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PUBLIC LAW 99-514—OCT. 22, 1986 (determined without regard to the limitations of section 38(c) and any reduction under section 49 of the Internal Revenue Code of 1986), and (B) are attributable to the amount of the regular investment credit determined under section 46(a)(1) of such Code (relating to regular percentage), or any corresponding provision of prior law, determined on the basis that the regular investment credit was used first.

SEC. 213. EFFECTIVE 15-YEAR CARRYBACK OF FORWARDS OF QUALIFIED FARMERS.

EXISTING

CARRY-

(a) GENERAL RULE.—If a taxpayer who is a qualified farmer makes an election under this section for its 1st taxable year beginning after December 31, 1986, with respect to any portion of its existing carryforwards, the amount determined under subsection (b) shall be treated as a payment against the tax imposed by chapter 1 of the Internal Revenue Code of 1986 made by such taxpayer on the last day prescribed by law (without regard to extensions) for filing its return of tax under chapter 1 of such Code for such 1st taxable year. (b) AMOUNT.—For purposes of subsection (a), the amount determined under this subsection shall be equal to the smallest of— (1) 50 percent of the portion of the taxpayer's existing carryforwards to which the election under subsection (a) applies, (2) the taxpayer's net tax liability for the carryback period (within the meaning of section 212(d) of this Act), or (3) $750. (c) TAXPAYER MAKING ELECTION MAY NOT U S E SAME AMOUNTS UNDER SECTION 38.—In the case of a qualified farmer who makes an

election under subsection (a), the portion of such farmer's existing carryforwards to which such an election applies shall not be taken into account under section 38 of the Internal Revenue Code of 1986 for any taxable year beginning after December 31, 1986. (d) No RECOMPUTATION OF MINIMUM TAX, ETC.—Nothing in this section shall be construed to affect— (1) the amount of the tax imposed by section 56 of the Internal Revenue Code of 1954, or (2) the amount of any credit allowable under such Code, for any taxable year in the carryback period (within the meaning of section 212(d)(3) of this Act). (e) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— (1) QUALIFIED FARMER.—The term "qualified farmer" means any taxpayer who, during the 3-taxable year period preceding the taxable year for which an election is made under subsection (a), derived 50 percent or more of the taxpayer's gross income from the trade or business of farming. (2) EXISTING CARRYFORWARD.—The term "existing carryforward" means the aggregate of the amounts which— (A) are unused business credit carryforwards to the taxpayer's 1st taxable year beginning after December 31, 1986 (determined without regard to the limitations of section 38(c) of the Internal Revenue Code of 1986), and (B) are attributable to the amount of the investment credit determined under section 46(a) of such Code (or any corresponding provision of prior law) with respect to section 38 property which was used by the taxpayer in the trade or

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business of farming, determined on the basis that such credit was used first. (3) FARMING.—The term "farming" has the meaning given such term by section 2032A(e)(4) and (5) of such Code.

Subtitle C—General Business Credit Reduction SEC. 221. REDUCTION IN TAX LIABILITY WHICH MAY BE OFFSET BY BUSINESS CREDIT FROM 85 PERCENT TO 75 PERCENT.

(a) IN GENERAL.—Subparagraph (B) of section 38(c)(1) (relating to limitation based on amount of tax) is amended by striking out "85 percent" and inserting in lieu thereof "75 percent". (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1985.

Subtitle D—Research and Development Provisions SEC. 231. AMENDMENTS RELATING TO CREDIT FOR INCREASING RESEARCH ACTIVITIES. (a) 3-YEAR EXTENSION OF THE RESEARCH CREDIT.—

(1) IN GENERAL.—Section 30 (relating to credit for increasing research activities) is amended by adding at the end thereof the following new subsection: "(h) TERMINATION.—

"(1) IN GENERAL.—This section shall not apply to any amount paid or incurred after December 31, 1988. "(2) COMPUTATION OF BASE PERIOD EXPENSES.—In the case of any taxable year which begins before January 1, 1989, and ends after December 31, 1988, any amount for any base period with respect to such taxable year shall be the amount which bears the same ratio to such amount for such base period as the number of days in such taxable year before January 1, 1989, bears to the total number of days in such taxable year." (2) CONFORMING AMENDMENT.—Subsection (d) of section 221 of

the Economic Recovery Tax Act of 1981 is amended— (A) by striking out ", and before January 1, 1986" in paragraph (1), and (B) by striking out the last sentence of paragraph (2)(A). (b) DEFINITION OF QUALIFIED RESEARCH; CERTAIN RESEARCH NOT ELIGIBLE FOR CREDIT.—Subsection (d) of section 30 (defining qualified

research) is amended to read as follows: "(d) QUALIFIED RESEARCH DEFINED.—For purposes of this section— "(1) IN GENERAL.—The term 'qualified research' means research— "(A) with respect to which expenditures may be treated as expenses under section 174, "(B) which is undertaken for the purpose of discovering information— "(i) which is technological in nature, and "(ii) the application of which is intended to be useful in the development of a new or improved business component of the taxpayer, and

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 100 STAT. 2174

PUBLIC LAW 99-514—OCT. 22, 1986 "(C) substantially all of the activities of which constitute elements of a process of experimentation for a purpose described in paragraph (3). Such term does not include any activity described in paragraph (4). "(2) TESTS TO BE APPLIED SEPARATELY TO EACH BUSINESS COMPO-

NENT.—For purposes of this subsection— "(A) IN GENERAL.—Paragraph (1) shall be applied separately with respect to each business component of the taxpayer. "(B) BUSINESS COMPONENT DEFINED.—The term 'business component' means any product, process, computer software, technique, formula, or invention which is to be— "(i) held for sale, lease, or license, or "(ii) used by the taxpayer in a trade or business of the taxpayer. "(C) SPECIAL RULE FOR PRODUCTION PROCESSES.—Any plant process, machinery, or technique for commercial production of a business component shall be treated as a separate business component (and not as part of the business component being produced). "(3)

PURPOSES FOR

WHICH

RESEARCH MAY

QUALIFY FOR

CREDIT.—For purposes of paragraph dXC)— "(A) IN GENERAL.—Research shall be treated as conducted for a purpose described in this paragraph if it relates to— "(i) a new or improved function, "(ii) performance, or "(iii) reliability or quality. "(B) CERTAIN PURPOSES NOT QUALIFIED.—Research shall in no event be treated as conducted for a purpose described in this paragraph if it relates to style, taste, cosmetic, or seasonal design factors. "(4) ACTIVITIES FOR WHICH CREDIT NOT ALLOWED.—The term 'qualified research' shall not include any of the following: "(A) RESEARCH AFTER COMMERCIAL PRODUCTION.—Any re-

search conducted after the beginning of cornmercial production of the business component. "(B)

ADAPTATION OF EXISTING BUSINESS COMPONENTS.—

Any research related to the adaptation of an existing business component to a particular customer's requirement or need. "(C)

DUPLICATION OF EXISTING BUSINESS COMPONENT.—

Any research related to the reproduction of an existing business component (in whole or in part) from a physical examination of the business component itself or from plans, blueprints, detailed specifications, or publicly available information with respect to such business component. "(D) SURVEYS, STUDIES, ETC.—Any—

"(i) efficiency survey, "(ii) activity relating to management function or technique, "(iii) market research, testing, or development (including advertising or promotions), "(iv) routine data collection, or "(v) routine or ordinary testing or inspection for quality control.

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100 STAT. 2175

"(E) COMPUTER SOFTWARE.—Except to the extent provided in regulations, any research with respect to computer software which is developed by (or for the benefit of) the taxpayer primarily for internal use by the taxpayer, other than for use in— "(i) an activity which constitutes qualified research (determined with regard to this subparagraph), or "(ii) a production process with respect to which the requirements of paragraph (1) are met. "(F) FOREIGN RESEARCH.—Any research conducted outside the United States. "(G) SOCIAL SCIENCES, ETC.—Any research in the social sciences, arts, or humanities. "(H) FUNDED RESEARCH.—Any research to the extent

funded by any grant, contract, or otherwise by another person (or governmental entity)." (c) REDUCTION IN CREDIT; CREDIT FOR BASIC RESEARCH PAYMENTS TO QUALIFIED ORGANIZATIONS.—

(1) IN GENERAL.—Subsection (a) of section 30 is amended to read as follows: "(a) GENERAL RULE.—For purposes of section 38, the research credit determined under this section for the taxable year shall be an amount equal to the sum of— "(1) 20 percent of the excess (if any) of— "(A) the qualified research expenses for the taxable year, over "(B) the base period research expenses, and "(2) 20 percent of the basic research payments determined under subsection (e)(l)(A)." (2) DEFINITIONS AND SPECIAL RULES RELATING TO PAYMENTS FOR

BASIC RESEARCH.—Subsection (e) of section 30 (relating to credit available with respect to certain basic research by colleges, universities, and certain research organizations) is amended to read as follows: "(e) CREDIT ALLOWABLE WITH RESPECT TO CERTAIN PAYMENTS TO QUALIFIED ORGANIZATIONS FOR BASIC RESEARCH.—For purposes of

this section— "(1) IN GENERAL.—In the case of any taxpayer who makes basic research payments for any taxable year— "(A) the amount of basic research payments taken into account under subsection (a)(2) shall be equal to the excess of"(i) such basic research payments, over "(ii) the qualified organization base period amount, and "(B) that portion of such basic research payments which does not exceed the qualified organization base period amount shall be treated as contract research expenses for purposes of subsection (a)(D. "(2) BASIC RESEARCH PAYMENTS DEFINED.—For purposes of this subsection— "(A) IN GENERAL.—The term 'basic research payment' means, with respect to any taxable year, any amount paid in cash during such taxable year by a corporation to any qualified organization for basic research but only if—

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 100 STAT. 2176

PUBLIC LAW 99-514—OCT. 22, 1986 "(i) such payment is pursuant to a written agreement between such corporation and such qualified organization, and "(ii) such basic research is to be performed by such qualified organization. "(B) EXCEPTION TO REQUIREMENT THAT RESEARCH BE PERFORMED BY THE ORGANIZATION.—In the case of a qualified

organization described in subparagraph (C) or (D) of paragraph (6), clause (ii) of subparagraph (A) shall not apply. "(3) QUALIFIED ORGANIZATION BASE PERIOD AMOUNT.—For purposes of this subsection, the term 'qualified organization base period amount' means an amount equal to the sum of^ "(A) the minimum basic research amount, plus "(B) the maintenance-of-effort amount. "(4) MINIMUM BASIC RESEARCH AMOUNT.—For purposes of this subsection— "(A) IN GENERAL.—The term 'minimum basic research amount' means an amount equal to the greater of— "(i) 1 percent of the average of the sum of amounts paid or incurred during the base period for— "(I) any in-house research expenses, and "(II) any contract research expenses, or "(ii) the amounts treated as contract research expenses during the base period by reason of this subsection (as in effect during the base period). "(B) FLOOR AMOUNT.—Except in the case of a taxpayer which was in existence during a taxable year (other than a short taxable year) in the base period, the minimum basic research amount for any base period shall not be less than 50 percent of the basic research payments for the taxable year for which a determination is being made under this subsection. "(5) MAINTENANCE-OF-EFFORT AMOUNT.—For purposes of this subsection— "(A) IN GENERAL.—The term 'maintenance-of-effort amount' means, with respect to any taxable year, an amount equal to the excess (if any) of— "(i) an amount equal to— "(I) the average of the nondesignated university contributions paid by the taxpayer during the base period, multiplied by "(II) the cost-of-living adjustment for the calendar year in which such taxable year begins, over "(ii) the amount of nondesignated university contributions paid by the taxpayer during such taxable year. "(B)

