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 95 STAT. 278

PUBLIC LAW 97-34—AUG. 13, 1981 Secretary and plan participants shall be made by the plan administrator of a qualified employer or government plan receiving qualified voluntary employee contributions. (5) EMPLOYER PAYMENTS.—For purposes of this title, any amount paid by an employer to an individual retirement plan shall be treated as payment of compensation to the employee (other than a self-employed individual who is an employee within the meaning of section 401(c)(1)) includible in his gross income in the taxable year for which the amount was contributed, whether or not a deduction for such payment is allowable under this section to the employee. "(6) EXCESS CONTRIBUTIONS TREATED AS CONTRIBUTION MADE DURING SUBSEQUENT YEAR FOR WHICH THERE IS AN UNUSED LIMITATION.—

"(A) IN GENERAL.—If for the taxable year the maximum amount allowable as a deduction under this section for contributions to an individual retirement plan exceeds the amount contributed, then the taxpayer shall be treated as having made an additional contribution for the taxable year in an amount equal to the lesser of— "(i) the amount of such excess, or "(ii) the amount of the excess contributions for such taxable year (determined under section 4973(b)(2) without regard to subparagraph (C) thereof). "(i) shall be determined without regard to this paragrajjh, and "(ii) shall not include any rollover contribution. "(C) SPECIAL RULE WHERE EXCESS DEDUCTION WAS ALLOWED
 * (B) AMOUNT CONTRIBUTED.—For purposes of this paragraph, the amount contributed—

FOR CLOSED YEAR.—Proper reduction shall be made in the amount allowable as a deduction by reason of this paragraph for any amount allowed as a deduction under this section for a prior taxable year for which the period for assessing deficiency has expired if the amount so allowed exceeds the amount which should have been allowed for such prior taxable year. "(g) CROSS REFERENCE.— "For failure to provide required reports, see section 6652(h)." (b) TREATMENT OF DISTRIBUTIONS FROM EMPLOYER PLAN TO WHICH EMPLOYEE MADE DEDUCTIBLE CONTRIBUTIONS.—

26 USC 72.

(1) IN GENERAL.—Section 72 (relating to annuities; certain proceeds of endowment and life insurance contracts) is amended by redesignating subsection (o) as subsection (p) and by inserting after subsection (n) the following new subsection: "(o) SPECIAL RULES FOR DISTRIBUTIONS FROM QUALIFIED PLANS TO WHICH EMPLOYEE MADE DEDUCTIBLE CONTRIBUTIONS.— "(1) TREATMENT OF CONTRIBUTIONS.—For purposes of this sec-

tion and sections 402, 403, and 405, notwithstanding section 414(h), any deductible employee contribution made to a qualified employer plan or government plan shall be treated as an amount contributed by the employer which is not includible in the gross income of the employee. "(2) ADDITIONAL TAX IF AMOUNT RECEIVED BEFORE AGE 59 y2.—

If— "(A) any accumulated deductible employee contributions are received from a qualified employer plan or government

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plan to which the employee made one or more deductible employee contributions, "(B) such amount is received by the employee before the employee attains the age of 59 Va, and "(C) such amount is not attributable to such employee's becoming disabled (within the meaning of subsection (m)(7)), then the employee's tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the amount so received to the extent that such amount is includible in gross income. For purposes of this title, any tax imposed by this paragraph shall be treated as a tax imposed by subsection (m)(5)(B). "(3) AMOUNTS CONSTRUCTIVELY RECEIVED.—

"(A) IN GENERAL.—For purposes of this subsection, rules similar to the rules provided by subsection (m)(4) and (8) shall apply. "(B) PURCHASE OF U F E INSURANCE.—To the extent any amount of accumulated deductible employee contributions of an employee are applied to the purchase of life insurance contracts, such amount shall be treated as distributed to the employee in the year so applied. "(4) SPECIAL RULE FOR TREATMENT OF ROLLOVER AMOUNTS.—For

purposes of sections 402(a)(5), 402(a)(7), 403(a)(4), 408(d)(3), and 26 USC 402. 409(b)(3)(C), the Secretary shall prescribe regulations providing for such allocations of amounts attributable to accumulated deductible employee contributions, and for such other rules, as may be necessary to insure that such accumulated deductible employee contributions do not become eligible for additional tax benefits (or freed from limitations) through the use of rollovers. "(5) DEFINITIONS AND SPECIAL RULES.—For purposes of this subsection— "(A) DEDUCTIBLE EMPLOYEE CONTRIBUTIONS.—The term 'deductible employee contributions' means any qualified voluntary employee contribution (as defined in section 219(e)(2)) Ante, p. 274. made after December 31, 1981, in a taxable year beginning after such date and allowable as a deduction under section 219(a) for such taxable year. "(B)

ACCUMULATED

DEDUCTIBLE

EMPLOYEE CONTRIBU-

TIONS.—The term 'accumulated deductible employee contributions' means the deductible employee contributions— "(i) increased by the amount of income and gain allocable to such contributions, and "(ii) reduced by the sum of the amount of loss and expense allocable to such contributions and the amounts distributed with respect to the employee which are attributable to such contributions (or income or gain allocable to such contributions). "(C) QuAUFiED EMPLOYER PLAN.—The term 'qualified employer plan' has the meaning given to such term by section 219(e)(3). "(D) GOVERNMENT PLAN.—The term 'government plan' has the meaning given such term by section 219(e)(4). "(6) ORDERING RULES.—Unless the plan specifies otherwise, any distribution from such plan shall not be treated as being made from the accumulated deductible employee contributions until all other amounts to the credit of the employee have been distributed."

89-194 O—82

20: QL3

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 95 STAT. 280

PUBLIC LAW 97-34—AUG. 13, 1981 (2) 10-YEAR AVERAGING AND CAPITAL GAINS NOT TO APPLY.—

26 USC 402.

Ante, p. 278.

Subparagraph (A) of section 402(e)(4) (defining lump sum distribution) is amended by adding at the end thereof the following new sentence: "For purposes of this section and section 403, the balance to the credit of the employee does not include the accumulated deductible employee contributions under the plan (within the meaning of section 72(o)(5))." (3) CONFORMING AMENDMENTS RELATING TO ROLLOVER DISTRIBUTIONS.—

26 USC 402.

26 USC 403.

(A) Paragraph (5) of section 402(a) (relating to rollover amounts) is amended— (i) by inserting "(other than accumulated deductible employee contributions within the meaning of section 72(o)(5))" after "contributions" in subparagraph (B), (ii) by striking out "or" at the end of subparagraph (D)(i)(I), (iii) by striking out the period at the end of subparagraph (D)(i)(II) and inserting in lieu thereof ", or", and (iv) by inserting at the end of subparagraph (D) the following new subclause: "(III) which constitute a distribution of accumulated deductible employee contributions (within the meaning of section 72(o)(5))." (B) Paragraph (8) of section 403(b) (relating to rollover amounts) is amended by inserting ", or 1 or more distributions of accumulated deductible employee contributions (within the meaning of section 72(o)(5))" after "subsection (a)" in subparagraph (B)(i). (c) UNREAUZED APPRECIATION OF EMPLOYER SECURITIES.—

(1) Paragraph (1) of section 402(a) (relating to taxability of beneficiary of exempt trust) is amended by striking out in the second sentence thereof "by the employee" and inserting in lieu thereof "by the employee (other than deductible employee contributions within the meaning of section 72(o)(5))." (2) Subparagraph (J) of section 402(e) (relating to tax on lump sum distribution) is amended by adding at the end thereof the following new sentence: "This subparagraph shall not apply to distributions of accumulated deductible employee contributions (within the meaning of section 77(o)(5))." 26 USC 2039.

26 USC 2517.

26 USC 220.

(d) ESTATE AND GIFT TAX EXCLUSION.— (1) ESTATE TAX.—Subsection (c) of

section 2039 (relating to exemption of annuities under certain trusts and plans) is amended by adding at the end thereof the following new sentence: "For purposes of this subsection, any deductible employee contributions (within the meaning of paragraph (5) of section 72(o)) shall be considered as made by a person other than the decedent." (2) GIFT TAX.—Subsection (b) of section 2517 (relating to transfers attributable to employee contributions) is amended by adding at the end thereof the following new sentence: "For purposes of this subsection, any deductible employee contributions (within the meaning of paragraph (5) of section 72(o)) shall be considered as made by a person other than the employee." (e) REPEAL OF SECTION 220.—Section 220 (relating to deduction for retirement savings for certain married individuals) is hereby repealed.

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(f) PENALTIES FOR FAILURE TO PROVIDE NECESSARY REPORTS.—

Section 6652 is amended by redesignating subsection (h) as subsection 26 USC 6652. (i) and inserting after subsection (g) the following new subsection: "(h) INFORMATION REQUIRED IN CONNECTION WITH DEDUCTIBLE EMPLOYEE CONTRIBUTIONS.—In the case of failure to make a report

required by section 219(f)(4) which contains the information required Ante, p. 274. by such section on the date prescribed therefor (determined with regard to any extension of time for filing), there shall be paid (on notice and demand by the Secretary and in the same manner as tax) by the person failing so to file, an amount equal to $25 for each participant with respect to whom there was a failure to file such information, multiplied by the number of years during which such failure continues, but the total amount imposed under this subsection on any person for failure to file shall not exceed $10,000." (g) AMENDMENTS RELATING TO INCREASE IN IRA LIMITATIONS.—

(1) The following provisions are each amended by striking out "$1,500" each place it appears and inserting in lieu thereof "$2,000": (A) Section 408(a)(l) (defining individual retirement 26 USC 408. account). (B) Section 4080t)) (defuiing individual retirement annuity). (C) Section 408(j) (relating to increase in maximum limitations for simplified employee pensions). (D) Section 409(a)(4) (defining retirement bond). 26 USC 409. (2) Subparagraph (A) of section 408(d)(5) is amended by striking out "$1,750" and inserting in lieu thereof "$2,250". (3) Subparagraph (A) of section 409(b)(3) (relating to redemption within 12 months) is amended by adding the following sentence at the end thereof: "The preceding sentence shall not apply to the extent that the bond was purchased with a rollover contribution described in subparagraph (C) of this paragraph or in section 402(a)(5), 402(a)(7), 403(a)(4), 403(b)(8), 405(b)(3), or 408(d)(3)." (4)(A) Paragraph (2) of section 415(a) is amended to read as 26 USC 415. follows: "(2) SECTION APPLIES TO CERTAIN ANNUITIES AND ACCOUNTS.—In

the case of— "(A) an employee annuity plan described in section 403(a), "(B) an annuity contract described in section 403(b), "(C) a simplified employee pension described in section 408(k),or "(D) a plan described in section 405(a), such a contract, plan, or pension shall not be considered to be described in section 403(a), 4030t)), 405(a), or 408(k), as the case may be, unless it satisfies the requirements of subparagraph (A) or subparagraph (B) of paragraph (1), whichever is appropriate, and has not been disqualified under subsection (g). In the case of an annuity contract described in section 4030t)), the preceding sentence shall apply only to the portion of the annuity contract which exceeds the limitation of subsection (b) or the limitation of subsection (c), whichever is appropriate, and the amount of the contribution for such portion shall reduce the exclusion allowance as provided in section 4030t)X2)." (B) The last sentence of paragraph (2) of section 415(c) is amended to read as follows: "For the purposes of this paragraph, employee contributions under subparagraph (B) are determined without regard to any rollover contributions (as defined in sections 402(a)(5), 403(a)(4), 403(b)(8), 405(d)(3), 408(d)(3), and

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 95 STAT. 282

Ante, p. 278. 26 USC 415.

