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1976/10/04 HR10612 Tax Reform Act of 1976 (7)
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12009638
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1976/10/04 HR10612 Tax Reform Act of 1976 (7)
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White House Records Office: Legislation Case Files
Legislation Case Files
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1976
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The original documents are located in Box 60, folder "10/4/76 HR10612 Tax Reform Act of
1976 (7)" of the White House Records Office: Legislation Case Files at the Gerald R. Ford
Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Exact duplicates within this folder were not digitized.
Digitized from Box 60 of the White House Records Office Legislation Case Files at the Gerald R. Ford Presidential Library
H. R. 10612-301
(12) AMENDMENT OF SECTION 5142.-Section 5142 (relating
to payment of occupational taxes) is amended to read as follows:
(c) How PAID.-
"(1) PAYMENT BY RETURN.-The special taxes imposed by this
part shall be paid on the basis of a return under such regulations
as the Secretary shall prescribe.
(2) STAMP DENOTING PAYMENT OF TAX.-After receiving a prop- -
erly executed return and remittance of any special tax imposed
by this subpart, the Secretary shall issue to the taxpayer an
appropriate stamp as a receipt denoting payment of the tax. This
paragraph shall not apply in the case of a return covering liability
for a past period."
(13) AMENDMENTS OF SECTION 5171.Section 5171 (b) (relating
to permits for operation of business as distillers, etc.) is
amended—
(A) in paragraph (1), by striking out "49 Stat. 978;", and
(B) by striking out paragraph (3) (relating to continuance
of business after June 30, 1959, pending application for
permit).
(14) AMENDMENT OF SECTION 5174.Section 5174(a) (2) (A)
(relating to withdrawal bonds for distilled spirits) is amended by
striking out "such spirits" and inserting in lieu thereof "distilled
spirits from bond".
(15) AMENDMENT OF SECTION 5232.-Section 5232 (a) (relating
to transfer of imported distilled spirits) is amended by striking
out "and the importer" and inserting in lieu thereof "and the
importer, or the person bringing such distilled spirits into the
United States,".
(16) AMENDMENT OF SECTION 5233.-Section 5233 (b) (4) (relat-
ing to bottling requirements) is amended by striking out "49
Stat. 977;".
(17) AMENDMENT OF SECTION 5234.-The first sentence of section
5234(a) (2) (relating to the mingling of distilled spirits) is
amended by striking out "8 years" and inserting in lieu thereof
"20 years".
(18) AMENDMENT OF SECTION 5314.-Section 5314(a) (2) (relat-
ing to application of certain provisions to Puerto Rico) is
amended by striking out "section 5001 (a) (4)" and inserting in
lieu thereof "section 5001 (a) (10)"
(19) REPEAL OF SECTION 5315.-Section 5315 (relating to the
status of certain distilled spirits on July 1, 1959) is repealed.
(20) AMENDMENTS OF SECTION 5368.-
(A) The heading of section 5368 is amended to read as
follows:
"SEC. 5368. GAUGING AND MARKING."
(B) Section 5368 (b) (relating to removal of wines) is
amended to read as follows:
"(b) MARKING.-Wines shall be removed in such containers (includ-
ing vessels, vehicles, and pipelines) bearing such marks and labels,
evidencing compliance with this chapter, as the Secretary may by reg-
ulations prescribe."
(21) AMENDMENT OF SECTION 5392.-Section 5392 (f) (defining
own production) is amended by striking out "49 Stat. 990;".
(22) AMENDMENTS OF SECTION 5601.-Section 5601 (b) (relating
to presumptions in the case of criminal penalties) is amended to
read as follows:
H. R. 10612-302
"(b) PRESUMPTION.-Whenever on trial for violation of subsection
(a) (4) the defendant is shown to have been at the site or place where,
and at the time when, the business of a distiller or rectifier was SO
engaged in or carried on, such presence of the defendant shall be
deemed sufficient evidence to authorize conviction, unless the defendant
explains such presence to the satisfaction of the jury (or of the court
when tried without jury).'
(23) AMENDMENTS OF SECTION 5685.-
(A) Section 5685(a) (relating to penalty for possession
of devices for emitting gas, smoke, etc.) is amended by strik-
ing out "section 5848" and inserting in lieu thereof "section
5845".
(B) Section 5685 (c) (relating to forfeiture of firearms,
devices, etc.) is amended by striking out "section 5862" and
inserting in lieu thereof "section 5872".
(C) Section 5685 (d) (relating to the definition of machine
gun) is amended to read as follows:
"(d) DEFINITION OF MACHINE GUN.-As used in this section, the
term 'machine gun' means a machinegun as defined in section 5845 (b).
(24) AMENDMENT OF SECTION 5701.Section 5701 (e) (relating
to imported tobacco products, etc.) is amended by striking out
"such articles" and inserting in lieu thereof "such articles, unless
such import duties are imposed in lieu of internal revenue tax".
(25) AMENDMENTS OF SECTION 5703.-
(A) Section 5703 (a) (2) (relating to transfer of liability
for tobacco taxes) is amended by adding at the end thereof
the following new sentence: "All provisions of this chapter
applicable to tobacco products and cigarette papers and tubes
in bond shall be applicable to such articles returned to bond
upon withdrawal from the market or returned to bond after
previous removal for a tax-exempt purpose."
(B) The second sentence of section 5703 (b) (relating to
method of payment of tobacco taxes) is amended by striking
out ", except that the taxes shall continue to be paid by stamp
until the Secretary or his delegate provides, by regulations,
for the payment of the taxes on the basis of a return".
(C) Section 5703 is amended by striking out subsection (c)
(relating to stamps to evidence tobacco taxes) and by
redesignating subsections (d) and (e) as subsections (c) and
(d), respectively.
(26) AMENDMENTS OF SECTION 5704.Subsections (c) and (d)
of section 5704 (relating to exemptions from tobacco taxes) are
each amended by inserting after "to a manufacturer of tobacco
products or cigarette papers and tubes" the following: "or to the
proprietor of an export warehouse".
(27) AMENDMENT OF SECTION 5712.-Section 5712 (relating to
application for permit) is amended by striking out the last
sentence.
(28) AMENDMENTS OF SECTION 5723.-
(A) The heading of section 5723 is amended by striking
out "NOTICES, AND STAMPS" and inserting in lieu thereof
"AND NOTICES".
(B) Section 5723 (b) (relating to marks. and SO forth, on
packages) is amended to read as follows:
"(b) MARKS, LABELS, AND NOTICES.-Every package of tobacco prod-
ucts or cigarette papers or tubes shall, before removal, bear the marks,
labels, and notices, if any, that the Secretary by regulation prescribes."
H. R. 10612-303
(b) CONFORMING AND CLERICAL AMENDMENTS.-
(1) AMENDMENTS CONFORMING TO AMENDMENT OF SECTION
5054.-
(A) Section 5676 (relating to beer stamp penalties) is_
repealed.
(B) The table of sections for part III of subchapter J of
chapter 51 is amended by striking out the item relating to
section 5676.
(2) AMENDMENTS CONFORMING TO AMENDMENTS OF SECTION
5061.-
(A) Section 5007 (b) (1) is amended by striking out the
second sentence.
(B) Section 5026 (b) is amended by striking out "Except
as provided in subsection (a) (2), the taxes" and inserting
in lieu thereof "The taxes".
(C) Section 5043 (b) is amended by striking out "Except
as provided in subsection (a) (3), the taxes" and inserting
in lieu thereof "The taxes".
(D) Section 5662 is amended by striking out "stamp,"
each place it appears.
(E) (i) Section 5689 (relating to penalty and forfeiture
for tampering with a stamp machine) is repealed.
(ii) The table of sections for part IV of subchapter J of
chapter 51 is amended by striking out the item relating to
section 5689.
(iii) Section 5061 is amended by striking out subsec-
tion (d).
(3) AMENDMENTS CONFORMING TO AMENDMENT OF SECTION
5142.-
(A) (i) Section 5104 (relating to method of payment of
tax on stills) is repealed.
(ii) The table of sections for subpart C of part II of sub-
chapter A of chapter 51 is amended by striking out the item
relating to section 5104.
(B) Section 5111 (a) is amended by striking out the second
sentence.
(C) Section 5121 (a) is amended by striking out the second
sentence.
(D) (i) Section 5144 (relating to supply of stamps) is
repealed.
(ii) The table of sections for subpart G of part II of sub-
chapter A of chapter 51 is amended by striking out the item
relating to section 5144.
(E) Section 5148 (3) is amended by striking out "penalties"
and inserting in lieu thereof "penalties, authority for
assessments,".
(4) AMENDMENT CONFORMING TO THE REPEAL OF SECTION 3315.-
The table of sections for part III of subchapter E of chapter 51
is amended by striking out the item relating to section 5315.
(5) AMENDMENT CONFORMING TO THE AMENDMENT OF SECTION
5368.-The item relating to section 5368 in the table of sections
for part II of subchapter F of chapter 51 is amended to read as
follows:
"Sec. 5368. Gauging and marking."
(6) AMENDMENTS CONFORMING TO THE AMENDMENT OF SECTION
5601.-
H. R. 10612-304
(A) Section 5105 (b) (2) is amended by striking out ", 5601
(b) (1)
(B) Section 5177(b) (2) is amended by striking out "5601
(b) (2) and inserting in lieu thereof "5601 (b),
(C) Section 5179(b) (1) is amended by striking out ", 5601
(b) (1),
(D) Section 5222 (d) is amended by striking out "5601 (b)
(3), 5601 (b) (4),".
(E) Section 5505(i) is amended by striking out "5601 (b)
(1)
(7) AMENDMENTS CONFORMING TO THE AMENDMENT OF SECTION
5723.-
(A) Paragraphs (2) and (3) of section 5751(a) are each
amended by striking out "notices, and stamps" and inserting
in lieu thereof "and notices".
(B) (i) Section 5752 is amended to read as follows:
"SEC. 5752. RESTRICTIONS RELATING TO MARKS, LABELS, NOTICES,
AND PACKAGES.
"No person shall, with intent to defraud the United States, destroy,
obliterate, or detach any mark, label, or notice prescribed or authorized,
by this chapter or regulations thereunder, to appear on, or be affixed
to, any package of tobacco products or cigarette papers or tubes, before
such package is emptied."
(ii) Section 5762 (a) is amended by striking out paragraphs
(6), (7), (8), (9), (10), and (11) and inserting in lieu thereof
the following:
"(6) DESTROYING, OBLITERATING, OR DETACHING MARKS, LABELS,
OR NOTICES BEFORE PACKAGES ARE EMPTIED.-Violates any provision
of section 5752;".
(iii) The item relating to section 5752 in the table of sec-
tions for subchapter E of chapter 52 is amended to read as
follows:
"Sec. 5752. Restrictions relating to marks, labels, notices, and
packages."
(C) (i) Section 5763 (a) (2) is amended by striking out
"notices, and stamps" and inserting in lieu thereof "and
notices".
(ii) Section 5763 (b) is amended by striking out "internal
revenue stamps,".
(D) The item relating to section 5723 in the table of sections
for subchapter C of chapter 52 is amended to read as follows:
"Sec. 5723. Packages, marks, labels, and notices."
(c) AMENDMENTS TO PROVISIONS REFERRING TO TERRITORIES.-
(1) Section 5114(b) is amended by striking out "or Territory"
each place it appears and by striking out "Territories,".
(2) Section 5214(a) (2) is amended by striking out "or Ter-
ritory" each place it appears.
(3) Section 5272(b) is amended by striking out "and
Territories".
(4) Section 5362(c) (9) is amended by striking out "and
Territories".
(5) Section 5551 (b) (2) is amended by striking out "Territory,
or".
(6) Section 5685(a) is amended by striking out "Territory
or".
H. R. 10612-305
(d) EFFECTIVE DATE.-The amendments made by this section shall
take effect on the first day of the first month which begins more than
90 days after the date of the enactment of this Act.
SEC. 1906. AMENDMENTS OF SUBTITLE F; PROCEDURE AND ADMIN-
ISTRATION.
(a) IN GENERAL.-
(1) AMENDMENTS OF SECTION 6013.-
(A) Section 6013 (b) (2) (C) (relating to petition to the
Tax Court) is amended by striking out "of the United
States".
(B) The heading of section 6013(d) is amended to read
as follows:
"(d) SPECIAL RULES.-".
(C) Section 6013 (d) (1) (relating to joint return after
death of one spouse) is amended by striking out "and" at
the end of subparagraph (A) and inserting in lieu thereof
"or", and by striking out "and" at the end of the subpara-
graph (B).
(2) AMENDMENT OF SECTION 6015.-Section 6015 (relating to
declaration of estimated tax by individuals) is amended by strik-
ing out subsection (j) (relating to an effective date provision).
(3) AMENDMENT OF SECTION Bo37.-Section 6037 (relating to
returns of subchapter S corporations) is amended by striking out
"section 1371 (a) (2)" and inserting in lieu thereof "section 1371
(b)
(4) AMENDMENT OF SECTION 6046.-Section 6046(e) (relating to
information as to organization of foreign corporation) is
amended to read as follows:
"(e) LIMITATION.-No information shall be required to be furnished
under this section with respect to any foreign corporation unless such
information was required to be furnished under regulations which
have been in effect for at least 90 days before the date on which the
United States citizen, resident, or person becomes liable to file a return
required under subsection (a)."
(5) AMENDMENT OF SECTION 6051.Section 6051 (a) (relating
to information required to be furnished to employees) is amended
by striking out "and" where it appears at the end of paragraph
(6).
(6) AMENDMENTS OF SECTION BoB5.-Section 6065 (relating to
verification of returns) is amended by striking out subsection (b)
(relating to verification by oath), and by striking out in subsection
(a) the following: (a) PENALTIES OF PERJURY.-".
(7) REPEAL OF SECTION 6105.Section 6105 (relating to com-
pilation of data for certain excess profits tax cases) is repealed.
(8) AMENDMENT OF SECTION 1111.Section 6111 (relating to
cross references), as redesignated by this Act, is amended to read
as follows:
"SEC. 6111. CROSS REFERENCE.
"For inspection of records, returns, etc., concerning gasoline or
lubricating oils, see section 4102."
(9) AMENDMENT OF SECTION 6152.-Section 6152 (a) (1) (relat-
ing to installment payments by corporations) is amended to read
as follows:
"(1) CORPORATIONS.-A corporation subject to the taxes imposed
by chapter 1 may elect to pay the unpaid amount of such taxes in
two equal installments."
H. R. 10612-306
(10) AMENDMENTS OF SECTION 6154.-
(A) Section 6154 (c) (1) (B) (relating to definition of esti-
mated tax) is amended-
(i) by adding "and" after the comma at the end of
clause (i), and
(ii) by striking out clauses (ii) and (iii) and inserting
in lieu thereof the following:
"(ii) in the case of a taxable year beginning before
January 1, 1977, the amount of the corporation's tempo-
rary estimated tax exemption for such year."
(B) Section 6154(c) (2) (A) (ii) (relating to temporary
estimated tax payments) is amended by striking out "clauses
(ii) and (iii)' and inserting in lieu thereof "clause (ii)".
(C) Section 6154 (2) (B) (relating to estimated tax)
is amended by striking out the following:
"1968, 1969, 1970, 1971, and 1972
100 percent
1973
80 percent
1974
60 percent".
(D) Section 6154(c) (relating to estimated tax) is
amended by striking out paragraph (3) (relating to transi-
tional exemption for taxable years beginning before 1972).
(11) AMENDMENTS OF SECTION 6157.-
(A) Section 6157 (relating to payment of Federal unem-
ployment tax) is amended by striking out subsection (c)
(relating to special rules for 1970 and 1971), and by redesig-
nating subsection (d) as subsection (c).
(B) Section 6157 (a) is amended by striking out "subsec-
tions (c) and (d)" and inserting in lieu thereof "subsection
(c)
(12) REPEAL OF SECTION 6162.-Section 6162 (relating to pay-
ment of tax on gain on liquidation of certain personal holding
companies) is repealed.
(13) AMENDMENT OF SECTION 6205.Section 6205(a) (4) (relat-
ing to District of Columbia as employer) is amended by striking
out "Commissioners of the District of Columbia and each agent
designated by them" and inserting in lieu thereof "Mayor of the
District of Columbia and each agent designated by him".
(14) AMENDMENT OF SECTION 6207.Section 6207 (relating to
cross references) is amended by striking out paragraph (7).
(15) AMENDMENT OF SECTION 8213.-Section 6213(a) (relating
to time for filing petition with the Tax Court) is amended by
striking out "States of the Union and the District of Columbia"
and inserting in lieu thereof "United States".
(16) AMENDMENT OF SECTION 6215.-Section 6215 (b) (5) (a
cross reference) is amended by striking out "60 Stat. 48;".
(17) AMENDMENT OF SECTION 6302.-Section 6302(b) (relating
to collection of certain excise taxes) is amended by striking out
"sections 4501 (a) or 4511 of chapter 37, or section 4701 or 4721 of
chapter 39" and inserting in lieu thereof "section 4501 (a) of chap-
ter 37".
(18) REPEAL OF SECTION 6304.-Section 6304 (relating to a cross
reference) is repealed.
(19) AMENDMENT OF SECTION 6313.-Section 6313 (relating to
fractional parts of a cent) is amended by striking out "not pay-
able by stamp".
(20) AMENDMENTS OF SECTION 6326.-
H. R. 10612-307
(A) Paragraph (2) of section 6326 (cross references) is
amended by striking out "52 Stat. 851;".
(B) Paragraph (3) of section 6326 is amended by striking
out "52 Stat. 867;".
(C) Paragraph (4) of section 6326 is amended by striking
out "52 Stat. 867-877;
(D) Paragraph (5) of section 6326 is amended by striking
out "52 Stat. 938;".
(21) AMENDMENT OF SECTION B365.-Section 6365 (relating
to definition of governor) is amended by striking out "Commis-
sioner of the District of Columbia" and inserting in lieu thereof
"Mayor of the District of Columbia".
(22) AMENDMENT OF SECTION 6412.Section 6412(a) (relating
to floor stock refunds) is amended by redesignating paragraphs
(2) and (4) as paragraphs (1) and (2), respectively.
(23) AMENDMENTS OF SECTION 6413.-
(A) Section 6413 (a) (4) (relating to District of Columbia
as employer) is amended by striking out "Commissioners of
the District of Columbia and each agent designated by them"
and inserting in lieu thereof "Mayor of the District of Colum-
bia and each agent designated by him".
(B) (i) Section 6413 (c) (1) (relating to refunds of certain
employment taxes) is amended to read as follows:
"(1) IN GENERAL-If by reason of an employee receiving wages
from more than one employer during a calendar year the wages
received by him during such year exceed the contribution and
benefit base (as determined under section 230 of the Social
Security Act) which is effective with respect to such year, the
employee shall be entitled (subject to the provisions of section 31
(b)) to a credit or refund of any amount of tax, with respect to
such wages, imposed by section 3101 or section 3201, or by both such
sections, and deducted from the employee's wages (whether or
not paid to the Secretary), which exceeds the tax with respect
to the amount of such wages received in such year which is equal
to such contribution and benefit base. The term 'wages' as used
in this paragraph shall, for purposes of this paragraph, include
'compensation' as defined in section 3231 (e)."
(ii) So much of section 6413 (c) (2) (A) (relating to Fed-
eral employees) as follows "and the term 'wages' includes"
is amended to read as follows: "for purposes of this sub-
section the amount, not to exceed an amount equal to the
contribution and benefit base (as determined under section
230 of the Social Security Act) for any calendar year with
respect to which such contribution and benefit base is effective,
determined by each such head or agent as constituting wages
paid to an employee."
(iii) The amendments made by clauses (i) and (ii) shall
apply with respect to remuneration paid after December 31,
1976.
(C) Section 6413 (c) (2) (F) (relating to government
employees in the District of Columbia) is amended by striking
out "Commissioners of the District of Columbia and each
agent designated by them" and inserting in lieu thereof
"Mayor of the District of Columbia and each agent desig-
nated by him".
H.R. 10612-308
(D) Section 6413 (c) (3) (relating to special refunds) is
amended by striking out "after 1967".
(24) AMENDMENTS OF SECTION 6416.-
(A) Section 6416(a) (3) (relating to special rules for
refund of overpayment of tax) is amended by redesignating-
subparagraphs (C) and (D) as subparagraphs (A) and
(B) respectively.
(B) (i) Section 6416(b) (2) (relating to overpayments of
certain excise taxes), as amended by section 2108 of this Act,
is amended by striking out subparagraphs (G), (H), (I), and
(J), and by redesignating subparagraphs (F), (K), (L),
(M), (R), (S), and (T) as subparagraphs (E), (F), (G),
(H), (I), (J), and (K), respectively.
(ii) The repeals made by clause (i) shall apply with
respect to the use or resale for use of liquids after December 31,
1976.
(25) REPEAL OF SECTION 6417.-Section 6417 (relating to coco-
nut and palm oil) is repealed.
(26) AMENDMENTS OF SECTION 6420.-
(A) Section 6420 (b) (relating to time for filing refund
claims on gasoline) is amended to read as follows:
(b) TIME FOR FILING CLAIMS; PERIOD COVERED.-Not more than
one claim may be filed under this section by any person with respect
to gasoline used during his taxable year, and no claim shall be allowed
under this section with respect to gasoline used during any taxable year
unless filed by such person not later than the time prescribed by law for
filing a claim for credit or refund of overpayment of income tax for
such taxable year. For purposes of this subsection, a person's taxable
year shall be his taxable year for purposes of subtitle A."
(B) Section 6420(e) (1) (relating to application of other
laws) is amended by striking out "apply in in respect" and
inserting in lieu thereof "apply in respect".
(C) (i) Section 6420 is amended by striking out subsection
(g) (relating to effective date) and by redesignating sub-
sections (h) and (i) as subsections (g) and (h), respectively.
(ii) Section 6420 (a) is amended by striking out "subsec-
tion (h)" and inserting in lieu thereof "subsection (g)".
(D) Section 6420(g) (relating to income tax credit in lieu
of gas tax refund), as redesignated by subparagraph (C) (i)
of this paragraph, is amended by striking out "with respect to
gasoline used after June 30, 1965," and "for gasoline used
after June 30, 1965".
(27) AMENDMENTS OF SECTION 6421.-
(A) (i) Subsections (a) and (e) (3) of section 6421 (relat-
ing to nonhighway use of gasoline) are each amended by
striking out "after June 30, 1970,".
(ii) The amendments made by clause (i) shall only apply
with respect to gasoline used as a fuel after June 30, 1970.
(B) Section 6421 (c) (relating to nonhighway use of gaso-
line) is amended to read as follows:
"(c) TIME FOR FILING CLAIMS; PERIOD COVERED.-
"(1) IN GENERAL-Except as provided in paragraph (2), not
more than one claim may be filed under subsection (a), and not
more than one claim may be filed under subsection (b), by any
person with respect to gasoline used during his taxable year; and
no claim shall be allowed under this paragraph with respect to
gasoline used during any taxable year unless filed by such person
H. R. 10612-309
not later than the time prescribed by law for filing a claim for
credit or refund of overpayment of income tax for such taxable
year. For purposes of this subsection, a person's taxable year shall
be his taxable year for purposes of subtitle A.
"(2) EXCEPTION.-If $1,000 or more is payable under this
section to any person with respect to gasoline used during any of
the first three quarters of his taxable year, a claim may be filed
under this section by such person with respect to gascline used
during such quarter. No claim filed under this paragraph shall be
allowed unless filed on or before the last day of the first quarter
following the quarter for which the claim is filed."
(C) Section 6421 (h) (relating to effective dates) is
amended by striking out "after June 30, 1956, and".
(D) Section 6421(i) (relating to income tax credit in lieu
of refund) is amended—
(i) by striking out, in paragraph (1), "with respect to
gasoline used after June 30, 1965,",
(ii) by striking out, in paragraph (2), "subsection (c)
(3) (B) and inserting in lieu thereof "subsection (c)
(2)", and
(iii) by striking out, in paragraph (3), "fo gasoline
used after June 30, 1965."
(28) AMENDMENTS OF SECTION 6422.-
(A) Paragraph (9) of section 6422 (relating to ross ref-
erences), as redesignated by section 1901 (b) (3. ; (B), is
amended by striking out "60 Stat. 48;".
(B) Paragraph (11) of section 6422, as SO redes nated, is
amended by striking out "47 Stat. 1516;".
(29) AMENDMENTS OF SECTION 6423.-
(A) Section 6423 (b) (relating to filing of refund claim in
case of alcohol and tobacco taxes) is amended to read as
follows:
'(b) FILING OF CLAIMS.-No credit or refund of any amount to
which subsection (a) applies shall be allowed or made unless a claim
therefor has been filed by the person who paid the amount claimed,
and unless such claim is filed within the time prescribed by law and in
accordance with regulations prescribed by the Secretary. All evidence
relied upon in support of such claim shall be clearly set forth and sub-
mitted with the claim."
(B) Section 6423 is amended by striking out subsection (c)
(relating to suits barred on April 30, 1958) and by redesig-
nating subsections (d) and (e) as subsections (c) and (d),
respectively.
(C) Section 6423 (c) (relating to application of SU tion), as
redesignated by subparagraph (B) of this paragraph, is
amended by adding "and" at the end of paragraph (1), by
striking out ", and" at the end of paragraph (2) and insert-
ing in lieu thereof a period, and by striking out paragraph
(3).
(30) AMENDMENTS OF SECTION 6424.-
(A) The last sentence of section 6424(b) (1) (relating to
refund claims with respect to lubricating oil) is amended by
striking out ", except that a person's first taxable year begin-
ning after December 31, 1965, shall include the period after
December 31, 1965, and before the beginning of such first
taxable year".
H. R. 10612-310
(B) Section 6424 (relating to lubricating oil not used in
highway motor vehicles) is amended by striking out subsec-
tion (f) (relating to effective date of section), and by
redesignating subsections (g) and (h) as subsections (f) and
(g), respectively.
(31) AMENDMENTS OF SECTION 6427.-
(A) Subsections (a), (b), and (c) of section 6427 (relating
to fuels not used for taxable purposes) are each amended
by striking out ", after June 30, 1970,".
(B) The amendments made by subparagraph (A) shall
apply only with respect to fuel used or resold after June 30,
1970.
(32) AMENDMENTS OF SECTION 6504.-
(A) Section 6504 (relating to cross references) is amended
by striking out paragraphs (13) and (14) and inserting in
lieu thereof:
"(13) Assessments to recover excessive amounts paid under section
6420 (relating to gasoline used on farms), 6421 (relating to gasoline
used for certain nonhighway purposes or by local transit systems),
6424 (relating to lubricating oil not used in highway motor vehicles),
or 6427 (relating to fuels not used for taxable purposes) and assess-
ments of civil penalties under section 6675 for excessive claims under
section 6420, 6421, 6424, or 6427, see section 6206."
(B) Section 6504, as amended by this Act, is further
amended by redesignating paragraphs (2), (3), (4), (5),
(9), (10), (11), (12), (13), and (15) as paragraphs (1),
(2), (3), (4), (5), (6), (7), (8), (9), and (10), respectively.
(33) AMENDMENTS OF SECTION 6511.-
(A) Section 6511 (d) (2) (A) (ii) (relating to net oper-
ating loss carryback) is amended by striking out "Septem-
ber 1, 1959, or" and by striking out whichever is the later".
(B) Section 6511(d) (5) is amended by striking out "the
later of the following dates: (A)", and by striking out ",
or (B) December 31, 1965".
(34) AMENDMENT OF SECTION 6601.Section 6601 (h) (relating
to interest on estimated tax payments) is amended by striking
out "(or section 59 of the Internal Revenue Code of 1939)".
(35) AMENDMENT OF SECTION 6654.-Section 6654 (relating to
payment of estimated income tax) is amended by striking out
subsection (h) (relating to applicability of section).
(36) AMENDMENT OF SECTION 6802.-Section 6802(2) (relating
to supply and distribution of stamps) is amended by striking
out the semicolon at the end and inserting in lieu thereof a
period.
(37) AMENDMENT OF SECTION 6803.-Section 6803 (relating to
accounting and safeguarding is amended to read as follows:
"SEC. 6803. ACCOUNTING AND SAFEGUARDING.
"(a) Bond.-In cases coming within the provisions of paragraph
(2) of section 6802, the Secretary may require a bond, with sufficient
sureties, in a sum to be fixed by the Secretary, conditioned for the
faithful return, whenever SO required, of all quantities or amounts
undisposed of and for the payment monthly for all quantities or
amounts sold or not remaining on hand.
"(b) REGULATIONS.-The Secretary may from time to time make
such regulations as he may find necessary to insure the safekeeping or
prevent the illegal use of all adhesive stamps referred to in paragraph
(2) of section 6802."
H. R. 10612-311
(38) AMENDMENT OF SECTION 6863.-Section 6863 (b) (3)
(relating to stay of sale of seized property pending Tax Court
decision) is amended by striking out subparagraph (C) (relating
to effective date).
