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Page:United States Statutes at Large Volume 90 Part 2.djvu/104

 9 0 STAT. 1572

PUBLIC LAW 94-455—OCT. 4, 1976 "(g)

26 USC 280A note. 26 USC 274.

SPECIAL RULE FOR CERTAIN R E N T A L U S E. — Notwithstanding

any other provision of this section or section 183, if a dwelling u n i t is used during the taxable year by the taxpayer as a residence and such dwelling unit is actually rented for less than 15 days during the taxable year, then— " (1) no deduction otherwise allowable under this chapter because of the rental use of such dwelling unit shall be allowed, and " (2) the income derived from such use for the taxable year shall not be included in the gross income of such taxpayer under section 6 1. " (b) CLERICAL AMENDMENT. — The table of sections for such part IX is amended by adding at the end thereof the following new item: "SEC. 2S0A. Disallowance of certain expenses in connection with business use of home, rental of vacation homes, etc." (c) EFFECTIVE D A T E. — The amendments made by this section shall apply to taxable years beginning after December 31, 1975. SEC. 602. DEDUCTIONS FOR ATTENDING FOREIGN CONVENTIONS. (a) NONDEDUCTIBILITY OF CERTAIN EXPENSES.—Section 274 (relat-

ing to disallowance of certain entertainment, etc., expenses) is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection: "(h)

FOREIGN CONVENTIONS.— " (1) DEDUCTIONS W I T H RESPECT TO NOT MORE THAN 2 FOREIGN

CONVENTIONS PER YEAR ALLOWED.—If any individual a t t e n d s more

than 2 foreign conventions during his taxable year— " (A) he shall select not more than 2 of such conventions to be taken into account for purposes of this subsection, and " (B) no deduction allocable to his attendance at any foreign convention during such taxable year (other than a foreign convention selected under subparagraph (A)) shall be allowed under section 162 or 212. "(2)

DEDUCTIBLE TRANSPORTATION COST CANNOT EXCEED COST OF

COACH OR ECONOMY AIR FARE.—In the case of any foreign convention, no deduction for the expenses of transportation outside the United States to and from the site of such convention shall be allowed under section 162 or 212 in an amount which exceeds the lowest coach or economy rate a t the time of travel charged by a commercial airline for transportation to and from such site during the calendar month in which such convention begins. I f there is no such coach or economy rate, the preceding sentence shall be applied by substituting 'first class' for 'coach or economy'. " (3) TRANSPORTATION COSTS DEDUCTIBLE I N FULL ONLY I F AT LEAST ONE-HALF OF THE DAYS ARE DEVOTED TO BUSINESS RELATED

ACTIVITIES.—In the case of any foreign convention, a deduction for the full expenses of transportation (determined after the application of paragraph (2)) to and from the site of such convention shall be allowed only if more than one-half of the total days of the t r i p, excluding the days of transportation to and from the site of such convention, are devoted to business related activities. I f less than one-half of the total days of the t r i p, excluding the days of transportation to and from the site of the convention, are devoted to business related activities, no deduction for the expenses of transportation shall be allowed which exceeds the percentage of the days of the t r i p devoted to business related activities.

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Page:United States Statutes at Large Volume 90 Part 2.djvu/105

 PUBLIC LAW 94-455—OCT. 4, 1976 "(4)

90 STAT. 1573

DEDUCTIONS FOR SUBSISTENCE EXPENSES NOT ALLOWED

UNLESS THE INDIVIDUAL ATTENDS TWO-THIRDS OF BUSINESS ACTIVITIES.—In the case of any foreign convention, no deduction for subsistence expenses shall be allowed except as follows: " (A) a deduction for a full d a y of subsistence expenses while a t the convention shall be allowed if there are at least 6 hours of scheduled business activities during such d a y and the individual attending the convention has attended a t least two-thirds of these activities, and " (B) a deduction for one-half day of subsistence expenses while a t the convention shall be allowed if there are at least 3 hours of scheduled business activities during such day and the individual attending the convention has attended a t least two-thirds of these activities. Notwithstanding subparagraphs (A) and (B), a deduction for subsistence expenses for all of the days or half days, as the case may be, of the convention shall be allowed if the individual attending the convention has attended at least two-thirds of the scheduled business activities, and each such full day consists of a t least 6 hours of scheduled business activities and each such half day consists of a t least 3 hours of scheduled business activities. "(5)

^

DEDUCTIBLE SUBSISTENCE COSTS CANNOT EXCEED PER DIEM

RATE FOR UNITED STATES CIVIL SERVANTS.—In the casc of any foreign convention, no deduction for subsistence expenses while a t the convention or traveling to or fI'om such convention shall be allowed a t a rate in excess of the dollar per diem rate for the site of the convention which has been established under section 5702(a) of title 5 of the United States Code and which is in effect for the calendar month in which the convention begins. "(6)

DEFINITIONS AND SPECIAL RULES.—For purposes of t h i s

subsection— "(A)

FOREIGN CONVENTION DEFINED.—The term

'foreign

convention' means any convention, seminar, or similar meeti n g held outside the United States, its possessions, and the T r u s t T e r r i to r y of the Pacific. "(B)

SUBSISTENCE EXPENSES DEFINED.—The term 'subsist-

ence expenses' means lodging, meals, and other necessary expenses for the personal sustenance and comfort of the traveler. Such term includes tips and taxi and other local transportation expenses. " (C) ALLOCATION OF EXPENSES I N CERTAIN CASES.—In any

case where the transportation expenses or the subsistence expenses are not separately stated, or where there is reason to believe that the stated charge for transportation expenses or subsistence expenses or both does not properly reflect the amounts properly allocable to such purposes, all amounts paid for transportation expenses and subsistence expenses shall be treated as having been paid solely for subsistence expenses. "(D)

SUBSECTION TO APPLY TO EMPLOYER AS WELL AS TO

TRAVELER.—This subsection shall apply to deductions other- 26 USC 162, wise allowable under section 162 or 212 to any person, whether 212. or not such person is the individual attending the foreign convention. For purposes of the preceding sentence such person shall be treated, with respect to each individual, as h a v i n g selected the same 2 foreign conventions as were selected by such individual.

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Page:United States Statutes at Large Volume 90 Part 2.djvu/106

 90 STAT. 1574

PUBLIC LAW 94-455—OCT. 4, 1976 " (7) REPORTING REQUIREMENTS.—No deduction shall be allowed

26 USC 274 note. 26 USC 422.

under section 162 or 212 for transportation or subsistence expenses allocable to attendance at a foreign convention unless the taxpayer claiming the deduction attaches to the return of tax on which the deduction is claimed— " (A) a written statement signed by the individual attending the convention which includes— " (i) information with respect to the total days of the t r i p, excluding the days of transportation to and from the site of such convention, and the number of hours of each d a y of the t r i p which such individual devoted to scheduled business activities, " ( i i) a program of the scheduled business activities of the convention, and " ( i i i) such other information as may be required i n regulations prescribed by the Secretary; and " (B) a written statement signed by an officer of the organization or group sponsoring the convention which includes— " (i) a schedule of the business activities of each day of the convention, " ( i i) the number of hours which the individual attending the convention attended such scheduled business activities, and " ( i i i) such other information as may be required in regulations prescribed by the Secretary. (b) EFFECTIVE D A T E. — The amendments made by this section shall apply to conventions begining after December 31, 1976. SEC. 603. CHANGE IN TAX TREATMENT OF QUALIFIED STOCK OPTIONS. (a) IN GENERAL.—Section 422(b) (defining qualified stock option) is amended by inserting "and before May 21, 1976 (or, if it meets the requirements of subsection (c)(7), granted to an individual after May 20, 1976)," after "section 424(c)(3)(A)), ". (b) CERTAIN O P T I O N S GRANTED A F T E R M A Y 20, 1976.—Section 422(c)

(relating to special rules) is amended by adding at the end thereof the following new paragraph: " (7) CERTAIN OPTIONS GRANTED AFTER MAY 20, 197c.—For p u r -

poses of subsection (b), an option granted after May 20, 1976, meets the requirements of this paragraph — " (A) if such option is granted to an individual pursuant to a written plan adopted before May 21, 1976, or " (B) if such option is a new option substituted, in a transaction to which section 425(a) applies, for an old option which was granted before May 21, 1976, or which met the requirements of subparagraph (A). A n option described in the preceding sentence shall be treated as ceasing to meet the requirements of this paragraph if it is not exercised before May 21, 1981." (c) BESTRICTED STOCK O P T I O N S M U S T B E EXERCISED BEFORE M A Y 2 1,

26 USC 424.

26 USC 422 note.

1981.—Section 424(c)(3) (relating to special rules for restricted stock options) is amended by adding at the end thereof the following new sentence: " A n option described in the preceding sentence shall be treated as ceasing to meet the requirements of this paragraph if it is not exercised before May 21, 1981." (d) EFFECTIVE D A T E. — The amendments made by this section shall apply to taxable years ending after December 31, 1975.

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Page:United States Statutes at Large Volume 90 Part 2.djvu/107

 PUBLIC LAW 94-455—OCT. 4, 1976

9 0 STAT. 1575

SEC. 604. STATE LEGISLATORS' TRAVEL EXPENSES AWAY FROM HOME. (a) IN GENERAL.—For purposes of section 162(a) of the I n t e r n a l 26 USC 162 Revenue Code of 1954, i n the case of any individual who was a State "o**'legislator at any time during any taxable year beginning before January 1, 1976, and who elects the application of this section, for any period during such a taxable year in which he was a State legislator— (1) the place of residence of such individual within the legislative district which he represented shall be considered his home, and (2) he shall be deemed to have expended for living expenses (in connection with his trade or business as a legislator) an amount equal to the sum of the amounts determined by multiplying each legislative day of such individual during the taxable year by the amount generally allowable with respect to such day to employees of the executive branch of the Federal Government for p e r diem while away from home but serving in the United States. (b) LEGISLATIVE D A Y S. — For purposes of subsection (a), a legisla-

tive d a y during any taxable year for any individual shall be any day during such year on which (1) the legislature was in session (including any d a y in which the legislature was not in session for a period of 4 consecutive days o r less), o r (2) the legislature was not i n session b u t the physical presence of the individual was formally recorded a t a meeting of a committee of such legislature. (c) LIMITATION.—The amount taken into account as living expenses attributable to a trade or business as a State legislator for any taxable year under an election made under this section shall not exceed the amount claimed for such purpose under a return (or amended return) filed before May 21, 1976. (d)

M A K I N G AND E F F E C T OF ELECTION. — A n election under this

Regulations,

section shall be made a t such time and in such manner as the Secretary of the Treasury or his delegate shall by regulations prescribe. Any such election shall apply to all taxable years beginning before January 1, 1976, for which the period for assessing or collecting a deficiency has not expired before the date of the enactment of this Act. SEC. 605. DEDUCTION FOR GUARANTEES OF BUSINESS BAD DEBTS TO GUARANTORS NOT INVOLVED IN BUSINESS. (a) REPEAL OF SECTION 166(f).—Section 166 ( r e l a t i n g to bad debts)