26 USC 62.

26 USC 408.

26 USC 415. 26 USC 2039.

26 USC 2503. 26 USC 3401. 26 USC 4973. 26 USC 6047.

26 USC 219 note.

PUBLIC LAW 97-34—AUG. 13, 1981 409(b)(3)(C)) without regard to employee contributions to a simplified employee pension allowable as a deduction under section 219(a), and without regard to deductible employee contributions within the meaning of section 72(o)(5)." (C) Paragraph (5) of section 415(e) is amended to read as follows: "(5) SPECIAL RULES FOR SECTIONS 403(b) AND 408.—For purposes of this section, any annuity contract described in section 403(b) (except in the case of a participant who has elected under subsection (c)(4)(D) to have the provisions of subsection (c)(4)(C) apply) for the benefit of a participant shall be treated as a defined contribution plan maintained by each employer with respect to which the participant has the control required under subsection (b) or (c) of section 414 (as modified by subsection (h)). For purposes of this section, any contribution by an employer to a simplified employee pension for an individual for a taxable year shall be treated as an employer contribution to a defined contribution plan for such individual for such year. In the case of any annuity contract described in section 4030b), the amount of the contribution disqualified by reason of subsection (g) shall reduce the exclusion allowance as provided in section 4030t)X2)." (h) AMENDMENTS CONFORMING TO THE REPEAL OF SECTION 220.— (1) Paragraph (10) of section 62 (defining adjusted gross income) is amended by striking out "and the deduction allowed by section 220 (relating to retirement savings for certain married individuals)". (2) Paragraphs (4) and (5) of section 408(d) (relating to tax treatment of distributions) are each amended by striking out "section 219 or 220" each place it appears and inserting in lieu thereof "section 219". (3) Subsection (a) of section 415 is amended by striking out paragraph (3). (4) Subsection (e) of section 2039 (relating to exclusion of individual retirement accounts, etc.) is amended by striking out "section 219 or 220" each place it appears and inserting in lieu thereof "section 219". (5) Subsection (d) of section 2503 is hereby repealed. (6) Subparagraph (D) of section 3401(a)(12) is amended by striking out "section 219(a) or 220(a)" and inserting in lieu thereof "section 219(a)". (7) Subsection Ob) of section 4973 is amended by striking out "section 219 or 220" each place it appears and inserting in lieu thereof "section 219". (8) Subsection (d) of section 6047 is amended by striking out "section 219(a) or 220(a)" and inserting in lieu thereof "section 219(a)". (9) Subsection (a) of section 4973 is amended by striking out the last sentence and inserting in lieu thereof the following: "The tax imposed by this subsection shall be paid by such individual." (10) Subparagraph (C) of section 497303X2) is amended by striking out "sections 219(c)(5) and 220(c)(6)" and inserting in lieu thereof "section 219(f)(6)". (11) The table of sections for part VII of subchapter B of chapter 1 is amended by striking out the item relating to section 220. (i) EFFECTIVE DATES.—

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95 STAT. 283

(1) IN GENERAL.—Except as provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 1981. (2) TRANSITIONAL RULE.—For purposes of the Internal Revenue Code of 1954, any amount allowed as a deduction under section 220 of such Code (as in effect before its repeal by this Act) shall be treated as if it were allowed by section 219 of such Code. Ante, p. 274. (3) CERTAIN BOND ROLLOVER PROVISIONS.—The amendment

made by subsection (g)(3) shall apply to taxable years beginning after December 31, 1974. (4) SECTION 4 1 5 AMENDMENTS.—The amendments made by subsections (g)(4) and (h)(3) shall apply to years after December 31, 1981. SEC. 312. INCREASE IN AMOUNT OF SELF-EMPLOYED RETIREMENT PLAN DEDUCTION. (a) IN GENERAL.—Subsection (e) of section 404 (relating to special 26 USC 404. limitations for self-employed individuals) is amended by striking out "$7,500" in paragraphs (1) and (2) and inserting in lieu thereof "$15,000". (b) MAXIMUM AMOUNT OF COMPENSATION TAKEN INTO ACCOUNT.—

(1) IN GENERAL.—Paragraph (17) of section 401(a) (relating to 26 USC 40i. maximum amount of compensation which may be taken into account) is amended by striking out all after "only" and inserting in lieu thereof "if— "(A) the annual compensation of each employee taken into account under the plan does not exceed the first $200,000 of compensation, and "(B) in the case of— "(i) a defined contribution plan with respect to which compensation in excess of $100,000 is taken into account, contributions on behalf of each employee (other than an employee within the meaning of section 401(c)(l)) to the plan or plans are at a rate (expressed as a percentage of compensation) not less than 7.5 percent, or "(ii) a defined benefit plan with respect to which compensation in excess of $100,000 is taken into account, the annual benefit accrual for each employee (other than an employee within the meaning of section 401(c)(l)) is a percentage of compensation which is not less than one-half of the applicable percentage provided by subsection (j)(3)." Post, p. 284. (2) SIMPLIFIED EMPLOYEE PENSIONS.—Subparagraph (C) of section 408(k)(3) (relating to uniform relationships of contributions) 26 USC 408. is amended to read as follows: "(C) CONTRIBUTIONS MUST BEAR A UNIFORM RELATIONSHIP

TO TOTAL COMPENSATION.—For purposes of subparagraph (A),

employer contributions to simplified employee pensions shall be considered discriminatory unless— "(i) contributions thereto bear a uniform relationship to the total compensation (not in excess of the first $200,000) of each employee maintaining a simplified employee pension, and account under a simplified employee pension for an employee, contributions to a simplified employee pension on behalf of each employee for whom a contribution
 * (ii) if compensation in excess of $100,000 is taken into

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 95 STAT. 284

PUBLIC LAW 97-34—AUG. 13, 1981 is required are at a rate (expressed as a percentage of compensation) not less than 7.5 percent." (c) CONFORMING AMENDMENTS.—

Ante, p. 274. 26 USC 401.

26 USC 408. 26 USC 1379. 26 USC 72.

(1) Subparagraphs (A) and (C) of section 219(b)(2), as amended by section SllTa), are each amended by striking out "$7,500" and inserting in lieu thereof "$15,000". (2) Subsection (e) of section 401 is amended by striking out "for all such years exceeds $7,500" and inserting in lieu thereof "for such taxable year exceeds $15,000". (3) Subparagraph (A) of section 4010'X2) (relating to benefit plans for self-employed individuals and shareholder-employees) is amended by striking out "$50,000" and inserting in lieu thereof "$100,000". (4) Paragraph (3) of section 401(j) is amended by adding at the end thereof the following new sentence: "For purposes of this paragraph, a change in the annual compensation taken into account under subparagraph (A) of subsection (j)(2) shall be treated as beginning a new period of plan participation.". (5) Subsections (d)(5) and (j) of section 408 are each amended by striking out "$7,500" and inserting in lieu thereof "$15,000. (6) Subparagraph (B) of section 1379(b)(1) (relating to certain qualified pension, etc., plans) is amended by striking out "$7,500" and inserting in lieu thereof "$15,000". (d) LOANS TO PARTICIPANTS.—Subsection (m) of section 72 (relating

to special rules) is amended— (1) by adding at the end of paragraph (6) the following new sentence: "For purposes of the preceding sentence, the term 'owner-employee' shall except in applying paragraph (5), include an employee within the meaning of section 401(c)(l).", and (2) by adding at the end thereof the following new paragraph: "(8) LOANS TO OWNER-EMPLOYEES.—If, during any taxable year, an owner-employee receives, directly or indirectly, any amount as a loan from a trust described in section 401(a) which is exempt from tax under section 501(a), such amount shall be treated as having been received by such owner-employee as a distribution from such trust." (e) CORRECTION OP EXCESS CONTRIBUTION PERMITTED WITHOUT PENALTY.—

(1) Subsection (m) of section 72 (relating to special rules applicable to employee annuities and distributions under employee plans) (as amended by subsection (d)) is amended by adding at the end thereof the following new paragraph: "(9) RETURN OF EXCESS CONTRIBUTIONS BEFORE DUE DATE OF RETURN.—

"(A) IN GENERAL.—If an excess contribution is distributed in a qualified distribution— "(i) such distribution of such excess contribution shall not be included in gross income, and "(ii) this section (other than this paragraph) shall be applied as if such excess contribution and such distribution had not been made. "(B) EXCESS CONTRIBUTION.—For purposes of this paragraph, the term 'excess contribution' means any contribution to a qualified trust described in section 401(a) or under a plan described in section 403(a) or 405(a) made on behalf of an employee (within the meaning of section 401(c)) for any taxable year to the extent such contribution exceeds the amount allowable as a deduction under section 404(a).

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95 STAT. 285

"(O QUALIFIED DISTRIBUTION.—The term 'qualified distribution' means any distribution of an excess contribution which meets requirements similar to the requirements of subparagraphs (A), (B), and (C) of section 408(d)(4). In the case of such a distribution, the rules of the last sentence of section 408(d)(4) shall apply." (2) Paragraph (4) of section 401(d) (relating to additional 26 USC 40i. requirements for qualification of trusts and plans benefiting owner-employees) is amended by adding at the end thereof the following new sentence: "Subparagraph (B) shall not apply to any distribution to which section 72(m)(9) applies." Ante, p. 283. (3) Subsection (b) of section 4972 (defining excess contributions) 26 USC 4972. is amended by adding at the end thereof the following new paragraph: "(6) EXCESS CONTRIBUTIONS RETURNED BEFORE DUE DATE.—For

purposes of this subsection, any contribution which is distributed in a distribution to which section 72(m)(9) applies shall be treated as an amount not contributed." (f) EFFECTIVE DATE.— 26 USC 72 note. (1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by tms section shall apply to plans which include employees within the meaning of section 401(c)(l) with respect to taxable years beginning after December 31, 1981. (2) TRANSITIONAL RULE.—The amendments made by subsection (d) shall not apply to any loan from a plan to a self-employed individual who is an employee within the meaning of section 401(c)(l) which is outstanding on December 31, 1981. For purposes of the preceding sentence, any loan which is renegotiated, extended, renewed, or revised after such date shall be treated as a new loan. SEC. 313. ROLLOVERS UNDER BOND PURCHASE PLANS. (a) GENERAL RULE.—Subsection (d) of section 405 (relating to 26use405. taxability of beneficiary of qualified bond purchase plan) is amended by adding at the end thereof the following new paragraph: "(3) ROLLOVER INTO AN INDIVIDUAL RETIREMENT ACCOUNT OR ANNUITY.— "(A) IN GENERAL.—If—

"(i) any qualified bond is redeemed, "(ii) any portion of the excess of the proceeds from such redemption over the basis of such bond is transferred to an individual retirement plan which is maintained for the benefit of the individual redeenung such bond, and "(iii) such transfer is made on or before the 60th day after the day on which the individual received the proceeds of such redemption, then, gross income shall not include the proceeds to the extent so transferred and the transfer shall be treated as a rollover contribution described in section 408(d)(3). "(B) QUALIFIED BOND.—For purposes of this paragraph, the term 'qualified bond' means any bond described m subsection (b) which is distributed under a qualifi^ bond purchase plan or from a trust described in section 401(a) which is exempt fh)m tax under section 501(a)." Oi)) TECHNICAL AMENDMENTS.—

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 95 STAT. 286 26 USC 405. Ante, p. 274. 26 USC 2039. 26 USC 405 ^

PUBLIC LAW 97-34—AUG. 13, 1981 (1) The second sentence of paragraph (1) of section 405(d) is amended by striking out "the proceeds" and inserting "except as provided in paragraph (3), the proceeds". (2) Sections 219(d)(2) (as amended by section 311(a) of this Act), 408(a)(1), and 4973(b)(l)(A) are each amended by inserting "405(d)(3)," after "403(b)(8),". (3) Subsection (e) of section 2039 is amended by inserting "405(d)(3)," after "a contract described in subsection (c)(3)),". (c) EFFECTIVE DATE.—The amendments made by this section shall apply to redemptions after the date of the enactment of this Act in taxable years ending after such date. SEC. 314. MISCELLANEOUS PROVISIONS.