(39) AMENDMENT OF SECTION 7012.-Section 7012 (relating to
cross references), as amended by section 1904 (b) (8) (C) of this
Act, is amended to read as follows:
"SEC. 7012. CROSS REFERENCES.
"(1) For provisions relating to registration in connection with fire-
arms, see sections 5802, 5841, and 5861.
"(2) For special rules with respect to registration by persons engaged
in receiving wagers, see section 4412.
"(3) For provisions relating to registration in relation to the produc-
tion or importation of gasoline, see section 4101.
"(4) For provisions relating to registration in relation to the manu-
facture or production of lubricating oils, see section 4101.
"(5) For penalty for failure to register, see section 7272.
"(6) For other penalties for failure to register with respect to wager-
ing, see section 7262."
(40) AMENDMENT OF SECTION 7103.Section 7103 (relating to
cross references regarding bonds) is amended by striking out sub-
section (d).
(41) AMENDMENTS OF SECTION 7271.Section 7271 (relating to
penalties for offenses concerning stamps) is amended by striking
out paragraph (2), and by redesignating paragraphs (3) and
(4) as paragraphs (2) and (3), respectively.
(42) AMENDMENT OF SECTION 7272.-Section 7272 (b) (relating
to cross references) is amended by striking out "4722, 4753,".
(43) AMENDMENTS OF SECTION 7326.Section 7326 (relating to
disposal of forfeited property) is amended—
(A) by striking out "section 5862(b)" and inserting in
lieu thereof "section 5872 (b)", and
(B) by redesignating subsection (c) as subsection (b).
(44) AMENDMENTS OF SECTION 7422.-Section 7422 (c) (relating
to suits against collection officers) is amended by striking out
"instituted after June 15, 1942,", and by striking out "where the
petition to the Tax Court was filed after such date".
(45) AMENDMENTS OF SECTION 7428.-
(A) Paragraph (1) of section 7428 (cross references), as
redesignated by this Act, is amended by striking out "52
Stat. 851;".
(B) Paragraph (2) of such section 7428 is amended by
striking out "52 Stat. 867;".
(C) Paragraph (3) of such section 7428 is amended by
striking out "52 Stat. 876-877;'
(D) Paragraph (4) of such section 7428 is amended by
striking out "52 Stat. 938;".
(46) AMENDMENTS OF SECTION 7448.-
(A) Subsection (a) (6) of section 7448 (relating to
annuities to widows and dependent children of Tax Court
judges) is amended—
(i) by striking out "The term 'widow' means a surviv-
ing wife of" and inserting in lieu thereof "The term
'surviving spouse' means a surviving spouse of" and
(ii) by striking out "the mother of issue" and insert-
ing in lieu thereof "a parent of issue".
(B) Section 7448 (h) is amended—
H. R. 10612-312
(i) by striking out "surviving widow or widower"
and inserting in lieu thereof "surviving spouse";
(ii) by striking out "such widow" each place it appears
and inserting in lieu thereof "such surviving spouse";
(iii) by striking out "a widow" each place it appears
and inserting in lieu thereof "a surviving spouse";
(iv) by striking out "widow's" each place it appears
and inserting in lieu thereof "surviving spouse's"; and
(v) by striking out "surviving her" and inserting in
lieu thereof "surviving such spouse".
(C) Sections 7448 (h) and (o) are each amended by strik-
ing out "she" and inserting in lieu thereof "such spouse".
(D) Section 7448 (o) is amended by striking out "her" and
inserting in lieu thereof "such spouse's".
(E) Sections 7448 (d), (j), (m), (n), (o), and (q) are
each amended by striking out "widow" each place it
appears and inserting in lieu thereof "surviving spouse".
(F) The section heading for section 7448 is amended by
striking out "WIDOWS" and inserting in lieu thereof "SUR-
VIVING SPOUSES".
(47) AMENDMENTS OF SECTION 7471.-
(A) Subsection (a) of section 7471 (relating to Tax Court
employees) is amended by striking out "is authorized in ac-
cordance with the civil service laws to appoint, and in ac-
cordance with the Classification Act of 1949 (63 Stat. 954;
5 U.S.C. chapter 21), as amended, to fix the compensation
of," and inserting in lieu thereof "is authorized to appoint,
in accordance with the provisions of title 5, United States
Code, governing appointment in the competitive service, and
to fix the basic pay of, in accordance with chapter 51 and
subchapter III of chapter 53 of such title,".
(B) Subsection (b) of section 7471 is amended by striking
out "as provided in the Travel Expense Act of 1949 (63 Stat.
166; 5 U.S.C. chapter 16)." and inserting in lieu thereof "as
provided in chapter 57 of title 5, United States Code."
(48) AMENDMENT OF SECTION 7476.Section 7476(a) (relating
to declaratory judgments) is amended by striking out so much
thereof as follows paragraph (2) (B) and inserting in lieu
thereof the following:
"upon the filing of an appropriate pleading, the Tax Court may
make a declaration with respect to such initial qualification or con-
tinuing qualification. Any such declaration shall have the force and
effect of a decision of the Tax Court and shall be reviewable as
such."
(49) AMENDMENT OF SECTION 7502.-Section 7502 (b) (relating
to timely mailing treated as timely filing and paying) is amended
by striking out "United State Post Office" and inserting in lieu
thereof "United States Postal Service".
(50) AMENDMENTS OF SECTION 7507.-Paragraphs (2) and (3)
of section 7507 (c) (relating to insolvent banks) are each amended
by striking out "after May 28, 1938,".
(51) AMENDMENTS OF SECTION 7508.-
(A) The heading of section 7508 (relating to time for
performing certain acts) is amended by striking out "BY
REASON OF WAR" and inserting in lieu thereof "BY REASON
OF SERVICE IN COMBAT ZONE".
H. R. 10612-313
(B) Section 7508 (a) (relating to time to be disregarded)
is amended by striking out "States of the Union and the
District of Columbia" each place it appears and inserting in
lieu thereof "United States".
1.
(52) AMENDMENTS OF SECTION 7509.-Section 7509 (relating to
expenditures incurred by the Post Office Department) is
amended-
(A) in the section heading, by striking out "POST OFFICE
DEPARTMENT" and inserting in lieu thereof "UNITED STATES
POSTAL SERVICE";
(B) by striking out "Post Office Department" each place it
appears and inserting in lieu thereof "United States Postal
Service";
(C) by striking out "such Department" and inserting in
lieu thereof "such Service"; and
(D) by striking out ", together with the receipts required
to be deposited under section 6803(a),".
(53) AMENDMENT OF SECTION 7621.-Section 7621 (b) (relating
to boundaries of internal revenue districts) is amended to read
as follows:
(b) BOUNDARIES.-For the purpose mentioned in subsection (a),
the President may subdivide any State or the District of Columbia, or
may unite into one district two or more States."
(54) REPEAL OF SECTION 7641.-Subchapter C of chapter 78
(relating to supervision of operations of certain manufacturers)
is repealed.
(55) AMENDMENTS OF SECTION 7652.-Section 7652(b) (3)
(relating to disposition of internal revenue collections) is
amended-
(A) by striking out subparagraph (B) and by redesignat-
ing subparagraph (C) as subparagraph (B).
(B) by striking out "approved emergency relief purposes
and essential public projects as provided in subparagraph
(B)" and inserting in lieu thereof "emergency relief purposes
and essential public projects, with the prior approval of the
President or his designated representative", and
(C) by striking out ", including payments under subpara-
graph (B),".
(56) AMENDMENT OF SECTION 7653.-Section 7653(d) (a cross
reference) is amended by striking out "c. 512, 64 Stat. 392,
section 30;".
(57) AMENDMENTS OF SECTION 7701.-
(A) Section 7701 (a) (11) (relating to definitions of Sec-
retary) is amended to read as follows:
"(11) SECRETARY OF THE TREASURY AND SECRETARY.-
(A) SECRETARY OF THE TREASURY.-The term Secretary
of the Treasury' means the Secretary of the Treasury, per-
sonally, and shall not include any delegate of his.
(B) SECRETARY.-The term 'Secretary' means the Secre-
tary of the Treasury or his delegate.".
(B) Section 7701 (a) (12) (A) (relating to definition of
Secretary or his delegate) is amended to read as follows:
"(A) IN GENERAL-The term 'or his delegate'-
(i) when used with reference to the Secretary of the
Treasury, means any officer, employee, or agency of the
Treasury Department duly authorized by the Secretary
H. R. 10612-314
of the Treasury directly, or indirectly by one or more
redelegations of authority, to perform the function
mentioned or described in the context; and
(ii) when used with reference to any other official of
the United States, shall be similarly construed."
(58) AMENDMENT OF SECTION 7803.Section 7803 (relating to⁻
other personnel) is amended by redesignating subsection (d) as
subsection (c).
(59) AMENDMENT OF SECTION 7809.Section 7809(a) (relating
to deposit of collections) is amended by striking out "4735, 4762,".
(b) CONFORMING AND CLERICAL AMENDMENTS.-
(1) AMENDMENT CONFORMING TO THE REPEAL OF SECTION
6105.-The table of sections for subchapter B of chapter 61 is
amended by striking out the item relating to section 6105.
(2) AMENDMENT CONFORMING TO AMENDMENT OF SECTION 6111.-
The item relating to section 6111 in the table of sections for sub-
chapter B of chapter 61 is amended to read as follows:
"Sec. 6111. Cross reference."
(3) AMENDMENTS CONFORMING TO AMENDMENTS OF SECTION
6154.-
(A) Paragraph (1) (B) of section 6655 (e) is amended:
(i) by adding "and" at the end of clause (i), and
(ii) by striking out clauses (ii) and (iii) and insert-
ing in lieu thereof the following:
66 (ii) in the case of a taxable year beginning before
January 1, 1977, the amount of the corporation's tempo-
rary estimated tax exemption for such year."
(B) Paragraph (2) (B) of section 6655 (e) is amended by
striking out "clauses (ii) and (iii)" and inserting in lieu
thereof "clause (ii)
(C) (i) Section 6655(e) is amended by striking out para-
graph (3) and by redesignating paragraph (4) as paragraph
(3)
(ii) Section 243 (b) (3) (C) (iv), as redesignated by section
1901 (b) (20) (A) of this Act, is amended by striking out "sec-
tions 6154(c) (2) and (3)" and inserting in lieu thereof "sec-
tion 6154 (c) (2)", and by striking out "sections 6655 (e) (2)
and (3)" and inserting in lieu thereof "section 6655 (e) (2)
(4) AMENDMENT CONFORMING TO THE REPEAL OF SECTION 6162.-
The table of sections for subchapter B of chapter 62 is amended
by striking out the item relating to section 6162.
(5) AMENDMENT CONFORMING TO THE REPEAL OF SECTION 6304.-
The table of sections for subchapter A of chapter 64 is amended
by striking out the item relating to section 6304.
(6) AMENDMENTS CONFORMING TO THE AMENDMENT OF SEC-
TION 6416.-
(A) Subparagraph (A) of section 6420(c) (3) is amended
to read as follows:
"(A) by the owner, tenant, or operator of a farm, in con-
nection with cultivating the soil, or in connection with raising
or harvesting any agricultural or horticultural commodity,
including the raising, shearing, feeding, caring for, training,
and management of livestock, bees, poultry, and fur-bearing
animals and wildlife, on a farm of which he is the owner.
tenant, or operator; except that if such use is by any person
H. R. 10612-315
other than the owner, tenant, or operator of such farm, then
for purposes of this subparagraph, in applying subsection
(a) to this subparagraph, the owner, tenant, or operator of
the farm on which gasoline or a liquid taxable under section
4041 issued shall be treated as the user and the ultimate pur-
chaser of such gasoline or liquid;".
(B) The amendments made by subparagraph (A) shall
apply with respect to the use of liquids after December 31,
1970.
(7) AMENDMENT CONFORMING TO THE REPEAL OF SECTION 6417.-
The table of sections for subchapter B of chapter 65 is amended
by striking out the item relating to section 6417.
(8) AMENDMENT CONFORMING TO AMENDMENT OF SECTION 6420.-
Section 39(a)(1) is amended by striking out "section 6420(h)"
and inserting in lieu thereof "section 6420(g)".
(9) AMENDMENT CONFORMING TO AMENDMENT OF SECTION 6424.-
Section 39 (a) (3) is amended by striking out "section 6424(g)"
and inserting in lieu thereof "section 6424(f)".
(10) AMENDMENT CONFORMING TO AMENDMENT OF SECTION
7448.-The item relating to section 7448 in the table of sections
for part I of subchapter C of chapter 76 is amended to read as
follows:
"Sec. 7448. Annuities of surviving spouses and dependent children.".
(11) AMENDMENT CONFORMING TO AMENDMENT OF SECTION
7508.-The item relating to section 7508 in the table of sections
for chapter 77 is amended to read as follows:
"Sec. 7508. Time for performing certain acts postponed by reason of
service in combat zone.".
(12) AMENDMENT CONFORMING TO AMENDMENT OF SECTION
7509.-The item relating to section 7509 in the table of sections
for chapter 77 is amended to read as follows:
"Sec. 7509. Expenditures incurred by the United States Postal
Service.".
(13) AMENDMENT CONFORMING TO REPEAL OF SECTION 7641.-
The table of subchapters for chapter 78 is amended by striking
out the item relating to subchapter C.
(A) The Internal Revenue Code of 1954, as amended by
this Act, is amended by striking out "Secretary or his
delegate" each place it appears and inserting in lieu thereof
"Secretary".
(B) The following provisions are each amended by strik-
ing out "Secretary" each place it appears and inserting in
lieu thereof "Secretary of the Treasury": sections 4293, 4483
(b), 5551, 7801 (b), 7802(a), 9006(a), 9006 (b), and 9007 (d).
(C) The following provisions are each amended by striking
out "to the Secretary" each place it appears and inserting in
lieu thereof "to the Secretary of the Treasury": sections 3121
(b) (12) (B), 3303 (b), 3304(a) (3), 3304 (c), 3305 (j), 3306 (c)
(12) (B), 9005 (a), 9007(b), 9010(b), and 9012(e) (3).
(D) Section 31 (b) (1) is amended by striking out (or his
delegate)".
(E) The last sentence of section 3304(c) is amended by
striking out "the Secretary shall" and inserting in lieu thereof
"the Secretary of Labor shall".
H. R. 10612-316
(F) Section 3310(d) (2) is amended by striking out "the
Secretary's action" each place it appears and inserting in lieu
thereof "the Secretary of Labor's action".
(G) Section 3221 (a) and 3221 (c) are each amended by
striking out "of the Treasury" each place it appears.
(H) Section 3310 is amended by striking out "of the
Secretary" and inserting in lieu thereof "of the Secretary of
Labor".
(I) Section 4412(c) is amended by striking out "he or his
delegate" and inserting in lieu thereof "the Secretary".
(J) Section 5845 (f) is amended by striking out "of the
Treasury or his delegate".
(K) Section 6402(b) is amended by striking out (or his
delegate)".
(L) Section 7458 is amended by striking out "nor his
delegate".
(M) Section 7514 is amended by striking out "functions of
the Secretary" and inserting in lieu thereof "functions of the
Secretary of the Treasury".
(c) AMENDMENTS TO SECTIONS REFERRING TO TERRITORIES.-
(1) Section 6871 (a) is amended by striking out "or Territory".
(2) Section 7622 (b) is amended by striking out ", Territory,".
(3) Section 7701 (a) (4) is amended by striking out "or
Territory".
(d) EFFECTIVE DATE.-
(1) GENERAL RULE.-Except as otherwise expressly provided
in this section, the amendments made by this section shall take
effect on the first day of the first month which begins more than
90 days after the date of the enactment of this Act.
(2) AMENDMENTS RELATING TO INCOME TAX.-The amendments
made by this section, when relating to a tax imposed by chapter
1 or chapter 2 of the Internal Revenue Code of 1954, shall take
effect with respect to taxable years beginning after December 31,
1976.
SEC. 1907. AMENDMENTS OF SUBTITLE G; THE JOINT COMMITTEE ON
INTERNAL REVENUE TAXATION.
(a) IN GENERAL.-
(1) AMENDMENT OF SECTION 8001.Section 8001 (relating to
creation of the Joint Committee) is amended by striking out
"Joint Committee on Internal Revenue Taxation" and inserting
in lieu thereof "Joint Committee on Taxation".
(2) AMENDMENT OF SECTION 8004.-Section 8004 (relating to
compensation of staff) is amended by striking out "compensation
of a clerk" and inserting in lieu thereof "compensation of the
Chief of Staff of the Joint Committee".
(3) AMENDMENT OF SECTION 8021.-Section 8021 (d) (relating
to authority to make expenditures) is amended to read as follows:
(d) To MAKE EXPENDITURES.-The Joint Committee, or any
subcommittee thereof, is authorized to make such expenditures as it
deems advisable.".
(4) AMENDMENT OF SECTION 8023.-Section 8023 (c) (relating
to reorganization plans) is amended to read as follows:
(c) APPLICATION OF SUBSECTIONS (a) AND (b).Subsections (a)
and (b) shall be applied in accordance with their provisions without
regard to any reorganization plan becoming effective on, before, or
after the date of the enactment of this subsection.".
H. R. 10612-317
(5) All references in any other statute, or in any rule, regula-
tion, or order, to the Joint Committee on Internal Revenue Taxa-
tion shall be considered to be made to the Joint Committee on
Taxation.
(b) AMENDMENTS CONFORMING TO THE AMENDMENT OF SECTION
8001.-
(1) The heading of subtitle G is amended by striking out
"Internal Revenue".
(2) The table of subtitles for the Internal Revenue Code of
1954 is amended by striking out the item relating to subtitle G
and inserting in lieu thereof the following:
"SUBTITLE G. The Joint Committee on Taxation."
(c) EFFECTIVE DATE.-The amendments made by this section shall
take effect on the first day of the first month which begins more than
90 days after the date of the enactment of this Act.
SEC. 1908. EFFECTIVE DATE OF CERTAIN DEFINITIONS AND DESIGNA-
TIONS
For purposes of any amendment made by any provision of this Act
(other than this title)-
(1) which contains a term the meaning of V hich is defined in or
modified by any provision of this title, and
(2) which has an effective date earlier than he effective date of
the provision of this title defining or modify ng such term,
that definition or modification shall be considere to take effect as of
such earlier effective date.
Subtitle B-Amendments of Code Provisions
With Limited Current Application; Repeals
and Savings Provisions
SEC. 1951. PROVISIONS OF SUBTITLE A.
(a) REFERENCES TO INTERNAL REVENUE CODE.-Except as otherwise
expressly provided, whenever in this section a reference is made to a
section or other provision, the reference shall be considered to be made
to a section or other provision of the Internal Revenue Code of 1954.
(b) AMENDMENTS.-
(1) AMENDMENT OF SECTION 72.-
(A) REPEAL-Section 72 (relatinfi to annuities) is
amended by striking out subsection (i) (relating to joint and
survivor annuities where first annuitant died in 1951, 1952,
or 1953).
(B) SAVINGS PROVISION.-Notwithstanding subparagraph
(A), if the provisions of section 72(i) applied to amounts
received in taxable years beginning before January 1, 1977,
under an annuity contract, then amounts received under such
contract on or after such date shall be treated as if such pro-
visions were not repealed.
(2) AMENDMENTS OF SECTION 108.-
(A) REPEAL-Section 108 (relating to income from dis-
charge of indebtedness) is amended by striking out subsection
(b) (relating to certain railroad corporations) and by strik-
ing out of subsection (a) the following: "(a) SPECIAL RULE
OF EXCLUSION.-".
H. R. 10612-318
(B) SAVINGS PROVISION.-If any discharge, cancellation,
or modification of indebtedness of a railroad corporation
occurs in a taxable year beginning after December 31, 1976,
pursuant to an order of a court in a proceeding referred to in
section 108 (b) (A) or (B) which commenced before Janu-
ary 1, 1960, then, notwithstanding the amendments made by
subparagraph (A), the provisions of subsection (b) of sec-
tion 108 shall be considered as not repealed with respect to
such discharge, cancellation, or modification of indebtedness.
(3) AMENDMENTS OF SECTION 164.-
(A) REPEAL-Section 164 (relating to taxes) is amended
by striking out subsection (f) (relating to payments for
municipal services in atomic energy communities) and by
redesignating subsection (g) as subsection (f).
(B) SAVINGS PROVISION.-Notwithstanding subparagraph
(A), any amount paid or accrued in a taxable year beginning
after December 31, 1976, to the Atomic Energy Commission
or its successors for municipal-type services shall be allowed
as a deduction under section 164 if such amount would have
been deductible by reason of section 164(f) (as in effect for
a taxable year ending on December 31, 1976) and if the
amount is paid or accrued with respect to real property in
a community (within the meaning of section 21 b. of the
Atomic Energy Community Act of 1955 (42 U.S.C. 2304
(b))) in which the Commission on December 31, 1976, was
rendering municipal-type services for which it received com-
pensation from the owners of property within such
community.
(4) REPEAL OF SECTION 168.-
(A) REPEAL.-Section 168 (relating to amortization of
emergency facilities) is repealed.
(B) SAVINGS PROVISION.-Notwithstanding the repeal
made by subparagraph (A), if a certificate was issued before
January 1, 1960, with respect to an emergency facility which
is or has been placed in service before the date of the enact-
ment of this Act, the provisions of section 168 shall not, with
respect to such facility, be considered repealed. The benefit
of deductions by reason of the preceding sentence shall be
allowed to estates and trusts in the same manner as in the
case of an individual. The allowable deduction shall be
apportioned between the income beneficiaries and the fidu-
clary in accordance with regulations prescribed under section
642(f).
(5) AMENDMENT OF SECTION 171.-
(A) REPEAL-
(i) Section 171(b) (1) (B) (relating to amount of
bond premium) is amended by striking out clause (iii)
(relating to certain bonds acquired before 1958).
(ii) Section 171 (b) (1) (B) (i) is amended by striking
out "clause (ii) or (iii) applies," and inserting in lieu
thereof "clause (ii) applies, or", and by inserting
"and" at the end thereof.
(iii) Section 171 (b) (1) (B) (ii) is amended by strik-
ing out ", or" and inserting ", and" in lieu thereof.
(iv) The second sentence in section 171(b) (2) is
amended by striking out "or (iii)".
H. R. 10612-319
(B) SAVINGS PROVISION.-Notwithstanding the amend-
ments made by subparagraph (A), in the case of a bond the
interest on which is not excludable from gross income-
(i) which was issued after January 22, 1951, with a
call date not more than 3 years after the date of such
issue, and
(ii) which was acquired by the taxpayer after Janu-
ary 22, 1954, and before January 1, 1958,
the bond premium for a taxable year beginning after Decem-
ber 31, 1975, shall not be determined under section 171 (b)
(1) (B) (i) but shall be determined with reference to the
amount payable on maturity, and if the bond is called before
its maturity, the bond premium for the year in which the
bond is called shall be determined in accordance with the
provisions of section 171 (b) (2).
(6) AMENDMENT OF SECTION 333.-
(A) REPEAL-Section 333 (relating to election as to recog-
nition of gain in certain liquidations) is amended by striking
out subsection (g) (relating to the liquidation of certain
personal holding companies).
(B) SAVINGS PROVISION.-Nothwithstanding subparagraph
(A), if any corporation meets all the requirements of sec-
tion 333 (g) (2) (B), as in effect before its repeal by this Act,
the liquidation of such corporation shall be treated as if
paragraphs (2), (3), and (4) of section 333 (g) had not been
repealed.
(C) PHASE-IN OF 12-MONTH HOLDING PERIOD REQUIRE-
MENT.-For purposes of subparagraph (B), the period for
holding of stock specified in section 333(g) (2) (A) (ii), as in
effect before such repeal, shall-
(i) in the case of taxable years beginning in 1977, be
considered to be "9 months"; and
(ii) in the case of taxable years beginning after De-
cember 31, 1977, be considered to be "1 year".
(7) AMENDMENT OF SECTION 453.-
(A) REPEAL-Section 453(b) (2) (relating to limitation
on use of installment sales method) is amended to read as
follows:
"(2) LIMITATION.-Paragraph (1) shall apply only if in
the taxable year of the sale or other disposition-
" (A) there are no payments, or
(B) the payments (exclusive of evidences of indebted-
ness of the purchaser) do not exceed 30 percent of the selling
price.".
(B) SAVINGS PROVISION.-Notwithstanding subparagraph
(A), in the case of installment payments received during tax-
able years beginning after December 31, 1976, on account of
a sale or other disposition made during a taxable year begin-
ning before January 1, 1954, subsection (b) (1) of section
453 (relating to sales of realty and casual sales of person-
alty) shall apply only if the income was (by reason of sec-
tion 44(b) of the Internal Revenue Code of 1939) returnable
on the basis and in the manner prescribed in section 44(a)
of such Code.
H. R. 10612-320
(8) AMENDMENTS OF SECTION 512.-
(A) REPEAL-Section 512(b) (relating to unrelated busi-
ness taxable income) is amended by striking out paragraphs
(13) and (14) and by redesignating paragraphs (15), (16),
and (17) as paragraphs (13), (14), and (15), respectively.
1.
(B) SAVINGS PROVISION.-Notwithstanding subparagraph
(A), income received in a taxable year beginning after
December 31, 1975, shall be excluded from gross income in
determining unrelated business taxable income, if such
income would have been excluded by paragraph (13) or (14)
of section 512(b) if received in a taxable year beginning
before such date. Any deductions directly connected with
income excluded under the preceding sentence in determining
unrelated business taxable income shall also be excluded for
such purpose.
(9) AMENDMENT OF SECTION 545.-
(A) REPEAL-Section 545(b) (relating to adjustments in
computing undistributed personal holding company income)
is amended by striking out paragraph (9) (relating to deduc-
tions on account of certain liens in favor of the United
States).
(B) SAVINGS PROVISION.-Notwithstanding subparagraph
(A), if any amount was deducted under paragraph (9) of
section 545(b) in a taxable year beginning before January 1,
1977, on account of a lien which is satisfied or released in a
taxable year beginning on or after such date, the amount so
deducted shall be included in income, for purposes of section
545, as provided in the second sentence of such paragraph.
Shareholders of any corporation which has amounts included
in its income by reason of the preceding sentence may elect
to compute the income tax on dividends attributable to
amounts SO included as provided in the third sentence of such
paragraph.
(10) AMENDMENTS OF SECTION 691.-
(A) REPEAL-Section 691 (relating to income in respect
of decedents) is amended by striking out subsection (e)
(relating to certain installment obligations transmitted at
death) and by redesignating subsection (f) as subsection (e).
(B) SAVINGS PROVISION.-Notwithstanding subparagraph
(A), any election made under section 691 (e) to have subsec-
tion (a) (4) of such section apply in the case of an installment
obligation shall continue to be effective with respect to tax-
able years beginning after December 31, 1976. Section 691 (c)
shall not apply in respect of any amount included in gross
income by reason of the preceding sentence. The liability
under bond filed under section 44(d) of the Internal Revenue
Code of 1939 (or corresponding provisions of prior law) in
respect of which such an election applies is hereby released
with respect to taxable years to which such election applies.
(11) AMENDMENTS OF SECTION 817.-
(A) REPEAL-Section 817 is amended by striking out
subsection (d) (relating to certain gains occurring before
1959).
(B) SAVINGS PROVISION.-Notwithstanding subparagraph
(A), any gain in a taxable year beginning after Decem-
ber 31, 1976, from any sale or other disposition of property
prior to January 1, 1959, would be excluded or not taken into
H. R. 10612-321
account for purposes of part 1 of subchapter L of chapter
1 if subsection (d) of section 817 of such Code were still in
effect for such taxable year, such gain shall be excluded for
purposes of such part.
(12) REPEAL OF SECTION 1347.-
(A) REPEAL.-Section 1347 (relating to certain claims filed -
against the United States before January 1, 1958) is repealed.
(B) SAVINGS PROVISION.-Notwithstanding subparagraph
(A), if amounts received in a taxable year beginning after
December 31, 1976, would have been subject to the provisions
of section 1347 if received in a taxable year beginning before
such date, the tax imposed by section 1 attributable to such
receipt shall be computed as if section 1347 had not been
repealed.
(13) REPEAL OF SECTION 1471.-
(A) REPEAL.-Subchapter A of chapter 4 (relating to
recovery of excessive profits on certain Government con-
tracts) is repealed.
(B) SAVINGS PROVISION.-If the amount of profit required
to be paid into the Treasury under section 2382 or 7300 of
title 10, United States Code, is not voluntarily paid, the Sec-
retary of the Treasury or his delegate shall collect the same
under the methods employed to collect taxes under subtitle
A. All provisions of law (including penalties) applicable
with respect to such taxes and not inconsistent with section
2382 or 7300 of title 10 of such Code, shall apply with respect
to the assessment, collection, or payment of excess profits to
the Treasury as provided in the preceding sentence, and to
refunds by the Treasury of overpayments of excess profits
into the Treasury.