26 USC 166.

is amended by striking out subsection (f) and by redesignating subsections (g) and (h) as subsections (f) and (g), respectively. (b) CONFORMING AMENDMENT. — Paragraph (1) of section 81 (relat-

26 USC 81.

ing to certain increases in suspense accounts) is amended by striking o u t "section 1 6 6 (g) " in the text and inserting in lieu thereof "section 166(f)". (c) EFFECTIVE DATE..—The amendments made by this section shall 26 USC 166 apply to guarantees made after December 31, 1975, in taxable years °o*^beginning after such date, /

TITLE VII—ACCUMULATION TRUSTS SEC. 701. ACCUMULATION TRUSTS. (a) REVISION o r METHOD o r T A X I N G ACCUMULATION DISTRIBUTION FROM TRUSTS.—

(1) Section 667 (relating to denial of refund to t r u s t s; author- 26 USC 667. ization of credit to beneficiaries) is amended to read as follows:

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Translation:Shulchan Aruch/Orach Chaim/453

The Laws of Wheat and Grinding It to Make Matzahs

דיני החטים וטחינתם למצות

Paragraph 1 - These are things with which one fulfills the obligation of matzah: wheat, barley, spelt, rye, and oats [see here] (and the custom is to use wheat a priori) (Mahari"l). But [matzah is not made with] rice or other legumes, but these do not ferment and it is permitted to cook with them. Rem"a: ''There are those who forbid [these] (Tur and Hagahot Maimoni Chapter 5 and Mordechai chapter Kol Sha'ah). The practice in Ashkenaz is to be stringent, and this should not be changed. However, it is obvious that they do not render something forbidden after the fact if they fall into the pot. Similarly, it is permissible to light using oil made from them, and it does not render something forbidden if it falls into the dish. Similarly, it is permitted to keep legumes in the house [during Passover] (Trumat Hadeshen chapter 113). The seed of dill (Mahari"l), anise, and coriander are not legumes and it is permitted to eat them on Passover. So it seems to me.''

סעיף א - אלו דברים שיוצאים בהם ידי חובת מצה, בחטים ובשעורים ובכסמין ובשבלת שועל ובשפון (והמנהג לקח לכתחלה חטים) (מהרי"ל), אבל לא בארז ושאר מיני קטניות, וגם אינם באים לידי חמוץ ומתר לעשות מהם תבשיל. הגה: ''ויש אוסרים (טור והגהות מיימוני פרק ה' ומרדכי פרק כל שעה). והמנהג באשכנז להחמיר, ואין לשנות. מיהו, פשוט דאין אוסרים בדיעבד אם נפלו תוך התבשיל. וכן מתר להדליק בשמנים הנעשים מהם, ואין אוסרין אם נפלו לתוך התבשיל. וכן מתר להשהות מיני קטניות בבית (תרומת הדשן סימן קי"ג). וזרע אקליז"א (מהרי"ל) ואני"ס ואליינד"ר אינן מיני קטניות ומתר לאכלן בפסח, כן נראה לי.

Paragraph 2 - If one makes dough from wheat and rice and it tastes like grain, it can be used to fulfill one's obligation on Passover [to eat matzah].

סעיף ב - העושה עסה מן החטים ומן הארז, אם יש בה טעם דגן יוצא בה ידי חובתו בפסח.

Paragraph 3 - If one did not separate out the wheat from that which was eaten by a mouse, it does not matter. Rem"a: The same is true when one didn't separate out the grain that grew [as a result of moisture]. However, one must take the care that it is not so significant such that there are not sixty permitted grains in proportion to it (Hagahot Maimoniot in the name of the Sma"k and Trumat Hadeshen chapter 114).

סעיף ג - אם לא בררו החטים מאכילת עכבר, אין בכך כלום. הגה: ''וכן אם לא בררו ממנו אותו דגן שצמח. מיהו, צריך לראות שאין בו כל כך שלא יהא ששים כנגדו מן ההתר (הגהות מיימוניות בשם סמ"ק ותרומת הדשן סימן קי"ד).''

Paragraph 4 - Regarding the wheat that is used to make the matzah used to fulfill the commandment, it is good to protect it such that no water falls on it from the time of harvesting, or at least from the time of grinding. In a pressing scenario, it is permitted to get flour from the market.

סעיף ד - החטים שעושים בהם מצת מצוה, טוב לשמרן שלא יפלו עליהם מים משעת קצירה, ולפחות משעת טחינה. ובשעת הדחק מתר לקח קמח מן השוק.

Paragraph 5 - In our day, it is forbidden to stir the grain in water, whether it is wheat or barley.

סעיף ה - האידנא אסור ללתת בין חטים בין שעורים.

Paragraph 6 Regarding the bags where flour is kept the whole year, if one wants to use them for flour [on Passover], they must be washed well, and the stitches in the corners must first be undone, as do the patches.

סעיף ו - שקים שנותנים בהם קמח כל השנה, אם רוצה לתן בהם קמח ומכבסים אותם יפה, צריכים להתיר קדם הכבוס כל התפירות שבהם בקצוות, או אם הם מטלאים.

Paragraph 7 - When bags are flour are being brought from the mill, it is forbidden to put them on the back of an animal with no saddle or thick leather below the bag. Rem"a: Similarly, one should be a priori careful not to put many bags of flour one on top of the other where it is possible (Mordechai at the end of Chapter Elu Ovrin).

סעיף ז - כשמוליכים השקים שיש בהם קמח מהרחים, אסור להניחם על גבי בהמה שאין אכף או עור עב תחת השק. הגה: וכן יזהר לכתחלה שלא להניח הרבה שקין עם קמח זה על זה, במקום שאפשר (מרדכי סוף פרק אלו עוברין).

Paragraph 8 - The practice is to clean out the mill, because sometimes moist produce is ground into flour. The practice is that the first flour ground after the cleaning is saved until after the festival. Rem"a: Great men will go themselves to the mill to see their flour being ground for themselves (Mordechai).

סעיף ח - נוהגין לנקר הרחים, משום דזמנין נתנו בהם תבואה לתותה לסלת. ונוהגים שקמח הראשון שנטחן אחר הנקור שומרים אותו עד לאחר הרגל. הגה: ואנשי מעשה רגילים לילך בעצמם אל מקום הרחים לראות הם בעצמם לטחינת קמחיהם (מרדכי).

Paragraph 9 - The wheat must be ground a day or two before the kneading. If it is ground on the day before Passover, some say that it is forbidden to knead it into matzah that day, because during grinding, the wheat gets hot and can heat the water and then the dough may ferment.

סעיף ט - צריך לטחן החטים יום או יומים לפני הלישה. ואם טחנו בערב פסח, יש אומרים שאסור ללוש מצה בו ביום, לפי שהקמח בשעת טחינה רותח ומחמם המים והעסה נוחה להחמיץ.

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Page:United States Statutes at Large Volume 90 Part 2.djvu/108

 90 STAT. 1576 26 USC 667.

PUBLIC LAW 94-455—OCT. 4, 1976

"SEC. 667. TREATMENT OF AMOUNTS DEEMED DISTRIBUTED BY TRUST IN PRECEDING YEARS. " (a) GENERAL, RULE. — The total of the amounts which a r e treated under section 666 as havinjr been distributed by a trust in a preceding taxable year shall be included in the income of a beneficiary of the trust when paid, credited, or required to be distributed to the extent that such total would have been included in the income of such beneficiary under section 662(a)(2) (and, with respect to any tax-exempt interest to which section 103 applies, under section 662(b)) if such total had been paid to such beneficiary on the last day of such preceding taxable year. The tax imposed by this subtitle on a beneficiary for a taxable year in which any such amount is included in his income shall be determined only as provided in this section and shall consist of the sum of— " (1) a partial tax computed on the taxable income reduced by an amount equal to the total of such amounts, a t the rate and in the manner as if this section h a d not been enacted, and " (2) a partial tax determined as provided in subsection (b) of this section. "(b)

T A X ON DiSTKiBUTiON.—

" (1) IN GENERAL.—The partial tax imposed by subsection (a) (2) shall be determined— " (A) by determining the number of preceding taxable years of the trust on the last d a y of which a n amount is deemed under section 666(a) to have been distributed, " (B) by taking from the 5 taxable years immediately preceding the year of the accumulation distribution the 1 taxable year for which the beneficiary's taxable income was the highest and the 1 taxable year for which his taxable income was the lowest, " (C) by adding to the beneficiary's taxable income for each of the 3 taxable years remaining after the application of subparagraph (B) an amount determined by dividing the amount deemed distributed under section 666 and required to be included in income under subsection (a) by the number of preceding taxable years determined under subparagraph (A), and " (D) by determining the average increase in tax for the 3 taxable years referred to in subparagraph (C) resulting from the application of such subparagraph. The partial tax imposed by subsection (a)(2) shall be the excess (if any) of the average increase in tax determined under subparagraph (D), multiplied by the number of preceding taxable years determined under subparagraph (A), over the amount of taxes deemed distributed to the beneficiary under sections 666(b) and (c). " (2) TREATMENT o r LOSS YEARS.—For purposes of

paragraph

(1), the taxable income of the beneficiary for any taxable year shall be deemed not to be less than zero. "(3)

CERTAIN

PRECEDING TAXABLE YEARS NOT TAKEN

INTO

ACCOUNT.—For purposes of paragraph (1), if the amount of the undistributed net income deemed distributed in any preceding taxable year of the trust is less than 25 percent of the amount of the accumulation distribution divided by the number of preceding taxable years to which the accumulation distribution is allocated under section 6 6 6 (a), the number of preceding taxable years of

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Page:United States Statutes at Large Volume 90 Part 2.djvu/109

 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1577

the t r u s t with respect to which an amount is deonied distributed to a beneficiary under section 666(a) shall be determined without regard to such year. " (4) E F F E C T OF OTHER ACCUMULATION DISTRIBUTIONS.—In com-

p u t i n g the partial tax under paragraph (1) for any beneficiary, the income of such beneficiary for each of his prior taxable years shall include amounts previously deemed distributed to such beneficiary in such year under section 666 as a result of prior accumulation distributions (whether from the same or another t r u s t). "(5)

M U L T I P L E DISTRIBUTIONS I N THE SAME TAXABLE YEAR.—

I n the case of accumulation distributions made from more than one t r u s t which a r e includible in the income of a beneficiary in the same taxable year, the distributions shall be deemed to have been made consecutively in whichever order the beneficiary shall determine. "(c)

SPECIAL RULE FOR M U L T I P L E T R U S T S. —

" (1) IN GENERAL.—If, in the same p r i o r taxable year of the beneficiary in which any part of the accumulation distribution from a t r u s t (hereinafter in this paragraph referred to as ' t h i r d t r u s t ') is deemed under section 666(a) to have been distributed to such beneficiary, some part of prior distributions by each of 2 or more other trusts is deemed under section 666(a) to have been distributed to such beneficiary, then subsections (b) and (c) of section 666 shall not apply with respect to such part of the accumulation distribution from such t h i r d trust. " (2) ACCUMULATION DISTRIBUTIONS FRoar TRUST NOT TAKEN INTO ACCOUNT UNLESS THEY EQUAL OR EXCEED $1,000.—For purposes of

paragraph (1), an accumulation distribution from a trust to a beneficiary shall be taken into account only if such distribution, when added to any p r i o r accumulation distributions from such t r u s t which a r e deemed under section 666(a) to have been dist r i b u t e d to such beneficiary for the same p r i o r taxable year of the beneficiary, equals or exceeds $1,000." (2) Section 666 (relating to accumulation distribution alio- 26 USC 666. cated to preceding years) is amended by adding at the end thereof the following new subsection: " (e) D E N I A L o r R E F U N D TO TRUSTS AND BENEFICIARIES.—No refund

or credit shall be allowed to a t r u s t or a beneficiary of such t r u s t for any preceding taxable year by reason of a distribution deemed to have been made by such trust in such year under this section." (3) Section 668 (relating to treatment of amounts deemed distributed in preceding years) is hereby repealed.

