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Page:United States Statutes at Large Volume 101 Part 2.djvu/1208

 101 STAT. 1330-414

PUBLIC LAW 100-203—DEC. 22, 1987

SEC. 10226. LIMITATION ON USE OF PREACQUISITION LOSSES TO OFFSET BUILT-IN GAINS.

(a) GENERAL RULE.—Part V of subchapter C of chapter 1 (relating to carryovers) is amended by adding at the end thereof the following new section: 26 USC 384.

"SEC. 384. LIMITATION ON USE OF PREACQUISITION LOSSES TO OFFSET BUILT-IN GAINS. "(a) GENERAL RULE.— "(1) STOCK ACQUISITIONS, ETC.—If—

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"(A) a corporation (hereinafter in this section referred to as the 'gain corporation') becomes a member of an affiliated "(B) such corporation has a net unrealized built-in gain, the income of such corporation for any recognition period taxable year (to the extent attributable to recognized built-in gains) shall not be offset by any preacquisition loss of any other member of such group. "(2) ASSET ACQUISITIONS.—If—

"(A) the assets of a corporation (hereinafter in this section referred to as the 'gain corporation') are acquired by another corporation— "(i) in a liquidation to which section 332 applies, or "(ii) in a reorganization described in subparagraph (A), (C), or (D) of section 368(a)(l), and "(B) the gain corporation has a net unrealized built-in gain, the income of the acquiring corporation for any recognition period taxable year (to the extent attributable to recognized built-in gains of the gain corporation) shall not be offset by any preacquisition loss of any corporation (other than the gain corporation). "(b) EXCEPTION WHERE 50 PERCENT OF GAIN CORPORATION HELD.—

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Subsection (a) shall not apply if more than 50 percent of the stock (by vote and value) of the gain corporation was held throughout the 5-year period ending on the acquisition date— (1) in any case described in subsection (a)(D, by members of the affiliated group referred to in subsection (a)(1), or "(2) in any case described in subsection (a)(2), by the acquiring corporation or members of such acquiring corporation's affiliated group. For purposes of the preceding sentence, stock described in section 1504(a)(4) shall not be taken into account. "(c) DEFINITIONS.—For purposes of this section— "(1)RECOGNIZED BUILT-IN GAIN.— u^^^ jj^ GENERAL.—The term 'recognized built-in gain' means any gain recognized during the recognition period on the disposition of any asset except to the extent the gain corporation (or, in any case described in subsection (a)(2), the acquiring corporation) establishes that— (i) such asset was not held by the gain corporation on the acquisition date, or "(ii) such gain exceeds the excess (if any) of— "(I) the fair market value of such asset on the acquisition date, over '(II) the adjusted basis of such asset on such date.

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1209

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-415

"(B) TREATMENT OF CERTAIN INCOME ITEMS.—Any item of income which is properly taken into account for any recognition period taxable year but which is attributable to periods before the acquisition date shall be treated as a recognized built-in gain for the taxable year in which it is properly taken into account and shall be taken into account I'mir: in determining the amount of the net unrealized built-in gain. ii « "(C) LIMITATION.—The amount of the recognized built-in gains for any recognition period taxable year shall not .^.„ „ _ exceed— "(i) the net unrealized built-in gain, reduced by "(ii) the recognized built-in gains for prior years ending in the recognition period which (but for this section) would have been offset by preacquisition losses. "(2) ACQUISITION DATE.—The term 'acquisition date' means the date on which the gain corporation becomes a member of the affiliated group or, in any case described in subsection (a)(2), the date of the distribution or transfer in the liquidation or reorganization. "(3) PREACQUISITION LOSS.—

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"(A) IN GENERAL.—The term 'preacquisition loss' means— "(i) any net operating loss carryforward to the taxable year in which the acquisition date occurs, and "(ii) any net operating loss for the taxable year in which the acquisition date occurs to the extent such loss is allocable to the period in such year on or before the acquisition date. Except as provided in regulations, the net operating loss shall, for purposes of clause (ii), be allocated ratably to each day in the year. "(B) TREATMENT OF RECOGNIZED BUILT-IN LOSS.—In the

Case of a corporation with a net unrealized built-in loss, the term 'preacquisition loss' includes any recognized built-in "(4) OTHER DEFINITIONS.—Except as provided in regulations,

the terms 'net unrealized built-in gain', 'net unrealized built-in loss', 'recognized built-in loss', 'recognition period', and 'recognition period taxable year', have the same respective meanings as when used in section 382(h), except that the acquisition date shall be taken into account in lieu of the change date. "(d) LIMITATION ALSO TO APPLY TO EXCESS CREDITS OR NET CAPITAL

LOSSES.—Rules similar to the rules of subsection (a) shall also apply in the csise of any excess credit (as defined in section 383(a)(2)) or net capital loss. (e) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section, including regulations to ensure that the purposes of this section may not be circumvented through— "(1) the use of any provision of law or regulations (including subchapter K of this chapter), or "(2) contributions of property to the gain corporation." (b) CLERICAL AMENDMENT.—The table of sections for part V of subchapter C of chapter 1 is amended by adding at the end thereof the following new item:

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1210

 101 STAT. 1330-416

PUBLIC LAW 100-203—DEC. 22, 1987

"Sec. 384. Limitation on use of preacquisition losses to offset built-in gains." 26 USC 384 note. (c) EFFECTIVE DATE.—The amendments made by this section shall apply in cases where the acquisition date (as defined in section 384(c)(2) of the Internal Revenue Code of 1986 as added by this section) is after December 15, 1987; except that such amendments shall not apply in the case of any transaction pursuant to— ( D a binding written contract in effect on or before December 15, 1987, or (2) a letter of intent or agreement of merger signed on or before December 15, 1987. SEC. 10227. RECAPTURE OF LIFO AMOUNT IN THE CASE OF ELECTIONS BY S CORPORATIONS. (a) GENERAL RULE.—Section 1363 (relating to effect of election on corporations) is amended by adding at the end thereof the following new subsection: "(d) RECAPTURE OF LIFO BENEFITS.— % - ; dofi^ n.> ^-^mb 5*i' "(1) IN GENERAL.—If^ 'to "(A) an S corporation was a C corporation for the last taxable year before the first taxable year for which the election under section 1362(a) was effective, and «' "(B) the corporation inventoried goods under the LIFO method for such last taxable year, the LIFO recapture amount shall be included in the gross income of the corporation for such last taxable year (and appropriate adjustments to the basis of inventory shall be made to take into account the amount included in gross income under this paragraph). "(2) ADDITIONAL TAX PAYABLE IN INSTALLMENTS.—

"(A) IN GENERAL.—Any increase in the tax imposed by this chapter by reason of this subsection shall be payable in 4 equal installments. "(B) DATE FOR PAYMENT OF INSTALLMENTS.—The first installment under subparagraph (A) shall be paid on or before the due date (determined without regard to extensions) for the return of the tax imposed by this chapter for '"' the last taxable year for which the corporation was a C corporation and the 3 succeeding installments shall be paid on or before the due date (as so determined) for the corporation's return for the 3 succeeding taxable years. S' "(C) No INTEREST FOR PERIOD OF EXTENSION.—Notwithstanding section 6601(b), for purposes of section 6601, the date prescribed for the payment of each installment under this paragraph shall be determined under this paragraph. "(3) LIFO RECAPTURE AMOUNT.—For purposes of this subsection, the term 'LIFO recapture amount' means the amount (if any) by which— "(A) the inventory amount of the inventory asset under tap the first-in, first-out method authorized by section 471, exceeds gfi i "(B) the inventory amount of such assets under the LIFO method. For purposes of the preceding sentence, inventory amounts shall be determined as of the close of the last taxable year referred to in paragraph (1). "(4) OTHER DEFINITIONS.—For purposes of this subsection—

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1211

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-417

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"(A) LIFO METHOD.—The term 'LIFO method'means the method authorized by section 472. ion -; «(g) INVENTORY ASSETS.—The term 'inventory assets' means stock in trade of the corporation, or other property of a kind which would properly be included in the inventory of the corporation if on hand at the close of the taxable year. .,,

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"(C) METHOD OF DETERMINING INVENTORY AMOUNT.—The

inventory amount of assets under a method authorized by section 471 shall be determined— "(i) if the corporation uses the retail method of valu• ing inventories under section 472, by using such method, or "(ii) if clause (i) does not apply, by using cost or market, whichever is lower."

(h) EFFECTIVE DATES.—

26 USC 1363

(1) IN GENERAL.—Except as provided in paragraph (2) the ^°^amendment made by subsection (a) shall apply in the case of elections made after December 17, 1987. (2) EXCEPTION.—The amendment made by subsection (a) shall not apply in the case of any election made by a corporation after g December 17, 1987, and before January 1, 1989, if, on or before (A) there was a resolution adopted by the board of directors of such corporation to make an election under subJuTie: chapter S of chapter 1 of the Internal Revenue Code of 1986, J' or f' (B) there Was a ruling request with respect to the business j^ filed with the Internal Revenue Service expressing an intent to make such an election. SEC. 10228. EXCISE TAX ON RECEIPT OF GREENMAIL.
 * . December 17, 1987—

(a) IN GENERAL.—Subtitle E is amended by adding at the end thereof the following new chapter: "CHAPTER 54—GREENMAIL "Sec. 5881. Greenmail. "SEC. 5881. GREENMAIL. "(a) IMPOSITION OF TAX.—There is hereby imposed on any person

who receives greenmail a tax equal to 50 percent of gain realized by such person on such receipt. "(b) GREENMAIL.—For purposes of this section, the term 'greenmail' means any consideration transferred by a corporation to directly or indirectly acquire its stock from any shareholder if— "(1) such shareholder held such stock (as determined under i section 1223) for less than 2 years before entering into the agreement to make the transfer, "(2) at some time during the 2-year period ending on the date of such acquisition— "(A) such shareholder, "(B) any person acting in concert with such shareholder, • or "(C) any person who is related to such shareholder or person described in subparagraph (B),

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1212

 101 STAT. 1330-418

v.1^ •v

PUBLIC LAW 100-203—DEC. 22, 1987

0i> made or threatened to make a public tender offer for stock of such corporation, and "(3) such acquisition is pursuant to an offer which was not made on the same terms to all shareholders. For purposes of the preceding sentence, payments made in connection with, or in transactions related to, an acquisition shall be treated as paid in such acquisition. "(c) OTHER DEFINITIONS.—For purposes of this section— "(1) PUBLIC TENDER OFFER.—The term 'public tender offer' means any offer to purchase or otherwise acquire stock or assets If in a corporation if such offer waa or would be required to be -5; filed or registered with any Federal or State agency regulating securities. .fg "(2) RELATED PERSON.—A person is related to another person if the relationship between such persons would result in the disallowance of losses under section 267 or 707(b). "(d) TAX APPLIES WHETHER OR NOT GAIN RECOGNIZED.—The tax

imposed by this section shall apply whether or not the gain referred to in subsection (a) is recognized." (b) DENIAL OF INCOME TAX DEDUCTION FOR GREENMAIL TAX.—

Paragraph (6) of section 275(a) is amended by striking out "and 46" and inserting in lieu thereof "46, and 54". (c) CLERICAL AMENDMENT.—The table of chapters for subtitle E is amended by adding at the end thereof the following new item: 26 USC 5881 "°^-

"CHAPTER 54. GREENMAIL." (d) EFFECTIVE DATE.—The amendments made by this section shall

apply to consideration received after the date of the enactment of this Act in taxable years ending after such date; except that such amendments shall not apply in the case of any acquisition pursuant to a written binding contract in effect on December 15, 1987, and at all times thereafter before the acquisition.

