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Page:United States Statutes at Large Volume 95.djvu/206

 95 STAT. 180

PUBLIC LAW 97-34—AUG. 13, 1981 "If taxable income is: Over $12,900 but not over $15,000

The tax is: $1,581, plus 20% of the excess over $12,900. Over $15,000 but not over $18,200 $2,001, plus 23% of the excess over $15,000. Over $18,200 but not over $23,500 $2,737, plus 26% of the excess over $18,200. Over $23,500 but not over $28,800 $4,115, plus 30% of the excess over $23,500. Over $28,800 but not over $34,100 $5,705, plus 34% of the excess over $28,800. Over $34,100 but not over $41,500 $7,507, plus 38% of the excess over $34,100. Over $41,500 but not over $55,300 $10,319, plus 42% of the excess over $41,500. Over $55,300 but not over $81,800 $16,115, plus 48% of the excess over $55,300. Over $81,800 $28,835, plus 50% of the excess over $81,800. "(d) MARRIED INDIVIDUALS FILING SEPARATE RETURNS.—There is

26 USC 143.

hereby imposed on the taxable income of every married individual (as defined in section 143) who does not make a single return jointly with his spouse under section 6013 a tax determined in accordance with the following tables: "(1) FOR TAXABLE YEARS BEGINNING IN 1982.— "If taxable income is: Not over $1,700 Over $1,700 but not over $2,750 Over $2,750 but not over $3,800 Over $3,800 but not over $5,950 Over $5,950 but not over $8,000 Over $8,000 but not over $10,100 Over $10,100 but not over $12,300 Over $12,300 but not over $14,950 Over $14,950 but not over $17,600 Over $17,600 but not over $22,900 Over $22,900 but not over $30,000 Over $30,000 but not over $42,800 Over $42,800

The tax is: No tax. 12% of the excess over $1,700. $126, plus 14% of the excess $2,750. $273, plus 16% of the excess $3,800. $617, plus 19% of the excess $5,950. $1,006, plus 22% of the excess $8,000. $1,468, plus 25% of the excess $10,100. $2,018, plus 29% of the excess $12 300 $2,787, plus 33% of the excess $14,950. $3,661, plus 39% of the excess $17,600. $5,728, plus 44% of the excess $22,900. $8,852, plus 49% of the excess $30,000. $15,124, plus 50% of the excess $42,800.

over over over over over over over over over over over

"(2) FOR T A X A B L E Y E A R S B E G I N N I N G I N 1983. —

"If taxable income is: Not over $1,700 Over $1,700 but not over $2,750 Over $2,750 but not over $3,800 Over $3,800 but not over $5,950 Over $5,950 but not over $8,000 Over $8,000 but not over $10,100 Over $10,100 but not over $12,300 Over $12,300 but not over $14,950 Over $14,950 but not over $17,600

The tax is: No tax. 11% of the excess over $1,700. $115, plus 13% of the excess $2,750. $252, plus 15% of the excess $3,800. $574, plus 17% of the excess $5 950. $923*, plus 19% of the excess $8,000. $1,322, plus 23% of the excess $10,100. $1,828, plus 26% of the excess $12,300. $2,517, plus 30% of the excess $14,950.

over over over over over over over

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Page:United States Statutes at Large Volume 95.djvu/207

 PUBLIC LAW 97-34—AUG. 13, 1981 "If taxable income is: Over $17,600 but not over $22,900 Over $22,900 but not over $30,000 Over $30,000 but not over $42,800 Over $42,800 but not over $54,700 Over $54,700

95 STAT. 181

The tax is: $3,312, plus 85% of the $17,600. $5,167, plus 40% of the $22,900. $8,007, plus 44% of the $30,000. $13,639, plus 48% of the $42,800. $19,351, plus 50% of the $54,700.

excess over excess over excess over excess over excess over

"(3) FOR TAXABLE YEARS BEGINNING AFTER 1983.—

"If taxable income is: Not over $1,700 Over $1,700 but not over $2,750 Over $2,750 but not over $3,800 Over $3,800 but not over $5,950 Over $5,950 but not over $8,000 Over $8,000 but not over $10,100 Over $10,100 but not over $12,300 Over $12,300 but not over $14,950 Over $14,950 but not over $17,600 Over $17,600 but not over $22,900 Over $22,900 but not over $30,000 Over $30,000 but not over $42,800 Over $42,800 but not over $54,700 Over $54,700 but not over $81,200 Over $81,200

The tax is: No tax. 11% of the excess over $1,700. $115, DIUS 12% of the excess over $24l', plus 14% of the excess $3,800. $542, plus 16% of the excess $5,950. $870, plus 18% of the excess $8,000. $1,248, plus 22% of the excess $10,100. $1,732, pr i, plus 25% of the excess $12.,300. $2,39^, plus 28% of the excess $14,950. $3,137, plus 33% of the excess $17,600. $4,886, plus 38% of the excess $22,900. $7,584, plus 42% of the excess $30,000. $12,960, plus 45% of the excess $42,800. $18,315, plus 49% of the excess $54,700. $31,300, plus 50% of the excess $81,200.

over over over over over over over over over over over over

"(e) ESTATES AND TRUSTS.—There is hereby imposed on the taxable income of every estate and trust taxable under this subsection a tax determined in accordance with the following tables: "(1) FOR TAXABLE YEARS BEGINNING IN 1982.— "If taxable income is: The tax is: Not over $1,050 12% of taxable income. Over $1,050 but not over $2,100 $126, plus 14% of the $1,050. Over $2,100 but not over $4,250 $273, plus 16% of the $2,100. Over $4,250 but not over $6,300 $617, plus 19% of the $4,250. Over $6,300 but not over $8,400 $1,006, plus 22% of the $6,300. Over $8,400 but not over $10,600.— $1,468, plus 25% of the $8,400. Over $10,600 but not over $13,250 $2,018, plus 29% of the $10,600. Over $13,250 but not over $15,900 $2,787, plus 33% of the Over $15,900 but not over $21,200 Over $21,200 but not over $28,300 Over $28,300 but not over $41,100 Over $41,100

$3,661, plus 39% of $15,900. $5,728, plus 44% of $21200. $8,852, plus 49% of $28 300 $15,124, plus 50% of $41,100.

excess over excess over excess over excess over excess over excess over excess over

the excess over the excess over the excess over the excess over

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


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Page:United States Statutes at Large Volume 95.djvu/208

 95 STAT. 182

PUBLIC LAW 97-34—AUG. 13, 1981 "(2) FOR TAXABLE YEARS B E G I N N I N G I N 1983.—

"If taxable income is: Not over $1,050 Over $1,050 but not over $2,100 Over $2,100 but not over $4,250 Over $4,250 but not over $6,300 Over $6,300 but not over $8,400 Over $8,400 but not over $10,600 Over $10,600 but not over $13,250 Over $13,250 but not over $15,900 Over $15,900 but not over $21,200 Over $21,200 but not over $28,300 Over $28,300 but not over $41,100 Over $41,100 but not over $53,000 Over $53,000

The tax is: 11% of taxable income. $115, plus 13% of the excess $1,050. $252, plus 15% of the excess $2 100. $574*, plus 17% of the excess $4,250. $923, plus 19% of the excess $6,300. $1,322, plus 23% of the excess $8,400. $1,828, plus 26% of the excess $10,600. $2,517, plus 30% of the excess $13,250. $3,312, plus 35% of the excess $15,900. $5,167, plus 40% of the excess $21 200. $8,007, plus 44% of the excess $28,300. $13,639, plus 48% of the excess $41,100. $19,351, plus 50% of the excess $53,000.

over over over over over over over over over over over over

"(3) FOR TAXABLE YEARS B E G I N N I N G AFTER 1983.—

"If taxable income is: Not over $1,050 Over $1,050 but not over $2,100

26 USC 6428.

The tax is: 11% of taxable income. $115, plus 12% of the excess over $1,050. Over $2,100 but not over $4,250 $241, plus 14% of the excess over $2,100. Over $4,250 but not over $6,300 $542, plus 16% of the excess over $4,250. Over $6,300 but not over $8,400 $870, plus 18% of the excess over $6,300. Over $8,400 but not over $10,600 $1,248, plus 22% of the excess over $8,400. Over $10,600 but not over $13,250 $1,732, plus 25% of the excess over $10,600. Over $13,250 but not over $15,900 $2,395, plus 28% of the excess over $13,250. Over $15,900 but not over $21,200 $3,137, plus 33% of the excess over $15,900. Over $21,200 but not over $28,300 $4,886, plus 38% of the excess over $21 200. Over $28,300 but not over $41,100 $7,584, plus 42% of the excess over $28,300. Over $41,100 but not over $53,000 $12,960, plus 45% of the excess over $41,100. Over $53,000 but not over $79,500 $18,315, plus 49% of the excess over $53,000. Over $79,500 $31,300, plus 50% of the excess over $79,500." (b) CREDIT TO REFLECT EQUIVALENT 1981 RATE REDUCTION.— (1) j ^ GENERAL.—Section 6428 (relating to refund of 1974 individual income taxes) is amended to read as follows: "SEC. 6428.1981 RATE REDUCTION TAX CREDIT. "(a) ALLOWANCE OF CREDIT.—There shall be allowed as a credit against the tax imposed by section 1, or against a tax imposed in lieu of the tax imposed by section 1, for any taxable year beginning in 1981, an amount equal to the product of— "(1) 1.25 percent, multiplied by "(2) the amount of tax imposed by section 1 (or in lieu thereof) for such taxable year. "(b) SPECIAL RULES FOR APPLICATION OF THIS SECTION.—

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Page:United States Statutes at Large Volume 95.djvu/209

 PUBLIC LAW 97-34—AUG. 13, 1981

95 STAT. 183

"(1) APPLICATION WITH OTHER CREDITS.—In determining any

credit allowed under subpart A of part IV of subchapter A of chapter 1 (other than under sections 31, 39, and 43), the tax imposed by chapter 1 shall (before any other reductions) be reduced by the credit allowed under subsection (a). "(2) CREDIT TREATED AS SUBPART A CREDIT.—For purposes of this title, the credit allowed under subsection (a) shall be treated as a credit allowed under subpart A of part IV of subchapter A of chapter 1. "(c) TABLES TO REFLECT CREDIT.— "(1) SECTION 3 TABLES.—The tables prescribed by the Secretary

under section 3 shall reflect the credit allowed under subsection (a). "(2) OTHER TABLES.—In order to reflect the amount of the credit under subsection (a) for different levels of tax or taxable income, the Secretary may— "(A) modify the tables under section 1, or "(B) prescribe such other tables as he determines necessary." (2) CONFORMING AMENDMENTS.—

(A) The table of sections for subchapter B of chapter 65 is amended by striking out the item relating to section 6428 and inserting in lieu thereof the following new item: "Sec. 6428. 1981 rate reduction tax credit."