26 USC 668.

(b) INCOME ACCUMUI-4TED BEFORE C H I L D AT'TAINS A G E OF 21 YEARS N O T TO B E S U B J E C T TO THE THROWBACK RULE.—Subsection (b) of

section 665 (defining accumulation distribution) is amended by adding 26 USC 665. a t the end thereof the following new sentence: " For purposes of section 667 (other than subsection (c) thereof, relating to multiple Ante, p. 1575. t r u s t s), the amounts specified in paragraph (2) of section 661(a) shall not include amounts properly paid, credited, or required to be distributed to a beneficiary from a trust (other than a foreign trust) as income accumulated before the birth of such beneficiary or before such beneficiary attains the age of 2 1. " (c) No ACCUMULATION DISTRIBUTION W H E R E DISTRIBUTIONS D o N O T

EXCEED ACCOUNTING INCOME.—Section 665(b) (defining accumulation

distribution), as amended by subsection (b), is amended by a d d i n g a t the end thereof the following new sentence: " I f the amounts properly paid, credited, or required to be distributed by the trust for the taxable

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Page:United States Statutes at Large Volume 90 Part 2.djvu/110

 90 STAT. 1578

PUBLIC LAW 94-455—OCT. 4, 1976 year do not exceed the income of the trust for such year, there shall be n o accumulation distribution for such year." (d)

26 USC 669. 26 USC 665.

R E P E A L OF SPECIAL CAPITAL G A I N T H R O W B A C K. —

(1) Section 669 (relating to treatment of capital gain deemed distributed in preceding years) is hereby repealed. (2) Paragraph (1) of section 665(e) (defining preceding taxable year) is amended— (A) by striking out subparagraph (C), (B) by inserting " o r " a t the end of subparagraph (A), and (C) by striking o u t ", or" at the end of subparagraph (B) and inserting in lieu thereof "; and". (3) Section 665 (definitions applicable to subpart D) is amended by striking out subsections (f) and (g). (e) SPECIAL RULE FOR G A I N ON PROPERTY TRANSFERRED TO T R U S T AT L E S S T H A N F A I R M A R K E T V A L U E. —

26 USC 644.

(1) I n GENERAL.—Subpart A of part I of subchapter J of chapter 1 (relating to general rules for taxation of estates and trusts) is amended by adding at the end thereof the following new section: "SEC. 644. SPECIAL RULE FOR GAIN ON PROPERTY TRANSFERRED TO TRUST AT LESS THAN FAIR MARKET VALUE. "(a)

IMPOSITION OF T A X. — " (1) IN GENERAL.—If—

" (A) a t r u s t (or another trust to which the property is distributed) sells or exchanges property at a gain not more than 2 years after the date of the initial transfer of the property in trust by the transferor, and " (B) the fair market value of such property at the time of the initial transfer in trust by the transferor exceeds the adjusted basis of such property immediately after such transfer, there is hereby imposed a tax determined in accordance with paragraph (2) on the includible gain realized 021 such sale or exchange. " (2) A M O U N T OF TAX.—The amount of the tax imposed by paragraph (1) on any includible gain realized on the sale or exchange of any property shall be equal to the sum of— " (A) the excess of— " (i) the tax which would have been imposed under this chapter for the taxable year of the transferor in which the sale or exchange of such property occurs h a d the amount of the includible gain realized on such sale or exchange, reduced by any deductions properly allocable to such gain, been included in the gross income of the transferor for such taxable year, over " ( i i) the tax actually imposed under this chapter for such taxable year on the transferor, plus " (B) if such sale or exchange occurs in a taxable year of the transferor which begins after the beginning of the taxable year of the trust in which such sale or exchange occurs, an amount equal to the amount determined under subparagraph (A) multiplied by the annual rate established under section 6621. "(3)

TAXABLE YEAR FOR W H I C H TAX IMPOSED.—The tax imposed

by paragraph (1) shall be imposed for the taxable year of the trust which begins with or within the taxable year of the transferor in which the sale or exchange occurs.

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 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1579

" (4) T A X TO BE I N ADDITION TO OTHER TAXES.—The tax imposed

by this subsection for any taxable year of the t r u s t shall be i n addition to any other tax imposed by this chapter for such taxable year. " (b) DEFINITION OF INCLUDIBLE G A I N. — For purposes of t h i s section,

the term 'includible gain' means the lesser of— " (1) the gain realized by the trust on the sale or exchange of any property, or " (2) the excess of the fair market value of such property a t the time of the initial transfer in trust by the transferor over the adjusted basis of such property immediately after such transfer. " (c) CHARACTER OF INCLUDIBLE G A I N. — For purposes of subsection

(a)-

. . . " (1) the character of the includible g a m shall be determined as if the property h a d actually been sold or exchanged by the transferor, and any activities of the trust with respect to the sale or exchange of the property shall be deemed to be activities of the transferor, and " (2) the portion of the includible gain subject to the provisions of section 1245 and section 1250 shall be determined in accordance with regulations prescribed by the Secretary.

" (d) SPECIAL RULE FOR SHORT S A L E S. — I f the t r u s t sells the p r o p -

erty referred to in subsection (a) in a short sale within the 2-year period referred to in such subsection, such 2-year period shall be extended to the date of the closing of such short sale. " (e) EXCEPTIONS.—Subsection (a) shall not apply to property— " (1) acquired by the trust from a decedent or which passed to a trust from a decedent (within the meaning of section 1014), or " (2) acquired by a pooled income fund (as defined in section 6 4 2 (c)(5)), or " (3) acquired by a charitable remainder annuity t r u s t (as defined in section 664(d)(1)) or a charitable remainder unitrust (as defined in sections 664(d)(2) and (3)), or " (4) if the sale or exchange of the property occurred after the death of the transferor. "(f)

,

SPECIAL RULE FOR INSTALLMENT SALES.^—If the t r u s t elects to

report income under section 453 on any sale or exchange to which subsection (a) applies, under regulations prescribed by the Secretary— " (1) subsection (a) shall be applied as if each installment were a separate sale or exchange of proj^erty to which such subsection applies, and " (2) the term 'includible gain' shall not include any portion of "Includible an installment received by the t r u s t after the death of the gain." transferor." (2) EXCLUSION OF INCLUDIBLE GAIN FROM TAXABLE INCOME.—Sec-

tion 641 (relating to imposition of tax) is amended by inserting after subsection (b) the following new subsection: " (c) EXCLUSION OF INCLUDIBLE G A I N F R O M TAXABLE I N C O M E. —

" (1) GENERAL RULE.—For purposes of this part, the taxable income of a trust does not include the amount of any includible gain as defined i n section 644(b) reduced by any deductions properly allocable thereto. " (2) CROSS REFERENCE.—•

"For the taxation of any includible gain, see section 644.",

26 USC 641.

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Page:United States Statutes at Large Volume 90 Part 2.djvu/112

 90 STAT. 1580

PUBLIC LAW 94-455—OCT. 4, 1976 (f) CONFORMING AMENDMENTS. —

26 USC 1302. 26 USC 6401. 26 USC 1 note.

(1) Subparagraph (B) of subsection (a)(2), and subparagraph (B) of subsection (b)(2), of section 1302 (definition of averageable income; related definitions) are each amended by striking out " 6 6 8 (a) " and inserting in lieu thereof " 6 6 7 (a) ". (2) Section 6401(b) (relating to excessive credits), as in effect on the d a y before the date of the enactment of the T a x Reduction Act of 1975, is amended by striking out " w a g e s), " and inserting in lieu thereof "wages) and ", and by striking out " and 667(b) (relating to taxes paid by certain t r u s t s) ". (3) Section 6401(b) (relating to excessive credits), as amended by the T a x Reduction Act of 1975, is amended by striking out "lubricating o i l), " and inserting in lieu thereof "lubricating o i l), and", and by striking out " and section 667(b) (relating to taxes paid by certain t r u s t s) ". (g) CLERICAL AMENDMENTS. —

(1) The table of sections for subpart D of part I of subchapter J of chapter 1 is amended by striking out the items relating to sections 667, 668, and 669 and inserting in lieu thereof the following: "Sec. 667. Treatment of amounts deemed distributed by trust in preceding years." (2) The table of sections for subpart A of part I of subchapter J of chapter 1 is amended by a d d i n g at the end thereof the following new item: "Sec. 644. Special rule for gain on property transferred to trust at less tlian fair market value.". 26 USC 667

^°^^-

(h) EFFECTIVE D A T E S. — The amendments m a d e by subsections (a),

(b), (c), (d), and (f) of this section shall apply to distributions made in taxable years beginning after December 31, 1975. The amendments made by subsection (e) of this section shall apply to transfers in trust made after May 21, 1976.

TITLE VIII—CAPITAL FORMATION 26 USC 48 note.

26 USC 46.

SEC. 801. EXTENSION OF $100,000 LIMITATION ON USED PROPERTY FOR 4 YEARS. Paragraph (2) of section 301(c) of the T a x Reduction Act of 1975 is amended by striking out " January 1, 1977" and inserting in lieu thereof " January 1, 1981". SEC. 802. EXTENSION OF 10 PERCENT CREDIT FOR 4 YEARS AND FIRSTIN-FIRST-OUT TREATMENT OF INVESTMENT TAX CREDIT. (a) IN GENERAL.—Subsection (a) of section 46 (relating to determination of amount of investment credit) is amended— (1) by redesignating paragraph s (2) through (6) as (3) through (7), respectively, and (2) by striking out so much of such subsection as precedes paragraph (3) (as redesignated by paragraph (1) of this subsection) and inserting in lieu thereof the following: " (a) GENERiVL RULE. — " (1) FIRST-IN-FIRST-OUT

RULE.—The

amount

of

the

credit

allowed by section 38 for the taxable year shall be an amount equal to the sum of— " (A) the investment credit carryovers carried to such taxable year,

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 PUBLIC LAW 94-455—OCT. 4, 1976

9 0 STAT. 1581

" (B) the amount of the credit determined under paragraph (2) for such taxable year, plus " (C) the investment credit carrybacks carried to such taxable year. " (2) A M O U N To r CREDIT FOR CURRENT TAXABLE YEAR.—

" (A) 10 PERCENT CREDIT.—Exccpt as otherwise provided in subparagraph (B), i n the case of a property described in subparagraph (D), the amount of the credit determined under this paragraph for the taxable year shall be an amount equal to 10 percent of the qualified investment (as determined under subsections (c) and (d)). "(B)

