income under section 1232(a)(4)(A) with respect to such property for Post, p. 331. the taxable year. "(3) EXCEPTION FOR HEDGING TRANSACTIONS.—This subsection shall not apply in the case of any hedging transaction (as defined in section 1256(e))."

SEC. 503. REGULATED FUTURES CONTRACTS MARKED TO MARKET.

(a) GENERAL RULE.—Part IV of subchapter P of chapter 1 (relating to special rules for determining capital gains and losses) is amended by adding at the end thereof the following new section: "SEC. 1256. REGULATED FUTURES CONTRACTS MARKED TO MARKET.

"(a) GENERAL RULE.—For purposes of this subtitle— "(1) each regulated futures contract held by the taxpayer at the close of the taxable year shall be treated as sold for its fair market value on the last business day of such taxable year (and any gain or loss shall be taken into account for the taxable year), "(2) proper adjustment shall be made in the amount of any gain or loss subsequently realized for gain or loss taken into account by reason of paragraph (1), "(3) any gain or loss with respect to a regulated futures contract shall be treated as—

89-194 0—82

23:QL3

26 USC 1256.

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Ante, pp. 323, ^^"7

PUBLIC LAW 97-34—AUG. 13, 1981 "(A) short-term capital gain or loss, to the extent of 40 percent of such gain or loss, and "(B) long-term capital gain or loss, to the extent of 60 percent of such gain or loss, and "(4) if all the offsetting positions making up any straddle consist of regulated futures contracts to which this section applies (and such straddle is not part of a larger straddle). sections 1092 and 263(g) shall not apply with respect to such straddle. "(b) REGULATED FUTURES CONTRACTS DEFINED.—For purposes of this section, the term 'regulated futures contract' means a contract— "(1) which requires delivery of personal property (as defined in section 1092(d)(l)) or an interest in such property; "(2) with respect to which the amount required to be deposited and the amount which may be withdrawn depends on a system of marking to market; and "(3) which is traded on or subject to the rules of a domestic board of trade designated as a contract market by the Commodity Futures Trading Commission or of any board of trade or exchange which the Secretary determines has rules adequate to carry out the purposes of this section. "(c) TERMINATIONS.—The rules of paragraphs (1), (2), and (3) of subsection (a) shall also apply to the termination during the taxable year of the taxpayer's obligation with respect to a regulated futures contract by offsetting, by taking or making delivery, or otherwise. For purposes of the preceding sentence, fair market value at the time of the termination shall be taken into account. "(d) ELECTIONS WITH RESPECT TO MIXED STRADDLES.—

"(1) ELECTION.—The taxpayer may elect to have this section not to apply to all regulated futures contracts which are part of a mixed straddle. "(2) TIME AND MANNER.—An election under paragraph (1) shall be made at such time and in such manner as the Secretary may by regulations prescribe. "(3) ELECTION REVOCABLE ONLY WITH CONSENT.—An election under paragraph (1) shall apply to the taxpayer's taxable year for which made and to all subsequent taxable years, unless the Secretary consents to a revocation of such election. "(4) MIXED STRADDLE.—For purposes of this subsection, the term 'mixed straddle' means any straddle (as defined in section 1092(c))— "(A) at least 1 (but not all) of the positions of which are regulated futures contracts, and "(B) with respect to which each position forming part of such straddle is clearly identified, before the close of the day on which such position is acquired, as being part of such straddle. "(e) MARK TO MARKET NOT TO APPLY TO HEDGING TRANSACTIONS.— "(1) SECTION NOT TO APPLY.—Subsection (a) shall not apply in

the case of a hedging transaction. "(2) DEFINITION OF HEDGING TRANSACTION.—For purposes of

this subsection, the term 'hedging transaction' means any transaction i— f • "(A) such transaction is entered into by the taxpayer in the normal course of the taxpayer's trade or business primarily—

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 PUBLIC LAW 97-34—AUG. 13, 1981 "(i) to reduce risk of price change or currenqr fluctuations with respect to property which is held or to be held by the teixpayer, or "(ii) to reduce risk of interest rate or price changes or currency fluctuations with respect to borrowings made or to be made, or obligations incurred or to be incurred, by the taxpayer, "(B) the gain or loss on such transactions is treated eis ordinary income or loss, and "(C) before the close of the day on which such transaction was entered into, the taxpayer clearly identifies such transaction as being a hedging transaction. "(3) SPECIAL RULE FOR SYNDICATES.—

"(A) IN GENERAL.—Notwithstanding paragraph (2), the term 'hedging transaction' shall not include any transaction entered into by or for a syndicate. "(B) SYNDICATE DEFINED.—For purposes of subparagraph (A), the term 'syndicate* means any partnership or other entity (other than a corporation which is not an electing small business corporation within the meaning of section 1371(b)) if more than 35 percent of the losses of such entity during the taxable year are allocable to limited partners or limited entrepreneurs (within the meaning of section 464(e)(2)). "(C) HOLDINGS ATTRIBUTABLE TO ACTIVE MANAGEMENT.—

For purposes of subparagraph (B), an interest in an entity shall not be treated as held by a limited partner or a limited entrepreneur (within the meaning of section 464(e)(2))— "(i) for any period if during such period such interest is held by an individual who actively participates at all times during such period in the management of such entity, "(ii) for any period if during such period such interest is held by the spouse, children, grandchildren, and parents of an individual who actively participates at all times during such period in the management of such entity, "(iii) if such interest is held by an individual who actively participated in the management of such entity for a period of not less than 5 years, "(iv) if such interest is held by the estate of an individual who actively participated in the management of such entity or is held by the estate of an individual if with respect to such individual such interest weis at any time described in clause (ii), or "(v) if the Secretary determines that such interest should be treated as held by an individual who actively participates in the management of such entity, and that such entity and such interest are not used (or to be used) for tax-avoidance purposes. For purposes of this subparagraph, a legally adopted child of an individual shall be treated as a child of such individual by blood. "(4) SPECIAL RULE FOR BANKS.—In the case of a bank (as defined in section 581), subparagraph (A) of paragraph (2) shall be applied without regard to clause (i) or (ii) thereof. "(f) SPECIAL RULES.—