(a) REMOVAL OF FIVE-YEAR BAN ON CONTRIBUTIONS TO OWNEREMPLOYEE PLANS WHERE PLAN TERMINATES.—

26 USC 401.

26 USC 401 ^°^^-

(1) IN GENERAL.—Paragraph (5) of section 401(d) (relating to additional requirements for qualifications of trusts and plans benefiting owner-employees) is amended by adding at the end thereof the following: "Subparagraph (C) shall not apply to a distribution on account of the termination of the plan." (2) EFFECTIVE DATE.—The amendment made by paragraph (1) shall apply to distributions after December 31, 1980, in taxable years beginning after such date. (b) INVESTMENT BY INDIVIDUAL RETIREMENT ACCOUNTS, ETC., IN COLLECTIBLES TREATED AS DISTRIBUTIONS.—

26 USC 408.

(1) IN GENERAL.—Section 408 (relating to individual retirement accounts) is amended by redesignating subsection (n) as subsection (o) and by inserting after subsection (m) the following new subsection: "(n) INVESTMENT IN COLLECTIBLES TREATED AS DISTRIBUTIONS.—

26 USC 408 "°*®

26 USC 402. 26 USC 402 "°*^®

"(1) IN GENERAL.—The acquisition by an individual retirement account or by an individually-directed account under a plan described in section 401(a) of any collectible shall be treated (for purposes of this section and section 402) as a distribution from such account in an amount equal to the cost to such account of such collectible. "(2) COLLECTIBLE DEFINED.—For purposes of this subsection, the term 'collectible' means— "(A) any work of art, "(B) any rug or antique, ' '(C) any metal or gem, "(D) any stamp or coin, "(E) any alcoholic beverage, or "(F) any other tangible personal property specified by the Secretary for purposes of this subsection." (2) EFFECTIVE DATE.—The amendment made by paragraph (1) shall apply to property acquired after December 31, 1981, in taxable years ending after such date. (c) TAXABILITY OF DISTRIBUTIONS TO EMPLOYEES.— (1) CONTRIBUTIONS MADE AVAILABLE.—Paragraph

(1) of section 402(a) (relating to taxability of beneficiary of exempt trust) is amended by striking out each place it appears "or made available". (2) EFFECTIVE DATE.—The amendment made by paragraph (1) shall apply to taxable years beginning after December 31, 1981.

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95 STAT. 287

Subtitle C—Reinvestment of Dividends in Public Utilities SEC. 321. ENCOURAGEMENT OF REINVESTMENT OF DIVIDENDS IN THE STOCK OF PUBLIC UTILITIES. (a) AMENDMENT OF SECTION 305.—Section 305 (relating to distribu-

tions of stock and stock rights) is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection: "(e) DIVIDEND REINVESTMENT IN STOCK OF Puenc UTILITIES.— "(1) IN GENERAL.—Subsection (b) shall not apply to any qualified reinvested dividend. "(2) QUALIFIED REINVESTED DIVIDEND DEFINED.—For purposes of this subsection, the term 'qualified reinvested dividend' means— "(A) a distribution by a qualified public utility of shares of its qualified common stock to an individual with respect to the common or preferred stock of such corporation pursuant to a plan under which shareholders may elect to receive dividends in the form of stock instead of property, but "(B) only if the shareholder elects to have this subsection apply to such shares.

26 USC 305.

"(3) QUALIFIED PUBLIC UTILITY DEFINED.—

"(A) IN GENERAL.—For purposes of this subsection, the term 'qualified public utility' means, for any taxable year of the corporation, a domestic corporation which, for the 10year period ending on the day before the beginning of the taxable year, acquired public utility recovery property having a cost equal to at least 60 percent of the aggregate cost of all tangible property described in section 1245(a)(3) ^^te, p. 2i8. (other than subparagraphs (C) and (D) thereof) acquired by the corporation during such period. "(B) SPECIAL RULES.—For purposes of subparagraph (A)— "(i) all members of an affiliated group shall be treated as one corporation, "(ii) a successor corporation shall take into account the acquisitions of its predecessor, and "(iii) a new corporation to which clause (ii) does not apply shall substitute its period of existence for the 10year period set forth in subparagraph (A). "(C) DEFINITIONS.—For purposes of this paragraph— "(i) AFFILIATED GROUP.—The term 'affiliated group' has the meaning given to such term by subsection (a) of section 1504 (determined without regard to subsection (b) of section 1504). "(ii) PUBLIC UTILITY RECOVERY PROPERTY.—The term 'public utility recovery property' means public utility property (within the meaning of section 167(1)(3)(A)) which is recovery property which is 10-year property or 15-year public utility property (within the meaning of section 168), except that any requirement that the ^«^e. P 204. property be placed in service after December 31, 1980, shall not apply. "(4) QUALIFIED COMMON STOCK DEFINED.—

"(A) IN GENERAL.—For purposes of this subsection, the term 'qualified common stock means authorized but unissued common stock of the corporation—

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 95 STAT. 288

PUBLIC LAW 97-34—AUG. 13, 1981 "(i) which has been designated by the board of directors of the corporation as issued for purposes of this subsection, but "(ii) only if the number of shares to be issued to a shareholder was determined by reference to a value which is not less than 95 percent and not more than 105 percent of the stock's fair market value during the period immediately before the distribution (determined under regulations prescribed by the Secretary). "(B) CERTAIN PURCHASES BY CORPORATION OF ITS OWN

STOCK.—Except as provided in subparagraph (D), if a corporation has purchased or purchases its common stock within a 2-year period beginning 1 year before the date of the distributipn and ending 1 year after such date, such distribution shall be treated as not being a qualified reinvested dividend. "(C) MEMBERS OP AFFIUATED GROUP.—For purposes of subparagraph (B), the purchase by any corporation which is a member of the same affiliated group (as defined in paragraph (3)(C)(i)) as the distributing corporation of common stock in any corporation which is a member of such group from any person (other than a member of such group) shall be treated as a purchase by the distributing corporation of its common stock. "(D) WAIVER OF SUBPARAGRAPH (B) WHERE THERE IS BUSINESS PURPOSE.—Under regulations prescribed by the

Secretary, subparagraph (B) shall not apply where the distributing corporation establishes that there was a business purpose for the purchase of the stock and such purchase is not inconsistent with the purposes of this subsection. "(5) SHARE INCLUDES FRACTIONAL SHARE.—For purposes of this subsection, the term 'share' includes a fractional share. "(6) LIMITATION.—

26 USC 307.

"(A) IN GENERAL.—In the case of any individual, the aggregate amount of distributions to which this subsection applies for the taxable year shall not exceed $750 ($1,500 in the case of a joint return). "(B) APPLICATION OF CEILING.—If, but for this subparagraph, a share of stock would, by reason of subparagraph (A), be treated as partly within this subsection and partly outside this subsection, such share shall be treated as outeide this subsection. "(7) BASIS AND HOLDING PERIOD.—In the case of stock received as a qualified reinvested dividend— "(A) notwithstanding section 307, the basis shall be zero, and "(B) the holding period shall begin on the date the dividend would (but for this subsection) be includible in income. "(8) ELECTION.—An election under this subsection with respect to any share shall be made on the shareholder's return for the taxable year in which the dividend would (but for this subsection) be includible in income. Any such election, once made, shall be revocable only with the consent of the Secretary. "(9) DISPOSITIONS WITHIN i YEAR OF DISTRIBUTION.—Under

regulations prescribed by the Secretary— "(A) DISPOSITION OF OTHER COMMON STOCK.—If—

"(i) a shareholder receives any qualified reinvested dividend from a corporation, and

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"(ii) during the period which begins on the record date for the qualified reinvested dividend and ends 1 year after the date of the distribution of such dividend, the shareholder disposes of any common stock of such corporation, the shareholder shall be treated as having disposed of the stock received as a qualified reinvested dividend (to the extent there remains such stock to which this paragraph has not applied). "(B) ORDINARY INCOME TREATMENT.—If any stock received as a qualified reinvested dividend is disposed of within 1 year after the date such stock is distributed, such disposition shall be treated as a disposition of property which is not a capital asset. "(10) No REDUCTION IN EARNINGS AND PROFITS FOR DISTRIBUTION OF QUALIFIED COMMON STOCK.—The earnings and profits of any corporation shall not be reduced by reason of the distribution of any qualified common stock of such corporation pursuant to a plan under which shareholders may elect to receive dividends in the form of stock instead of property. "(11) CERTAIN INDIVIDUALS INELIGIBLE.—

"(A) IN GENERAL.—This subsection shall not apply to any individual who is— "(i) a trust or estate, or "(ii) a nonresident alien individual. "(B) 5 PERCENT SHAREHOLDERS INELIGIBLE.—Any distribution by a corporation to a 5 percent shareholder in such corporation shall not be treated as a qualified reinvested dividend. "(C) 5 PERCENT SHAREHOLDER DEFINED.—For purpOSeS of subparagraph (B), the term '5 percent shareholder means any individual who, immediately before the distribution, owns (directly or through the application of section 318)— "(i) stock possessing more than 5 percent of the total combined voting power of the distributing corporation, or "(ii) more than 5 percent of the total value of all classes of stock of the distributing corporation. "(12) TERMINATION.—This subsection shall not apply to distributions after December 31, 1985." (b) AMENDMENT OF SECTION 305(d),—Paragraph (1) of section 305(d) 26 USC 305. (defining stock) is amended by striking out this section" and inserting in lieu thereof "this section (other than subsection (e))". (c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 305 apply to distributions after December 31, 1981, in taxable years "°*® ending after such date.

Subtitle D—Employee Stock Ownership Provisions SEC. 331. PAYROLL-BASED CREDIT FOR ESTABLISHING EMPLOYEE STOCK OWNERSHIP PLAN. (a) IN GENERAL.—Subpart A of part IV of subchapter A of chapter 1 (relating to credits allowed), as amended by section 221 of this Act, is Ante, p. 241. further amended by inserting immediately after section 44F the following new section:

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 95 STAT. 290 26 USC 44G.