ADDITIONAL CREDIT.—In the case of a corporation

which elects ( a t such time, in such form, and in such manner as the Secretary prescribes) to have the provisions of this subparagraph apply, the amount of the credit determined under this paragraph shall be an amount equal to— " (i) 11 percent of the qualified investment (as determined under subsections (c) and (d)), plus " ( i i) a n additional percent (not in excess of one-half percent) of the qualified investment (as determined under such subsections) equal in amount to the amount determined under section 301(e) of the T a x Reduction Act of 1975. Post, p. 1587. A n election may not be made to have the provisions of this subparagraph apply unless the corporation meets the requirements of section 301(d) of the T a x lleduction Act of 1975. 26 USC 46note. "(C)

7 PERCENT CREDIT.—In the

case of

property

not

described in subparagraph (D), the amount of credit determined under this paragraph for the taxable year shall be a n amount equal to 7 percent of the qualified investment (as determined under subsections (c) and (d)). "(D)

TRANSITIONAL RULES.—The provisions of

subpara-

g r a p h s (A) and (B) shall apply only to— " (i) property to which subsection (d) does not apply, the construction, reconstruction, or erection of which is completed by the taxpayer after January 21, 1975, b u t only to the extent of the basis thereof attributable to the construction, reconstruction, or erection after January 21, 1975, and before January 1, 1981, " ( i i) property to which subsection (d) does not apply, ticquired by the taxpayer after January 21, 1975, and before January 1, 1981, and placed in service by the taxpayer before January 1, 1981, and " ( i i i) property to which subsection (d) applies, b u t only to the extent of the qualified investment (as determined under subsections (c) and (d)) with respect to qualified progress expenditures made after January 21, 1975, and before January 1, 1981. For purposes of a p p l y i n g clause (ii) of subparagraph (B), the date 'December 31, 1976,' shall be substituted for the date ' January 21, 1975,' each place it appears in this subparagraph." (b) CONFORMING AMENDMENTS. —

(1) Paragraph s (4), (5), (6), and (7) of section 4 6 (a) (as 26 USC 46. redesignated by subsection (a)) are each amended by striking out " paragraph (2) " and inserting in lieu thereof " paragraph (3) ".

89-19^ n—7fl-

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Page:United States Statutes at Large Volume 90 Part 2.djvu/114

 90 STAT. 1582 26 USC 46.

PUBLIC LAW 94-455—OCT. 4, 1976 (2) Subsection (b) of section 46 (relating to carryback and carryover of unused credits) is amended to read as follows: "(b)

CARRYBACK AND CARRYOVER OF U N U S E D CREDITS.—

" (1) IN GENERAL.—If the sum of the amount of the investment credit carryovers to the taxable year under subsection (a)(1) (A) plus the amount determined under subsection (a)(1)(B) for the taxable year exceeds the amount of the limitation imposed by subsection (a)(3) for such taxable year (hereinafter i n t h i s subsection referred to as the 'unused credit year '), such excess attributable to the amount determined under subsection (a)(1) (B) shall be— " (A) an investment credit carryback to each of the 3 taxable years preceding the unused credit year, and " (B) a n investment credit carryover to each of the 7 taxable years following the unused credit year, and, subject to the limitations imposed by paragraph s (2) and (3), shall be taken into account under the provisions of subsection (a)(1) in the manner provided in such subsection. The entire amount of the unused credit for an unused credit year shall be carried to the earliest of the 10 taxable years to which (by reason of subparagraphs (A) and (B)) such credit may be carried and then to each of the other 9 taxable years to the extent, because of the limitations imposed by paragraph s (2) and (3), such unused credit may not be taken into account under subsection (a)(1) for a prior taxable year to which such unused credit may be carried. I n the case of an unused credit for an unused credit year ending before January 1, 1971, which is an investment credit carryover to a taxable year beginning after December 31, 1970 (determined without regard to this sentence), this paragraph shall be applied— " (C) by substituting '10 taxable years' for '7 taxable years' in subparagraph (B), and by substituting '13 taxable years' for '10 taxable years', and '12 taxable years' for '9 taxable years' in the preceding sentence, and " (D) by carrying such an investment credit carryover to a later taxable year (than the taxable year to which it would, b u t for this subparagraph, be carried) to which it may be carried if, because of the amendments made by section 802 (b)(2) of the T a x Reform Act of 1976, carrying such carryover to the taxable year to which i t would, b u t for this subparagraph, be carried would cause a portion of an unused credit from an unused credit year ending after December 31, 1970 to expire. " (2) L I M I T A T I O N ON CARRYBACKS.—The a m o u n t of the unused

credit which may be taken into account under subsection (a)(1) for any preceding taxable year shall not exceed the amount by which the limitation imposed by subsection (a)(3) for such taxable year exceeds the sum of— " (A) the amounts determined under subparagraphs (A) and (B) of subsection (a)(1) for such taxable year, plus " (B) the amounts which (by reason of this subsection) are carried back to such taxable year and are attributable to taxable years preceding the unused credit year. " (3) LIMITATION ON CARRYOVERS.—The amount of the unused credit which may be taken into account under subsection (a)(1)(A) for any succeeding taxable year shall not exceed the

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 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1583

amount by which the limitation imposed by subsection (a)(3) for such taxable year exceeds the sum of the amounts which, by reason of this subsection, are carried to such taxable year and are attributable to taxable years preceding the unused credit year." (3) Subparagraph (A) of section 46(c)(3) (relating to public utility property) is amended by striking out "subsection (a)(1) (C) " and inserting in lieu thereof "subsection (a)(2)(C) ". (4) Paragraph (1) of section 46(e) (relating to limitations with respect to certain persons) is amended by striking out "subsection (a)(2) " and inserting in lieu thereof "subsection (a)(3) ". (5) The first sentence of section 46(f)(8) (relating to prohibition of immediate flowthrough of investment credit) is amended by inserting after "the T a x Reduction Act of 1975" the following: "and the T a x Reform Act of 1976". (6) Subsection (f) of section 48 (relating to estates and trusts) is amended by striking o u t "section 46(a)(2) " and inserting in lieu thereof "section 46(a)(3) ". (7) Section 301(d) of the T a x Reduction Act of 1975 is amended by striking out "section 4 6 (a)(1)(B) " each place i t appears and inserting in lieu thereof "section 46(a)(2)(B) ". (c) EFFECTIVE D A T E. — The amendments made by this section shall apply to taxable years beginning after December 31, 1975. SEC. 803. EMPLOYEE STOCK OWNERSHIP PLANS; STUDY OF EXPANDED STOCK OWNERSHIP.

26 USC 46.

26 USC 48. 26 USC 46 note, 26 USC 46 note,

(a) AMENDMENT OF THE INTERNAL R E V E N U E CODE o r 1954.—Sec-

tion 4 6 (f) (relating to limitation in case of certain regulated companies) is amended by a d d i n g a t the end thereof the following new paragraph: "(9)

SPECIAL RULE FOR ADDITIONAL CREDIT.—If the

taxpayer

makes an election under subparagraph (B) of subsection (a)(2), for a taxable year beginning after December 31, 1975, then, notwithstanding the prior paragraph s of this subsection, n o credit shall be allowed by section 38 in excess of the amount which would be allowed without regard to the provisions of subparagraph (B) of subsection (a)(2) if— " (A) the taxpayer's cost of service for ratemaking purposes or in its regulated books of account is reduced by reason of any portion of such credit which results from the transfer of employer securities or cash to an employee stock ownership plan which meets the requirements of section 301(d) of the T a x Reduction Act of 1976; " (B) the base to which the taxpayer's rate of return for ratemaking purposes is applied is reduced by reason of any portion of such credit which results from a transfer described in subparagraph (A) to such employee stock ownership p l a n; or " (C) any portion of the amount of such credit which results from a transfer described in subparagraph (A) to such employee stock ownership plan is treated for ratemaking purposes in any way other than as though it h a d been contributed by the taxpayer's common shareholders." (b)

SPECIAL RULES. —

(1) Paragraph (4) of section 46(f) is amended— (A) by striking out " paragraph s (1) and (2) " i n subparagraph (A) and inserting in lieu thereof " paragraph s (1),(2),and (9)";

26 USC 46.

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Page:United States Statutes at Large Volume 90 Part 2.djvu/116

 90 STAT. 1584

26 USC 401.

^ra. Post, p. 1587 26 USC 1504.

26 USC 415.

PUBLIC LAW 94-455—OCT. 4, 1976 (B) by striking out "paragraph (1) or (2)" each place it appears in subparagraph (A) and inserting in lieu thereof "paragraph (1), (2),or (9)"; and (C) by striking out "paragraph (2)," in subparagraph (B) (ii) and inserting in lieu thereof "paragraph (2) or the election described in paragraph (9),". (2) Section 401(a) (relating to qualified pension, etc., plans) is amended by adding after paragraph (20) the following new paragraph: "(21) A trust forming part of an employee stock ownership plan which satisfies the requirements of section 301(d) of the Tax Reduction Act of 1975 shall not fail to be considered a permanent program merely because employer contributions under the plan are determined solely by reference to the amount of credit which would be allowable under section 46(a) if the employer made the transfer described in subsection (d)(6) or (e)(3) of section 301 of the Tax Reduction Act of 1975." (3) Section 1504(a) is amended by striking out "dividends." at the end thereof and inserting in lieu thereof "dividends, employer securities within the meaning of section 301(d)(9)(A) of the Tax Reduction Act of 1975, or qualifying employer securities within the meaning of section 4975(e)(8) while such securi-' ties are held under an employee stock ownership plan which meets the requirements of section 301(d) of such Act or section 4975 (e)(7), respectively." (4) Section 415(e)(5) is amended by striking out "For purposes of this subsection," and inserting in lieu thereof "For purposes of this section,", (c)

26 USC 46 note.

PLAN REQUIREMENTS FOR TAXPAYERS ELECTING ADDITIONAL

CREDIT.—Section 301(d) of the Tax Reduction Act of 1975 is amended— (1) by adding at the end of paragraph (3) the following sentence: "For purposes of this paragraph, the amount of compensation paid to a participant for a year is the amount of such participant's compensation within the meaning of section 415 (c)(3) of such Code for such year.", (2) by striking out paragraph (6) and inserting in lieu thereof the following: "(6) On making a claim for credit, adjustment, or refund under section 38 of the Internal Revenue Code of 1954, the employer states in such claim that it agrees, as a condition of receiving any such credit, adjustment, or refund— " (A) in the case of a taxable year beginning before January 1, 1977, to transfer employer securities forthwith to the plan having an aggregate value at the time of the claim of 1 percent of the amount of the qualified investment (as determined under section 46(c) and (d) of such Code) of the taxpayer for the taxable year, and "(B) in the case of a taxable year beginning after December 31, 1976— " (i) to transfer employer securities to the plan having an aggregate value at the time of the claim of 1 percent of the amount of the qualified investment (as determined under section 46(c) and (d) of such Code) of the employer for the taxable year,

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 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1585