PART IV—FOREIGN TAX PROVISIONS SEC. 10231. DENIAL OF FOREIGN TAX CREDIT FOR TAXES PAID OR ACCRUED TO SOUTH AFRICA. (a) GENERAL RULE.—Paragraph (2) of section 901(j) (relating to denial of foreign tax credit, etc., with respect to certain foreign countries) is amended by adding at the end thereof the following new subparagraph: "(C) SPECIAL RULE FOR SOUTH AFRICA.—

Effective date. Termination ^^'

"(i) IN GENERAL.—In addition to any period during which this subsection would otherwise apply to South Africa, this subsection shall apply to South Africa '\' during the period— "(I) beginning on January 1, 1988, and "(H) ending on the date the Secretary of State •'• •' •' certifies to the Secretary of the Treasury that South Africa meets the requirements of section '• ' i\.- ^ r: 311(a) of the Comprehensive Anti-Apartheid Act of 1986 (as in effect on the date of the enactment of this subparagraph). ^i>:^^-'^i''---~ ••,^ "(ii) SOUTH AFRICA DEFINED.—For purposes of clause (i), the term 'South Africa' has the meaning given to ii •«•?' • such term by paragraph (6) of section 3 of tihe C!omprehensive Anti-Apartheid Act of 1986 (as so in effect)."

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1213

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-419

(b) TECHNICAL AMENDMENTS.—Paragraph (1) of section 901(j) is

amended— (1) by striking out "to which" in subparagraph (A) and inserting in lieu thereof "during which", and (2) by striking out "any country so identified" and inserting in lieu thereof "such country". (c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 901 note, apply to taxable years beginning after December 31, 1987.

PART V—INSURANCE PROVISIONS SEC. 10241. INTEREST RATE USED IN COMPUTING TAX RESERVES FOR LIFE INSURANCE COMPANIES MAY NOT BE LESS THAN AP'^^PLICABLE FEDERAL RATE.

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(a) IN GENERAL.—Subparagraph (B) of section 807(d)(2) (relating to method of computing reserves for purposes of determining income) is amended to read as follows: "(B) the greater of— ^, "(i) the applicable Federal interest rate, or "(ii) the prevailing State assumed interest rate, and". (b) APPLICABLE FEDERAL INTEREST RATE.—

(1) IN GENERAL.—Paragraph (4) of section 807(d) (defining State assumed interest rate) is amended to read as follows: "(4) APPLICABLE FEDERAL INTEREST RATE; PREVAILING STATE

I,

ASSUMED INTEREST RATE.—For purposes of this subsection— "(A) APPLICABLE FEDERAL INTEREST RATE.— "(i) IN GENERAL.—Except as provided in clause (ii), the term 'applicable Federal interest rate' means the annual rate determined by the Secretary under section 846(c)(2) for the calendar year in which the contract was issued. "(ii) ELECTION TO RECOMPUTE FEDERAL INTEREST RATE

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"(II) RECOMPUTATION PERIOD.—For purposes of

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EVERY 5 YEARS.— "(I) IN GENERAL.—In computing the amount of the reserve with respect to any contract to which an election under this clause applies for periods during any recomputation period, the applicable Federal interest rate shall be the annual rate determined by the Secretary under section 846(c)(2) for the 1st year of such period. N o change in the applicable Federal interest rate shall be made under the preceding sentence unless such change would equal or exceed V2 of 1 percentage point. subclause (I), the term 'recomputation period' means, with respect to any contract, the 5 calendar year period beginning with the 5th calendar year beginning after the calendar year in which the contract was issued (and each subsequent 5 calendar year period). "(Ill) ELECTION.—An election under this clause shall apply to all contracts issued during the calendar year for which the election was made or during any subsequent calendar year unless such election is revoked with the consent of the Secretary.

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Contracts.

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1214

 101 STAT. 1330-420

PUBLIC LAW 100-203—DEC. 22, 1987 ,.,,

"(IV)

SPREAD NOT AVAILABLE.—Subsection

(f)

shall not apply to any adjustment required under this clause. (B) PREVAILING STATE ASSUMED INTEREST RATE.—

iBiin CiOLi

Contracts.

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"(i) IN GENERAL.—The term 'prevailing State assumed interest rate' means, with respect to any contract, the highest assumed interest rate permitted to be used in computing life insurance reserves for insurance contracts or annuity contracts (as the case may be) under the insurance laws of at least 26 States. For purposes of the preceding sentence, the effect of nonforfeiture laws of a State on interest rates for reserves shall not be taken into account. "(ii) WHEN RATE DETERMINED.—The prevailing State assumed interest rate with respect to any contract shall be determined as of the beginning of the calendar year in which the contract was issued.'

(2) TECHNICAL AMENDMENTS.—

(A) The third to the last sentence of section 807(c) is amended by striking out "the higher o f and all that folbtiB lows and inserting in lieu thereof "whichever of the following rates is the highest as of the time such obligation first s.J did not involve life, accident, or health contingencies: the >// MU applicable Federal interest rate under subsection (d)(2)(B)(i), T^. the prevailing State assumed interest rate under subsection (d)(2)(B)(ii), or the rate of interest assumed by the company in determining the guaranteed benefit.", i '', (B) Paragraph (2) of section 812(b) is amended— T (i) by striking out "at the prevailing State assumed "..^.'^ rate or, where such rate is not used, another appro'-• priate rate" and inserting in lieu thereof "at the greater of the prevailing State assumed rate or the • - 1' '•" applicable Federal interest rate", and (ii) by adding at the end thereof the following new "t'f sentence: f! "In any case where the prevailing State assumed rate is not used, another appropriate rate shall be treated as the prevailing State assumed rate for purposes of subparagraph (A)." 26 USC 807 note. (c) EFFECTIVE DATE.—The amendments made by this section shall apply to contracts issued in taxable years beginning after December 31, 1987. SEC. 10242. TREATMENT OF FOREIGN INSURANCE COMPANIES. (a) IN GENERAL.—Section 842 (relating to foreign corporations carrying on insurance business) is amended to read as follows: 26 USC 842. "SEC. 842. FOREIGN COMPANIES CARRYING ON INSURANCE BUSINESS. "(a) TAXATION UNDER THIS SUBCHAPTER.—If a foreign company carrying on an insurance business within the United States would qualify under part I or II of this subchapter for the taxable year if (without regard to income not effectively connected with the conduct .• •. r, of any trade or business within the United States) it were a domestic corporation, such company shall be taxable under such part on its income effectively connected with its conduct of any trade or business within the United States. With respect to the remainder of its income which is from sources within the United States, such a foreign company shall be taxable as provided in section 881.

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1215

 PUBLIC LAW 100-203—DEC. 22, 1987 "(b) MINIMUM INCOME.—

EFFECTIVELY

CONNECTED

NET

101 STAT. 1330-421 INVESTMENT

"(1) IN GENERAL.—In the case of a foreign company taxable under part I or II of this subchapter for the taxable year, its net investment income for such year which is effectively connected with the conduct of an insurance business within the United States shall be not less than the product of— "(A) the required United States *** assets of such company, and "(B) the domestic investment yield applicable to such company for such year. ..

"(2) REQUIRED U.S. ASSETS.—

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"(A) IN GENERAL.—For purposes of paragraph (1), the required United States"^ assets of any foreign company for any taxable year is an amount equal to the product of— "(i) the mean of such foreign company's total insurance liabilities on United States business, and "(ii) the domestic asset/liability percentage ap>:i --i & plicable to such foreign company for such year. "(B) TOTAL INSURANCE LIABIUTIES.—For purposes of this ^) i' paragraph— "(i) COMPANIES TAXABLE UNDER PART I •'*.—In the case of a company taxable under part I, the term 'total insurance liabilities' means the sum of the total reserves (as defined in section 816(c)) plus (to the extent • * •' *not included in total reserves) the items referred to in ^•'ii paragraphs (3), (4), (5), and (6) of section 807(c). "(ii) COMPANIES TAXABLE UNDER PART **' ii.—In the case of a company taxable under part II, the term 'total ^' insurance liabilities' means the sum of unearned premiums and unpaid losses. '^ ^ "(C) DOMESTIC ASSET/LIABILITY PERCENTAGE.—The domestic asset/liability percentage applicable for purposes of v^xj'j subparagraph (A)(ii) to any foreign company for any taxable '""^^ year is a percentage determined by the Secretary on the basis of a ratio— '^'^ "(i) the numerator of which is the mean of the assets of domestic insurance companies taxable under the same part of this subchapter as such foreign company, and "(ii) the denominator of which is the mean of the total insurance liabilities of the same companies. "(3) DOMESTIC INVESTMENT YIELD.—The domestic investment yield applicable for purposes of paragraph (I)(B) to any foreign company for any taxable year is the percentage determined by the Secretary on the basis of a ratio— "(A) the numerator of which is the net investment income of domestic insurance companies taxable under the ' same part of this subchapter as such foreign company, and ,, "(B) the denominator of which is the mean of the assets of the same companies held for the production of such income. "(4) ELECTION TO USE WORLDWIDE YIELD.— "*Copy read "U.S.". ' '• Copy read "PART I.—". " ' Copy read "PART II.—".

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1216

 101 STAT. 1330-422

PUBLIC LAW 100-203—DEC. 22, 1987

"(A) IN GENERAL.—If the foreign company makes an election under this paragraph, such company's worldwide current investment yield shall be taken into account in lieu of the domestic investment yield for purposes of paragraph - - N - (I)(B). >-; "(B) WORLDWIDE CURRENT INVESTMENT YIELD.—For purposes of subparagraph (A), the term 'worldwide current ,;-.*.: investment yield' means the percentage obtained by dividing— "(i) the net investment income of the company from all sources, by "(ii) the mean of all assets of the company (whether ••.•>,\, • or not held in the United States) held for the produc.. tion of investment income. }' "(C) ELECTION.—An election under this paragraph shall - i; '. apply to the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary. "(5) NET INVESTMENT INCOME.—For purposes of this subseci, tion, the term 'net investment income' means— "(A) gross investment income (within the meaning of
 * r„i J

section 834(b)), reduced by "(B) expenses allocable to such income. "(c) SPECIAL RULES FOR PURPOSES OF SUBSECTION (b).— "(1) COORDINATION WITH SMALL LIFE INSURANCE COMPANY

DEDUCTION.—In the case of a foreign company taxable under part I, subsection (b) shall be applied before computing the small life insurance company deduction. ^^,

"(2) REDUCTION IN SECTION 8 8 1 TAXES.—

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"(A) IN GENERAL.—The tax under section 881 (determined without regard to this paragraph) shall be reduced (but not ...,, below zero) by an amount which bears the same ratio to -' such tax as— . J "(i) the amount of the increase in effectively con.,.^V,, nected income of the company resulting from subsection (b), bears to y^^ , "(ii) the amount which would be subject to tax under I ' section 881 if the amount taxable under such section Jfi . ' were determined without regard to sections 103 and 894. "(B) LIMITATION ON REDUCTION.—The reduction under subparagraph (A) shall not exceed the increase in taxes under part I or II (as the case may be) by reason of the increase in effectively connected income of the company resulting from subsection (b). "(3) ADJUSTMENT TO LIMITATION ON DEDUCTION FOR POLICYHOLDER DIVIDENDS IN THE CASE OF FOREIGN MUTUAL LIFE INSUR-

ANCE COMPANIES.—For purposes of section 809, the equity base of any foreign mutual life insurance company as of the close of any taxable year shall be increased by the excess of— "(A) the required United States ^ ** assets of the company (determined under subsection (b)(2)), over "(B) the mean of the sissets held in the United States during the taxable year. "•Copy read "U.S.".