95 STAT. 329

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PUBLIC LAW 97-34—AUG. 13, 1981 "(1) DENIAL OF CAPITAL GAINS TREATMENT FOR PROPERTY IDENTIFIED AS PART OF A HEDGING TRANSACTION.—For purposGs of this

Ante, p. 323.

title, gain from any property shall in no event be considered as gain from the sale or exchange of a capital asset if such property was at any time personal property (as defined in section 1092(d)(1)) identified under subsection (e)(2)(C) by the taxpayer as being part of a hedging transaction. "(2) SUBSECTION (a)(3) NOT TO APPLY TO ORDINARY INCOME PROPERTY.—Paragraph (3) of subsection (a) shall not apply to any gain or loss which, but for such paragraph, would be ordinary income or loss." (b) CLERICAL AMENDMENT.—The table of sections for part IV of subchapter P of chapter 1 is amended by adding at the end thereof the following new item: "Sec. 1256. Regulated futures contracts marked to market.". SEC. 504. CARRYBACK OF LOSSES FROM REGULATED FUTURES CONTRACTS TO OFFSET PRIOR GAINS FROM SUCH CONTRACTS.

26 USC 1212.

Section 1212 (relating to capital loss carrybacks and carryovers) is amended by adding at the end thereof the following new subsection: "(c) CARRYBACK OF LOSSES FROM REGULATED FUTURES CONTRACTS TO OFFSET PRIOR GAINS FROM SUCH CONTRACTS.—

"(1) IN GENERAL.—If a taxpayer (other than a corporation) has a net commodity futures loss for the taxable year and elects to have this subsection apply to such taxable year, the amount of such net commodity futures loss— "(A) shall be a carryback to each of the 3 taxable years preceding the loss year, and "(B) to the extent that, after the application of paragraphs (2) and (3), such loss is allowed as a carryback to any such preceding tsixable year— "(i) 40 percent of the amount so allowed shall be treated as a short-term capital loss from regulated futures contracts, and "(ii) 60 percent of the amount so allowed shall be treated as a long-term capital loss from regulated futures contracts. "(2) AMOUNT CARRIED TO EACH TAXABLE YEAR.—The entire amount of the net commodity futures loss for any taxable year shall be carried to the earliest of the taxable years to which such loss may be carried back under paragraph (1). The portion of such loss which shall be carried to each of the 2 other taxable years to which such loss may be carried back shall be the excess (if any) of such loss over the portion of such loss which, after the application of paragraph (3), was allowed as a carryback for any prior taxable year. "(3) AMOUNT WHICH MAY BE USED IN ANY PRIOR TAXABLE

YEAR.—An amount shall be allowed as a carryback under paragraph (1) to any prior taxable year only to the extent— "(A) such amount does not exceed the net commodity futures gain for such year, and "(B) the allowance of such carryback does not increase or produce a net operating loss (as defined in section 172(c)) for such year. "(4) NET COMMODITY FUTURES LOSS.—For purposes of paragraph (1), the term 'net commodity futures loss' means the lesser of— "(A) the net capital loss for the taxable year determined by taking into account only gains and losses from regulated

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futures contracts and positions to which section 1256 applies, Ante, p. 327. or "(B) the sum of the amounts which, but for paragraph (6)(A), would be treated as capital losses in the succeeding taxable year under subparagraphs (A) and (B) of subsection (b)(1). "(5) NET COMMODITY FUTURES GAIN.—For purposes of paragraph (D— "(A) IN GENERAL.—The term 'net commodity futures gain' means the lesser of^ "(i) the capital gain net income for the taxable year determined by taking into account only gains and losses from regulated futures contracts, or "(ii) the capital gain net income for the taxable year. "(B) SPECIAL RULE.—The net commodity futures gain for any taxable year before the loss year shall be computed without regard to the net commodity futures loss for the loss year or for any taxable year thereafter. "(6) COORDINATION WITH CARRYFORWARD PROVISIONS OF SUBSEC-

TION (b)(1).— "(A) CARRYFORWARD AMOUNT REDUCED BY AMOUNT USED AS

CARRYBACK.—For purposos of applying subsection (b)(1), if any portion of the net commodity futures loss for any taxable year is allowed as a carryback under paragraph (1) to any preceding taxable year— "(i) 40 percent of the amount allowed as a carryback shall be treated as a short-term capital gain for the loss year, and "(ii) 60 percent of the amount allowed as a carryback shall be treated as a long-term capital gain for the loss year. "(B) CARRYOVER LOSS RETAINS CHARACTER AS ATTRIBUTABLE TO REGULATED FUTURES CONTRACT.—Any amount carried

forward as a short-term or long-term capital loss to any taxable year under subsection (b)(1) (after the application of subparagraph (A)) shall, to the extent attributable to losses from regulated futures contracts, be treated as loss from regulated futures contracts for such taxable year. "(7) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of

this subsection— "(A) REGULATED FUTURES CONTRACT.—The term 'regulated futures contract' means any regulated futures contract (as defined in section 1256(b)) to which section 1256 applies. "(B) EXCLUSION FOR ESTATES AND TRUSTS.—This subsection shall not apply to any estate or trust." SEC. 505. CERTAIN GOVERNMENTAL OBLIGATIONS ISSUED AT DISCOUNT TREATED AS CAPITAL ASSETS.