"(ii) except as provided in clause (iii), to effect the transfer not later than 30 days after the time (including extensions) for filing its income tax return for a taxable year, and "(iii) in the case of an employer whose credit (as determined under section 46(a)(2)(B) of such Code) Ante, p. 1580. for a taxable year beginning after December 31, 1976, exceeds the limitations of paragraph (3) of section 46(a) of such Code— " (I) to effect that portion of the transfer allocable to investment credit carrybacks of such excess credit at the time required under clause (ii) for the unused credit year (within the meaning of section 46(b) of such Code), and " ( II) to effect that portion of the transfer allocable to investment credit carryovers of such excess credit at the time required under clause (ii) for the taxable year to which such portion is carried over. For purposes of meeting the requirements of this paragraph, a transfer of cash shall be treated as a transfer of employer securities if the cash is, under the plan, used to purchase employer securities.", (3) by deleting paragraph (8) and inserting in lieu thereof the following: "(8)(A) Except as provided in subparagraph (B) (iii), if the amount of the credit determined under section 46(a)(2)(B) of the Internal Revenue Code of 1954 is recaptured or redetermined in accordance with the provisions of such Code, the amounts transferred to the plan under this subsection and subsection (e) and allocated under the plan s'hall remain in the plan or in participant accounts, as the case may be, and continue to be allocated in accordance with the plan. " (B) If the amount of the credit determined under section 46(a)(2)(B) of the Internal Revenue Code of 1954 is recaptured in accordance with the provisions of such Code— "(i) the employer may reduce the amount required to be transferred to the plan under paragraph (6) of this subsection, or under paragraph (3) of subsection (e), for the current taxable year or any succeeding taxable years by the portion of the amount so recaptured which is attributable to the contribution to such plan, "(ii) notwithstanding the provisions of paragraph (12), the employer may deduct such portion, subject to the limitations of section 404 of such Code (relating to deductions for 26 USC 404. contributions to an employees' trust or plan), or " (iii) if the requirements of subsection (f)(1) are met, the employer may withdraw from the plan an amount not in excess of such portion. "(C) If the amount of the credit claimed by an employer for a prior taxable year under section 38 of the Internal Revenue Code of 1954 is reduced because of a redetermination which becomes final during the taxable year, and the employer transferred arnounts to a plan which were taken into account for purposes of this subsection for that prior taxable year, then—

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Page:United States Statutes at Large Volume 90 Part 2.djvu/118

 90 STAT. 1586

/

,

/

29 USC 1103.

PUBLIC LAW 94-455—OCT. 4, 1976 "(i) the employer may reduce the amount it is required to transfer to the plan under paragraph (6) of this subsection, or under paragraph (3) of subsection (e), for the taxable year or any succeeding taxable year by the portion of the amount of such reduction in the credit or increase in tax which is attributable to the contribution to such plan, or "(ii) notwithstanding the provisions of paragraph (12), the employer may deduct such portion subject to the limitations of section 404 of such Code.", (4) by striking out "in control of the employer (within the meaning of section 368(c) of the Internal Revenue Code of 1954)" in paragraph (9)(A) and inserting in lieu thereof "a member of a controlled group of corporations which includes the employer (within the meaning of section 1563(a) of the Internal Revenue Code of 1954, determined without regard to section 1563(a)(4) and (e)(3)(C) of such Code)", and (5) by adding at the end thereof the following new paragraphs: " (13)(A) As reimbursement for the expense of establishing the plan, the employer may withhold from amounts due the plan for the taxable year for which the plan is established, or the plan may pay, so much of the amounts paid or incurred in connection with the establishment of the plan as does not exceed the sum of 10 percent of the first $100,000 that the employer is required to transfer to the plan for that taxable year under paragraph ^6) (including any amounts transferred under subsection (e) (3)) and 5 percent of any amount in excess of the first $100,000 of such amount. "(B) As reimbursement for the expense of administering the plan, the employer may withhold from amounts due the plan, or the plan may pay, so much of the amounts paid or incurred during the taxable year as expenses of administering the plan as does not exceed the smaller of— "(i) the sum of 10 percent of the first $100,000 and 5 percent of any amount in excess of $100,000 of the income from dividends paid to the plan with respect to stock of the employer during the plan year ending with or within the employer's taxable year, or "(ii) $100,000. "(14) The return of a contribution made by an employer to an employee stock ownership plan designed to satisfy the requirements of this subsection or subsection (e) (or a provision for such a return) does not fail to satisfy the requirements of this subsection, subsection (e), section 401(a) of the Internal Revenue Code of 1954, or section 403(c)(1) of the Employee Retirement Income Security Act of 1974 if— "(A) the contribution is conditioned under the plan upon determination by the Secretary of the Treasury that such plan meets the applicable requirements of this subsection, subsection (e), or section 401(a) of such Code, "(B) the application for such a determination is filed with the Secretary not later than 90 days after the date on which the credit under section 38 is allowed, and "(C) the contribution is returned within one year after the date on which the Secretary issues notice to the employer that such plan does not satisfy the requirements of this subsection, subsection (e), or section 401(a) of such Code."

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Page:United States Statutes at Large Volume 90 Part 2.djvu/119

 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1587

(d) P L A N REQUIREMENTS FOR TAXPAYERS ELECTING ADDITIONAL O N E - H A L F PERCENT CREDIT.—Section 301 of the T a x Reduction Act of

1975 (relating to increase in investment credit) is amended by adding a t the end thereof the following new subsections: " (e) P L A N REQUIREMENTS FOR TAXPAYERS ELECTING O N E - H A L F PERCENT CREDIT.—

ADDITIONAL

" (1) GENERAL RULE.—For purposes of clause (ii) of section 46 (a)(2)(B) of the I n t e r n a l Revenue Code of 1954, the amount determined under this subsection for a taxable year is an amount equal to the sum of the matching employee contributions for the taxable year which meet the requirements of this subsection. "(2)

ELECTION; BASIC PLAN REQUIREMENTS.—No a m o u n t shall

be determined under this subsection for the taxable year unless the corporation elects to have this subsection apply for that year. A corporation may not elect to have the provisions of this subsection apply for a taxable year unless the corporation meets the requirements of subsection (d) and the requirements of this subsection. " (3) EMPLOYER CONTRIBUTION.—On making a claim for credit, adjustment, or refund under section 38 of the I n t e r n a l Revenue Code of 1954, the employer shall state in such claim that the employer agrees, as a condition of receiving any such credit, adjustment, or refund attributable to the provisions of section 46 (a)(2)(B) (ii) of such Code, to transfer at the time described in subsection (d)(6)(B) employer securities (as defined in subsection (d)(9)(A)) to the plan having an aggregate value a t the time of the transfer of not more than one-half of one percent of the amount of the qualified investment (as determined under subsections (c) and (d) of section 46 of such Code) of the tax p a y e r for the taxable year. For purposes of meeting the requirements of this paragraph, a transfer of cash shall be treated as a transfer of employer securities if the cash is, under the plan, used to purchase employer securities. " (4) REQUIREMENTS RELATING TO MATCHING EMPLOYEE CONTRIBUTIONS.—

" (A) A n amount contributed by an employee under a plan described in subsection (d) for the taxable year may not be treated as a matching employee contribution for that taxable year under this subsection unless— " (i) each employee w h o participates in the plan described in subsection (d) is entitled to make such a contribution, " (ii) the contribution is designated by the employee as a contribution intended to be used for matching employer amounts transferred under paragraph (3) to a plan which meets the requirements of this subsection, and " ( i i i) the contribution is in the form of an amount paid in cash to the employer or plan administrator not later than 24 months after the close of the taxable year in which the portion of the credit allowed by section 38 of such Code ( and determined under clause (ii) of section 4 6 (a)(2)(B) of such Code which the contribution is to match) is allowed, and is invested forthwith in employer securities (as defined in subsection (d)(9) (A)). " (B) The sum of the amounts of matching employee contributions taken into account for purposes of this subsection

26 USC 46 note,

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Page:United States Statutes at Large Volume 90 Part 2.djvu/120

 90 STAT. 1588

PUBLIC LAW 94-455—OCT. 4, 1976 for any taxable year may not exceed the value (at the time of transfer) of the employer securities transferred to the plan in accordance with the requirements of paragraph (3) for the year for which the employee contributions are designated as matching contributions. " (C) The emploj-er may not make participation in the plan a condition of employment and the plan may not require matching employee contributions as a condition of participation in the plan. " (D) Employee contributions under the plan must meet the requirements of section 401(a)(4) of such Code (relating to contributions). " (5) A plan must provide for allocation of all employer securities transferred to it or purchased by i t under this subsection to the account of each participant (who was a participant a t any time during the plan year, whether or not he is a part i c i p a n t a t the close of the plan year) as of the close of the plan year in a n amount equal to his matching employee contributions for the year. Matching employee contributions and amounts so allocated shall be deemed to be allocated under subsection (d)(3). "(f)

Ante, pp. 1584, 1^^'^-

RECAPTURE.—

" (1) GENERAL RULE.—Amounts transferred to a plan under subsection (d)(6) or (e)(3) may be w i t h d r a w n from the plan by the employer if the plan provides that while subject to recapture— " (A) amounts so transferred with respect to a taxable year are segregated from other plan assets, and " (B) separate accounts are maintained for participants on whose behalf amounts so transferred have been allocated for a taxable year. "(2)

29 USC 1103.

any

other law or rule of law, an amount withdrawn by the employer will neither fail to be considered to be nonforfeitable nor fail to be for the exclusive benefit of participants or their beneficiaries merely because of the withdrawal from the plan of— " (A) amounts described in paragraph (1), or " (B) employer amounts transferred under*subsection (e) (3) to the plan which are not matched by matching employee contributions or which are in excess of the limitations of section 415 of such Code, nor will the withdrawal of any such amount be considered to violate the provisions of section 4 0 3 (c)(1) of the Employee Eetirement Income Security Act of 1974." (e)

26 USC 46 note.

COORDINATION W I T H OTHER LAW.—Notwithstanding

CLERICAL AMENDMENT. —

(1) The heading of section 301(d) of the T a x Reduction Act of 1975 is amended by striking out " 1 1 - P E R C E N T " and inserting in lieu thereof "ADDITIONAL". (2) Section 301(d) of the T a x Reduction Act of 1975 is amended by— (A) striking out " A corporation" in paragraph (1) and inserting in lieu thereof " E x c e p t as expressly provided in subsections (e) and (f), a corporation", (B) inserting "or subsection (e)(3) " in paragraph (7)(A) immediately after " (6) ", (C) striking out "this subsection" in paragraph (10) and substituting in lieu thereof "this subsection and subsections (e) and (f) ", and

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90 STAT. 1589

(D) striking out "this subsection" each time i t appears in paragraph (11) and substituting in lieu thereof "this subsection o r subsection (e) o r (f) ". (f) LIMITATIONS ON CONTRIBUTIONS.— (1) SPECIAL LIMITATION FOR EMPLOYEE

STOCK

OWNERSHIP

PLANS.—Section 415(c) (relating to limitation for defined con- 26 USC 4l5. tribution plans) is amended by adding a t the end thereof the following new paragraph: " (6) SPECIAL PLAN.—