(B) Paragraph (1) of section 3(a) (relating to imposition of 26 USC 3. tax table tax) is amended by inserting "and which shall be in such form as he determines appropriate" after "Secretary". (C) Subsection (a) of section 3 (relating to tax tables for individuals) is amended by adding at the end thereof the following new paragraph: "(5) SECTION MAY BE APPLIED ON THE BASIS OF TAXABLE

INCOME.—The Secretary may provide that this section shall be applied for any taxable year on the basis of taxable income in lieu of tax table income." (c) REPEAL OF MAXIMUM TAX ON PERSONAL SERVICE INCOME.—

(1) IN GENERAL.—Part VI of subchapter Q of chapter 1 (relating Repeal. to maximum rate on personal service income) is repealed. ^6 USC 1348. (2) CONFORMING AMENDMENTS.—

(A) Paragraph (1) of section 3(b) (relating to tax tables for individuals) is amended to read as follows: "(1) an individual to whom section 1301 (relating to income averaging) applies for the taxable year,". (B) Subsection (b) of section 1304 (relating to special rules 26 USC 1304. for income averaging) is amended— (i) by inserting "and" at the end of paragraph (1), (ii) by striking out ", and" at the end of paragraph (2) and inserting in lieu thereof a period, and (iii) by striking out paragraph (3). (C) The table of parts for subchapter Q of chapter 1 is amended by striking out the item relating to part VI. (d) CONFORMING AMENDMENTS.—

(1) ALTERNATIVE MINIMUM TAX.—Paragraph (1) of section 55(a)

(relating to alternative minimum tax) is amended— (A) by striking out all that follows "$60,000" in subparagraph (B) and inserting in lieu thereof ", exceeds", and (B) by striking out subparagraph (C).

89-194 O—82

14:QL3

26 USC 55.

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Page:United States Statutes at Large Volume 95.djvu/210

 95 STAT. 184 26 USC 541.

26 USC 21.

PUBLIC LAW 97-34—AUG. 13, 1981 (2) PERSONAL HOLDING COMPANY TAX.—Section 541 (relating to

personal holding company tax) is amended by striking out "70 percent" and inserting in lieu thereof "50 percent". (3) AMENDMENT TO SECTION 21.—Section 21 (relating to effect of changes in rates during taxable year) is amended by striking out subsections (d), (e), and (f) and inserting in lieu thereof the following: "(d) SECTION NOT To APPLY TO SECTION 1 RATE CHANGES MADE BY ECONOMIC RECOVERY TAX ACT OF 1981.—This section shall not apply

Ante, p. 176. 26 USC 3402.

to any change in rates under section 1 attributable to the amendments made by section 101 of the Economic Recovery Tax Act of 1981 or subsection (f) of section 1 (relating to adjustments in tax tables so that inflation will not result in tax increases)." (e) WITHHOLDING TABLES.— (1) DETERMINATION OF WITHHOLDING.—Section 3402(a) (relating

to requirement of withholding income tax at source) is amended to read as follows: "(a) REQUIREMENT OF WITHHOLDING.—

"(1) IN GENERAL.—Except as otherwise provided in this section, every employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with tables or computational procedures prescribed by the Secretary. Any tables or procedures prescribed under this paragraph shall— "(A) apply with respect to the amount of wages paid during such periods as the Secretary may prescribe, and "(B) be in such form, and provide for such amounts to be deducted and withheld, as the Secretary determines to be most appropriate to carry out the purposes of this chapter and to reflect the provisions of chapter 1 applicable to such periods. "(2) AMOUNT OF WAGES.—For purposes of applying tables or procedures prescribed under paragraph (1), the term 'the amount of wages' means the amount by which the wages exceed the number of withholding exemptions claimed multiplied by the amount of one such exemption. The amount of each withholding exemption shall be equal to the amount of one personal exemption provided in section 151(b), prorated to the payroll period. The maximum number of witmiolding exemptions permitted shall be calculated in accordance with regulations prescribed by the Secretary under this section, taking into account any reduction in withholding to which an employee is entitled under this section. "(3) CHANGES MADE BY SECTION l o i OF THE ECONOMIC RECOVERY

TAX ACT OF 1981.—Notwithstanding the provisions of this subsection, the Secretary shall modify the tables and procedures under paragraph (1) to reflect— "(A) the amendments made by section 101(b) of the Economic Recovery Tax Act of 1981, and such modification shall take effect on October 1, 1981, as if such amendments made a 5-percent reduction effective on such date, and "(B) the amendments made by section 101(a) of such Act, and such modifications shall take effect— "(i) on July 1, 1982, as if the reductions in the rate of tax under section 1 (as amended by such section) were attributable to a 10-percent reduction effective on such date, and

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Page:United States Statutes at Large Volume 95.djvu/211

 PUBLIC LAW 97-34—AUG. 13, 1981

95 STAT. 185

"(ii) on July 1, 1983, as if such reductions were attributable to a 10-percent reduction effective on such date." (2) WAGES PAID FOR PERIOD LESS THAN i WEEK.—Section 3402(b) 26 USC 3402. (relating to the percentage method of withholding) is amended— (A) by striking out paragraph (1), and redesignating paragraphs (2) through (5) as paragraphs (1) through (4), respectively; and (B) by striking out paragraph (3), as redesignated by subparagraph (A), and inserting in lieu thereof the following: "(3) In any case in which the period, or the time described in paragraph (2), in respect of any wages is less than one week, the Secretary, under regulations prescribed by him, may authorize an employer to compute the tax to be deducted and withheld as if the aggregate of the wages paid to the employee during the calendar week were paid for a weekly payroll period." (3) ZERO BRACKET AMOUNT.—Paragraph (1)(G) of section 3402(f) (relating to withholding exemptions) is amended by inserting "(or more than one exemption if so prescribed by the Secretary)" after "one exemption". (4) CHANGES IN WITHHOLDING.—Section 3402(i) (relating to

additional withholding) is amended to read as follows: "(i) CHANGES IN WITHHOLDING.—

"(1) IN GENERAL.—The Secretary may by regulations provide for increases or decreases in the amount of withholding otherwise required under this section in cases where the employee requests such changes, "(2) TREATMENT AS TAX.—Any increased withholding under paragraph (1) shall for all purposes be considered tax required to be deducted and withheld under this chapter." (5) WITHHOLDING ALLOWANCES.—Subsection (m) of section 3402 (relating to withholding allowances based on itemized deductions) is amended to read as follows: "(m) WITHHOLDING ALLOWANCES.—Under regulations prescribed by the Secretary, an employee shall be entitled to additional withholding allowances or additional reductions in withholding under this subsection. In determining the number of additional withholding allowances or the amount of additional reductions in withholding under this subsection, the employee may take into account (to the extent and in the manner provided by such regulations)— "(1) estimated itemized deductions allowable under chapter 1 (other than the deductions referred to in section 151 and other than the deductions required to be taken into account in determining adjusted gross income under section 62) (other than paragraph (13) thereof), "(2) estimated tax credits allowable under chapter 1, and "(3) such additional deductions and other items as may be specified by the Secretary in regulations." (f) EFFECTIVE DATES.—

(1) IN GENERAL.—The amendments made by subsections (a), (c), 26 USC l note. and (d) shall apply to taxable years beginning after December 31, 1981. (2) WITHHOLDING AMENDMENTS.—The amendments made by 26 USC 3402 subsection (e) shall apply to remuneration paid after September "°^^30, 1981; except that the amendment made by subsection (e)(5) shall apply to remuneration paid after December 31, 1981.

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Page:United States Statutes at Large Volume 95.djvu/212

 95 STAT. 186

PUBLIC LAW 97-34—AUG. 13, 1981 SEC. 102. 20-PERCENT MAXIMUM RATE ON NET CAPITAL GAIN FOR PORTION OF 1981.

26 USC 1201 note. 26 USC 1.

(a) IN GENERAL.—If for any taxable year ending after June 9, 1981, and beginning before January 1, 1982, a taxpayer other than a corporation has quahfied net capital gain, then the tax imposed under section 1 of the Internal Revenue Code of 1954 for such taxable year shall be equal to the lesser of— (1) the tax imposed under such section determined without regard to this subsection, or (2) the sum of— (A) the tax imposed under such section on the excess of— (i) the taxable income of the taxpayer, over (ii) 40 percent of the qualified net capital gain of the taxpayer, and (B) 20 percent of the qualified net capital gain. (b) APPLICATION WITH ALTERNATIVE MINIMUM TAX.—

(1) IN GENERAL.—If subsection (a) applies to any taxpayer for any taxable year, then the amount determined under section 55(a)(1) of the Internal Revenue Code of 1954 for such taxable year shall be equal to the lesser of— (A) the amount determined under such section 55(a)(1) determined without regard to this subsection, or (B) the sum of— (i) the amount which would be determined under such section 55(a)(l) if the alternative minimum taxable income was the excess of— (I) the alternative minimum taxable income (within the meaning of section 55(b)(l) of such Code) of the taxpayer, over (II) the qualified net capital gain of the taxpayer, and (ii) 20 percent of the qualified net capital gain. (2) No CREDITS ALLOWABLE.—For purposes of section 55(c) of

such Code, no credit allowable under subpart A of part IV of subchapter A of chapter 1 of such Code (other than section 33(a) of such Clode) shall be allowable against the amount described in paragraph (l)(B)(ii). (c) QUALIFIED N E T CAPITAL GAIN.—

(1) IN GENERAL.—For purposes of this section, the term "qualified net capital gain" means the lesser of— (A) the net capital gain for the taxable year, or (B) the net capital gain for the taxable year taking into account only gain or loss from sales or exchanges occurring after June 9, 1981. (2) N E T CAPITAL GAIN.—For purposes of this subsection, the term "net capital gain" has the meaning given such term by section 1222(11) of the Internal Revenue Code of 1954. (d) SPECIAL RULE FOR PASS-THRU ENTITIES.—

(1) IN GENERAL.—In applying subsections (a), (b), and (c) with respect to any pass-thru entity, the determination of when a sale or exchange has occurred shall be made at the entity level. (2) PASS-THRU ENTITY DEFINED.—For purposes of paragraph (1), the term "pass-thru entity" means— (A) a regulated investment company, (B) a real estate investment trust, (C) an electing small business corporation, (D) a partnership, (E) an estate or trust, and

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Page:United States Statutes at Large Volume 95.djvu/213

 PUBLIC LAW 97-34—AUG. 13, 1981

95 STAT. 187

(F) a common trust fund. SEC. 103. DEDUCTION FOR TWO-EARNER MARRIED COUPLES.

(a) IN GENERAL.—Part VII of subchapter B of chapter 1 (relating to additional itemized deductions for individuals) is amended by redesignating section 221 as section 222 and by inserting after section 220 the Post, p. 201. following new section: "SEC. 221. DEDUCTION FOR TWO-EARNER MARRIED COUPLES.