(a) GENERAL RULE.—Section 1221 (defining capital asset) is 26 USC 1221. amended by striking out paragraph (5) and by redesignating paragraph (6) as paragraph (5). (b) TREATMENT OF AMOUNTS RECEIVED ON SALE OR OTHER DISPOSI-

TION.—Subsection (a) of section 1282 (relating to bonds and other 26 USC 1232. evidences of indebtedness) is amended by adding at the end thereof the following new paragraph: "(4) CERTAIN SHORT-TERM GOVERNMENT OBLIGATIONS.—

"(A) IN GENERAL.—On the sale or exchange of any shortterm Government obligation, any gain realized which does

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PUBLIC LAW 97-34—AUG. 13, 1981 not exceed an amount equal to the ratable share of the acquisition discount shall be treated as ordinary income. Gain in excess of such amount shall be considered gain from the sale or exchange of a capiteil asset held less than 1 year. "(B) SHORT-TERM GOVERNMENT OBLIGATION.—For purposes of this paragraph, the term 'short-term Government obligation' means any obligation of the United States or any of its possessions, or of a State or any political subdivision thereof, or of the District of Columbia which is issued on a discount basis and payable without interest at a fixed maturity date not exceeding 1 year from the date of issue. Such term does not include any obligation the interest on which is not includible in gross income under section 103 (relating to certain governmental obligations). "(C) ACQUISITION DISCOUNT.—For purposes of this paragraph, the term 'acquisition discount' means the excess of the stated redemption price at maturity over the taxpayer's basis for the obligation. "(D) RATABLE SHARE.—For purposes of this paragraph, the ratable share of the acquisition discount is an amount which bears the same ratio to such discount as— "(i) the number of days which the taxpayer held the obligation, bears to "(ii) the number of days after the date the taxpayer acquired the obligation and up to (and including) the date of its maturity." (c) TECHNICAL AMENDMENTS.—

26 USC 1231. 26 USC 341.

26 USC 1236.

(1) Subparagraph (D) of section 1231(b)(l) is amended by striking out "paragraph (6)" and inserting in lieu thereof "paragraph (5)'. (2) Subparagraph (B) of section 341(c)(2) is amended by striking out "(and governmental obligations described in section 1221(5))". SEC. 506. PROMPT IDENTIFICATION OF SECURITIES BY DEALERS IN SECURITIES. (a) IN GENERAL.—Subsection (a) of section 1236 (relating to dealers in securities) is amended— (1) by striking out "before the expiration of the 30th day after the date of its acquisition" and inserting in lieu thereof before the close of the day on which it was acquired (before the close of the following day in the case of an acquisition before January 1, 1982)", and (2) by striking out "expiration of such 30th day" and inserting in lieu thereof 'xlose of such day". (b) SPECIAL RULE FOR FLOOR SPECIALISTS.—Section 1236 (relating to dealers in securities) is amended by adding at the end thereof the following new subsection: "(d) SPECIAL RULE FOR FLOOR SPECIALISTS.—

"(1) IN GENERAL.—In the case of a floor specialist (but only with respect to acquisitions, in connection with his duties on an exchange, of stock in which the specialist is registered with the exchange), subsection (a) shall be applied— "(A) by inserting 'the 7th business day following' before 'the day the first place it appears in paragraph (1) and by inserting '7th business' before 'day' in paragraph (2), and "(B) by striking the parenthetical phrase in paragraph (1).

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"(2) FLOOR SPECIALIST.—The term 'floor specialist' means a person who is— "(A) a member of a national securities exchange, "(B) is registered as a specialist with the exchange, and "(C) meets the requirements for specialists established by the Securities and Exchange Commission." SEC. 507. TREATMENT OF GAIN OR LOSS FROM CERTAIN TERMINATIONS. (a) GENERAL RULE.—Part IV of subchapter P of chapter 1 (relating to special rules for determining capital gains and losses) is amended by inserting after section 1234 the following new section: "SEC. 1234A. GAINS OR LOSSES FROM CERTAIN TERMINATIONS. 26 USC 1234A. "Gain or loss attributable to the cancellation, lapse, expiration, or other termination of a right or obligation with respect to personal property (as defined in section 1092(d)(1)) which is (or on acquisition Ante, p. 323. would be) a capital asset in the hands of the taxpayer shall be treated as gain or loss from the sale of a capital asset." (b) CLERICAL AMENDMENT.—The table of sections for part IV of subchapter P of chapter 1 is amended by inserting after the item relating to section 1234 the following new item: "Sec. 1234A. Gains or losses from certain terminations." SEC. 508. EFFECTIVE DATES.

26 USC 1092

(a) IN GENERAL.—Except as otherwise provided in this section, the amendments made by this title shall apply to property acquired and positions established by the taxpayer after June 23, 1981, in taxable years ending after such date. (b) IDENTIFICATION REQUIREMENTS.— (1) UNDER SECTION 1236 OF CODE.—The