NONDESIGNATED UNIVERSITY CONTRIBUTIONS.—For

purposes of this paragraph, the term 'nondesignated university contribution' means any amount paid by a taxpayer to any qualified organization described in paragraph (6)(A)"(i) for which a deduction was allowable under section 170, and "(ii) which was not taken into account— "(I) in computing the amount of the credit under this section (as in effect during the base period) during any taxable year in the base period, or

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Rh viewing a Stone in the form of an Altar with Ashes on it, and the footsteps of men on those ashes, or some words, if you will, as Optimo Maximo, or τῷ ἀγνώστῳ θεῷ, or the like, written or scralled out upon the ashes; and one of them should cry out, Assuredly here have been some men here that have done this: but the other more nice then wise should reply, Nay, it may possibly be otherwise; for this alone may have naturally grown into this very shape, and the seeming ashes may be no ashes, that is, no remainders of any fewell burnt there, but some unexplicable and imperceptible motions of the Aire, or other particles of this fluid Matter that is active every where, have wrought some parts of the Matter into the form and nature of ashes, and have fridg'd and play'd about so, that they have also figured those intelligible Characters in the same. But would not any body deem it a piece of weaknesse no less then dotage for the other man one whit to recede from his former apprehension, but as fully as ever to agree with what he pronounced first, notwithstanding this bare possibility of being otherwise?

So of Anchors that have been digged up, either in plain fields or mountainous places, as also the Roman Urnes with ashes and inscriptions, as Severianus, Ful. Linus, and the like, or Roman Coins with the effigies and names of the Cæsars on them, or that which is more ordinary, the Sculls of men in every Church-yard, with the right figure, and all those necessary perforations for the passing of the vessels, besides those conspicuous hollows for the eyes and rowes of teeth, the Os Styloeides, Ethoeides, and what not? if a man will say of them, that the Motion of the particles of the Matter, or some hidden Spermatick power has gendered these both Anchors, Urnes, Coins, and Sculls in the ground, he doth but pronounce that which humane reason must admit as possible: Nor can any man ever so demonstrate that those Coins, Anchors and Urnes were once the Artifice of men, or that this or that Scull was once a part of a living man, that he shall force an acknowledgment that it is impossible that it should be otherwise. But yet I do not think that any man, without doing manifest violence to his Faculties, can at all suspend his assent, but freely and fully agree that this or that Scull was once part of a living man, and that these Anchors, Urnes and Coins, were certainly once made by humane artifice, notwithstanding the possibility of being otherwise.

3. And what I haves said of Assent is also true in Dissent. For the Mind of man, not craz'd nor prejudic'd, will fully and unreconcilably disagree, by its own naturall sagacity, where notwithstanding the thing that it doth thus resolvedly and undoubtingly reject, no wit of man can prove impossible to be true. As if we should make such a Fiction as this, that Archimedes with the same individuall body that he had when the Souldiers slew him, is now safely intent upon his Geometricall Figures under ground, at the Center of the Earth, farre from the noise and din of this world, that might disturb his Meditations, or distract him in his curious delineations he makes with his Rod upon the dust; which no man living can prove impossible: Yet if any man does not as unreconcilably dissent from such a Fable as this as from any Falshood imaginable, assuredly that man is next door to madness or dotage, or does enormous violence to the free use of his Faculties. Rh


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'

100 STAT. 2177

"(II) as a basic research payment for purposes of this section. "(C) COST-OF-LIVING ADJUSTMENT DEFINED.—

"(i) IN GENERAL.—The cost-of-living adjustment for any calendar year is the cost-of-living adjustment for such calendar year determined under section 1(f)(3). "(ii) SPECIAL RULE WHERE BASE PERIOD ENDS IN A CALENDAR YEAR OTHER THAN 1983 OR 1984.—If the b a s e

period of any taxpayer does not end in 1983 or 1984, section 1(f)(3)(B) shall, for purposes of this paragraph, be applied by substituting the calendar year in which such base period ends for 1987. "(6) QUALIFIED ORGANIZATION.—For purposes of this subsection, the term 'qualified organization' means any of the following organizations: "(A)

EDUCATIONAL

INSTITUTIONS.—Any

educational

organization which— "(i) is an institution of higher education (within the meaning of section 3304(f)), and "(ii) is described in section 170(b)(lKA)(ii). "(B) CERTAIN SCIENTIFIC RESEARCH ORGANIZATIONS.—Any

organization not described in subparagraph (A) which— "(i) is described in section 501(c)(3) and is exempt from tax under section 501(a), "(ii) is organized and operated primarily to conduct scientific research, and "(iii) is not a private foundation. "(C)

SCIENTIFIC

TAX-EXEMPT

ORGANIZATIONS.—Any

organization which— "(i) is described in— "(I) section 501(c)(3) (other than a private foundation), or "(II) section 501(c)(6), "(ii) is exempt from tax under section 501(a), "(iii) is organized and operated primarily to promote scientific research by qualified organizations described in subparagraph (A) pursuant to written research agreements, and "(iv) currently expends— "(I) substantially all of its funds, or "(II) substantially all of the basic research payments received by it, for grants to, or contracts for basic research with, an organization described in subparagraph (A). "(D) CERTAIN GRANT ORGANIZATIONS.—Any organization not described in subparagraph (B) or (C) which— "(i) is described in section 501(c)(3) and is exempt from tax under section 501(a) (other than a private foundation), "(ii) is established and maintained by an organization established before July 10, 1981, which meets the requirements of clause (i), "(iii) is organized and operated exclusively for the purpose of making grants to organizations described in subparagraph (A) pursuant to written research agreements for purposes of basic research, and

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PUBLIC LAW 99-514—OCT. 22, 1986

"(iv) makes an election, revocable only with the consent of the Secretary, to be treated as a private foundation for purposes of this title (other than section 4940, relating to excise tax based on investment income). "(7) DEFINITIONS AND SPECIAL RULES.—For purposes of this subsection— "(A) BASIC RESEARCH.—The term 'basic research' means any original investigation for the advancement of scientific knowledge not having a specific commercial objective, except that such term shall not include— "(i) basic research conducted outside of the United States, and "(ii) basic research in the social sciences, arts, or humanities. "(B) BASE PERIOD.—The term 'base period' means the 3taxable-year period ending with the taxable year immediately preceding the 1st taxable year of the taxpayer beginning after December 31, 1983. "(C)

EXCLUSION FROM INCREMENTAL CREDIT CALCULA-

TION.—For purposes of determining the amount of credit allowable under subsection (a)(1) for any taxable year, the amount of the basic research payments taken into account under subsection (a)(2)— "(i) shall not be treated as qualified research expenses under subsection (a)(l)(A), and "(ii) shall not be included in the computation of base period research expenses under subsection (a)(1)(B). "(D) TRADE OR BUSINESS QUALIFICATION.—For purposes of

applying subsection (b)(1) to this subsection, any basic research payments shall be treated as an amount paid in carrying on a trade or business of the taxpayer in the taxable year in which it is paid (without regard to the provisions of subsection (b)(3)(B)). "(E) CERTAIN CORPORATIONS NOT ELIGIBLE.—The term 'corporation' shall not include— "(i) an S corporation, "(ii) a personal holding company (as defined in section 542), or "(iii) a service organization (as defined in section 414(m)(3))." (d) RESEARCH CREDIT TREATED AS OTHER BUSINESS CREDITS.—

(1) IN GENERAL.—Section 38(b) (relating to current year business credit), as amended by this Act, is amended by striking out "plus" at the end of paragraph (2), by striking out the period at the end of paragraph (3) and inserting in lieu thereof ", plus", and by adding at the end thereof the following new paragraph: "(4) the research credit determined under section 41(a)." (2) TRANSFER OF RESEARCH CREDIT TO SUBPART RELATING TO BUSINESS CREDITS.—Section 30 (relating to credit for increasing

research activities) is hereby transferred to subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue (I!ode of 1986 (as amended by this Act), inserted after section 40 of such Code, and redesignated as section 41 of such Code. (3) TECHNICAL AND CONFORMING AMENDMENTS.—

(A)(i) Subsections (b) and (c) of section 28 are each amended by striking out "section 30" each place it appears and inserting in lieu thereof "section 41".

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100 STAT. 2179

(ii) Paragraph (2) of section 28(c) is amended by striking out "section 30(b)" and inserting in lieu thereof "section 41(b)". (iii) Paragraph (4) of section 28(d) is amended by striking out "section 30(f)" and inserting in lieu thereof "section 41(f)". (iv) Subparagraph (D) of section 2803X1) is amended by striking out "1985" and inserting in lieu thereof "1988". (B) Subsection (d) of section 38, as amended by this Act, is amended by inserting "41(a)," after "40(a),". (C)(i) Subsection (d) of section 39 (relating to carryback and carry forward of unused credits) is amended by adding at the end thereof the following new paragraph: "(3) SIMILAR RULES FOR RESEARCH CREDIT.—Rules similar to the rules of paragraphs (1) and (2) shall apply to the credit allowable under section 30 (as in effect before the date of the enactment of the Tax Reform Act of 1986) except that— "(A) 'December 31, 1985' shall be substituted for 'December 31, 1983' each place it appears, and "(B) 'January 1, 1986' shall be substituted for 'January 1, 1984'." (ii) Subsection (g) of section 41 (relating to limitation based on amount of tax), as redesignated by this section, is amended to read as follows: "(g) SPECIAL RULE FOR PASS-THRU OF CREDIT.—In the case of an individual who— "(1) owns an interest in an unincorporated trade or business, "(2) is a partner in a partnership, "(3) is a beneficiary of an estate or trust, or "(4) is a shareholder in an S corporation, the amount determined under subsection (a) for any taxable year shall not exceed an amount (separately computed with respect to such person's interest in such trade or business or entity) equal to the amount of tax attributable to that portion of a person's taxable income which is allocable or apportionable to the person's interest in such trade or business or entity." (D) Subparagraph (B) of section 10800X2) (relating to reduction of tax attributes in title 11 Case or insolvency), as amended by this Act, is amended to read as follows: "(B)

GENERAL BUSINESS CREDIT.—Any carryover to

or

from the taxable year of a discharge of an amount for purposes for determining the amount allowable as a credit under section 38 (relating to general business credit)." (E) Paragraph (3) of section 280COt)) is amended— (i) by striking out "section 30(fK5)" and inserting in lieu thereof "section 41(0(5)", (ii) by striking out "section 30(fKlXB)" and inserting in lieu thereof "section 41(fKlXB)", and (iii) by striking out "section 30(f)(l)" and inserting in lieu thereof "section 41(0(1)". (F) Subsection (c) of section 381 is amended by striking out paragraph (25) and by redesignating paragraph (26) as paragraph (25). (G) Section 936(h)(5)(C)(i)(IXa) (defining product area research) is amended by striking out "section 3O0b)" and inserting in lieu thereof "section 41(b)".