26 USC 221.

"(a) DEDUCTION ALLOWED.—

"(1) IN GENERAL.—In the case of a joint return under section 6013 for the taxable year, there shall be allowed as a deduction an amount equal to 10 percent of the lesser of— "(A) $30,000, or "(B) the qualified earned income of the spouse with the lower qualified earned income for such taxable year. "(2) SPECIAL RULE FOR 1982.—In the case of a taxable year beginning during 1982, paragraph (1) shall be applied by substituting '5 percent for '10 percent. "(b) QUALIFIED EARNED INCOME DEFINED.—

(1) IN GENERAL.—For purposes of this section, the term 'qualified earned income' means an amount equal to the excess of— "(A) the earned income of the spouse for the taxable year, over "(B) an amount equal to the sum of the deductions described in paragraphs (1), (2), (7), (9), (10), and (15) of section 62 to the extent such deductions are properly allocable to or chargeable against earned income described in subparagraph (A). The amount of qualified earned income shall be determined without regard to any community property laws. "(2) EARNED INCOME.—For purposes of paragraph (1), the term 'earned income' means income which is earned income within the meaning of section 911(d)(2) or 401(c)(2)(C), except that— Post, p. 190. "(A) such term shall not include any amount— "(i) not includible in gross income, "(ii) received as a pension or annuity, "(iii) paid or distributed out of an individual retirement plan (within the meaning of section 7701(a)(37)), "(iv) received as deferred compensation, or "(v) received for services performed by an individual in the employ of his spouse (within the meaning of section 3121(b)(3)(A)), and "(B) section 911(d)(2)(B) shall be applied without regard to the phrase 'not in excess of 30 percent of his share of net profits of such trade or business'. "(c) DEDUCTION DISALLOWED FOR INDIVIDUAL CLAIMING BENEFITS OF SECTION 911 OR 931.—NO deduction shall be allowed under this

section for any taxable year if either spouse claims the benefits of section 911 or 931 for such taxable year.". (b) DEDUCTION ALLOWED IN COMPUTING ADJUSTED GROSS INCOME.—

Section 62 (defining adjusted gross income), as amended by section 26 USC 62. 112(b)(2) of this Act, is amended by inserting after paragraph (15) the Post, p. 194. following new paragraph: "(16) DEDUCTION FOR TWO-EARNER MARRIED COUPLES.—The de-

duction allowed by section 221." (c) OTHER CONFORMING AMENDMENTS.—

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Page:United States Statutes at Large Volume 95.djvu/214

 95 STAT. 188 26 USC 85.

26 USC 105.

PUBLIC LAW 97-34—AUG. 13, 1981 (1) Subsection (a) of section 85 (relating to unemployment compensation) is amended by striking out "and without regard to section 105(d)" and inserting in lieu thereof ", section 105(d), and section 221". (2) Subsection (d)(3) of section 105 (relating to amounts received under accident and health plans) is amended by inserting "and section 221" after "subsection" the first place it appears. (3) The table of sections for such part Vn is amended by striking out the item relating to section 221 and inserting in lieu thereof the following new items: "Sec. 221. Deduction for two^amer married couples. "Sec. 222. Cross references."

26 USC 221 note. 26 USC 1.

(d) EFFECTIVE DATES.—The amendments made by this section shall apply to taxable years beginning after December 31, 1981. SEC. 104. ADJUSTMENT TO PREVENT INFLATION-CAUSED TAX INCREASE. (a) ADJUSTMENTS TO INDIVIDUAL INCOME TAX BRACKETS.—Section 1

(relating to tax imposed) is amended by adding at the end thereof the following new subsection: "(f) ADJUSTMENTS IN TAX TABLES SO THAT INFLATION WILL NOT RESULT IN TAX INCREASES.—

"(1) IN GENERAL.—Not later than December 15 of 1984 and each subsequent calendar year, the Secretary shall prescribe tables which shall apply in lieu of the tables contained in paragraph (3) of subsections (a), (b), (c), (d), and (e) with respect to taxable years beginning in the succeeding calendar year. "(2) METHOD OP PRESCRIBING TABLES.—The table which under paragraph (1) is to apply in lieu of the table contained in paragraph (3) of subsection (a), (b), (c), (d), or (e), as the case may be, with respect to taxable years beginning in any calendar year shall be prescribed— "(A) by increasing— "(i) the maxunum dollar amount on which no tax is imi>9sed under such table, and (ii) the minimum and maximum dollar amounts for each rate bracket for which a tax is imposed under such table, by the cost-of-living adjustment for such calendar year, "(B) by not changing the rate applicable to any rate bracket as adjusted under subparagraph (A)(ii), and "(C) by adjusting the amounts setting forth the tax to the extent necessary to reflect the adjustments in the rate brackets. If any increase determined under subparagraph (A) is not a multiple of $10, such increase shall be rounded to the nearest multiple of $10 (or if such increase is a multiple of $5, such increase shall be increased to the next highest multiple of $10). "(3) COST-OF-LIVING ADJUSTMENT.—For purposes of paragraph (2), the cost-of-living ac^justment for any calendar year is the percentage (if any) by wmch— "(A) the CPI for the preceding calendar year, exceeds "(B) the CPI for the calendar year 1983. "(4) CPI FOR ANY CALENDAR YEAR.—For purposes of paragraph (3), the CPI for any calendar year is the average of the Consumer Price Index as of the close of the l^month period ending on September 30 of such calendar year. (5) CONSUMER PRICE INDEX.—For purposes of paragraph (4), the term 'Consumer Price Index' means the last Consumer Price

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Page:United States Statutes at Large Volume 95.djvu/215

 PUBLIC LAW 97-34—AUG. 13, 1981

95 STAT. 189

Index for all-urban consumers published by the Department of Labor." (b) DEFINITION OF ZERO BRACKET AMOUNT.—Subsection (d) of section 63 (defining zero bracket amount) is amended to read as follows: 26 USC 63. "(d) ZERO BRACKET AMOUNT.—For purposes of this subtitle, the term 'zero bracket amount' means— "(1) in the case of an individual to whom subsection (a), (b), (c), or (d) of section 1 applies, the maximum amount of taxable income on which no tax is imposed by the applicable subsection of section 1, or "(2) zero in any other case." (c) PERSONAL EXEMPTIONS.— (1) GENERAL RULE.—Section

151 (relating to allowance of 26 USC i5i. deductions for personal exemptions) is amended by striking out "$1,000" each place it appears and inserting in lieu thereof "the exemption amount". (2) EXEMPTION AMOUNT.—Section 151 is amended by adding at the end thereof the following new subsection: "(f) EXEMPTION AMOUNT.—For purposes of this section, the term 'exemption amount' means, with respect to any taxable year, $1,000 increased by an amount equal to $1,000 multiplied by the cost-ofliving adjustment (as defined in section l(f)(3)) for the calendar year in which the taxable year begins. If the amount determined under the preceding sentence is not a multiple of $10, such amount shall be rounded to the nearest multiple of $10 (or if such amount is a multiple of $5, such amount shall be increased to the next highest multiple of $10)." (d) RETURN REQUIREMENTS.— (1) AMENDMENTS TO SECTION 6012.—

(A) Clause (i) of section 6012(a)(l)(A) is amended by striking out "$3,300" and inserting in lieu thereof "the sum of the exemption amount plus the zero bracket amount applicable to such an individu£d". (B) Clause (ii) of section 6012(a)(l)(A) is amended by striking out "$4,400" and inserting in lieu thereof "the sum of the exemption amount plus the zero bracket amount applicable to such an individum". (C) Clause (iii) of section 6012(a)(l)(A) is amended by striking out "$5,400" and inserting in lieu thereof "the sum of twice the exemption amount plus the zero bracket amount applicable to a joint return". (D) Paragraph (1) of section 6012(a) is amended by striking out "$1,000" each place it appears and inserting in lieu thereof "the exemption amount. (E) Paragraph (1) of section 6012(a) is amended by adding at the end thereof the following new subparagraph: "(D) For purposes of this paragraph— "(i) The term 'zero bracket amount' has the meaning given to such term by section 63(d). "(ii) The term 'exemption amount' has the meaning given to such term by section 151(f)." (2) AMENDMENTS TO SECTION 6013.—Subparagraph (A) of section 6013(b)(3) is amended— (A) by striking out "$1,000" each place it appears and inserting in lieu thereof "the exemption amount', (B) by striking out "$2,000" each place it appears and inserting in lieu thereof "twice the exemption amount", and

26 USC 6012.

"Zero bracket amount." "Exemption amount." 26 USC 6013.

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(C) by adding at the end thereof the following new sen"Exemption tence: "For purposes of this subparagraph, the term 'exemp^™°""*^ tion amount' has the meaning given to such term by section 151(f)." 26 USC 1 note. (e) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 1984.

Subtitle B—Income Earned Abroad

26 USC 911.

SEC. 111. PARTIAL EXCLUSION FOR EARNED INCOME FROM SOURCES WITHOUT THE UNITED STATES AND FOREIGN HOUSING COSTS. (a) IN GENERAL.—Section 911 (relating to income earned by individuals in certain camps) is amended to read as follows: "SEC. 911. CITIZENS OR RESIDENTS OF THE UNITED STATES LIVING ABROAD. "(a) EXCLUSION FROM GROSS INCOME.—At the election of a qualified individual (made separately with respect to paragraphs (1) and (2)), there shall be excluded from the gross income of such individual, and exempt from taxation under tMg subtitle, for any taxable year— "(1) the foreign earned income of such individual, and "(2) the housing cost amount of such individual. "(b) FOREIGN EARNED INCOME.—

"(1) DEFINITION.—For purposes of this section— "(A) IN GENERAL.—The term 'foreign earned income' with respect to any individual means the amount received by such individual from sources within a foreign country or countries which constitute earned income attributable to services performed by such individual during the period described in subparagraph (A) or (B) of subsection (a)(D, whichever is applicable. (B) CERTAIN AMOUNTS NOT INCLUDED IN FOREIGN EARNED

INCOME.—The foreign earned income for an individual shall not include amounts— "(i) received as a pension or annuity, "(ii) paid by the United States or an agency thereof to an employee of the United States or an agency thereof, "(iii) included in gross income by reason of section 402(b) (relating to taxability of beneficiary of nonexempjt trust) or section 403(c) (relating to taxabuity of beneficiary under a nonqualified annuity), or (iv) received after the close of the taxable year following the taxable year in which the services to which the amounts are attributable are performed. "(2) LIMITATION ON FOREIGN EARNED INCOME.—

"(A) IN GENERAL.—The foreign earned income of an individual which may be excluded under subsection (a)(1) for any taxable year shall not exceed the amount of foreign earned income computed on a daily basis at the annual rate set forth in the following table for each day of the taxable year within the applicable period described in subparagraph (A) or (B) of subsection (d)(l): "In the case of taxable years beginning in: 1982 1983

The annual rate is: $75,000 80,000

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"In the case of taxable years beginning in: The annual rate is: 1984 $85,000 1985 90,000 1986 and thereafter 95,000. "(B) ATTRIBUTION TO YEAR IN WHICH SERVICES ARE PER-

FORMED.—For purposes of applying subparagraph (A), amounts received shall be considered received in the taxable year in which the services to which the amounts are attributable are performed. "(C) TREATMENT OF COMMUNITY INCOME.—In applying subparagraph (A) with respect to amounts received from services performed by a husband or wife which are community income under community property laws applicable to such income, the aggregate amount which may be excludable from the gross income of such husband and wife under subsection (a)(1) for any taxable year shall equal the amount which would be so excludable if such amounts did not constitute community income. "(c) HOUSING COST AMOUNT.—For purposes of this section— "(1) IN GENERAL.—The term housing cost amount' means an amount equal to the excess of— "(A) the housing expenses of an individual for the taxable year, over "(B) an amount equal to the product of— "(i) 16 percent of the salary (computed on a daily basis) of an employee of the United States who is compensated at a rate equal to the annual rate paid for step 1 of grade GS-14, multiplied by "(ii) the number of days of such taxable year within the applicable period described in subparagraph (A) or (B) of subsection (d)(D. "(2) HOUSING EXPENSES.—