PUBLIC LAW 97-34—AUG. 13, 1981 "SEC. 44G. EMPLOYEE STOCK OWNERSHIP CREDIT. "(a) GENERAL RULE.— "(1) CREDIT ALLOWED.—In the case of a corporation which elects

to have this section apply for the taxable year and which meets the requirements of subsection (c)(l), there is allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the amount of the credit determined under paragraph (2) for such taxable year. "(2) DETERMINATION OF AMOUNT.—

"(A) IN GENERAL.—The amount of the credit determined under this paragraph for the taxable year shall be equal to the lesser of— "(i) the aggregate value of employer securities transferred by the corporation for the taxable year to a tax credit employee stock ownership plan maintained by the corporation, or 'Xii) the applicable percentage of the amount of the aggregate compensation (within the meaning of section 415(c)(3)) paid or accrued during the taxable year to all employees under a tax credit employee stock ownership plan. "(B) APPLICABLE PERCENTAGE.—For purposes of applying subparagraph (A)(ii), the applicable percentage shall be determined in accordance with the following table:

"For aggregate compensation paid or accrued during a portion of the taxable year occurring in calendar year: 1983 1984 1985 1986 1987 1988 or thereafter

"(b) LIMITATION BASED ON AMOUNT OF TAX.— "(1) LIABILITY FOR TAX.—

The applicable percentage is: 0.5 0.5 0.75 0.75 0.75 0.

"(A) IN GENERAL.—The credit allowed by subsection (a) for any taxable year shall not exceed an amount equal to the sum of— "(i) so much of the liability for tax for the taxable year as does not exceed $25,000, plus "(ii) 90 percent of so much of the liability for tax for the taxable year as exceeds $25,000. "(B) LIABILITY FOR TAX DEFINED.—For purposes of this paragraph, the term 'liability for tax' means the tax imposed by this chapter for the taxable year, reduced by the sum of the credits allowed under a section of this subpart having a lower number designation than this section, other than credits allowable by sections 31, 39, and 43. For purposes of the preceding sentence, the term 'tax imposed by this chapter' shall not include any tax treated as not imposed by this chapter under the last sentence of section 53(a). "(C) CONTROLLED GROUPS.—In the case of a controlled group of corporations, the $25,000 amount specified in subparagraph (A) shall be reduced for each component member of such group by apportioning $25,000 among the component members of such group in such manner as the Secretary shall by regulations prescribe. For purposes of the preceding

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sentence, the term 'controlled group of corporations' has the meaning assigned to such term by section 1563(a) (deter- 26 USC 1563. mined without regard to subsections (a)(4) and (e)(3)(C) of such section). "(2) CARRYBACK AND CARRYOVER OF UNUSED CREDIT.— "(A) ALLOWANCE OF CREDIT.—If the amount of the

credit determined under this section for any taxable year exceeds the limitation provided under paragraph (1)(A) for such taxable year (hereinafter in this paragraph referred to as the 'unused credit year*), such excess shall be— "(i) an employee stock ownership credit carryback to each of the 3 taxable years preceding the unused credit year, and "(ii) an employee stock ownership credit carryover to each of the 15 taxable years following the unused credit year, and shall be added to the amount allowable as a credit by this section for such years. If any portion of such excess is a carryback to a taxable year ending before January 1, 1983, this section shall be deemed to have been in effect for such taxable j^ear for purposes of allowing such carryback as a credit under this section. The entire amount of the unused credit for an unused credit year shall be carried to the earliest of the 18 taxable years to which (by reason of clauses (i) and (ii)) such credit may be carried, and then to each of the other 17 taxable years to the extent that, because of the limitation contained in subparagraph (B), such unused credit may not be added for a prior taxable year to which such unused credit may be carried. "(B) LIMITATION.—The amount of the unused credit which may be added under subparagraph (A) for any preceding or succeeding taxable year shall not exceed the amount by which the limitation provided under paragraph (1)(A) for such taxable year exceeds the sum of— "(i) the credit allowable under this section for such taxable year, and "(ii) the amounts which, by reason of this paragraph, are added to the amount allowable for such taxable year and which are attributable to taxable years preceding the unused credit year. "(3) CERTAIN REGULATED COMPANIES.—NO credit shall be allowed under this section to a taxpa>^er if— "(A) the taxpayer's cost of service for ratemaking purposes or in its regulated books of account is reduced by reason of any portion of such credit which results from the transfer of employer securities or cash to a tax credit employee stock ownership plan which meets the requiremente of section 409A; "(B) the base to which the taxpayer's rate of return for ratemaking purposes is applied is reduced by reason of any portion of such credit which results from a transfer described in subparagraph (A) to such employee stock ownership plan; or ' ((j) any portion of the amount of such credit which results from a transfer described in subparagraph (A) to such employee stock ownership plan is treated for ratemaking purposes in any way other than as though it had been contributed by the taxpayer's common shareholders.

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PUBLIC LAW 97-34—AUG. 13, 1981 "(c) DEFINITIONS AND SPECIAL RULES.— "(1) REQUIREMENTS FOR CORPORATION.—A

26 USC 409A.

corporation meets

the requirements of this paragraph if it— (A) establishes a plan— "(i) which meets the requirements of section 409A, and "(ii) under which no more than one-third of the employer contributions for the taxable year are allocated to the group of employees consisting of— "(I) officers, "(II) shareholders owning more than 10 percent of the employer's stock (within the meaning of section 415(c)(6)(B)(iv)),or "(III) employees described in section 415(c)(6)(B)(iii),and "(B) agrees, as a condition for the allowance of the credit allowed by this subsection— "(i) to make transfers of employer securities to a tax credit employee stock ownership plan maintained by the corporation having an aggregate value of not more than the applicable percentage for the taxable year (determined under subsection (a)(2)) of the amount of the aggregate compensation (within the meaning of section 415(c)(3)) paid or accrued by the corporation during the taxable year, and "(ii) to make such transfers at the times prescribed in paragraph (2). "(2) TIMES FOR MAKING TRANSFERS.—The transfers required

under paragraph (I)(B) shall be made not later than 30 days after the due date (including extensions) for filing the return for the taxable year. "(3) ADJUSTMENTS TO CREDIT.—If the credit allowed under this section is reduced by a final determination, the employer may reduce the amount required to be transferred to the tax credit employee stock ownership plan under paragraph (1)(B) for the taxable year in which the final determination occurs or any succeeding taxable year by an amount equal to such reduction to the extent such reduction is not taken into account in any deduction allowed under section 404(i)(2). "(4) CERTAIN CONTRIBUTIONS OF CASH TREATED AS CONTRIBUTIONS OF EMPLOYER SECURITIES.—For purposes of this section, a

transfer of cash shall be treated as a transfer of employer securities if the cash is, under the tax credit employee stock ownership plan, used within 30 days to purchase employer securities. "(5) DISALLOWANCE OF DEDUCTION.—Except as provided in

section 404(i), no deduction shall be allowed under section 162, 212, or 404 for amounts required to be transferred to a tax credit employee stock ownership plan under this section. (6) EMPLOYER SECURITIES.—For purposes of this section, the term 'employer securities' has the meaning given such term in section 409 A(l). "(7) VALUE.—For purposes of this section, the term 'value' means— "(A) in the case of securities listed on a national exchange, the average of closing prices of such securities for the 2 consecutive trading days immediately preceding the date on which the securities are contributed to the plan, or

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"(B) in the case of securities not listed on a national exchange, the fair market value as determined in good faith and in accordance with regulations prescribed by the Secretary." (b) DEDUCTIBILITY OF UNUSED PORTIONS OF THE CREDIT,—Section 404

26 USC 404.

is amended by adding at the end thereof the following new subsection: "(i) DEDUCTIBILITY OF UNUSED PORTIONS OF EMPLOYEE STOCK OWNERSHIP CREDIT.— "(1) UNUSED CREDIT CARRYOVERS.—There shall be allowed as a

deduction (without regard to any limitations provided under this section) for the last taxable year to which an unused employee stock ownership credit carryover (within the meaning of section 44G(b)(2)(A)) may be carried, an amount equal to the portion of Ante, p. 290. such unused credit carryover which expires at the close of such taxable year. "(2) REDUCTIONS IN CREDIT.—There shall be allowed as a deduction (subject to the limitations provided under this section) an amount equal to any reduction of the credit allowed under section 44G resulting from a final determination of such credit to the extent such reduction is not taken into account in section 44G(c)(3)." (c) CONFORMING AMENDMENTS.—

(1) Section 409A (relating to qualifications for tax credit 26 USC 409A. employee stock ownership plans) is amended— (A) by inserting "or 44G(c)(l)(B)" after "section 48(n)(l)(A)" in subsection (b)(1)(A), (B) by inserting "or the credit allowed under section 44G (relating to the employee stock ownership credit)" after "basic employee plan credit" in subsection (b)(4), (C) by inserting "or 44G(c)(l)(B)" after "section 48(n)(l)" in subsection (g), (D) by inserting "or the credit allowed under section 44G (relating to employee stock ownership credit)" after "employee plan credit" in subsection (g), (E) by inserting "or 44G(c)(l)(B)" after "section 48(n)(l)" in suljsection (i)(l)(A), (F) by inserting "section 44G(c)(l)(B), or" after "required under" in subsection (m), (G) by inserting "or employee stock ownership credit" after "employee plan credit in subsection (n)(2), and (H) by adding at the end of subsection (n) the following new paragraph: "(3) For requirements for allowance of an employee stock ownership credit, see section 44G."

(2) Subsection (c) of section 56 (relating to regular tax deduc- 26 USC 56. tions defined) is amended by striking out "and 43" and inserting in lieu thereof "43, and 44G'^. (3) Subsection (a) of section 6699 (relating to assessable penal- 26 USC 6699. ties relating to tax credit employee stock ownership plan) is amended— (A) by inserting "or a credit allowable under section 44G (relating to the employee stock ownership credit)" after "employee plan credit", (B) by striking out "section 409A, or" in paragraph (1) and inserting in lieu thereof "section 409A with respect to a qualified investment made before January 1, 1983,,

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Ante, p. 290.

26 USC 6699.

PUBLIC LAW 97-34—AUG. 13, 1981 (C) by inserting after paragraph (2) the following new paragraphs: "(o) fails to satisfy any requirement provided under section 409A with respect to a credit claimed under section 44G in taxable years ending after December 31, 1982, or "(4) fails to make ansr contribution which is required under section 44G(c)(l)(B) witmn the period required for making such contribution,". (4) Paragraph (2) of section 6699 is amended to read as follows: "(2) MAXIMUM AND MINIMUM AMOUNT.—

"(A) The amount determined under paragraph (1) with respect to a failure described in paragraph (1) or (2) of subsection (a)— "(i) shall not exceed the amount of the employee plan credit claimed by the employer to which such failure relates, and "(ii) shall not be less than the product of one-half of 1 percent of the amount referred to in subparagraph (A), multiplied by the number of months (or parts thereof) during which such failure continues. "(B) The amount determined under paragraph (1) with respect to a failure described in paragraph (3) or (4) of subsection (a)— "(i) shall not exceed the amount of the credit claimed by the employer under section 44G to which such failure relates, and "(ii) shall not be less than the product of one-half of 1 percent of the amount referred to in subparagraph (A), multiplied by the number of months (or parts thereof) during which such failure continues."

Ante, p. 246. Ante, p. 226.