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 100 STAT. 2180 ,

PUBLIC LAW 99-514—OCT. 22, 1986 i

(H) Section 6411 (relating to tentative carryback and refund adjustments) is amended— (i) by striking out "by a research credit carryback provided in section 30(g)(2)" in subsection (a), (ii) by striking out "a research credit carryback or" in subsection (a), (iii) by striking out "(or, with respect to any portion of a business credit carryback attributable to a research credit carryback from a subsequent taxable year within a period of 12 months from the end of such subsequent taxable year)" in subsection (a), and (iv) by striking out "unused research credit," each place it appears in subsections (a) and (b). (I) Subparagraph (C) of section 6511(d)(6) (defining credit carryback) is amended by striking out "and any research credit carryback under section 30(g)(2)". (J) The table of sections for subpart B of part IV of subchapter A of chapter 1 is amended by striking out the item relating to section 30. (K) The table of sections for subpart D of such part is amended by inserting after the item relating to section 40 the following new item:

"Sec. 41. Credit for increasing research activities." (e) DENIAL OF CREDIT WITH RESPECT TO AMOUNTS FOR CERTAIN LEASED PERSONAL PROPERTY.—Clause (iii) of section 4103X2XA)

(defining in-house research expenses), as redesignated by subsection (d), is amended to read as follows: "(iii) under regulations prescribed by the Secretary, any amount paid or incurred to another person for the right to use computers in the conduct of qualified research." (f) DEDUCTION FOR CERTAIN CONTRIBUTIONS OF SCIENTIFIC RESEARCH PROPERTY.—Clause (i) of section 170(e)(4)(B) (relating to spe-

cial rule for contributions of scientific property used for research) is amended to read as follows: "(i) the contribution is to an organization described in subparagraph (A) or subparagraph (B) of section 41(e)(6),". (g) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as provided in this subsection (2), the amendments made by this section shall apply to taxable years beginning after December 31, 1985. (2) SUBSECTION (a).—The amendments made by subsection (a) shall apply to taxable years ending after December 31, 1985. (3) BASIC RESEARCH.—Section 41(a)(2) of the Internal Revenue

Code of 1986 (as added by this section), and the amendments made by subsection (c)(2), shall apply to taxable years beginning after December 31, 1986. SEC. 232. EXTENSION OF CREDIT FOR CLINICAL TESTING EXPENSES FOR CERTAIN DRUGS.

Subsection (e) of section 28 (relating to termination) is amended by striking out "1987" and inserting in lieu thereof "1990".

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Subtitle E—Changes in Certain Amortization Provisions SEC. 241. REPEAL OF 5-YEAR AMORTIZATION OF TRADEMARK AND TRADE NAME EXPENDITURES.

(a) IN GENERAL.—Section 177 (relating to trademark and trade name expenditures) is hereby repealed. (b) TECHNICAL AND CONFORMING AMENDMENTS.—

(1) Paragraph (3) of section 312(n) is amended by striking out ", 177,". (2) Subsection (a) of section 1016 (relating to adjustments to basis) is amended by striking out paragraph (16) and by redesignating paragraphs (17) through (27) as paragraphs (16) through (26), respectively. (3) The table of sections for part VI of subchapter B of chapter 1 is amended by striking out the item relating to section 177. (c) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to expenditures paid or incurred after December 31, 1986. (2) TRANSITIONAL RULE.—The amendments made by this section shall not apply to any expenditure incurred— (A) pursuant to a binding contract entered into before March 2, 1986, or (B) with respect to the development, protection, expansion, registration, or defense of a trademark or trade name commenced before March 2, 1986, but only if not less than the lesser of $1,000,000 or 5 percent of the aggregate cost of such development, protection, expansion, registration, or defense has been incurred or committed before such date. The preceding sentence shall not apply to any expenditure with respect to a trademark or trade name placed in service after December 31, 1987. SEC. 242. REPEAL OF AMORTIZATION OF RAILROAD GRADING AND TUNNEL BORES.

(a) IN GENERAL.—Section 185 (relating to amortization of railroad grading and tunnel bores) is hereby repealed. (b) TECHNICAL AND CONFORMING AMENDMENTS.—

(1) Subparagraph (B) of section 1082(a)(2) is amended by striking out", 185,^'. (2) Paragraph (3) of section 1250(b) (defining additional depreciation) is amended by inserting "(as in effect before its repeal by the Tax Reform Act of 1986)" after "185". (3) The table of sections for part VI of subchapter B of chapter 1 is amended by striking out the item relating to section 185. (c) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to that portion of the basis of any property which is attributable to expenditures paid or incurred after December 31, 1986. (2) TRANSITIONAL RULE.—The amendments made by this section shall not apply to any expenditure incurred— (A) pursuant to a binding contract entered into before March 2, 1986, or

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 100 STAT. 2182

PUBLIC LAW 99-514—OCT. 22, 1986

(B) with respect to any improvement commenced before March 2, 1986, but only if not less than the lesser of $1,000,000 or 5 percent of the aggregate cost of such improvement has been incurred or committed before such date. The preceding sentence shall not apply to any expenditure with respect to an improvement placed in service after December 31, 1987. SEC. 243. DEDUCTION FOR BUS AND FREIGHT FORWARDER OPERATING AUTHORITY. . ">. > (a) Bus OPERATING AUTHORITY.—

(1) IN GENERAL.—Subject to the modifications contained in paragraph (2), section 266 of the Economic Recovery Tax Act of 1981 shall be applied as if the term "motor carrier operating authority" included a bus operating authority. (2) MODIFICATIONS.—For purposes of paragraph (1), section 266 of such Act shall be applied— (A) by substituting "November 19, 1982" for "July 1, 1980" each place it appears, and (B) by substituting "November 1982" for "July 1980" in subsection (a) thereof. (3) B u s OPERATING AUTHORITY DEFINED.—For purpOSeS of t h i s

subsection and section 266 of such Act, the term "bus operating authority" means— (A) a certificate or permit held by a motor common or contract carrier of passengers which was issued pursuant to subchapter II of chapter 109 of title 49, United States Code, and (B) a certificate or permit held by a motor carrier authorizing the transportation of passengers, as a common carrier, over regular routes in intrastate commerce which was issued by the appropriate State agency. (b) FREIGHT FORWARDER OPERATING AUTHORITY.—

(1) IN GENERAL.—Subject to the modifications contained in paragraph (2), section 266 of the Economic Recovery Tax Act of 1981 shall be applied as if subsection (b) thereof contained "or a freight forwarder" after "contract carrier of property". (2) MODIFICATIONS.—The modifications referred to in this paragraph are: (A) 60-MONTH PERIOD TO BEGIN IN 1987.—The 60-month period referred to in section 266(a) of such Act shall begin with the later of— (i) the deregulation month, or (ii) at the election of the taxpayer, the 1st month of the taxpayer's 1st taxable year beginning after the deregulation month. (B) AUTHORITY MUST BE HELD AS OF BEGINNING OF 60-

MONTH PERIOD.—A motor carrier operating authority shall not be taken into account unless such authority is held by the taxpayer at the beginning of the 60-month period applicable to the taxpayer under subparagraph (A). (C) ADJUSTED BASIS NOT TO EXCEED ADJUSTED BASIS AT

BEGINNING OF 60-MONTH PERIOD.—The adjusted basis taken into account with respect to any motor carrier operating authority shall not exceed the adjusted basis of such

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authority as of the beginning of the 60-month period applicable to the taxpayer under subparagraph (A). (3) DEREGULATION MONTH.—For purposes of this section, the term "deregulation month" means the month in which the Secretary of the Treasury or his delegate determines that a Federal law has been enacted which deregulates the freight forwarding industry. (c) SPECIAL RULE FOR MOTOR CARRIER OPERATING AUTHORITY.—In

the case of a corporation which was incorporated on December 29, 1969, in the State of Delaware, notwithstanding any other provision of law, there shall be allowed as a deduction for the taxable year of the taxpayer beginning in 1980 an amount equal to $2,705,188 for its entire loss due to a decline in value of its motor carrier operating authority by reason of deregulation. (d) EFFECTIVE DATES.— (1) Bus OPERATING AUTHORITY.—

(A) IN GENERAL.—Subsection (a) shall apply to taxable years ending after November 18, 1982. (B) STATUTE OF LIMITATIONS.—If refund or credit of any overpayment of tax resulting from subsection (a) is prevented at any time on or before the date which is 1 year after the date of the enactment of this Act by the operation of any law or rule of law (including res judicata), refund or credit of such overpayment (to the extent attributable to the application of such subsection) may, notwithstanding such law or rule of law, be made or allowed if claim therefore is filed on or before the date which is 18 months after such date of enactment. (2) FREIGHT FORWARDER OPERATING AUTHORITY.—Subsection

(b) shall apply to taxable years ending after the month preceding the deregulation month. SEC. 244. TREATMENT OF EXPENDITURES FOR REMOVAL OF ARCHITECTURAL BARRIERS TO THE HANDICAPPED AND ELDERLY MADE PERMANENT.

Paragraph (2) of section 190(d) (relating to expenditures to remove architectural and transportation barriers to the handicapped and elderly) is amended by striking out "1983, and before January 1, 1986" and inserting in lieu thereof "1983"

Subtitle F—Provisions Relating to Real Estate SEC. 251. MODIFICATION OF INVESTMENT TAX CREDIT FOR REHABILITATION EXPENDITURES.