"(A) IN GENERAL.—The term 'housing expenses* means the reasonable expenses paid or incurred during the taxable year by or on behalf of an individu^ for housing for the indiviaual (and, if they reside with him, for his spouse and dependents) in a foreign country. The term— "(i) includes expenses attributable to the housing (such as utilities and insurance), but "(ii) does not include interest and taxes of the kind deductible under section 168 or 164 or any amount 26 USC 163,164. allowable as a deduction under section 216(a). Housing expenses shall not be treated as reasonable to the extent such expenses are lavish or extravagant under the circumstances. "(B) SECOND FOREIGN HOUSEHOLD.—

"(i) IN GENERAL.—Except as provided in clause (ii), only housing expenses incurred with respect to that abode which bears the closest relationship to the t ^ home of the individual shall be taken into account under paragraph (1). "(ii) SEPARATE HOUSEHOLD FOR SPOUSE AND DEPEND-

ENTS.—If an individual maintains a separate abode outside the United States for his spouse and dependents and they do not reside with him because of living conditions which are dangerous, unhealthful, or otherwise adverse, then—

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 95 STAT. 192

PUBLIC LAW 97-34—AUG. 13, 1981 "(I) the words 'if they reside with him' in subparagraph (A) shall be disregarded, and "(II) the housing expenses incurred with respect to such abode shall be taken into account under paragraph (1). "(3) SPECIAL RULES WHERE HOUSING EXPENSES NOT PROVIDED BY EMPLOYER.—

"(A) IN GENERAL.—To the extent the housing cost amount of any individual for any taxable year is not attributable to employer provided amounts, such amount shall be treated as a deduction allowable in computing adjusted gross income to the extent of the limitation of subparagraph (B). "(B) LIMITATION.—For purposes of subparagraph (A), the limitation of this subparagraph is the excess of^ "(i) the foreign earned income of the individual for the taxable year, over "(ii) the amount of such income excluded from gross income under subsection (a)(1) for the taxable year. "(C) 1-YEAR CARRYOVER OF HOUSING AMOUNTS NOT ALLOWED BY REASON OF SUBPARAGRAPH (B).— "(i) IN GENERAL.—The amount not allowable as a deduction for any taxable year under subparagraph (A) by reason of the limitation of subparagraph (B) shall be treated as a deduction allowable in computing adjusted gross income for the succeeding taxable year (and only for the succeeding taxable year) to the extent of the limitation of clause (ii) for such succeeding taxable year, "(ii) LIMITATION.—For purposes of clause (i), the limitation of this clause for any taxable year is the excess of— "(I) the limitation of subparagraph (B) for such taxable year, over "(II) amounts treated as a deduction under subparagraph (A) for such taxable year. "(D) EMPLOYER PROVIDED AMOUNTS.—For purposes of this paragraph, the term 'employer provided amounts' means any amount paid or incurred on behalf of the individual by the individual's employer which is foreign earned income included in the individual's gross income for the taxable year (without regard to this section). "(E) FOREIGN EARNED INCOME.—For purposes of this paragraph, an individual's foreign earned income for any taxable year shall be determined without regard to the limitation of subparagraph (A) of subsection (b)(2), "(d) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) QUALIFIED INDIVIDUAL.—The term 'qualified individual* means an individual whose tax home is in a foreign country and who is— "(A) a citizen of the United States and establishes to the satisfaction of the Secretary that he has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year, or (B) a citizen or resident of the United States and who, during any period of 12 consecutive months, is present in a foreign country or countries during at least 330 full days in such period. "(2) EARNED INCOME.—

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95 STAT. 193

"(A) IN GENERAL.—The term 'earned income' means wages, salaries, or professional fees, and other amounts received as compensation for personal services actually rendered, but does not include that part of the compensation derived by the taxpayer for personal services rendered by him to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered. "(B) TAXPAYER ENGAGED IN TRADE OR BUSINESS.—In the

case of a taxpayer engaged in a trade or business in which both personal services and capital are material incomeproducing factors, under regulations prescribed by the Secretary, a reasonable allowance as compensation for the personal services rendered by the taxpayer, not in excess of 30 percent of his share of the net profits of such trade or business, shall be considered as earned income. "(3) TAX HOME.—The term 'tax home' means, with respect to any individual, such individual's home for purposes of section 162(a)(2) (relating to traveling expenses while away from home). 26 USC 162. An individual shall not be treated as having a tax home in a foreign country for any period for which his abode is within the United States. "(4) WAIVER OF PERIOD OF STAY IN FOREIGN COUNTRY.—Notwith-

standing paragraph (1), an individual who— "(A) is a bona fide resident of, or is present in, a foreign country for any period, "(B) leaves such foreign country after August 31, 1978— "(i) during any period during which the Secretary determines, after consultation with the Secretary of State or his delegate, that individuals were required to leave such foreign country because of war, civil unrest, or similar adverse conditions in such foreign country which precluded the normal conduct of business by such individuals, and "(ii) before meeting the requirements of such paragraph (1), and "(C) establishes to the satisfaction of the Secretary that such individual could reasonably have been expected to have met such requirements but for the conditions referred to in clause (i) of subparagraph (B), shall be treated as a qualified individual with respect to the period described in subparagraph (A) during which he was a bona fide resident of, or was present in, the foreign country, and in applying subsections (b)(2)(A) and (c)(l)(B)(ii) with respect to such individual, only the days within such period shall be taken into account. "(5) TEST OF BONA FIDE RESIDENCE.—If—

"(A) an individual who has earned income from sources within a foreign country submits a statement to the authorities of that country that he is not a resident of that country, and "(B) such individual is held not subject as a resident of that country to the income tax of that country by its authorities with respect to such earnings, then such individual shall not be considered a bona fide resident of that country for purposes of paragraph (1)(A). "(6) DENIAL OF DOUBLE BENEFITS.—No deduction or exclusion

from gross income under this subtitle or credit against the tax

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 95 STAT. 194

PUBLIC LAW 97-34—AUG. 13, 1981 imposed by this chapter (including any credit or deduction for the amount of taxes paid or accrued to a foreign country or possession of the United States) shall be allowed to the extent such deduction, exclusion, or credit is properly allocable to or chargeable against amounts excluded from gross income under subsection (a). "(7) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations providing rules— "(A) for cases where a husband and wife each have earned income from sources outside the United States, and "(B) for married individuals filing separate returns. "(e) ELECTION.—

"(1) IN GENERAL.—An election under subsection (a) shall apply to the taxable year for which made and to all subsequent taxable years unless revoked under paragraph (2). "(2) REVOCATION.—A taxpayer may revoke an election made under paragraph (1) for any taxable year after the taxable year for which such election was made. Except with the consent of the Secretary, any taxpayer who makes such a revocation for any taxable year may not make another election under this section for any subsequent taxable year before the 6th taxable year after the taxable year for which such revocation was made. "(f) CROSS REFERENCES.— "For administrative and penal provisions relating to the exclusions provided for in tiiis section, see sections 6001, 6011, 6012(c), and the other provisions of subtitle F." (b) CONFORMING AMENDMENTS.—

(1) The table of sections for subpart B of part III of subchapter N of chapter 1 is amended by striking out the item relating to section 911 and inserting in lieu thereof the following: "Sec. 911. Citizens or residents ef the United States living abroad."

26 USC 43.

1304 i4ol 6012 609i! ' '

26 USC 37,63, ISn??^}Shf ^' ' Ante, p. 190.

(2) Section 43(c)(l)(C)(i) is amended by striking out "relating to income earned by individuals in certain camps outside the United States" and inserting in lieu thereof "relating to citizens or residents of the United States living abroad". (3) Sections 1302(b)(2)(A)(i), 1304(b)(l), 1402(a)(8), 6012(c), and 6091(b)(l)(B)(iii) are each amended by striking out "relating to income earned by emplo3rees in certain camps and inserting in lieu thereof "relating to citizens or residents of the United States living abroad". (4) Sections 37(e)(9)(B), 63(e)(2), 105(h)(3)(B)(v), 410(b)(3)(C), 879(a)(l), 1303(c)(2), and 1304(c)(3) are each amended by striking out "section 911(b)" each place it appears and inserting in lieu thereof "section 911(d)(2)". (5) Paragraph (11) of section 1402(a) is amended to read as follows: "(11) in the case of an individual described in section 911(d)(l)(B), the exclusion from gross income provided by section 911(a)(l) shall not apply; and". SEC. 112. REPEAL OF DEDUCTION FOR CERTAIN EXPENSES OF LIVING ABROAD.

26 USC 913.

(a) IN GENERAL.—Section 913 (relating to deduction for certain expenses of living abroad) is hereby repealed, (b) CONFORMING AMENDMENTS.—

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 PUBLIC LAW 97-34—AUG. 13, 1981 (1) The table of sections for subpart B of part m of subchapter N of chapter 1 is amended by striking out the item relating to section 913. (2) Section 62 (relating to definition of adjusted gross income) is amended by striking out paragraph (14) and redesignating paragraphs (15) and (16) as paragraphs (14) and (15), respectively. (3) Subparagraph (C) of section 43(c)(l) (relating to earned income) is amended— (A) by striking out "913," in the caption thereof, (B) by striking out clause (ii), and (C) by redesignating clause (iii) as clause (ii). (4) Subsection (k) of section 1034 (relating to rollover of gain on sale of principal residence) is amended by striking out 'Section 913(j)(l)(B)" and inserting in lieu thereof "section 911(d)(3)". (5) Section 3401 (relating to the definition of wages) is amended by striking out paragraph (18) and redesignating paragraphs (19) and (20) as paragraphs (18) and (19), respectively. (6) Subparagraph (B) of section 6091(b)(l) (relating to place for filing returns and other documents) is amended by striking out "section 913 (relating to deduction for certain expenses of living abroad)". SEC. 113. EMPLOYEES LIVING IN CAMPS. Section 119 (relating to meals or lodging furnished for the convenience of the employer) is amended by adding at the end thereof the following new subsection:

95 STAT. 195

26 USC 62. 26 USC 43.

26 USC 1034. 26 USC 340i. 26 USC 609i.

26 USC ii9.

"(c) EMPLOYEES LIVING IN CERTAIN CAMPS.—

"(1) IN GENERAL.—In the case of an individual who is furnished lodging in a camp located in a foreign country by or on behalf of his employer, such camp shall be considerea to be part of the business premises of the employer. "(2) CAMP.—For purposes of this section, a camp constitutes lodging which is— "(A) provided by or on behalf of the employer for the convenience of the employer because the place at which such individual renders services is in a remote area where satisfactory housing is not available on the open market, "(B) located, as near as practicable, in the vicinity of the place at which such individual renders services, and "(C) furnished in a common area (or enclave) wWch is not available to the public and which normally accommodates 10 or more employees." SEC. 114. REPORTS BY SECRETARY.