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1217

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-423

"(4) DATA USED IN DETERMINING DOMESTIC ASSET/LIABILITY PERCENTAGES AND DOMESTIC INVESTMENT YEILDS.—Each domCStic

asset/liability percentage, and each domestic investment yield, for any taxable year shall be based on such representative data with respect to domestic insurance companies for the second preceding taxable year as the Secretary considers appropriate. "(d) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations— "(1) providing for the proper treatment of segregated asset accounts, "(2) providing for proper adjustments in succeeding taxable years where the company's actual net investment income for any taxable year which is effectively connected with the conduct of an insurance business within the United States exceeds the amount required under subsection (b)(D, and "(3) providing for the proper treatment of investments in domestic subsidiaries."

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(b) PART II COMPANIES SUBJECT TO SAME EFFECTIVELY CONNECTED

INCOME RULE AS PART I COMPANIES.—Subparagraph (C) of section

864(c)(4) (relating to income from sources without the United States) is amended by inserting "or part 11" after "part I". (c) REPEAL OF SECTION * *^ 813.—

(1) Section 813 (relating to foreign life insurance companies) is hereby repealed. f (2) Subsection (h) of section 816 is amended by striking out ¥ "section 813(a)(4)(B)" and inserting in lieu thereof "section 842(c)(l)(A)". (3) Paragraph (2) of section 4371 is amended by striking out "section 813" and inserting in lieu thereof "section 842(b)". (4) The table of sections for part I of subchapter L of chapter 1 is amended by striking out the item relating to section 813. (d) EFFECTIVE DATE,—The amendments made by this section shall 26 USC 816 note. apply to taxable years beginning after December 31, 1987. SEC. 10243. TREATMENT OF MUTUAL LIFE INSURANCE COMPANY POLICYHOLDER DIVIDENDS FOR PURPOSES OF BOOK PREFERENCE.

(a) GENERAL RULE.—Paragraph (2) of section 56(f) (defining adjusted net book income) is amended by redesignating subparagraph (H) as subparagraph (I) and by inserting after subparagraph (G) the following new subparagraph: "(H) SPECIAL RULES FOR U F E INSURANCE COMPANIES.— "(i) POLICYHOLDER DIVIDENDS OF MUTUAL COMPA-

L c. *, y\ % il-j ^

}:i:-

NIES.—In determining the adjusted net book income of any mutual life insurance company, a reduction shall be allowed for policyholder dividends with respect to any taxable year only to the extent such dividends exceed the differential earnings amount determined for such taxable year under section 809. "(ii) OTHER ADJUSTMENTS.—To the extent provided by

,

the Secretary, such additional adjustments shall be made as may be necessary to make the calculation of adjusted net book income in the case of any life insur-

'"• Copy read "SECTION 813—".

91-194 O - 90 - 39: QL.3 Part 2

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1218

 101 STAT. 1330-424

PUBLIC LAW 100-203—DEC. 22, 1987

I '•'

26 USC 56 note.

Reports.

ance company consistent with the calculation of adjusted net book income generally." (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1987. SEC. 10244. CERTAIN INSURANCE SYNDICATES. '! (a) STUDY.—The Secretary of the Treasury (or his delegate) shall conduct a study of the proper Federal income tax treatment of income earned by members of insurance or reinsurance syndicates. Not later than April 1, 1988, the Secretary shall submit a report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate on the results of the study conducted under this subsection, together with such recommendations as he may deem advisable. (b) RENEGOTIATION OF CLOSING AGREEMENT.—Not later than January 1, 1990, the Secretary of the Treasury (or his delegate) shall renegotiate the closing agreement with the underwriters participating in certain insurance or reinsurance syndicates which was signed by the Internal Revenue Service on April 1, 1980, to implement the conclusions reached in the study conducted under subsection (a).

Subtitle C—Estimated Tax Provisions

^

SEC. 10301. REVISION OF CORPORATE ESTIMATED TAX PROVISIONS. (a) GENERAL RULE.—Section 6655 (relating to failure by corporation to pay estimated income tax) is amended to read as follows: 26 USC 6655. "SEC. 6655. FAILURE BY CORPORATION TO PAY ESTIMATED INCOME TAX. "(a) ADDITION TO TAX.—Except as otherwise provided in this section, in the case of any underpayment of estimated tsix by a corporation, there shall be added to the tax under chapter 1 for the -•:K'" alii "ibli r taxable year an amount determined by applying— "(1) the underpayment rate established under section 6621, V.? I "(2) to the amount of the underpayment, ,, ..,,^g ' ' "(3) for the period of the underpayment. ' ' " ' "(b) AMOUNT OF UNDERPAYMENT; PERIOD OF UNDERPAYMENT.—For

purposes of subsection (a)— "(1) AMOUNT.—The amount of the underpayment shall be the excess of— ' '(A) the required installment, over "(B) the amount (if any) of the installment paid on or - .a:s before the due date for the installment. "(2)

PERIOD

OF

UNDERPAYMENT.—The

period

of

the

"i underpayment shall run from the due date for the installment I to whichever of the following dates is the earlier— { "(A) the 15th day of the 3rd month following the close of K the taxable year, or t'"(B) with respect to any portion of the underpayment, the date on which such portion is paid. v^ i- "(3) ORDER OP CREDITING PAYMENTS.—For purposes of paraf graph (2)(B), a payment of estimated tax shall be credited 'i against unpaid required installments in the order in which such installments are required to be paid. "(c) NUMBER OF REQUIRED INSTALLMENTS; DUE DATES.—For purposes of this section— -Fs.,:, M i?? • v *i

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1219

 PUBLIC LAW 100-203—DEC. 22, 1987 «

101 STAT. 1330-425

"(1) PAYABLE IN 4 INSTALLMENTS.—There shall be 4 required installments for each taxable year.

"(2) T I M E FOR PAYMENT OF INSTALLMENTS.— "In the case of the following required installments: 1st if> 2nd 3rd 4th

The due date is: April 15 June 15 September 15 December 15.

"(d) AMOUNT OF REQUIRED INSTALLMENTS.—For purposes of this section— .:

"(1) AMOUNT.—

r.i,;^t
 * . jg,

"(A) IN GENERAL.—Except as otherwise provided in this section, the amount of any required installment shall be 25 percent of the required annual payment. "(B) REQUIRED ANNUAL PAYMENT.—Except as otherwise

o '

provided in this subsection, the term 'required annual payoo ment' means the lesser of— g "(i) 90 percent of the tax shown on the return for the ^ taxable year (or, if no return is filed, 90 percent of the tax for such year), or •r -. "(ii) 100 percent of the tax shown on the return of the ^ corporation for the preceding taxable year. Clause (ii) shall not apply if the preceding taxable year was not . a taxable year of 12 months, or the corporation did not file a tax. "(2) LARGE CORPORATIONS REQUIRED TO PAY 90 PERCENT OF CURRENT YEAR TAX.—
 * return for such preceding taxable year showing a liability for

"(A) IN GENERAL.—Except as provided in subparagraph (B), clause (ii) of paragraph (I)(B) shall not apply in the case of a large corporation. "(B) MAY USE LAST YEAR'S TAX FOR 1ST INSTALLMENT.—

s-

Subparagraph (A) shall not apply for purposes of determining the amount of the 1st required installment for any taxable year. Any reduction in such 1st installment by reason of the preceding sentence shall be recaptured by increasing the amount of the next required installment determined under paragraph (1) by the amount of such reduction.

"(e) LOWER REQUIRED INSTALLMENT WHERE ANNUAUZED INCOME INSTALLMENT OR ADJUSTED SEASONAL INSTALLMENT Is LESS THAN AMOUNT DETERMINED UNDER SUBSECTION (d).—

"(1) IN GENERAL.—In the case of any required installment, if the corporation establishes that the annualized income installment or the adjusted seasonal installment is less than the amount determined under section (d)(1) (as modified by subsection (d)(2))— "(A) the amount of such required installment shall be the annualized income installment (or, if lesser, the adjusted <>j v seasonal installment), and "(B) any reduction in a required installment resulting from the application of this paragraph shall be recaptured by increasing the amount of the next required installment It. - determined under subsection (d)(1) (as so modified) by the amount of such reduction (and by increasing subsequent

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1220

 101 STAT. 1330-426

PUBLIC LAW 100-203—DEC. 22, 1987

, ^,, ^ required installments to the extent that the reduction has not previously been recaptured under this subparagraph). A reduction shall be treated as recaptured for purposes of subparagraph (B) if 90 percent of the reduction is recaptured. "(2) DETERMINATION OF ANNUAUZED INCOME INSTALLMENT.—

"(A) IN GENERAL.—In the case of any required installment, the annualized income installment is the excess (if any) of— "(i) an amount equal to the applicable percentage of the tax for the taxable year computed by placing on an annualized basis the taxable income, alternative minimum taxable income, and modified alternative minir' mum taxable income— ^' ' "(I) for the first 3 months of the taxable year, in the case of the 1st required installment, "(II) for the first 3 months or for the first 5 months of the taxable year, in the case of the 2nd required installment, =^^{ ' "(III) for the first 6 months or for the first 8 -.;.' r:-. '-• • ^ months of the taxable year in the case of the 3rd < required installment, and ' ' "•'••' "(IV) for the first 9 months or for the first 11 months of the taxable year, in the case of the 4th required installment, over "(ii) the aggregate amount of any prior required installments for the taxable year. "(B) SPECIAL RULES.—For purposes of this paragraph— "^ " "(i) ANNUAUZATION.—The taxable income, alternative minimum taxable income, and modified alterl "^" ^ native minimum taxable income shall be placed on an •iKo -'•• annualized basis under regulations prescribed by the Secretary, "(ii) APPLICABLE PERCENTAGE.—

"In the case of the following required installments: 1st 2nd 3rd i- 4th

ily

/ '

'

The applicable percentage is: 22.5 45 67.5 90

"(iii) MODIFIED ALTERNATIVE MINIMUM TAXABLE INCOME.—The term 'modified alternative minimum taxable income' has the meaning given to such term by section 59A(b). "(3) DETERMINATION OF ADJUSTED SEASONAL INSTALLMENT.—

"(A) IN GENERAL.—In the case of any required installment, the amount of the adjusted seasonal installment is the excess (if any) of— .i "(i) 90 percent of the amount determined under C7..;>, subparagraph (C), over "(ii) the aggregate amount of all prior required installments for the taxable year. "(B)

^.-r

LIMITATION ON APPLICATION OF PARAGRAPH.—This

paragraph shall apply only if the base period percentage for any 6 consecutive months of the taxable year equals or exceeds70percent. , r,.^. -^i,' i «: 's- isn; •:%..