amendments made by section 506 shall apply to property acquired by the taxpayer after the date of the enactment of tms Act in taxable years ending after such date. (2) UNDER SECTION I256(e)(2)(0 OF CODE.—Section 1256(e)(2)(C) of Ante, p. 327. the Internal Revenue Code of 1954 (as added by this title) shall apply to property acquired and positions established by the taxpayer after December 31, 1981, in taxable years ending after such date. (c) ELECTION WITH RESPECT TO PROPERTY HELD ON JUNE 23, 1981.— If the taxpayer so elects (at such time and in such manner as the Secretary of the Treasury or his delegate shall prescribe) with respect to all regulated futures contracts or positions held by the taxpayer on June 23, 1981, the amendments made by this title shall apply to all such contracts and positions, effective for periods after such date in taxable years ending after such date. For purposes of the preceding sentence, the term "regulated futures contract" has the meaning given to such term by section 1256(b) of the Internal Revenue Code of 1954, and the term "position" has the meaning given to such term by section 1092(d)(2) of such Code. SEC. 509. ELECTION FOR EXTENSION OF TIME FOR PAYMENT AND APPLICATION OF SECTION 1256 FOR THE TAXABLE YEAR INCLUDING JUNE 23, 1981. (a) ELECTION.— 26 USC i256 (1) IN GENERAL.—In the case of any taxable year beginning ^°^^before June 23, 1981, and ending after June 22, 1981, the taxpayer may elect, in lieu of any election under section 508(c), to

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Ante, p. 327.

PUBLIC LAW 97-34—AUG. 13, 1981 have this section apply to all regulated futures contracts held during such taxable year. (2) APPLICATION OF SECTION 1256.—If a taxpayer elects to have the provisions of this section apply to the taxable year described in paragraph (1).— (A) the provisions of section 1256 of the Internal Revenue Code of 1954 (other than section 1256(e)(2)(C)) shall apply to regulated futures contracts held by the taxpayer at any time during such taxable year, and (B) for purposes of determining the rate of tax applicable to gains and losses from regulated futures contracts held at any time during such year, such gains and losses shall be treated as gain or loss from a sale or exchange occurring in a taxable year beginning in 1982. (3) DETERMINATION OF DEFERRED TAX LIABILITY.—If the taxpayer makes an election under this subsection.— (A) the taxpayer may pay part or all of the tax for such year in two or more (but not exceeding five) equal installments; (B) the maximum amount of tax which may be paid in installments under this section shall be the excess of— (i) the tax for such year, determined by taking into account paragraph (2), over (ii) the tax for such year, determined by taking into account paragraph (2) and by treating all regulated futures contracts which were held by the taxpayer on the first day of the taxable year described in paragraph (1), and which were acquired before the first day of such taxable year, as having been acquired for a purchase price equal to their fair market value on the last business day of the preceding taxable year. (4) DATE FOR PAYMENT OF INSTALLMENT.—

26 USC 6601.

(A) If an election is made under this subsection, the first installment under subsection (a)(3)(A) shall be paid on or before the due date for filing the return for the taxable year described in paragraph (1), and each succeeding installment shall be paid on or before the date which is one year after the date prescribed for payment of the preceding installment. (B) If a bankruptcy case or insolvency proceeding involving the taxpayer is commenced before the final installment is paid, the total amount of any unpaid installments shall be treated as due and payable on the day preceding the day on which such case or proceeding is commenced. (5) INTEREST IMPOSED.—For purposes of section 6601 of the Internal Revenue Code of 1954, the time for payment of any tax with respect to which an election is made under this subsection shall be determined without regard to this subsection, (b) FORM OF ELECTION,—An election under this section shall be made not later than the time for filing the return for the taxable year described in subsection (a)(1) and shall be made in the manner and form required by regulations prescribed by the Secretary. The election shall set forth— (1) the amount determined under subsection (a)(3)(B) and the number of installments elected by the taxpayer, (2) each regulated futures contract held by the taxpayer on the first day of the taxable year described in subsection (a)(1), and the date such contract was acquired, (3) the fair market value on the last business day of such taxable year for each regulated futures contract described in subparagraph (B), and

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(4) such other information for purposes of carrying out the provisions of this section as may be required by such regulations.

TITLE VI—ENERGY PROVISIONS Subtitle A—Changes in Windfall Profit Tax SEC. 601. $2,500 ROYALTY CREDIT FOR 1981; EXEMPTION FOR 1982 AND THEREAFTER.

(a) $2,500 ROYALTY CREDIT FOR 1981.— (1) IN GENERAL.—Subsection (a) of section 6429 (relating to 26 USC 6429. treatment as overpayment) is amended to read as follows: "(a) TREATMENT AS OVERPAYMENT.—In the case of a qualified royalty owner, that portion of the tax imposed by section 4986 which is paid in connection with qualified royalty production removed from the premises during calendar year 1981 shall be treated as an overpayment of the tax imposed by section 4986." (2) INCREASE IN AMOUNT OF CREDIT.—Paragraph (1) of section 6429(c) (relating to $1,000 limitation on credit or refund) is amended to read as follows: "(1) IN GENERAL.—The aggregate amount which may be treated as an overpayment under subsection (a) with respect to any qualified royalty owner for production removed from the premises during calendar year 1981 shall not exceed $2,500." (3) CONFORMING AMENDMENTS.—Subsection (c) of section 6429 is amended— (A) by striking out "$1,000" each place it appears and inserting in lieu thereof "$2,500", and (B) by striking out "qualified period" each place it appears and inserting in lieu thereof "calendar year". (4) DEFINITION OF QUALIFIED ROYALTY PRODUCTION.—Subsection

(d) of section 6429 is amended by striking out paragraphs (2) and (3) and inserting in lieu thereof the following new paragraphs: "(2) QuAUFiED R Y L Y PRODUCTION.—The term 'qualified royO AT alty production' means, with respect to any qualified royalty owner, taxable crude oil which is attributable to an economic interest of such royalty owner other than an operating mineral interest (within the meaning of section 614(d)). Such term does not include taxable crude oil attributable to any overriding royalty interest, production payment, net profits interest, or similar interest of the qualified royalty owner which— "(A) is created after June 9, 1981, out of an operating mineral interest in property which is proven oil or gas property (within the meaning of section 613A(c)(9)(A)) on the date such interest is created, and "(B) is not created pursuant to a binding contract entered into prior to June 10, 1981. "(3) PRODUCTION FROM TRANSFERRED PROPERTY.—