(a) REDUCTION IN PERCENTAGE.—Paragraph (4) of section 460t>) (relating to rehabilitation percentage) is amended to read as follows: "(4) REHABILITATION PERCENTAGE.—

"(A) IN GENERAL.—The term 'rehabilitation percentage' means— "(i) 10 percent in the case of qualified rehabilitation expenditures with respect to a qualified rehabilitated building other than a certified historic structure, and "(ii) 20 percent in the case of such expenditure with respect to a certified historic structure. "(B) REGULAR AND ENERGY PERCENTAGES NOT TO APPLY.—

The regular percentage and the energy percentages shall

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PUBLIC LAW 99-514—OCT. 22, 1986 not apply to that portion of the basis of any property which is attributable to qualified rehabilitation expenditures." (b) SPECIAL RULES FOR QUALIFIED REHABIUTATED BUILDINGS.—

Subsection (g) of section 48 (relating to special rules for qualified rehabilitated buildings) is amended to read as follows: "(g) SPECIAL RULES FOR QUALIFIED REHABILITATED BUILDINGS.—For

purposes of this subpart— "(1) QUALIFIED REHABIUTATED BUILDING.—For purposes of this subsection— "(A) IN GENERAL.—The term 'qualified rehabilitated building' means any building (and its structural components) if— "(i) such building has been substantially rehabilitated, "(ii) such building was placed in service before the beginning of the rehabilitation, and "(iii) in the case of any building other than a certified historic structure, in the rehabilitation process— "(I) 50 percent or more of the existing external walls of such building are retained in place as external walls, "(II) 75 percent or more of the existing external walls of such building are retained in place as internal or external walls, and "(III) 75 percent or more of the existing internal structural framework of such building is retained in place. "(B) BUILDING MUST BE FIRST PLACED IN SERVICE BEFORE

1936.—In the case of a building other than a certified historic structure, a building shall not be a qualified rehabilitated building unless the building was first placed in service before 1936. "(C) SUBSTANTIALLY REHABIUTATED DEFINED.—

"(i) IN GENERAL.—For purposes of subparagraph (A)(i), a building shall be treated as having been substantially rehabilitated only if the qualified rehabilitation expenditures during the 24-month period selected by the taxpayer (at the time and in the manner prescribed by regulations) and ending with or within the taxable year exceed the greater of— "(I) the adjusted basis of such building (and its structural components), or "(II) $5,000. The adjusted basis of the building (and its structural components) shall be determined sis of the beginning of the 1st day of such 24-month period, or of the holding period of the building, whichever is later. For purposes of the preceding sentence, the determination of the beginning of the holding period shall be made without regard to any reconstruction by the taxpayer in connection with the rehabilitation. "(ii) SPECIAL RULE FOR PHASED REHABILITATION.—In

the case of any rehabilitation which may reasonably be expected to be completed in phases set forth in architectural plans and specifications completed before the rehabilitation begins, clause (i) shall be applied by substituting *60-month period' for '24-month period.

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"(iii) LESSEES.—The Secretary shall prescribe by regulation rules for applying this subparagraph to lessees. "(D) RECONSTRUCTION.—Rehabilitation includes reconstruction. "(2)

QUALIFIED REHABIUTATION EXPENDITURE DEFINED.—For

purposes of this section— "(A) IN GENERAL.—The term 'qualified rehabilitation expenditure' means any amount properly chargeable to capital account— "(i) for property for which depreciation is allowable under section 168 and which is— "(I) nonresidential real property, "(II) residential rental property, "(III) real property which has a class life of more than 12.5 years, or "(IV) an addition or improvement to property or housing described in subclause (I), (II), or (III), and "(ii) in connection with the rehabilitation of a qualified rehabilitated building. "(B) CERTAIN EXPENDITURES NOT INCLUDED.—The term 'qualified rehabilitation expenditure' does not include— "(i) STRAIGHT LINE DEPRECIATION MUST BE USED.—Any

expenditure with respect to which the taxpayer does not use the straight line method over a recovery period determined under subsection (c) or (g) of section 168. The preceding sentence shall not apply to any expenditure to the extent the alternative depreciation system of section 168(g) applies to such expenditure by reason of subparagraph (B) or (C) of section 168(g)(l). "(ii) COST OF ACQUISITION.—The cost of acquiring any building or interest therein. "(iii) ENLARGEMENTS.—Any expenditure attributable to the enlargement of an existing building. "(iv)

CERTIFIED

HISTORIC

STRUCTURE,

ETC.—Any

expenditure attributable to the rehabilitation of a certified historic structure or a building in a registered historic district, unless the rehabilitation is a certified rehabilitation (within the meaning of subparagraph (O). The preceding sentence shall not apply to a building in a registered historic district if— "(I) such building was not a certified historic structure, "(II) the Secretary of the Interior certified to the Secretary that such building is not of historic significance to the district, and "(III) if the certification referred to in subclause (II) occurs after the beginning of the rehabilitation of such building, the taxpayer certifies to the Secretary that, at the beginning of such rehabilitation, he in good faith was not aware of the requirement of subclause (II). "(v) TAX-EXEMPT USE PROPERTY.—

"(I) IN GENERAL.—Any expenditure in connection with the rehabilitation of a building which is allocable to that portion of such building which is

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PUBLIC LAW 99-514—OCT. 22, 1986 (or may reasonably be expected to be) tax-exempt use property (within the meaning of section 168(h)). "(II) CLAUSE NOT TO APPLY FOR PURPOSES OF PARA-

GRAPH (i)(c).—This clause shall not apply for purposes of determining under paragraph dXC) whether a building has been substantially rehabilitated, "(vi) EXPENDITURES OF LESSEE.—Any expenditure of a lessee of a building if, on the date the rehabilitation is completed, the remaining term of the lease (determined without regard to any renewal periods) is less than the recovery period determined under section 168(c). "(C) CERTIFIED REHABIUTATION.—For purposes of subparagraph (B), the term 'certified rehabilitation' means any rehabilitation of a certified historic structure which the Secretary of the Interior has certified to the Secretary as being consistent with the historic character of such property or the district in which such property is located. ' (D) NONRESIDENTIAL REAL PROPERTY; RESIDENTIAL RENTAL PROPERTY; CLASS LIFE.—For purposes of subparagraph (A),

the terms 'nonresidential real property', 'residential rental property', and 'class life' have the respective meanings given such terms by section 168. "(3) CERTIFIED HISTORIC STRUCTURE DEFINED.—For purposes of this subsection— "(A) IN GENERAL.—The term 'certified historic structure' means any building (and its structural components) which— "(i) is listed in the National Register, or "(ii) is located in a registered historic district and is certified by the Secretary of the Interior to the Secretary as being of historic significance to the district. "(B) REGISTERED HISTORIC DISTRICT.—The term 'registered historic district' means— "(i) any district listed in the National Register, and "(ii) any district— "(I) which is designated under a statute of the appropriate State or local government, if such statute is certified by the Secretary of the Interior to the Secretary as containing criteria which will substantially achieve the purpose of preserving and rehabilitating buildings of historic significance to the district, and "(II) which is certified by the Secretary of the Interior to the Secretary as meeting substantially all of the requirements for the listing of districts in the National Register. "(4) PROPERTY TREATED AS NEW SECTION 38 PROPERTY.—Prop-

erty which is treated as section 38 property by reason of subsection (a)(l)(E) shall be treated as new section 38 property." (c) BASIS ADJUSTMENT FOR CERTIFIED HISTORIC STRUCTURES.—Para-

graph (3) of section 48(q) (relating to special rule for qualified rehabilitated buildings) is amended by striking out "other than a certified historic structure". (d) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to

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property placed in service after December 31, 1986, in taxable years ending after such date. (2) GENERAL TRANSITIONAL RULE.—The amendments made by this section and section 201 shall not apply to any property placed in service before January 1, 1994, if such property is placed in service as part of— (A) a rehabilitation which was completed pursuant to a written contract which was binding on March 1, 1986, or (B) a rehabilitation incurred in connection with property (including any leasehold interest) acquired before March 2, 1986, or acquired on or after such date pursuant to a written contract that was binding on March 1, 1986, if— (i) the rehabilitation was completed pursuant to a written contract that was binding on March 1, 1986, (ii) parts 1 and 2 of the Historic Preservation Certification Application were filed with the Department of the Interior (or its designee) before March 2, 1986, or (iii) the lesser of $1,000,000 or 5 percent of the cost of the rehabilitation is incurred before March 2, 1986, or is required to be incurred pursuant to a written contract which was binding on March 1, 1986. (3) CERTAIN ADDITIONAL REHABIUTATIONS.—The amendments made by this section and section 201 shall not apply to— (A) the rehabilitation of 8 bathhouses within the Hot Springs National Park or of buildings in the CJentral Avenue Historic District at such Park, (B) the rehabilitation of the Upper Pontabla Building in New Orleans, Louisiana, (C) the rehabilitation of at least 60 buildings listed on the National Register at the Frankford Arsenal, (D) the rehabilitation of De Baliveriere Arcade, St. Louis (Dentre, and Drake Apartments in Missouri, (E) the rehabilitation of The Tides in Bristol, Rhode Island, (F) the rehabilitation and renovation of the Outlet Company building and garage in Providence, Rhode Island, (G) the rehabilitation of 10 structures in Harrisburg, Pennsylvania, with respect to which the Harristown Development Corporation was designated redeveloper and received an option to acquire title to the entire project site for $1 on June 27, 1984, (H) the rehabilitation of a project involving the renovation of 3 historic structures on the Minneapolis riverfront, with respect to which the developer of the project entered into a redevelopment agreement with a municipality dated January 4, 1985, and industrial development bonds were sold in 3 separate issues in May, July, and October 1985, (I) the rehabilitation of a bank's main office facilities of approximately 120,000 square feet, in connection with which the bank's board of directors authorized a $3,300,000 expenditure for the renovation and retrofit on March 20, 1984, (J) the rehabilitation of 10 warehouse buildings built between 1906 and 1910 and purchased under a contract dated February 17, 1986, (K) the rehabilitation of a facility which is customarily used for conventions and sporting events if an analysis of