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1221

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-427

"(C) DETERMINATION OF AMOUNT.—The amount determined under this subparagraph for any installment shall be determined in the following manner— "(i) take the taxable income for all months during the taxable year preceding the filing month, "(ii) divide *^° such amount by the base period percentage for all months during the taxable year preceding the filing month, "(iii) determine the tax on the amount determined under clause (ii), and "(iv) multiply the tax computed under clause (iii) by the base period percentage for the filing month and all months during the taxable year preceding the filing month. "(D)

DEFINITIONS AND SPECIAL RULES.—For purposes of

this paragraph— "(i) BASE PERIOD PERCENTAGE.—The base period percentage for any period of months shall be the average percent which the taxable income for the corresponding months in each of the 3 preceding taxable years bears to the taxable income for the 3 preceding taxable years. "(ii) FILING MONTH.—The term 'filing month' means the month in which the installment is required to be paid. "(iii) REORGANIZATION, ETC.—The Secretary may by Regulations. regulations provide for the determination of the base t' period percentage in the case of reorganizations, new corporations, and other similar circumstances. "(f) EXCEPTION WHERE TAX IS ^^i SMALL AMOUNT.—No addition to tax shall be imposed under subsection (a) for any taxable year if the tax shown on the return for such taxable year (or, if no return is filed, the tax) is less than $500. "(g) DEFINITIONS AND SPECIAL RULES.—

"(1) TAX.—For purposes of this section, the term 'tax' means the excess of— "(A) the sum of^ "(i) the tax imposed by section 11 or 1201(a), or subchapter L of chapter 1, whichever applies, "(ii) the tax imposed by section 55, "(iii) the tax imposed by section 59A, plus "(iv) the tax imposed by section 887, over "(B) the sum of— "(i) the credits against tax provided by part IV of subchapter A of chapter 1, plus "(ii) to the extent allowed under regulations prescribed by the Secretary, any overpayment of the tax imposed by section 4986 (determined without regard to section 4995(a)(4)(B)). For purposes of the preceding sentence, in the case of a foreign corporation subject to taxation under section 11 or 1201(a), or under subchapter L of chapter 1, the tax imposed by section 881 shall be treated as a tax imposed by section 11. "(2) LARGE CORPORATION.— '2° Copy read "divided". ' * • Copy read "is".

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1222

 101 STAT. 1330-428

PUBLIC LAW 100-203—DEC. 22, 1987 "(A) IN GENERAL.—For purposes of this section, the term 'large corporation' means any corporation if such corporation (or any predecessor corporation) had taxable income of $1,000,000 or more for any taxable year during the testing period.

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,^».j.

"(B) RULES FOR APPLYING SUBPARAGRAPH (A).— "(i) TESTING PERIOD.—For purposes of subparagraph

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(A), the term 'testing period' means the 3 taxable years immediately preceding the taxable year involved. "(ii) MEMBERS OF CONTROLLED GROUP.—For purposes

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of applying subparagraph (A) to any taxable year in the testing period with respect to corporations which are component members of a controlled group of corporations for such taxable year, the $1,000,000 amount specified in subparagraph (A) shall be divided among such members under rules similar to the rules of section 1561. "(iii) CERTAIN CARRYBACKS AND CARRYOVERS NOT TAKEN INTO ACCOUNT.—For purposes of subparagraph

s, g*if.b i -* "f

(A), taxable income shall be determined without regard to any amount carried to the taxable year under section 172 or 1212(a). "(3) CERTAIN TAX-EXEMPT ORGANIZATIONS.—For purposes of

this section— "(A) Any organization subject to the tax imposed by . L'ftl-!s>Ji section 511, and any private foundation, shall be treated as a corporation subject to tax under section 11. ¥J. "(B) Any tax imposed by section 511, and any tax imposed by section 1 or 4940 on a private foundation, shall be treated as a tax imposed by section 11. "(C) Any reference to taxable income shall be treated as ^i ' including a reference to unrelated business taxable income or net investment income (as the case may be). In the case of any organization described in subparagraph (A), subsection (b)(2)(A) shall be applied by substituting '5th month' for '3rd month'. "(h) EXCESSIVE ADJUSTMENT UNDER SECTION 6425.— "(1) ADDITION TO TAX.—If the amount of an adjustment under section 6425 made before the 15th day of the 3rd month following the close of the taxable year is excessive, there shall be added to the tax under chapter 1 for the taxable year an amount determined at the underpayment rate established under section 6621 upon the excessive amount from the date on which the credit is allowed or the refund is paid to such 15th day. "(2) EXCESSIVE AMOUNT.—For purposes of paragraph (1), the excessive amount is equal to the amount of the adjustment or (if smaller) the amount by which— ^ "(A) the income tax liability (as defined in section 6425(c)) for the taxable year as shown on the return for the taxable year, exceeds "(B) the estimated income tax paid during the taxable year, reduced by the amount of the adjustment, "(i) FISCAL YEARS AND SHORT YEARS.— "(1) FISCAL YEARS.—In applying this

section to a taxable year beginning on any date other than January 1, there shall be

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1223

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-429

substituted, for the months specified in this section, the months which correspond thereto. "(2) SHORT TAXABLE YEAR.—This section shall be applied to taxable years of less than 12 months in accordance with regulations prescribed by the Secretary, "(j) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section."

, „,,;.

(b) TECHNICAL AND CONFORMING AMENDMENTS.—

(1) Section 6154 of such Code is hereby repealed. (2) Subparagraph (C) of section 585(c)(3) of such Code is . ij^,;, amended by striking out "section 6655(d)(3)" and inserting in ->? > lieu thereof "section 6655(e)(2)(A)(i)". ry (3) Paragraph (1) of section 6201(b) of such Code is amended by Z striking out section 6154 or 6654" and inserting in lieu thereof "section 6654 or 6655". (4) Subsection (c) of section 6425 of such Code is amended by striking out "section 6655(g)" and inserting in lieu thereof "section 6655(h)". (5) Subsection (h) of section 6601 of such Code is amended by striking out "section 6154 or 6654" and inserting in lieu thereof "section 6654 or 6655". I(6) Subsection (e) of section 6651 of such Code is amended by striking out "section 6154 or 6654" and inserting in lieu thereof "section 6654 or 6655". (7) The table of sections for subchapter A of chapter 62 of such Code is amended by striking out the item relating to section 6154. (c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 585 note. apply to taxable years beginning after December 31, 1987. SEC. 10302. REVISED WITHHOLDING CERTIFICATES REQUIRED TO BE PUT INTO EFFECT MORE PROMPTLY.

(a) GENERAL RULE.—Subparagraph (B) of section 3402(fK3) (relating to when certificate takes effect) is amended to read as follows: "(B) FURNISHED TO TAKE PLACE OF EXISTING CERTIFICATE.—

'"" '• ' >,- 5; .j ry-..V?^

"(i) IN GENERAL.—Except as provided in clauses (ii) and (iii), a withholding exemption certificate furnished to the employer in cases in which a previous such certificate is in effect shall take effect as of the beginning of the 1st payroll period ending (or the 1st payment of wages made without regard to a payroll period) on or after the 30th day after the day on which such certificate is so furnished. "(ii) EMPLOYER MAY ELECT EARUER EFFECTIVE DATE.—

M ^

At the election of the employer, a certificate described in clause (i) may be made effective beginning with any payment of wages made on or after the day on which 'ji as; the certificate is so furnished and before the 30th day referred to in clause (i). "(iii) CHANGE OF STATUS WHICH AFFECTS NEXT YEAR.— T:K.-S?;'IJ Any certificate furnished pursuant to paragraph (2)(C) shall not take effect, and may not be made effective. Yd t'Sf with respect to any payment of wages made in the calendar year in which the certificate is furnished." 01)) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to certificates furnished after the day 30 days after the date of the enactment of this Act.

26 USC 3402 note.

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1224

 101 STAT. 1330-430

PUBLIC LAW 100-203—DEC. 22, 1987

SEC. 10303. ESTIMATED TAX PENALTIES FOR 1987. 26 USC 6654

(a) D E L A Y

"o*^e.

OF INCREASE IN CURRENT Y E A R

LIABILITY

T E S T FOR

INDIVIDUALS.—Notwithstanding section 1541(c) of the Tax Reform Act of 1986, the amendments made by section 1541 of such Act shall apply only to taxable years beginning after December 31, 1987. (b) CORPORATE PROVISIONS.— (1) RATIFICATION OF SECRETARIAL WAIVER.—The Congress

hereby ratifies the safe harbor provided by paragraph (b) of the Treasury Temporary Regulation 1.6655-2T. 26 USC 6655 note.

(2) CORPORATIONS ALSO MAY USE 1986 TAX TO DETERMINE -^ AMOUNT OF CERTAIN ESTIMATED TAX INSTALLMENTS DUE ON OR BEFORE JUNE 15, 1987.—

^.'\^ ^^-

(A) IN GENERAL.—In the case of a large corporation, no addition to tax shall be imposed by section 6655 of the Internal Revenue Code of 1986 with respect to any underpayment of an estimated tax installment to which this subsection applies if no addition would be imposed with respect to such underpayment by reason of section 6655(d)(1) of such Code if such corporation were not a large corporation. The preceding sentence shall apply only to the extent the underpayment is paid on or before the last date prescribed for payment of the most recent installment of estimated tax due on or before September 15, 1987. (B) INSTALLMENT TO WHICH SUBSECTION APPLIES.—This

'

'

subsection applies to any installment of estimated tax for a taxable year beginning after December 31, 1986, which is due on or before June 15, 1987. >-••• (C) LARGE CORPORATION.—For purposes of this subsection, the term "large corporation" has the meaning given such •.r ^ term by section 6655(i)(2) of such Code (as in effect on the day before the date of the enactment of this Act).

Subtitle D—Estate and Gift Tax Provisions PART I—GENERAL PROVISIONS SEC. 10401. 5-YEAR EXTENSION OF EXISTING RATES; PHASEOUT OF BENEFITS OF EXISTING R A T E S AND UNIFIED CREDIT. (a) 5-YEAR EXTENSION OF GRADUATED RATES.—Paragraph (2) of

section 2001(c) (relating to phasein of 50 percent maximum rate) is amended— (1) by striking out "1988" in subparagraph (A) and inserting in lieu thereof '1993", (2) by striking out "in 1984, 1985, 1986, or 1987" in the text of subparagraph (D) and inserting in lieu thereof "after 1983 and before 1993^', and (3) by amending the heading of subparagraph (D) to read as follows: "(D) AFTER 1983 AND BEFORE 1993.—". (b) PHASEOUT OF BENEFITS OF GRADUATED RATES AND UNIFIED CREDIT.—

(1) IN GENERAL.—Subsection (c) of section 2001 is amended by adding at the end thereof the following new paragraph: 5 ^-

"(3) PHASEOUT OF GRADUATED RATES AND UNIFIED CREDIT.—The

'-^^ tentative tax determined under paragraph (1) shall be increased by an amount equal to 5 percent of so much of the amount (with

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1225

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-431

respect to which the tentative tax is to be computed) as exceeds $10,000,000 but does not exceed $21,040,000 ($18,340,000 in the case of decedents dying, and gifts made, after 1992)." (2) TECHNICAL AMENDMENTS.—

(A) Subsection (b) of section 2001 is amended— (i) by striking out "in accordance with the rate schedule set forth in subsection (c)" in paragraph (1) and inserting in lieu thereof "under subsection (c)", and (ii) by striking out "the rate schedule set forth in subsection (c) (as in effect at the decedent's death)" in paragraph (2) and inserting in lieu thereof "the provisions of subsection (c) (as in effect at the decedent's ,..,, death)". (B) Subsection (a) of section 2502 is amended— (i) by striking out "in accordance with the rate schedule set forth in section 2001(c)" in paragraph (1) and inserting in lieu thereof "under section 2001(c)", and . (ii) by striking out "in accordance with such rate schedule" in paragraph (2) and inserting in lieu thereof "under such section". (c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 2001 apply in the Case of decedents dying, and gifts made, after note. December 31, 1987. SEC. 10402. INCLUSION RELATED TO VALUATION FREEZES.