(14) AMENDMENT OF SECTION 1481.-
(A) REPEAL-Section 1481 (relating to mitigation of
effect of renegotiation of Government contracts) is amended
by striking out subsection (d) (relating to renegotiation for
years prior to 1954).
(B) SAVINGS PROVISION.-If, during a taxable year begin-
ning after December 31, 1976, a recovery of excessive profits
through renegotiation which relates to profits of a taxable
year subject to the Internal Revenue Code of 1939, the
adjustments in respect to such renegotiation shall be made
under section 3806 of such Code.
(c) CONFORMING AND CLERICAL AMENDMENTS.-
(1) AMENDMENT CONFORMING TO THE AMENDMENT OF SECTION
108.-Section 1017 is amended by striking out "section 108(a)"
each time it appears therein and inserting in lieu thereof "section
108".
(2) AMENDMENTS CONFORMING TO REPEAL OF SECTION 168.-
(A) Section 1238 is amended by striking out (relating to
amortization deduction of emergency facilities)" and insert-
ing in lieu thereof (as in effect before its repeal by the Tax
Reform Act of 1976)
(B) Sections 642 (f) and 1082 (a) (2) (B) are each amended
by striking out "168,"
(C) Sections 1245(a) (2) and 1250 (b) (3) are each amended
by striking out "168," each place it appears and inserting in
lieu thereof "168 (as in effect before its repeal by the Tax
Reform Act of 1976),".
H. R. 10612-322
(D) The table of sections for part VI of subchapter B of
chapter 1 is amended by striking out the item relating to
section 168.
(3) AMENDMENTS CONFORMING TO THE REPEAL OF SECTION
1347.-
(A) Section 5(b) is amended by striking out paragraph
(5) and by redesignating paragraphs (2), (3), and (4), as
paragraphs (1), (2), and (3), respectively.
(B) The table of sections for part VI of subchapter Q of
chapter 1 is amended by striking out the item relating to
section 1347.
(C) The heading of part VI of subchapter Q of chapter 1
is amended to read as follows:
"PART VI-MAXIMUM RATE ON PERSONAL SERVICE
INCOME."
(D) The table of parts for subchapter Q of chapter 1 is
amended by striking out the item relating to part VI and
inserting in lieu thereof the following:
"Part VI. Maximum rate on personal service income."
(4) AMENDMENT CONFORMING TO THE REPEAL OF SECTION 1471.-
The table of subchapters for chapter 4 is amended by striking
out the item relating to subchapter A.
(d) EFFECTIVE DATE.-Except as otherwise expressly provided, the
amendments made by this section shall apply with respect to taxable
years beginning after December 31, 1976.
SEC. 1952. PROVISIONS OF SUBCHAPTER D OF CHAPTER 39; COTTON
FUTURES.
(a) SHORT TITLE.-This section may be cited as the "United States
Cotton Futures Act".
(b) REPEAL OF Tax ON COTTON FUTURES.-Subchapter D of chap-
ter 39 (relating to tax on cotton futures) is repealed.
(c) DEFINITIONS.-For purposes of this section-
(1) COTTON FUTURES CONTRACT.-The term "cotton futures con-
tract" means any contract of sale of cotton for future delivery
made at, on, or in any exchange, board of trade, or similar institu-
tion or place of business which has been designated a "contract
market" by the Commodity Futures Trading Commission pur-
suant to the Commodity Exchange Act and the term "contract of
sale" as SO used shall be held to include sales, agreements of sale,
and agreements to sell.
(2) FUTURE DELIVERY.-The term "future delivery" shall not
include any cash sale of cotton for deferred shipment or delivery.
(3) PERSON.-The term "person" includes an individual, trust,
estate, partnership, association, company, or corporation.
(4) SECRETARY.-The term "Secretary" means the Secretary
of Agriculture of the United States.
(5) STANDARDS.-The term "standards" means the official cotton
standards of the United States established by the Secretary pur-
suant to the United States Cotton Standards Act, as amended.
(d) BONA FIDE SPOT MARKETS AND COMMERCIAL DIFFERENCES.-
(1) DEFINITION.-For purposes of this section, the only markets
which shall be considered bona fide spot markets shall be those
which the Secretary shall, from time to time, after investigation,
determine and designate to be such, and of which he shall give
public notice.
H. R. 10612-323
(2) DETERMINATION.-In determining, pursuant to the provi-
sions of this section, what markets are bona fide spot markets, the
Secretary is directed to consider only markets in which spot cotton
is sold in such volume and under such conditions as customarily
to reflect accurately the value of middling cotton and the differ-
ences between the prices or values of middling cotton and of other
grades of cotton for which standards shall have been established"
by the Secretary; except that if there are not sufficient places, in
the markets of which are made bona fide sales of spot cotton of
grades for which standards are established by the Secretary, to
enable him to designate at least five spot markets in accordance
with subsection (f) (3), he shall, from data as to spot sales col-
lected by him, make rules and regulations for determining the
actual commercial differences in the value of spot cotton of the
grades established by him as reflected by bona fide sales of spot
cotton, of the same or different grades, in the market selected and
designated by him, from time to time, for that purpose, and in
that event differences in value of cotton of various grades involved
in contracts made pursuant to subsection (f) (1) and (2) shall be
determined in compliance with such rules and regulations. It shall
be the duty of any person engaged in the business of dealing in
cotton, when requested by the Secretary or any agent acting under
his instructions, to answer correctly to the best of his knowledge,
under oath or otherwise, all questions touching his knowledge of
the number of bales, the classification, the price or bona fide price
offered, and other terms of purchase or sale, of any cotton involved
in any transaction participated in by him, or to produce all books,
letters, papers, or documents in his possession or under his control
relating to such matter.
(3) WITHHOLDING INFORMATION.-Any person engaged in the
business of dealing in cotton who shall, within a reasonable time
prescribed by the Secretary or any agent acting under his instruc-
tions, willfully fail or refuse to answer questions or to produce
books, letters, papers, or documents, as required under paragraph
(2) of this subsection, or who shall willfully give any answer
that is false or misleading, shall, upon conviction thereof, be fined
not more than $500.
(e) FORM AND VALIDITY OF COTTON FUTURES CONTRACTS.-Each
cotton futures contract shall be a basis grade contract, or a tendered
grade contract, or a specific grade contract as specified in subsections
(f), (g), or (h) and shall be in writing plainly stating, or evidenced
by written memorandum showing, the terms of such contract, includ-
ing the quantity of the cotton involved and the names and addresses
of the seller and buyer in such contract, and shall be signed by the
party to be charged, or by his agent in his behalf. No cotton futures
contract which does not conform to such requirements shall be enforce-
able by, or on behalf of, any party to such contract or his privies.
(f) BASIS GRADE CONTRACTS.-
(1) CONDITIONS.-Each basis grade cotton futures contract shall
comply with each of the following conditions:
(A) CONFORMITY WITH REGULATIONS.-Conform to the
regulations made pursuant to this section.
(B) SPECIFICATION OF GRADE, PRICE, AND DATES OF SALE AND
SETTLEMENT.-Specify the basis grade for the cotton involved
in the contract, which shall be one of the grades for which
standards are established by the Secretary, except grades pro-
hibited from being delivered on a contract made under this
H. R. 10612-324
subsection by subparagraph (E), the price per pound at
which the cotton of such basis grade is contracted to be bought
or sold, the date when the purchase or sale was made, and
the month or months in which the contract is to be fulfilled
or settled; except that middling shall be deemed the basis
grade incorporated into the contract if no other basis grade
be specified either in the contract or in the memorandum
evidencing the same.
(C) PROVISION FOR DELIVERY OF STANDARD GRADES ONLY.-
Provide that the cotton dealt with therein or delivered there-
under shall be of or within the grades for which standards
are established by the Secretary except grades prohibited
from being delivered on a contract made under this subsection
by subparagraph (E) and no other grade or grades.
(D) PROVISION FOR SETTLEMENT ON BASIS OF ACTUAL COMMER-
CIAL DIFFERENCES.-Provide that in case cotton of grade other
than the basis grade be tendered or delivered in settlement
of such contract, the differences above or below the contract
price which the receiver shall pay for such grades other than
the basis grade shall be the actual commercial differences,
determined as hereinafter provided.
(E) PROHIBITION OF DELIVERY OF INFERIOR COTTON.-Pro-
vide that cotton that, because of the presence of extraneous
matter of any character, or irregularities or defects, is
reduced in value below that of low middling, or cotton that is
below the grade of low middling, or, if tinged, cotton that is
below the grade of strict middling, or, if yellow stained, cot-
ton that is below the grade of good middling, the grades men-
tioned being of the official cotton standards of the United
States, or cotton that is less than seven-eighths of an inch in
length of staple, or cotton of perished staple, or of imma-
ture staple, or cotton that is "gin cut" or reginned, or cotton
that is "repacked" or "false packed" or "mixed packed" or
"water packed", shall not be delivered on, under, or in settle-
ment of such contract.
(F) PROVISIONS FOR TENDER IN FULL, NOTICE OF DELIVERY
DATE, AND CERTIFICATE OF GRADE.-Provide that all tenders of
cotton under such contract shall be the full number of bales
involved therein, except that such variations of the number
of bales may be permitted as is necessary to bring the total
weight of the cotton tendered within the provisions of the
contract as to weight; that, on the fifth business day prior
to delivery, the person making the tender shall give to the
person receiving the same written notice of the date of
delivery, and that, on or prior to the date so fixed for delivery,
and in advance of final settlement of the contract, the person
making the tender shall furnish to the person receiving the
same a written notice or certificate stating the grade of each
individual bale to be delivered and, by means of marks or
numbers, identifying each bale with its grade.
(G) PROVISION FOR TENDER AND SETTLEMENT IN ACCORDANCE
WITH GOVERNMENT CLASSIFICATION.-Provide that all tenders
of cotton and settlements therefor under such contract shall
be in accordance with the classification thereof made under
the regulations of the Secretary by such officer or officers of
the Government as shall be designated for the purpose, and
the costs of such classification shall be fixed, assessed, col-
H. R. 10612-325
lected, and paid as provided in such regulations. The Secre-
tary is authorized to prescribe regulations for carrying out
the purposes of this subparagraph and the certificates of the
officers of the Government as to the classification of any cot-
ton for the purposes of this subparagraph shall be accepted-
in the courts of the United States in all suits between the
parties to such contract, or their privies, as prima facie evi-
dence of the true classification of the cotton involved.
(2) INCORPORATION OF CONDITIONS IN CONTRACTS.-The provi-
sions of paragraphs (1) (C), (D), (E), (F), and (G) shall be
deemed fully incorporated into any such contract if there be
written or printed thereon, or on the memorandums evidencing
the same, at or prior to the time the same is signed, the phrase
"Subject to United States Cotton Futures Act, subsection (f)."
(3) DELIVERY ALLOWANCES.-For the purpose of this subsection,
the differences above or below the contract price which the
receiver shall pay for cotton of grades above or below the basic
grade in the settlement of a contract of sale for the future
delivery of cotton shall be determined by the actual commercial
differences in value thereof upon the sixth business day prior to
the day fixed, in accordance with paragraph (1) (F), for the
delivery of cotton on the contract, established by the sale of spot
cotton in the spot markets of not less than five places designated
for the purpose from time to time by the Secretary, as such values
were established by the sales of spot cotton, in such designated
five or more markets. For purposes of this paragraph, such values
in the such spot markets shall be based upon the standards for
grades of cotton established by the Secretary. Whenever the value
of one grade is to be determined from the sale or sales of spot cot-
ton of another grade or grades, such value shall be fixed in accord-
ance with rules and regulations which shall be prescribed for the
purpose by the Secretary.
(g) TENDERED GRADE CONTRACTS.-
(1) CONDITIONS.-Each tendered grade cotton future contract
shall comply with each of the following conditions:
(A) COMPLIANCE WITH SUBSECTION (f).-Comply with all
the terms and conditions of subsection (f) not inconsistent
with this subsection; and
(B) PROVISION FOR CONTINGENT SPECIFIC PERFORMANCE.-
Provide that, in case cotton of grade or grades other than the
basis grade specified in the contract shall be tendered in per-
formance of the contract, the parties to such contract may
agree, at the time of the tender, as to the price of the grade
or grades SO tendered, and that if they shall not then agree
as to such price, then, and in that event, the buyer of said
contract shall have the right to demand the specific fulfill-
ment of such contract by the actual delivery of cotton of
the basis grade named therein and at the price specified for
such basis grade in said contract.
(2) INCORPORATION OF CONDITIONS IN CONTRACT.-Contracts
made in compliance with this subsection shall be known as "sub-
section (g) Contracts". The provisions of this subsection shall be
deemed fully incorporated into any such contract if there be
written or printed thereon, or on the memorandum evidencing the
same, at or prior to the time the same is signed, the phrase
"Subject to United States Cotton Futures Act, subsection (g)".
H. R. 10612-326
(3) APPLICATION OF SUBSECTION.-Nothing in this subsection
shall be SO construed as to authorize any contract in which, or in
the settlement of or in respect to which, any device or arrange-
ment whatever is resorted to, or any agreement is made, for the
determination or adjustment of the price of the grade or grades
tendered other than the basis grade specified in the contract by
any "fixed difference" system, or by arbitration, or by any other
method not provided for by this section.
(h) SPECIFIC GRADE CONTRACTS.-
(1) CONDITIONS.-Each specific grade cotton futures contract
shall comply with each of the following conditions:
(A) CONFORMITY WITH RULES AND REGULATIONS.-Conform
to the rules and regulations made pursuant to this section.
(B) SPECIFICATION OF GRADE, PRICE, DATES OF SALE AND DELIV-
ERY.Specify the grade, type, sample, or description of the
cotton involved in the contract, the price per pound at which
such cotton is contracted to be bought or sold, the date of
the purchase or sale, and the time when shipment or delivery
of such cotton is to be made.
(C) PROHIBITION OF DELIVERY OF OTHER THAN SPECIFIED
GRADE.-Provide that cotton of or within the grade or of the
type, or according to the sample or descri tion, specified in
the contract shall be delivered thereunder and that no cot-
ton which does not conform to the type, S nple, or descrip-
tion, or which is not of or within the gra- , specified in the
contract shall be tendered or delivered t reunder.
(D) PROVISION FOR SPECIFIC PERFORMAN E.-Provide that
the delivery of cotton under the contract si 11 not be effected
by means of "setoff" or "ring" settlement, but only by the
actual transfer of the specified cotton mentioned in the
contract.
(2) INCORPORATION OF CONDITIONS IN CONTRACT.-The provisions
of paragraphs (1) (A), (C), and (D) shall be deemed fully incor-
porated into any such contract if there be written or printed
thereon, or on the document or memorandum evidencing the same,
at or prior to the time the same is entered into, the words "Sub-
ject to United States Cotton Futures Act, subsection (h)"
(3) APPLICATION OF SUBSECTION.-This subsection shall not be
construed to apply to any contract of sale made in compliance
with subsection (f) or (g).
(i) LIABILITY OF PRINCIPAL FOR ACTS OF AGENT.-When construing
and enforcing the provisions of this section, the act, omission, or fail-
ure of any official. agent, or other person acting for or employed by any
association, partnership, or corporation within the scope of his employ-
ment or office shall, in every case, also be deemed the act, omission, or
failure of such association, partnership, or corporation, as well as that
of the person.
(j) REGULATIONS.-The Secretary is authorized to make such regu-
lations with the force and effect of law as he determines may be
necessary to carry out the provisions of this section and the powers
vested in him by this section.
(k) VIOLATIONS.-Any person who knowingly violates any regula-
tion made in pursuance of this section, shall, upon conviction thereof,
be fined not less than $100 nor more than $500, for each violation
thereof, in the discretion of the court. and, in case of natural persons,
may, in addition be punished by imprisonment for not less than 30
days nor more than 90 days, for each violation, in the discretion of the
H. R. 10612-327
court except that this subsection shall not apply to violations subject
to subsection (d) (3).
(1) APPLICABILITY TO CONTRACTS PRIOR TO EFFECTIVE DATE.-The
provisions of this section shall not apply to any cotton futures contract
entered into prior to the effective date of this section or to any act or-
failure to act by any person prior to such effective date and all such
prior contracts, acts or failure to act shall continue to be governed by
the applicable provisions of the Internal Revenue Code of 1954 as in
effect prior to the enactment of this section. All designations of bona
fide spot markets and all rules and regulations issued by the Secretary
pursuant to the applicable provisions of the Internal Revenue Code of
1954 which were in effect on the effective date of this section, shall
remain fully effective as designations and regulations under this
section until superseded, amended, or terminated by the Secretary.
(m) AUTHORIZATION.-There are authorized to be appropriated
such sums as may be necessary to carry out this section.
(n) CONFORMING AND CLERICAL AMENDMENTS.-
(1) Section 6808 (relating to cross references) is amended by
striking out paragraph (2), and by redesignating paragraphs
(3), (6), and (11) as paragraphs (1), (2), and (3), respectively.
(2) (A) Section 7233 (relating to failure to pay tax on cotton
futures) is repealed.
(B) The table of sections for part II of subchapter A of
chapter 75 is amended by striking out the item relating to section
7233.
(3) (A) Section 7263 (relating to penalties concerning cotton
futures) is repealed.
(B) The table of sections for subchapter B of chapter 75 is
amended by striking out the item relating to section 7263.
(4) (A) Subchapter E of chapter 76 (relating to miscellaneous
provisions regarding cotton futures contracts) is repealed.
(B) The table of subchapters for chapter 76 is amended by
striking out the items relating to subchapter E.
(5) Chapter 39 (relating to regulatory taxes) is amended by
striking out the chapter heading and the table of subchapters.
(6) The table of chapters for subtitle D is amended by striking
out the item relating to chapter 39.
(o) EFFECTIVE DATE.-The provisions of this section shall take
effect on the 90th day after the date of the enactment of this Act.
TITLE XX-ESTATE AND GIFT TAXES
SEC. 2001. UNIFIED RATE SCHEDULE FOR ESTATE AND GIFT TAXES;
UNIFIED CREDIT IN LIEU OF SPECIFIC EXEMPTIONS.
(a) CHANGES IN ESTATE TAX.-
(1) IMPOSITION OF TAX; RATE SCHEDULE.-Section 2001 (relat-
ing to rate of tax) is amended to read as follows:
"SEC. 2001. IMPOSITION AND RATE OF TAX.
"(a) IMPOSITION.-A tax is hereby imposed on the transfer of the
taxable estate of every decedent who is a citizen or resident of the
United States.
"(b) COMPUTATION OF Tax.-The tax imposed by this section shall
be the amount equal to the excess (if any) of—
"(1) a tentative tax computed in accordance with the rate
schedule set forth in subsection (c) on the sum of-
H. R. 10612-328
(A) the amount of the taxable estate, and
'(B) the amount of the adjusted taxable gifts, over
"(2) the aggregate amount of tax payable under chapter 12
with respect to gifts made by the decedent after December 31,
1976.
For purposes of paragraph (1) (B), the term 'adjusted taxable gifts'-
means the total amount of the taxable gifts (within the meaning of
section 2503) made by the decedent after December 31, 1976, other
than gifts which are includible in the gross estate of the decedent.
(c) RATE SCHEDULE.-
"If the amount with respect to which the The tentative tax is
tentative tax to be computed is:
Not over $10,000
18 percent of such amount.
Over $10,000 but not over $20,000
$1,800, plus 20 percent of the excess
of such amount over $10,000.
Over $20,000 but not over $40,000
$3,800, plus 22 percent of the excess
of such amount over $20,000.
Over $40,000 but not over $60,000
$8,200, plus 24 percent of the excess
of such amount over $40,000.
Over $60,000 but not over $80,000
$13,000, plus 26 percent of the excess
of such amount over $60,000.
Over $80,000 but not over $100,000
$18,200, plus 28 percent of the excess
of such amount over $80,000.
Over $100,000 but not over $150,000
$23,800, plus 30 percent of the excess
of such amount over $100,000.
Over $150,000 but not over $250,000
$38,800, plus 32 percent of the excess
of such amount over $150,000.
Over $250,000 but not over $500,000
$70,800, plus 34 percent of the excess
of such amount over $250,000.
Over $500,000 but not over $750,000
$155,800, plus 37 percent of the excess
of such amount over $500,000.
Over $750,000 but not over $1,000,000
$248,300, plus 39 percent of the ex-
cess of such amount over $750,000.
Over $1,000,000 but not over $1,250,000
$345,800 plus 41 percent of the excess
of such amount over $1,000,000.
Over $1,250,000 but not over $1,500,000
$448,300, plus 43 percent of the excess
of such amount over $1,250,000.
Over $1,500,000 but not over $2,000,000
$555,800, plus 45 percent of the excess
of such amount over $1,500,000.
Over $2,000,000 but not over $2,500,000
$780,800, plus 49 percent of the excess
of such amount over $2,000,000.
Over $2,500,000 but not over $3,000,000
$1,025,800, plus 53 percent of the ex-
cess of such amount over $2,500,000.
Over $3,000,000 but not over $3,500,000
$1,290,800, plus 57 percent of the ex-
cess of such amount over $3,000,000.
Over $3,500,000 but not over $4,000,000
$1,575,800, plus 61 percent of the ex-
cess of such amount over $3,500,000.
Over $4,000,000 but not over $4,500,000
$1,880,800, plus 65 percent over the ex-
cess of such amount over $4,000,000.
Over $4,500,000 but not over $5,000,000
$2,205,800, plus 69 percent of the ex-
cess of such amount over $4,500,000.
Over $5,000,000
$2,550,800, plus 70 percent of the ex-
cess of such amount over $5,000,000.
"(d) ADJUSTMENT FOR GIFT TAX PAID BY SPOUSE.-For purposes
of subsection (b) (2), if-
"(1) the decedent was the donor of any gift one-half of which
was considered under section 2513 as made by the decedent's
spouse, and
"(2) the amount of such gift is includible in the gross estate
of the decedent,
any tax payable by the spouse under chapter 12 on such gift (as
determined under section 2012(d)) shall be treated as a tax payable
with respect to a gift made by the decedent."
H. R. 10612-329
(2) ALLOWANCE OF UNIFIED CREDIT.-Part II of subchapter A of
chapter 11 (relating to credits against the estate tax) is amended
by inserting before section 2011 the following new section:
"SEC. N 2010. UNIFIED CREDIT AGAINST ESTATE TAX.
"(a) GENERAL RULE.-A credit of $47,000 shall be allowed to the
estate of every decedent against the tax imposed by section 2001.
"(b) PHASE-IN OF $47,000 CREDIT.-
Subsection (a) shall be applied by sub-
stituting for '$47,000' the following
"In the case of decedents dying in:
amount:
1977
$30,000
1978
34,000
1979
38,000
1980
42,500
'(c) ADJUSTMENT TO CREDIT FOR CERTAIN GIFTS MADE BEFORE
1977.-The amount of the credit allowable under subsection (a) shall
be reduced by an amount equal to 20 percent of the aggregate amount
allowed as a specific exemption under section 2521 (as in effect before
its repeal by the Tax Reform Act of 1976) with respect to gifts made
by the decedent after September 8, 1976.
"(d) LIMITATION BASED ON AMOUNT OF Tax.-The amount of the
credit allowed by subsection (a) shall not exceed the amount of the
tax imposed by section 2001."
(3) TERMINATION OF CREDIT FOR GIFT Tax.-Section 2012 (relat-
ing to credit for gift tax) is amended by adding at the end thereof
the following new subsection:
(e) SECTION INAPPLICABLE TO GIFTS MADE AFTER DECEMBER 31,
1976.-No credit shall be allowed under this section with respect to
the amount of any tax paid under chapter 12 on any gift made after
December 31, 1976."
(4) REPEAL OF SPECIFIC EXEMPTION.-Section 2052 (relating to
exemption for purposes of the estate tax) is hereby repealed.
(5) ADJUSTMENTS FOR GIFTS MADE WITHIN 3 YEARS OF DEATH.-
Section 2035 (relating to transactions in contemplation of death)
is amended to read as follows:
"SEC. 2035. ADJUSTMENTS FOR GIFTS MADE WITHIN 3 YEARS OF
DECEDENTS DEATH.
"(a) INCLUSION OF GIFTS MADE BY DECEDENT.-Except as provided
in subsection (b), the value of the gross estate shall include the value
of all property to the extent of any interest therein of which the dece-
dent has at any time made a transfer, by trust or otherwise, during
the 3-year period ending on the date of the decedent's death.
(b) EXCEPTIONS.-Subsection (a) shall not apply to-
"(1) any bona fide sale for an adequate and full consideration
in money or money's worth, and
"(2) any gift excludable in computing taxable gifts by reason
of section 2503 (b) (relating to $3,000 annual exclusion for pur-
poses of the gift tax) determined without regard to section 2513
(a).
"(c) INCLUSION OF GIFT Tax ON CERTAIN GIFTS MADE DURING 3
YEARS BEFORE DECEDENT'S DEATH.-The amount of the gross estate
(determined without regard to this subsection) shall be increased by
the amount of any tax paid under chapter 12 by the decedent or his
estate on any gift made by the decedent or his spouse after Decem-
H. R. 10612-330
ber 31, 1976, and during the 3-year period ending on the date of the
decedent's death."
(b) CHANGES IN GIFT Tax.-
(1) RATE OF TAX.-Subsection (a) of section 2502 (relating
to rate of gift tax) is amended to read as follows:
"(a) COMPUTATION OF Tax.-The tax imposed by section 2501 for
each calendar quarter shall be an amount equal to the excess of-
"(1) a tentative tax, computed in accordance with the rate
schedule set forth in section 2001 (c), on the aggregate sum of
the taxable gifts for such calendar quarter and for each of the
preceding calendar years and calendar quarters, over
"(2) a tentative tax, computed in accordance with such rate
schedule, on the aggregate sum of the taxable gifts for each of
the preceding calendar years and calendar quarters."
(2) UNIFIED CREDIT.-Subchapter A of chapter 12 (relating
to determination of gift tax liability) is amended by adding at the
end thereof the following new section:
"SEC. 2505. UNIFIED CREDIT AGAINST GIFT TAX.
"(a) GENERAL RULE.-In the case of a citizen or resident of the
United States, there shall be allowed as a credit against the tax
imposed by section 2501 for each calendar quarter an amount equal
to-
(1) $47,000, reduced by
"(2) the sum of the amounts allowable as a credit to the
individual under this section for all preceding calendar quarters.
"(b) PHASE-IN OF $47,000 CREDIT.-
Subsection (a)(1) shall be applied by
substituting for '$47,000' the follow-
"In the case of gifts made:
ing amount
After December 31, 1976, and before July 1, 1977
$6,000
After June 30, 1977, and before January 1, 1978
$30,000
After December 31, 1977, and before January 1, 1979
$34,000
After December 31, 1978, and before January 1, 1980
$38,000
After December 31, 1979, and before January 1, 1981
$42,500
'(c) ADJUSTMENT TO CREDIT FOR CERTAIN GIFTS MADE BEFORE
1977.-The amount allowable under subsection (a) shall be reduced
by an amount equal to 20 percent of the aggregate amount allowed as
a specific exemption under section 2521 (as in effect before its repeal
by the Tax Reform Act of 1976) with respect to gifts made by the
individual after September 8, 1976.
"(d) LIMITATION BASED ON AMOUNT OF Tax.-The amount of the
credit allowed under subsection (a) for any calendar quarter shall
not exceed the amount of the tax imposed by section 2501 for such
calendar quarter."
(3) REPEAL OF SPECIFIC EXEMPTION.-Section 2521 (relating to
specific exemption in the case of the gift tax) is hereby repealed.
(c) TECHNICAL, CLERICAL, AND CONFORMING CHANGES.-
(1) CHANGES IN ESTATE TAX.-
(A) CREDIT FOR STATE DEATH TAXES.Section 2011 (relat-
ing to credit for State death taxes) is amended—
(i) by striking out "taxable estate" each place it
appears in subsection (b) (including the heading to the
table) and inserting in lieu thereof "adjusted taxable
estate";
(ii) by adding at the end of subsection (b) the follow-
ing new sentence:
H. R. 10612-331
"For purposes of this section, the term 'adjusted taxable estate' means
the taxable estate reduced by $60,000.",
(iii) by striking out "taxable estate" each place it
appears in subsection (e) and inserting in lieu thereof
"adjusted taxable estate"; and
(iv) by adding at the end thereof the following new
subsection:
"(f) LIMITATION BASED ON AMOUNT OF Tax.-The credit provided
by this section shall not exceed the amount of the tax imposed by sec-
tion 2001, reduced by the amount of the unified credit provided by
section 2010."