"(A) IN GENERAL.—In the case of a transfer of an interest in any property, the qualified royalty production of the transferee shall not include any production attributable to

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PUBLIC LAW 97-34—AUG. 13, 1981 an interest that has been transferred after June 9, 1981, in a transfer which— "(i) is described in section 613A(c)(9)(A), and "(ii) is not described in section 613A(c)(9)(B). "(B) EXCEPTIONS.—Subparagraph (A) shall not apply in the case of any transfer so long as the transferor and the transferee are required by paragraph (3) or (4) of subsection (c) to share the $2,500 amount in subsection (c)(1). The preceding sentence shall apply to the case of any property only if the production from the property was qualified royalty production of the transferor. "(C) TRANSFERS INCLUDE SUBLEASES.—For purposes of this paragraph, a subleeise shall be treated as a transfer. "(D) ESTATES.—For purposes of this paragraph, property held by any estate shall be treated as owned both by such estate and proportionately by the beneficiaries of such estate." (5) QUALIFIED FAMILY FARM CORPORATION DEFINED.—Paragraph

26 USC 6429.

Ante, p. 312.

(4) of section 6429(d) is amended to read as follows: "(4) QUALIFIED FAMILY FARM CORPORATION.—The term 'qualified family farm corporation' means a corporation— "(A) all the outstanding shares of stock of which at all times during the calendar year are held by members of the same family (within the meaning of section 2032A(e)(2)), and "(B) 80 percent in value of the assets of which (other than royalty interests described in paragraph (2)(A)) are held by the corporation at all times during such calendar year for use for farming purposes (within the meaning of section 2032A(e)(5))." (6) CONFORMING AMENDMENTS.—

26 USC 6654.

26 USC 6655.

26 USC 31.

(A) Paragraph (3) of section 6654(f) (relating to failure by individuals to pay estimated income tax) is amended to read as follows: "(3) the sum of— "(A) the credits against tax allowed by part IV of subchapter A of chapter 1, other than the credit against tax provided by section 31 (relating to tax withheld on wages), plus "(B) to the extent allowed under regulations prescribed by the Secretary, any amount which is treated under section 6429 as an overpayment of the tax imposed by section 4986." (B) Paragraph (2) of section 6655(e) (relating to failure by corporation to pay estimated income tax) is amended to read as follows: "(2) the sum of— "(A) the credits against tax provided by part IV of subchapter A of chapter 1, plus "(B) to the extent allowed under regulations prescribed by the Secretary, any amount which is treated under section 6429 as an overpayment of the tax imposed by section 4986." (b) EXEMPTION FOR 1982 AND THEREAFTER.—

94 Stat. 235.

(1) IN GENERAL.—Subsection (b) of section 4991 is amended by striking out "and" at the end of paragraph (3), by striking out the period at the end of paragraph (4), and inserting in lieu thereof ", and", and by adding at the end thereof the following new paragraph: "(5) exempt royalty oil."

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(2) EXEMPT ROYALTY OIL.—Section 4994 is amended by adding 94 Stat. 241. at the end thereof the following new subsection: "(£) EXEMPT ROYALTY OIL.—

"(1) IN GENERAL.—For purposes of this chapter, the term 'exempt royalty oil' means that portion of the qualified royalty owner s qualified royalty production for the quarter which does not exceed the royalty limit for such quarter. "(2) ROYALTY LIMIT.—For purposes of this subsection— "(A) IN GENERAL.—A qualified royalty owner's royalty limit for any quarter is the product of— "(i) the number of days in such quarter, multiplied by "(ii) the limitation in barrels determined under the following table: "In the case of qualified royalty production during: 1982 1983 1984 1985 and thereafter

The limitation in barrels is: 2 2 2 3.

"(B) PRODUCTION EXCEEDS LIMITATION.—If a qualified royalty owner's qualified royalty production for any quarter exceeds the royalty limitation for such quarter, such royalty owner may allocate such limit to any qualified royalty production which he selects. "(3) DEFINITIONS.—

"(A) IN GENERAL.—The terms 'qualified royalty owner* and 'qualified royalty production' have the meanings given to such terms by section 6429; except that the reference to qualified taxable crude oil in section 6429(d) shall be treated as a reference to oil which would have been taxable crude oil but for this section. "(B) ALLOCATION.—Rules similar to the rules of paragraphs (2), (3), and (4) of section 6429(c) shall apply to the limitation determined under subsection (b)(1)." (3) ADJUSTMENTS TO WITHHOLDING.—Subsection (a) of section

4995 is amended by adding at the end thereof the following new 94 Stat. 244. paragraph: "(9) ADJUSTMENTS TO TAKE INTO ACCOUNT ROYALTY EXEMP-

TION.—The Secretary shall prescribe such regulations as may be necessary so that the withholding required under this subsection shall be reduced to take into account the exemption provided by section 4991(b)(5) (relating to exempt royalty oil), and he may Ante, p. 336. prescribe such other regulations as may be necessary to administer such exemption." (c) EFFECTIVE DATES.—

(1) Except as provided in paragraph (2), subsection (a) shall take effect on January 1, 1981. (2) The amendments made by paragraph (6) of subsection (a) shall take effect on January 1, 1980. (3) The amendments made by subsection (b) shall apply to oil removed after December 31, 1981.

26 USC 6429 ^°^^26 USC 4991 ^°^-

SEC. 602. REDUCTION IN TAX IMPOSED ON NEWLY DISCOVERED OIL.