(a) IN GENERAL.—Section 2036 (relating to transfers with retained life estate) is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: "(c) INCLUSION RELATED TO VALUATION FREEZES.—

"(1) IN GENERAL.—For purposes of subsection (a), if— "(A) any person holds a substantial interest in an enterprise, and "(B) such person in effect transfers after December 17, 1987, property having a disproportionately large share of the potential appreciation in such person's interest in the s enterprise while retaining a disproportionately large share in the income of, or rights in, the enterprise, then the retention of the retained interest shall be considered to be a retention of the enjoyment of the transferred property. "(2) SPECIAL RULE FOR SALES TO FAMILY MEMBERS.—The exception contained in subsection (a) for a bona fide sale shall not ', apply to a transfer described in paragraph (1) if such transfer is to a member of the transferor's family. "(3) DEFINITIONS.—For purposes of this subsection— "(A) SUBSTANTIAL INTEREST.—A person holds a substantial interest in an enterprise if such person owns (directly or indirectly) 10 percent or more of the voting power or income stream, or both, in such enterprise. For purposes of the preceding sentence, an individual shall be treated as owning any interest in an enterprise which is owned (directly or indirectly) by any member of such individual's family. "(B) FAMILY.—The term 'family' means, with respect to any individual, such individual's spouse, any lineal descendant of such individual or of such individual's spouse, any parent or grandparent of such individual, and any spouse of

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1226

 101 STAT. 1330-432

PUBLIC LAW 100-203—DEC. 22, 1987

• •>•': •"'^'-^ •

26 USC 2036 "°*®

any of the foregoing. For purposes of the preceding sentence, a relationship by legal adoption shall be treated as a relationship by blood. "(C) TREATMENT OF SPOUSE.—An individual and such individual's spouse shall be treated as 1 person. -fe "(4) COORDINATION WITH SECTION 2035.—For purposes of apply^ ing section 2035, any transfer of the retained interest referred ^ in the transferred property referred to in paragraph (1). ' ' "(5) COORDINATION WITH SECTION 2043.—In lieu of applying V section 2043, appropriate adjustments shall be made for the value of the retained interest." ^^^ flj) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply with respect to estates of decedents dying after December 31, 1987, but only in the case of property transferred after December 17, 1987.
 * to in paragraph (1) shall be treated as a transfer of an interest

PART II—ESTATE TAX PROVISIONS RELATING TO EMPLOYEE STOCK OWNERSHIP PLANS «>i

gg(, JP4J, CONGRESSIONAL CLARIFICATION OF ESTATE TAX DEDUCTION FOR SALES OF EMPLOYER SECURITIES.

(a) INTENT OF CONGRESS IN ENACTING SECTION 2057 OF THE INTERNAL REVENUE CODE OF 1986.—Section 2057 (relating to sales of employer securities to employee stock ownership plans or workerowned cooperatives) is amended by redesignating subsections (d), (e), and (f) as subsections (e), (f), and (g), respectively, and by inserting after subsection (c) the following new subsection: "(d) QUALIFIED PROCEEDS FROM QUALIFIED SALES.—

"(1) IN GENERAL.—For purposes of this section, the proceeds of a sale of employer securities by an executor to an employee » stock ownership plan or an eligible worker-owned cooperative ' shall not be treated as qualified proceeds from a qualified sale unless— "(A) the decedent directly owned the securities immediately before death, and "(B) after the sale, the employer securities— " "(i) are allocated to participants, or '^ "(ii) are held for future allocation in connection with— ^- "(I) an exempt loan under the rules of section 4975, or "(II) a transfer of assets under the rules of '*'•'' section 4980(c)(3).

"(2) No SUBSTITUTION PERMITTED.—For purposes of paragraph

i.

(I)(B), except in the case of a bona fide business transaction (e.g., a substitution of employer securities in connection with a merger of employers), employer securities shall not be treated as allocated or held for future allocation to the extent that such securities are allocated or held for future allocation in substitution of other employer securities that had been allocated or held for future allocation." >

'** Copy read "interest."

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1227

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-433

(b) EFFECTIVE DATE.—The amendments made by subsection (a) 26 USC 2057 shall take effect as if included in the amendments made by section ^°^^1172 of the Tax Reform Act of 1986. SEC. 10412. MODIFICATIONS OF ESTATE TAX DEDUCTION FOR SALE OF EMPLOYER SECURITIES.

(a) IN GENERAL.—Section 2057 (relating to estate tax deduction for sales of employer securities to employee stock ownership plans or worker-owned cooperatives) is amended to read as follows: "SEC. 2057. SALES OF EMPLOYER SECURITIES TO EMPLOYEE STOCK OWNERSHIP PLANS OR WORKER-OWNED COOPERATIVES. "(a) GENERAL RULE.—For purposes of the tax imposed by section

2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate an amount equal to 50 percent of the proceeds of any sale of any qualified employer securities to— '(1) an employee stock ownership plan, or "(2) an eligible worker-owned cooperative. "(b) LIMITATIONS.— "(1) MAXIMUM REDUCTION IN TAX LIABILITY.—The

amount allowable as a deduction under subsection (a) shall not exceed the amount which would result in an aggregate reduction in the tax imposed by section 2001 (determined without regard to any u • credit allowable against such tax) equal to $750,000. "(2) DEDUCTION SHALL NOT EXCEED 50 PERCENT OF TAXABLE

ESTATE.—The amount of the deduction allowable under subsection (a) shall not exceed 50 percent of the taxable estate (determined without regard to this section). "(c) LIMITATIONS ON PROCEEDS WHICH MAY B E TAKEN INTO ACCOUNT.— "(1) DISPOSITIONS BY PLAN OR COOPERATIVE WITHIN i YEAR OF SALE.—

"(A) IN GENERAL.—Proceeds from a sale which are taken ,,^. into account under subsection (a) shall be reduced (but not -••r i^. below zero) by the net sale amount. "(B) NET SALE AMOUNT.—For purposes of subparagraph

s

(A), the term 'net sale amount' means the excess (if any) of— "(i) the proceeds of the plan or cooperative from the fr: '. •• disposition of employer securities during the 1-year period immediately preceding such sale, over "(ii) the cost of employer securities purchased by such plan or cooperative during such 1-year period. "(C) EXCEPTIONS.—For purposes of subparagraph (B)(i), J., there shall not be taken into account any proceeds of a plan or cooperative from a disposition described in section ,bf£i 4978A(e). ,y "(D) AGGREGATION RULES.—For purposes of this paragraph, all employee stock ownership plans maintained by ,i; an employer shall be treated as 1 plan. "(2) SECURITIES MUST BE ACQUIRED BY PLAN FROM ASSETS WHICH ARE NOT TRANSFERRED ASSETS.—

j If

"(A) IN GENERAL.—Proceeds from a sale shall not be taken into account under subsection (a) to the extent that such proceeds (as reduced under paragraph (1)) are attributable to transferred sissets. For purposes of the preceding sentence, all assets of a plan or cooperative (other than

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1228

 101 STAT. 1330-434

PUBLIC LAW 100-203—DEC. 22, 1987 qualified employer securities) shall be treated as first acquired out of transferred assets. "(B) TRANSFERRED ASSETS.—For purposes of subparagraph

(A)-

"(i) IN GENERAL.—The term 'transferred assets' ^ means assets of an employee stock ownership plan which— "(I) are attributable to assets held by a plan exempt from tax under section 501(a) and meeting ,. V the requirements of section 401(a) (other than an • 4 employee stock ownership plan of the employer), or ' (II) were held by the plan when it was not an employee stock ownership plan. "(ii) EXCEPTION FOR ASSETS HELD ON FEBRUARY 26,

1987.—The term 'transferred assets' shall not include any asset held by the employee stock ownership plan on February 26, 1987. "(iii) SECRETARIAL AUTHORITY TO WAIVE TREATMENT AS TRANSFERRED ASSET.—The Secretary may provide that assets or a class of assets shall not be treated as trans* ferred assets if the Secretary finds such treatment is not necessary to carry out the purposes of this paragraph. "(3) OTHER PROCEEDS.—The following proceeds shall not be taken into account under subsection (a): "(A) PROCEEDS FROM SALE AFTER DUE DATE FOR RETURN.—

-*^ «; ji,

': ' '^*

•'*''

Any proceeds from a sale which occurs after the date on which the return of the tax imposed by section 2001 is required to be filed (determined by taking into account any extension of time for filing). u^gj PROCEEDS FROM SALE OF CERTAIN SECURITIES.—Any

proceeds from a sale of employer securities which were received by the decedent— "(i) in a distribution from a plan exempt from tax under section 501(a) and meeting the requirements of section 401(a), or "(ii) as a transfer pursuant to an option or other right to acquire stock to which section 83, 422, 422A, 423, or 424 applies. Any employer security the basis of which is determined by reference to any employer security described in the preceding sentence shall be treated as an employer security to which this subparagraph applies.

"(d) QUALIFIED EMPLOYER SECURITIES.—

"(1) IN GENERAL.—The term 'qualified employer securities' means employer securities— "(A) which are issued by a domestic corporation which has no stock outstanding which is readily tradable on an established securities market, "(B) which are includible in the gross estate of the decedent, "(C) which would have been includible in the gross estate of the decedent if the decedent had died at any time during the shorter of— "(i) the 5-year period ending on the date of death, or "(ii) the period beginning on October 22, 1986, and ending on the date of death, and ' * -

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1229

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-435

"(D) with respect to which the executor elects the application of this section. Subparagraph (C) shall not apply if the decedent died on or before October 22, 1986. "(2) CERTAIN ASSETS HELD BY SPOUSE.—For purposes of paragraph (1)(C), any employer security which would have been includible in the gross estate of the spouse of a decedent during any period if the spouse had died during such period shall be treated as includible in the gross estate of the decedent during such period. "(3) PERIODS DURING WHICH DECEDENT NOT AT RISK.—For purposes of paragraph (I)(C), employer securities shall not be treated as includible in the gross estate of the decedent during any period described in section 246(c)(4). "(e) WRITTEN STATEMENT REQUIRED.—

"(1) IN GENERAL.—No deduction shall be allowed under subsection (a) unless the executor of the estate of the decedent files with the Secretary the statement described in paragraph (2). "(2) STATEMENT.—A statement is described in this paragraph if it is a verified written statement— "(A) which is made by— "(i) the employer whose employees are covered by the employee stock ownership plan, or "(ii) any authorized officer of the eligible workerowned cooperative, and \.j^^.i "(B) which— ,,. "(i) acknowledges that the sale of employer securities to the plan or cooperative is a sale to which sections 4978A and 4979A apply, and ?::'r.^ "(ii) certifies— "(I) the net sale amount for purposes of subsection (c)(D, and "(II) the amount of assets which are not transferred assets for purposes of subsection (c)(2). "(f) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) EMPLOYER SECURITIES.—The term 'employer securities' has the meaning given such term by section 409(1). "(2) EMPLOYEE STOCK OWNERSHIP PLAN.—The term 'employee stock ownership plan' means— "(A) a tax credit employee stock ownership plan (within the meaning of section 409(a)), or "(B) a plan described in section 4975(e)(7). "(3) EuGiBLE WORKER-OWNED COOPERATIVE.—The term 'eligible worker-owned cooperative' has the meaning given such term by section 1042(c). "(4) EMPLOYER.—Except to the extent provided in regulations, the term 'employer' includes any person treated as an employer under subsections (b), (c), (m), and (o) of section 414. "(g) TERMINATION.—This section shall not apply to any sale after December 31, 1991." (b) EFFECTIVE DATES.— 26 USC 2057 (1) IN GENERAL.—Except as provided in this subsection, the note. amendments made by this section shall apply to sales after February 26, 1987.