(B) CREDIT FOR GIFT TAX.-Subsection (a) of section 2012
(relating to credit for gift tax) is amended by striking out
"provided by section 2011" and inserting in lieu thereof
"provided by section 2011 and the unified credit provided by
section 2010".
(C) CREDIT FOR TAX ON PRIOR TRANSFERS.-
(i) The first sentence of section 2013 (b) is amended
by striking out "and increased by the exemption provided
for by section 2052 or section 2106 (a) (3), or the corre-
sponding provisions of prior laws, in determining the
taxable estate of the transferor for purposes of the estate
tax".
(ii) Subparagraph (A) of section 2013 (e) (1) is
amended to read as follows:
(A) the estate tax imposed by section 2001 or section 2101
(after deducting the credits provided for in sections 2010,
2011, 2012, and 2014) computed without regard to this section,
exceeds".
(D) RATE OF TAX IN CASE OF NONRESIDENTS NOT CITIZENS.-
Section 2101 (relating to tax imposed in the case of estates
of nonresidents not citizens) is amended to read as follows:
"SEC. 2101. TAX IMPOSED.
"(a) IMPOSITION.-Except as provided in section 2107, a tax is
hereby imposed on the transfer of the taxable estate (determined as
provided in section 2106) of every decedent nonresident not a citizen
of the United States.
"(b) COMPUTATION OF Tax.-The tax imposed by this section shall
be the amount equal to the excess (if any) of-
"(1) a tentative tax computed in accordance with the rate
schedule set forth in subsection (d) on the sum of-
"(A) the amount of the taxable estate, and
"(B) the amount of the adjusted taxable gifts, over
"(2) a tentative tax computed in accordance with the rate
schedule set forth in subsection (d) on the amount of the adjusted
taxable gifts.
"(c) ADJUSTMENTS FOR TAXABLE GIFTS.-
"(1) ADJUSTED TAXABLE GIFTS DEFINED.-For purposes of this
section, the term 'adjusted taxable gifts' means the total amount
of the taxable gifts (within the meaning of section 2503 as modi-
fied by section 2511) made by the decedent after December 31,
1976, other than gifts which are includible in the gross estate of
the decedent.
"(2) ADJUSTMENT FOR CERTAIN GIFT TAX.-For purposes of this
section, the rules of section 2001 (d) shall apply.
H. R. 10612-332
"(d) RATE SCHEDULE.-
"If the amount with respect to which
the tentative tax to be computed is:
The tentative tax is:
Not over $100,000
6% of such amount.
Over $100,000 but not over $500,000
$6,000, plus 12% of excess over_
$100,000.
Over $500,000 but not over $1,000,000
$54,000, plus
18%
of
excess
over
$500,000.
Over $1,000,000 but not over $2,000,000
$144,000, plus
24%
of
excess
over
$1,000,000.
Over 2,000,000
$384,000, plus 30% of excess over
$2,000,000."
(E) CREDIT IN CASE OF ESTATE OF NONRESIDENTS NOT
CITIZENS.-
(i) Section 2102 (relating to credits against tax in
case of estates of nonresidents not citizens) is amended by
adding at the end thereof the following new subsection:
"(c) UNIFIED CREDIT.-
"(1) IN GENERAL-A credit of $3,600 shall be allowed against
the tax imposed by section 2101.
"(2) RESIDENTS OF POSSESSIONS OF THE UNITED STATES.-In the
case of a decedent who is considered to be a 'nonresident not a
citizen of the United States' under section 2209, the credit under
this subsection shall be the greater of-
"(A) $3,600, or
"(B) that proportion of $15,075 which the value of that
part of the decedent's gross estate which at the time of his
death is situated in the United States bears to the value of his
entire gross estate wherever situated.
"(3) PHASE-IN OF PARAGRAPH (2) (B) AMOUNT.-In the case of
a decedent dying before 1981, paragraph (2) (B) shall be
applied-
'(A) in the case of a decedent dying during 1977, by sub-
stituting '$8,480' for '$15,075',
"(B) in the case of a decedent dying during 1978, by sub-
stituting '$10,080' for '$15,075',
"(C) in the case of a decedent dying during 1979, by sub-
stituting '$11,680' for '$15,075', and
"(D) in the case of a decedent dying during 1980, by sub-
stituting '$13,388' for '$15,075'.
"(4) LIMITATION BASED ON AMOUNT OF TAX.-The credit allowed
under this subsection shall not exceed the amount of the tax
imposed by section 2101.
(5) APPLICATION OF OTHER CREDITS.-For purposes of subsec-
tion (a), sections 2011 to 2013, inclusive, shall be applied as if
the credit allowed under this subsection were allowed under sec-
tion 2010."
(ii) Subsection (c) of section 2107 (relating to expa-
triation to avoid tax) is amended to read as follows:
"(c) CREDITS.-
"(1) UNIFIED CREDIT.-
"(A) IN GENERAL.-A credit of $13,000 shall be allowed
against the tax imposed by subsection (a).
'(B) LIMITATION BASED ON AMOUNT OF TAX.-The credit
allowed under this paragraph shall not exceed the amount of
the tax imposed by subsection (a).
"(2) OTHER CREDITS.-The tax imposed by subsection (a) shall
be credited with the amounts determined in accordance with sub-
H. R. 10612-333
sections (a) and (b) of section 2102. For purposes of subsection
(a) of section 2102, sections 2011 to 2013, inclusive, shall be
applied as if the credit allowed under paragraph (1) were allowed
under section 2010."
(F) REPEAL OF SPECIFIC EXEMPTION.-Paragraph (3) of-
section 2106 (a) (relating to specific exemption in case of
decedents nonresidents not citizens) is hereby repealed.
(G) CREDIT FOR FOREIGN DEATH TAXES.-Paragraph (2) of
section 2014(b) (relating to limitations on credit) is amended
by striking out "sections 2011 and 2012" and inserting in lieu
thereof "sections 2010, 2011, and 2012".
(H) LIABILITY OF LIFE INSURANCE BENEFICIARIES.-The first
sentence of section 2206 (relating to liability of life insurance
beneficiaries) is amended by striking out "the sum of the tax-
able estate and the amount of the exemption allowed in com-
puting the taxable estate, determined under section 2051" and
inserting in lieu thereof "the taxable estate".
(I) LIABILITY OF RECIPIENTS OF CERTAIN PROPERTY.-The
first sentence of section 2207 (relating to liability of recipient
of property over which decedent had power of appointment)
is amended by striking out "the sum of the taxable estate and
the amount of the exemption allowed in computing the tax-
able estate, determined under section 2052, or section 2106 (a),
as the case may be" and inserting in lieu thereof "the taxable
estate".
(J) RETURN BY EXECUTOR-Subsection (a) of section 6018
(relating to estate tax returns by executor) is amended-
(i) by striking out "$60,000" in paragraph (1) and
inserting in lieu thereof "$175,000";
(ii) by striking out "$30,000" in paragraph (2) and
inserting in lieu thereof "$60,000"; and
(iii) by adding at the end thereof the following new
paragraphs:
"(3) PHASE-IN OF FILING REQUIREMENT AMOUNT.-In the case of
a decedent dying before 1981, paragraph (1) shall be applied-
'(A) in the case of a decedent dying during 1977, by sub-
stituting '$120,000' for '$175,000',
((B) in the case of a decedent dying during 1978, by sub-
stituting '$134,000' for '$175,000',
(C) in the case of a decedent dying during 1979, by sub-
stituting '$147,000' for '$175,000', and
"(D) in the case of a decedent dying during 1980, by sub-
stituting '$161,000' for '$175,000'.
"(4) ADJUSTMENT FOR CERTAIN GIFTS.-The amount applicable
under paragraph (1) and the amount set forth in paragraph (2)
shall each be reduced (but not below zero) by the sum of-
"(A) the amount of the adjusted taxable gifts (within the
meaning of section 2001 (b)) made by the decedent after
December 31, 1976, plus
(B) the aggregate amount allowed as a specific exemption
under section 2521 (as in effect before its repeal by the Tax
Reform Act of 1976) with respect to gifts made by the dece-
dent after September 8, 1976.
(K) REVOCABLETRANSFERS.-
(i) Paragraph (1) of section 2038(a) (relating to
revocable transfers) is amended by striking out "in con-
H. R. 10612-334
templation of decedent's death" and inserting in lieu
thereof "during the 3-year period ending on the date of
the decedent's death".
(ii) Paragraph (2) of section 2038 (a) (relating to
revocable transfer) is amended by striking out "in con--
templation of his death" and inserting in lieu thereof
"during the 3-year period ending on the date of the
decedent's death".
(L) PROPERTY WITHIN THE UNITED STATES.-Subsection (b)
of section 2104 (relating to revocable transfers and transfers
in contemplation of death) is amended by striking out "AND
TRANSFERS IN CONTEMPLATION OF DEATH" in the subsection
heading and inserting in lieu thereof "AND TRANSFERS WITHIN
3 YEARS OF DEATH".
(M) PRIOR INTERESTS.-Section 2044 (relating to prior
interests) is amended by striking out "specifically provided
therein" and inserting in lieu thereof "specifically provided
by law".
(N) CLERICAL AMENDMENTS.-
(i) The item relating to section 2001 in the table of
sections for part I of subchapter A of chapter 11 is
amended to read as follows:
"Sec. 2001. Imposition and rate of tax."
(ii) The table of sections for part II of subchapter
A of chapter 11 is amended by inserting before the item
relating to section 2011 the following new item:
"Sec. 2010. Unified credit against estate tax."
(iii) The table of sections for part III of subchapter
A of chapter 11 is amended by striking out the item
relating to section 2035 and inserting in lieu thereof the
following new item:
"Sec. 2035. Adjustments for gifts made within 3 years of decedent's
death."
(iv) The table of sections for part IV of subchapter
A of chapter 11 is amended by striking out the item
relating to section 2052.
(2) CHANGES IN GIFT TAX.-
(A) TAXABLE GIFTS FOR PRECEDING YEARS AND QUARTERS.-
Subsection (a) of section 2504 (relating to taxable gifts for
preceding years and quarters) is amended by striking out
"except that" and all that follows and inserting in lieu thereof
"except that the specific exemption in the amount, if any,
allowable under section 2521 (as in effect before its repeal
by the Tax Reform Act of 1976) shall be applied in all com-
putations in respect of calendar years or calendar quarters
ending before January 1, 1977, for purposes of computing
the tax for any calendar quarter."
(B) CLERICAL AMENDMENTS.-
(i) The table of sections for subchapter A of chapter
12 is amended by adding at the end thereof the following
new item:
"Sec. 2505. Unified credit against gift tax."
(ii) The table of sections for subchapter C of chapter
12 is amended by striking out the item relating to sec-
tion 2521.
H. R. 10612-335
(d) EFFECTIVE DATES.-
(1) The amendments made by subsections (a) and (c) (1) shall
apply to the estates of decedents dying after December 31, 1976;
except that the amendments made by subsection (a) (5) and sub-
paragraphs (K) and (L) of subsection (c) (1) shall not apply to
transfers made before January 1, 1977.
(2) The amendments made by subsections (b) and (c) (2)
shall apply to gifts made after December 31, 1976.
SEC. 2002. INCREASE IN LIMITATIONS ON MARITAL DEDUCTIONS;
FRACTIONAL INTERESTS OF SPOUSE.
(a) INCREASE IN ESTATE Tax MARITAL DEDUCTION.-Paragraph (1)
of section 2056 (c) (relating to limitation on marital deduction) is
amended to read as follows:
"(1) LIMITATION.-
"(A) IN GENERAL.-The aggregate amount of the deduc-
tions allowed under this section (computed without regard to
this subsection) shall not exceed the greater of-
(i) $250,000, or
(ii) 50 percent of the value of the adjusted gross
estate (as defined in paragraph (2)).
'(B) ADJUSTMENT FOR CERTAIN GIFTS TO SPOUSE.-If a
deduction is allowed to the decedent under section 2523 with
respect to any gift made to his spouse after I cember 31,
1976, the limitation provided by subparagraph A) (deter-
mined without regard to this subparagraph) shal be reduced
(but not below zero) by the excess (if any) of-
"(i) the aggregate of the deductions all ved to the
decedent under section 2523 with respect to gifts made
after December 31, 1976, over
'(ii) the aggregate of the deductions 1 .ich would
have been allowable under section 2523 ith respect to
gifts made after December 31, 1976, if the amount deduc-
tible under such section with respect to any gift were
50 percent of its value.
(C) COMMUNITY PROPERTY ADJUSTMENT.-The $250,000
amount set forth in subparagraph (A) (i) shall be reduced by
the excess (if any) of-
"(i) the amount of the subtraction determined under
clauses (i), (ii), and (iii) of paragraph (2) (B), over
(ii) the excess of the aggregate of the deductions
allowed under sections 2053 and 2054 over the amount
taken into account with respect to such deductions under
clause (iv) of paragraph (2) (B)."
(b) INCREASE IN GIFT Tax MARITAL DEDUCTION.-Subsection (a) of
section 2523 (relating to deduction for gift to spouse) is amended to
read as follows:
"(a) ALLOWANCE OF DEDUCTION.-
"(1) IN GENERAL-Where a donor who is a citizen or resident
transfers during the calendar quarter by gift an interest in prop-
erty to a donee who at the time of the gift is the donor's spouse,
there shall be allowed as a deduction in computing taxable gifts
for the calendar quarter an amount with respect to such interest
equal to its value.
(2) LIMITATION.-The aggregate of the deductions allowed
under paragraph (1) for any calendar quarter shall not exceed
the sum of-
H. R. 10612-336
(A) $100,000 reduced (but not below zero) by the aggre-
gate of the deductions allowed under this section for preced-
ing calendar quarters beginning after December 31, 1976; plus
(B) 50 percent of the lesser of-
(i) the amount of the deductions allowable under
paragraph (1) for such calendar quarter (determined
without regard to this paragraph) ; or
(ii) the amount (if any) by which the aggregate of
the amounts determined under clause (i) for the calen-
dar quarter and for each preceding calendar quarter
beginning after December 31, 1976, exceeds $200,000."
(c) FRACTIONAL INTEREST OF SPOUSE.-
(1) IN GENERAL.-Section 2040 (relating to joint interests) is
amended by adding at the end thereof the following new
subsection:
"(b) CERTAIN JOINT INTERESTS OF HUSBAND AND WIFE.-
" (1) INTERESTS OF SPOUSE EXCLUDED FROM GROSS ESTATE-Not-
withstanding subsection (a), in the case of any qualified joint
interest, the value included in the gross estate with respect to
such interest by reason of this section is one-half of the value of
such qualified joint interest.
"(2) QUALIFIED JOINT INTEREST DEFINED.-For purposes of
paragraph (1), the term 'qualified joint interest' means any
interest in property held by the decedent and the decedent's
spouse as joint tenants or as tenants by the entirety, but only if-
(A) such joint interest was created by the decedent, the
decedent's spouse, or both,
(B) (i) in the case of personal property, the creation of
such joint interest constituted in whole or in part a gift for
purposes of chapter 12, or
"(ii) in the case of real property, an election under section
2515 applies with respect to the creation of such joint interest,
and
" (C) in the case of a joint tenancy, only the decedent and
the decedent's spouse are joint tenants."
(2) AMENDMENT OF RELATED GIFT TAX PROVISION.-Subsection
(c) of section 2515 (relating to election with respect to tenancies
by the entirety) is amended to read as follows:
"(c) EXERCISE OF ELECTION.-
"(1) IN GENERAL-The election provided by subsection (a)
shall be exercised by including such creation of a tenancy by the
entirety as a transfer by gift, to the extent such transfer consti-
tutes a gift (determined without regard to this section), in the
gift tax return of the donor for the calendar quarter in which
such tenancy by the entirety was created, filed within the time
prescribed by law. irrespective of whether or not the gift exceeds
the exclusion provided by section 2503 (b).
(2) SUBSEQUENT ADDITIONS IN VALUE.-If the election provided
by subsection (a) has been made with respect to the creation of
any tenancy by the entirety, such election shall also apply to each
addition made to the value of such tenancy by the entirety.
"(3) CERTAIN ACTUARIAL COMPUTATIONS NOT REQUIRED.-In the
case of any election under subsection (a) with respect to any
property, the retained interest of each spouse shall be treated as
one-half of the value of their joint interest."
H. R. 10612-337
(3) CLERICAL AMENDMENT.-Section 2040 is amended by strik-
ing out "The value" and inserting in lieu thereof the following:
" (a) GENERAL RULE.-The value".
(d) EFFECTIVE DATES.-
(1) (A) Except as provided in subparagraph (B), the amend-
ment made by subsection (a) shall apply with respect to the-
estates of decedents dying after December 31, 1976.
(B) If-
(i) the decedent dies after December 31, 1976, and before
January 1, 1979,
(ii) by reason of the death of the decedent property passes
from the decedent or is acquired from the decedent under a
will executed before January 1, 1977, or a trust created before
such date, which contains a formula expressly providing
that the spouse is to receive the maximum amount of property
qualifying for the marital deduction allowable by Federal
law,
(iii) the formula referred to in clause (ii) was not
amended at any time after December 31, 1976, and before
the death of the decedent, and
(iv) the State does not enact a statute applicable to such
estate which construes this type of formula as referring to the
marital deducton allowable by Federal law as amended by
subsection (a),
then the amendment made by subsection (a) shall not apply to the
estate of such decedent.
(2) The amendment made by subsection (b) shall apply to gifts
made after December 31, 1976.
(3) The amendments made by subsection (c) shall apply to
joint interests created after December 31, 1976.
SEC. 2003. VALUATION FOR PURPOSES OF THE FEDERAL ESTATE TAX
OF CERTAIN REAL PROPERTY DEVOTED TO FARMING OR
CLOSELY HELD BUSINESSES.
(a) GENERAL RULE.-Part III of subchapter A of chapter 11 (relat-
ing to gross estate) is amended by inserting after section 2032 the
following new section
"SEC. 2032A. VALUATION OF CERTAIN FARM, ETC., REAL PROPERTY.
"(a) VALUE BASED ON USE UNDER WHICH PROPERTY QUALIFIES.-
"(1) GENERAL RULE.-If-
(A) the decedent was (at the time of his death) a citizen
or resident of the United States, and
'(B) the executor elects the application of this section and
files the agreement referred to in subsection (d) (2),
then, for purposes of this chapter, the value of qualified real prop-
erty shall be its value for the use under which it qualifies, under
subsection (b), as qualified real property.
"(2) LIMITATION.-The aggregate decrease in the value of
qualified real property taken into account for purposes of this
chapter which results from the application of paragraph (1) with
respect to any decedent shall not exceed $500,000.
(b) QUALIFIED REAL PROPERTY.-
"(1) IN GENERAL-For purposes of this section, the term 'quali-
fied real property' means real property located in the United
States which, on the date of the decedent's death, was being used
for a qualified use, but only if-
H. R. 10612-338
"(A) 50 percent or more of the adjusted value of the gross
estate consists of the adjusted value of real or personal prop-
erty which-
"(i) on the date of the decedent's death, was being-
used for a qualified use, and
"(ii) was acquired from or passed from the decedent to
a qualified heir of the decedent.
"(B) 25 percent or more of the adjusted value of the gross
estate consists of the adjusted value of real property which
meets the requirements of subparagraphs (A) (ii) and (C),
"(C) during the 8-year period ending on the date of the
decedent's death there have been periods aggregating 5 years
or more during which—
"(i) such real property was owned by the decedent or
a member of the decedent's family and used for a qualified
use, and
(iii) there was material participation by the decedent
or a member of the decedent's family in the operation of
the farm or other business, and
'(D) such real property is designated in the agreement
referred to in subsection (d) (2).
"(2) QUALIFIED USE-For purposes of this section, the term
'qualified use' means the devotion of the property to any of the
following:
" (A) use as a farm for farming purposes, or
((B) use in a trade or business other than the trade or
business of farming.
"(3) ADJUSTED VALUE.-For purposes of paragraph (1), the
term 'adjusted value' means—
" (A) in the case of the gross estate, the value of the gross
estate for purposes of this chapter (determined without
regard to this section), reduced by any amounts allowable as
a deduction under paragraph (4) of section 2053 (a), or
(B) in the case of any real or personal property, the value
of such property for purposes of this chapter (determined
without regard to this section), reduced by any amounts
allowable as a deduction in respect of such property under
paragraph (4) of section 2053 (a).
(c) Tax TREATMENT OF DISPOSITIONS AND FAILURES To USE FOR
QUALIFIED USE.-
"(1) IMPOSITION OF ADDITIONAL ESTATE TAX.-If, within 15 years
heir- after the decedent's death and before the death of the qualified
"(A) the qualified heir disposes of any interest in qualified
real property (other than by a disposition to a member of his
family), or
"(B) the qualified heir ceases to use for the qualified use
the qualified real property which was acquired (or passed)
from the decedent,
then, there is hereby imposed an additional estate tax.
"(2) AMOUNT OF ADDITIONALTAX.-
"(A) IN GENERAL-The amount of the additional tax
imposed by paragraph (1) with respect to any interest shall
be the amount equal to the lesser of-
"(i) the adjusted tax difference attributable to such
interest, or
H. R. 10612-339
"(ii) the excess of the amount realized with respect
to the interest (or, in any case other than a sale or
exchange at arm's length, the fair market value of the
interest) over the value of the interest determined under
subsection (a).
(B) ADJUSTED TAX DIFFERENCE ATTRIBUTABLE TO INTER-
EST.-For purposes of subparagraph (A), the adjusted tax
difference attributable to an interest is the amount which
bears the same ratio to the adjusted tax difference with
respect to the estate (determined under subparagraph (C))
as-
'(i) the excess of the value of such interest for pur-
poses of this chapter (determined without regard to
subsection (a)) over the value of such interest deter-
mined under subsection (a), bears to
"(ii) a similar excess determined for all qualified real
property.
(C) ADJUSTED TAX DIFFERENCE WITH RESPECT TO THE
ESTATE.-For purposes of subparagraph (B), the term
'adjusted tax difference with respect to the estate' means the
excess of what would have been the estate tax liability but
for subsection (a) over the estate tax liability. For purposes
of this subparagraph, the term 'estate tax liability' means
the tax imposed by section 2001 reduced by the credits allow-
able against such tax.
"(D) PARTIAL DISPOSITIONS.-For purposes of this para-
graph, where the qualified heir disposes of a portion of the
interest acquired by (or passing to) such heir (or a predeces-
sor qualified heir) or there is a cessation of use of such a
portion-
"(i) the value determined under subsection (a) taken
into account under subparagraph (A) (ii) with respect
to such portion shall be its pro rata share of such value of
such interest, and
(ii) the adjusted tax difference attributable to the
interest taken into account with respect to the transaction
involving the second or any succeeding portion shall be
reduced by the amount of the tax imposed by this subsec-
tion with respect to all prior transactions involving por-
tions of such interest.
"(3) PHASEOUT OF ADDITIONAL TAX BETWEEN 10TH AND 15TH
YEARS.-If the date of the disposition or cessation referred to in
paragraph (1) occurs more than 120 months and less than 180
months after the date of the death of the decedent, the amount of
the tax imposed by this subsection shall be reduced (but not below
zero) by an amount determined by multiplying the amount of
such tax (determined without regard to this paragraph) by a
fraction-
"(A) the numerator of which is the number of full months
after such death in excess of 120, and
((B) the denominator of which is 60.
"(4) ONLY 1 ADDITIONAL TAX IMPOSED WITH RESPECT TO ANY 1
PORTION.-In the case of an interest acquired from (or passing
from) any decedent, if subparagraph (A) or (B) of paragraph
(1) applies to any portion of an interest, subparagraph (B) or
H. R. 10612-340
(A), as the case may be, of paragraph (1) shall not apply with
respect to the same portion of such interest.
(5) DUE DATE.-The additional tax imposed by this subsec-
tion shall become due and payable on the day which is 6 months
after the date of the disposition or cessation referred to in para-
graph (1).
"(6) LIABILITY FOR TAX.-The qualified heir shall be personally
liable for the additional tax imposed by this subsection with
respect to his interest.
"(7) CESSATION OF QUALIFIED USE.-For purposes of paragraph
(1) (B), real property shall cease to be used for the qualified use
if-
"(A) such property ceases to be used for the qualified use
set forth in subparagraph (A) or (B) of subsection (b) (2)
under which the property qualified under subsection (b), or
(B) during any period of 8 years ending after the date of
the decedent's death and before the date of the death of the
qualified heir, there had been periods aggregating 3 years or
more during which—
"(i) in the case of periods during which the property
was held by the decedent, there was no material partici-
pation by the decedent or any member of his family in
the operation of the farm or other business, and
" (ii) in the case of periods during which the property
was held by any qualified heir, there was no material par-
ticipation by such qualified heir or any member of his
family in the operation of the farm or other business.
(d) ELECTION; AGREEMENT.-
'(1) ELECTION.-The election under this section shall be made
not later than the time prescribed by section 6075 (a) for filing
the return of tax imposed by section 2001 (including extensions
thereof), and shall be made in such manner as the Secretary shall
by regulations prescribe.
"(2) AGREEMENT.-The agreement referred to in this paragraph
is a written agreement signed by each person in being who has an
interest (whether or not in possession) in any property desig-
nated in such agreement consenting to the application of subsec-
tion (c) with respect to such property.
"(e) DEFINITIONS; SPECIAL RULES.-For purposes of this section-
"(1) QUALIFIED HEIR.-The term 'qualified heir' means, with
respect to any property, a member of the decedent's family who
acquired such property (or to whom such property passed) from
the decedent. If a qualified heir disposes of any interest in quali-
fied real property to any member of his family, such member
shall thereafter be treated as the qualified heir with respect to
such interest.
"(2) MEMBER OF FAMILY.-The term 'member of the family'
means, with respect to any individual, only such individual's
ancestor or lineal descendant, a lineal descendant of a grand-
parent of such individual, the spouse of such individual, or the
spouse of any such descendant. For purposes of the preceding
sentence, a legally adopted child of an individual shall be treated
as a child of such individual by blood.
"(3) CERTAIN REAL PROPERTY INCLUDED.-In the case of real
property which meets the requirements of subparagraph (C)
of subsection (b) (1), residential buildings and related improve-
ments on such real property occupied on a regular basis by the
H. R. 10612-341
owner or lessee of such real property or by persons employed by
such owner or lessee for the purpose of operating or maintaining
such real property, and roads, buildings, and other structures
and improvements functionally related to the qualified use shall
be treated as real property devoted to the qualified use.
"(4) FARM.-The term 'farm' includes stock, dairy, poultry,
fruit, furbearing animal, and truck farms, plantations, ranches,
nurseries, ranges, greenhouses or other similar structures used
primarily for the raising of agricultural or horticultural com-
modities, and orchards and woodlands.
"(5) FARMING PURPOSES.-The term 'farming purposes' means—
'(A) cultivating the soil or raising or harvesting any agri-
cultural or horticultural commodity (including the raising,
shearing, feeding, caring for, training, and management of
animals) on a farm:
"(B) handling, drying, packing, grading, or storing on a
farm any agricultural or horticultural commodity in its
unmanufactured state, but only if the owner, tenant, or oper-
ator of the farm regularly produces more than one-half of
the commodity so treated; and
(C) (i) the planting, cultivating, caring for, or cutting
of trees, or
"(ii) the preparation (other than milling) of trees for
market.
" (6) MATERIAL PARTICIPATION.-Material participation shall be
determined in a manner similar to the manner used for purposes
of paragraph (1) of section 1402 (a) (relating to net earnings
from self-employment).
"(7) METHOD OF VALUING FARMS.-
(A) IN GENERAL-Except as provided in subparagraph
(B), the value of a farm for farming purposes shall be
determined by dividing-
(i) the excess of the average annual gross cash rental
for comparable land used for farming purposes and
located in the locality of such farm over the average
annual State and local real estate taxes for such com-
parable land, by
(ii) the average annual effective interest rate for all
new Federal Land Bank loans.
For purposes of the preceding sentence, each average annual
computation shall be made on the basis of the 5 most recent
calendar years ending before the date of the decedent's death.
"(B) EXCEPTION.-The formula provided by subpara-
graph (A) shall not be used—
(i) where it is established that there is no compa-
rable land from which the average annual gross cash
rental may be determined, or
(ii) where the executor elects to have the value of
the farm for farming purposes determined under para-
graph (8).
(8) METHOD OF VALUING CLOSELY HELD BUSINESS INTERESTS,
ETC.-In any case to which paragraph (7) (A) does not apply,
the following factors shall apply in determining the value of any
qualified real property:
"(A) The capitalization of income which the property can
be expected to yield for farming or closely held business pur-
H.R. 10612-342
poses over a reasonable period of time under prudent manage-
ment using traditional cropping patterns for the area, taking
into account soil capacity, terrain configuration, and similar
factors,
((B) The capitalization of the fair rental value of the land
for farm land or closely held business purposes,
"(C) Assessed land values in a State which provides a dif-
ferential or use value assessment law for farmland or closely
held business,
"(D) Comparable sales of other farm or closely held busi-
ness land in the same geographical area far enough removed
from a metropolitan or resort area SO that nonagricultural
use is not a significant factor in the sales price, and
"(E) Any other factor which fairly values the farm or
closely held business value of the property.