26 USC 1 note.

26 USC 383.

(d) TECHNICAL AMENDMENTS RELATED TO CARRYOVER AND CARRYBACK OF CREDITS.— (1) CARRYOVER OF CREDIT.—

(A) Subparagraph (A) of section 55(c)(4) (relating to credits), as amended by this Act, is amended by inserting "44G(b)(l)," before "53(b)". (B) Subsection (c) of section 381 (relating to items of the distributor or transferor corporation), as amended by this Act, is amended by adding at the end thereof the following new paragraph: "(29) CREDIT UNDER SECTION 44G.—The acquiring corporation shall take into account (to the extent proper to carry out the purposes of this section and section 44G, and under such regulations as may be prescribed by the Secretary) the items required to be taken into account for purposes of section 44G in respect of the distributor or transferor corporation." (C) Section 383 (relating to special limitations on unused investment credits, work incentive program credits, new employee credits, alcohol fuel credits, foreign taxes, and capital losses), as in effect for taxable jfears beginning with and after the first taxable year to wmch the amendments made by the Tax Reform Act of 1976 apply, is amended— (i) by inserting "to any unused credit of the corporation under section 44GKbX2)," after "44F(g)(2),", and (ii) by inserting "EMPLOYEE STOCK OWNERSHIP CREDITS," after "RESEARCH CREDITS," in the section heading. (D) Section 383 (as in effect on the day before the date of the enactment of the Tax Reform Act of 1976) is amended—

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(i) by inserting "to any unused credit of the corporation which could otherwise be carried forward under section 44G(b)(2)," after "44F(g)(2),", and (ii) by inserting "EMPLOYEE STOCK OWNERSHIP CREDITS," after "RESEARCH CREDITS," in the section heading. (E) The table of sections for part V of subchapter C of chapter 1 is amended by inserting "employee stock ownership credits," after "research credits," in the item relating to section 383. (2) CARRYBACK OF CREDIT.—

(A) Subparagraph (C) of section 6511(d)(4) (defining credit carryback), as amended by this Act, is amended by striking out "and research credit carryback" and inserting in lieu thereof "research credit carryback, and employee stock ownership credit carryback". (B) Section 6411 (relating to quick refunds in respect of tentative carryback adjustments), as amended by this Act, is amended— (i) by striking out "or unused research credit" each place it appears and inserting in lieu thereof "unused research credit, or unused employee stock ownership credit"; (ii) by inserting "by an employee stock ownership credit carryback provided by section 44G(b)(2)" after "by a research and experimental credit carryback provided in section 44F(g)(2)", in the first sentence of subsection (a); (iii) by striking out "or a research credit carryback from" each place it appears and inserting in lieu thereof "a research credit carryback, or employee stock ownership credit carryback from"; and (iv) by striking out "new employee credit carryback)" in the second sentence of subsection (a) and inserting in lieu thereof "new employee credit carryback, or, in the case of an employee stock ownership credit carryback, to an investment credit carryback, a new employee credit carryback or a research and experimental credit carryback)".

Ante, p. 247.

Ante, p. 247.

Ante, p. 290. Ante, p. 241.

(e) OTHER TECHNICAL AND CLERICAL AMENDMENTS.—

(1) Subsection (b) of section 6096 (relating to designation of Ante, p. 247. income tax payments to Presidential Election Campaign Fund), as amended by this Act, is amended by striking out "and 44F" and inserting in lieu thereof "44F, and 44G". (2) The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 44F the following new item: "Sec. 44G. Employee stock ownership credit." (f) EFFECTIVE DATE.—

(1) The amendments made by subsection (a) shall apply to aggregate compensation (within the meaning of section 415(c)(3) of the Internal Revenue Code of 1954), paid or accrued after December 31, 1982, in taxable years ending after such date. (2) The amendments made by subsections (b) and (c) shall apply to taxable years ending after December 31, 1982.

-194 O—82

21: QL3

26 USC 44G note.

26 USC 404 note.

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26 USC 46.

26 USC 48.

PUBLIC LAW 97-34—AUG. 13, 1981 SEC. 332. TERMINATION OF THE PORTION OF THE INVESTMENT CREDIT ATTRIBUTABLE TO EMPLOYEE PLAN PERCENTAGE. (a) IN GENERAL.—Subparagraph (E) of section 46(a)(2) (relating to employee plan percentage) is amended— (1) by striking out "December 31, 1983" in clauses (i) and (ii) and inserting in lieu thereof "December 31, 1982", (2) by striking out "and" at the end of clause (i), (3) by striking out the period at the end of clause (ii) and inserting in lieu thereof ", and", and (4) by inserting after clause (ii) the following new clause: "(iii) with respect to any period beginning after December 31, 1982, zero." (b) TECHNICAL AMENDMENT.—Clause (i) of section 48(n)(l)(A) (relating to requirements for allowance of employee plan percentage) is amended by striking out "equal to" and inserting in lieu thereof "which does not exceed". (c) EFFECTIVE DATES.—

26 USC 46 note. 26 USC 48 note.

26 USC 404.

(1) The amendments made by subsection (a) shall be effective on the date of enactment of this Act. (2) The amendment made by subsection (b) shall apply to qualified investments made after December 31, 1981. SEC. 333. TAX TREATMENT OF CONTRIBUTIONS ATTRIBUTABLE TO PRINCIPAL AND INTEREST PAYMENTS IN CONNECTION WITH AN EMPLOYEE STOCK OWNERSHIP PLAN. (a) DEDUCTIBILITY.—Section 404(a) (relating to deductions for employer contributions to an employees' trust) is amended by adding at the end thereof the following new paragraph: "(10) CERTAIN CONTRIBUTIONS TO EMPLOYEE STOCK OWNERSHIP PLANS.— "(A) PRINCIPAL PAYMENTS.—Notwithstanding the provi-

sions of paragraphs (3) and (7), if contributions are paid into a trust which forms a part of an employee stock ownership plan (as described in section 4975(e)(7)), and such contributions are, on or before the time prescribed in paragraph (6), applied by the plan to the repayment of the principal of a loan incurred for the purpose of acquiring qualifying employer securities (as described in section 4975(e)(8)), such contributions shall be deductible under this paragraph for the taxable year determined under paragraph (6). The amount deductible under this paragraph shall not, however, exceed 25 percent of the compensation otherwise paid or accrued during the taxable year to the employees under such employee stock ownership plan. Any amount paid into such trust in any taxable year in excess of the amount deductible under this paragraph shall be deductible in the succeeding taxable years in order of time to the extent of the difference between the amount paid and deductible in each such succeeding year and the maximum amount deductible for such year under the preceding sentence. "(B) INTEREST PAYMENT.—Notwithstanding the provisions of paragraphs (3) and (7), if contributions are made to an employee stock ownership plan (described in subparagraph (A)) and such contributions are applied by the plan to the repayment of interest on a loan incurred for the purpose of acquiring qualifying employer securities (as described in subparagraph (A)), such contributions shall be deductible for

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the taxable year with respect to which such contributions are made as determined under paragraph (6)." (b) EXCLUSION FROM LIMITATION ON ANNUAL ADDITIONS.—

(1) IN GENERAL.—Section 415(c)(6) (relating to limitations on 26 USC 415. benefits and contributions made under qualified plans) is amended by adding at the end thereof the following new subparagraph: "(C) In the case of an employee stock ownership plan (as described in section 4975(e)(7)), under which no more than one-third of the employer contributions for a year which are deductible under paragraph (10) of section 404(a) are allocated to the group of employees consisting of officers, shareholders owning more than 10 percent of the employer's stock (determined under subparagraph (B)(iv)), or employees described in subparagraph (B)(iii), the limitations imposed by this section shall not apply to— "(i) forfeitures of employer securities under an employee stock ownership plan (as described in section 4975(e)(7)) if such securities were acquired with the proceeds of a loan (as described in section 404(a)(10)(A)), or "(ii) employer contributions to such an employee stock ownership plan which are deductible under section 404(a)(10)(B) and charged against the participant's Ante, p. 296. account." (2) EFFECTIVE DATE.—The amendment made by this subsection 26 USC 415 shall apply to years beginning after December 31, 1981. ^°^^SEC. 334. CASH DISTRIBUTIONS FROM AN EMPLOYEE STOCK OWNERSHIP PLAN.

Section 409A(h)(2) (relating to right to demand employer securities) 26 USC 409A. is amended— (1) by adding at the end thereof the following new sentence: "In the case of an employer whose charter or bylaws restrict the ownership of substantially all outstanding employer securities to employees or to a trust described in section 401(a), a plan which otherwise meets the requirements of this subsection or section 4975(e)(7) shall not be considered to have failed to meet the requirements of section 401(a) merely because it does not permit a participant to exercise the right described in paragraph (I)(A) if such plan provides that participants entitled to a distribution from the plan shall have a right to receive such distribution in cash."; and (2) by striking out "this section" in the first sentence thereof and inserting in lieu thereof "this subsection". SEC. 335. PUT OPTION FOR STOCK BONUS PLANS.

Section 401(a)(23) (relating to cash distribution option for stock 26 USC 401. bonus plans) is amended by striking out "409A(h)(2)" and inserting in lieu thereof "409A(h), except that in applying section 409A(h) for purposes of this paragraph, the term 'employer securities' shall include any securities of the employer held by the plan". SEC. 336. PUT OPTION REQUIREMENTS FOR BANKS; PUT OPTION PERIOD.

Section 409A(h) (relating to put options for employee stock owner- Supra. ship plans) is amended by adding at the end thereof the following new paragraphs:

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26 USC 409A.

26 USC 409A "°*^-

26 USC 401.

26 USC 401 "°*®'

PUBLIC LAW 97-34—AUG. 13, 1981 "(3) SPECIAL RULE FOR BANKS.—In the case of a plan established and maintained by a bank (as defined in section 581) which is prohibited by law from redeeming or purchasing its own securities, the requirements of paragraph (1)(B) shall not apply if the plan provides that participants entitled to a distribution from the plan shall have a right to receive a distribution in cash, "(4) P U T OPTION PERIOD.—An employer shall be deemed to satisfy the requirements of paragraph (1)(B) if it provides a put option for a period of at least 60 days following the date of distribution of stock of the employer and, if the put option is not exercised within such 60-day period, for an additional period of at least 60 days in the following plan year (as provided in regulations promulgated by the Secretary). SEC. 337. DISTRIBUTION OF EMPLOYER SECURITIES FROM A TAX CREDIT EMPLOYEE STOCK OWNERSHIP PLAN IN THE CASE OF A SALE OF EMPLOYER ASSETS OR STOCK. (a) IN GENERAL.—Section 409A(d) (relating to distribution of employer securities) is amended by striking out the last sentence thereof and inserting in lieu thereof the following: "To the extent provided in the plan, the preceding sentence shall not apply in the case of— "(1) death, disability, or separation from service; "(2) a transfer of a participant to the employment of an acquiring employer from the employment of the selling corporation in the case of— "(A) a sale to the acquiring employer of substantially all of the assets used by the selling corporation in a trade or business conducted by the selling corporation, or "(B) the sale of substantially all of the stock of a subsidiary of the employer, or "(3) with respect to the stock of a selling corporation, a disposition of such selling corporation's interest in a subsidiary when the participant continues employment with such subsidiary." (b) EFFECTIVE DATE.—The amendments made by this section shall apply to distributions described in section 409A(d) of the Internal Revenue Code of 1954 (or any corresponding provision of prior law) made after March 29, 1975. SEC. 338. PASS THROUGH OF VOTING RIGHTS ON EMPLOYER SECURITIES. (a) IN GENERAL.—Paragraph (22) of section 401(a) (relating to qualified pension, profit-sharing, and stock bonus plans) is amended to read as follows: "(22) if a defined contribution plan (other than a profit-sharing plan)— "(A) is established by an employer whose stock is not publicly traded, and "(B) after acquiring securities of the employer, more than 10 percent of the total assets of the plan are securities of the employer, any trust forming part of such plan shall not constitute a qualified trust under this section unless the plan meets the requirements of subsection (e) of section 409 A." (b) EFFECTIVE DATE.—The amendment made by this section shall apply to acquisitions of securities after December 31, 1979.