LIMITATION

FOR EMPLOYEE

STOCK

OWNERSHIP

" (A) I n the case of a n employee stock ownership plan ( a s defined in subparagraph (B)), under which no more than one-third of the employer contributions for a year are allocated to the group of employees consisting of officers, shareholders owning more than 10 percent of the employer's stock (determined under subparagraph (B) ( i v)), or employees described in subparagraph (B) ( i i i), the amount described in paragraph (c)(1)(A) (as adjusted for such year pursuant to subsection (d)(1)) for a year with respect to any participant shall be equal to the sum of (i) the amount described in paragraph (c)(1)(A) (as so adjusted) determined without regard to this paragraph and (ii) the lesser of the amount determined under clause (i) or the amount of employer securvities contributed to the employee stock ownership plan. " (B) For purposes of this paragraph — Definitions, " (i) the term 'employee stock ownership plan' means a plan which meets the requirements of section 4975(6) (7) or section 301(d) of the T a x Reduction Act of 1975, 26 USC 46 note. " ( i i) the term 'employer securities' means, in the case of an employee stock ownership plan within the meaning of section 4 9 7 5 (e)(7), qualifying employer securities within the meaning of section 4 9 7 5 (e)(8), but only if they a r e described in section 301(d)(9)(A) of the T a x Reduction Act of 1975, or, in the case of an employee stock ownership plan described in section 3 0 1 (d)(2) of the T a x Reduction Act of 1975, employer securities within the meaning of section 301(d)(9)(A) of such Act, " ( i i i) a n employee described in this clause is any participant whose compensation for a year exceeds an amount equal to twice the amount described in paragraph (1)(A) for such year (as adjusted for such year pursuant to subsection (d)(1)), determined without regard to subparagraph (A) of this paragraph, and " ( i v) a n individual shall be considered to own more than 10 percent of the employer's stock if, without regard to stock held under the employee stock ownership plan, he owns (after application of section 1563(e)) more than 10 percent of the total combined voting power of all classes of stock entitled to vote or more than 10 percent of the total value of shares of all classes of stock.". (2) CONFORMING AMENDMENT. — Paragraph (3)(B) of section

415 (e) (relating to defined contribution plan fraction) is amended by inserting "determined without regard to paragraph (6) of such subsection)" after "employer". (g) WAIVER o r P E N A L T Y FOR UNDERPAYMENT OF ESTIMATED T A X. —

[f—

26 USC 6655

note.

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 90 STAT. 1590

Ante, p. 1520.

26 USC 4975

note. 45 USC 701 note. 29 USC 1001 note, 19 USC 2101. 26 USC 1 note.

PUBLIC LAW 94-455—OCT. 4, 1976 (1) a corporation made underpayments of estimated tax for a taxable year of the corporation which includes August 1, 1975, because the corporation intended to elect to have the provisions of subparagraph (B) of section 46(a)(1) of the I n t e r n a l Revenue Code of 1954 (as it existed before the date of enactment of this Act) apply for such taxable year, and (2) the corporation does not elect to have the provisions of such subparagraph apply for such taxable year because this Act does not contain the amendments made by section 804(a)(2) (relating to flowthrough of investment credit), or the provisions of subsection (f) of such section (relating to grace period for certain plan transfers), of the bill H. E. 10612 (94th Congress, 2d Session), as amended by the Senate, then the provisions of section 6655 of such Code (relating to failure by corporation to pay estimated income tax) shall not apply to so much of any such underpayment as the corporation can establish, to the satisfaction of the Secretary of the Treasury, is properly attributable to the inapplicability of such subparagraph (B) for such taxable year. (h)

P L A N S. — The Congress, in a series of laws (the Regional Rail Reorganization Act of 1973, the Employee Retirement Income Security Act of 1974, the Trade Act of 1974, and the T a x Reduction Act of 1975) and this Act has made clear its interest in encouraging employee stock ownership plans as a bold and innovative method of strengthening the free private enterprise system which will solve the dual problems of securjj^^ capital funds for necessary capital growth and of bringing about stock ownership by all corporate employees. The Congress is deeply concerned that the objectives sought by this series of laws will be made unattainable by regulations and rulings which treat employee stock ownership plans as conventional retirement plans, which reduce the freedom of the employee trusts and employers to take the necessary steps to implement the plans, and which otherwise block the establishment and success of these plans. Because of the special purposes for which employee stock ownership plans are established, it is consistent with the intent of Congress to permit these plans (whether structured as pension, stock bonus, or profit-sharing plans) to distribute income on employer securities currently. (i)

29 USC 1222.

26 USC 4975. 29 USC 1107.

I N T E N T OF CONGRESS CONCERNING EMPLOYEE STOCK O W N E R S H I P

STUDY OF EXPANDED STOCK O W N E R S H I P. —

(1) IN GENERAL.—Section 3022(a) of the Employee Retirement Income Security Act of 1974 (relating to duties of Joint Pension Task Force) is amended— (A) by redesignating paragraph s (4) and (5) as (5) and (6), and (B) by inserting after paragraph (3) the following new paragraph: " (4) the broadening of stock ownership, particularly with regard to employee stock ownership plans (as defined in section 4975(e)(7) of the I n t e r n a l Revenue Code of 1954 and section 407(d)(6) of this Act) and all other alternative methods for broadening stock ownership to the American labor force and others;". (2)

C H A N G E or TITLE.—

(A) Subtitle B of title III of such Act is amended— (i) by striking out "Pension" in the caption of such subtitle and inserting in lieu thereof "Pension, Profitsharing, and Employee Stock Ownership Plan",

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90 STAT. 1591

(ii) by striking out " P E N S I O N " in the caption of part 1 of such subtitle and inserting in lieu thereof the following: " P E N S I O N, P R OF I T - S H A R I N G, A N D E M P L O Y E E S TO C K O W N E R S H I P P L A N ", and (iii) by striking out " Joint Pension" each place it appears in sections 3021 and 3022 and inserting in lieu 29 USC 1221, thereof the following: " Joint Pension, Profit-sharing, 1222. and Employee Stock Ownership P l a n ". (B) The table of contents of such Act is amended— (i) by striking out "PENSION" in the item relating to title III and inserting in lieu thereof the following: "PENSION, PROFIT-SHARING, AND EMPLOYEE STOCK OWNERSHIP PLAN", (ii) by striking out "PENSION" in the item relating to subtitle B of title III and inserting in lieu thereof the following: "PENSION, PROFIT-SHARING, AND EMPLOYEE STOCK OWNERSHIP PLAN", and (iii) by striking out "PENSION" in the item relating to part 1 of subtitle B of title III and inserting in lieu thereof "PENSION, PROFIT-SHARING, AND EMPLOYEE STOCK OWNERSHIP PLAN". (j) EFFECTIATE D A T E S. —

26 USC 46 note.

(1) GENERAL RULE.—Except as provided in paragraph (2), the amendments made by this section shall apply for taxable years beginning after December 31, 1974. (2)

EXCEPTIONS.—

(A) Section 301(e) of the T a x Reduction Act of 1975, as Ante, p. 1587. added by subsection (d), shall apply for taxable years beginning after December 31, 1976. (B) The amendments made by subsections (a) and (b)(1) shall apply for taxable years beginning after December 31, 1975. (C) The amendments made by subsections (b)(4) and (f) shall apply for years beginning after December 31, 1975. SEC. 804. INVESTMENT CREDIT IN THE CASE OF MOVIE AND TELEVISION FILMS. (a)

SPECIAL RULES FOR MOVIE AND TELEVISION F I L M S. — S e c t i o n 48

(relating to definitions and special rules for purposes of the investment credit) is amended by redesignating subsection (k) as subsection (1) and by inserting after subsection (j) the following new subsection: "(k)

MOVIE AND TELEVISION F I L M S. — " (1) ENTITLEMENT TO CREDIT.—

_ " (A) IN GENERAL.—A credit shall be allowable under section 38 to a tax p a y e r with respect to any motion picture film or video tape— " (i) only if such film or tape is new section 38 property (determined without regard to useful life) which is a qualified film, and " (ii) only to the extent that the tax p a y e r has an ownership interest in such film or tape. " (B) QUALIFIED FILM DEFINED.—For purposes of t h i s sub-

section, the term 'qualified film' means any motion picture film or video t a p e created p r i m a r i l y for use as public entertainment or for educational purposes. Such term does not include any film or t a p e the market for which is p r i m a r i l y topical or is otherwise essentially transitory in nature.

26 USC 48.

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 90 STAT. 1592

PUBLIC LAW 94-455—OCT. 4, 1976 " (C) O W N E R S H I P IXTEREST.—For purposes of t h i s subsec-

tion, a person's 'ownership interest' i n a qualified film shall be determined on the basis of his proportionate share of any loss which may be incurred with respect to the production costs of such film. " (2) APPLICABLE PERCENTAGE TO BE 66%.—Except as provided

in paragraph (3), the applicable percentage under section 46(c) (2) for any qualified film shall be 66% percent. " (3) ELECTION OF 9O-PERCENT RULE.—

" (A) IN GENERAL.—If the taxpayer makes an election under this paragraph, the applicable percentage under section 46 (c)(2) shall be determined as if the useful life of the film would have expired at the close of the first taxable year by the close of which the aggregate amount allowable as a deduction under section 167 would equal or exceed 90 percent of the basis of the film. " (B) M A K I N G o r ELECTION.—An election under this paragraph shall be made a t such time and in such manner as the Secretary may by regulations prescribe. Such an election shall apply for the taxable year for which it is made and for all subsequent taxable years and may be revoked only with the consent of the Secretary. " (C) W H O MAY ELECT.—If for any prior taxable year paragraph (2) of this subsection applied to the taxpayer or any related business entity, or if for the taxable year paragraph (2) applies to any related business entity, an election under this paragraph may be made by the taxpayer only with the consent of the Secretary. "(D)

"Beneficial interest."

RELATED BUSINESS E N T I T Y. — T w o or more corpora-

tions, partnerships, trusts, estates, proprietorships, or other entities shall be treated as related business entities if 50 percent or more of the beneficial interest in each of such entities is owned by the same or related persons (taking into account only persons who own at least 10 percent of such beneficial interest). For purposes of this subparagraph, a person is a related person to another person if— " (i) such persons are component members of a controlled group of corporations (within the meaning of section 1563(a), except that section 1563(b)(2) shall not apply and except that 'more than 50 percent' shall be substituted for ' a t least 80 percent' each place i t appears in section 1563(a)), or " ( i i) the relationship between such persons would result in a disallowance of losses under section 267 or 707 (b), except that for these purposes a family of an individual includes only his spouse and minor children. For purposes of this subparagraph, the term 'beneficial interest' means voting stock in the case of a corporation, profits interest or capital interest in the case of a partnership, or beneficial interest in the case of a trust or estate. "(4)

PREDOMINANT USE TEST; QUALIFIED INVESTMENT.—In the

case of any qualified film— " (A) section 48(a)(2) shall not apply, and " (B) in determining qualified investment under section 4 6 (c)(1), there shall be issued (in lieu of the basis of the property) a n amount equal to the qualified United States production costs (as defined in paragraph (5)).