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1230

 101 STAT. 1330-436

PUBLIC LAW 100-203—DEC. 22, 1987 (2) PROVISIONS TAKING EFFECT AS IF INCLUDED IN THE TAX

REFORM ACT OF 1986.—The following provisions shall take effect as if included in the amendments made by section 1172 of the Tax Reform Act of 1986: (A) Section 2057(f)(2) of the Internal Revenue Code of 1986, as added by this section. (B) The repeal of the requirement that a sale be made by the executor of an estate to qualify for purposes of section 2057 of such Code. (3) DIRECT OWNERSHIP REQUIREMENT.—If the requirements of section 2057(d)(1)(B) of such Code (as modified by section 2057(d)(2) of such Code), as in effect after the amendments made by this section, are met with respect to any employer securities sold after October 22, 1986, and before February 27, 1987, such securities shall be treated as having been directly owned by the decedent for purposes of section 2057 of such Code, as in effect before such amendments. (4) REDUCTION FOR SALES ON OR BEFORE FEBRUARY 26, 1987.—In applying the limitations of subsection (b) of section 2057 of such Code to sales after February 26, 1987, there shall be taken into account sales on or before February 26, 1987, to which section 2057 of such Code applied. SEC. 10413. EXCISE TAX ON PLANS OR COOPERATIVES DISPOSING OF .iOi.. r EMPLOYER SECURITIES FOR WHICH ESTATE TAX DEDUCTION WAS ALLOWED.

(a) IN GENERAL.—Chapter 43 (relating to excise taxes on qualified pension, etc., plans) is amended by inserting after section 4978 the following new section: "SEC. 4978A. TAX ON CERTAIN DISPOSITIONS OF EMPLOYER SECURITIES TO WHICH SECTION 2057 APPLIED.

"(a) IMPOSITION OF TAX.—In the case of a taxable event involving qualified employer securities held by an employee stock ownership plan or eligible worker-owned cooperative, there is hereby imposed a tax equal to the amount determined under subsection (b). "(b) AMOUNT OF TAX.—

"(1) IN GENERAL.—The amount of the tax imposed by subsection (a) shall be equal to 30 percent of— "(A) the amount realized on the disposition in the case of a taxable event described in paragraph (1) or (2) of sub"^'^" section (c), or Loans. "(B) the amount repaid on the loan in the case of a • taxable event described in paragraph (3) of subsection (c). "(2) DISPOSITIONS OTHER THAN SALES OR EXCHANGES.—For purposes of paragraph (1), in the case of a disposition of employer securities which is not a sale or exchange, the amount realized on such disposition shall be the fair market value of such employer securities at the time of disposition. "(c) TAXABLE EVENT.—For purposes of this section, the term 'taxable event' means the following: /I ?r«s Dsrj "^^^ DISPOSITION WITHIN 3 YEARS OF ACQUISITION.—Any disposi^0. tion of employer securities by an employee stock ownership plan or eligible worker-owned cooperative within 3 years after such plan or cooperative acquired qualified employer securities.

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1231

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-437

"(2) STOCKS DISPOSED OF BEFORE ALLOCATION.—Any disposition of qualified employer securities to which paragraph (1) does not apply if— V a. "(A) such disposition occurs before such securities are allocated to accounts of participants or their beneficiaries, vd »••

and

"(B) the proceeds from such disposition are not so allocated. "(3) USE OF ASSETS TO REPAY ACQUISITION LOANS.—The payment by an employee stock ownership plan of any portion of any loan used to acquire employer securities from transferred assets (within the meaning of section 2057(c)(2)(B)). "(d) ORDERING RULES.—For purposes of this section and section 4978, any disposition of employer securities shall be treated as having been made in the following order: "(1) First, from qualified employer securities acquired during the 3-year period ending on the date of such disposition, beginning with the securities first so acquired. "(2) Second, from qualified employer securities acquired before such 3-year period unless such securities (or the proceeds from such disposition) have been allocated to accounts of participants or their beneficiaries. "(3) Third, from qualified securities (within the meaning of section 4978(e)(2)) to which section 1042 applied acquired during the 3-year period ending on the date of such disposition, beginning with the securities first so acquired. "(4) Finally, from any other employer securities. In the case of a disposition to which section 4978(d) or subsection (e) applies, the disposition of employer securities shall be treated as having been made in the opposite order of the preceding sentence. "(e) SECTION NOT TO APPLY TO CERTAIN DISPOSITIONS.—

"(1) IN GENERAL.—This section shall not apply to any disposi, tion described in paragraph (Dor (3) of section 4978(d). "(2) CERTAIN REORGANIZATIONS.—For purposes of this section, any exchange of qualified employer securities for employer securities of another corporation in any reorganization described in section 368(a)(l) shall not be treated as a disposition, but the employer securities which were received shall be treated— "(A) as qualified employer securities of the plan or cooperative, and ?.; "(B) as having been held by the plan or cooperative during the period the qualified employer securities were held. "(3) DISPOSITION TO MEET DIVERSIFICATION REQUIREMENTS.—

Any disposition which is made to meet the requirements of section 401(a)(28) shall not be treated as a disposition. "(f) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) TERMS USED IN SECTION 2057.—Any term used in this section which is used in section 2057 shall have the meaning , given such term by section 2057. "(2) QuAUFiED EMPLOYER SECURITIES.—The term 'qualified employer securities' has the meaning given such term by section

.

,^. ' '^' ^ "

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1232

 101 STAT. 1330-438

PUBLIC LAW 100-203—DEC. 22, 1987

2057, except that such term shall include employer securities sold before February 27, 1987, for which a deduction was allowed under section 2057. "(8) DISPOSITION.—The term 'disposition' includes any distribution. "(4) LIABILITY FOR PAYMENT OF TAXES.—The tax imposed by this section shall be paid by— "(A) the employer, or "(B) the eligible worker-owned cooperative, which made the written statement described in section 2057(e)." (b) CONFORMING AMENDMENTS.—

(1) Section 4978(b)(2) is amended by striking out the parenthetical and inserting in lieu thereof "(determined as if such securities were disposed of in the order described in section 4978A(e))". (2) The table of sections for chapter 43 is amended by inserting after the item relating to section 4978 the following new item: "Sec. 4978A. Tax on certain dispositions of employer securities to which section 2057 applied."

26 USC 4978 note.

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable events (within the meaning of section 4978A(c) of the Internal Revenue Code of 1986) occurring after February 26, 1987.

Subtitle E—Provisions Relating to Excise Taxes and User Fees PART I—EXCISE TAXES SEC. 10501. EXTENSION OF TELEPHONE EXCISE TAX.

Paragraph (2) of section 4251(b) (relating to applicable percentage) is amended to read as follows: "(2) APPLICABLE PERCENTAGE.—The term 'applicable percentage' means 3 percent; except that, with respect to amounts paid pursuant to bills first rendered after 1990, the applicable percentage shall be zero." SEC. 10502. DIESEL FUEL AND AVIATION FUEL TAXES IMPOSED AT WHOLESALE LEVEL.

(a) IN GENERAL.—Part III of subchapter A of chapter 32 is amended by inserting after subpart A the following new subpart:

"Subpart B—Diesel Fuel and Aviation Fuel

26 USC 4091.

"Sec. 4091. Imposition of tax. "Sec. 4092. Definitions. "Sec. 4093. Exemptions; special rule. "SEC. 4091. IMPOSITION OF TAX.

. ''"'

,.

. -.

r "^

"(a) IN GENERAL.—There is hereby imposed a tax on the sale of any taxable fuel by the producer or the importer thereof or by any producer of a taxable fuel. "(b) RATE OF TAX.—

"(1) IN GENERAL.—The rate of the tax imposed by subsection (a) shall be the sum of—

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1233

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-439

"(AKi) the Highway Trust Fund financing rate in the Case of dieselfuel, and "(ii) the Airport and Airway Trust Fund financing rate in the case of aviation fuel, and "(B) the Leaking Underground Storage Tank Trust Fund financing rate in the case of any taxable fuel. "(2) HIGHWAY TRUST FUND FINANCING RATE.—For purposes of paragraph (1), except as provided in subsection (c), the Highway Trust Fund financing rate is 15 cents per gallon. "(3) AIRPORT AND AIRWAY TRUST FUND FINANCING RATE.—For

purposes of paragraph (1), the Airport and Airway Trust Fund financing rate is 14 cents per gallon.

. -.

"(4) LEAKING UNDERGROUND STORAGE TANK TRUST FUND FINANCING RATE.—For purposes of paragraph (1), the Leaking

Underground Storage Tank Trust Fund financing rate is 0.1 cent per gallon. "(5) TERMINATION OF RATES.—

"(A) The Highway Trust Fund financing rate shall not apply on and after October 1, 1993. (B) The Airport and Airway Trust Fund financing rate shall not apply on and after January 1, 1988. "(C) The Leaking Underground Storage Tank Trust Fund financing rate shall not apply during any period during which the Leaking Underground Storage Tank Trust Fund financing rate under section 4081 does not apply. "(c) REDUCED RATE OF TAX FOR DIESEL FUEL IN ALCOHOL MIXTURE,

ETC.—Under regulations prescribed by the Secretary— "(1) IN GENERAL.—The Highway Trust Fund financing rate shall be— "(A) 9 cents per gallon in the case of the sale of any mixture of diesel fuel if— ,.^ "(i) at least 10 percent of such mixture consists of alcohol (as defined in section 4081(c)(3)), and, "(ii) the diesel fuel in such mixture was not taxed under subparagraph (B), and "(B) 10 cents per gallon in the case of the sale of diesel fuel for use (at the time of such sale) in producing a mixture described in subparagraph (A). "(2) LATER SEPARATION.—If any person separates the diesel fuel from a mixture of the diesel fuel and alcohol on which tax was imposed under subsection (a) at a Highway Trust Fund financing rate equivalent to 9 cents a gallon by reason of this subsection (or with respect to which a credit or payment was allowed or made by reason of section 6427(fKl)), such person shall be treated as the producer of such diesel fuel. The amount of tax imposed on any sale of such diesel fuel by such person shall be 5 cents per gallon. "(3) TERMINATION.—Paragraph (1) shall not apply to any sale after September 30, 1993. "(d) EXEMPTION FROM TAX FOR AVIATION FUEL IN ALCOHOL MIXTURE, ETC.—

"(1) IN GENERAL.—The Airport and Airway Trust Fund financing rate shall not apply to the sale of— "(A) any mixture of aviation fuel at least 10 percent of which consists of alcohol (as defined in section 4081(c)(3)), or "(B) any aviation fuel for use (at the time of such sale) in producing a mixture described in subparagraph (A).

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1234

 101 STAT. 1330-440

PUBLIC LAW 100-203—DEC. 22, 1987 "(2) LATER SEPARATION.—If any person separates the aviation

fuel from a mixture of the aviation fuel and alcohol on which the Airport and Airway Trust Fund financing rate did not apply by reeison of this subsection (or with respect to which a credit or payment was allowed or made by reason of section 6427(f)(2)), such person shall be treated as the producer of such aviation fuel. "(3) TERMINATION.—Paragraph (1) shall not apply to any sale after September 30, 1993. 26 USC 4092.

"SEC. 4092. DEFINITIONS.

?')

"(a) TAXABLE FUEL.—For purposes of this subpart ^ "(1) IN GENERAL.—The term 'taxable fuel'means— . ( "(A) diesel fuel, and \J "(B) aviation fuel. "(2) DIESEL FUEL.—The term 'diesel fuel' means any liquid (other than any product taxable under section 4081) which is suitable for use as a fuel in a diesel-powered highway vehicle or a diesel-powered train. "(3) AVIATION FUEL.—The term 'aviation fuel' means any liquid (other than any product taxable under section 4081) which is suitable for use sis a fuel in an aircraft. "(b) PRODUCER.—For purposes of this subpart— "(1) CERTAIN PERSONS TREATED AS PRODUCERS.— ,%y::j

ff.m

ic

.:*^;;"

26 USC 4093.

Regulations. Regulations.