(a) IN GENERAL.—Paragraph (3) of section 4987(b) (relating to 94 Stat. 230. applicable percentage) is amended to read as follows: "(3) TIER SOIL.—

"(A) IN GENERAL.—The applicable percentage for tier 3 oil which is not newly discovered oil is 30 percent.

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PUBLIC LAW 97-34—AUG. 13, 1981 "(B) NEWLY DISCOVERED OIL.—The applicable percentage for newly discovered oil shall be determined in accordeince with the following table: "For taxable periods beginning in: 1982 1983 1984 1985 1986 and ttiereaft«r

26 USC 4987 ^°^^-

Ante, p. 336.

26 USC 4994.

The applicable percentage is: 27M! 25 22V2 . 20 15 ".

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable periods beginning after December 31, 1981. SEC. 603. EXEMPT INDEPENDENT PRODUCER STRIPPER WELL OIL. (a) IN GENERAL.—Subsection (b) of section 4991 (as amended by section 601(b)) is amended by striking out "and" a t the end of paragraph (4), by striking out the period at the end of paragraph (5), and inserting in lieu thereof ", ana\ and by adding a t the end thereof the following new paragraph: "(6) exempt stripper well oil." (b) ExEMPT STRIPPER WELL OIL.—Soction 4994 (as amended by section 601(b)) is amended by adding at the end thereof the following new subsection: "(g) EXEMPT STRIPPER WELL OIL.—

"(1) IN GENERAL.—For purposes of this chapter, the term 'exempt stripper well oil' means any oil— "(A) the producer of which is an independent producer (within the meaning of section 4992(b)(l)), "(B) which is from a stripper well property within the meaning of the June 1979 energy regulations, and "(C) which is attributable to the independent producer's working interest in the stripper well property. "(2)

94 Stat. 236.

26 USC 4991 ^°^-

LIMITATION FOR CERTAIN TRANSFERRED PROPERTIES.—

Exempt stripper well oil does not include production attributable to an interest in any property which a t any time Eifter July 22, 1981, was owned by a person other than an independent producer (within the meaning of section 4992(b)(1))." (c) CONFORMING AMENDMENT.—Paragraph (2) of section 4992(c) (defining independent producer amount) is amended by adding a t the end thereof the following new sentence: "For purposes of the preceding sentence, tier 1 oil and tier 2 oil shall be treated as not including exempt stripper well oil." (d) EFFECTIVE DATE.—The amendments made by this section shall apply to oil removed from the premises after December 31, 1982. SEC. 604. EXEMPTION FROM WINDFALL PROFIT TAX OF OIL PRODUCED FROM INTERESTS HELD BY OR FOR THE BENEFIT OF RESIDENTIAL CHILD CARE AGENCIES. (a) EXEMPTION OF CHILD CARE AGENCIES FROM TAX.—Subparagraph

94 Stat. 241.

(A) of section 4994(b)(l) (relating to charitable interests exempt from windfall profit tax) is amended by redesignating clause (ii) as clause (iii) and by adding after clause (i) the following new clause: "(ii) held by an organization described in section 170(c)(2) which is organized and operated primarily for the residential placement, care, or treatment of aelinquent, dependent, orphaned, neglected, or handicapped children, or". (b) PERIOD INTEREST REQUIRED TO B E HELD.—

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(1) IN GENERAL.—Subparagraph (B) of section 4994(b)(1) is 94 Stat. 24i. amended to read as follows: "(B) such interest was held on January 21, 1980, and at all times thereafter before the last day of the taxable period, by the organization described in clause (i) or (ii) of subparagraph (A), or subclause (I) of subparagraph (A)(iii)." (2) INTERESTS HELD FOR THE BENEFIT OF CHILD CARE AGENCIES.—

Paragraph (2) of section 4994(b) is amended— (A) by striking out "paragraph (l)(A)(ii)" and inserting in lieu thereof "clause (ii) or (iii) of paragraph (1)(A)", and (B) by striking out "paragraph (l)(A)(i)" each place it appears and inserting in lieu thereoif "clause (i) or (ii) of paragraph dXA)". (c) CONFORMING AMENDMENTS.—

(1) Clause (i) of section 4994(b)(l)(A) is amended by striking out "or" at the end thereof. (2) Subclause (II) of section 4994(b)(l)(A)(ii) is amended by inserting "or (ii)" after "clause (i)". (d) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 4994 apply to taxable periods beginning after December 31, 1980. ^°^^-

Subtitle B—Miscellaneous Provision SEC. 611. APPLICATION OF CREDIT FOR PRODUCING NATURAL GAS FROM A NONCONVENTIONAL SOURCE WITH THE NATURAL GAS POLICY ACT OF 1978.

(a) IN GENERAL.—Subsection (e) of section 44D (relating to the 94 Stat. 268. credit for producing fuel from a nonconventional source) is amended to read as follows: "(e) APPLICATION WITH THE NATURAL GAS POLICY ACT OF 1978.— "(1) No CREDIT IF SECTION 107 OF THE NATURAL GAS POLICY ACT OF 1978 IS UTiuzED.—Subsection (a) shall apply with respect to 15 USC 3317. any natural gas described in subsection (c)(l)(B)(i) which is sold during the taxable year only if such natural gas is sold at a lawful price which is determined without regard to the provisions of section 107 of the Natural Gas Policy Act of 1978 and subtitle B of title I of such Act. 15 USC 3331. "(2) TREATMENT OF THIS SECTION.—For purposes of section 107(d) of the Natural Gas Policy Act of 1978, this section shall not be treated as allowing any credit, exemption, deduction, or comparable adjustment applicable to the computation of any Federal tax." (b) EFFECTIVE DATE.—The amendment made by this section shall 26 USC 44D apply to taxable years ending after December 31, 1979. ^°^-

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PUBLIC LAW 97-34—AUG. 13, 1981

TITLE VII—ADMINISTRATIVE PROVISIONS Subtitle A—Prohibition of Disclosure of Audit Methods 26 USC 6103.