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SEC. 339. EFFECTIVE DATE.

26 USC 401

Except as otherwise provided, the amendments made by this subtitle shall apply to taxable years beginning after December 31, 1981.

TITLE IV—ESTATE AND GIFT TAX PROVISIONS Subtitle A—Increase in Unified Credit; Rate Reduction; Unlimited Marital Deduction SEC. 401. INCREASE IN UNIFIED CREDIT. (a) CREDIT AGAINST ESTATE TAX.—

(1) IN GENERAL.—Subsection (a) of section 2010 (relating to 26 USC 2010. unified credit against estate tax) is amended by striking out "$47,000" and inserting in lieu thereof "$192,800". (2) CONFORMING AMENDMENTS.—

(A) Subsection (b) of section 2010 is amended to read as follows: "(b) PHASE-IN OF CREDIT.— "In the case of decedents dying in: 1982 1983 1984 1985 1986

Subsection (a) shall be applied by substituting for '$192,800' the following amount: $62,800 79,300 96,300 121,800 155,800."

(B) Subsection (a) of section 6018 (relating to estate tax 26 USC 6OI8. returns by executors) is amended— (i) by striking out "$175,000" in paragraph (1) and inserting in lieu thereof "$600,000"; and (ii) by striking out paragraph (3) and inserting in lieu thereof the following: "(3) PHASE-IN OP FIUNG REQUIREMENT AMOUNT.— Paragraph (1) shall be applied by "In the case of decedents substituting for '$600,000' the dying in: following amount: 1982...:. $225,000 1983 275,000 1984 325,000 1985 400,000 1986 500,000." Ob) CREDIT AGAINST GIFT TAX.—

(1) IN GENERAL.—Paragraph (1) of section 2505(a) (relating to 26 USC 2505. unified credit against gift tax) is amended by striking out "$47,000" and inserting in lieu thereof "$192,800". (2) CONFORMING AMENDMENT.—Subsection (b) of section 2505 is amended to read as follows:

"(b) PHASE-IN OF CREDIT.— '*In the case of gifts made in: 1982 1983 1984 1985 1986

Subsection (a)(1) shall be applied by substituting for '$192,800' the following amount: $62,800 79,300 96,300 121,800 155,800."

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Page:United States Statutes at Large Volume 95.djvu/326

 95 STAT. 300 26 USC 2010 note 26 USC 2505

PUBLIC LAW 97-34—AUG. 13, 1981 (c) EFFECTIVE DATES.—The amendments made— (1) by subsection (a) shall apply to the estates of decedents dying after December 31, 1981, and (2) by subsection (b) shall apply to gifts made after such date.

note.

26 USC 2001.

SEC. 402. REDUCTION IN MAXIMUM RATES OP TAX. (a) 50 PERCENT MAXIMUM RATE.—Subsection (c) of section 2001

(relating to rate schedule) is amended by striking out the item beginning "Over $2,500,000" and all that follows and inserting in lieu thereof the following new item: "Over $2,500,000

$1,025,800, plus 50% of the excess over $2,500,000." (b) PHASE-IN OF 50 PERCENT MAXIMUM RATE.—Subsection (c) of

section 2001 is amended— (1) by striking out "(c) RATE SCHEDULE.—" and inserting in lieu thereof the following: "(c) RATE SCHEDULE.— "(1) IN GENERAL.—", and

(2) by adding at the end thereof the following new paragraph: "(2) PHASE-IN OF 50 PERCENT MAXIMUM RATE.—

"(A) IN GENERAL.—In the case of decedents dying, and gifts made, before 1985, there shall be substituted for the last item in the schedule contained in paragraph (1) the items determined under this paragraph. "(B) FOR 1982.—In the case of decedents dying, and gifts made, in 1982, the substitution under this paragraph shall be as follows:

"Over $2,500,000 but not over $3,000,000. Over $3,000,000 but not over $3,500,000... Over $3,500,000 but not over $4,000,000... Over $4,000,000

$1,025,800, plus 53% of the excess over $2,500,000. $1,290,800, plus 57% of the excess over $3,000,000. $1,575,800, plus 61% of the excess over $3,500,000. $1,880,800, plus 65% of the excess over $4,000,000.

"(C) FOR 1983.—In the case of decedents dying, and gifts made, in 1983, the substitution under this paragraph shall be as follows: "Over $2,500,000 but not over $3,000,000. Over $3,000,000 but not over $3,500,000... Over $3,500,000

$1,025,800, plus 53% of the excess over $2,500,000. $1,290,800, plus 57% of the excess over $3,000,000. $1,575,800, plus 60% of the excess over $3,500,000.

"(D) FOR 1984.—In the case of decedents dying, and gifts made, in 1984, the substitution under this paragraph shall be as follows: "Over $2,500,000 but not over $3,000,000.

$1,025,800, plus 53% of the excess over $2,500,000. Over $3,000,000 $1,290,800, plus 55% of the excess over $3,000,000." (c) ADJUSTMENT IN COMPUTATION OF TAX FOR GIFTS MADE AFTER DECEMBER 31, 1976.—Paragraph (2) of section 2001(b) is amended to

read as follows: "(2) the aggregate amount of tax which would have been payable under chapter 12 with respect to gifts made by the decedent after December 31, 1976, if the rate schedule set forth in subsection (c) (as in effect at the decedent's death) had been applicable at the time of such gifts."

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Page:United States Statutes at Large Volume 95.djvu/327

 PUBLIC LAW 97-34—AUG. 13, 1981

95 STAT. 301

(d) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 2001 apply to estates of decedents dying after, and gifts made after, ^°December 31, 1981. SEC. 403. UNLIMITED MARITAL DEDUCTION. (a) ESTATE TAX DEDUCTION.—

(1) IN GENERAL.—Section 2056 (relating to bequests, etc., to 26 USC 2056. surviving spouses) is amended— (A) by striking out subsection (c) and redesignating subsection (d) as subsection (c); and (B) by striking out "subsections (b) and (c)" in subsection (a) and inserting in lieu thereof "subsection (b)". (2) CONFORMING AMENDMENTS.—

(A) Paragraph (2) of section 201203) (relating to credit for 26 USC 2012. gift tax) is amended to read as follows: "(2) if a deduction with respect to such gift is allowed under section 2056(a) (relating to marital deduction), then by the amount of such value, reduced as provided in paragraph (1); and". (B) Paragraph (5) of section 2602(c) (relating to coordina- 26 USC 2602. tion with estate tax) is amended by striking out subparagraph (A) and redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively. (C) Subparagraph (A) of section 691(c)(3) (relating to spe- 26 USC 691. cial rules for generation-skipping transfers) is amended by striking out "section 2602(c)(5)(C)" and inserting in lieu thereof "section 2602(c)(5)(B)". (b) GIFT TAX DEDUCTION.—

(1) IN GENERAL.—Subsection (a) of section 2523 (relating to gift 26 USC 2523. to spouse) is amended to read as follows: "(a) ALLOWANCE OF DEDUCTION.—Where a donor who is a citizen or resident transfers during the calendar year by gift an interest in property to a donee who at the time of the gift is the donor's spouse, there shall be allowed as a deduction in computing tsixable gifts for the calendar year an amount with respect to such interest equal to its value." (2) TECHNICAL AMENDMENT.—Section 2523 is amended by striking out subsection (f). (3) CONFORMING AMENDMENTS.—

(A) So much of section 6019 (relating to gift tax returns) as 26 USC 6019. follows the heading and precedes subsection (b) is amended to read as follows: "Any individual who in any calendar year makes any transfer by gift other than— "(1) a transfer which under subsection (b) or (e) of section 2503 is not to be included in the total amount of gifts for such year, or "(2) a transfer of an interest with respect to which a deduction is allowed under section 2523, shall make a return for such year with respect to the gift tax imposed by subtitle B." (B) Paragraph (2) of section 2035(b) is amended by insert- 26 USC 2035. ing "(other than by reason of section 6019(a)(2))" after "section 6019". (c) ESTATE TAX ON PROPERTY HELD JOINTLY BY HUSBAND AND WIFE.

(1) IN GENERAL.—Paragraph (2) of section 2040(b) (defining 26 USC 2040. qualified joint interest) is amended to read as follows:

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text: Dictionary of National Biography, 1885-1900/Wingfield, Lewis Strange


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Page:United States Statutes at Large Volume 95.djvu/328

 95 STAT. 302

26 USC 2040.

PUBLIC LAW 97-34—AUG. 13, 1981 "(2) QuAUFiED JOINT INTEREST DEFINED.—For purposes of paragraph (1), the term 'qualified joint interest' means any interest in property held by the decedent and the decedent's spouse as— "(A) tenants by the entirety, or "(B) joint tenants with right of survivorship, but only if the decedent and the spouse of the decedent are the only joint tenants." (2) TECHNICAL AMENDMENT.—Subsection (a) of section 2040 is amended by striking out "joint tenants" each place it appears and inserting in lieu thereof "joint tenants with right of survivorship". (3) CONFORMING AMENDMENTS.—

26 USC 2515, 2515A, 6019.

26 USC 2056.

(A) Subsections (c), (d), and (e) of section 2040 are hereby repealed. (B) Section 2515 (relating to tenancies by the entirety in real property), section 2515A (relating to tenancies by the entirety in personal property), and subsection (c) of section 6019 (relating to gift tax return) are hereby repealed. (C) The table of sections for subchapter B of chapter 12 (relating to transfers) is amended by striking out the items relating to sections 2515 and 2515A. (d) ELECTION TO HAVE CERTAIN LIFE INTERESTS QUALIFY FOR MARITAL DEDUCTION.— (1) ESTATE TAX.—Subsection (b) of section 2056 is amended by

adding at the end thereof the following new paragraphs: "(7) ELECTION WITH RESPECT TO U F E ESTATE FOR SURVIVING SPOUSE.—

"(A) IN GENERAL.—In the case of qualified terminable interest property— "(i) for purposes of subsection (a), such property shall be treated as passing to the surviving spouse, and "(ii) for purposes of paragraph (1)(A), no part of such property shall be treated as passing to any person other than the surviving spouse. "(B) QUALIFIED TERMINABLE INTEREST PROPERTY DEFINED.—

For purposes of this paragraph— "(i) IN GENERAL.—The term 'qualified terminable interest property' means property— "(I) which passes from the decedent, "(II) in which the surviving spouse has a qualifying income interest for life, and "(III) to which an election under this paragraph applies. "(ii) QUALIFYING INCOME INTEREST FOR LIFE.—The surviving spouse has a qualifying income interest for life if— "(I) the surviving spouse is entitled to all the income from the property, payable annually or at more frequent intervals, and "(II) no person has a power to appoint any part of the property to any person other than the surviving spouse. Subclause (II) shall not apply to a power exercisable only at or after the death of the surviving spouse. "(iii) PROPERTY INCLUDES INTEREST THEREIN.—The term 'property' includes an interest in property.