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 PUBLIC LAW 94-455—OCT. 4, 1976

9 0 STAT. 1593

" (5) QUALIFIED UNITED STATES PRODUCTION COSTS.—

" (A) IN GENERAL.—For purposes of this subsection, the term 'qualified United States production costs' means with respect to any film— " (i) direct production costs allocable to the United States, plus " ( i i) if 80 percent or more of the direct production costs a r e allocable to the United States, all other production costs other than direct production costs allocable outside the United States.

" (B) PRODUCTION COSTS.—For purposes of t h i s subsection,

the term 'production costs' includes— " (i) a reasonable allocation of general overhead costs, "(ii) compensation (other than participations described in clause ( v i)) for services performed by actors, production personnel, directors, and producers, " ( i i i) costs of 'first' distribution of prints, " ( i v) the cost of the screen rights and other material being filmed, " (v) 'residuals' payable under contracts with labor organizations, and " (vi) participations payable as compensation to actors, production personnel, directors, and producers. Participations in all qualified films placed i n service by a taxpayer during a taxable year shall be taken into account under clause (vi) only to the extent of the lesser of 25 percent of each such participation or 121/^ percent of the aggregate qualified United States production costs (other than costs described in clauses (v) and (vi) of this subparagraph) for such films, b u t taking into account for both the 25 percent limit and 121/^ percent limit no more than $1,000,000 in participations for any one individual with respect to any one film. For purposes of this subparagraph (other than clauses (v) and (vi) and the preceding sentence), costs shall be taken into account only if they a r e capitalized. "(C)

DIRECT PRODUCTION COSTS.—For

purposes of

this

paragraph, the term 'direct production costs' does not include items referred to in clause (i), ( i v), (v), or (vi) of subparagraph (B). The term also does not include advertising and promotional costs and such other costs as may be provided m regulations prescribed by the Secretary. " (D) ALLOCATION OF DIRECT PRODUCTION COSTS.—For p u r -

poses of this paragraph — " (i) Compensation for services performed shall be allocated to the country in which the services a r e performed, except that payments to United States persons for services performed outside the United States shall be allocated to the United States. For purposes of the preceding sentence, payments to a n electing small business corporation (within the meaning of section 1371) or a partnership shall be considered payments to a United States person only to the extent that such payments a r e included in the gross income of a United States person other than an electing small business corporation or partnership.

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 90 STAT. 1594

PUBLIC LAW 94-455—OCT. 4, 1976 " ( i i) Amounts for equipment and supplies shall be allocated to the country i n which, with respect to the production of the film, the predominant use occurs. " ( i i i) A l l other items shall be allocated under regulations prescribed by the Secretary which are consistent with the allocation principle set forth in clause ( i i). " (6) UNITED STATES.—For purposes of this subsection, the term 'United States' includes the possessions of the United States."

26 USC 47.

(b) OVERESTIMATION OF USEFUL L i F E AND DISPOSITIONS W H E R E 9 0 P E R C E N T RULE A P P L I E S. — S e c t i o n 4 7 (a) ( r e l a t i n g to certain disposi-

tions, etc., of section 38 property) is amended by adding after paragraph (6) the following new paragraph: " (7) MOTION PICTURE FILMS AND VIDEO TAPES.— " (A) DISPOSITION WHERE DEPRECIATION EXCEEDS 90 PERCENT OF BASIS OR COST.—A qualified film ( w i t h i n the m e a n i n g

Ante, p. 1591.

of section 48(k)(1)(B)) which has an applicable percentage determined under section 48(k)(3) shall cease to be section 38 property with respect to the taxpayer at the close of the first day on which the aggregate amount allowable as a deduction under section 167 equals or exceeds 90 percent of the basis or cost of such film (adjusted for any partial dispositions). "(B)

"Affiliated group."

26 USC 48 note.

Ante, p. 1591.

OTHER DISPOSITIONS.—In the case of a disposition of

the exclusive right to display a qualified film which has an applicable percentage determined under section 48(k)(3) in one or more mediums of publication or exhibition in one or more specifically defined geographical areas over the remaining initial period of commercial exploitation of the film or tape in such geographical areas, the taxpayer shall be considered to have disposed of all or part of such film or tape and shall recompute the credit earned on all of his basis or cost or on that part of the basis or cost properly allocable to that part of the film or tape disposed of. I n the case of an affiliated group of corporations, a transfer within the affiliated group shall not be treated as a disposition until there is a transfer outside the group. For purposes of the preceding sentence, the term 'affiliated g r o u p ' has the meaning given to such term by section 1504 (determined as if section 1504(b) d i d not include paragraph (3) thereof). For purposes of this paragraph, section 1504(a) shall be applied by substituting '50 percent' for '80 percent' each place it appears.". (c) ALTORNATI\'E METHODS OF COMPUTING CREDIT FOR P A S T PERIODS.— (1) GENERAL RULE FOR DETERMINING USEFUL LIFE, PREDOMINANT FOREIGN USE, E T C. — I n the case of a qualified film ( w i t h i n

the meaning of section 4 8 (k)(l)(B) of the I n t e r n a l Revenue Code of 1954) placed in service in a taxable year beginning before January 1, 1975, with respect to which neither an election under paragraph (2) of this subsection n o r an election under subsection (e)(2) applies— (A) the applicable percentage under section 4 6 (c)(2) of such Code shall be determined as if the useful life of the film would have expired a t the close of the first taxable year by the close of which the aggregate amount allowable as a

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 I PUBLIC LAW 94-455—OCT. 4, 1976

9 0 STAT. 1595

deduction under section 167 of such Code would equal or exceed 90 percent of the basis of such property (adjusted for any partial dispositions), (B) for purposes of section 4 6 (c)(1) of such Code, the 26 USC 46. basis of the property shall be determined by taking into account the total production costs (within the meaning of section 4 8 (k)(5)(B) of such Code), (C) for purposes of section 48(a)(2) of such Code, such film shall be considered to be used predominantly outside the United States in the first taxable year for which 50 percent or more of the gross revenues received or accrued during the taxable year from showing the film were received or accrued from showing the film outside the United States, and (D) Section 4 7 (a)(7) of such Code shall apply. (2) ELECTION OF 4O-PERCENT METHOD.—

(A) IN GENERAL.—A taxpayer may elect to have this paragraph apply to all (jualified films placed in service during taxable years beginning before January 1, 1975 (other than films to which an election under subsection (e)(2) of this section applies). (B) E F F E C T OF ELECTION.—If the taxpayer makes an election under this paragraph, then section 48(k) of the Internal Revenue Code of 1954 shall apply to all qualified films described in subparagraph (A) with the following modifications: (i) subparagraph (B) of paragraph (4) shall not apply, but in determining qualified investment under section 46(c)(1) of such Code, there shall be used (in lieu of the basis of such property) an amount equal to 40 percent of the aggregate production costs (witliin the meaning of paragraph (5)(B) of such section 4 8 (k)), (ii) paragraph (2) shall be applied by substituting "100 percent"' for "662/3 percent", and (iii) paragraph (3) and paragraph (5) (other than subparagraph (B)) shall not apply. (C)

RULES RELATING TO ELECTIONS.—An election under

,,

Regulations,

this paragraph shall be made not later than the day which is 6 months after the date of the enactment of this Act and shall be made in such manner as the Secretary of the Treasury or his delegate shall by regulations prescribe. Such an election may be revoked only with the consent of the Secretary of the Treasury or his delegate, (D)

THE TAXPAYER MUST CONSENT TO J O I N I N CERTAIN

PROCEEDINGS.—No election may be made under this paragraph or subsection (e)(2) by any taxpayer unless he consents, under regulations prescribed by the Secretary of the Treasury or his delegate, to treat the determination of the investment credit allowable on each film subject to an election as a separate cause of action, and to join in any judicial proceeding for determining the person entitled to, and the amount of, the credit allowable under section 38 of the I n t e r n a l Revenue Code of 1954 with respect to any film covered by such election. (3) ELECTION TO HAVE CREDIT DETERMINED I N ACCORDANCE W I T H PREVIOUS LITIGATION.—

(A) IN GENERAL.—A tax p a y e r described in subparagraph (B) may elect to have this paragraph apply to all films (whether o r not qualified) placed in service in taxable years

,•

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 90 STAT. 1596

PUBLIC LAW 94-455—OCT. 4, 1976 beginning before January 1, 1975, and with respect to which an election under subsection (e)(2) is not made. (B) W H O MAY ELECT.—A taxpayer may make an election under this paragraph if he has filed an action in any court of competent jurisdiction, before January 1, 1976, for a determination of such taxpayer's rights to the allowance of a credit against tax under section 38 of the I n t e r n a l Revenue Code of 1954 for any taxable year beginning before January 1, 1975, with respect to any film. (C) E F F E C T OF ELECTION.—If the tax p a y e r makes an elec-

Ante, p. 1591.

tion under this paragraph — (i) paragraph s (1) and (2) of this subsection, and subsection (d) shall not apply to any film placed in service by the taxpayer, and (ii) subsection 4 8 (k) of the I n t e r n a l Revenue Code of 1954 shall not apply to any film placed in service by the taxpayer in any taxable year beginning before January 1, 1975, and with respect to which an election under subsection (e)(2) is not made, and the r i g h t of the taxpayer to the allowance of a credit against tax under section 38 of such Code with respect to any film placed in service in any taxable year beginning before January 1, 1975, and as to which an election under subsection (e)(2) is not made, shall be determined as though this section (other than this paragraph) has not been enacted. (D) RULES RELATING TO ELECTIONS.—An election

under

this paragraph shall be made not later than the d a y which is 90 days after the date of the enactment of this Act, by fili n g a notification of such election with the national office of the I n t e r n a l Revenue Service. Such an election, once made, shall be irrevocable. 26 USC 48 note.

(d) ENTITLEMENT TO C R E D I T. — Paragraph

(1)

of section 48(k)

of the I n t e r n a l Revenue Code of 1954 (relating to entitlement to credit) shall apply to any motion picture film or video tape placed in service in any taxable year beginning before January 1, 1975. 26 USC 48 note.

(e) EFFECTIVE D A T E S. —

(1) IN GENERAL.—The amendments made by subsections (a) and (b) shall apply to taxable years beginning after December 31, 1974. (2) ELECTION MAY ALSO APPLY TO PROPERTY DESCRIBED I N SEC-

26 USC 46.

TION 50(a).—At the election of the taxpayer, m a d e within 1 year after the date of the enactment of this Act i n such manner as the Secretary of the Treasury or his delegate may by regulations prescribe, the amendments made by subsections (a) and (b) shall also apply to property which is property described in section 50(a) of the I n t e r n a l Revenue Code of 1954 and which is placed in service in taxable years beginning before January 1, 1975. SEC. 805. INVESTMENT CREDIT IN THE CASE OF CERTAIN SHIPS. (a) IN GENERAL.—Section 46 (relating to amount of credit) is amended by a d d i n g at the end thereof the following new subsection: " (g) 50 PERCENT CREDIT I N THE CASE o r CERTAIN VESSELS.—

" (1) IN GENERAL.—In the case of a qualified w i t h d r a w a l out of the untaxed portion of a capital gain account or o u t of a n ordinary income account in a capital construction fund established under section 607 of the Merchant Marine Act, 1936 (46 U.S.C.ll77),for—

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 »

PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 15^7

" (A) the acquisition, construction, or reconstruction of a qualified vessel, or " (B) the acquisition, construction, or reconstruction of barges or containers which are part of the complement of a qualified vessel and to which subsection (f)(1)(B) of such section 607 applies, 46 USC 1177. for purposes of section 38 there shall be deemed to have been made (at the time of such withdrawal) a qualified investment (within the meaning of subsection (c)) or qualified progress expenditures (within the meaning of subsection (d)), whichever is appropriate, with respect to property which is section 38 property. " (2) A M O U N To r CREDIT.—For purposes of paragraph (1), the

amount of the qualified investment shall be 50 percent of the applicable percentage of the qualified withdrawal referred to in paragraph (1), or the amount of the qualified progress expenditures shall be 50 percent of such withdrawal, as the case may be. For purposes of determining the amount of the credit allowable by reason of this subsection for any taxable year, the limitation or subsection (a)(3) shall be determined without regard to subsection (d)(1)(A) of such section 607.