26 USC 6103 "°^

SEC. 701. PROHIBITION OF DISCLOSURE OF METHODS FOR SELECTION OF TAX RETURNS FOR AUDITS. (a) GENERAL RULE.—Paragraph (2) of section 6103(b) (defining return information) is amended by adding at the end thereof the following new sentence: "Nothing in the preceding sentence, or in any other provision of law, shall be construed to require the disclosure of standards used or to be used for the selection of returns for examination, or data used or to be used for determining such standards, if the Secretary determines that such disclosure will seriously impair assessment, collection, or enforcement under the internal revenue laws." (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to disclosures after July 19, 1981.

Subtitle B—Changes in Interest Rate for Overpayments and Underpayments SEC. 711. CHANGES IN RATE OF INTEREST FOR OVERPAYMENTS AND UNDERPAYMENTS. (a) ANNUAL ADJUSTMENT TO RATE OP INTEREST.—Subsection (b) of

26 USC 6621.

section 6621 (relating to adjustment of interest rate) is amended by striking out the last sentence thereof. (b) RATE OP INTEREST TO BE BASED ON 100 PERCENT OP PRIME

RATE.—Subsection (c) of section 6621 is amended by striking out "90 percent of. (c) NEW RATE TO TAKE EFFECT ON JANUARY 1 OP EACH YEAR AFTER

1982.—Subsection (b) of section 6621 is amended by striking out "February 1" and inserting in lieu thereof "January 1. 26 USC 6621

^°^-

(d) EFFECTIVE DATES.— (1) FOR SUBSECTIONS (a) AND (b).—The amendments made by

subsections (a) and (b) shall apply to adjustments made after the date of the enactment of this Act. (2) FOR SUBSECTION (O.—The amendment made by subsection (c) shall apply to adjustments made for periods after 1982.

Subtitle C—Changes in Certain Penalties and in Requirements Relating to Returns 26 USC 6682.

SEC. 721. CHANGES IN PENALTIES FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. (a) CIVIL PENALTY.—Section 6682 (relating to false information with respect to withholding allowances based on itemized deductions) is amended to read as follows:

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"SEC. 6682. FALSE INFORMATION WITH RESPECT TO WITHHOLDING. "(a) CIVIL PENALTY.—In addition to any criminal penalty provided

by law, if— "(1) any individual makes a statement under section 3402 which results in a decrease in the amounts deducted and withheld under chapter 24, and 26 USC 340i et {2) as of the time such statement was made, there was no ««9 reasonable basis for such statement, such individual shall pay a penalty of $500 for such statement. "(b) EXCEPTION.—The Secretary may waive (in whole or in part) the penalty imposed under subsection (a) if the taxes imposed with respect to the individual under subtitle A for the taxable year are equal to or less than the sum of— "(1) the credits against such taxes allowed by part IV of subchapter A of chapter 1, and 26 USC 31. "(2) the payments of estimated tax which are considered payments on account of such taxes. "(c) DEFICIENCY PROCEDURES NOT TO APPLY.—Subchapter B of

chapter 63 (relating to deficiency procedures for income, estate, gift, 26 USC 62ii. and certain excise taxes) shall not apply in respect to the assessment or collection of any penalty imposed by subsection (a)." (b) CRIMINAL PENALTY.—Section 7205 (relating to fraudulent with- 26 USC 7205. holding exemption certificate or failure to supply information) is amended by striking out "$500" and inserting in lieu thereof "$1,000". (c) CLERICAL AMENDMENT.—The table of sections for subchapter B of chapter 68 is amended by striking out the item relating to section 6682 and inserting in lieu thereof the following: "Sec. 6682. False information with respect to withholding." (d) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 6682

apply to acts and failures to act after December 31, 1981. ^°^SEC. 722. ADDITIONS TO TAX IN THE CASE OF VALUATION OVERSTATEMENTS, INCREASE IN NEGLIGENCE PENALTY. (a) VALUATION OVERSTATEMENTS.—

(1) IN GENERAL.—Subchapter A of chapter 68 (relating to additions to tax) is amended by redesignating section 6659 as section 6660 and by inserting after section 6658 the following new 26 USC 6660. section: "SEC. 6659. ADDITION TO TAX IN THE CASE OF VALUATION OVERSTATE- 26 USC 6659. MENTS FOR PURPOSES OF THE INCOME TAX. "(a) ADDITION TO THE TAX.—If—

"(1) an individual, or "(2) a closely held corporation or a personal service corporation, has an underpa3mient of the tax imposed by chapter 1 for the taxable year which is attributable to a valuation overstatement, then there shall be added to the tax an amount equal to the applicable percentage of the underpayment so attributable. "(b) APPLICABLE PERCENTAGE DEFINED.—For purposes of subsection (a), the applicable percentage shall be determined under the following table: "If the valuation claimed is the following percent of the correct valuation— 150 percent or more but not more than 200 percent More than 200 percent but not more than 250 percent More than 250 percent

The applicable percentage is: 10 20 30

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PUBLIC LAW 97-34—AUG. 13, 1981 "(c) VALUATION OVERSTATEMENT DEFINED.—

"(1) IN GENERAL.—For purposes of this section, there is a valuation overstatement if the value of any property, or the adjusted basis of any property, claimed on any return exceeds 150 percent of the amount determined to be the correct amount of such valuation or adjusted basis (as the case may be). "(2) PROPERTY MUST HAVE BEEN ACQUIRED WITHIN LAST 5