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Page:United States Statutes at Large Volume 95.djvu/329

 PUBLIC LAW 97-34—AUG. 13, 1981

95 STAT. 303

"(iv) SPECIFIC PORTION TREATED AS SEPARATE PROP-

ERTY.—A specific portion of property shall be treated as separate property. "(v) ELECTION.—An election under this paragraph with respect to any property shall be made by the executor on the return of tax imposed by section 2001. Such an election, once made, shall be irrevocable. "(8) SPECIAL RULE FOR CHARITABLE REMAINDER TRUSTS.—

"(A) IN GENERAL.—If the surviving spouse of the decedent is the only noncharitable beneficiary of a qualified charitable remainder trust, paragraph (1) shall not apply to any interest in such trust which passes or has passed from the decedent to such surviving spouse. "(B) DEFINITIONS.—For purposes of subparagraph (A)— "(i) NONCHARITABLE BENEFICIARY.—The term 'noncharitable beneficiary' means any beneficiary of the qualified charitable remainder trust other than an organization described in section 170(c). "(ii) QUALIFIED CHARITABLE REMAINDER TRUST.—The

term 'qualified charitable remainder trust' means a charitable remainder annuity trust or charitable remainder unitrust (described in section 664)." (2) GIFT TAX.—Section 2523 is amended by adding at the end 26 USC 2523. thereof the following new subsections: "(f) ELECTION WITH RESPECT TO LIFE ESTATE FOR DONEE SPOUSE.—

"(1) IN GENERAL.—In the case of qualified terminable interest property— "(A) for purposes of subsection (a), such property shall be treated as transferred to the donee spouse, and "(B) for purposes of subsection (b)(1), no part of such property shall be considered as retained in the donor or transferred to any person other than the donee spouse. "(2) QUALIFIED TERMINABLE INTEREST PROPERTY.—For purposes

of this subsection, the term 'qualified terminable interest property' means any property— "(A) which is transferred by the donor spouse, "(B) in which the donee spouse has a qualifying income interest for life, and "(C) to which an election under this subsection applies. "(3) CERTAIN RULES MADE APPLICABLE.—For purposes of this subsection, the rules of clauses (ii), (iii), and (iv) of section 2056(b)(7)(B) shall apply. "(4) ELECTION.—An election under this subsection with respect to any property shall be made on the return of the tax imposed by section 2501 for the calendar year in which the interest was transferred. Such an election, once made, shall be irrevocable. "(g) SPECIAL RULE FOR CHARITABLE REMAINDER TRUSTS.—

"(1) IN GENERAL.—If, after the transfer, the donee spouse is the only noncharitable beneficiary (other than the donor) of a qualified remainder trust, subsection (b) shall not apply to the interest in such trust which is transferred to the donee spouse. "(2) DEFINITIONS.—For purposes of paragraph (1), the term 'noncharitable beneficiary' and 'qualified charitable remainder trust' have the meanings given to such terms by section 2056(b)(8)(B)." (3) TREATMENT OF SPOUSE.— (A) INCLUSION IN GROSS ESTATE.—

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Page:United States Statutes at Large Volume 95.djvu/330

 95 STAT. 304

26 USC 2045, 2046. 26 USC 2044.

Ante, p. 302. Ante, p. 303.

PUBLIC LAW 97-34—AUG. 13, 1981 (i) IN GENERAL.—Part III of subchapter A of chapter 11 is amended by redesignating sections 2044 and 2045 as sections 2045 and 2046, respectively, and by inserting after section 2043 the following new section: "SEC. 2044. CERTAIN PROPERTY FOR WHICH MARITAL DEDUCTION WAS PREVIOUSLY ALLOWED. "(a) GENERAL RULE.—The value of the gross estate shall include the

value of any property to which this section applies in which the decedent had a qualifying income interest for life. "(b) PROPERTY TO WHICH THIS SECTION APPLIES.—This section applies to any property if— "(1) a deduction was allowed with respect to the transfer of such property to the decedent— "(A) under section 2056 by reason of subsection (b)(7) thereof, or "(g) under section 2523 by reason of subsection (f) thereof, and "(2) section 2519 (relating to dispositions of certain life estates) did not apply with respect to a disposition by the decedent of part or all of such property." (ii) The table of sections for part III of subchapter A of chapter 11 is amended by redesignating the items relating to sections 2044 and 2045 as sections 2045 and 2046, respectively, and by inserting after the item relating to section 2043 the following new item: "Sec. 2044. Certain property for which marital deduction was previously allowed." (B) GIFT TAX.—

(i) IN GENERAL.—Subchapter B of chapter 11 (relating to transfers) is amended by adding at the end thereof the following new section: 26 USC 2519.

"SEC. 2519. DISPOSITIONS OF CERTAIN LIFE ESTATES. "(a) GENERAL RULE.—Any disposition of all or part of a qualifying

income interest for life in any property to which this section applies shall be treated as a transfer of such property. "(b) PROPERTY TO WHICH THIS SUBSECTION APPLIES.—This section applies to any property if a deduction was allowed with respect to the . transfer of such property to the donor— "(1) under section 2056 by reason of subsection (b)(7) thereof^ or "(2) under section 2523 by reason of subsection (f) thereof." (ii) The table of sections for subchapter B of chapter 11 is amended by adding at the end thereof the following new item: "Sec. 2519. Dispositions of certain life estates."

(4)(A) Subchapter C of chapter 11 is amended by inserting after section 2207 the following new section: 26 USC 2207A.

«SEC. 2207A. RIGHT OF RECOVERY IN THE CASE OF CERTAIN MARITAL DEDUCTION PROPERTY. "(a) RECOVERY WITH RESPECT TO ESTATE TAX.—

"(1) IN GENERAL.—If any part of the gross estate consists of property the value of which is includible in the gross estate by reason of section 2044 (relating to certain property for which marital deduction was previously allowed), the decedent's estate shall be entitled to recover from the person receiving the property the amount by which—

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text: Dictionary of National Biography, 1885-1900/Wingfield, Richard (1469?-1525)


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Page:United States Statutes at Large Volume 95.djvu/331

 PUBLIC LAW 97-34—AUG. 13, 1981

95 STAT. 305

"(A) the total tax under this chapter which has been paid, exceeds "(B) the total tax under this chapter which would have been payable if the value of such property had not been included in the gross estate. "(2) DECEDENT MAY OTHERWISE DIRECT BY WILL.—Paragraph (1)

shall not apply if the decedent otherwise directs by will. "(b) RECOVERY WITH RESPECT TO GIFT TAX.—If for any calendar year tax is paid under chapter 12 with respect to any person by reason of property treated as transferred by such person under section 2519, ^"•^> P- 304. such person shall be entitled to recover from the person receiving the property the amount by which— "(1) the total tax for such year under chapter 12, exceeds "(2) the total tax which would have been payable under such chapter for such year if the value of such property had not been taken into account for purposes of chapter 12. "(c) MORE THAN ONE RECIPIENT OF PROPERTY.—For purposes of this section, if there is more than one person receiving the property, the right of recovery shall be against each such person. "(d) TAXES AND INTEREST.—In the case of penalties and interest attributable to additional taxes described in subsections (a) and (b), rules similar to subsections (a), (b), and (c) shall apply." (B) The table of sections for subchapter C of chapter 11 is amended by inserting after the item relating to section 2207 the following new item: "Sec. 2207A. Right of recovery in the case of certain marital deduction property." (e) EFFECTIVE DATES.—

26 USC 2056 (1) Except as otherwise provided in this subsection, the amend- "°^' ments made by this section shall apply to the estates of decedents dying after December 31, 1981. (2) The amendments made by paragraphs (1), (2), and (3)(A) of subsection (b), subparagraphs (B) and (C) of subsection (c)(3), and paragraphs (2) and (3)(B) of subsection (d) shall apply to gifts made after December 31, 1981. (3)If(A) the decedent dies after December 31, 1981, (B) by reason of the death of the decedent property passes from the decedent or is acquired from the decedent under a will executed before the date which is 30 days after the date of the enactment of this Act, or a trust created before such date, which contains a formula expressly providing that the spouse is to receive the maximum amount of property qualifying for the marital deduction allowable by Federal law, (C) the formula referred to in subparagraph (B) was not amended to refer specifically to an unlimited marital deduction at any time after the date which is 30 days after the date of enactment of this Act, and before the death of the decedent, and (D) the State does not enact a statute applicable to such estate which construes this type of formula as referring to the marital deduction allowable by Federal law as amended by subsection (a), then the amendment made by subsection (a) shall not apply to the estate of such decedent.

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Page:United States Statutes at Large Volume 95.djvu/332

 95 STAT. 306

PUBLIC LAW 97-34—AUG. 13, 1981

Subtitle B—Other Estate Tax Provisions 26 USC 2032A.

SEC. 421. VALUATION OF CERTAIN FARM, ETC., REAL PROPERTY. (a) INCREASE IN LIMITATION.—Paragraph (2) of section 2032A(a) (relating to limitation) is amended to read as follows: "(2) LIMIT ON AGGREGATE REDUCTION IN FAIR MARKET VALUE.—

The aggregate decrease in the value of qualified real property taken into account for purposes of this chapter which results from the application of paragraph (1) with respect to any decedent shall not exceed the applicable limit set forth in the following table: "In the case of decedents dying in: 1981 1982 1983 or thereafter

The applicable limit is: $600,000 700,000 750,000."

(b) DEFINITION OF QUALIFIED REAL PROPERTY.— (1) REQUIRED USE CAN BE BY MEMBER OF FAMILY.—Paragraph (1)

of section 2032A(b) (defining qualified real property) is amended by inserting "by the decedent or a member of the decedent's family" after "qualified use" each place it appears. (2) SPECIAL RULES FOR DECEDENTS WHO ARE RETIRED OR DISABLED AND FOR SURVIVING SPOUSES.—Subsection (b) of section 2032A is

amended by adding at the end thereof the following new paragraphs: "(4) DECEDENTS WHO ARE RETIRED OR DISABLED.—

42 USC 401.

"(A) IN GENERAL.—If, on the date of the decedent's death, the requirements of paragraph (IXCXii) with respect to the decedent for any property are not met, and the decedent— "(i) was receiving old-age benefits under title II of the Social Security Act for a continuous period ending on such date, or "(ii) was disabled for a continuous period ending on such date, then paragraph (l)(C)(ii) shall be applied with respect to such property by substituting 'the date on which the longer of such continuous periods began' for 'the date of the decedent's death' in paragraph (I)(C). "(B) DISABLED DEFINED.—For purposes of subparagraph (A), an individual shall be disabled if such individual has a mental or physical impairment which renders him unable to materially participate in the operation of the farm or other business. "(C) COORDINATION WITH RECAPTURE.—For purposes of

subsection (c)(OXBXi), if the requirements of paragraph (l)(C)(ii) are met with respect to any decedent by reason of subparagraph (A), the period ending on the date on which the continuous period taken into account under subparagraph (A) began shall be treated as the period immediately before the decedent's death. "(5) SPECIAL RULES FOR SURVIVING SPOUSES.—

"(A) IN GENERAL.—If property is qualified real property with respect to a decedent (hereinafter in this paragraph referred to as the 'first decedent') and such property was acquired from or passed from the first decedent to the surviving spouse of the first decedent, for purposes of applying this subsection and subsection (c) in the case of the estate

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Page:United States Statutes at Large Volume 95.djvu/333