'*' 5 \

"''

'' '

" (3) COORDINATION W I T H SECTION 38.—The a m o u n t of the c r e d i t

allowable by reason of this STibsection with respect to any property shall be the minimum amount allowable under section 38 with respect to such property. If, without regard to this subsection, a greater amount is allowable under section 38 with respect to such property, then such greater amount shall apply and this subsection shall not apply. "(4)

COORDINATION W I T H

SECTION 47.—Section 47 shall

be

applied— " (A) to any property to which this subsection applies, and " (B) to the payment ( o u t of the untaxed portion of a '.;.*,\ capital gain account or out of the ordinary income account of a capital construction fund established under section 607 of the Merchant Marine Act, 1936) of the principal of any indebtedness incurred in connection with property with respect to which a credit was allowed under section 38. For purposes of section 47, any payment described in subparagraph (B) of the preceding sentence shall be treated as a disposition occurring less than 3 years after the property was placed in service; but, in the case of a credit allowable without regard to this subsection, the aggregate amount which may be recaptured by reason of this sentence shall not exceed 50 percent of such credit. " (5) DEEINITIONS.—Any term used in section 607 of the Merchant Marine Act, 1970, shall have the same meaning when used 46 USC 1177. in this subsection. " (6) No INFERENCE.—Nothing in this subsection shall be construed to infer that any property described in this subsection is or is not section 38 property, and any determination of such issue shall be made as if this subsection h a d not been enacted." (b) EFFECTIVE D A T E S. —

(1) IN GENERAL.—Except as provided in subparagraph (B), the amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1975, in the case of property placed in service after such date.

-194 O—78—pt. 2

9

26 USC 46 note.

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 90 STAT. 1598 Ante, p. 1596.

26 USC 172. ^05^ p. 1755.

-^

(2) SECTION 46(g)(4).—Section 4 6 (g)(4) of the I n t e r n a l Revenue Code of 1954 (as added by subsection (a)) shall apply to taxable years beginning after December 31, 1975. SEC. 806. ADDITIONAL NET OPERATING LOSS CARRYOVER YEARS; LIMITATIONS ON NET OPERATING LOSS CARRYOVERS. (a) IN GENERAL.—Section 1 7 2 (b)(1)(B), as amended by section 1606(b) of this Act, is amended by adding a t the end thereof the following new sentence: " E x c e p t as provided in subparagraph s (C), (D), (E), and (F), a net operating loss for any taxable year ending after December 31, 1975, shall be a net operating loss carryover to each of the 7 taxable years following the taxable year of such loss." (b)

Post, p. 1769.

PUBLIC LAW 94-455—OCT. 4, 1976

REGULATED TRANSPORTATION CORPORATIONS.—

(1) IN GENERAL.—Section 1 7 2 (b)(1)(C) is amended by adding at the end thereof the following new sentence: " For any taxable year ending after December 31, 1975, the preceding sentence shall be applied by substituting '9 taxable years' for '7 taxable years'." (2) CONFORMING AMENDMENT. — Paragraph (3) of section 172

Post, p. 1769.

(g), as amended by section 1901(a) (29) of this Act, is amended— (A) by striking " and " at the end of subparagraph (A); (B) by striking the period at the end of subparagraph (B) and inserting in lieu thereof "; and "; and (C) by a d d i n g a t the end thereof the following new subparagraph: " (C) in the case of a net operating loss carryover from a loss year ending after December 31, 1'975, subparagraphs (A) and (B) shall be applied by substituting '8th taxable year' for the ' 6 t h taxable year ' and ' 9 t h taxable year ' for ' 7 t h taxable year.'" (c)

Post, p. 1769.

.,

(3),

INSURANCE C O M P A N I E S. — (1) L I F E INSURANCE COMPANIES.—

(A) IN GENERAL.—Paragraph (1) of section 812(b) is amended by a d d i n g a t the end thereof the following new sentence: " I n the case of an operations loss for any taxable year ending after December 31, 1975, this paragraph shall be applied by substituting '7 taxable years' for '5 taxable years'."

^

-

(b)

^s amended by section 1901(a) (29) of this Act, is amended by adding a t the end thereof the following new subparagraph: " (E) Any tax p a y e r entitled to a carryback period under paragraph (1) may elect to relinquish the entire carryback period with respect to a net operating loss for any taxable year ending after December 31, 1975. Such election shall be made in such manner as may be prescribed by the Secretary, and shall be made by the due date (including extensions of time) for filing the taxpayer's return for the taxable year of the net operating loss for which the election is to be in effect. Such election, once made for any taxable year, shall be irrevocable for that taxable year." (d)

26 USC 812.

ELECTION TO FOREGO CARRYBACK PERIOD.—Section 172

(B)

ELECTION

TO FOREGO

CARRYBACK

PERIODS.—Section

812(b) is amended by a d d i n g a t the end thereof the following new paragraph: (3)

ELECTION FOR OPERATIONS LOSS CARRYBACKS.—In the case of

a loss from operations for any taxable year ending after December 31, 1975, the taxpayer may elect to relinquish the entire carry-

K^t-m

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 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1599

back period for such loss. Such election shall be made by the due date (including extensions of time) for filnig the return for the taxable year of the loss from operations for which the election is to be in effect, and once made for any taxable year, such election shall be irrevocable for that taxable year." (2) M U T U A L iNsuRAisrcE COMPANIES.—

(A) IN GENERAL.—Section 825(d) is amended to read as 26 USC 825. follows: " (d) YEARS TO W H I C H CARRIED.—

" (1) IN GENERAL.—The unused loss for any taxable year shall be— " (A) an unused loss carryback to each of the 3 taxable years preceding the loss year, and " (B) an unused loss carryover to each of the 5 taxable years following the loss year. I n the case of an unused loss for a taxable year ending after December 31, 1975, such unused loss shall be an unused loss carryover to each of the 7 taxable years following the loss year. " (2) ELECTION FOR UNUSED LOSS CARRYBACKS.—In the case of a n

unused loss for any taxable year ending after December 31, 1975, the taxpayer may elect to relinquish the entire carryback period for such loss. Such election shall be made by the due date (including extensions of time) for filing the return for-the taxable year of the unused loss for which the election is to be in effect, and once made for any taxable year, such election shall be irrevocable for that taxable year." (e) AMENDMENT o r SECTION 382.—Section 382 ( r e l a t i n g to special

limitations on net operating loss carryovers) is hereby amended to read as follows: "SEC. 382. SPECIAL LIMITATIONS ON NET OPERATING LOSS CARRYOVER. " (a) CERTAIN ACQUISITIONS o r STOCK o r A CORPORATION.— " (1) IN GENERAL.—If—

" (A) on the last day of a taxable year of a corporation, " (B) any one or more of the persons described in paragraph (4)(B) own, directly or indirectly, a percentage of the total fair market value of the participating stock or of all the stock of the corporation which exceeds by more than 60 percentage points the percentage of such stock owned by such person or persons at— " (i) the beginning of such taxable year, or " ( i i) the beginning of the first or second preceding taxable year, and " (C) such increase in percentage points is attributable to— " (i) a purchase by such person or persons of such stock, or of the stock of another corporation owning stock in such corporation, or of an interest in a partnership o r trust owning stock in such corporation, " ( i i) an acquisition (by contribution, merger, or consolidation) of an interest in a partnership owning stock in such corporation, or an acquisition (by contribution, merger, or consolidation) by a partnership of such stock, " ( i i i) an exchange to which section 351 (relating to transfer to corporation controlled by transferor) applies, or a n acquisition by a corporation of such stock in an exchange i n which section 351 applies to the transferor,

26 USC 382.

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 90 STAT. 1600
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26 USC 303.

,

PUBLIC LAW 94-455—OCT. 4, 1976

i " ( i v) a contribution to the capital of such corporation, " (v) a decrease in the amount of such stock outstanding or in the amount of stock outstanding of another corporation owning stock in such corporation (except a decrease resulting from a redemption to pay death taxes to which section 303 applies), " ( v i) a liquidation of the interest of a part n e r in a partnership owning stock in such corporation, or " ( v i i) any combination of the transactions described in clauses (i) through ( v i), then the net operating loss carryover, if any, from such taxable year and the net operating loss carryovers, if any, from prior taxable years to such taxable year and subsequent taxable years of such corporation shall be reduced by the percentage determined under paragraph (2), "(2)

REDUCTION OF NET OPERATING LOSS CARRYOVER.—The reduc-

tion applicable under paragraph (1) shall be the sum of the percentages determined by multiplying— " (A) by three and one-half the increase in percentage points (including fractions thereof) in excess of 60 and up to and including 80, and " (B) by one and one-half the increase in percentage points (including fractions thereof) in excess of 80. The reduction under this paragraph shall be determined by reference to the increase in percentage points of the total fair market value of the participating stock or of all the stock, whichever increase is greater. "(3)

MINIMUM OWNERSHIP RULE. — Notwithstanding the

pro-

visions of paragraph (1), a net operating loss carryover from a taxable year shall not be reduced under this subsection if, at all times during the last half of such taxable year, any of the persons described in paragraph (4)(B) (determined on the last day of the taxable year referred to in paragraph (1)(A)) owned at least 40 percent of the total fair market value of the participating stock and of all the stock of the corporation. For purposes of the preceding sentence, persons owning stock of a corporation on the last day of its first taxable year shall be considered to have owned such stock at all times during the last half of such first taxable year. " (4) OPERATING RULES.—For purposes of this subsection— "(A)

.

'

OF PURCHASE.—The

term 'purchase'

means an acquisition of stock the basis of which is determined by reference to its cost to the holder thereof. "(B)

I

DEFINITION

DESCRIPTION OF PERSON OR PERSONS.—The person or

persons referred to in paragraph (1)(B) shall be the 15 persons (or such lesser number as there are persons owning the stock on the last day of the taxable year) who own the greatest percentage of the total fair m a r k e t value of all the stock on the last day of that year, except that if any other person owns the same percentage of such stock at such time as is owned by one of the 15 persons, that other person shall also be included. If any of the persons are so related that the stock owned by one is attributed to the other under the rules specified in subparagraph (C), such persons shall be considered as only one person solely for the purpose of selecting the 15 persons (more or less) who own the greatest percentage of the total fair market value of all the stock.

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