"(A) IN GENERAL.—The term 'producer' includes any person described in subparagraph (B) who elects to register under section 4101 with respect to the tax imposed by section 4091. "(B) PERSONS DESCRIBED.—A person is described in this subparagraph if such person is— "(i) a refiner, compounder, blender, or wholesale distributor of a taxable fuel, or "(ii) a dealer selling any taxable fuel exclusively to producers of such taxable fuel. "(C) TAX-FREE PURCHASERS TREATED AS PRODUCERS.—Any

person to whom any taxable fuel is sold tax-free under this subpart shall be treated as the producer of such fuel. "(2) WHOLESALE DISTRIBUTOR.—For purposes of paragraph (1), the term 'wholesale distributor' includes any person who sells a taxable fuel to producers, retailers, or to users who purchase in bulk quantities and deliver into bulk storage tanks. Such term does not include any person who (excluding the term 'wholesale distributor' from paragraph (1)) is a producer or importer. "SEC. 4093. EXEMPTIONS; SPECIAL RULE. "(a) HEATING OIL.—The tax imposed by section 4091 shall not apply in the case of sales of any taxable fuel which the Secretary determines is destined for use as heating oil. "0)) SALES TO PRODUCER.—Under regulations prescribed by the Secretary, the tax imposed by section 4091 shall not apply in the case of sales of a taxable fuel to a producer of such fuel. "(c) AUTHORITY TO EXEMPT CERTAIN OTHER U S E S. — S u b j e c t to SUCh

terms and conditions as the Secretary may provide (including the application of section 4101), the Secretary may by regulation provide that-

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1235

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-441

"(1) the Highway Trust Fund financing rate under section 4091 shall not apply to diesel fuel sold for use by any purchaser as a fuel in a diesel-powered train, "(2) the Airport and Airway Trust Fund financing rate under section 4091 shall not apply to aviation fuel sold for use by any purchaser as a fuel in an aircraft not in noncommercial aviation
 * (as defined in section 4041(c)(4)),

•:'r "(3) the tax imposed by section 4091 shall not apply to taxable fuel sold for use by any purchaser other than as a motor fuel, and "(4) the tax imposed by section 4091 shall not apply to taxable fuel sold for the exclusive use of any State, any political subdivision of a State, or the District of Columbia. "(d)

SPECIAL

ADMINISTRATIVE

RULES.—The

Secretary

may

require— "(1) information reporting by each remitter of the tax im^ posed by section 4091, and "(2) information reporting by, and registration of, such other persons as the Secretary deems necessary to carry out this subpart. "(e) CROSS REFERENCES.—

"(1) For imposition of tax where certain uses of diesel fuel or aviation fuel occur before imposition of tax by section 4091, see . r subsections (a)(1) and (c)(1) of section 4041. "(2) For provisions allowing a credit or refund for fuel not used for certain taxable purposes, see section 6427." (b) RETAIL DIESEL FUEL AND AVIATION FUEL TAXES TO BE RESIDUAL TAXES.—

(1) Paragraph (1) of section 4041(a) is amended— (A) by striking out "DIESEL FUEL" in the heading and inserting in lieu thereof "TAX ON DIESEL FUEL WHERE NO

TAX IMPOSED ON FUEL UNDER SECTION 4091", and (B) by adding at the end thereof the following new sentence: "No tax shall be imposed by this paragraph on the sale or use of any liquid if there was a taxable sale of such liquid under section 4091." (2) Paragraph (1) of section 4041(c) is amended— no (^) ]r,y striking out " IN GENERAL" in the heading and inserting in lieu thereof "TAX ON NONGASOLINE FUELS WHERE NO TAX IMPOSED ON FUEL UNDER SECTION 4091", and (B) by adding at the end thereof the following new sentence: '• "No tax shall be imposed by this paragraph on the sale or use of any liquid if there was a taxable sale of such liquid under section 4091." (3) Subsection (d) of section 4041 is amended by redesignating paragraph (3) as paragraph (4) and by striking out paragraphs (1) and (2) and inserting in lieu thereof the following: "(1) TAX ON SALES AND USES SUBJECT TO TAX UNDER SUBSECTION

(a).—In addition to the taxes imposed by subsection (a), there is hereby imposed a tax of 0.1 cent a gallon on the sale or use of any liquid (other than liquefied petroleum gas) if tax is imposed by subsection (a) on such sale or use. i-

"(2) TAX ON DIESEL FUEL USED IN TRAINS.—There is hereby

imposed a tax of 0.1 cent a gallon on any liquid (other than a .riV product taxable under section 4081)—

Reports,

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1236

 101 STAT. 1330-442

PUBLIC LAW 100-203—DEC. 22, 1987

,

"(A) sold by any person to an owner, lessee, or other operator of a diesel-powered train for use as a fuel in such train, or "(B) used by any person as a fuel in a diesel-powered train unless there was a taxable sale of such liquid under f subparagraph (A). No tax shall be imposed by this paragraph on the sale or use of e any liquid if there was a taxable sale of such liquid under section 4091. "(3) LIQUIDS USED IN AVIATION.—In addition to the taxes imposed by subsection (c), there is hereby imposed a tax of 0.1 cent a gallon on any liquid (other than any product taxable under section 4081)— ai5..xi3>l '< "(A) sold by any person to an owner, lessee, or other operator of an aircraft for use as a fuel in such aircraft, or 0ti i "(B) used by any person as a fuel in an aircraft unless there was a taxable sale of such liquid under subparagraph (A). « No tax shall be imposed by this paragraph on the sale or use of any liquid if there was a taxable sale of such liquid under section 4091." (4) Subsection (n) of section 4041 is hereby repealed, (c) AMENDMENTS RELATING TO CREDITS AND REFUNDS.—

'

(1) Section 6427 is amended by redesignating subsections (1) through (p) as subsections (m) through (q), respectively, and by inserting after subsection (k) the following new subsection:

"(1) NONTAXABLE USES OF DIESEL FUEL AND AVIATION FUEL TAXED UNDER SECTION 4091.—

"(1) IN GENERAL.—Except as provided in subsection (k) and in paragraph (3) of this subsection, if any fuel on which tax has been imposed by section 4091 is used by any person in a nontaxable use, the Secretary shall pay (without interest) to the '*' ultimate purchaser of such fuel an amount equal to the aggregate amount of tax imposed on such fuel under section 4091. "(2) NONTAXABLE USE.—For purposes of this subsection, the term 'nontaxable use' means, with respect to any fuel, any use of such fuel if such use is exempt from the taxes imposed by subsections (a)(1) and (c)(1) of section 4041 (other than by reason of the imposition of tax on any sale thereof). "(3) No REFUND OF LEAKING UNDERGROUND STORAGE TANK

I

TRUST FUND FINANCING TAX.—Paragraph (1) shall not apply to so much of the tax imposed by section 4091 as is attributable to the Leaking Underground Storage Tank Trust Fund financing rate imposed by such section in the case of— "(A) fuel used in a diesel-powered train, and "(B) fuel used in any aircraft." (2) Paragraph (1) of section 6427(b) is amended— (A) by striking out "subsection (a) of section 4041" the first place it appears and inserting in lieu thereof "section 4041(a) or 409r, and (B) by striking out "subsection (a) of section 4041" the second place it appears and inserting in lieu thereof "section 4041(a) or 4091, as the case may be". (3) Subparagraph (B) of section 6427(e)(l) is amended by inserting ^'or 409r'after "section 4041". (4) Subsection (f) of section 6427 is amended to read as follows:

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1237

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-443

"(f) GASOLINE, DIESEL FUEL, AND AVIATION FUEL USED TO''^' PRODUCE CERTAIN ALCOHOL FUELS.—Except as provided in subsection

(k)"(1) G A S O U N E AND DIESEL FUELS.—

•'

 * i

"(A) IN GENERAL.—If any gasoline or diesel fuel on which tax was imposed by section 4081 or 4091 at the regular Highway Trust Fund financing rate is used by any person in producing a mixture described in section 4081(c) or in section 4091(c)(lKA) (as the case may be) which is sold or used in such person's trade or business, the Secretary shall pay (without interest) to such person an amount equal to the excess of the regular Highway Trust Fund financing rate over the incentive Highway Trust Fund Financing rate with respect to such fuel. "(B) DEFINITIONS.—For purposes of subparagraph (A)— "(i)

REGULAR

HIGHWAY

TRUST

FUND FINANCING

RATE.—The term 'regular Highway Trust Fund financing rate' means— "(I) 9 cents per gallon in the case of gasoline, and "(II) 15 cents per gallon in the case of diesel fuel. "(ii)

-a*-. r.

INCENTIVE HIGHWAY TRUST FUND FINANCING

RATE.—The term 'incentive Highway Trust Fund Financing rate' means— "(I) SVs cents per gallon in the case of gasoline, and "(II) 10 cents per gallon in the case of diesel fuel. "(C) COORDINATION WITH OTHER REPAYMENT PROVISIONS.—

No amount shall be payable under subparagraph (A) with respect to any gasoline or diesel fuel with respect to which I an amount is payable under subsection (d), (e), or (1) of this section or under section 6420 or 6421. "(2) AVIATION FUEL.—If any aviation fuel on which tax was imposed by section 4091 is used by any person in producing a mixture at least 10 percent of which is alcohol (as defined in section 4081(c)(3)) which is sold or used in such person's trade or business, the Secretary shall pay (without interest) to such person an amount equal to the aggregate amount of tax (attributable to the Airport and Airway Trust Fund financing rate) imposed on such fuel under section 4091. "(3) TERMINATION.—Paragraphs (1) and (2) shall not apply with respect to any mixture sold or used after September 30, 1993." (5)(A) Paragraph (1) of section 6427(i) is amended by striking out "or (h)" and inserting in lieu thereof "(h), or (1)". (B) Clause (i) of section 6427(i)(2KA) is amended by striking out "and (h)" and inserting in lieu thereof "(h), and (1)". (6) Subsection (o) of section 6427 (as redesignated by paragraph (D) is amended to read as follows: "(o) TERMINATION OF CERTAIN PROVISIONS.—Except with respect to taxes imposed by section 4041(d) and sections 4081 and 4091 at the Leaking Underground Storage Tank Trust Fund financing rate, subsections (a), 0)), (c), (d), (g), (h), and (1) shall only apply with respect to fuels purchased before October 1, 1993." (d) OTHER CONFORMING AMENDMENTS.— '"Copy read "TO".