Section 208 of the Foreign Earned Income Act of 1978 is amended to 26 USC 9ii note. read as follows: "SEC. 208. REPORTS BY SECRETARY. "(a) GENERAL RULE.—AS soon as

practicable after the date of the enactment of the Economic Recovery Tax Act of 1981, and as soon as Ante, p. 172. practicable after the close of each fourth calendar year thereafter, the Secretary of the Treasury shall transmit a report to the Committee on Ways and Means of the House of Representatives and to the Committee on Finance of the Senate on the operation and effects of sections 911 and 912 of the Internal Revenue Code of 1954. "(b) INFORMATION FROM FEDERAL AGENCIES.—Each agency of the Federal Government which pays allowances excludable from gross income under section 912 of such Code shall furnish to the Secretary

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PUBLIC LAW 97-34—AUG. 13, 1981 of the Treasury such information as he determines to be necessary to carry out his responsibility under subsection (a).'*

26 USC 911 note. SEC. 115. EFFECTIVE DATE.

The amendments made by this subtitle (other than section 114) shall apply with respect to taxable years beginning after December 31, 1981.

Subtitle C—Miscellaneous Provisions

26 USC 170.

SEC. 121. DEDUCTION FOR CHARITABLE CONTRIBUTIONS TO BE ALLOWED FOR INDIVIDUALS WHO DO NOT ITEMIZE DEDUCTIONS. (a) IN GENERAL.—Section 170 (relating to charitable, etc., contributions and gifts) is amended by redesignating subsections (i) and (j) as subsections 0') and (k), respectively, and by inserting after subsection (h) the following new subsection: "(i) RULE FOR NONITEMIZATION OF DEDUCTIONS.—

"(1) IN GENERAL.—In the case of an individual who does not itemize his deductions for the taxable year, the applicable percentage of the amount allowable under subsection (a) for the taxable year shall be taken into account as a direct charitable deduction under section 63. "(2) APPLICABLE PERCENTAGE.—For purposes of paragraph (1), the applicable percentage shall be determined under the following table:

The applicable "For taxable years beginning in— percentage is— 1982, 1983 or 1984 25 1985 50 1986 or thereafter. 100. "(3) LIMITATION FOR TAXABLE YEARS BEGINNING BEFORE 1985.—

In the case of a taxable year beginning before 1985, the portion of the amount allowable under subsection (a) to which the applicable percentage shall be applied— "(A) shall not exceed $100 for taxable years beginning in 1982 or 1983, and "(B) shall not exceed $300 for taxable years beginning in 1984. In the case of a married individual filing a separate return, the limit under subparagraph (A) shall be $50, and the limit under subparagraph (B) shall be $150. "(4) TERMINATION.—The provisions of this subsection shall not apply to contributions made after December 31, 1986."

26 USC 63.

Ob) DEFINITION OF TAXABLE INCOME.—

(1) IN GENERAL.—Paragraph (1) of section 63(b) (relating to individuals) is amended— (A) by striking out "and" at the end of subparagraph (A), and (B) by inserting after subparagraph (B) the following new subparagraph: "(C) the durect charitable deduction, and". (2) DIRECT CHARITABLE DEDUCTION DEFINED.—Section 63 (defining taxable income) is amended by adding at the end thereof the foflowing new subsection: "(i) DIRECT (CHARITABLE DEDUCTION.—For purposes of this section, the term 'direct charitable deduction' means that portion of the

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95 STAT. 197

amount allowable under section 170(a) which is taken as a direct charitable deduction for the taxable year under section 170(i)." (c) CONFORMING AMENDMENTS.—

(1) Paragraph (1) of section 57(b) (relating to adjusted itemized deductions) is amended by inserting "without regard to paragraph (3) thereof after "section 63(f)^. (2) Subsection (f) of section 63 (relating to itemized deductions) is amended— (A) by striking out "and" at the end of paragraph (1), (B) by striking out the period at the end of paragraph (2) and inserting in lieu thereof ", and", and (C) by adding at the end thereof the following new paragraph: "(3) the direct charitable deduction." (3) Subparagraph (A) of section 3(a)(4) (relating to imposition of tax table tax) is amended to read as follows: "(A) reduced by the sum of— "(i) the excess itemized deductions, and "(ii) the direct charitable deduction, and". (d) EFFECTIVE DATE.—The amendments made by this section shall apply to contributions made after December 31, 1981, in taxable years beginning after such date. SEC. 122. 18-MONTH PERIODS FOR ROLLOVER OF PRINCIPAL RESIDENCE INCREASED TO 2 YEARS. (a) IN GENERAL.—Section 1034 (relating to rollover of gain on sale of principal residence) is amended by striking out "18 months" each place it appears and inserting in lieu thereof "2 years".

26 USC 57. 26 USC 63.

26 USC 3.

26 USC 170 note.

26 USC 1034.

(b) CONFORMING AMENDMENTS.—

(1) Paragraph (4) of section 1034(c) is amended by striking out "18-month ' and inserting in lieu thereof "2-year". (2) Paragraph (5) of section 1034(c) is hereby repealed. (c) EFFECTIVE DATE.—The amendments made by this section shall apply to old residences (within the meaning of section 1034 of the Internal Revenue Code of 1954) sold or exchanged— (1) after July 20, 1981, or (2) on or before such date, if the rollover period under such section (determined without regard to the amendments made by this section) expires on or after such date. SEC. 123. ONE-TIME EXCLUSION OF GAIN INCREASED TO $125,000. (a) IN GENERAL.—Paragraph (1) of section 121(b) (relating to onetime exclusion of gain from sale of principal residence by individual who has attained age 55) is amended by striking out "$100,000 ($50,000" and inserting in lieu thereof "$125,000 ($62,500". (b) EFFECTIVE DATE.—The amendment made by this section shall apply to residences sold or exchanged after July 20, 1981.

26 USC 1034 ^°^^-

26 USC 121.

26 USC 121 note.

SEC. 124. INCREASES IN CREDIT ALLOWABLE FOR EXPENSES FOR HOUSEHOLD AND DEPENDENT CARE SERVICES NECESSARY FOR GAINFUL EMPLOYMENT. (a) INCREASE IN PERCENTAGE OF EXPENSES ALLOWED AS CREDIT.—

Subsection (a) of section 44A (relating to expenses for household and 26 USC 44A. dependent care services necessary for gainful employment) is amended to read as follows: "(a) ALLOWANCE OF CREDIT.—

"(1) IN GENERAL.—In the case of an individual who maintains a household which includes as a member one or more qualifying individuals (as defined in subsection (c)(1)), there shall be allowed

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PUBLIC LAW 97-34—AUG. 13, 1981 as a credit against the tax imposed by this chapter for the taxable year an amount equal to the applicable percentage of the employment-related expenses (as defined in subsection (c)(2)) paid by such individual during the taxable year. "(2) APPLICABLE PERCENTAGE DEFINED.—For purposes of paragraph (1), the term 'applicable percentage' means 30 percent reduced (but not below 20 percent) by 1 percentage point for each $2,000 (or fraction thereof) by which the taxpayer's adjusted gross income for the taxable year exceeds $10,000." (b) INCREASES IN DOLLAR LIMITS ON AMOUNT CREDITABLE.—

26 USC 44A.

(1) IN GENERAL.—Subsection (d) of section 44A (relating to dollar limit on amount creditable) is amended— (A) by striking out "$2,000" and inserting in lieu thereof "$2,400", and (B) by striking out "$4,000" and inserting in lieu thereof "$4,800". (2) CONFORMING AMENDMENTS.—Paragraph (2) of section

44A(e) (relating to earned income limitation) is amended— (A) by striking out "$166" and inserting in lieu thereof "$200", and (B) by striking out "$333" and inserting in lieu thereof "$400". (c) CREDIT ALLOWED FOR CERTAIN SERVICES OUTSIDE THE TAXPAYER'S

HOUSEHOLD.—Subparagraph (B) of section 44A(c)(2) is amended to read as follows: "(B) EXCEPTION.—Employment-related expenses described in subparagraph (A) which are incurred for services outside the taxpayer's household shall be taken into account only if incurred for the care of— "(i) a qualifying individual described in paragraph (l)(A),or "(ii) a qualifying individual (not described in paragraph (I)(A)) who regularly spends at least 8 hours each day in the taxpayer's household." (d) DAY CARE CENTERS MUST MEET STATE LAW REQUIREMENTS.—

Paragraph (2) of section 44A(c) (defining emplo3niient-related expenses) is amended by adding at the end thereof the following new subparagraphs: (C)

DEPENDENT

CARE

CENTERS.—Employment-related

expenses described in subparagraph (A) which are incurred for services provided outside the taxpayer's household by a dependent care center (as defined in subparagraph (D)) shall be taken into account only if— "(i) such center complies with all applicable laws and regulations of a State or unit of local government, and (ii) the requirements of subparagraph (B) are met. "(D) DEPENDENT CARE CENTER DEFINED.—For purposes of this paragraph, the term 'dependent care center' means any facility which— "(i) provides care for more than six individuals (other than individuals who reside at the facility), and "(ii) receives a fee, payment, or grant for providing services for any of the individuals (regardless of whether such facility is operated for profit)." (e) EXCLUSION OF DEPENDENT CARE ASSISTANCE FROM THE INCOME OF EMPLOYEES.—

Post. p. 267.

(1) IN GENERAL.—Part III of subchapter B of chapter 1 (as amended by section 301) is amended by redesignating section 129

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as section 130 and inserting after section 128 the following new section: "SEC. 129. DEPENDENT CARE ASSISTANCE PROGRAMS.

"(a) IN GENERAL.—Gross income of an employee does not include amounts paid or incurred by the employer for dependent care assistance provided to such employee if the assistance is furnished pursuant to a program which is described in subsection (d). "(b) EARNED INCOME LIMITATION.—

"(1) IN GENERAL.—The amount excluded from the income of an employee under subsection (a) for any taxable year shall not exceed— "(A) in the case of an employee who is not married at the close of such taxable year, the earned income of such employee for such taxable year, or (B) in the case of an employee who is married at the close of such taxable year, the lesser of^ "(i) the earned income of such employee for such taxable year, or "(ii) the earned income of the spouse of such employee for such taxable year. "(2)

SPECIAL RULE FOR CERTAIN SPOUSES.—For purposes of

paragraph (1), the provisions of section 44A(e)(2) shall apply in determining the earned income of a spouse who is a student or incapable of caring for himself. "(c) PAYMENTS TO RELATED INDIVIDUALS.—No amount paid or incurred during the taxable year of an employee by an employer in providing dependent care assistance to such employee shall be excluded under subsection (a) if such amount was paid or incurred to an individual— "(1) with respect to whom, for such taxable year, a deduction is allowable under section 151(e) (relating to personal exemptions for dependents) to such employee or the spouse of such employee, or "(2) who is a child of such employee (within the meaning of section 151(e)(3)) under the age of 19 at the close of such taxable year. "(d) DEPENDENT CARE ASSISTANCE PROGRAM.—

"(1) IN GENERAL.—For purposes of this section a dependent care assistance program is a separate written plan of an employer for the exclusive benefit of his employees to provide such employees with dependent care assistance which meets the requirements of paragraphs (2) through (6) of this subsection. (2) ELIGIBILITY.—The program shall benefit employees who qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of employees who are officers, owners, or highly compensated, or their dependents. For purposes of this paragraph, there shall be excluded from consideration employees not included in the program who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, if there is evidence that dependent care benefits were the subject of good faith bargaining between such employee representatives and such employer or employers. (3) PRINCIPAL SHAREHOLDERS OR OWNERS.—Not more than 25 percent of the amounts paid or incurred by the employer for dependent care assistance during the year may be provided for