"(f) STATUTE OF LIMITATIONS.-If qualified real property is dis-
posed of or ceases to be used for a qualified use, then—
"(1) the statutory period for the assessment of any additional
tax under subsection (c) attributable to such disposition or ces-
sation shall not expire before the expiration of 3 years from the
date the Secretary is notified (in such manner as the Secretary
may by regulations prescribe) of such disposition or cessation,
and
"(2) such additional tax may be assessed before the expiration
of such 3-year period notwithstanding the provisions of any other
law or rule of law which would otherwise prevent such assessment.
"(g) APPLICATION OF THIS SECTION AND SECTION 6324B TO INTERESTS
IN PARTNERSHIPS, CORPORATIONS, AND TRUSTS.-The Secretary shall
prescribe regulations setting forth the application of this section and
section 6324B in the case of an interest in a partnership, corporation,
or trust which, with respect to the decedent, is an interest in a closely
held business (within the meaning of paragraph (1) of section
6166(b))."
(b) SPECIAL LIEN.-Subchapter C of chapter 64 (relating to lien
for taxes) is amended by inserting after section 6324A the following
new section:
"SEC. 6324B. SPECIAL LIEN FOR ADDITIONAL ESTATE TAX ATTRIBUT-
ABLE TO FARM, ETC., VALUATION.
"(a) GENERAL RULE.-In the case of any interest in qualified real
property (within the meaning of section 2032A (b)), an amount equal
to the adjusted tax difference attributable to such interest (within the
meaning of section 2032A (c) (2) (B)) shall be a lien in favor of the
United States on the property in which such interest exists.
"(b) PERIOD OF LIEN.-The lien imposed by this section shall arise
at the time an election is filed under section 2032A and shall continue
with respect to any interest in the qualified farm real property-
"(1) until the liability for tax under subsection (c) of section
2032A with respect to such interest has been satisfied or has become
unenforceable by reason of lapse of time, or
"(2) until it is established to the satisfaction of the Secretary
that no further tax liability may arise under section 2032A (c)
with respect to such interest.
"(c) CERTAIN RULES MADE APPLICABLE-The rules set forth in
paragraphs (1), (3), and (4) of section 6324A(d) shall apply with
respect to the lien imposed by this section as if it were a lien imposed
by section 6324A.
H. R. 10612-343
"(d) SUBSTITUTION OF SECURITY FOR LIEN.-To the extent provided
in regulations prescribed by the Secretary, the furnishing of security
may be substituted for the lien imposed by this section."
(c) CREDIT FOR Tax ON PRIOR TRANSFERS.-Section 2013 (relating
to credit for tax on prior transfers) is amended by adding at the end
thereof the following new subsection:
"(f) TREATMENT OF ADDITIONAL Tax IMPOSED UNDER SECTION
2032A.-If section 2032A applies to any property included in the
gross estate of the transferor and an additional tax is imposed with
respect to such property under section 2032A (c) before the date which
is 2 years after the date of the decedent's death, for purposes of this
section-
"(1) the additional tax imposed by section 2032A shall be
treated as a Federal estate tax payable with respect to the estate of
the transferor; and
(2) the value of such property and the amount of the taxable
estate of the transferor shall be determined as if section 2032A did
not apply with respect to such property."
(d) CLERICAL AMENDMENTS.-
(1) The table of sections for part III of subchapter A of
chapter 11 is amended by inserting after the item relating to sec-
tion 2032 the following new item:
"Sec. 2032A. Valuation of certain farm, etc., real property."
(2) The table of sections for subchapter C of chapter 64 is
amended by inserting after the item relating to section 6324A the
following new item:
"Sec. 6324B. Special lien for additional estate tax attributable to farm,
etc., valuation."
(e) EFFECTIVE DATE.-The amendments made by this section shall
apply to the estates of decedents dying after December 31, 1976.
SEC. 2004. EXTENSION OF TIME FOR PAYMENT OF ESTATE TAX.
(a) GENERAL RULE.-Subchapter B of chapter 62 (relating to
extensions of time for payment of tax) is amended by redesignating
section 6166 as section 6166A and by inserting after section 6165 the
following new section:
"SEC. 6166. ALTERNATE EXTENSION OF TIME FOR PAYMENT OF
ESTATE TAX WHERE ESTATE CONSISTS LARGELY OF
INTEREST IN CLOSELY HELD BUSINESS.
"(a) 5-YEAR DEFERRAL; 10-YEAR INSTALLMENT PAYMENT.-
"(1) IN GENERAL.-If the value of an interest in a closely held
business which is included in determining the gross estate of a
decedent who was (at the date of his death) a citizen or resident
of the United States exceeds 65 percent of the adjusted gross
estate, the executor may elect to pay part or all of the tax imposed
by section 2001 in 2 or more (but not exceeding 10) equal
installments.
"(2) LIMITATION.-The maximum amount of tax which may
be paid in installments under this subsection shall be an amount
which bears the same ratio to the tax imposed by section 2001
(reduced by the credits against such tax) as-
"(A) the closely held business amount, bears to
(B) the amount of the adjusted gross estate.
"(3) DATE FOR PAYMENT OF INSTALLMENTS.-If an election is
made under paragraph (1), the first installment shall be paid on
or before the date selected by the executor which is not more than
H.R. 10612-344
5 years after the date prescribed by section 6151 (a) for payment
of the tax, and each succeeding installment shall be paid on or
before the date which is 1 year after the date prescribed by this
paragraph for payment of the preceding installment.
(4) ELIGIBILITY FOR ELECTION.-No election may be made under
this section by the executor of the estate of any decedent if an
election under section 6166A applies with respect to the estate
of such decedent.
"(b) DEFINITIONS AND SPECIAL RULES.-
(1) INTEREST IN CLOSELY HELD BUSINESS.-For purposes of this
section, " the term 'interest in a closely held business' means—
(A) an interest as a proprietor in a trade or business
carried on as a proprietorship;
(B) an interest as a partner in a partnership carrying on
a trade or business, if-
(i) 20 percent or more of the total capital interest in
such partnership is included in determining the gross
estate of the decedent, or
"(ii) such partnership had 15 or fewer partners; or
"(C) stock in a corporation carrying on a trade or busi-
nessif-
"(i) 20 percent or more in value of the voting st ck of
such corporation is included in determining the gross
estate of the decedent, or
"(ii) such corporation had 15 or fewer shareh ders.
"(2) RULES FOR APPLYING PARAGRAPH (1).-For purpo es of
paragraph (1)-
(A) TIME FOR TESTING.-Determinations shall be n le as
of the time immediately before the decedent's death.
(B) CERTAIN INTERESTS HELD BY HUSBAND AND WIFE.-
Stock or a partnership interest which—
(i) is community property of a husband and wife (or
the income from which is community income) under the
applicable community property law of a State, or
" (ii) is held by a husband and wife as joint tenants,
tenants by the entirety, or tenants in common,
shall be treated as owned by one shareholder or one partner, as
the case may be.
(C) INDIRECT OWNERSHIP.-Property owned, directly or
indirectly, by or for a corporation, partnership, estate, or trust
shall be considered as being owned proportionately by or for
its shareholders, partners, or beneficiaries. For purposes of
the preceding sentence, a person shall be treated as a bene-
ficiary of any trust only if such person has a present interest
in the trust.
(3) FARMHOUSES AND CERTAIN OTHER STRUCTURES TAKEN INTO
ACCOUNT.-For purposes of the 65-percent requirement of sub-
section (a) (1), an interest in a closely held business which is the
business of farming includes an interest in residential buildings
and related improvements on the farm which are occupied on a
regular basis by the owner or lessee of the farm or by persons
employed by such owner or lessee for purposes of operating or
maintaining the farm.
"(4) VALUE.-For purposes of this section, value shall be value
determined for purposes of chapter 11 (relating to estate tax).
"(5) CLOSELY HELD BUSINESS AMOUNT.-For purposes of this
section, the term 'closely held business amount' means the value of
H. R. 10612-345
the interest in a closely held business which qualifies under sub-
section (a) (1).
"(6) ADJUSTED GROSS ESTATE.-For purposes of this section, the
term, 'adjusted gross estate' means the value of the gross estate
reduced by the sum of the amounts allowable as a deduction under
section 2053 or 2054. Such sum shall be determined on the basis of
the facts and circumstances in existence on the date (including
extensions) for filing the return of tax imposed by section 2001
(or, if earlier, the date on which such return is filed).
" (c) SPECIAL RULE FOR INTERESTS IN 2 OR MORE CLOSELY HELD
BUSINESSES.-For purposes of this section, interests in 2 or more
closely held businesses, with respect to each of which there is included
in determining the value of the decedent's gross estate more than 20
percent of the total value of each such business, shall be treated as an
interest in a single closely held business. For purposes of the 20-percent
requirement of the preceding sentence, an interest in a closely held
business which represents the surviving spouse's interest in property
held by the decedent and the surviving spouse as community property
or as joint tenants, tenants by the entirety, or tenants in common shall
be treated as having been included in determining the value of the
decedent's gross estate.
(d) ELECTION.-Any election under subsection (a) shall be made
not later than the time prescribed by section 6075 (a) for filing the
return of tax imposed by section 2001 (including extensions thereof),
and shall be made in such manner as the Secretary shall by regula-
tions prescribe. If an election under subsection (a) is made, the pro-
visions of this subtitle shall apply as though the Secretary were
extending the time for payment of the tax.
"(e) PRORATION OF DEFICIENCY TO INSTALLMENTS.-If an election is
made under subsection (a) to pay any part of the tax imposed by
section 2001 in installments and a deficiency has been assessed, the
deficiency shall (subject to the limitation provided by subsection (a)
(2)) be prorated to the installments payable under subsection (a).
The part of the deficiency so prorated to any installment the date for
payment of which has not arrived shall be collected at the same time
as, and as a part of, such installment. The part of the deficiency so
prorated to any installment the date for payment of which has arrived
shall be paid upon notice and demand from the Secretary. This sub-
section shall not apply if the deficiency is due to negligence, to inten-
tional disregard of rules and regulations, or to fraud with intent to
evade tax.
"(f) TIME FOR PAYMENT OF INTEREST.-If the time for payment of
any amount of tax has been extended under this section-
"(1) INTEREST FOR FIRST 5 YEARS.-Interest payable under sec-
tion 6601 of any unpaid portion of such amount attributable to the
first 5 years after the date prescribed by section 6151 (a) for pay-
ment of the tax shall be paid annually.
"(2) INTEREST FOR PERIODS AFTER FIRST 5 YEARS.-Interest pay-
able under section 6601 on any unpaid portion of such amount
attributable to any period after the 5-year period referred to in
paragraph (1) shall be paid annually at the same time as, and as
a part of, each installment payment of the tax.
(3) INTEREST IN THE CASE OF CERTAIN DEFICIENCIES.-In the
case of a deficiency to which subsection (e) applies which is
assessed after the close of the 5-year period referred to in para-
graph (1), interest attributable to such 5-year period, and interest
H. R. 10612-346
assigned under paragraph (2) to any installment the date for
payment of which has arrived on or before the date of the assess-
ment of the deficiency, shall be paid upon notice and demand from
the Secretary.
"(4) SELECTION OF SHORTER PERIOD.-If the executor has selected
a period shorter than 5 years under subsection (a) (3), such
shorter period shall be substituted for 5 years in paragraphs (1),
(2), and (3) of this subsection.
"(g) ACCELERATION OF PAYMENT.-
"(1) DISPOSITION OF INTEREST; WITHDRAWAL OF FUNDS FROM
BUSINESS.-
"(A) If-
(i) one-third or more in value of an interest in a
closely held business which qualifies under subsection
(a) (1) is distributed, sold, exchanged, or otherwise dis-
posed of, or
'(ii) aggregate withdrawals of money and other prop-
erty from the trade or business, an interest in which qual-
ifies under subsection (a) (1), made with respect to such
interest, equal or exceed one-third of the value of such
trade or business,
then the extension of time for payment of tax provided in
subsection (a) shall cease to apply, and any unpaid portion
of the tax payable in installments shall be paid upon notice
and demand from the Secretary.
((B) In the case of a distribution in redemption of stock
to which section 303 (or so much of section 304 as relates to
section 303) applies—
"(i) subparagraph (A) (i) does not apply with respect
to the stock redeemed; and for purposes of such subpara-
graph the interest in the closely held business shall be
considered to be such interest reduced by the value of the
stock redeemed, and
"(ii) subparagraph (A) (ii) does not apply with
respect to withdrawals of money and other property dis-
tributed; and for purposes of such subparagraph the
value of the trade or business shall be considered to be
such value reduced by the amount of money and other
property distributed.
This subparagraph shall apply only if, on or before the
date prescribed by subsection (a) (3) for the payment of
the first installment which becomes due after the date of the
distribution (or, if earlier, on or before the day which is
1 year after the date of the distribution), there is paid an
amount of the tax imposed by section 2001 not less than
the amount of money and other property distributed.
"(C) Subparagraph (A) (i) does not apply to an exchange
of stock pursuant to a plan of reorganization described in
subparagraph (D), (E), or (F) of section 368 (a) (1) nor
to an exchange to which section 355 (or so much of sec-
tion 356 as relates to section 355) applies; but any stock
received in such an exchange shall be treated for purposes of
subparagraph (A) (i) as an interest qualifying under sub-
section (a) (1).
(D) Subparagraph (A) (i) does not apply to a trans-
fer of property of the decedent to a person entitled by rea-
son of the decedent's death to receive such property under
H. R. 10612-347
the decedent's will, the applicable law of descent and dis-
tribution, or a trust created by the decedent.
"(2) UNDISTRIBUTED INCOME OF ESTATE.-
(A) If an election is made under this section and the
estate has undistributed net income for any taxable year
ending on or after the due date for the first installment, the
executor shall, on or before the date prescribed by law for
filing the income tax return for such taxable year (including
extensions thereof), pay an amount equal to such undis-
tributed net income in liquidation of the unpaid portion of the
tax payable in installments.
"(B) For purposes of subparagraph (A), the undistrib-
uted net income of the estate for any taxable year is the
amount by which the distributable net income of the estate
for such taxable year (as defined in section 643) exceeds
the sum of—
" (i) the amounts for such taxable year specified in
paragraphs (1) and (2) of section 661 (a) (relating to
deductions for distributions, etc.) ;
(iii) the amount of tax imposed for the taxable year
on the estate under chapter 1; and
(iii) the amount of the tax imposed by section 2001
(including interest) paid by the executor during the tax-
able year (other than any amount paid pursuant to this
paragraph).
(3) FAILURE TO PAY INSTALLMENT.-If any installment under
this section is not paid on or before the date fixed for its pay-
ment by this section (including any extension of time for the
payment of such installment), the unpaid portion of the tax
payable in installments shall be paid upon notice and demand
from the Secretary.
'(h) ELECTION IN CASE OF CERTAIN DEFICIENCIES.-
"(1) IN GENERAL.-If-
"(A) a deficiency in the tax imposed by section 2001 is
assessed,
'(B) the estate qualifies under subsection (a) (1), and
"(C) the executor has not made an election under sub-
section (a),
the executor may elect to pay the deficiency in installments. This
subsection shall not apply if the deficiency is due to negligence,
to intentional disregard of rules and regulations, or to fraud with
intent to evade tax.
(2) TIME OF ELECTION.-An election under this subsection shall
be made not later than 60 days after issuance of notice and
demand by the Secretary for the payment of the deficiency, and
shall be made in such manner as the Secretary shall by regulations
prescribe.
(3) EFFECT OF ELECTION ON PAYMENT.-If an election is made
under this subsection, the deficiency shall (subject to the limita-
tion provided by subsection (a) (2)) be prorated to the install-
ments which would have been due if an election had been timely
made under subsection (a) at the time the estate tax return was
filed. The part of the deficiency SO prorated to any installment
the date for payment of which would have arrived shall be paid
at the time of the making of the election under this subsection.
The portion of the deficiency SO prorated to installments the date
H. R. 10612-348
for payment of which would not have so arrived shall be paid at
the time such installments would have been due if such an election
had been made.
(i) REGULATIONS.-The Secretary shall prescribe such regulations
as may be necessary to the application of this section.
"(j) CROSS REFERENCES.-
"(1) Security.—
"For authority of the Secretary to require security in the case
of an extension under this section, see section 6165.
"(2) Lien.-
"For special lien (in lieu of bond) in the case of an extension
under this section, see section 6324A.
"(3) Period of limitation.—
"For extension of the period of limitation in the case of an
extension under this section, see section 6503(d).
"(4) Interest.-
"For provisions relating to interest on tax payable in install-
ments under this section, see subsection (j) of section 6601."
(b) 4-PERCENT INTEREST RATE.-Section 6601 (relating to interest
on underpayment, nonpayment, or extension of time for payment of
tax) is amended by redesignating subsection (j) as subsection (k)
and by inserting after subsection (i) the following new subsection
(j) 4-PERCENT RATE ON CERTAIN PORTION OF ESTATE Tax EXTENDED
UNDER SECTION 6166.-
"(1) IN GENERAL.-If the time for payment of an amount of
tax imposed by chapter 11 is extended as provided in section
6166, interest on the 4-percent portion of such amount shall (in
lieu of the annual rate provided by subsection (a)) be paid at the
rate of 4 percent. For purposes of this subsection, the amount of
any deficiency which is prorated to installments payable under
section 6166 shall be treated as an amount of tax payable in install-
ments under such section.
"(2) 4-PERCENT PORTION.-For purposes of this subsection, the
term 4-percent portion' means the lesser of-
(A) $345,800 reduced by the amount of the credit allow-
able under section 2010 (a) ; or
'(B) the amount of the tax imposed by chapter 11 which
is extended as provided in section 6166.
(3) TREATMENT OF PAYMENTS.-If the amount of tax imposed
by chapter 11 which is extended as provided in section 6166
exceeds the 4-percent portion, any payment of a portion of such
amount shall, for purposes of computing interest for periods after
such payment, be treated as reducing the 4-percent portion by an
amount which bears the same ratio to the amount of such pay-
ment as the amount of the 4-percent portion (determined with-
out regard to this paragraph) bears to the amount of the tax
which is extended as provided in section 6166."
(c) REASONABLE CAUSE SUBSTITUTED FOR UNDUE HARDSHIP IN DETER-
MINING ELIGIBILITY FOR EXTENSIONS OF PAYMENT OF ESTATE Tax.-
(1) Paragraph (2) of section 6161 (a) (relating to extension
of time for paying estate tax) is amended to read as follows:
(2) ESTATE TAX.-The Secretary may, for reasonable cause,
extend the time for payment of-
"(A) any part of the amount determined by the executor
as the tax imposed by chapter 11, or
(B) any part of any installment under section 6166 or
6166A (including any part of a deficiency prorated to any
installment under such section),
H. R. 10612-349
for a reasonable period not in excess of 10 years from the date pre-
scribed by section 6151 (a) for payment of the tax (or, in the case
of an amount referred to in subparagraph (B), if later, not
beyond the date which is 12 months after the due date for the last
installment)."
(2) Subsection (b) of section 6161 (relating to extension of time
for payment of certain deficiencies) is amended to read as follows:
(b) AMOUNT DETERMINED AS DEFICIENCY.-
"(1) INCOME, GIFT, AND CERTAIN OTHER TAXES.-Under regula-
tions prescribed by the Secretary, the Secretary may extend the
time for the payment of the amount determined as a deficiency of a
tax imposed by chapter 1, 12, 41, 42, 43, or 44 for a period not to
exceed 18 months from the date fixed for the payment of the
deficiency, and in exceptional cases, for a further period not to
exceed 12 months. An extension under this paragraph may be
granted only where it is shown to the satisfaction of the Secretary
that payment of a deficiency upon the date fixed for the payment
thereof will result in undue hardship to the taxpayer in the case
of a tax imposed by chapter 1, 41, 42, 43, or 44, or to the donor in
the case of a tax imposed by chapter 12.
(2) ESTATE TAX.-Under regulations prescribed by the Secre-
tary, the Secretary may, for reasonable cause, extend the time for
the payment of any deficiency of a tax imposed by chapter 11 for a
reasonable period not to exceed 4 years from the date otherwise
fixed for the payment of the deficiency.
" (3) No EXTENSION FOR CERTAIN DEFICIENCIES.-No extension
shall be granted under this subsection for any deficiency if the
deficiency is due to negligence, to intentional disregard of rules
and regulations, or to fraud with intent to evade tax."
(3) Subsection (b) of section 6163 (relating to extension to pre-
vent undue hardship in case of reversionary or remainder interest)
is amended to read as follows:
'(b) EXTENSION FOR REASONABLE CAUSE.-At the expiration of the
period of postponement provided for in subsection (a), the Secretary
may, for reasonable cause, extend the time for payment for a reasonable
period or periods not in excess of 3 years from the expiration of the
period of postponement provided in subsection (a)."
(4) Subsection (d) of section 6503 (relating to extensions of
time for payment of estate tax) is amended by striking out "sec-
tion 6166" and inserting in lieu thereof "section 6163, 6166, or
6166A".
(d) SPECIAL LIEN FOR ESTATE Tax DEFERRED UNDER SECTION 6166.-
(1) IN GENERAL.-Subchapter C of chapter 64 (relating to lien
for taxes) is amended by inserting after section 6324 the follow-
ing new section:
"SEC. 6324A. SPECIAL LIEN FOR ESTATE TAX DEFERRED UNDER SEC-
TION 6166 OR 6166A.
"(a) GENERAL RULE.-In the case of any estate with respect to
which an election has been made under section 6166 or 6166A, if the
executor makes an election under this section (at such time and in
such manner as the Secretary shall by regulations prescribe) and files
the agreement referred to in subsection (c), the deferred amount (plus
any interest, additional amount, addition to tax, assessable penalty,
and costs attributable to the deferred amount) shall be a lien in favor
of the United States on the section 6166 lien property.
'(b) SECTION 6166 LIEN PROPERTY.-
H. R. 10612-350
"(1) IN GENERAL.-For purposes of this section, the term 'sec-
tion 6166 lien property' means interests in real and other property
to the extent such interests-
"(A) can be expected to survive the deferral period, and
'(B) are designated in the agreement referred to in sub-
section (c).
"(2) MAXIMUM VALUE OF REQUIRED PROPERTY.-The maximum
value of the property which the Secretary may require as section
6166 lien property with respect to any estate shall be a value which
is not greater than the sum of-
(A) the deferred amount, and
(B) the aggregate interest amount.
For purposes of the preceding sentence, the value of any prop-
erty shall be determined as of the date prescribed by section 6151
(a) for payment of the tax imposed by chapter 11 and shall be
determined by taking into account any encumbrance such as a lien
under section 6324B.
'(3) PARTIAL SUBSTITUTION OF BOND FOR LIEN.-If the value
required as section 6166 lien property pursuant to paragraph (2)
exceeds the value of the interests in property covered by the agree-
ment referred to in subsection (c), the Secretary may accept bond
in an amount equal to such excess conditioned on the payment
of the amount extended in accordance with the terms of such
extension.
(c) AGREEMENT.-The agreement referred to in this subsection is
a written agreement signed by each person in being who has an interest
(whether or not in possession) in any property designated in such
agreement-
(1) consenting to the creation of the lien under this section
with respect to such property, and
"(2) designating a responsible person who shall be the agent
for the beneficiaries of the estate and for the persons who have
consented to the creation of the lien in dealings with the Secretary
on matters arising under section 6166 or 6166A or this section.
"(d) SPECIAL RULES.-
(1) REQUIREMENT THAT LIEN BE FILED.-The lien imposed by
this section shall not be valid as against any purchaser, holder of
a security interest, mechanic's lien, or judgment lien creditor
until notice thereof which meets the requirements of section 6323
(f) has been filed by the Secretary. Such notice shall not be
required to be refiled.
" (2) PERIOD OF LIEN.-The lien imposed by this section shall
arise at the time the executor is discharged from liability under
section 2204 (or, if earlier, at the time notice is filed pursuant to
paragraph (1)) and shall continue until the liability for the
deferred amount is satisfied or becomes unenforceable by reason of
lapse of time.
"
(3) PRIORITIES.-Even though notice of a lien imposed by
this section has been filed as provided in paragraph (1), such lien
shall not be valid-
"(A) REAL PROPERTY TAX AND SPECIAL ASSESSMENT LIENS.-
To the extent provided in section 6323 (b) (6).
"(B) REAL PROPERTY SUBJECT TO A MECHANIC'S LIEN FOR
REPAIRS AND IMPROVEMENTS.-In the case of any real property
subject to a lien for repair or improvement, as against a
mechanic's lienor.
H. R. 10612-351
"(C) REAL PROPERTY CONSTRUCTION OR IMPROVEMENT
FINANCING AGREEMENT.-As against any security interest set
forth in paragraph (3) of section 6323 (c) (whether such secu-
rity interest came into existence before or after tax lien filing).
Subparagraphs (B) and (C) shall not apply to any security
interest which came into existence after the date on which the-
Secretary filed notice (in a manner similar to notice filed under
section 6323 (f)) that payment of the deferred amount has been
accelerated under section 6166 (g) or 6166A (h).
"(4) LIEN TO BE IN LIEU OF SECTION 6324 LIEN.-If there is a lien
under this section on any property with respect to any estate, there
shall not be any lien under section 6324 on such property with
respect to the same estate.
"(5) ADDITIONAL LIEN PROPERTY REQUIRED IN CERTAIN CASES.-
If at any time the value of the property covered by the agree-
ment is less than the unpaid portion of the deferred amount
and the aggregate interest amount, the Secretary may require the
addition of property to the agreement (but he may not require
under this paragraph that the value of the property covered by
the agreement exceed such unpaid portion). If property having
the required value is not added to the property covered by the
agreement (or if other security equal to the required value is not
furnished) within 90 days a fter notice and demand therefor by the
Secretary, the failure to comply with the preceding sentence shall
be treated as an act accelerating payment of the installments under
section 6166 (g) or 6166a (h).
"(6) LIEN TO BE IN LIEU OF BOND.-The Secretary may not
require under section 6165 the furnishing of any bond for the
payment of any tax to which an agreement which meets the
requirements of subsection (c) applies.
"(e) DEFINITIONS.-For purposes of this section-
"(1) DEFERRED AMOUNT.-The term 'deferred amount' means
the aggregate amount deferred under section 6166 or 6166A
(determined as of the date prescribed by section 6151 (a) for pay-
ment of the tax imposed by chapter 11).
"(2) AGGREGATE INTEREST AMOUNT.-The term 'aggregate inter-
est amount' means the aggregate amount of interest which will be
payable over the deferral period with respect to the deferred
amount (determined as of the date prescribed by section 6151 (a)
for payment of the tax imposed by chapter 11).
"(3) DEFERRAL PERIOD.-The term 'deferral period' means the
period for which the payment of tax is deferred pursuant to the
election under section 6166 or 6166A.
(4) APPLICATION OF DEFINITIONS IN CASE OF DEFICIENCIES.-In
the case of a deficiency, a separate deferred amount, aggregate
interest amount, and deferral period shall be determined as of the
due date of the first installment after the deficiency is prorated
to installments under section 6166 or 6166A."
(2) DISCHARGE OF EXECUTOR FROM PERSONAL LIABILITY.-Section
2204 (relating to discharge of fiduciary from personal liability)
is amended by adding at the end thereof the following new sub-
section:
"(c) SPECIAL LIEN UNDER SECTION 6324A.-For purposes of the
second sentence of subsection (a) and the last sentence of subsection
(b), an agreement which meets the requirements of section 6324A
(relating to special lien for estate tax deferred under section 6166 or
6166A) shall be treated as the furnishing of bond with respect to the
H. R. 10612-352
amount for which the time for payment has been extended under
section 6166 or 6166A."
(e) AMENDMENTS OF SECTION 303.-
(1) EXTENSION OF PERIOD FOR DISTRIBUTION.-Paragraph (1) of
i
section 303 (b) (relating to distributions in redemption of stock
to pay death taxes) is amended by striking out "or" at the end
of subparagraph (A), by striking out the period at the end of
subparagraph (B) and inserting in lieu thereof ", or ", and by
adding at the end thereof the following new subparagraph:
"(C) If an election has been made under section 6166 or
6166A and if the time prescribed by this subparagraph expires
at a later date than the time prescribed by subparagraph
(B) of this paragraph, within the time determined under
section 6166 or 6166A for the payment of the installments."