YEARS.—This section shall not apply to any property which, as of the close of the taxable year for which there is a valuation overstatement, has been held by the taxpayer for more than 5 years. "(d) UNDERPAYMENT MUST B E AT LEAST $1,000.—This section shall not apply if the underpayment for the taxable year attributable to the valuation overstatement is less than $1,000. "(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 or adjusted basis claimed on the return and that such claim was made in good faith. "(f) OTHER DEFINITIONS.—For purposes of this section— "(1) UNDERPAYMENT.—The term 'underpayment' has the meaning given to such term by section 6653(c)(1). "(2) CLOSELY HELD CORPORATION.—The term 'closely held corporation' means any corporation described in section 465(a)(1)(C). "(3) PERSONAL SERVICE CORPORATION.—The term 'personal service corporation' means any corporation which is a service organization (within the meaning of section 414(m)(3))." (2) CLERICAL AMENDMENT.—'The table of sections for subchapter A of chapter 68 is amended by striking out the last item and inserting in lieu thereof the following: "Sec. 6659. Addition to tax in the case of valuation overstatements for purposes of the income tax. "Sec. 6660. Applicable rules." (3) TECHNICAL AMENDMENT.—Subsection (c) of section 5684

26 USC 5684, 5'76i. 26 USC 6659 "o^-

(relating to penalties for the payment and collection of liquor taxes) and subsection (d) of section 5761 (relating to civil penalties) are each amended by striking out "6659" in the heading and text thereof and inserting in lieu thereof "6660". (4) EFFECTIVE DATE.—The amendments made by this subsection shall apply to returns filed after December 31, 1981. (b) INCREASE IN NEGLIGENCE PENALTY.—

26 USC 6653.

(1) IN GENERAL.—Subsection (a) of section 6653 (relating to failure to pay tax) is amended to read as follows: "(a) NEGLIGENCE OR INTENTIONAL DISREGARD OF RULES AND REGULATIONS WITH RESPECT TO INCOME, GIFT, OR WINDFALL PROFIT TAXES.—

26 USC 1, 2501 et ®^994 Stat. 230. 26 USC 4986 et

"(1) IN GENERAL.—If any part of any underpayment (as defined in subsection (c)(1)) of any tax imposed by subtitle A, by chapter 12 of subtitle B, or by chapter 45 (relating to windfall profit tax) is due to negligence or intentional disregard of rules or regulations (but without intent to defraud), there shall be added to the tax an amount equal to 5 percent of the underpayment. "(2) ADDITIONAL AMOUNT FOR PORTION ATTRIBUTABLE TO NEGLIGENCE, ETC.—There shall be added to the tax (in addition to the

amount determined under paragraph (1)) an amount equal to 50 percent of the interest payable under section 6601— "(A) with respect to the portion of the underpayment described in paragraph (1) which is attributable to the

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text:
Page:United States Statutes at Large Volume 95.djvu/369

 PUBLIC LAW 97-34—AUG. 13, 1981

95 STAT. 343

negligence or intentional disregard referred to in paragraph (l),and "(B) for the period beginning on the last date prescribed by law for payment of such underpayment (determined without regard to any extension) and ending on the date of the assessment of the tax." (2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 6653 shall apply to taxes the last date prescribed for payment of which ^°^^is after December 31, 1981. SEC. 723. CHANGES IN REQUIREMENTS RELATING TO INFORMATION RETURNS. (a) INCREASES IN PENALTIES FOR FAILURE TO FILE CERTAIN RETURNS OR FURNISH CERTAIN STATEMENTS.— (1) CERTAIN RETURNS.—Paragraph (1) of section 6652(a) (relat-

26 USC 6652.

ing to failure to file certain information returns, registration statements, etc.) is amended to read as follows: "(1) to file a statement of the aggregate amount of payments to another person required by— "(A) section 6041(a) or (b) (relating to certain information at source), "(B) section 6042(a)(1) (relating to payments of dividends aggregating $10 or more), "(C) section 6044(a)(1) (relating to payments of patronage dividends aggregating $10 or more), "(D) section 6049(a)(1) (relating to payments of interest aggregating $10 or more), "(E) section 6050A(a) (relating to reporting requirements of certain fishing boat operators), or "(F) section 6051(d) (relating to information returns with respect to income tax withheld), or". (2) CERTAIN STATEMENTS.—Section 6678 (relating to failure to 26 USC 6678. furnish certain statements) is amended by striking out "or" at the end of paragraph (1), by inserting "or" at the end of paragraph (2), and by inserting after paragraph (2) the following new paragraph: "(3) to furnish a statement under— "(A) section 6050A(b) (relating to statements furnished by certain fishing boat operators), "(B) section 6050C (relating to information regarding windfall profit tax on crude oil), "(C) section 6051 (relating to information returns with respect to income tax withheld) if the statement is required to be furnished to the employee, or "(D) section 6053(b) (relating to statements furnished by employers with respect to tips), on the date prescribed therefor to a person with respect to whom such a statement is required,". (3) RETENTION OF EXISTING PENALTIES FOR FAILURE TO FILE

CERTAIN STATEMENTS.—Subsection (b) of section 6652 is amended 26 USC 6652. to read as follows: "(b) OTHER RETURNS.—In the case of each failure to file a statement of a payment to another person required under the authority of^ "(1) section 6042(a)(2) (relating to payments of dividends aggregating less than $10), "(2) section 6044(a)(2) (relating to payments of patronage dividends aggregating less than $10),

-194 0—82

24:QL3

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text: Dictionary of National Biography, 1885-1900/Winslow, Forbes Benignus