-194 O—82

15:QL3

26 USC 129.

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Page:United States Statutes at Large Volume 95.djvu/226

 95 STAT. 200

PUBLIC LAW 97-34—AUG. 13, 1981 the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the year) owns more than 5 percent of the stock or of the capital or profits interest in the employer. "(4) No FUNDING REQUIRED.—A program referred to in paragraph (1) is not required to be funded. "(5) NOTIFICATION OF ELIGIBLE EMPLOYEES.—Reasonable notifi-

cation of the availability and terms of the program shall be provided to eligible employees. "(6) STATEMENT OF EXPENSES.—The plan shall furnish to an employee, on or before January 31, a written statement showing the amounts paid or expenses incurred by the employer in providing dependent care assistance to such employee during the previous calendar year. "(e) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) DEPENDENT CARE ASSISTANCE.—The term 'dependent care assistance' means the payment of, or provision of, those services which if paid for by the employee would be considered employment-related expenses under section 44A(c)(2) (relating to expenses for household and dependent care services necessary for gainful employment). "(2) EARNED INCOME.—The term 'earned income* shall have the meaning given such term in section 43(c)(2), but such term shall not include any amounts paid or incurred by an employer for dependent care assistance to an employee. "(3) EMPLOYEE.—The term 'employee' includes, for any year, an individual who is an employee within the meaning of section 401(c)(1) (relating to self-employed individuals). "(4) EMPLOYER.—An individual who owns the entire interest in an unincorporated trade or business shall be treated as his own employer. A partnership shall be treated as the employer of each partner who is an employee within the meaning of paragraph (3). "(5) ATTRIBUTION RULES.— "(A) OWNERSHIP OF STOCK.—Ownership of stock in a corpo-

ration shall be determined in accordance with the rules provided under subsections (d) and (e) of section 1563 (without regard to section 1563(e)(3)(C)). "(B) INTEREST IN UNINCORPORATED TRADE OR BUSINESS.—

The interest of an employee in a trade or business which is • ^" not incorporated shall be determined in accordance with regulations prescribed by the Secretary, which shall be beised on principles similar to the principles which apply in the case of subparagraph (A). "(6) UTIUZATION TEST NOT APPLICABLE.—A dependent care assistance program shall not be held or considered to fail to meet any requirements of subsection (d) merely because of utilization rates for the different types of assistance made available under the program. "(7) DISALLOWANCE OF EXCLUDED AMOUNTS AS CREDIT OR DEDUC-

TION.—No deduction or credit shall be allowed under any other section of this chapter for any amount excluded from income by reason of this section." (2) EXCLUSION FROM WAGES.— (A) EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX.—

26 USC 3121, 3306.

Subtitle C is amended by striking out "section 127" in section 3121(a)(18) (relating to the Federal Insurance C!ontributions Act), section 3306(b)(13) (relating to the Federal

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Page:United States Statutes at Large Volume 95.djvu/227

 PUBLIC LAW 97-34—AUG. 13, 1981

95 STAT. 201

Unemployment Tax Act), and section 3401(a)(19) (relating to 26 USC 3401. collection of income tax at source on wages) and inserting in lieu thereof "section 127 or 129". (B) SOCIAL SECURITY ACT.—Subsection (q) of section 209 of the Social Security Act (defining wages) is amended by 42 USC 409. striking out "section 127" and inserting in lieu thereof "section 127 or 129". (f) EFFECTIVE DATE.—

26 USC 44A

(1) Except as provided in paragraph (2), the amendments made ^°^by this section shall apply to teixable years beginning after December 31, 1981. (2) The amendments made by subsection (e)(2) shall apply to remuneration paid after December 31, 1981. SEC.

125. DEDUCTION FOR INDIVIDUAL.

ADOPTION

EXPENSES

PAID

BY

AN

(a) IN GENERAL.—Part VII of subchapter B of chapter 1 (relating to additional itemized deductions for individuals), as amended by section 103, is amended by redesignating section 222 as section 223 and Ante, p. 187. by inserting after section 221 the following new section: "SEC. 222. ADOPTION EXPENSES.

26 USC 222.

"(a) ALLOWANCE OF DEDUCTION.—In the case of an individual, there shall be allowed as a deduction for the taxable year the amount of the qualified adoption expenses paid or incurred by the taxpayer during such taxable year. "(b) LIMITATIONS.— "(1) MAXIMUM DOLLAR AMOUNT.—The aggregate amount of

adoption expenses which may be taken into account under subsection (a) with respect to the adoption of a child shall not exceed $1,500. "(2) DENIAL OF DOUBLE BENEFIT.—

"(A) IN GENERAL.—No deduction shall be allowable under subsection (a) for any expense for which a deduction or credit is allowable under any other provision of this chapter. "(B) GRANTS.—No deduction shall be allowable under subsection (a) for any expenses paid from any funds received under any Federal, State, or local program. "(c) DEFINITIONS.—For purposes of this section— "(1) QUALIFIED ADOPTION EXPENSES.—The term 'qualified adoption expenses' means reasonable and necessary adoption fees, court costs, attorney fees, and other expenses which are directly related to the legal adoption of a child with special needs by the taxpayer and which are not incurred in violation of State or Federal law. "(2) CHILD WITH SPECIAL NEEDS.—The term 'child with special needs' means a child with respect to whom adoption assistance payments are made under section 473 of the Social Security Act." (b) CONFORMING AMENDMENT.—The table of sections for such part VII is amended by striking out the item relating to section 222 and inserting in lieu thereof the following: "Sec. 222. Adoption expenses. "Sec. 223. Cross references." (c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 222

apply to taxable years beginning after December 31, 1980.

^°^-

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Page:United States Statutes at Large Volume 95.djvu/228

 95 STAT. 202

PUBLIC LAW 97-34—AUG. 13, 1981 SEC. 126. MAXIMUM RATE OF IMPUTED INTEREST FOR SALE OF LAND BETWEEN RELATED PERSONS.

26 USC 483.

(a) GENERAL RULE.—Section 483 (relating to interest on certain

deferred payments) is amended by adding a t the end thereof the following new subsection: "(g) MAXIMUM RATE OF INTEREST ON CERTAIN TRANSFERS OF LAND BETWEEN RELATED PARTIES.—

26 USC 483 ^°^-

26 USC 162.

"(1) IN GENERAL.—In the case of any qualified sale, the maximum interest rate used in determining the total unstated interest rate under the regulations under subsection (b) shall not exceed 7 percent, compounded semiannually. "(2) QUALIFIED SALE.—For purposes of this subsection, the term 'qualified sale' means any sale or exchange of land by an individual to a member of such individual's family (within the meaning of section 267(c)(4)). "(3) $500,000 UMiTATiON.—Paragraph (1) shall not apply to any qualified sale between individuals made during any calendar year to the extent that the sales price for such sale (when added to the aggregate sales price for prior qualified sales between such individuals during the calendar year) exceeds $500,000. "(4) NONRESIDENT AUEN INDIVIDUALS.—This section shall not apply to any sale or exchange if any party to such sale or exchange is a nonresident alien individual." (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to pa5ntnents made after June 30, 1981, pursuant to sales or exchanges after such date. SEC. 127. STATE LEGISLATORS TRAVEL EXPENSES AWAY FROM HOME. (a) IN GENERAL.—Section 162 (relating to trade or business expenses) is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection: "(h) STATE LEGISLATORS' TRAVEL EXPENSES AWAY FROM HOME.—

"(1) IN GENERAL.—For purposes of subsection (a), in the case of any individual who is a State legislator a t any time during the taxable year and who makes an election under this subsection for the taxable year— "(A) the place of residence of such individual within the legislative district which he represented shall be considered his home, "(B) he shall be deemed to have expended for living expenses (in connection with his trade or business as a legislator) an amount equal to the sum of the amounts determined by multiplying each legislative day of such individual during the taxable year by the greater of^ "(i) the amount generally allowable with respect to such day to employees of the State of which he is a legislator for per diem while away from home, to the extent such amount does not exceed 110 percent of the amount described in clause (ii) with respect to such day, or "(ii) the amount generally allowable with respect to such day to employees of the executive branch of the Federal Government for per diem while away from home but serving in the United States, and "(C) he shall be deemed to be away from home in the pursuit of a trade or business on each legislative day.

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Page:H. R. 4982 (1899).tif

1. Be it enacted by the Senate and House of Representa-

2. tives of the United States of America in Congress assembled,

3. That the Secretary of the Interior be, and he is hereby,

4. authorized and directed to place upon the pension roll of the

5. United States the name of Harriet Tubman Davis, late a

6. nurse in the United States Army, and pay her a pension at

7. the rate of twenty-five dollars per month in lieu of all other

8. pensions.

Amend the title so as to read: "A bill granting an increase of pension to Harriet Tubman Davis."

title: Page:H. R. 4982 (1899).tif


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Page:United States Statutes at Large Volume 95.djvu/229

 PUBLIC LAW 97-34—AUG. 13, 1981

95 STAT. 203

"(2) LEGISLATIVE DAYS.—For purposes of paragraph (1), a legislative day during any taxable year for any individual shall be any day during such year on which— "(A) the legislature was in session (including any day in which the legislature was not in session for a period of 4 consecutive days or less), or "(B) the legislature was not in session but the physical presence of the individual was formally recorded at a meeting of a committee of such legislature. "(8) ELECTION.—An election under this subsection for any taxable year shall be made at such time and in such manner as the Secretary shall by regulations prescribe. "(4) SECTION NOT TO APPLY TO LEGISLATORS WHO RESIDE NEAR

CAPITOL.—For taxable years beginning after December 31, 1980, this subsection shall not apply to any legislator whose place of residence within the legislative district which he represents is 50 or fewer miles from the capitol building of the State, (b) The amendment made by subsection (a) shall apply to taxable years beginning on or after January 1, 1976. SEC. 128. RATES OF TAX FOR PRINCIPAL CAMPAIGN COMMITTEES. (a) IN GENERAL.—Section 527 (relating to political organizations) is amended by adding at the end thereof the following new subsection:

Effective date. 26 USC 162 note.

26 USC 527.

"(h) SPECIAL RULE FOR PRINCIPAL CAMPAIGN COMMITTEES.—

"(1) IN GENERAL.—In the case of a political organization which is a principal campaign committee, paragraph (1) of subsection (b) shall be applied by substituting 'the appropriate rates' for 'the highest rate. "(2) PRINCIPAL CAMPAIGN COMMITTEE DEFINED.-

"(A) IN GENERAL.—For purposes of this subsection, the term 'principal campaign committee* means the political committee designated by a candidate for Congress as his principal campaign committee for purposes of— "(i) section 302(e) of the Federal Election Campaign Act of 1971 (2 U.S.C. 432(e)), and "(ii) this subsection. "(B) DESIGNATION.—A candidate may have only 1 designation in effect under subparagraph (A)(ii) at any time and such designation— "(i) shall be made at such time and in such manner as the Secretary may prescribe by regulations, and "(ii) once made, may be revoked only with the consent of the Secretary." (b) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 527 apply to taxable years beginning after December 31, 1981. note

TITLE II—BUSINESS INCENTIVE PROVISIONS Subtitle A—Cost Recovery Provisions SEC. 201. ACCELERATED COST RECOVERY SYSTEM.