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 100 STAT. 2188

PUBLIC LAW 99-514—OCT. 22, 1986 operations and recommendations of utilization of such facility was prepared by a certified public accounting firm pursuant to an engagement authorized on March 6, 1984, and presented on June 11, 1984, to officials of the city in which such facility is located, (L) Mount Vernon Mills in Columbia, South Carolina, (M) the Barbara Jordan II Apartments, (N) the rehabilitation of the Federal Building and Post Office, 120 Hanover Street, Manchester, New Hampshire, (0) the rehabilitation of the Charleston Waterfront project in South Carolina, (P) the Hayes Mansion in San Francisco, (Q) the renovation of a facility owned by the National Railroad Passenger Corporation ("Amtrak") for which project Amtrak engaged a development team by letter agreement dated August 23, 1985, as modified by letter agreement dated September 9, 1985, (R) the rehabilitation of a structure or its components which is listed in the National Register of Historic Places, is located in Allegheny County, Pennsylvania, will be substantially rehabilitated (as defined in section 48(g)(l)(C) prior to amendment by this Act), prior to December 31, 1989; and was previously utilized as a market and an auto dealership, (S) The Bellevue Stratford Hotel in Philadelphia, Pennsylvania, (T) the Dixon Mill Housing project in Jersey City, New Jersey, (U) Motor Square Garden, (V) the Blackstone Apartments, and the Shriver-Johnson building, in Sioux Falls, South Dakota, (W) the Holy Name Academy in Spokane, Washington, (X) the Nike/Clemson Mill in Exeter, New Hampshire, (Y) the Central Bank Building in Grand Rapids, Michigan, and (Z) the Heritage Hotel, in the City of Marquette, Michigan. (4) ADDITIONAL REHABILITATIONS.—The amendments made by this section and section 201 shall not apply to— (A) the Fort Worth Town Square Project in Texas, (B) the American Youth Hostel in New York, New York, (C) The Riverwest Loft Development (including all three phases, two of which do not involve rehabilitations), (D) the Gaslamp Quarter Historic District in California, (E) the Eberhardt & Ober Brewery, in Pennsylvania, (F) the Captain's Walk Limited Partnership-Harris Place Development, in Connecticut, (G) the Velvet Mills in Connecticut, (H) the Roycroft Inn, in New York, (1) Old Main Villeige, in Mankato, Minnesota, (J) the Washburn-Crosby A Mill, in Minneapolis, Minnesota, (K) the Lakeland marbel Arcade in Lakeland, Florida, (L) the Willard Hotel, in Washington, D.C., (M) the H. P. Lau Building in Lincoln, Nebraska, (N) the Starks Building, in Louisville, Kentucky, (O) the Bellevue High School, in Bellevue, Kentucky,

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(P) the Major Hampden Smith House, in Owensboro, Kentucky, (Q) the Doe Run Inn, in Brandenburg, Kentucky, (R) the State National Bank, in Frankfort, Kentucky, (S) the Captain Jack House, in Fleming, Kentucky, (T) the Elizabeth Arlinghaus House, in Louisville, Kentucky, (U) Limerick Shamrock, in Louisville, Kentucky, (V) the Robert Mills Project, in South Carolina, (W) the 620 Project, consisting of 3 buildings, in Kentucky, (X) the Warrior Hotel, Ltd., the first two floors of the Martin Hotel, and the 105,000 square foot warehouse constructed in 1910, all in Sioux City, Iowa, (Y) the waterpark condominium residential project, to the extent of $2 million of expenditures, and (Z) the Apollo and Bishop Building Complex on 125th Street, the Bigelow-Hartford Carpet Mill in New York, New York. (5) REDUCTION IN CREDIT FOR PROPERTY UNDER TRANSITIONAL

RULES.—In the case of property placed in service after December 31, 1986, and to which the amendments made by this section do not apply, subparagraph (A) of section 460t>X4) of the Internal Revenue Code of 1954 (as in effect before the enactment of this Act) shall be applied— (A) by substituting "10 percent" for "15 percent", and (B) by substituting "13 percent" for "20 percent". (6)

EXPENSING OF REHABIUTATION EXPENDITURES FOR THE

FRANKFORD ARSENAL.—In the CEise of any expenditures paid or incurred in connection with the rehabilitation of the Frankford Arsenal during the 8-year period beginning on January 1, 1987, such expenditures (including expenditures for repair and maintenance of the building and property) shall be allowable as a deduction in the taxable year in which paid or incurred in an amount not in excess of the submissions made by the taxpayer before September 16, 1986. SEC. 252. LOW-INCOME HOUSING CREDIT. (a) IN GENERAL.—Subpart D of part IV of subchapter A of chapter 1 (relating to business credits) is amended by adding at the end thereof the following new section: "SEC. 42. LOW-INCOME HOUSING CREDIT. "(a) IN GENERAL.—For purposes of section 38, the amount of the low-income housing credit determined under this section for any taxable year in the credit period shall be an amount equal to— "(1) the applicable percentage of "(2) the qualified basis of each qualified low-income building. "(b) APPLICABLE PERCENTAGE: 70 PERCENT PRESENT VALUE CREDIT FOR CERTAIN NEW BUILDINGS; 30 PERCENT PRESENT VALUE CREDIT FOR CERTAIN OTHER BUILDINGS.—For purposes of this section— "(1) BUILDING PLACED IN SERVICE DURING 1987.—In the case of

any qualified low-income building placed in service by the taxpayer during 1987, the term 'applicable percentage' means— "(A) 9 percent for new buildings which are not federally subsidized for the taxable year, or "(B) 4 percent for—

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 100 STAT. 2190

PUBLIC LAW 99-514—OCT. 22, 1986 "(i) new buildings which are federally subsidized for the taxable year, and "(ii) existing buildings. "(2) BUILDINGS PLACED IN SERVICE AFTER 1987.— "(A) IN GENERAL.—In the case of any qualified lowincome building placed in service by the taxpayer after 1987, the term 'applicable percentage' means the appropriate percentage prescribed by the Secretary for the month in which such building is placed in service. "(B) METHOD OF PRESCRIBING PERCENTAGES.—The percent-

ages prescribed by the Secretary for any month shall be percentages which will yield over a 10-year period amounts of credit under subsection (a) which have a present value equal to— "(i) 70 percent of the qualified beisis of a building described in paragraph (I)(A), and "(ii) 30 percent of the qualified basis of a building described in paragraph (I)(B). "(C) METHOD OF DISCOUNTING.—The present value under subparagraph (B) shall be determined— "(i) as of the last day of the 1st year of the 10-year period referred to in subparagraph (B), "(ii) by using a discount rate equal to 72 percent of the average of the annual Federal mid-term rate and the annual Federal long-term rate applicable under section 1274(d)(l) to the month in which the building was placed in service and compounded annually, and "(iii) by assuming that the credit allowable under this section for any year is received on the last day of such year. "(3) CROSS REFERENCE.— "For treatment of certain rehabilitation expenditures as separate new buildings, see subsection (e).— QUALIFIED BASIS; QUALIFIED LOW-INCOME BUILDING.—For pur-

"(c) poses of this section—

"(1) QUALIFIED BASIS.—

"(A) DETERMINATION.—The qualified basis of any qualified low-income building for any taxable year is an amount equal to— "(i) the applicable fraction (determined as of the close of such taxable year) of "(ii) the eligible basis of such building (determined under subsection (d)(5)). "(B) APPLICABLE FRACTION.—For purposes of subparagraph (A), the term 'applicable fraction' means the smaller of the unit fraction or the floor space fraction. "(C) UNIT FRACTION.—For purposes of subparagraph (B),

the term 'unit fraction' means the fraction— "(i) the numerator of which is the number of lowincome units in the building, and "(ii) the denominator of which is the number of residential rental units (whether or not occupied) in such building. "(D) FLOOR SPACE FRACTION.—For purposes of subpara-

graph (B), the term 'floor space fraction' means the fraction—

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"(i) the numerator of which is the total floor space of the low-income units in such building, and "(ii) the denominator of which is the total floor space of the residential rental units (whether or not occupied) in such building. "(2) QuAUFiED LOW-INCOME BUILDING.—The term 'qualified low-income building' means any building— "(A) which at all times during the compliance period with respect to such building is part of a qualified low-income housing project, and "(B) to which the amendments made by section 201(a) of the Tax Reform Act of 1986 apply. "(d) EuGiBLE BASIS.—For purposes of this section— "(1) NEW BUILDINGS.—The eligible basis of a new building is its adjusted basis. "(2) EXISTING BUILDINGS.—

"(A) IN GENERAL.—The eligible basis of an existing building is— "(i) in the case of a building which meets the requirements of subparagraph (B), the sum of— "(I) the portion of its adjusted basis attributable to its acquisition cost, plus "(II) amounts chargeable to capital account and incurred by the taxpayer (before the close of the 1st taxable year of the credit period for such building) for property (or additions or improvements to property) of a character subject to the allowance for depreciation, and "(ii) zero in any other case. "(B) REQUIREMENTS.—A building meets the requirements of this subparagraph if— "(i) the building is acquired by purchase (as defined in section 179(d)(2)), "(ii) there is a period of at least 10 years between the date of its acquisition by the taxpayer and the later of— "(I) the date the building was last placed in service, or "(II) the date of the most recent nonqualified substantial improvement of the building, and "(iii) the building wgis not previously placed in service by the taxpayer or by any person who was a related person with respect to the taxpayer as of the time previously placed in service. "(C) ACQUISITION COST.—For purposes of subparagraph (A),

the cost of any building shall not include so much of the basis of such building as is determined by reference to the basis of other property held at any time by the person acquiring the building. "(D) SPECIAL RULES FOR SUBPARAGRAPH (B).— "(i) NONQUAUFIED SUBSTANTIAL IMPROVEMENT.—For

pur-

poses of subparagraph (B)(ii)— "(I) IN GENERAL.—The term 'nonqualified substantial improvement' means any substantial improvement if section 167(k) was elected with respect to such improvement or section 168 (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986) applied to such improvement.

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PUBLIC LAW 99-514—OCT. 22, 1986 "(ID DATE OF SUBSTANTIAL IMPROVEMENT.—The date of a substantial improvement is the last day of the 24month period referred to in subclause (III). "(Ill) SUBSTANTIAL IMPROVEMENT.—The term 'substantial improvement' means the improvements added to capital account with respect to the 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 paragraphs (2) and (3) of section 1016(a)) as of the 1st day of such period. "(ii) SPECIAL RULE FOR NONTAXABLE EXCHANGES.—For purposes of determining under subparagraph (B)(ii) when a building was last placed in service, there shall not be taken into account any placement in service in connection with the acquisition of the building in a transaction in which the basis of the building in the hands of the person acquiring it is determined in whole or in part by reference to the adjusted basis of such building in the hands of the person from whom aquired. "(iii) RELATED PERSON, ETC.— "(I) APPLICATION OF SECTION 179.—For purposes of

subparagraph (B)(i), section 179(d) shall be applied by substituting '10 percent' for '50 percent' in section 267(b) and 707(b) and in section 179(b)(7). "(II) RELATED PERSON.—For purposes of subpara-

graph (B)(iii), a person (hereinafter in this subclause referred to as the 'related person') is related to any person if the related person bears a relationship to such person specified in section 267(b) or 707(b)(l), or 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 the preceding sentence, in applying section 267(b) or 7070t)Xl), '10 percent' shall be substituted for '50 percent'. "(3) ELIGIBLE BASIS REDUCED WHERE DISPROPORTIONATE STANDARDS FOR UNITS.—The eligible basis of any building shall be reduced by an amount equal to the portion of the adjusted basis of the building which is attributable to residential rental units in the building which are not low-income units and which are above the average quality standard of the low-income units in the building. "(4) SPECIAL RULES RELATING TO DETERMINATION OF ADJUSTED

BASIS.—For purposes of this subsection— "(A) IN GENERAL.—Except as provided in subparagraph (B), the adjusted basis of any building shall be determined without regard to the adjusted basis of any property which is not residential rental property. "(B) BASIS OF PROPERTY IN COMMON AREAS, ETC., IN-

CLUDED.—The adjusted basis of any building shall be determined by taking into account the adjusted basis of property (of a character subject to the allowance for depreciation) used in common areas or provided 2is comparable amenities to all residential rental units in such building.