 PUBLIC LAW 97-34—AUG. 13, 1981

95 STAT. 307

of such surviving spouse, active management of the farm or other business by the surviving spouse shall be treated as material participation by such surviving spouse in the operation of such farm or business. "(B) SPECIAL RULE.—For the purposes of subparagraph (A), the determination of whether property is qualified real property with respect to the first decedent shall be made without regard to subparagraph (D) of paragraph (1) and without regard to whether an election under this section was made.^' (c) DISPOSITIONS AND FAILURES TO U S E FOR QUALIFIED USE.— (1) 10-YEAR RECAPTURE PERIOD.—

(A) IN GENERAL.—Paragraph (1) of section 2032A(c) (relat- 26 USC 2032A. ing to tax treatment of dispositions and failures to use for qualified use) is amended by striking out "15 years" and inserting in lieu thereof "10 years". (B) CONFORMING AMENDMENTS.—

(i) Subsection (c) of section 2032A is amended by striking out paragraph (3) and redesignating paragraphs (4) through (7) as paragraphs (3) through (6), respectively. (ii) Subparagraph (A) of paragraph (2) of section 2032A(h) (relating to treatment of replacement property) is amended by striking out all that follows "involuntarily converted" and inserting in lieu thereof the following: "; except that with respect to such qualified replacement property the 10-year period under paragraph (1) of subsection (c) shall be extended by any period, beyond the 2-year period referred to in section 1033(a)(2)(B)(i), during which the qualified heir was allowed to replace the qualified real property,". (iii) Subparagraph (C) of such paragraph (2) is amended by striking out "(7)" and inserting in lieu thereof "(6)"^. (2) CESSATION OF QUALIFIED USE.—

(A) IN GENERAL.—Subsection (c) of section 2032A is amended by adding at the end thereof the following new paragraph: "(7) SPECIAL RULES.— "(A) No TAX IF USE BEGINS WITHIN 2 YEARS.—If the date on

which the qualified heir begins to use the qualified real property (hereinafter in this subparagraph referred to as the commencement date) is before the date 2 years after the decedent's death— "(i) no tax shall be imposed under paragraph (1) by reason of the failure by the qualified heir to so use such property before the commencement date, and "(ii) the 10-year period under paragraph (1) shall be extended by the period after the decedent's death and before the commencement date. "(B) ACTIVE MANAGEMENT BY ELIGIBLE QUALIFIED HEIR TREATED AS MATERIAL PARTICIPATION.—For purposes of para-

graph (6)(B)(ii), the active management of a farm or other business by— "(i) an eligible qualified heir, or "(ii) a fiduciary of an eligible qualified heir described in clause (ii) or (iii) of subparagraph (C),

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text: Dictionary of National Biography, 1885-1900/Wingfield, Richard (d.1634)


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Page:United States Statutes at Large Volume 95.djvu/334

 95 STAT. 308

PUBLIC LAW 97-34—AUG. 13, 1981 shall be treated as material participation by such eligible qualified heir in the operation of such farm or business. In the case of an eligible qualified heir described in clause (ii), (iii), or (iv) of subparagraph (C), the preceding sentence shall apply only during periods during which such heir meets the requirements of such clause. "(C) EuGiBLE QUALIFiED HEIR.—For purposos of this paragraph, the term 'eligible qualified heir' means a qualified heir who— "(i) is the surviving spouse of the decedent, "(ii) has not attained the age of 21, "(iii) is disabled (within the meaning of subsection (b)(4)(B)), or "(iv) is a student. "(D) STUDENT.—For purposes of subparagraph (C), an individual shall be treated as a student with respect to periods during any calendar year if (and only if) such individual is a student (within the meaning of section 151(e)(4)) for such calendar year." (B) CONFORMING AMENDMENTS.—

26 USC 2032A.

Ante, p. 307.

(i) Subsection (e) of section 2032A (relating to definitions and special rules) is amended by adding at the end thereof the following new paragraph: "(12) ACTIVE MANAGEMENT.—The term 'active management' means the making of the management decisions of a business (other than the daily operating decisions)." (ii) Paragraph (6) of section 2032A(c) (as redesignated by paragraph (1)) is amended by striking out "3 years or more" and inserting in lieu thereof "more than 3 years", (d) EXCHANGE OF QUALIFIED REAL PROPERTY.—

(1) IN GENERAL.—Section 2032A (relating to valuation of certain farm, etc., real property) is amended by adding at the end thereof the following new subsection: "(i) EXCHANGES OF QUALIFIED REAL PROPERTY.— "(1) TREATMENT OF PROPERTY EXCHANGED.— "(A) EXCHANGES SOLELY FOR QUALIFIED EXCHANGE PROP-

ERTY.—If an interest in qualified real property is exchanged solely for an interest in qualified exchange property in a transaction which qualifies under section 1031, no tax shall be imposed by subsection (c) by resison of such exchange. "(B) EXCHANGES WHERE OTHER PROPERTY RECEIVED.—If an

interest in qualified real property is exchanged for an interest in qualified exchange property and other property in a transaction which qualifies under section 1031, the amount of the tax imposed by subsection (c) by reason of such exchange shall be the amount of tax which Obut for this subparagraph) would have been imposed on such exchange under subsection (c)(1), reduced by an amount which— "(i) bears the same ratio to such tax, as "(ii) the fair market value of the other property bears to the fair market value of the qualified real property exchanged. For purposes of clause (ii) of the preceding sentence, fair market value shall be determined as of the time of the exchange. "(2) TREATMENT OF QUALIFIED EXCHANGE PROPERTY.—For purposes of subsection (c)—

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Page:United States Statutes at Large Volume 95.djvu/335

 PUBLIC LAW 97-34—AUG. 13, 1981

95 STAT. 309

"(A) any interest in qualified exchange property shall be treated in the same manner as if it were a portion of the interest in qualified real property which was exchanged, "(B) any tax imposed by subsection (c) by reason of the exchange shall be treated as a tax imposed on a partial disposition, and (C) paragraph (6) of subsection (c) shall be applied by treating material participation with respect to the exchanged property as material participation with respect to the quedified exchange property. "(3) QUALIFIED EXCHANGE PROPERTY.—For purposes of this subsection, the term 'qualified exchange property' means real property which is to be used for the qualified use set forth in subparagraph (A), (B), or (C) of subsection (b)(2) under which the real property exchanged therefor originally qualified under subsection (a)." (2) CONFORMING AMENDMENTS.—

(A) Paragraph (1) of section 2032A(f) (relating to statute of 26 USC 2032A. limitations) is amended— (i) by inserting "or exchange" after "conversion", (ii) by inserting "or (i)" after 'W', and (iii) by inserting "or of the exchange of property" after "replace". (B) Paragraph (2) of section 6324B(c) (relating to special 26 USC 6324B. liens) is amended by inserting "and qualified exchange property (within the meaning of section 2032A(i)(3))" before Ante, p. 308. the period at the end thereof. (e) ELECTION REQUIREMENT OF SPECIAL RULES FOR INVOLUNTARY CONVERSIONS REPEALED.—

(1) IN GENERAL.—Section 2032A(h) (relating to special rules for 26 USC 2032A. involuntary conversions of qualified real property) is amended— (A) by striking out "and the qualified heir makes an election under this subsection" in paragraph (1)(A); and (B) by striking out paragraph (5). (2)

CONFORMING AMENDMENT.—Paragraph

(1)

of

section

2032A(f) is amended by striking out "to which an election under subsection (h)" and inserting in lieu thereof "to which subsection (h)". (f) METHOD OF VALUING FARMS.—

(1) Paragraph (7) of section 2032A(e) (relating to method of valuing farms) is amended by redesignating subparagraph (B) as subparagraph (C) and by inserting after subparagraph (A) the following new subparagraph: "(B) VALUE BASED ON NET SHARE RENTAL IN CERTAIN CASES.—

"(i) IN GENERAL.—If there is no comparable land from which the average annual gross cash rental may be determined but there is comparable land from which the average net share rental may be determined, subparagraph (A)(i) shall be applied by substituting 'average annual net share rental' for 'average annual gross cash rental'. "(ii) N E T SHARE RENTAL.—For purposes of this paragraph, the term 'net share rental' means the excess of— "(I) the value of the produce received by the lessor of the land on which such produce is grown, over "(II) the cash operating expenses of growing such produce which, under the lease, are paid by the lessor."

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text:
Page:United States Statutes at Large Volume 95.djvu/336

 95 STAT. 310 Ante, p. 309.

26 USC 1016.

PUBLIC LAW 97-34—AUG. 13, 1981 (2) Subparagraph (C) of section 2032A(e)(7) (as redesignated by paragraph (1)) is amended by inserting after "determined" the following: "and that there is no comparable land from which the average net share rental may be determined". (g) BASIS INCREASE WHERE RECAPTURE.—Subsection (c) of section 1016 (relating to adjustments to basis) is amended to read as follows: "(c) INCREASE IN BASIS OP PROPERTY ON WHICH ADDITIONAL ESTATE TAX IS IMPOSED.— "(1) TAX IMPOSED WITH RESPECT TO ENTIRE INTEREST.—If an

additional estate tax is imposed under section 2032A(c)(l) with respect to any interest in property and the qualified heir makes an election under this subsection with respect to the imposition of such tax, the adjusted basis of such interest shall be increased by an amount equal to the excess of— "(A) the fair market value of such interest on the date of the decedent's death (or the alternate valuation date under section 2032, if the executor of the decedent's estate elected the application of such section), over "(B) the value of such interest determined under section 2032A(a). "(2) PARTIAL DISPOSITIONS.-

"(A) IN GENERAL.—In the case of any partial disposition for which an election under this subsection is made, the increase in basis under paragraph (1) shall be an amount— "(i) which bears the same ratio to the increase which would be determined under paragraph (1) (without regard to this paragraph) with respect to the entire interest, as "(ii) the amount of the tax imposed under section 2032A(c)(l) with respect to such disposition bears to the adjusted tax difference attributable to the entire interest (as determined under section 2032A(c)(2)(B)). "(B) PARTIAL DISPOSITION.—For purposes of subparagraph (A), the term 'partial disposition' means any disposition or cessation to which subsection (c)(2)(D), (h)(l)(B), or (i)(l)(B) of section 2032A applies. "(3) TIME ADJUSTMENT MADE.—Any increase in basis under this subsection shall be deemed to have occurred immediately before the disposition or cessation resulting in the imposition of the tax under section 2032A(c)(l). "(4) SPECIAL RULE IN THE CASE OP SUBSTITUTED PROPERTY.—If

Ante, p. 308.

the tax under section 2032A(c)(l) is imposed with respect to qualified replacement property (EIS defined in section 2032A(h)(3)(B)) or qualified exchange property (as defined in section 2032A(i)(3)), the increase in basis under paragraph (1) shall be made by reference to the property involuntarily converted or exchanged (as the case may be). "(5) ELECTION.—

"(A) IN GENERAL.—An election under this subsection shall be made at such time and in such manner as the Secretary shall by regulations prescribe. Such an election, once made, shall be irrevocable. "(B) INTEREST ON RECAPTURED AMOUNT.—If an election is

made under this subsection with respect to any additional estate tax imposed under section 2032A(c)(l), for purposes of section 6601 (relating to interest on underpayments), the last date prescribed for payment of such tax shall be deemed to be the last date prescribed for payment of the tax imposed by

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text: Dictionary of National Biography, 1885-1900/Wingfield, Robert