(2) RELATIONSHIP OF STOCK TO DECEDENT'S ESTATE.-
(A) Subparagraph (A) of section 303 (b) (2) is amended
to read as follows:
"(A) IN GENERAL.-Subsection (a) shall apply to a distri-
bution by a corporation only if the value (for Federal estate
tax purposes) of all of the stock of such corporation which is
included in determining the value of the decedent's gross
estate exceeds 50 percent of the excess of-
(i) the value of the gross estate of such decedent, over
(ii) the sum of the amounts allowable as a deduction
under section 2053 or 2054."
(B) The first sentence of subparagraph (B) of section 303
(b) (2) is amended by striking out "the 35 percent and 50
percent requirements" and inserting in lieu thereof "the 50
percent requirement".
(3) RELATIONSHIP OF SHAREHOLDER TO ESTATE TAX.-Subsection
(b) of section 303 is amended by adding at the end thereof the
following new paragraphs:
" (3) RELATIONSHIP OF SHAREHOLDER TO ESTATE TAX.-Subsection
(a) shall apply to a distribution by a corporation only to the
extent that the interest of the shareholder is reduced directly (or
through a binding obligation to contribute) by any payment of
an amount described in paragraph (1) or (2) of subsection (a).
"(4) ADDITIONAL REQUIREMENTS FOR DISTRIBUTIONS MADE MORE
THAN 4 YEARS AFTER DECEDENT'S DEATH.-In the case of amounts
distributed more than 4 years after the date of the decedent's
death, subsection (a) shall apply to a distribution by a corpora-
tion only to the extent of the lesser of-
(A) the aggregate of the amounts referred to in para-
graph (1) or (2) of subsection (a) which remained unpaid
immediately before the distribution, or
"(B) the aggregate of the amounts referred to in para-
graph (1) or (2) of subsection (a) which are paid during
the 1-year period beginning on the date of such distribution."
(4) STOCK WITH SUBSTITUTED BASIs.-Subsection (c) of section
303 (relating to stock with substituted basis) is amended by strik-
ing out "limitation specified in subsection (b) (1)" and inserting
in lieu thereof "limtations specified in subsection (b)".
(f) TECHNICAL, CLERICAL, AND CONFORMING CHANGES.-
(1) The table of sections for subchapter C of chapter 64 is
amended by inserting after the item relating to section 6324 the
following new item:
H. R. 10612-353
"Sec. 6324A. Special lien for estate tax deferred under section 6166 or
6166A."
(2) Section 7403 (a) (relating to action to enforce lien or to
subject property to payment of tax) is amended by adding at the
end thereof the following new sentence "For purposes of the pre--
ceding sentence, any acceleration of payment under section 6166
(g) or 6166A (h) shall be treated as a neglect to pay tax."
(3) Paragraph (2) of section 2011 (c) (relating to credit for
State death taxes) is amended by striking out "section 6161" and
inserting in lieu thereof "section 6161, 6166 or 6166A".
(4) The last sentence of section 2204(b) is amended by striking
out "has not been extended under" and inserting in lieu thereof
"has been extended under".
(5) The table of sections for subchapter B of chapter 62 is
amended by striking out the item relating to section 6166 and
inserting in lieu thereof the following:
"Sec. 6166. Alternate extension of time for payment of estate tax where
estate consists largely of interest in closely held business.
"Sec. 6166A. Extension of time for payment of estate tax where estate
tax consists largely of interest in closely held business.".
(6) Subsections (a) and (b) of section 2204 (relating to dis-
charge of fiduciary from personal liability) are as amende by
striking out "or 6166" and inserting in lieu thereof "616 or
6166A".
(g) EFFECTIVE DATE.-The amendments made by this section $ all
apply to the estates of decedents dying after December 31, 1976.
SEC. 2005. CARRYOVER BASIS.
(a) GENERAL RULE.-
(1) AMENDMENT OF SECTION 1014.Subsection (d) of section
1014 (relating to basis of property acquired from a decedent) is
amended to read as follows:
"(d) DECEDENTS DYING AFTER DECEMBER 31, 1976.-In the case of a
decedent dying after December 31, 1976, the section shall not apply to
any property for which a carryover basis is provided by section 1023."
(2) CARRYOVER BASIS.-Part II of subchapter O of chapter 1
(relating to basis rules of general application) is amended by
redesignating section 1023 as section 1024 and by inserting after
section 1022 the following new section:
"SEC. 1023. CARRYOVER BASIS FOR CERTAIN PROPERTY ACQUIRED
FROM A DECEDENT DYING AFTER DECEMBER 31, 1976.
"(a) GENERAL RULE.-
"(1) CARRYOVER BASIS.-Except as otherwise provided in this
section, the basis of carryover basis property acquired from a
decedent dying after December 31, 1976, in the hands of the person
so acquiring it shall be the adjusted basis of the property imm di-
ately before the death of the decedent, further adjusted as pro-
vided in this section.
"(2) Loss ON PERSONAL AND HOUSEHOLD EFFECTs.-In the case
of any carryover basis property which, in the hands of the
decedent, was a personal or household effect, for purposes of deter-
mining loss, the basis of such property in the hands of the person
acquiring such property from the decedent shall not exceed its fair
market value.
"(b) CARRYOVER BASIS PROPERTY DEFINED.-
'(1) IN GENERAL-For purposes of this section, the term 'carry-
over basis property' means any property which is acquired from
H. R. 10612-354
or passed from a decedent (within the meaning of section
1014 (b)) and which is not excluded pursuant to paragraph (2)
or (3).
"(2) CERTAIN PROPERTY NOT CARRYOVER BASIS PROPERTY.-The
term "carryover basis property' does not include-
'(A) any item of gross income in respect of a decedent -
described in section 691;
'(B) property described in section 2042 (relating to pro-
ceeds of life insurance) ;
" (C) a joint and survivor annuity under which the surviv-
ing annuitant is taxable under section 72, and payments and
distributions under a deferred compensation plan described
in part I of subchapter D of chapter 1 to the extent such pay-
ments and distributions are taxable to the decedent's bene-
ficiary under chapter 1;
(D) property included in the decedent's gross estate by
reason of section 2035, 2038, or 2041 which has been disposed
of before the decedent's death in a transaction in which gain
or loss is recognizable for purposes of chapter 1;
(E) stock or a stock option passing from the decedent to
the extent income in respect of such stock or stock option is
includable in gross income under section 422 (c) (1), 423 (c),
or 424 (c) (1) ; and
"(F) property described in section 1014 (5).
"(3) $10,000 EXCLUSION FOR CERTAIN ASSETS.-
(A) Exclusion.-The term 'carryover basis property'
does not include any asset-
"(i) which, in the hands of the decedent, was a per-
sonal or household effect, and
(ii) with respect to which the executor has made an
election under this paragraph.
"(B) LIMITATION.-The fair market value of all assets
designated under this subsection with respect to any decedent
shall not exceed $10,000.
'(C) ELECTION.-An election under this paragraph with
respect to any asset shall be made by the executor not later
than the date prescribed by section 6075 (a) for filing the
return of the tax imposed by section 2001 or 2101 (including
extensions thereof), and shall be made in such manner as
the Secretary shall by regulations prescribe.
"(c) INCREASE IN BASIS FOR FEDERAL AND STATE ESTATE TAXES
ATTRIBUTABLE TO APPRECIATION.-The basis of appreciated carryover
basis property (determined after any adjustment under subsection
(h)) which is subject to the tax imposed by section 2001 or 2101 in the
hands of the person acquiring it from the decedent shall be increased
by an amount which bears the same ratio to the Federal and State
estate taxes as-
"(1) the net appreciation in value of such property, bears to
(2) the fair market value of all property which is subject to
the tax imposed by section 2001 or 2101.
(d) $60,000 MINIMUM FOR BASES OF CARRYOVER BASIS PROPERTIES.-
"(1) IN GENERAL.-If $60,000 exceeds the aggregate bases (as
determined after any adjustment under subsection (h) or (c)) of
all carryover basis property, the basis of each appreciated carry-
over basis property (after any adjustment under subsection (h) or
(c)) shall be increased by an amount which bears the same ratio
to the amount of such excess as-
H. R. 10612-355
"(A) the net appreciation in value of such property, bears
to
"(B) the net appreciation in value of all such property.
"(2) SPECIAL RULE FOR PERSONAL OR HOUSEHOLD EFFECT.-For
purposes of paragraph (1), the basis of any property which is a
personal or household effect shall be treated as not greater than
the fair market value of such property.
"(3) NONRESIDENT NOT CITIZEN.-This subsection shall not
apply to any carryover basis property acquired from any decedent
who was (at the time of his death) a nonresident not a citizen of
the United States.
"(e) FURTHER INCREASE IN BASIS FOR CERTAIN STATE SUCCESSION
TAX PAID BY TRANSFEREE OF PROPERTY.-If-
"(1) any person acquires appreciated carryover basis property
from a decedent, and
"(2) such person actually pays an amount of estate, inheritance,
legacy, or succession taxes with respect to such property to any
State or the District of Columbia for which the estate is not liable.
then the basis of such property (after any adjustment under subsec-
tion (h), (c), or (d)) shall be increased by an amount which bears
the same ratio to the aggregate amount of all such taxes paid by such
person as-
"(A) the net appreciation in value of such property, bears to
(B) the fair market value of all property acquired by such
person which is subject to such taxes.
"(f) SPECIAL RULES AND DEFINITIONS FOR APPLICATION OF SUBSEC-
TIONS (c), (d), AND (e).-
(1) FAIR MARKET VALUE LIMITATION.-The adjustments under
subsections (c), (d), and (e) shall not increase the basis of prop-
erty above its fair market value.
(2) NET APPRECIATION.-For purposes of this section, the net
appreciation in value of any property is the amount by which
the fair market value of such property exceeds the adjusted basis
of such property immediately before the death of the decedent
(as determined after any adjustment under subsection (h)).
For purposes of subsection (d), such adjusted basis shall be
increased by the amount of any adjustment under subsection (c),
and, for purposes of subsection (e), such adjusted basis shall be
increased by the amount of any adjustment under subsection (c)
or (d).
(3) FEDERAL AND STATE ESTATE TAXES.-For purposes of sub-
section (c), the term 'Federal and State estate taxes' means-
"(A) the tax imposed by section 2001 or 2101, reduced by
the credits against such tax, and
"(B) any estate, inheritance, legacy, or succession taxes, for
which the estate is liable, actually paid by the estate to any
State or the District of Columbia.
"(4) CERTAIN MARITAL AND CHARITABLE DEDUCTION PROPERTY
TREATED AS NOT SUBJECT TO TAX.-For purposes of subsections (c)
and (e), property shall be treated as not subject to a tax-
(A) with respect to the tax imposed by section 2001 or
2101, to the extent that a deduction is allowable with respect
to such property under section 2055 or 2056 or under section
2106 (a) (2), and
(B) with respect to State estate taxes and with respect
to the State taxes referred to in subsection (e) (2), to the
extent that such property is not subject to such taxes.
H. R. 10612-356
"(5) APPRECIATED CARRYOVER BASIS PROPERTY.-For purposes of
this section, the term 'appreciated carryover basis property' means
any carryover basis property if the fair market value of such
property exceeds the adjusted basis of such property immediately
before the death of the decedent.
" (g) OTHER SPECIAL RULES AND DEFINITIONS.-
(1) FAIR MARKET VALUE-For purposes of this section, when
not otherwise distinctly expressed, the term 'fair market value'
means value as determined under chapter 11.
(2) PROPERTY PASSING FROM THE DECEDENT.-For purposes of
this section, property passing from the decedent shall be treated
as property acquired from the decedent.
(3) DECEDENT'S BASIS UNKNOWN.-If the facts necessary to
determine the basis (unadjusted) of carryover basis property
immediately before the death of the decedent are unknown to the
person acquiring such property from the decedent, such basis shall
be treated as being the fair market value of such property as of
the date (or approximate date) at which such property was
acquired by the decedent or by the last preceding owner in whose
hands it did not have a basis determined in whole or in part by
reference to its basis in the hands of a prior holder.
(4) CERTAIN MORTGAGES.-For purposes of subsections (c),
(d), and (e), if-
"(A) there is an unpaid mortgage on, or indebtedness in
respect of, property,
(B) such mortgage or indebtedness does not constitute a
liability of the estate, and
(C) such property is included in the gross estate undi-
minished by such mortgage or indebtedness,
then the fair market value of such property to be treated as
included in the gross estate shall be the fair market value of such
property, diminished by such mortgage or indebtedness.
" (h) ADJUSTMENT TO BASIS FOR DECEMBER 31, 1976, FAIR MARKET
VALUE.-
"(1) MARKETABLE BONDS AND SECURITIES.-If the adjusted basis
immediately before the death of the decedent of any property
which is carryover basis property reflects the adjusted basis of any
marketable bond or security on December 31, 1976, and if the fair
market value of such bond or security on December 31, 1976,
exceeded its adjusted basis on such date, then, for purposes of
determining gain, the adjusted basis of such property shall be
increased by the amount of such excess.
(2) PROPERTY OTHER THAN MARKETABLE BONDS AND SECURITIES.-
"(A) IN GENERAL-If-
" (i) the adjusted basis immediately before the death
of the decedent of any property which is carryover basis
property reflects the adjusted basis on December 31,
1976, of any property other than a marketable bond or
security, and
(ii) the value of such carryover basis property (as
determined with respect to the estate of the decedent
without regard to section 2032) exceeds the adjusted
basis of such property immediately before the death of
the decedent (determined without regard to this sub-
section),
then, for purposes of determining gain, the adjusted basis of
such property immediately before the death of the decedent
H. R. 10612-357
(determined without regard to this subsection) shall be
increased by the amount determined under subparagraph (B).
"(B) AMOUNT OF INCREASE.-The amount of the increase
under this subparagraph for any property is the sum of- -
"(i) the excess referred to in subparagraph (A) (ii),
reduced by an amount equal to all adjustments for
depreciation, amortization, or depletion for the holding
period of such property, and then multiplied by the
applicable fraction determined under subparagraph
(C), and
(ii) the adjustments to basis for depreciation, amor-
tization, or depletion which are attributable to that por-
tion of the holding period for such property which occurs
before January 1, 1977.
'(C) APPLICABLE FRACTION.-For purposes of subpara-
graph (B) (i), the term 'applicable fraction' means, with
respect to any property, a fraction-
"(i) the numerator of which is the number of days in
the holding period with respect to such property which
occurs before January 1, 1977, and
"(ii) the denominator of which is the total number of
days in such holding period.
(D) SUBSTANTIAL IMPROVEMENTS.-Under regulations
prescribed by the Secretary, if there is a substantial improve-
ment of any property, such substantial improvement shall be
treated as a separate property for purposes of this paragraph.
(E) DEFINITIONS.-For purposes of this paragraph-
(i) The term 'marketable bond or security' means
any security for which, as of December 1976, there was a
market on a stock exchange, in an over-the-counter mar-
ket, or otherwise.
(ii) The term 'holding period' means, with respect to
any carryover basis property, the period during which
the decedent (or, if any other person held such property
immediately before the death of the decedent, such other
person) held such property as determined under section
1223 except that such period shall end on the date of the
decedent's death.
"(i) REGULATIONS.-The Secretary shall prescribe such regulations
as may be necessary to carry out the purposes of this section."
(3) AMENDMENT OF SECTION 1016.-Section 1016(a) (relating
to adjustments to basis) is amended by striking out the period at
the end thereof and by inserting in lieu thereof a semicolon and
by adding at the end thereof the following new paragraph:
(23) to the extent provided in section 1023, relating to carry-
over basis for certain property acquired from a decedent dying
after December 31, 1976."
(4) AMENDMENTS OF SECTION 691.-
(A) Section 691 (c) (2) (A) (relating to deduction for
estate tax in case of income in respect of decedents) is
amended to read as follows:
"(A) The term 'estate tax' means Federal and State estate
taxes (within the meaning of section 1023 (f) (3)
(B) Section 691 (c) (2) (C) is amended to read as follows:
(C) The estate tax attributable to such net value shall be
an amount which bears the same ratio to the estate tax as
such net value bears to the value of the gross estate."
H. R. 10612-358
(5) REPEAL OF SECTION 1246 ).-Section 1246 (relating to gain
on foreign investment company stock) is amended by striking out
subsection (e) and by redesignating subsections (f) and (g) as
subsections (e) and (f), respectively.
(b) NONRECOGNITION OF GAIN WHERE CERTAIN APPRECIATED CARRY-
OVER BASIS PROPERTY Is USED IN SATISFACTION OF A PECUNIARY
REQUEST.-Part III of subchapter O of chapter 1 (relating to common
nontaxable exchanges) is amended by adding at the end thereof the
following new section:
"SEC. 1040. USE OF CERTAIN APPRECIATED CARRYOVER BASIS PROP-
ERTY TO SATISFY PECUNIARY REQUEST.
"(a) GENERAL RULE.-If the executor of the estate of any decedent
satisfies the right of any person to receive a pecuniary bequest with
appreciated carryover basis property (as defined in section 1023 (f)
(5)), then gain on such exchange shall be recognized to the estate only
to the extent that, on the date of such exchange, the fair market value
of such property exceeds the value of such property for purposes of
chapter 11.
"(b) SIMILAR RULE FOR CERTAIN TRUSTS.-To the extent provided
in regulations prescribed by the Secretary, a rule similar to the rule
provided in subsection (a) shall apply where-
"(1) by reason of the death of the decedent, a person has a
right to receive from a trust a specific dollar amount which is the
equivalent of a pecuniary bequest, and
(2) the trustee of the trust satisfies such right with carryover
basis property to which section 1023 applies.
"(c) BASIS OF PROPERTY ACQUIRED IN EXCHANGE DESCRIBED IN SUB-
SECTION (a) OR (b).-The basis of property acquired in an exchange
with respect to which gain realized is not recognized by reason of sub-
section (a) or (b) shall be the basis of such property immediately
before the exchange, increased by the amount of the gain recognized
to the estate or trust on the exchange."
(c) LIMITATION OF INCREASE IN BASIS FOR GIFT TAX PAID TO THAT
PORTION OF GIFT TAX ATTRIBUTABLE TO NET APPRECIATION IN VALUE.-
Subsection (d) of section 1015 (relating to increased basis for gift tax
paid) is amended by adding at the end thereof the following new
paragraph:
"(6) SPECIAL RULE FOR GIFTS MADE AFTER DECEMBER 31, 1976.-
(A) IN GENERAL.-In the case of any gift made after
December 31, 1976, the increase in basis provided by this
subsection with respect to any gift for the gift tax paid under
chapter 12 shall be an amount (not in excess of the amount
of tax so paid) which bears the same ratio to the amount of
tax so paid as-
" (i) the net appreciation in value of the gift, bears to
'(ii) the amount of the gift.
"(B) NET APPRECIATION.-For purposes of paragraph (1),
the net appreciation in value of any gift is the amount by
which the fair market value of the gift exceeds the donor's
adjusted basis immediately before the gift."
(d) INFORMATION REQUIREMENT.-
(1) IN GENERAL-Subpart A of part III of subchapter A of
chapter 61 (relating to information concerning persons subject to
special provisions) is amended by inserting after section 6039
the following new section:
H. R. 10612-359
"SEC. 6039A. INFORMATION REGARDING CARRYOVER BASIS PROPERTY
ACQUIRED FROM A DECEDENT.
"(a) IN GENERAL.-Every executor (as defined in section 2203)
shall furnish the Secretary such information with respect to carryover
basis property to which section 1023 applies as the Secretary may by
regulations prescribe.
" (b) STATEMENTS To BE FURNISHED TO PERSONS WHO ACQUIRE
PROPERTY FROM A DECEDENT.-Every executor who is required to fur-
nish information under subsection (a) shall furnish in writing to each
person acquiring an item of such property from the decedent (or to
whom the item passes from the decedent) the adjusted basis of such
item."
(2) PENALTIES.-Subchapter B of chapter 68 (relating to
assessable penalties) is amended by adding at the end thereof the
following new section:
"SEC. 6694. FAILURE TO FILE INFORMATION WITH RESPECT TO CARRY-
OVER BASIS PROPERTY.
"(a) INFORMATION REQUIRED To BE FURNISHED TO THE SECRE-
TARY.-Any executor who fails to furnish information required under
subsection (a) of section 6039A on the date prescribed therefor (deter-
mined with regard to any extension of time for filing), unless it is
shown that such failure is due to reasonable cause and not to willful
neglect, shall pay a penalty of $100 for each such failure, but the total
amount imposed for all such failures shall not exceed $5,000.
'(b) INFORMATION REQUIRED To BE FURNISHED TO BENEFICIARIES.-
Any executor who fails to furnish in writing to each person described
in subsection (b) of section 6039A the information required under
such subsection, unless it is shown that such failure is due to reasonable
cause and not to willful neglect, shall pay a penalty of $50 for each
such failure, but the total amount imposed for all such failures shall
not exceed $2,500."
(e) CLERICAL AMENDMENTS.-
(1) The table of sections for part II of subchapter O of chapter
1 is amended by striking out the item relating to section 1023 and
inserting in lieu thereof the following:
"Sec. 1023. Carryover basis for certain property acquired from a
decedent dying after December 31, 1976.
"Sec. 1024. Cross references."
(2) The table of sections for part III of subchapter O of chap-
ter 1 is amended by adding at the end thereof the following:
"Sec. 1040. Use of certain appreciated carryover basis property to sat-
isfy pecuniary bequest."
(3) The table of sections for part III of subchapter A of
chapter 61 is amended by inserting after the item relating to
section 6039 the following:
"Sec. 6039A. Information regarding carryover basis property acquired
from a decedent."
(4) The table of sections for subchapter B of chapter 68 is
amended by adding at the end thereof the following:
"Sec. 6694. Failure to file information with respect to carryover basis
property."
(f) EFFECTIVE DATES.-
(1) Except as provided in paragraph (2), the amendments
made by this section shall apply in respect of decedents dying
after December 31, 1976.
H. R. 10612-360
(2) The amendment made by subsection (c) shall apply to gifts
made after December 31, 1976.
SEC. 2006. CERTAIN GENERATION-SKIPPING TRANSFERS.
(a) IMPOSITION OF TAx.-Subtitle B (relating to estate and gift
taxes) is amended by adding at the end thereof the following new
chapter:
"CHAPTER 13-TAX ON CERTAIN GENERATION-SKIPPING
TRANSFERS
"SUBCHAPTER A. Tax imposed.
"SUBCHAPTER B. Definitions and special rules.
"SUBCHAPTER C. Administration.
"Subchapter A-Tax Imposed
"Sec. 2601. Tax imposed.
"Sec. 2602. Amount of tax.
"Sec. 2603. Liability for tax.
"SEC. 2601. TAX IMPOSED.
"A tax is hereby imposed on every generation-skipping transfer in
the amount determined under section 2602.
"SEC. 2602. AMOUNT OF TAX.
"(a) GENERAL RULE.-The amount of the tax imposed by section
2601 with respect to any transfer shall be the excess of-
"(1) a tentative tax computed in accordance with the rate
schedule set forth in section 2001 (c) (as in effect on the date
of transfer) on the sum of—
"(A) the fair market value of the property transferred
determined as of the date of transfer (or in the case of an
election under subsection (d), as of the applicable valuation
date prescribed by section 2032),
"(B) the aggregate fair market value (determined for
purposes of this chapter) of all prior transfers of the deemed
transferor to which this chapter applied,
(C) the amount of the adjusted taxable gifts (within
the meaning of section 2001 (b)) made by the deemed trans-
feror before this transfer, and
"(D) if the deemed transferor has died at the same time
as, or before, this transfer, the taxable estate of the deemed
transferor, over
"(2) a tentative tax (similarly computed) on the sum of the
amounts determined under subparagraphs (B), (C), and (D)
of paragraph (1).
'(b) MULTIPLE SIMULTANEOUS TRANSFERS.-If two or more transfers
which are taxable under section 2601 and which have the same deemed
transferor occur by reason of the same event, the tax imposed by sec-
tion 2601 on each such transfer shall be the amount which bears
the same ratio to-
"(1) the amount of the tax which would be imposed by section
2601 if the aggregate of such transfers were a single transfer, as
"(2) the fair market value of the property transferred in such
transfer bears to the aggregate fair market value of all property
transferred in such transfers.
"(c) DEDUCTIONS, CREDITS, ETc.-
H. R. 10612-361
"(1) GENERAL RULE.-Except as otherwise provided in this
subsection, no deduction, exclusion, exemption, or credit shall be
allowed against the tax imposed by section 2601.
"(2) CHARITABLE DEDUCTIONS ALLOWED.-The deduction under
section 2055, 2106 (a) (2), or 2522, whichever is appropriate, shall
be allowed in determining the tax imposed by section 2601.
(3) UNUSED PORTION OF UNIFIED CREDIT.-If the generation-
skipping transfer occurs at the same time as, or after, the death
of the deemed transferor, then the portion of the credit under
section 2010(a) (relating to unified credit). which exceeds the
sum of-
"(A) the tax imposed by section 2001, and
"(B) the taxes theretofore imposed by section 2601 with
respect to this deemed transferor,
shall be allowed as a credit against the tax imposed by section
2601. The amount of the credit allowed by the preceding sentence
shall not exceed the amount of the tax imposed by section 2601.
"(4) CREDIT FOR TAX ON PRIOR TRANSFERS.-The credit under
section 2013 (relating to credit for tax on prior transfers) shall
be allowed against the tax imposed by section 2601. For purposes
of the preceding sentence, section 2013 shall be applied as if SO
much of the property subject to tax under section 2601 as is not
taken into account for purposes of determining the credit allow-
able by section 2013 with respect to the estate of the deemed trans-
feror passed from the transferor (as defined in section 2013) to
the deemed transferor.
(5) COORDINATION WITH ESTATE TAX.-
"(A) ADJUSTMENTS TO MARITAL DEDUCTION.-If the genera-
tion-skipping transfer occurs at the same time as, or within
9 months after, the death of the deemed transferor, for pur-
poses of section 2056 (relating to bequests, etc., to surviving
spouse), the value of the gross estate of the deemed transferor
shall be deemed to be increased by the amount of such
transfer.
(B) CERTAIN EXPENSES ATTRIBUTABLE TO GENERATION-SKIP-
PING TRANSFER.-If the generation-skipping transfer occurs
at the same time as, or after, the death of the deemed trans-
feror, for purposes of this section, the amount taken into
account with respect to such transfer shall be reduced-
"(i) in the case of a taxable termination, by any item
referred to in section 2053 or 2054 to the extent that a
deduction would have been allowable under such section
for such item if the amount of the trust had been includi-
ble in the deemed transferor's gross estate and if the
deemed transferor had died immediately before such
transfer, or
(ii) in the case of a taxable distribution, by any
expense incurred in connection with the determination,
collection, or refund of the tax imposed by section 2601
on such transfer.
(C) CREDIT FOR STATE INHERITANCE Tax.-If the genera-
tion-skipping transfer occurs at the same time as, or after,
the death of the deemed transferor, there shall be allowed
as a credit against the tax imposed by section 2601 an amount
equal to that portion of the estate, inheritance, legacy, or
succession tax actually paid to any State or the District of
Columbia in respect of any property included in the genera-
H. R. 10612-362
tion-skipping transfer, but only to the extent of the lesser
of-
"(i) that portion of such taxes which is levied on such
transfer, or
(ii) the excess of the limitation applicable under sec-
tion 2011 (b) if the adjusted taxable estate of the decedent
had been increased by the amount of the transfer and all
prior generation-skipping transfers to which this sub-
paragraph applied which had the same deemed trans-
feror, over the sum of the amount allowable as a credit
under section 2011 with respect to the estate of the
decedent plus the aggregate amounts allowable under this
subparagraph with respect to such prior generation-
skipping transfers.
"(d) ALTERNATE VALUATION.-
"(1) IN GENERAL.-In the case of-
"(A) 1 or more generation-skipping transfers from the
same trust which have the same deemed transferor and which
are taxable terminations occurring at the same time as the
death of such deemed transferor; or
'(B) 1 or more generation-skipping transfers from the
same trust with different deemed transferors—
(i) which are taxable terminations occurring on the
same day; and
'(ii) which would, but for section 2613 (b) (2), have
occurred at the same time as the death of the individuals
who are the deemed transferors with respect to the
transfers;
the trustee may elect to value all of the property transferred in
such transfers in accordance with section 2032.
(2) SPECIAL RULES.-If the trustee makes an election under
paragraph (1) with respect to any generation-skipping trans-
fer, section 2032 shall be applied by taking into account (in lieu
of the date of the decedent's death) the following date:
"(A) in the case of any generation-skipping transfer
described in paragraph (1) (A), the date of the death of the
deemed transferor described in such paragraph, or
(B) in the case of any generation-skipping transfer
described in paragraph (1) (B), the date on which such trans-
fer occurred.
"(e) TRANSFERS WITHIN 3 YEARS OF DEATH OF DEEMED TRANS-
FEROR-Under regulations prescribed by the Secretary, the principles
of section 2035 shall apply with respect to transfers made during the
3-year period ending on the date of the deemed transferor's death. In
the case of any transfer to which this subsection applies, the amount
of the tax imposed by this chapter shall be determined as if the trans-
fer occurred after the death of the deemed transferor and appropriate
adjustments shall be made with respect to the amount of any prior
transfer which is taken into account under subparagraph (B) or (C)
of subsection (a) (1).