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"(C) No REDUCTION FOR DEPRECIATION.—The adjusted basis of any building shall be determined without regard to paragraphs (2) and (3) of section 1016(a). "(5) ELIGIBLE BASIS DETERMINED WHEN BUILDING PLACED IN SERVICE.—

"(A) IN GENERAL.—Except as provided in subparagraph (B), the eligible basis of any building for the entire compliance period for such building shall be its eligible basis on the date such building is placed in service. "(B) ELIGIBLE BASIS REDUCED BY FEDERAL GRANTS.—If,

during any taxable year of the compliance period, a grant is made with respect to any building or the operation thereof and any portion of such grant is funded with Federal funds (whether or not includible in gross income), the eligible basis of such building for such taxable year and all succeeding taxable years shall be reduced by the portion of such grant which is so funded. "(6) CREDIT ALLOWABLE FOR CERTAIN FEDERALLY-ASSISTED BUILDINGS ACQUIRED DURING 10-YEAR PERIOD DESCRIBED IN PARAGRAPH (2)(B) (ii).—

"(A) IN GENERAL.—On application by the taxpayer, the Secretary (after consultation with the appropriate Federal official) may waive paragraph (2)(B)(ii) with respect to any federally-assisted building if the Secretary determines that such waiver is necessary— "(i) to avert an assignment of the mortgage secured by property in the project (of which such building is a part) to the Department of Housing and Urban Development or the Farmers' Home Administration, "(ii) to avert a claim against a Federal mortgage insurance fund (or such Department or Administration) with respect to a mortgage which is so secured, or "(iii) to the extent provided in regulations, by reason of other circumstances of financial distress. The preceding sentence shall not apply to any building described in paragraph (7)(B). "(B)

FEDERALLY-ASSISTED BUILDING.—For

purposes

of

subparagraph (A), the term 'federally-assisted building' means any building which is substantially assisted, financed, or operated under— "(i) section 8 of the United States Housing Act of 1937 "(ii) section 221(d)(3) or 236 of the National Housing Act of 1934, or "(iii) section 515 of the Housing Act of 1949, as such Acts are in effect on the date of the enactment of the Tax Reform Act of 1986. "(C) APPROPRIATE FEDERAL OFFICIAL.—For purposes of

subparagraph (A), the term 'appropriate Federal official' means— "(i) the Secretary of Housing and Urban Development in the case of any building described in subparagraph (B) by reason of clause (i) or (ii) thereof, and "(ii) the Secretary of Agriculture in the case of any building described in subparagraph (B) by reason of clause (iii) thereof.

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 100 STAT. 2194

PUBLIC LAW 99-514—OCT. 22, 1986 "(7) ACQUISITION OF BUILDING BEFORE END OF PRIOR COMPLIANCE PERIOD.—

"(A) IN GENERAL.—Under regulations prescribed by the Secretary, in the case of a building described in subparagraph (B) which is acquired by the taxpayer— "(i) paragraph (2)(B) shall not apply, but "(ii) the credit allowable by reason of subsection (a) to the taxpayer for any period after such acquisition shall be equal to the amount of credit which would have been allowable under sebsection (a) for such period to the prior owner referred to in subparagraph (B) had such owner not disposed of the building. "(B) DESCRIPTION OF BUILDING.—A building is described in

this subparagraph if— "(i) a credit was allowed by reason of subsection (a) to any prior owner of such building, and "(ii) the taxpayer acquired such building before the end of the compliance period for such building with respect to such prior owner (determined without regard to any disposition by such prior owner). "(e) REHABIUTATION EXPENDITURES TREATED AS SEPARATE N E W BUILDING.—

"(1) IN GENERAL.—Rehabilitation expenditures paid or incurred by the taxpayer with respect to any building shall be treated for purposes of this section as a separate new building. "(2) REHABIUTATION EXPENDITURES.—For purposes of paragraph (D— "(A) IN GENERAL.—The term 'rehabilitation expenditures' means amounts chargeable to captial account and incurred for property (or additions or improvements to property) of a character subject to the allowance for depreciation in connection with the rehabilitation of a building. "(B) COST OF ACQUISITION, ETC, NOT INCLUDED.—Such term does not include the cost of acquiring any building (or interest therein) or any amount not permitted to be taken into account under paragraph (3) or (4) of subsection (d). "(3) AVERAGE OF REHABIUTATION EXPENDITURES MUST BE $2,OOO OR MORE.—

"(A) IN GENERAL.—Paragraph (1) shall apply to rehabilitation expenditures with respect to any building only if the qualified basis attributable to such expenditures incurred during any 24-month period, when divided by the low-income units in the building, is $2,000 or more. "(B) DATE OF DETERMINATION.—The determination under

subparagraph (A) shall be made as of the close of the 1st taxable year in the credit period with respect to such expenditures, "(4) SPECIAL RULES.—For purposes of applying this section with respect to expenditures which are treated as a separate building by reason of this subsection— "(A) such expenditures shall be treated as placed in service at the close of the 24-month period referred to in paragraph (3)(A), and "(B) the applicable fraction under subsection (c)(1) shall be the applicable fraction for the building (without regard to paragraph (1)) with respect to which the expenditures were incurred.

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text:
Page:United States Statutes at Large Volume 100 Part 3.djvu/387

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2195

Nothing in subsection (d)(2) shall prevent a credit from being allowed by reason of this subsection. "(5) No DOUBLE COUNTING.—Rehabilitation expenditures may, at the election of the taxpayer, be taken into account under this subsection or subsection (d)(2)(A)(i)(II) but not under both such subsections. "(6)

REGULATIONS TO APPLY SUBSECTION WITH RESPECT TO

GROUP OF UNITS IN BUILDING.—The Secretary may prescribe regulations, consistent with the purposes of this subsection, treating a group of units with respect to which rehabilitation expenditures are incurred as a separate new building. "(f) DEFINITION AND SPECIAL RULES RELATING TO CREDIT PERIOD.— "(1) CREDIT PERIOD DEFINED.—For purposes of this section, the

term 'credit period' means, with respect to any building, the period of 10 taxable years beginning with the taxable year in which the building is placed in service or, at the election of the taxpayer, the succeeding taxable year. Such an election, once made, shall be irrevocable. "(2) SPECIAL RULE FOR IST YEAR OF CREDIT PERIOD.—

"(A) IN GENERAL.—The credit allowable under subsection (a) with respect to any building for the 1st taxable year of the credit period shall be determined by substituting for the applicable fraction under subsection (c)(1) the fraction— "(i) the numerator of which is the sum of the applicable fractions determined under subsection (c)(1) as of the close of each full month of such year during which such building was in service, and "(ii) the denominator of which is 12. "(B)

DISALLOWED IST YEAR CREDIT ALLOWED IN

IITH

YEAR.—Any reduction by reason of subparagraph (A) in the credit allowable (without regard to subparagraph (A)) for the 1st taxable year of the credit period shall be allowable under subsection (a) for the 1st taxable year following the credit period. "(3) SPECIAL RULE WHERE INCREASE IN QUALIFIED BASIS AFTER 1ST YEAR OF CREDIT PERIOD.— "(A) CREDIT INCREASED.—If—

"(i) as of the close of any taxable year in the compliance period (after the 1st year of the credit period) the qualified basis of any building exceeds "(ii) the qualified basis of such building as of the close of the 1st year of the credit period, the credit allowable under subsection (a) for the taxable year (determined without regard to this paragraph) shall be incrcased by an amount equal to the product of such excess and the percentage equal to % of the applicable percentage for such building. "(B) 1ST YEAR COMPUTATION APPLIES.—A rule similar to the rule of paragraph (2)(A) shall apply to the additional credit allowable by reason of this paragraph for the 1st year in which such additional credit is allowable. "(g) QUALIFIED LOW-INCOME HOUSING PROJECT.—For purposes Oi

this section— "(1) IN GENERAL.—The term 'qualified low-income housing project' means any project for residential rental property if the project meets the requirements of subparagraph (A) or (B) whichever is elected by the taxpayer:

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text:
Page:United States Statutes at Large Volume 100 Part 3.djvu/388

 100 STAT. 2196

PUBLIC LAW 99-514—OCT. 22, 1986 "(A) 20-50 TEST.—The project meets the requirements of this subparagraph if 20 percent or more of the residential units in such project are both rent-restricted and occupied by individuals whose income is 50 percent or less of area median gross income. "(B) 40-60 TEST.—The project meets the requirements of this subparagraph if 40 percent or more of the residential units in such project are both rent-restricted and occupied by individuals whose income is 60 percent or less of area median gross income. Any election under this paragraph, once made, shall be irrevocable. For purposes of this paragraph, any property shall not be treated as failing to be residential rental property merely because part of the building in which such property is located is used for purposes other than residential rental purposes. "(2) RENT-RESTRICTED UNITS.—

"(A) IN GENERAL.—For purposes of paragraph (1), a residential unit is rent-restricted if the gross rent with respect to such unit does not exceed 30 percent of the income limitation under paragraph (1) applicable to individuals occupying such unit. "(B) GROSS RENT.—For purposes of subparagraph (A),

gross rent— "(i) does not include any payment under section 8 of the United States Housing Act of 1937 or any comparable Federal rental assistance program (with respect to such unit or occupants thereof), and "(ii) includes any utility allowance determined by the Secretary after taking into account such determinations under section 8 of the United States Housing Act of 1937. "(3) DATE FOR MEETING REQUIREMENTS.— "(A) PROJECTS CONSISTING OF i BUILDING.—In

the case of a project which does not have any other building in service, such project shall not be treated as meeting the requirements of paragraph (1) unless it meets such requirements not later than the date which is 12 months after the date such project is placed in service. "(B) PROJECTS CONSISTING OF MORE THAN i BUILDING.—In

the case of a project which has a building in service when a later building is placed in service as part of such project, such project shall not be treated as meeting the requirements of paragraph (1) with respect to such later building unless— "(i) such project meets such requirements without regard to such later building on the date such later building is placed in service, and "(ii) such project meets such requirements with regard to such later building not later than the date which is 12 months after the date such later building is placed in service. "(4) CERTAIN RULES MADE APPLICABLE.—Paragraphs (2) (other than subparagraph (A) thereof), (3), (4), (5), (6), and (7) of section 142(d), and section 6652(j), shall apply for purposes of determining whether any project is a qualified low-income housing project and whether any unit is a low-income unit.