(a) IN GENERAL.—Part VI of subchapter B of chapter 1 (relating to itemized deductions for individuals and corporations) is amended by inserting after section 167 the following new section:

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Page:United States Statutes at Large Volume 95.djvu/230

 95 STAT. 204 26 USC 168.

PUBLIC LAW 97-34—AUG. 13, 1981 -SEC. 168. ACCELERATED COST RECOVERY SYSTEM. "(a) ALLOWANCE OF DEDUCTION.—There shall be allowed as a

deduction for any taxable year the amount determined under this section with respect to recovery property. "(b) AMOUNT OP DEDUCTION.—

"(1) IN GENERAL.-Except as otherwise provided in this section, the amount of the deduction allowable by subsection (a) for any taxable year shall be the aggregate amount determined by applying to the una(^'usted basis of recovery property the applicable percentage determined in accordance with the following tables: "(A) FOR PROPERTY PLACED IN SERVICE AFTER DECEMBER SI, 1980, AND BEFORE JANUARY 1, 1985.—

Iltbe recovery year is:

1 2.. 8 4 5 fi

7 8 9 10 11. 12. 18. 14. 15.

The i^plicable peroenta^ for the class of property is: 8<year 26 88 87

5-year 15 22 21 21 21

10-year 8 14 12 10 10 10 9 9 9 9

''(B) FOR PROPERTY PLACED IN SERVICE IN 1985.—

15-year public utility 5 10 9 8 7 7 6 6 6 6 6 6 6 6

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Page:United States Statutes at Large Volume 95.djvu/231

 95 STAT. 205

PUBLIC LAW 97-34—AUG. 13, 1981 The applicable percenta|e for the class of property is: "ff the recovery year is:

3-year

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

29 47 24

5-year 18 83 25 16 8

10-year 9 19 16 14 12 10 8 6 4 2

15-year public utility 6 12 12 11 10 9 8 7 6 5 4 4 3 2 1.

"(C) FOR PROPERTY PLACED IN SERVICE AFTER DECEMBER 31, 1985.—

"If the recovery year is:

The applicable percenta^ for the class of property is: 3-year

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

33 45 22

5year 20 32 24 16 8

10-year 10 18 16 14 12 10 8 6 4 2

15-year public utility 7 12 12 11 10 9 8 7 6 5 4 3 3 2 1.

"(2) 15-YEAR REAL PROPERTY.—

"(A) IN GENERAL.—In the case of 15-year real properly, the applicable percentage shall be determined in accordance with a table prescribed by the Secretary. hi prescribing such table, the Secretary shall— "(i) assign to the property a 15-year recovery period, and "(ii) assign percentages generally determined in accordance with use of the 175 percent declining balance method (200 percent declining balance method in the case of low-income housing), switching to the method described in section 1670t)Xl) at a time to maximize the 26 USC i67. deduction allowable under subsection (a). For purposes of this subparagraph, the applicable percentage m the taxable year in which the property is placed in

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Page:United States Statutes at Large Volume 95.djvu/232

 95 STAT. 206

"Low income housing." 26 USC 1250.

PUBLIC LAW 97-34—AUG. 13, 1981 service shall be determined on the basis of the number of months in such year during which the property was in service. For purposes of this subparagraph, the term 'lowincome housing' means property described in clause (i), (ii), (iii), or (iv) of section 1250(a)(l)(B). "(B) SPECIAL RULE FOR YEAR OP DISPOSITION.—In the case of a disposition of 15-year real property, the deduction allowable under subsection (a) for the taxable year in which the disposition occurs shall reflect only the months during such year the property was in service. "(3) ELECTION OF DIFFERENT RECOVERY PERCENTAGE.—

"(A) IN GENERAL.—Except as provided in subsection (£X2), in lieu of any applicable percentage under paragraphs (1) and (2), the taxpayer may elect, with respect to one or more classes of recovery property placed in service during the taxable ^ear, the applicable percentage determined by use of the straight line method over the recovei^jr period elected by the taxpayer in accordance with the following table: "In the case of: 3-year property 5^ear property l(>-year property 15-year real property 15-year public utility property "(B) OPERATING RULES.—

The taxpayer may elect a recovery period of: 3,5, or 12 years. 5,12, or 25 years. 10,25, or 35 years. 15,35, or 45 years. 15,35, or 45 years.

"(i) IN GENERAL.—Except as provided in clause (ii), the taxpayer may elect under subparagraph (A) only a single percentage for property in any class of recovery property placed in service during the taxable year. The percentage so elected shall apply to all property in such class placed in service during such taxaole year and shall apply throughout the recovery period elected for such property. "(ii) REAL PROPERTY.—In the case of 15-year real property the taxpayer shall make the election under subparagraph (A) on a property-by-property basis. "(iii) CONVENTION.—Under regulations prescribed by the Secretary, the half-year convention shall apply to any election with respect to any recovery property (other than 15-year real property) with respect to which an election is made under tms paragraph. "(c) RECOVERY PROPERTY.—For purposes of this title— "(1) RECOVERY PROPERTY DEFINED.—Except as provided in subsection (e), the term 'recovery property* means tangible property of a character subject to the allowance for depreciation— "(A) used in a trade or business, or "(B) held for the production of income. "(2) CLASSES OF RECOVERY PROPERTY.—Each item of recovery property shall be assigned to one of the following classes of property: (A) 3-YEAR PROPERTY.—The term '3-year property' means section 1245 class property— "(i) with a present class life of 4 years or less; or "(ii) used in connection with research and experimentation. "(B) 5-YEAR PROPERTY.—The term '5-year property' means recovery property which is section 1245 class property and

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Page:United States Statutes at Large Volume 95.djvu/233

 PUBLIC LAW 97-34—AUG. 13, 1981

95 STAT. 207

which is not 3-year property, 10-year property, or 15-year public utility property. "(C) 10-YEAR PROPERTY.—The term '10-year property' means— "(i) public utility property (other than section 1250 26 USC 1250. class property or 3-year property) with a present class life of more than 18 years but not more than 25 years; and "(ii) section 1250 class property with a present class life of 12.5 years or less. "(D) 15-YEAR REAL PROPERTY.—The term '15-year real property' means section 1250 class property which does not have a present class life of 12.5 years or less. "(E) 15-YEAR PUBLIC UTILITY PROPERTY.—The term '15-year public utility property' means public utility property (other than section 125 class property or 3-year property) with a present class life of more than 25 years. '(d) UNADJUSTED BASIS; ADJUSTMENTS.— "(1) UNADJUSTED BASIS DEFINED.—

"(A) IN GENERAL.—For purposes of this section, the term 'unadjusted basis' means the excess of— "(i) the basis of the property determined under part II of subchapter O of chapter 1 for purposes of determining gain (determined without regard to the adjustments described in paragraph (2) or (3) of section 1016(a)), over "(ii) the sum of— "(I) that portion of the basis for which the taxpayer properly elects amortization (including the deduction allowed under section 167(k)) in lieu of depreciation, and (II) that portion of the basis which the taxpayer properly elects to treat as an expense under section 179. "(B) TIME FOR TAKING BASIS INTO ACCOUNT.—

"(i) IN GENERAL.—The unadjusted basis of property shall be first taken into account under subsection (b) for the taxable year in which the property is placed in service. "(ii) REDETERMINATIONS.—The Secretary shall by regulation provide for the method of determining the deduction allowable under subsection (a) for any taxable year (and succeeding taxable years) in which the basis is redetermined (including any reduction under section 1017). "(2) DISPOSITIONS.— "(A) MASS ASSET ACCOUNTS.—In

lieu of recognizing gain or loss under this chapter, a taxpayer who maintains one or more mass asset accounts of recovery property may, under regulations prescribed by the Secretary, elect to include in income all proceeds realized on the disposition of such property. "(B) ADJUSTMENT TO BASIS.—Except as provided under regulations prescribed by the Secretary under subsection (f)(7), if any recovery property (other than 15-year real property or property with respect to which an election under subparagraph (A) is made) is disposed of, the unadjusted basis of such property shall cease to be taken into account in determining any recovery deduction allowable under subsec-

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Page:United States Statutes at Large Volume 95.djvu/234

 95 STAT. 208

PUBLIC LAW 97-34—AUG. 13, 1981 tion (a) as of the beginning of the taxable year in which such disposition occurs. (C) DISPOSITION INCLUDES RETIREMENT.—For purposes of

this subparagraph, retirement. "(e)

the

term

'disposition

includes

PROPERTY EXCLUDED FROM APPLICATION OF SECTION.—For

purposes of this section— "(1) PROPERTY PLACED I N SERVICE BEFORE JANUARY i, i 9 8 i. —

The term 'recovery property' does not include property placed in service by the taxpayer before January 1, 1981. "(2) CERTAIN METHODS OF DEPRECIATION.—The term 'recovery property' does not include property if— "(A) the taxpayer elects to exclude such property from the application of this section, and (B) for the first taxable year for which a deduction would (but for this election) be allowable under this section with respect to such property in the hands of the taxpayer, the property is properly depreciated under the unit-of-production method or any method of depreciation not expressed in a term of years (other than the retirement-replacementbetterment method). "(3) SPECIAL RULE FOR CERTAIN PUBLIC UTILITY PROPERTY.—

26 USC 167.

"(A) IN GENERAL.—The term 'recovery property' does not include public utility property (within the meaning of section 167(1)(3)(A)) if the taxpayer does not use a normalization method of accounting. "(B) USE OF NORMALIZATION METHOD DEFINED.—For purposes of subparagraph (A), in order to use a normalization method of accounting with respect to any public utility property— ' (i) the taxpayer must, in computing its tax expense for purposes of establishing its cost of service for ratemaking purposes and reflecting operating results in its regulated books of account, use a method of depreciation with respect to such property that is the same as, and a depreciation period for such property that is no shorter than, the method and period used to compute its depreciation expense for such purposes; and "(ii) if the amount allowable as a deduction under this section with respect to such property differs from the amount that would be allowable as a deduction under section 167 (determined without regard to section 167(1)) using the method (including the period, first and last year convention, and salvage value) used to compute regulated tax expense under subparagraph (B)(i), the taxpayer must make adjustments to a reserve to reflect the deferral of taxes resulting from such difference. "(C) PUBLIC UTILITY PROPERTY W H I C H IS N O T RECOVERY

PROPERTY.—In the case of public utility property which, by reason of this paragraph, is not treated as recovery property, the allowance for depreciation under section 167(a) shall be an amount computed using the method and period referred to in subparagraph (B)(i). "(4) CERTAIN TRANSACTIONS IN PROPERTY PLACED IN SERVICE BEFORE 1986.— "(A) SECTION 1245 CLASS PROPERTY.—The term 'recovery

property' does not include section 1245 class property acquired by the taxpayer after December 31, 1980, if—

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Page:United States Statutes at Large Volume 95.djvu/235