"SEC. 2603. LIABILITY FOR TAX.
"(a) PERSONAL LIABILITY.-
"(1) IN GENERAL-If the tax imposed by section 2601 is not
paid, when due then—
"(A) except to the extent provided in paragraph (2), the
trustee shall be personally liable for any portion of such tax
which is attributable to a taxable termination, and
H. R. 10612-363
"(B) the distributee of the property shall be personally
liable for such tax to the extent provided in paragraph (3).
"(2) LIMITATION OF PERSONAL LIABILITY OF TRUSTEE WHO RELIES
ON CERTAIN INFORMATION FURNISHED BY THE SECRETARY.-
"(A) INFORMATION WITH RESPECT TO RATES.-The trustee
shall not be personally liable for any increase in the tax
imposed by section 2601 which is attributable to the applica-
tion to the transfer of rates of tax which exceeds the rates of
tax furnished by the Secretary to the trustee as being the rates
at which the transfer may reasonably be expected to be taxed.
"(B) AMOUNT OF REMAINING EXCLUSION.-The trustee shall
not be personally liable for any increase in the tax imposed by
section 2601 which is attributable to the fact that-
(i) the amount furnished by the Secretary to the
trustee as being the amount of the exclusion for a trans-
fer to a grandchild of the grantor of the trust which may
reasonably be expected to remain with respect to the
deemed transferor, is less than
"(ii) the amount of such exclusion remaining with
respect to such deemed transferor.
"(3) LIMITATION ON PERSONAL LIABILITY OF DISTRIBUTEE.-The
distributee of the property shall be personally liable for the tax
imposed by section 2601 only to the extent of an amount equal to
the fair market value (determined as of the time of the distribu-
tion) of the property received by the distributee in the
distribution.
"(b) LIEN.-The tax imposed by section 2601 on any transfer shall
be a lien on the property transferred until the tax is paid in full or
becomes unenforceable by reason of lapse of time.
"Subchapter B-Definitions and Special Rules
"Sec. 2611. Generation-skipping transfer.
"Sec. 2612. Deemed transferor.
"Sec. 2613. Other definitions.
"Sec. 2614. Special rules.
"SEC. 2611. GENERATION-SKIPPING TRANSFER.
"(a) GENERATION-SKIPPING TRANSFER DEFINED.-For purposes of
this chapter, the terms 'generation-skipping transfer' and 'transfer'
mean any taxable distribution or taxable termination with respect to a
generation-skipping trust or trust equivalent.
(b) GENERATION-SKIPPING TRUST.-For purposes of this chapter,
the term 'generation-skipping trust' means any trust having younger
generation beneficiaries (within the meaning of section 2613(c) (1))
who are assigned to more than one generation.
"(c) ASCERTAINMENT OF GENERATION.-For purposes of this chapter,
the generation to which any person (other than the grantor) belongs
shall be determined in accordance with the following rules:
"(1) an individual who is a lineal descendent of a grandparent
of the grantor shall be assigned to that generation which results
from comparing the number of generations between the grandpar-
ent and such individual with the number of generations between
the grandparent and the grantor,
" (2) an individual who has been at any time married to a per-
son described in paragraph (1) shall be assigned to the generation
of the person SO described and an individual who has been at any
H.R. 10612-364
time married to the grantor shall be assigned to the grantor's
generation,
" (3) a relationship by the half blood shall be treated as a rela-
tionship by the whole blood,
(4) a relationship by legal adoption shall be treated as a rela-
tionship by blood,
(5) an individual who is not assigned to a generation by rea-
son of the foregoing paragraphs shall be assigned to a generation
on the basis of the date of such individual's birth, with-
"(A) an individual born not more than 121/2 years after
the date of the birth of the grantor assigned to the grantor's
generation,
(B) an individual born more than 121/2 years but not
more than 371/2 years after the date of the birth of the grantor
assigned to the first generation younger than the grantor, and
"(C) similar rules for a new generation every 25 years,
(6) an individual who, but for this paragraph, would be
assigned to more than one generation shall be assigned to the
youngest such generation, and
(7) if any beneficiary of the trust is an estate or a trust, part-
nership, corporation, or other entity (other than an organization
described in section 511 (a) (2) and other than a charitable trust
described in section 511(b) (2)), each individual having an
indirect interest or power in the trust through such entity shall be
treated as a beneficiary of the trust and shall be assigned to a gen-
eration under the foregoing provisions of this subsection.
"(d) GENERATION-SKIPPING TRUST EQUIVALENT.-
(1) IN GENERAL.-For purposes of this chapter, the term
'generation-skipping trust equivalent' means any arrangement
which, although not a trust, has substantially the same effect as a
generation-skipping trust.
"(2) EXAMPLES OF ARRANGEMENTS TO WHICH SUBSECTION
RELATES.-Arrangements to be taken into account. for purposes of
determining whether or not paragraph (1) applies include (but
are not limited to) arrangements involving life estates and
remainders, estates for years, insurance and annuities, and split
interests.
(3) REFERENCES TO TRUST INCLUDE REFERENCES TO TRUST EQUIV-
ALENTS.-Any reference in this chapter in respect of a generation-
skipping trust shall include the appropriate reference in respect
of a generation-skipping trust equivalent.
"SEC. 2612. DEEMED TRANSFEROR.
"(a) GENERAL RULE.-For purposes of this chapter, the deemed
transferor with respect to a transfer is-
"(1) except as provided in paragraph (2), the parent of the
transferee of the property who is more closely related to the
grantor of the trust than the other parent of such transferee (or
if neither parent is related to such grantor, the parent having a
closer affinity to the grantor), or
"(2) if the parent described in paragraph (1) is not a younger
generation beneficiary of the trust but 1 or more ancestors of the
transferee is a younger generation beneficiary related by blood or
adoption to the grantor of the trust, the youngest of such ancestors.
'(b) DETERMINATION OF RELATIONSHIP.-For purposes of subsection
(a), a parent related to the grantor of the trust by blood or adoption is
more closely related than a parent related to such grantor by
marriage.
H. R. 10612-365
"SEC. 2613. OTHER DEFINITIONS.
"(a) TAXABLE DISTRIBUTION.-For purposes of this chapter-
"(1) IN GENERAL-The term 'taxable distribution' means any
distribution which is not out of the income of the trust (within
the meaning of section 643 (b)) from a generation-skipping trust
to any younger generation beneficiary who is assigned to a genera-
tion younger than the generation assignment of any other person
who is a younger generation beneficiary. For purposes of the pre-
ceding sentence, an individual who at no time has had anything
other than a future interest or future power (or both) in the trust
shall not be considered as a younger generation beneficiary.
(2) SOURCE OF DISTRIBUTION.-If, during the taxable year of
the trust, there are distributions out of the income of the trust
(within the meaning of section 643 (b)) and out of other amounts,
for purposes of paragraph (1) the distributions of such income
shall be deemed to have been made to the beneficiaries (to the
extent of the aggregate distributions made to each such benefici-
ary during such year) in descending order of generations, begin-
ning with the beneficiaries assigned to the oldest generation.
"(3) PAYMENT OF TAX.-If any portion of the tax imposed by
this chapter with respect to any transfer is paid out of the income
or corpus of the trust, an amount equal to the portion SO paid
shall be deemed to be a generation-skipping transfer.
"(4) CERTAIN DISTRIBUTIONS EXCLUDED FROM TAX.-The term
'taxable distribution' does not include-
(A) any transfer to the extent such transfer is to a grand-
child of the grantor of the trust and does not exceed the
limitation provided by subsection (b) (6), and
((B) any transfer to the extent such transfer is subject to
tax imposed by chapter 11 or 12.
"(b) TAXABLE TERMINATION.-For purposes of this chapter—
'(1) IN GENERAL-The term 'taxable termination' means the
termination (by death, lapse of time, exercise or nonexercise, or
otherwise) of the interest or power in a generation-skipping trust
of any younger generation beneficiary who is assigned to any
generation older than the generation assignment of any other
person who is a younger generation beneficiary of that trust. Such
term does not include a termination of the interest or power of
any person who at no time has had anything other than a future
interest or future power (or both) in the trust.
'(2) TIME CERTAIN TERMINATIONS DEEMED TO OCCUR.-
(A) WHERE 2 OR MORE BENEFICIARIES ARE ASSIGNED TO
SAME GENERATION.-In any case where 2 or more younger
generation beneficiaries of a trust are assigned to the same
generation, except to the extent provided in regulations pre-
scribed by the Secretary, the transfer constituting the termi-
nation with respect to each such beneficiary shall be treated
as occurring at the time when the last such termination occurs.
'(B) SAME BENEFICIARY HAS MORE THAN 1 INTEREST OR
POWER.-In any case where a younger generation beneficiary
of a trust has both an interest and a power, or more than 1
interest or power, in the trust, except to the extent provided
in regulations prescribed by the Secretary, the termination
with respect to each such interest or power shall be treated as
occurring at the time when the last such termination occurs.
'(C) UNUSUAL ORDER OF TERMINATION.-
(i) IN GENERAL-If-
H. R. 10612-366
"(I) but for this subparagraph, there would have
been a termination (determined after the applica-
tion of subparagraphs (A) and (B)) of an interest
or power of a younger generation beneficiary (here-
inafter in this subparagraph referred to as the
'younger beneficiary'), and
(II) at the time such termination would have
occurred, a beneficiary (hereinafter in this subpara-
graph referred to as the 'older beneficiary') of the
trust assigned to a higher generation than the gener-
ation of the younger beneficiary has a present inter-
est or power in the trust,
then, except to the extent provided in regulations pre-
scribed by the Secretary, the transfer constituting the
termination with respect to the younger beneficiary shall
be treated as occurring at the time when the termination
of the last present interest or power of the older bene-
ficiary occurs.
"(ii) SPECIAL RULES.-If clause (i) applies with
respect to any younger béneficiary-
"(I) this chapter shall be applied first to the termi-
nation of the interest or power of the older bene-
ficiary as if such termination occurred before the
termination of the power or interest of the younger
beneficiary; and
'(II) the value of the property taken into account
for purposes of determining the tax (if any)
imposed by this chapter with respect to the termi-
nation of the interest or power of the younger bene-
ficiary shall be reduced by the tax (if any) imposed
by this chapter with respect to the termination of
the interest or power of the older beneficiary.
"(D) SPECIAL RULE.-Subparagraphs (A) and (C) shall
also apply where a person assigned to the same generation as,
or a higher generation than, the person whose power or inter-
est terminates has a present power or interest immediately
after the termination and such power or interest arises as a
result of such termination.
"(3) DEEMED TRANSFEREES OF CERTAIN TERMINATIONS.-Where,
at the time of any termination, it is not clear who will be the
transferee of any portion of the property transferred, except to
the extent provided in regulations prescribed by the Secretary,
such portion shall be deemed transferred pro rata to all benefi-
ciaries of the trust in accordance with the amount which each of
them would receive under a maximum exercise of discretion on
their behalf. For purposes of the preceding sentence, where it is
not clear whether discretion will be exercised per stirpes or per
capita, it shall be presumed that the discretion will be exercised
per stirpes.
"(4) TERMINATION OF POWER.-In the case of the termination of
any power, the property transferred shall be deemed to be the
property subject to the power immediately before the termination
(determined without the application of paragraph (2)).
(5) CERTAIN TERMINATIONS EXCLUDED FROM TAX.-The term
'taxable termination' does not include-
(A) any transfer to the extent such transfer is to a grand-
child of the grantor of the trust and does not exceed the
limitation provided by paragraph (6), and
H. R. 10612-367
"(B) any transfer to the extent such transfer is subject
to a tax imposed by chapter 11 or 12.
"(6) $250,000 LIMIT ON EXCLUSION OF TRANSFERS TO GRANDCHIL-
DREN.-In the case of any deemed transferor, the maximum
amount excluded from the terms 'taxable distribution' and 'tax-
able termination' by reason of provisions exempting from such
terms transfers to the grandchildren of the grantor of the trust
shall be $250,000. The preceding sentence shall be applied to
transfers from one or more trusts in the order in which such
transfers are made or deemed made.
"(7) COORDINATION WITH SUBSECTION (a).-
"(A) TERMINATIONS TAKE PRECEDENCE OVER DISTRIBU-
TIONS.-If-
"(i) the-death of an individual or any other occurrence
is a taxable termination with respect to any property,
and
" (ii) such occurrence also requires the distribution of
part or all of such property in a distribution which would
(but for this subparagraph) be a taxable distribution,
then a taxable distribution shall be deemed not to have
occurred with respect to the portion described in clause (i).
"(B) CERTAIN PRIOR TRANSFERS.-To the extent that-
(i) the deemed transferor in any prior transfer of
the property of the trust being transferred in this trans-
fer was assigned to the same generation as (or a lower
generation than) the generation assignment of the
deemed transferor in this transfer,
(ii) the transferee in such prior transfer was
assigned to the same generation as (or a higher generation
than) the generation assignment of the transferee in this
transfer, and
(iii) such transfers do not have the effect of avoiding
tax under this chapter with respect to any transfer,
the terms 'taxable termination' and 'taxable distribution' do
not include this later transfer.
"(c) YOUNGER GENERATION BENEFICIARY; BENEFICIARY.-For pur-
poses of this chapter—
"(1) YOUNGER GENERATION BENEFICIARY.-The term 'younger
generation beneficiary' means any beneficiary who is assigned to a
generation younger than the grantor's generation.
(2) TIME FOR ASCERTAINING YOUNGER GENERATION BENEFI-
CIARIES.-A person is a younger generation beneficiary of a trust
with respect to any transfer only if such person was a younger
generation beneficiary of the trust immediately before the trans-
fer (or, in the case of a series of related transfers, only if such
person was a younger generation beneficiary of the trust imme-
diately before the first of such transfers).
"(3) BENEFICIARY.-The term 'beneficiary' means any person
who has a present or future interest or power in the trust.
"(d) INTEREST OR POWER-For purposes of this chapter-
(1) INTEREST.-A person has an interest in a trust if such
person-
"(A) has a right to receive income or corpus from the
trust, or
((B) is a permissible recipient of such income or corpus.
"(2) Power-The term 'power' means any power to establish
or alter beneficial enjoyment of the corpus or income of the trust.
H. R. 10612-368
"(e) LIMITED POWER To APPOINT AMONG LINEAL DESCENDANTS OF
GRANTOR Nor TAKEN INTO ACCOUNT IN CERTAIN CASES.-For purposes
of this chapter, if any individual does not have any present or future
power in the trust other than a power to dispose of the corpus of the
trust or the income therefrom to a beneficiary or a class of beneficiaries
who are lineal descendants of the grantor assigned to a generation
younger than the generation assignment of such individual, then such
individual shall be treated as not having any power in the trust.
(f) EFFECT OF ADOPTION.-For purposes of this chapter, a relation-
ship by legal adoption shall be treated as a relationship by blood.
"SEC. 2614. SPECIAL RULES.
(a) BASIS ADJUSTMENT.-If property is transferred to any person
pursuant to a generation-skipping transfer which occurs before the
death of the deemed transferor, the basis of such property in the
hands of the transferee shall be increased (but not above the fair
market value of such property) by an amount equal to that portion of
the tax imposed by section 2601 with respect to the transfer which is
attributable to the excess of the fair market value of such property
over its adjusted basis immediately before the transfer. If property
is transferred in a generation-skipping transfer subject to tax under
this chapter which occurs at the same time as, or after, the death of
the deemed transferor, the basis of such property shall be adjusted in
a manner similar to the manner provided by section 1023 without
regard to subsection (d) thereof (relating to basis of property passing
from a decedent dying after December 31, 1976).
(b) NONRESIDENTS Nor CITIZENS OF THE UNITED STATES.-If the
deemed transferor of any transfer is, at the time of the transfer, a
nonresident not a citizen of the United States and-
"(1) if the deemed transferor is alive at the time of the trans-
fer, there shall be taken into account only property which would
be taken into account for purposes of chapter 12, or
"(2) if the deemed transferor has died at the same time as, or
before, the transfer, there shall be taken into account only prop-
erty which would be taken into account for purposes of chapter 11.
(c) DISCLAIMERS.-
"For provisions relating to the effect of a qualified disclaimer for pur-
poses of this chapter, see section 2518.
"Subchapter C-Administration
"Sec. 2621. Administration.
"Sec. 2622. Regulations.
"SEC. 2621. ADMINISTRATION.
(a) GENERAL RULE.-Insofar as applicable and not inconsistent
with the provisions of this chapter-
"(1) if the deemed transferor is not alive at the time of the
transfer, all provisions of subtitle F (including penalties) appli-
cable to chapter 11 or section 2001 are hereby made applicable in
respect of this chapter or section 2601, as the case may be, and
(2) if the deemed transferor is alive at the time of the trans-
fer, all provisions of subtitle F (including penalties) applicable
to chapter 12 or section 2501 are hereby made applicable in respect
of this chapter or section 2601, as the case may be.
(b) SECTIONS 6166 AND 6166A NoT APPLICABLE.-For purposes of
this chapter, sections 6166 and 6166A (relating to extensions of time
H.R. 10612-369
for payment of estate tax where estate consists largely of interest in
closely held business) shall not apply.
(c) RETURN REQUIREMENTS.-
"(1) IN GENERAL.-The Secretary shall prescribe by regulations
the person who is required to make the return with respect to
i
the tax imposed by this chapter and the time by which any such
return must be filed. To the extent practicable, such regulations
shall provide that-
(A) the person who is required to make such return
shall be-
(i) in the case of a taxable distribution, the dis-
tributee, or
(ii) in the case of a taxable termination, the trustee;
and
(B) the return shall be filed-
(i) in the case of a generation-skipping transfer
occurring before the death of the deemed transferor, on
or before the 90th day after the close of the taxable
year of the trust in which such transfer occurred, or
(ii) in the case of a generation-skipping transfer
occurring at the same time as, or after, the death of
the deemed transferor, on or before the 90th day after the
last day prescribed by law (including extensions) for
filing the return of tax under chapter 11 with respect
to the estate of the deemed transferor (or if later, the
day which is 9 months after the day on which such
generation-skipping transfer occurred).
(2) INFORMATION RETURNS.-The Secretary may by regulations
require the trustee to furnish the Secretary with such informa-
tion as he determines to be necessary for purposes of this
chapter.
"SEC. 2622. REGULATIONS.
"The Secretary shall prescribe such regulations as may be necessary
or appropriate to carry out the purposes of this chapter, including
regulations providing the extent to which substantially separate and
independent shares of different beneficiaries in the trust shall be
treated as separate trusts."
(b) TECHNICAL, CLERICAL, AND CONFORMING CHANGES.-
(1) CLERICAL CHANGE.-The table of chapters for subtitle B is
amended by adding at the end thereof the following new item
"CHAPTER 13. Tax on certain generation-skipping transfers."
(2) CREDIT FOR TAX ON PRIOR TRANSFERS.-Section 2013 (relating
to credit for tax on prior transfers) is amended by adding at the
end thereof the following new subsection:
(g) TREATMENT OF Tax IMPOSED ON CERTAIN GENERATION-SKIPPING
TRANSFERS.-If any property was transferred to the decedent in a
transfer which is taxable under section 2601 (relating to tax imposed
on generation-skipping transfers) and if the deemed transferor (as
defined in section 2612) is not alive at the time of such transfer, for
purposes of this section-
"(1) such property shall be deemed to have passed to the de-
cedent from the deemed transferor;
"(2) the tax payable under section 2601 on such transfer shall
be treated as a Federal estate tax payable with respect to the es-
tate of the deemed transferor; and
H. R. 10612-370
'(3) the amount of the taxable estate of the deemed transferor
shall be increased by the value of such property as determined
for purposes of the tax imposed by section 2601 on the transfer."
(3) INCOME IN RESPECT OF A DECEDENT.-Subsection (c) of sec-
tion 691 (relating to deduction for estate tax) is amended by
adding at the end thereof the following new paragraph:
(3) SPECIAL RULE FOR GENERATION-SKIPPING TRANSFERS.-For -
purposes of this section-
'(A) the tax imposed by section 2601 or any State inherit-
ance tax described in section 2602 (c) (5) (C) on any genera-
tion-skipping transfer shall be treated as a tax imposed by
section 2001 on the estate of the deemed transferor (as defined
in section 2612 (a) ;
" (B) any property transferred in such a transfer shall be
treated as if it were included in the gross estate of the deemed
transferor at the value of such property taken into account
for purposes of the tax imposed by section 2601; and
" (C) under regulations prescribed by the secretary, any
item of gross income subject to the tax imposed under sec-
tion 2601 shall be treated as income described in subsec-
tion (a) if such item is not properly includible in the gross
income of the trust on or before the date of the generation-
skipping transfer (within the meaning of section 2611 (a)
and if such transfer occurs at or after the death of the deemed
tranferor (as so defined)."
(4) SPECIAL RULES FOR GENERATION-SKIPPING TRANSFERS.-
Section 303 is amended by adding at the end thereof the following
new subsection:
"(d) SPECIAL RULES FOR GENERATION-SKIPPING TRANSFERS.-Under
regulations prescribed by the Secretary, where stock in a corporation
is subject to tax under section 2601 as a result of a generation-skipping
transfer (within the meaning of section 2611 (a) which occurs at or
after the death of the deemed transferor (within the meaning of
section 2612)
"(1) the stock shall be deemed to be included in the gross estate
of the deemed transferor;
"(2) taxes of the kind referred to in subsection (a) (1) which
are imposed because of the generation-skipping transfer shall be
treated as imposed because of the deemed transferor's death (and
for this purpose the tax imposed by section 2601 shall be treated
as an estate tax) ;
"(3) the period of distribution shall be measured from the date
of the generation-skipping transfer; and
"(4) the relationship of stock to the decedent's estate shall be
measured with reference solely to the amount of the generation-
skipping transfer."
(c) EFFECTIVE DATES.-
(1) IN GENERAL.-Except as provided in paragraph (2), the
amendments made by this section shall apply to any generation-
skipping transfer (within the meaning of section 2611 (a) of the
Internal Revenue Code of 1954) made after April 30, 1976.
(2) EXCEPTIONS.-The amendments made by this section shall
not apply to any generation-skipping transfer-
(A) under a trust which was irrevocable on April 30, 1976,
but only to the extent that the transfer is not made out of
corpus added to the trust after April 30, 1976, or
H. R. 10612-371
(B) in the case of a decedent dying before January 1, 1982,
pursuant to a will (or revocable trust) which was in existence
on April 30, 1976, and was not amended at any time after
that date in any respect which will result in the creation of, or
increasing the amount of, any generation-skipping transfer.
For purposes of subparagraph (B), if the decedent on April 30,-
1976, was under a mental disability to change the disposition of
his property, the period set forth in such subparagraph shall not
expire before the date which is 2 years after the date on which
he first regains his competence to dispose of such property.
(3) TRUST EQUIVALENTS.-For purposes of paragraph (2), in
the case of a trust equivalent within the meaning of subsection (d)
of section 2611 of the Internal Revenue Code of 1954, the provi-
sions of such subsection (d) shall apply.
SEC. 2007. ORPHANS' EXCLUSION.
(a) GENERAL RULE.-Part IV of subchapter A of chapter 11 (relat-
ing to taxable estate) is amended by adding at the end thereof the
following new section:
"SEC. 2057. BEQUESTS, ETC., TO CERTAIN MINOR CHILDREN.
"(a) ALLOWANCE OF DEDUCTION.-For purposes of the tax imposed
by section 2001, if-
"(1) the decedent does not have a surviving spouse, and
"(2) the decedent is survived by a minor child who, immediately
after the death of the decedent, has no known parent,
then the value of the taxable estate shall be determined by deducting
from the value of the gross estate an amount equal to the value of any
interest in property which passes or has passed from the decedent to
such child, but only to the extent that such interest is included in deter-
mining the value of the gross estate.
(b) LIMITATION.-The aggregate amount of the deductions allowed
under this section (computed without regard to this subsection)
with respect to interests in property passing to any minor child shall
not exceed an amount equal to $5,000 multiplied by the excess of 21
over the age (in years) which such child has attained on the date of
the decedent's death.
(c) LIMITATION IN THE CASE OF LIFE ESTATE OR OTHER TERMINABLE
INTEREST.-A deduction shall be allowed under this section with
respect to any interest in property passing to a minor child only to the
extent that a deduction would have been allowable under section
2056(b) if such interest had passed to a surviving spouse of the dece-
dent. For purposes of this subsection, an interest shall not be treated
as terminable solely because the property will pass to another person
if the child dies before the youngest child of the decedent attains
age 21.
(d) DEFINITIONS.-For purposes of this section-
(1) MINOR CHILD.-The term 'minor child' means any child
of the decedent who has not attained the age of 21 before the
date of the decedent's death.
(2) ADOPTED CHILDREN.-A relationship by legal adoption
shall be treated as replacing a relationship by blood.
(3) PROPERTY PASSING FROM THE DECEDENT.-The determina-
tion of whether an interest in property passes from the decedent
to any person shall be made in accordance with section 2056 (d)
(b) CLERICAL AMENDMENT.-The table of sections for part IV of
H. R. 10612-372
subchapter A of chapter 11 is amended by adding at the end thereof
the following new item:
"Sec. 2057. Bequests, etc., to certain minor children."
(c) EFFECTIVE DATE.-The amendments made by this section shall
apply to the estates of decedents dying after December 31, 1976.
SEC. 2008. ADMINISTRATIVE CHANGES.
(a) FURNISHING OF STATEMENT EXPLAINING ESTATE OR GIFT
VALUATION.-
(1) IN GENERAL-Chapter 77 (relating to miscellaneous pro-
visions) is amended by adding at the end thereof the following
new section:
"SEC. 7517. FURNISHING ON REQUEST OF STATEMENT EXPLAINING
ESTATE OR GIFT VALUATION.
(a) GENERAL RULE.-If the Secretary makes a determination or
a proposed determination of the value of an item of property for
purposes of the tax imposed under chapter 11, 12, or 13, he shall
furnish, on the written request of the executor, donor, or the person
required to make the return of the tax imposed by chapter 13 (as the
case may be), to such executor, donor, or person a written statement
containing the material required by subsection (b). Such statement
shall be furnished not later than 45 days after the later of the date of
such request or the date of such determination or proposed
determination.
(b) CONTENTS OF STATEMENT.-A statement required to be fur-
nished under subsection (a) with respect to the value of an item of
property shall-
"(1) explain the basis on which the valuation was determined
or proposed,
(2) set forth any computation used in arriving at such value,
and
" (3) contain a copy of any expert appraisal made by or for
the Secretary.
(c) EFFECT OF STATEMENT.-Except to the extent otherwise pro-
vided by law, the value determined or proposed by the Secretary with
respect to which a statement is furnished under this section, and the
method used in arriving at such value, shall not be binding on the
Secretary."
(2) CONFORMING AND CLERICAL AMENDMENTS.-
(A) Section 2031 (defining gross estate) is amended by
adding at the end thereof the following new subsection:
" (c) CROSS REFERENCE.-
"For executor's right to be furnished on request a statement regard-
ing any valuation made by the Secretary within the gross estate, see
section 7517."
(B) Section 2512 (relating to valuation of gifts) is
amended by adding at the end thereof the following new
subsection
(c) CROSS REFERENCE.-
"For individual's right to be furnished on request a statement regard-
ing any valuation made by the Secretary of a gift by that individual,
see section 7517."
(C) The table of sections for chapter 77 is amended by
adding at the end thereof the following:
"Sec. 7517. Furnishing on request of statement explaining estate or
gift valuation."
H. R. 10612-373
(b) SPECIAL RULE FOR FILING RETURNS WHERE GIFTS IN CALENDAR
QUARTER TOTAL $25,000 OR Less.-Subsection (b) of section 6075
relating to gift tax returns) is amended to read as follows:
(b) GIFT Tax RETURNS.-
(1) GENERAL RULE.-Except as provided in paragraph (2),
returns made under section 6019 (relating to gift taxes) shall be
filed on or before the 15th day of the second month following the
close of the calendar quarter.
" (2) SPECIAL RULE WHERE GIFTS IN A CALENDAR QUARTER TOTAL
$25,000 OR LESS.-If the total amount of taxable gifts made by a
person during a calendar quarter is $25,000 or less, the return
under section 6019 for such quarter shall be filed on or before the
15th day of the second month after-
(A) the close of the first subsequent calendar quarter in
the calendar year in which the sum of-
"(i) the taxable gifts made during such subsequent
quarter, plus
'(ii) all other taxable gifts made during the calendar
year and for which a return has not yet been required to
be filed under this subsection,
exceeds $25,000, or
(B) if a return is not required to be filed under sub-
paragraph (A), the close of the fourth calendar quarter of
the calendar year.