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text:
Page:United States Statutes at Large Volume 100 Part 3.djvu/389

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2197

"(5) ELECTION TO TREAT BUILDING AFTER COMPLIANCE PERIOD AS

NOT PART OF A PROJECT.—For purposes of this section, the taxpayer may elect to treat any building as not part of a qualified low-income housing project for any period beginning after the compliance period for such building. "(h) LIMITATION ON AGGREGATE CREDIT ALLOWABLE WITH RESPECT TO PROJECTS LOCATED IN A STATE.— "(1) CREDIT MAY NOT EXCEED CREDIT AMOUNT ALLOCATED TO

BUILDING.—No credit shall be allowed by reason of this section for any taxable year with respect to any building in excess of the housing credit dollar amount allocated to such building under this subsection. An allocation shall be taken into account under the preceding sentence only if it occurs not later than the earlier of— "(A) the 60th day after the close of the taxable year, or "(B) the close of the calendar year in which such taxable year ends. "(2): ALLOCATED CREDIT AMOUNT TO APPLY TO ALL TAXABLE YEARS ENDING DURING OR AFTER CREDIT ALLOCATION YEAR.—ANY

housing credit dollar amount allocated to any building for any calendar year— "(A) shall apply to such building for all taxable years in the compliance period ending during or after such calendar year, and "(B) shall reduce the aggregate housing credit dollar amount of the allocating agency only for such calendar year. "(3) HOUSING CREDIT DOLLAR AMOUNT FOR AGENCIES.—

« ^

'

! •i

f

, J,,. fi0 n

"(A) IN GENERAL.—The aggregate housing credit dollar amount which a housing credit agency may allocate for any calendar year is the portion of the State housing credit ceiling allocated under this paragraph for such calendar year to such agency. "(B) STATE CEIUNG INITIALLY ALLOCATED TO STATE HOUS-

ING CREDIT AGENCIES.—Except as provided in subpara-

graphs (D) and (E), the State housing credit ceiling for each calendar year shall be allocated to the housing credit agency of such State. If there is more than 1 housing credit agency of a State, all such agencies shall be treated as a single agency. "(C) STATE HOUSING CREDIT CEIUNG.—The State housing credit ceiling applicable to any State for any calendar year shall be an amount equal to $1.25 multiplied by the State population. "(D) SPECIAL RULE FOR STATES WITH CONSTITUTIONAL HOME

RULE CITIES.—For purposes of this subsection— "(i) IN GENERAL.—The aggregate housing credit dollar amount for any constitutional home rule city for any calendar year shall be an amount which bears the same ratio to the State housing credit ceiling for such, calendar year as— "(I) the population of such city, bears to "(II) the population of the entire State. "(ii) COORDINATION WITH OTHER ALLOCATIONS.—In the

case of any State which contains 1 or more constitutional home rule cities, for purposes of applying this paragraph with respect to housing credit agencies in

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Page:United States Statutes at Large Volume 100 Part 3.djvu/390

 100 STAT. 2198

PUBLIC LAW 99-514—OCT. 22, 1986

^ ' "[[ ' * 11'.'p.! "•'- ^ ""'•'

such State other than constitutional home rule cities, the State housing credit ceiling for any calendar year shall be reduced by the aggregate housing credit dollar amounts determined for such year for all constitutional home rule cities in such State. ' "(iii) CONSTITUTIONAL HOME RULE CITY.—For purposes of this paragraph, the term 'constitutional home rule city' has the meaning given such term by section 146(d)(3)(C). "(E) STATE MAY PROVIDE FOR DIFFERENT ALLOCATION.—

Rules similar to the rules of section 146(e) (other than paragraph (2)(B) thereof) shall apply for purposes of this paragraph. "(F) POPULATION.—For purposes of this paragraph, population shall be determined in accordance with section 146(j). „

"(4) CREDIT FOR BUILDINGS FINANCED BY TAX-EXEMPT BONDS SUBJECT TO V O L U M E CAP NOT TAKEN INTO ACCOUNT.—

"(A) IN GENERAL.—Paragraph (1) shall not apply to the portion of any credit allowable under subsection (a) which is attributable to eligible basis financed by any obligation the - -. „ interest on which is exempt from tax under section 103 and ,f,., which is taken into account under section 146. "(B) SPECIAL RULE WHERE 70 PERCENT OR MORE OF BUILDING IS FINANCED WITH TAX-EXEMPT BONDS SUBJECT TO

VOLUME CAP.—For purposes of subparagraph (A), if 70 percent or more of the aggregate basis of any building and the land on which the building is located is financed by any obligation described in subparagraph (A), paragraph (1) shall not apply to any portion of the credit allowable under subsection (a) with respect to such building. "(5) PORTION OF STATE CEIUNG SET-ASIDE FOR CERTAIN PROJECTS INVOLVING QUALIFIED NONPROFIT ORGANIZATIONS.—

"(A) IN GENERAL.—Not more than 90 percent of the State housing credit ceiling for any State for any calendar year shall be allocated to projects other than qualified lowincome housing projects described in subparagraph (B). "(B) PROJECTS INVOLVING QUALIFIED NONPROFIT ORGANIZA-

TIONS.—For purposes of subparagraph (A), a qualified lowincome housing project is described in this subparagraph if 5f^!ii ', a qualified nonprofit organization is to materially participate (within the meaning of section 469(h)) in the development and operation of the project throughout the compliance period. •V J "(C) QUALIFIED NONPROFIT ORGANIZATION.—For purposes of this paragraph, the term 'qualified nonprofit organization' means any organization if— "(i) such organization is described in paragraph (3) or (4) of section 501(c) and is exempt from tax under "(ii) 1 of the exempt purposes of such organization includes the fostering of low-income housing. "(D)
 * i5i?;3 I lyi: section 501(a), and

' • '••'•

STATE MAY NOT OVERRIDE SET-ASIDE.—Nothing in

subparagraph (E) of paragraph (3) shall be construed to permit a State not to comply with subparagraph (A) of this paragraph. "(6) S P E C I A L RULES. —

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text:
Page:United States Statutes at Large Volume 100 Part 3.djvu/391

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2199

"(A) BUILDING MUST BE LOCATED WITHIN JURISDICTION OF

CREDIT AGENCY.—A housing Credit agency may allocate its aggregate housing credit dollar amount only to buildings located in the jurisdiction of the governmental unit of which such agency is a part. "(B) HOUSING CREDIT DOLLAR AMOUNT MAY NOT BE CARRIED OVER, ETC.—

i

"(i) No CARRYOVER.—The portion of the aggregate housing credit dollar amount of any housing credit agency which is not allocated for any calendar year may not be carried over to any other calendar year.

•)f

"(ii) ALLOCATION MAY NOT BE EARUER THAN YEAR IN WHICH BUILDING PLACED IN SERVICE.—A housing Credit

agency may allocate its housing credit dollar amount for any calendar year only to buildings placed in service before the close of such calendar year. "(C) AGENCY ALLOCATIONS IN EXCESS OF LIMIT.—If

the

aggregate housing credit dollar amounts allocated by a housing credit agency for any calendar year exceed the portion of the State housing credit ceiling allocated to such agency for such calendar year, the housing credit dollar amounts so allocated shall be reduced (to the extent of such excess) for buildings in the reverse of the order in which the allocations of such amounts were made.

...

"(D) CREDIT ALLOWABLE DETERMINED WITHOUT REGARD TO

a...

AVERAGING CONVENTION, ETC.—For purposes of this subsection, the credit allowable under subsection (a) with respect .»'.'. to any building shall be determined— "(i) without regard to paragraphs (2)(A) and (3)(B) of ! subsection (f), and "(ii) by applying subsection (fK3XA) without regard to '.^ 'the percentage equal to % of. "(7) OTHER DEFINITIONS.—For purposes of this subsection— "(A) HOUSING CREDIT AGENCY.—The term 'housing credit agency' means any agency authorized to carry out this subsection. "(B) POSSESSIONS TREATED AS STATES.—The term 'State' includes a possession of the United States, "(i) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) COMPUANCE PERIOD.—The term 'compliance period' means, with respect to any building, the period of 15 taxable years beginning with the 1st taxable year of the credit period with respect thereto. "(2) DETERMINATION OF WHETHER BUILDING IS FEDERALLY SUBSIDIZED.—

I -J .;

1.

"(A) IN GENERAL.—Except as otherwise provided in this paragraph, for purposes of subsection (b)(D, a new building shall be treated as federally subsidized for any taxable year if, at any time during such taxable year, there is outstanding any obligation the interest on which is exempt from tax under section 103, or any below market Federal loan, the proceeds of which are used (directly or indirectly) with respect to such building or the operation thereof. "(B) ELECTION TO REDUCE ELIGIBLE BASIS BY OUTSTANDING BALANCE OF LOAN.—A loan shall not be taken into account

under subparagraph (A) if the taxpayer elects to exclude an

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Page:United States Statutes at Large Volume 100 Part 3.djvu/392

 100 STAT. 2200

PUBLIC LAW 99-514—OCT. 22, 1986 o

e^i-

amount equal to the outstanding balance of such loan from the eligible basis of the building for purposes of subsection "(C)

BELOW MARKET FEDERAL LOAN.—For purposes of

subparagraph (A), the term 'below market Federal loan' means any loan funded in whole or in part with Federal funds if the interest rate payable on such loan is less than the applicable Federal rate in effect under section 1274(d)(1) (as of the date on which the loan was made). "(3) LOW-INCOME UNIT.—

"(A) IN GENERAL.—The term 'low-income unit' means any unit in a building if— "(i) such unit is rent-restricted (as defined in subsection (g)(2)), and "(ii) the individuals occupying such unit meet the income limitation applicable under subsection (g)(l) to the project of which such building is a part. "(B) EXCEPTIONS.—A unit shall not be treated as a lowincome unit unless the unit is suitable for occupancy and used other than on a transient basis. "(C)

SPECIAL RULE FOR BUILDINGS HAVING 4 OR FEWER

UNITS.—In the case of any building which has 4 or fewer '' residential rental units, no unit in such building shall be treated as a low-income unit if the units in such building are owned by— "(i) any individual who occupies a residential unit in ^ - -^" such building, or "(ii) any person who is related (as defined in subsec'' tion (d)(2)(D)(iii)) to such individual. "(4) NEW BUILDING.—The term 'new building' means a building the original use of which begins with the taxpayer. "(5) EXISTING BUILDING.—The term 'existing building' means any building which is not a new building. "(j) RECAPTURE OF CREDIT.— "(1) IN GENERAL.—If^

"(A) as of the close of any taxable year in the compliance >• '* period, the amount of the qualified basis of any building with respect to the taxpayer is less than ' "(B) the amount of such basis as of the close of the preceding taxable year, then the taxpayer's tax under this chapter for the taxable year shall be increased by the credit recapture amount. "(2) CREDIT RECAPTURE AMOUNT.—For purposes of paragraph (1), the credit recapture amount is an amount equal to the sum of— "(A) the aggregate decrease in the credits allowed to the taxpayer under section 38 for all prior taxable years which would have resulted if the accelerated portion of the credit allowable by reason of this section were not allowed for all prior taxable years with respect to the excess of the amount described in paragraph dXB) over the amount described in paragraph (I)(A), plus "(B) interest at the overpayment rate established under section 6621 on the amount determined under subparagraph (A) for each prior taxable year for the period beginning on the due date for filing the return for the prior taxable year involved.