 PUBLIC LAW 97-34—AUG. 13, 1981

95 STAT. 209

"(i) the property was owned or used at any time during 1980 by the taxpayer or a related person, "(ii) the property is acquired from a person who owned such property at any time during 1980, and, as part of the transaction, the user of such property does not change, "(iii) the taxpayer leases such property to a person (or a person related to such person) who owned or used such property at any time during 1980, or "(iv) the property is acquired in a transaction as part of which the user of such property does not change and the property is not recovery property in the hands of the person from which the property is so acquired by reason of clause (ii) or (iii). For purposes of this subparagraph and subparagraph (B), property shall not be treated as owned before it is placed in service. For purposes of this subparagraph, whether the user of property changes as part of a transaction shall be determined in accordance with regulations prescribed by the Secretary. "(B) SECTION 1250 CLASS PROPERTY.—The term 'recovery 26 USC 1250. property' does not include section 1250 class property acquired by the tsixpayer after December 31, 1980, if— "(i) such property was owned by the taxpayer or by a related person at any time during 1980; "(ii) the taxpayer leases such property to a person (or a person related to such person) who owned such property at any time during 1980; or described in section 1031, 1033, 1038, or 1039 to the extent that the basis of such property includes an amount representing the adjusted basis of other property owned by the taxpayer or a related person during 1980. "(C) CERTAIN NONRECOGNITION TRANSACTIONS.—The term 'recovery property' does not include property placed in service by the transferor or distributor before January 1, 1981, which is acquired by the taxpayer after December 31, 1980, in a transaction described in section 332, 351, 361, 371(a), 374(a), 721, or 731 (or such property acquired from the transferee or acquiring corporation in a transaction described in such section), to the extent that the basis of the property is determined by reference to the basis of the property in the hands of the transferor or distributor. In the case of property to which this subparagraph applies, rules similar to the rules described in section 381(c)(6) shall apply. "(D)
 * (iii) such property is acquired in an exchange

RELATED PERSON DEFINED.—Except as provided in

subparagraph (E), for purposes of this paragraph a person (hereinafter referred to as the related person) is related to any person if— "(i) the related person bears a relationship to such person specified in section 267(b) or section 707(b)(l), or "(ii) the related person and such person are engaged in trades or businesses under common control (within the meaning of subsections (a) and (b) of section 52). For purposes of clause (i), in applying section 267(b) and section 70703X1) '10 percent' shall be substituted for '50 percent'. The determination of whether a person is related to

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Page:United States Statutes at Large Volume 95.djvu/236

 95 STAT. 210

26 USC 334.

PUBLIC LAW 97-34—AUG. 13, 1981 another person shall be made as of the time the taxpayer acquires the property involved. (E) LIQUIDATION OF SUBSIDIARY, ETC.—For purposes of this paragraph, a corporation is not a related person to the taxpayer— "(i) if such corporation is a distributing corporation in a transaction to which section 334(b)(2)(B) applies and the stock of such corporation referred to in such subparagraph (B) was acquired by the taxpayer by purchase after December 31, 1980, or "(ii) if such corporation is liquidated in a liquidation to which section 331(a) applies and the taxpayer (or a related person) by himself or together with 1 or more other persons acquires the stock of the liquidated corporation by purchase (meeting the requirements of section 334(b)(2)(B)) after December 31, 1980. "(F) ANTIAVOIDANCE RULE.—The term 'recovery property' does not include property acquired by the taxpayer after December 31, 1980, which, under regulations prescribed by the Secretary, is acquired in a transaction one of the principal purposes of which is to avoid the principles of paragraph (1) and this paragraph. "(G) REDUCTION IN UNADJUSTED BASIS.—In the case of an acquisition of property described in subparagraph (B) or (C), the unadjusted basis of the property under subsection (d) shall be reduced to the extent that such property acquired is not recovery property. "(H)

SPECIAL RULES FOR PROPERTY PLACED IN SERVICE BEFORE CERTAIN PERCENTAGES TAKE EFFECT.—Under regula-

tions prescribad by the Secretary— "(i) rules similar to the rules of this paragraph shall be applied in determining whether the tables contained in subparagraph (B) or (C) of subsection (b)(1) apply with respect to recovery property, and (ii) if the tables contained in subparagraph (B) or (C) of subsection (b)(1) do not apply to such property by reason of clause (i), the deduction allowable under subsection (a) shall be computed— "(I) In the case of a transaction described in subparagraph (C), under rules similar to the rules described in section 381(c)(6); and "(II) in the case of a transaction otherwise described in this paragraph, under the recovery period and method (including rates prescribed under subsection (b)(1)) used by the person from whom the taxpayer acquired such property (or, where such person had no recovery method and period for such property, under the recovery period and method (including rates prescribed under subsection (b)(1)) used by the person which transferred such property to such person). "(f) SPECIAL RULES FOR APPLICATION OF THIS SECTION.—For purposes of this section— "(1) COMPONENTS OF SECTION 1250 CLASS PROPERTY.—

"(A) IN GENERAL.—Except as otherwise provided in this paragraph— "(i) the deduction allowable under subsection (a) with respect to any component (which is section 1250 class

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Page:United States Statutes at Large Volume 95.djvu/237

 PUBLIC LAW 97-34—AUG. 13, 1981

95 STAT. 211

property) of a building shall be computed in the same manner as the deduction allowable with respect to such building, and "(ii) the recovery period for such component shall begin on the later of— "(I) the date such component is placed in service, or "(II) the date on which the building is placed in service. "(B) TRANSITIONAL RULE.—In the case of any building placed in service by the taxpayer before January 1, 1981, for purposes of applying subparagraph (A) to components of such buildings placed in service after December 31, 1980, the deduction allowable under subsection (a) with respect to such components shall be computed in the same manner as the deduction allowable with respect to the first such component placed in service after December 31, 1980. For purposes of the preceding sentence, the method of computing the deduction allowable with respect to such first component shall be determined as if it were a separate building. "(C) EXCEPTION FOR SUBSTANTIAL IMPROVEMENTS.—

"(i) IN GENERAL.—For purposes of this paragraph, a substantial improvement shall be treated as a separate building. "(ii)

SUBSTANTIAL IMPROVEMENT.—For purposes

of

clause (i), the term 'substantial improvement' means the improvements added to capital account with respect to any building during any 24-month period, but only if the sum of the amounts added to such account during such period equals or exceeds 25 percent of the adjusted basis of the building (determined without regard to the adjustments provided in paragraphs (2) and (3) of section 1016(a)) as of the first day of such period. 26 USC ioi6. "(iii) IMPROVEMENTS MUST BE MADE AFTER BUILDING IN SERVICE FOR 3 YEARS.—For purposes of this paragraph, the term 'substantial improvement' shall not include any improvement made before the date 3 years after the building was placed in service. "(2) RECOVERY PROPERTY USED PREDOMINANTLY OUTSIDE THE UNITED STATES.—

"(A) IN GENERAL.—Except as provided in subparagraphs (B) and (C), in the case of recovery property which, during the taxable year, is used predominantly outside the United States, the recovery deduction for the taxable year shall be, in lieu of the amount determined under subsection (b), the amount determined by applying to the unadjusted basis of such property the applicable percentage determined under tables prescribed by the Secretary. For purposes of the preceding sentence, in prescribing such tables, the Secretary shall— "(i) assign the property described in this subparagraph to classes in accordance with the present class life (or 12 years in the case of personal property with no present CIEISS life) of such property; and "(ii) assign percentages (taking into account the halfyear convention) determined in accordance with use of the method of depreciation described in section 167(b)(2), switching to the method described in section 167(b)(1) at

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Page:United States Statutes at Large Volume 95.djvu/238

 95 STAT. 212

PUBLIC LAW 97-34—AUG. 13, 1981 a time to maximize the deduction allowle under subsection (a). "(B) REAL PROPERTY.—

26 USC 167.

"(i) IN GENERAL.—Except as provided in subparagraph (O, in the case of 15-year real property which, during the taxable year, is predominantly used outside the United States, the recovery deduction for the taxable year shall be, in lieu of the amount determined under subsection (b), the amount determined by applying to the unadjusted basis of such property tibe applicable percentage determined under tables prescribed by the Secretary. For purposes of the preceding sentence in prescribing such tables, the Secretary shall— "(I) assign to the property described in this subparagraph a 35-year recovery period; and "(11) assign percentages (taking into account the next to the last sentence of subsection (b)(2)(A)) determined in accordance with use of the method of depreciation described in section 167(j)(l)(B), switching to the method described in section 167(b)(l) at a time to maximize the deduction allowable under subsection (a), "(ii) SPECIAL RULE FOR DISPOSITION.-In the case of a disposition of 15-year real property described in clause (i), subsection (b)(2)(B) shall apply. "(C) ELECTION OP DIFFERENT RECOVERY PERCENTAGE.— "(i) GENERAL RULE.—The taxpayer may elect, with

respect to one or more classes of recovery property described in this paragraph, to determine the applicable percentage under this paragraph by use of the straightline method over the recovery period determined in accordance with the following table:

The taxpayer may elect "In the case of: a recovery period of: d-year property The present class life, 5 or 12 years. 5-year property The present class life, 12 or 25 years. 10-year property The present class life, 25 or 35 years. 15-year real property 85 or 45 years. 15-year public utility prop- The present class life, 35 or 45 years, erty.

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Page:United States Statutes at Large Volume 95.djvu/239

 PUBLIC LAW 97-34-AUG. 13, 1981

95 STAT. 213

"(ii) OPERATING RULES.— "(I) PERIOD ELECTED BY TAXPAYER.—Except as pro-

vided in subclause (II), the taxpayer may elect under clause (i) for any taxable year only a single recovery period for recovery property described in this paragraph which is placed in service during such taxable year, which has the same present class life, and which is in the same class under subsection (c)(2). The period so elected shall not be shorter than such present class life. "(H) REAL PROPERTY.—In the case of 15-year real property, the election under clause (i) shall be made on a property-by-property basis.

"(D) DETERMINATION OP PROPERTY USED PREDOMINANTLY OUTSIDE THE UNITED STATES.—For purposes of this para-

graph, under regulations prescribed by the Secretary, rules similar to the rules under section 48(a)(2) (including the 26 USC 48. exceptions under subparagraph (B)) shall be applied in determining whether property is used predominantly outside the United States. "(E) CONVENTION.—Under regulations prescribed by the Secretary, the half year convention shall apply for purposes of any determination under subparagraph (C) (other than any aetermination with respect to 15-year real property). "(8) RRB REPLACEMENT PROPERTY.—

"(A) IN GENERAL.—In the case of RRB replacement property placed in service before January 1, 1985, the recovery deduction for the taxable year shall be, in lieu of the amount determined under subsection (b), the amount determined by applying to the unadjusted basis of such property the applicable percentage determined under tables prescribed by the Secretary. For purposes of the preceding sentence, in prescribing such tables, the Secretary shall— "(i) use the recovery period determined in accordance with the following table: "If the year property is placed in service is: 1981 1982 1983 1984

The recovery period is: 1 2 3 4

and "(ii) assign percentages determined in accordance with use of the method of depreciation described in section 167(b)(2), switching to the method described in section 167(b)(3) at a time to maximize the deduction allowable under subsection (a) (taking into account the half-year convention). "(B) RRB REPLACEMENT PROPERTY DEFINED.—For purposes of this section, the term 'RRB replacement property' means replacement track material (including rail, ties, other track material, and ballast) installed by a railroad (including a railroad switching or terminal company) if— "(i) the replacement is made pursuant to a scheduled pr<}gram for replacement.

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