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1238

 101 STAT. 1330-444

PUBLIC LAW 100-203—DEC. 22, 1987

(1) Subsection (c) of section 40 is amended by striking out "or ' section 4081(c)" and inserting in lieu thereof ", section 4081(c), or section 4091(c)". (2) Subparagraph (B) of section 4081(e)(2), as amended by section 1703 of the Tax Reform Act of 1986, is amended by striking out "net revenues" and all that follows and inserting in 1 lieu thereof the following: "net revenues are at least, $500,000,000 from taxes imposed by section 4041(d) and taxes attributable to Leaking Underground Storage Tank Trust Fund financing rate imposed under this section and sections 4042 and J 4091." (3) Subsection (a) of section 4101, as amended by section 1703 of the Tax Reform Act of 1986, is amended by inserting "or 4091" after "section 4081". (4) Subsection (a) of section 4221 is amended by striking out "(other than" and all that follows through "sale by the manu- facturer" and inserting in lieu thereof "(other than under section 4121, 4081, or 4091) on the sale by the manufacturer". (5) Section 6206 is amended by striking out "or 4041" and inserting in lieu thereof "or 4041 or 4091". (6) Paragraph (2) of section 6416(b) is amended— IK (A) by striking out "(other than coal teixable under section 4121)", and jfiilr (B) by adding at the end thereof the following new sentence: "This paragraph shall not apply in the case of any tax paid under section 4091 or 4121." (7) Subparagraph (A) of section 64160t)X3) is amended by 1 inserting "and other than any fuel taxable under section 4091" r after "section 4081". (8) Subparagraph (B) of section 64160t>X3) is amended by striking out ", such gasoline" and inserting in lieu thereof "or any fuel taxable under section 4091, such gasoline or fuel". J (9) Subparagraph (C) of section 6421(e)(2) is hereby repealed. (10) The subsection (j) of section 6421 relating to cross references is amended by striking out paragraph (1) and by rei designating paragraphs (2), (3), and (4), as paragraphs (1), (2), - and (3), respectively. ( (11) Section 6652 is amended by striking out the subsection (j) added by section 17020)) of the Tax Reform Act of 1986 and by redesignating subsections (1) and (m) as subsections (k) and (1),, respectively. (12) Subsection (b) of section 9502 is amended by striking out I "and" at the end of paragraph (2), by redesignating paragraph (3) as paragraph (4), and by inserting after paragraph (2) the following new paragraph: "(3) amounts determined by the Secretary to be equivalent to the taxes received in the Treasury before January 1, 1988, under section 4091 (to the extent attributable to the Airport and • Airway Trust Fund financing rate), and". (13) Paragraph (1) of section 9503(b) is amended by striking out subparagraph (F) and inserting in lieu thereof the following: "(F) section 4091 (relating to tax on diesel fuel), and". (14) Paragraph (4) of section 9503(b) is amended to read as follows: "(4) CERTAIN ADDITIONAL TAXES NOT TRANSFERRED TO HIGHWAY

TRUST FUND.—For purposes of paragraphs (1) and (2)—

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1239

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-445

,„,

"(A) there shall not be taken into account the taxes imposed by sections 4041(d), and "(B) there shall be taken into account the taxes imposed by sections 4081 and 4091 only to the extent attributable to the Highway Trust Fund financing rates under such i^ sections." (15) Paragraph (2) of section 9503(e) is amended— (A) by striking out "sections 4041 and 4081" and inserting

in lieu thereof "sections 4041, 4081, and 4091", and (B) by striking out "section 4041 or 4081" and inserting in ^;^ lieu thereof "section 4041, 4081, or 4091". (16) Subsection (b) of section 9508 is amended by redesignating paragraphs (3) and (4) as paragraphs (4) and (5), respectively, and by inserting after paragraph (2) the following new paragraph: "(3) taxes received in the Treasury under section 4091 (relating to tax on diesel fuel and aviation fuel) to the extent attributable to the Leaking Underground Storage Trust Fund financing rate under such section,". (17) Subparagraph (A) of section 9508(c)(2) is amended by striking out clause (ii) and all that follows and inserting in lieu thereof the following: "(ii) credits allowed under section 34, with respect to the taxes imposed by section 4041(d) or by c sections 4081 and 4091 (to the extent attributable to the j.:j Leaking Underground Storage Trust Fund financing rate under such sections)." (18) The table of subparts for part III of subchapter A of chapter 32 is amended by inserting after the item relating to subpart A the following new item:

• f':^, \^''l

"Subpart B. Diesel fuel and aviation fuel."

(e) EFFECTIVE DATE.—The amendments made by this section shall apply to sales after March 31, 1988. (f) FLOOR STOCKS TAX.— (1) IMPOSITION OF TAX.—On any taxable fuel which on April 1,

26 USC 40 note. 26 USC 4091

note.

1988, is held by a taxable person, there is hereby imposed a floor stocks tax at the rate of tax which would be imposed if such fuel were sold on such date in a sale subject to tax under section 4091 of the Internal Revenue Code of 1986 (as added by this section). (2) OVERPAYMENT OF FLOOR STOCKS TAXES, ETC.—Sections 6416

and 6427 of such Code shall apply in respect of the floor stocks taxes imposed by this subsection so as to entitle, subject to all provisions of such sections, any person paying such floor stocks taxes to a credit or refund thereof for any reason specified in such sections. All provisions of law, including penalties, applicable with respect to the taxes imposed by section 4091 of such Code (as so added) shall apply to the floor stocks taxes imposed by this subsection. (3) DUE DATE OF TAX.—The taxes imposed by this subsection shall be paid before June 16, 1988. (4) DEFINITIONS.—For purposes of this subsection— (A) TAXABLE FUEL.—

(i) IN GENERAL.—The term "taxable fuel" means any tsixable fuel (as defined in section 4092 of such Code, as

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Page:Grimm's Fairy Tales.djvu/382

was once a merchant who had only one child, a son, that was very young, and barely able to run alone. He had two richly-laden ships then making a voyage upon the seas, in which he had embarked all his wealth, in the hope of making great gains, when the news came that both were lost. Thus from being a rich man he became all at once so very poor that nothing was left to him but one small plot of land; and there he often went in an evening to take his walk, and ease his mind of a little of his trouble.

One day, as he was roaming along in a brown study, thinking with no great comfort on what he had been, and what he now was, and was like to be, all on a sudden there stood before him a little rough-looking black dwarf. "Prithee, friend, why so sorrowful?" said he to the merchant; "what is it you take so deeply to heart?" "If you could do me any good I would willingly tell you," said the merchant. "Who knows but I may?" said the little man: "tell me what ails you, and perhaps you will find I may be of some use." Then the merchant told him how all his wealth was gone to the bottom of the sea, and how he had nothing left but that little plot of land. "Oh! trouble not yourself about that," said the dwarf; "only 364

title: Page:Grimm's Fairy Tales.djvu/382


text:
Page:United States Statutes at Large Volume 101 Part 2.djvu/1240

 101 STAT. 1330-446

PUBLIC LAW 100-203—DEC. 22, 1987 added by this section) on which no tax bas been imposed under section 4041 of such Code. (ii)

EXCEPTION FOR FUEL HELD FOR NONTAXABLE

USES.—The term "taxable fuel""'' shall not include fuel held exclusively for any use which is a nontaxable use (as defined in section 6427(1) of such Code, as added by this section). (B) TAXABLE PERSON.—The term "taxable person" means any person other than a producer (as defined in section 4092 of such Code, as so added) or importer of taxable fuel. (C) HELD BY A TAXABLE PERSON.—An article shall be treated as held by a person if title thereto has passed to such person (whether or not delivery to such person has been made). (5) SPECIAL RULE FOR FUEL HELD FOR USE IN TRAINS AND COMMERCIAL AIRCRAFT.—Only the Leaking Underground Stor-

age Tank Trust Fund financing rate under section 4091 of such Code shall apply for purposes of this subsection with respect to— (A) diesel fuel held exclusively for use as a fuel in a X1 diesel-powered train, and (B) aviation fuel held exclusively for use as a fuel in an aircraft not in noncommercial aviation (as defined in section 4041(c)(4) of such Code). (6) TRANSFER OF FLOOR STOCK REVENUES TO TRUST FUNDS.—For

purposes of determining the amount transferred to any trust fund, the tax imposed by this subsection shall be treated as imposed by section 4091 of such Code (as so added). Effective date.

26 USC 4091 "'^ ® "

(g) COORDINATION WiTH AlRPORT AND AlRWAY SAFETY AND C A P A C i-pY EXPANSION ACT OF 1987.—If the Airport and Airway Safety and

Capacity Expansion Act of 1987 is enacted, effective on December 31, 1987, sections 4091(b)(5)(B) and 9502(b)(3) of such Code (as added by this section) are each amended by striking out "January 1, 1988" and inserting in lieu thereof "January 1, 1991".'^^ SEC. 10503. EXTENSION OF TEMPORARY INCREASE IN AMOUNT OF TAX IMPOSED ON COAL PRODUCERS.

Subparagraph (A) of section 4121(e)(2) (relating to temporary increase termination date) is amended by striking out "January 1, 1996" and inserting in lieu thereof "January 1, 2014".

I 26 USC 7801 note.

PART II—TAX-RELATED USER FEES

SEC. 10511. FEES FOR REQUESTS FOR RULING, DETERMINATION, AND SIMILAR LETTERS.

(a) GENERAL RULE.—The Secretary of the Treasury or his delegate (hereinafter in this section referred to as the "Secretary") shall establish a program requiring the payment of user fees for requests to the Internal Revenue Service for ruling letters, opinion letters, and determination letters and for similar requests. (b) PROGRAM CRITERIA.—

(1) IN GENERAL.—The fees charged under the program required by subsection (a)— "*Copy read " 'taxable fuel' ". '"Copy read "1991", and.".

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Page:United States Statutes at Large Volume 101 Part 2.djvu/1241

 PUBLIC LAW 100-203—DEC. 22, 1987

101 STAT. 1330-447

(A) shall vary according to categories (or subcategories) established by the Secretary, (B) shall be determined after taking into account the average time for (and difficulty of) complying with requests in each category (and subcategory), and (C) shall be payable in advance. (2) EXEMPTIONS, ETC.—The Secretary shall provide for such exemptions (and reduced fees) under such program as he determines to be appropriate. (3) AVERAGE FEE REQUIREMENT.—The average fee charged

under the program required by subsection (a) shall not be less than the amount determined under the following table: Category Employee plan ruling and opinion Exempt organization ruling Employee plan determination Exempt organization determination Chief counsel ruling

Average Fee $250 $350 $300 $275 $200.

(c) APPLICATION OF SECTION.—Subsection (a) shall apply with re- Effective date. spect to requests made on or after the 1st day of the second calendar month beginning after the date of the enactment of this Act and before September 30, 1990. SEC. 10512. OCCUPATIONAL TAXES RELATING TO ALCOHOL, TOBACCO, AND FIREARMS. (a) OCCUPATIONAL TAXES ON DISTILLED SPIRITS PLANTS, BONDED WINE CELLARS, BREWERIES, ETC.— (1) DISTILLED SPIRITS PLANTS, BONDED WINE CELLARS, ETC.—

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(A) IN GENERAL.—Part II of subchapter A of chapter 51 (relating to distilled spirits, wines, and beer) is amended by inserting before subpart B the following new subpart:

"Subpart A—Proprietors of Distilled Spirits Plants, Bonded Wine Cellars, Etc. "Sec. 5081. Imposition and rate of tax. "SEC. 5081. IMPOSITION AND RATE OF TAX.

"(a) GENERAL RULE.—Every proprietor of— "(1) a distilled spirits plant, "(2) a bonded wine cellar, "(3) a bonded wine warehouse, or "(4) a taxpaid wine bottling house, shall pay a tax of $1,000 per year in respect of each such premises. "(b) REDUCED RATES FOR SMALL PROPRIETORS.—

"(1) IN GENERAL.—Subsection (a) shall be applied by substituting '$500' for '$1,000' with respect to any taxpayer the gross receipts of which (for the most recent taxable year ending before the 1st day of the taxable period to which the tax imposed by subsection (a) relates) are less than $500,000. (2) (DoNTROLLED GROUP RULES.—All persons treated as 1 taxpayer under section 5061(e)(3) shall be treated as 1 taxpayer for purposes of paragraph (1). "(3) CERTAIN RULES TO APPLY.—For purposes of paragraph (1),

rules similar to the rules of subparagraphs (B) and (C) of section 448(c)(3) shall apply." (B) T E C H N I C A L AMENDMENTS.—

26 USC 5081.

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