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Page:United States Statutes at Large Volume 100 Part 3.djvu/393

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2201

No deduction shall be allowed under this chapter for interest described in subparagraph (B). "(3) ACCELERATED PORTION OF CREDIT.—For purposes of paragraph (2), the accelerated portion of the credit for the prior taxable years with respect to any amount of basis is the excess of— "(A) the aggregate credit allowed by reason of this section (without regard to this subsection) for such years with respect to such basis, over "(B) the aggregate credit which would be allowable by reason of this section for such years with respect to such basis if the aggregate credit which would (but for this subsection) have been allowable for the entire compliance period were allowable ratably over 15 years. "(4) SPECIAL RULES.— "(A) TAX BENEFIT RULE.—The

tax for the taxable year shall be increased under paragraph (1) only with respect to credits allowed by reason of this section which were used to reduce tax liability. In the case of credits not so used to reduce tax liability, the carryforwards and carrybacks under section 39 shall be appropriately adjusted. "(B) ONLY BASIS FOR WHICH CREDIT ALLOWED TAKEN INTO

ACCOUNT.—Qualified basis shall be taken into account under paragraph (1)(B) only to the extent such basis was taken into account in determining the credit under subsection (a) for the preceding taxable year referred to in such paragraph. "(C) No RECAPTURE OF ADDITIONAL CREDIT ALLOWABLE BY REASON OF SUBSECTION (f)(3).—Paragraph (1) shall apply to

a decrease in qualified basis only to the extent such decrease exceeds the amount of qualified basis with respect to which a credit was allowable for the taxable year referred to in paragraph (1)(B) by reason of subsection (0(3). "(D) No CREDITS AGAINST TAX.—Any increase in tax under this subsection shall not be treated as a tax imposed by this chapter for purposes of determining the amount of any credit under subpart A, B, or D of this part. "(E) No RECAPTURE BY REASON OF CASUALTY LOSS.—The

increase in tax under this subsection shall not apply to a reduction in qualified basis by reason of a casualty loss to the extent such loss is restored by reconstruction or replacement within a reasonable period established by the Secretary. "(5) CERTAIN PARTNERSHIPS TREATED AS THE TAXPAYER.—

"(A) IN GENERAL.—For purposes of applying this subsection to a partnership to which this paragraph applies— "(i) such partnership shall be treated as the taxpayer to which the credit allowable under subsection (a) was allowed, "(ii) the amount of such credit allowed shall be treated as the amount which would have been allowed to the partnership were such credit allowable to such partnership, ''(iii) paragraph (4)(A) shall not apply, and "(iv) the amount of the increase in tax under this subsection for any taxable year shall be allocated among the partners of such partnership in the same

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Page:United States Statutes at Large Volume 100 Part 3.djvu/394

 100 STAT. 2202

PUBLIC LAW 99-514—OCT. 22, 1986 manner as such partnership's taxable income for such year is allocated among such partners. "(B) PARTNERSHIPS TO WHICH PARAGRAPH APPLIES.—This

paragraph shall apply to any partnership— "(i) which has 35 or more partners each of whom is a natural person or an estate, and "(ii) which elects the application of this paragraph. fi

"(C) SPECIAL RULES.— "(i) HUSBAND AND WIFE TREATED AS i PARTNER.—For

' f, I, \

purposes of subparagraph (B)(i), a husband and wife (and their estates) shall be treated as 1 partner. "(ii) ELECTION IRREVOCABLE.—Any election under subparagraph (B), once made, shall be irrevocable. "(6) No RECAPTURE ON DISPOSITION OF BUILDING WHERE BOND

POSTED.—In the case of a disposition of a building, the taxpayer shall be discharged from liability for any additional tax under this subsection by reason of such disposition if— "(A) the taxpayer furnishes to the Secretary a bond in an amount satifactory to the Secretary and for the period required by the Secretary, and "(B) it is reasonably expected that such building will continue to be operated as a qualified low-income building for the remaining compliance period with respect to such building, "(k) APPLICATION OF AT-RISK RULES.—For purposes of this section— "(1) IN GENERAL.—Except as otherwise provided in this subsection, rules similar to the rules of section 46(c)(8) (other than subparagraph (D)(ivXD thereof), section 46(c)(9), and section 47(d)(1) shall apply in determining the qualified basis of any building in the same manner as such sections apply in deter„;. mining the credit base of property. "(2) SPECIAL RULES FOR DETERMINING QUALIFIED PERSON.—For

purposes of paragraph (1)— "(A) IN GENERAL.—If the requirements of subparagraphs -u; i ' (B), (C), and (D) are met with respect to any financing borrowed from a qualified nonprofit organization (as defined in subsection (h)(5)), the determination of whether such financing is qualified commercial financing with respect to any qualified low-income building shall be made without regard to whether such organization— B;;. "(i) is actively and regularly engaged in the business of lending money, or "(ii) is a person described in section 46(c)(8)(D)(ivXn). • "(B) FINANCING SECURED BY PROPERTY.—The requirements of this subparagraph are met with respect to any financing if such financing is secured by the qualified lowincome building. "(C) PORTION OF BUILDING ATTRIBUTABLE TO FINANCING.—

.,

y.

The requirements of this subparagraph are met with respect to any financing for any taxable year in the compliance period if, as of the close of such taxable year, not more than 60 percent of the eligible basis of the qualified lowincome building is attributable to such financing (reduced by the principal and interest of any governmental financing which is part of a wrap-around mortgage involving such financing).

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text:
Page:United States Statutes at Large Volume 100 Part 3.djvu/395

 PUBLIC LAW 99-514—OCT. 22, 1986 "(D)

REPAYMENT

OF

PRINCIPAL

AND

100 STAT. 2203

INTEREST.—The

requirements of this subparagraph are met with respect to any financing if such financing is fully repaid on or before the earliest of— -: "(i) the date on which such financing matures, "(ii) the 90th day after the close of the compliance period with respect to the qualified low-income building, or "(iii) the date of its refinancing or the sale of the building to which such financing relates. "(3) PRESENT VALUE OF FINANCING.—If the rate of interest on any financing described in paragraph (2KA) is less than the rate which is 1 percentage point below the applicable Federal rate as of the time such financing is incurred, then the qualified basis (to which such financing relates) of the qualified low-income building shall be the present value of the amount of such ' financing, using as the discount rate such applicable Federal rate. For purposes of the preceding sentence, the rate of interest on any financing shall be determined by treating interest to the extent of government subsidies as not payable. " "(4) FAILURE TO FULLY REPAY.— "(A) IN GENERAL.—To the extent that the requirements of paragraph (2)(D) are not met, then the taxpayer's tax under this chapter for the taxable year in which such failure occurs shall be increased by an amount equal to the applicable portion of the credit under this section with respect ^ • .^ to such building, increased by an amount of interest for the period— "(i) beginning with the due date for the filing of the •ifi) * s return of tax imposed by chapter 1 for the 1st taxable year for which such credit was allowable, and ^,. "(ii) ending with the due date for the taxable year in \Z''-. which such failure occurs, determined by using the underpayment rate and method .,,;.. under section 6621. "(B) APPLICABLE PORTION.—For purposes of subparagraph (A), the term 'applicable portion' means the aggregate decrease in the credits allowed to a taxpayer under section 38 for all prior taxable years which would have resulted if the . >. eligible basis of the building were reduced by the amount of financing which does not meet requirements of paragraph (2)(D). "(C) CERTAIN RULES TO APPLY.—Rules similar to the rules of subparagraphs (A) and (D) of subsection (jK4) shall apply for purposes of this subsection. "(1) CERTIFICATIONS TO SECRETARY.— "(1) CERTIFICATION WITH RESPECT TO IST YEAR OF CREDIT

1!

PERIOD.—Not later than the 90th day following the close of the 1st taxable year in the credit period with respect to any qualified low-income building, the taxpayer shall certify to the Secretary (in such form and in such manner as the Secretary prescribes)— "(A) the taxable year, and calendar year, in which such building was placed in service, "(B) the adjusted basis and eligible basis of such building as of the close of the 1st year of the credit period.

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Page:United States Statutes at Large Volume 100 Part 3.djvu/396

 100 STAT. 2204

PUBLIC LAW 99-514—OCT. 22, 1986

i-:' i

t'^Q^ ^jjg maximum applicable percentage and qualified basis permitted to be taken into account by the appropriate housing credit agency under subsection (h), "(D) the election made under subsection (g) with respect to the qualified low-income housing project of which such building is a part, and "(E) such other information as the Secretary may require. In the case of a failure to make the certification required by the shown that such failure is due to reasonable cause and not to willful neglect, no credit shall be allowable by reason of subsection (a) with respect to such building for any taxable year ending before such certification is made. "(2) ANNUAL REPORTS FROM HOUSING CREDIT AGENCIES.—Each
 * i? preceding sentence on the date prescribed therefor, unless it is

agency which allocates any housing credit amount to any building for any calendar year shall submit to the Secretary (at such time and in such manner as the Secretary shall prescribe) an annual report specifying— ii t "(A) the amount of housing credit amount allocated to each building for such year, "(B) sufficient information to identify each such building « and the taxpayer with respect thereto, and "(C) such other information as the Secretary may require. The penalty under section 6652(j) shall apply to any failure to submit the report required by the preceding sentence on the date prescribed therefor. "(m) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes 01 this section, including regulations— .,^j "(1) dealing with— "(A) projects which include more than 1 building or only ,^a portion of a building, "(B) buildings which are placed in service in portions, "(2) providing for the application of this section to short ' *'* taxable years, and "(3) preventing the avoidance of the rules of this section. "(n) TERMINATION.—

"(1) IN GENERAL.—Except as provided in paragraph (2), the State housing credit ceiling under subsection (h) shall be zero for any calendar year after 1989. i.q.

"(2) CARRYOVER O F 1989 PROGRESS.—

LIMIT FOR CERTAIN PROJECTS I N

"(A) IN GENERAL.—The aggregate housing credit amount of any agency for 1989 which is not allocated for 1989 shall be treated for purposes of applying this section to any building described in subparagraph (B) as the housing credit amount of such agency for 1990. "(B) DESCRIPTION.—A building is described in this subparagraph if— "(i) such building is constructed, reconstructed, or rehabilitated by the taxpayer, t>». r "(ii) more than 10 percent of the reasonably anticipated cost of such construction, reconstrcution, or reti-jm 4)if V habilitation has been incurred as of January 1, 1989, ? and pnib'jty^.T. "(iii) such building is placed in service before January 1, 1991.

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