'(3) NONRESIDENTS NOT CITIZENS OF THE UNITED STATES.-In the
case of a nonresident not a citizen of the United States, paragraph
(2) shall be applied by substituting '$12,500' for '$25,000' each
place it appears."
(c) PUBLIC INDEX OF FILED TAX LIENS.-
(1) INITIAL FILING OF NOTICE.-
(A) Section 6323(f) (relating to filing of notice of lien)
is amended by adding at the end thereof the following new
paragraph:
'(4) INDEX.-The notice of lien referred to in subsection (a)
shall not be treated as meeting the filing requirements under para-
graph (1) unless the fact of filing is entered and recorded in a
public index at the district office of the Internal Revenue Service
for the district in which the property subject to the lien is
situated."
(B) Paragraph (2) of section 6323 (f) is amended by strik-
ing out "paragraph (1)" and inserting in lieu thereof "para-
graphs (1) and (4)".
(2) REFILING OF NOTICE.Section 6323 (g) (2) (A) (relating to
refiling of notice of lien) is amended to read as follows:
" (A) if such notice of lien is refiled in the office in which
the prior notice of lien was filed and the fact of refiling is
entered and recorded in an index in accordance with subsec-
tion (f) (4) ; and
(d) EFFECTIVE DATES.-
(1) The amendments made by subsection (a)-
(A) insofar as they relate to the tax imposed under chapter
11 of the Internal Revenue Code of 1954, shall apply to the
estates of decedents dying after December 31, 1976, and
(B) insofar as they relate to the tax imposed under chap-
ter 12 of such Code, shall apply to gifts made after Decem-
ber 31, 1976.
H. R. 10612-374
(2) The amendment made by subsection (b) shall apply to gifts
made after December 31, 1976.
(3) The amendment made by subsection (c) shall take effect-
(A) in the case of liens filed before the date of the enact-
ment of this Act, on the 270th day after such date of enact-
ment, or
(B) in the case of liens filed on or after the date of
enactment of this Act, on the 120th day after such date
of enactment.
SEC. 2009. MISCELLANEOUS PROVISIONS.
(a) INCLUSION OF STOCK IN DECEDENT'S ESTATE WHERE DECEDENT
RETAINED VOTING RIGHTs.-Subsection (a) of section 2036 (relating to
transfer with retained life estate) is amended by adding at the end
thereof the following new sentence:
"For purposes of paragraph (1), the retention of voting rights in
retained stock shall be considered to be a retention of the enjoyment
of such stock."
(b) DISCLAIMERS.-
(1) AMENDMENT OF GIFT TAX PROVISIONS.-Subchapter B of
chapter 12 (relating to transfers for purposes of the gift tax) is
amended by adding at the end thereof the following new section:
"SEC. 2518. DISCLAIMERS.
(a) GENERAL RULE.-For purposes of this subtitle, if a person
makes a qualified disclaimer with respect to any interest in property,
this subtitle shall apply with respect to such interest as if the interest
had never been transferred to such person.
(b) QUALIFIED DISCLAIMER DEFINED.-For purposes of subsection
(a), the term 'qualified disclaimer' means an irrevocable and unquali-
fied refusal by a person to accept an interest in property but only if-
"(1) such refusal is in writing,
(2) such writing is received by the transferor of the interest,
his legal representative, or the holder of the legal title to the
property to which the interest relates not later than the date
which is 9 months after the later of-
" (A) the day on which the transfer creating the interest in
such person is made, or
"(B) the day on which such person attains age 21,
(3) such person has not accepted the interest or any of its
benefits, and
"(4) as a result of such refusal, the interest passes to a person
other than the person making the disclaimer (without any direc-
tion on the part of the person making the disclaimer).
(c) OTHER RULES.--For purposes of subsection (a)-
"(1) DISCLAIMER OF UNDIVIDED PORTION OF INTEREST.-A dis-
claimer with respect to an undivided portion of an interest which
meets the requirements of the preceding sentence shall be treated
as a qualified disclaimer of such portion of the interest.
(2) POWERS.-A power with respect to property shall be
treated as an interest in such property."
(2) AMENDMENT OF ESTATE TAX PROVISIONS.-Part III of sub-
chapter A of chapter 11 (relating to gross estate) is amended by
adding at the end thereof the following new section:
H. R. 10612-375
"SEC. 2045. DISCLAIMERS.
"For provisions relating to the effect of a qualified disclaimer for
purposes of this chapter, see section 2518."
(3) CLERICAL AMENDMENTS.-
(A) The table of sections for subchapter B of chapter 12 is-
amended by adding at the end thereof the following:
"Sec. 2518. Disclaimers."
(B) The table of sections for part III of subchapter A of
chapter 11 is amended by adding at the end thereof the
following:
"Sec. 2045. Disclaimers."
(4) TECHNICAL AND CONFORMING CHANGES.-
(A) Paragraph (2) of section 2041 (a) (relating to release
of general powers of appointment) is amended by striking
out the second sentence thereof.
(B) The first sentence of subsection (a) of section 2055
(relating to transfers for public, charitable, and religious
uses) is amended by striking out ((including the interest
which falls into any such bequest, legacy, devise, or transfer
as a result of an irrevocable disclaimer of a bequest, legacy,
devise, transfer, or power, if the disclaimer is made before
the date prescribed for the filing of the estate tax return)".
(C) The second sentence of subsection (a) of section 2055
is amended-
(i) by striking out "an irrevocable" and inserting in
lieu thereof "a qualified", and
(ii) by striking out "such irrevocable" and inserting in
lieu thereof "such qualified".
(D) Section 2056 (relating to bequests, etc., to surviving
spouse) is amended by striking out subsection (d) and by
redesignating subsection (e) as subsection (d).
(E) Subsection (a) of section 2056 is amended by strik-
ing out "subsections (b), (c), and (d)" and inserting in
lieu thereof "subsections (b) and (c)".
(F) Subsection (b) of section 2514 (relating to powers
of appointment for purposes of the gift tax) is amended
by striking out the second sentence thereof.
(c) CERTAIN RETIREMENT BENEFITS.—
(1) EXCLUSION FROM GROSS ESTATE OF INDIVIDUAL RETIREMENT
ACCOUNTS, ETC.-Section 2039 (relating to annuities) is amended
by adding at the end thereof the following new subsection:
" (e) EXCLUSION OF INDIVIDUAL RETIREMENT ACCOUNTS, ETc.-Not-
withstanding the provisions of this section or of any other provision
of law, there shall be excluded from the value of the gross estate the
value of an annuity receivable by any beneficiary (other than the
executor) under-
(1) an individual retirement account described in section
408(a),
" (2) an individual retirement annuity described in section
408(b), or
"(3) a retirement bond described in section 409 (a).
If any payment to an account described in paragraph (1) or for an
annuity described in paragraph (2) or a bond described in paragraph
H. R. 10612-376
(3) was not allowable as a deduction under section 219 and was not a
rollover contribution described in section 402 (a) (5), 403 (a) (4), 408
(d) (3), or 409 (b) (3) (C), the preceding sentence shall not apply to
that portion of the value of the amount receivable under such account,
annuity, or bond (as the case may be) which bears the same ratio to
the total value of the amount SO receivable as the total amount which
was paid to or for such account, annuity, or bond and which was not
allowable as a deduction under section 219 and was not such a rollover
contribution bears to the total amount paid to or for such account,
annuity, or bond. For purposes of this subsection, the term 'annuity'
means an annuity contract or other arrangement providing for a series
of substantially equal periodic payments to be made to a beneficiary
(other than the executor) for his life or over a period extending for
at least 36 months after the date of the decedent's death."
(2) EXCLUSION FROM GROSS ESTATE OF SELF-EMPLOYED PLANS.-
The fifth sentence of section 2039 (c) (relating to exemption of
annuities under certain trusts and plans) is amended to read as
follows: "For purposes of this subsection, contributions or pay-
ments on behalf of the decedent while he was an employee
within the meaning of section 401 (c) (1) made under a trust or
plan described in paragraph (1) or (2) shall, to the extent allow-
able as a deduction under section 404, be considered to be made
by a person other than the decedent and, to the extent not SO
allowable, shall be considered to be made by the decedent."
(3) EXCLUSION INAPPLICABLE IN CASE OF LUMP SUM DISTRIBU-
TIONS.-The first sentence of subsection (c) of section 2039 (relat-
ing to exemption of annuities under certain trusts and plans) is
amended by striking out "other payment receivable by any bene-
ficiary" and inserting in lieu thereof "other payment (other than
a lump sum distribution described in section 402 (4), deter-
mined without regard to the next to the last sentence of section
402(e) (4) (A)) receivable by any beneficiary".
(4) GIFT TAX TREATMENT OF ELECTIONS UNDER CERTAIN RETIRE-
MENT PLANS.-
(A) INDIVIDUAL RETIREMENT ACCOUNTS, ETC.-
(i) Subsection (a) of section 2517 (relating to certain
annuities under qualified plans) is amended by striking
out "or" at the end of paragraph (3), by striking out
the period at the end of paragraph (4) and inserting
in lieu thereof or", and by inserting after paragraph
(4) the following new paragraph:
" (5) an individual retirement account described in section 408
(a) an individual retirement annuity described in section 408
(b), or a retirement bond described in section 409 (a)
(ii) Subsection (b) of section 2517 (relating to trans-
fers attributable to employee contributions) is amended
by striking out "other than paragraph (4) and insert-
ing in lieu thereof "other than paragraphs (4) and (5)".
(iii) Subsection (c) of section 2517 (defining em-
ployee) is amended by adding at the end thereof the
following new sentence: "In the case of a retirement
plan described in paragraph (5) of subsection (a), such
term means the individual for whose benefit the plan
was established."
(B) SELF-EMPLOYED PLANS.-The last sentence of section
2517 (b) (relating to transfers attributable to employee con-
H. R. 10612-377
tributions) is amended to read as follows: "For purposes of
this subsection, contributions or payments on behalf of an
individual while he was an employee within the meaning of
section 401 (c) (1) made under a trust or plan described in
paragraph (1) or (2) of subsection (a) shall, to the extent
allowable as a deduction under section 404, be considered to
be made by a person other than such individual and, to the
extent not SO allowable, shall be considered to be made by
such individual."
(5) GIFT TAX TREATMENT OF CERTAIN COMMUNITY PROPERTY.-
Section 2517 (relating to certain annuities under qualified plans)
is amended by redesignating subsection (c) (as amended by para-
graph (4) (A) (iii)) as subsection (d) and by inserting after sub-
section (b) the following new subsection:
"(c) EXEMPTION OF CERTAIN ANNUITY INTERESTS CREATED BY Com-
MUNITY PROPERTY Lws.-Notwithstanding any other provision of
law, in the case of an employee on whose behalf contributions or pay-
ments are made-
"(1) by his employer or former employer under a trust or plan
described in paragraph (1) or (2) of subsection (a), or toward
the purchase of a contract described in paragraph (3) of subsec-
tion (a), which under subsection (b) are not considered as con-
tributed by the employee, or
"(2) by the employee to a retirement plan described in para-
graph (5) of subsection (a),
a transfer of benefits attributable to such contributions or payments
shall, for purposes of this chapter, not be considered as a transfer by
the spouse of the employee to the extent that the value of any interest
of such spouse in such contributions or payments or in such trust or
plan or such contract-
"(A) is attributable to such contribution or payments, and
(B) arises solely by reason of such spouse's interest in
community income under the community property laws of
the State.'
(d) INCOME Tax TREATMENT OF CERTAIN EXPENSES OF ESTATE-Sec-
tion 642 (g) (relating to disallowance of double deductions) is
amended by inserting after "shall not be allowed as a deduction" the
following: (or as an offset against the sales price of property in
determining gain or loss)"
(e) EFFECTIVE DATES.-
(1) FOR SUBSECTION amendment made by subsection
(a) shall apply to transfers made after June 22, 1976.
(2) FOR SUBSECTION (b).-The amendments made by subsection
(b) shall apply with respect to transfers creating an interest in
the person disclaiming made after December 31, 1976.
(3) FOR SUBSECTION (c).-
(A) The amendments made by paragraphs (1), (2), and
(3) of subsection (c) shall apply to the estates of decedents
dying after December 31, 1976.
(B) The amendments made by paragraphs (4) and (5) of
subsection (c) shall apply to transfers made after Decem-
ber 31, 1976.
(4) FOR SUBSECTION (d) amendment made by subsection
(d) shall apply to taxable years ending after the date of the enact-
ment of this Act.
H. R. 10612-378
SEC. 2010. CREDIT AGAINST CERTAIN ESTATE TAXES
(a) IN GENERAL.-Subject to the provisions of subsections (b), (c),
and (d), credit against the tax imposed by chapter 11 of the Internal
Revenue Code of 1954 (relating to estate tax) with respect to the estate
of La Vere Redfield shall be allowed by the Secretary of the Treasury
or his delegate for the conveyance of real property located within the
boundaries of the Toiyabe National Forest.
(b) AMOUNT OF CREDIT.-The amount treated as a credit shall be
equal to the fair market value of the real property transferred as of
the valuation date used for purposes of the tax imposed (and interest
thereon) by chapter 11 of the Internal Revenue Code of 1954.
(c) DEED REQUIREMENTS.-The provisions of this section shall apply
only if the executrixes of the estate execute a deed (in accordance with
the laws of the State in which such real estate is situated) transferring
title to the United States which is satisfactory to the Attorney General
or his designee.
(d) ACCEPTANCE AS NATIONAL FOREST.-The provisions of this sec-
tion shall apply only if the real property transferred is accepted by
the Secretary of Agriculture and added to the Toiyabe National
Forest. The lands shall be transferred to the Secretary of Agriculture
without reimbursement or payment from the Department of
Agriculture.
(e) INTEREST.-Unless the Secretary of Agriculture determines and
certifies to the Secretary of the Treasury that there has been an
expeditious transfer of the real property under this section, no interest
payable with respect to the tax imposed by chapter 11 of the Internal
Revenue Code of 1954 shall be deemed to be waived by reason of the
provisions of this section for any period before the date of such
transfer.
(f) EFFECTIVE DATE.-The provisions of this section shall be effec-
tive on the date of the enactment of this Act.
TITLE XXI-MISCELLANEOUS
PROVISIONS
SEC. 2101. TAX TREATMENT OF CERTAIN HOUSING ASSOCIATIONS.
(a) GENERAL RULE.-Subchapter F of chapter 1 (relating to exempt
organizations) is amended by adding at the end thereof the following
new part:
"PART VII-CERTAIN HOMEOWNERS ASSOCIATIONS
"Sec. 528. Certain homeowners associations.
"SEC. 528. CERTAIN HOMEOWNERS ASSOCIATIONS.
(a) GENERAL RULE.-A homeowners association (as defined in sub-
section (c)) shall be subject to taxation under this subtitle only to the
extent provided in this section. A homeowners association shall be con-
sidered an organization exempt from income taxes for the purpose of
any law which refers to organizations exempt from income taxes.
" (b) Tax IMPOSED.-
(1) IN GENERAL.-A tax is hereby imposed for each taxable
year on the homeowners association taxable income of every
homeowners association. Such tax shall consist of a normal tax
and surtax computed as provided in section 11 as though the
homeowners association were a corporation and as though the
H. R. 10612-379
homeowners association taxable income were the taxable income
referred to in section 11. For purposes of this subsection, the sur-
tax exemption provided by section 11(d) shall not be allowed.
" (2) ALTERNATIVE TAX IN CASE OF CAPITAL GAINS.-If for any
taxable year any homeowners association has a net capital gain,
then in lieu of the tax imposed by paragraph (1), there is hereby
imposed a tax (if such tax is less that the tax imposed by para-
graph (1)) which shall consist of the sum of-
(A) a partial tax, computed as provided by paragraph
(1), on the homeowners association taxable income deter-
mined by reducing such income by the amount of such gain,
and
"(B) a tax of 30 percent of such gain.
'(c) HOMEOWNERS ASSOCIATION DEFINED.-For purposes of this
section-
"(1) HOMEOWNERS ASSOCIATION.-The term 'homeowners associa-
tion means an organization which is a condominium management
association or a residential real estate management association
if-
"(A) such organization is organized and operated to pro-
vide for the acquisition, construction, management, mainte-
nance, and care of association property,
'(B) 60 percent or more of the gross income of such
organization for the taxable year consists solely of amounts
received as membership dues, fees, or assessments from-
(i) owners of residential units in the case of a con-
dominium management association, or
(ii) owners of residences or residential lots in the case
of a residential real estate management association.
(C) 90 percent or more of the expenditures of the organi-
zation for the taxable year are expenditures for the acquisi-
tion, construction, management, maintenance, and care of
association property,
"(D) no part of the net earnings of such organization
inures (other than by acquiring, constructing, or providing
management, maintenance, and care of association property,
and other than by a rebate of excess membership dues, fees,
or assessments) to the benefit of any private shareholder or
individual, and
'(E) such organization elects (at such time and in such
manner as the Secretary by regulations prescribes) to have
this section apply for the taxable year.
"(2) CONDOMINIUM MANAGEMENT ASSOCIATION.-The term 'con-
dominium management association' means any organization
meeting the requirement of subparagraph (A) of paragraph (1)
with respect to a condominium project substantially all of the units
of which are used as residences.
"(3) RESIDENTIAL REAL ESTATE MANAGEMENT ASSOCIATION.-The
term 'residential real estate management association' means any
organization meeting the requirements of subparagraph (A) of
paragraph (1) with respect to a subdivision, development, or sim-
ilar area substantially all the lots or buildings of which may only
be used by individuals for residences.
"(4) ASSOCIATION PROPERTY.-The term 'association property'
means-
"(A) property held by the organization,
H. R. 10612-380
"(B) property commonly held by the members of the
organization,
(C) property within the organization privately held by
the members of the organization, and
"(D) property owned by a governmental unit and used for._
the benefit of residents of such unit.
"(d) HOMEOWNERS ASSOCIATION TAXABLE INCOME DEFINED.-
(1) TAXABLE INCOME DEFINED.-For purposes of this section,
the homeowners association taxable income of any organization
for any taxable year is an amount equal to the excess (if any)
of-
"(A) the gross income for the taxable year (excluding any
exempt function income), over
"(B) the deductions allowed by this chapter which are
directly connected with the production of the gross income
(excluding exempt function income), computed with the
modifications provided in paragraph (2).
" (2) MODIFICATIONS.-For purposes of this subsection-
(A) there shall be allowed a specific deduction of $100,
"(B) no net operating loss deduction shall be allowed under
section 172, and
(C) no deduction shall be allowed under part VIII of
subchapter B (relating to special deductions for corpora-
tions).
(3) EXEMPT FUNCTION INCOME.-For purposes of this subsec-
tion, the term 'exempt function income' means any amount received
as membership dues, fees, or assessments from-
"(A) owners of condominium housing units in the case
of a condominium management association, or
'(B) owners of real property in the case of a residential
real estate management association."
(b) Section 216(c) (relating to treatment of property subject to
depreciation) is amended by adding at the end thereof the following
new sentence: "The preceding sentence shall not be construed to limit
or deny a deduction for depreciation under 167 (a) by a cooperative
housing corporation with respect to property owned by such a cor-
poration and leased to tenant-stockholders."
(c) REQUIREMENT OF RETURN.-Section 6012 (a) (relating to persons
required to make returns of income) is amended by striking out "and"
at the end of paragraph (5), by inserting "and" at the end of para-
graph (6), and by inserting after paragraph (6) the following new
paragraph:
"(7) Every homeowners association (within the meaning of
section 528 (c) (1)) which has homeowners association taxable
income (within the meaning of section 528(d)) for the taxable
year."
(d) CLERICAL AMENDMENT.-The table of parts for subchapter F of
chapter 1 is amended by adding at the end thereof the following new
item:
"Part VII. Certain homeowners associations."
(e) EFFECTIVE DATE.-Except as provided in subsection (f) (2), the
amendments made by this section shall apply to taxable years begin-
ning after December 31, 1973.
(f) CERTAIN STOCK OF COOPERATIVE HOUSING CORPORATIONS.-
(1) Section 216(b) is amended by adding at the end thereof the
following new paragraph:
H. R. 10612-381
"(5) STOCK ACQUIRED THROUGH FORECLOSURE BY LENDING INSTI-
TUTION.-If a bank or other lending institution acquires by fore-
closure (or by instrument in lieu of foreclosure) the stock of a
tenant-stockholder, and a lease CT the right to occupy an apart-
ment or house to which such stock is appurtenant, such bank or
other lending institution shall be treated as a tenant-stockholder
for a period not to exceed three years from the date of acquisition.
The preceding sentence shall apply even though, by agreement
with the cooperative housing corporation, the bank (or other
lending institution) or its nominee may not occupy the house or
apartment without the prior approval of such corporation."
(2) The amendment made by paragraph (1) shall apply to
stock acquired by banks or other lending institutions after the
date of the enactment of this Act.
SEC. 2102. TREATMENT OF CERTAIN DISASTER PAYMENTS.
(a) GENERAL RULE.-Subsection (d) of section 451 (relating to
special rule for crop insurance proceeds) is amended by inserting after
the first sentence the following new sentence: "For purposes of the
preceding sentence, payments received under the Agricultural Act of
1949, as amended, as a result of (1) destruction or damage to crops
caused by drought, flood, or any ot er natural disaster, or (2) the
inability to plant crops because of uch a natural disaster shall be
treated as insurance proceeds receiv 1 as a result of destruction or
damage to crops."
(b) TECHNICAL AMENDMENT.-Th ubsection heading for such sub-
section (d) is amended by striking ut "Proceeds" and inserting in
lieu thereof "Proceeds or Disaster Pa nents".
(c) EFFECTIVE DATE.-The amendments made by this section shall
apply to payments received after December 31, 1973, in taxable years
ending after such date.
SEC. 2103. TAX TREATMENT OF CERTAIN 1972 DISASTER LOSSES.
(a) APPLICATION OF SECTION.-This section shall apply to any
individual-
(1) who was allowed a deduction under section 165 of the
Internal Revenue Code of 1954 (relating to losses) for a loss
attributable to a disaster occurring during calendar year 1972
which was determined by the President, under section 102 of the
Disaster Relief Act of 1970, to warrant disaster assistance by the
Federal Government,
(2) who in connection with such disaster—
(A) received income in the form of cancellation of a disas-
ter loan under section 7 of the Small Business Act or an
emergency loan under subtitle C of the Consolidated Farm
and Rural Development Act. or
(B) received income in the form of compensation (not
taken into account in computing the amount of the deduc-
tion) for such loss in settlement of any claim of the taxpayer
against a person for that person's liability in tort for the
damage or destruction of that taxpayer's property in connec-
tion with the disaster, and
(3) who elects (at such time and in such manner as the Secre-
tary of the Treasury or his delegate may by regulations prescribe)
to take the benefits of this section.
(b) EFFECT OF ELECTION.-In the case of any individual to whom
this section applies-
H. R. 10612-382
(1) the tax imposed by chapter 1 of the Internal Revenue Code
of 1954 for the taxable year in which the income taken into
account is received or accrued which is attributable to such income
shall not exceed the additional tax under such chapter which
would have been payable for the year in which the deduction for
the loss was taken if such deduction had not been taken for such
year,
(2) any amount of tax imposed by chapter 1 attributable to
the income taken into account which, on October 1, 1975, was
unpaid may be paid in 3 equal annual installments (with the first
such installment due and payable on April 15, 1977), and
(3) no interest on any deficiency shall be payable for any
period before April 16, 1977, to the extent such deficiency is attrib-
utable to the receipt of such compensation, and no interest on
any installment referred to in paragraph (2) shall be payable for
any period before the due date of such installment.
(c) INCOME TAKEN INTO ACCOUNT.-For purposes of this section,
the income taken into account is-
(1) in the case of an individual described in subsection (a) (2)
(A), the amount of income (not in excess of $5,000) attributable
to the cancellation of a disaster loan under section 7 of the Small
Business Act or an emergency loan under subtitle C of the Con-
solidated Farm and Rural Development Act received by reason
of the disaster described in subsection (a) (1), or
(2) in the case of an individual described in subsection (a) (2)
(B), the amount of compensation (not in excess of $5,000) for the
loss in settlement of any claim of the taxpayer against a person
for that person's liability in tort for the damage or destruction of
that taxpayer's property in connection with the disaster described
in subsection (a) (1).
(d) PHASEOUT WHERE ADJUSTED GROSS INCOME EXCEEDS $15,000.-
If for the taxable year for which the deduction for the loss was taken
the individual's adjusted gross income exceeded $15,000, the $5,000
limit set forth in paragraph (1) or (2) of subsection (c) (whichever
applies) shall be reduced by one dollar for each full dollar that such
adjusted gross income exceeds $15,000. In the case of a married indi-
vidual filing a separate return, the preceding sentence shall be applied
by substituting "$7,500" for "$15,000".
(e) STATUTE OF LIMITATIONS.-If refund or credit of any overpay-
ment of income tax resulting from an election made under this section
is prevented on the date of the enactment of this Act, or at any time
within one year after such date, by the operation of any law, or rule of
law, refund or credit of such overpayment (to the extent attributable
to such election) may, nevertheless, be made or allowed if claim there-
for is filed within one year after such date. If the taxpayer makes an
election under this section and if assessment of any deficiency for any
taxable year resulting from such election is prevented on the date of
the enactment of this Act, or at any time within one year after such
date, by the operation of any law or rule of law, such assessment (to
the extent attributable to such election) may, nevertheless, be made if
made within one year after such date.
SEC. 2104. TAX TREATMENT OF CERTAIN DEBTS OWED BY POLITICAL
PARTIES, ETC, TO ACCRUAL BASIS TAXPAYERS.
(a) IN GENERAL-Section 271 (relating to debts owed by political
parties, etc.) is amended-by adding at the end thereof the following
new subsection:
H. R. 10612-383
"(c) Exception.-In the case of a taxpayer who uses an accrual
method of accounting, subsection (a) shall not apply to a debt which
accrued as a receivable on a bona fide sale of goods or services in the
ordinary course of the taxpayer's trade or business if-
" (1) for the taxable year in which such receivable accrued,
more than 30 percent of all receivables which accrued in the
ordinary course of the trades and businesses of the taxpayer were
due from political parties, and
" (2) the taxpayer made substantial continuing efforts to col-
lect on the debt."
(b) EFFECTIVE DATE.-The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 1975.
SEC. 2105. TAX-EXEMPT BONDS FOR STUDENT LOANS.
(a) IN GENERAL.Section 103 (a) (relating to interest on certain
governmental obligations) is amended by striking out "or" at the end
of paragraph (2), striking out the period at the end of paragraph (3)
and inserting in lieu thereof "; or", and by adding at the end thereof
the following:
"(4) qualified scholarship funding bonds."
(b) DEFINITION OF QUALIFIED SCHOLARSHIP FUNDING Bonds.-Sec-
tion 103 is amended by redesignating subsection (f) as (g), and by
inserting after subsection (e) the following new subsection:
"(f) QUALIFIED SCHOLARSHIP FUNDING BONDS.-For purposes of
subsection (a), the term 'qualified scholarship funding bonds' means
obligations issued by a corporation which—
"(1) is a corporation not for profit established and operated
exclusively for the purpose of acquiring student loan notes
incurred under the Higher Education Act of 1965, and
"(2) is organized at the request of a State or one or more
political subdivisions thereof or is requested to exercise such
power by one or more political subdivisions and required by its
corporate charter and bylaws, or required by State law, to devote
any income (after payment of expenses, debt service, and the
creation of reserves for the same) to the purchase of additional
student loan notes or to pay over any income to the State or a
political subdivision thereof."
(c) CONFORMING AMENDMENTS.-
(1) Section 103 (d) (relating to arbitrage bonds) is amended
by redesignating paragraph (5) as paragraph (6) and inserting
after paragraph (4) the following new paragraph:
" (5) STUDENT LOAN INCENTIVE PAYMENTS.-Payments made by
the Commissioner of Education pursuant to section 2 of the Emer-
gency Insured Student Loan Act of 1969 are not to be taken into
account, for purposes of subsection (d) (2) (A), in determining
yields on student loan notes."
(2) Section 103 (d) (relating to arbitrage bonds) is amended
by striking out "(a) (1) each place it appears in paragraph (1)
(including the heading) and paragraph (2) and inserting in lieu
thereof (a) (1) or (4)".
(d) EFFECTIVE DATE.-The amendments made by this section apply
to obligations issued on or after the date of the enactment of this Act.
SEC. 2106. PERSONAL HOLDING COMPANY INCOME AMENDMENTS.
(a) IN GENERAL.Section 543 (a) (6) (relating to definition of
personal holding company income) is amended to read as follows:
"(6) USE OF CORPORATE PROPERTY BY SHAREHOLDER.-
H. R. 10612-384
'(A) Amounts received as compensation (however des-
ignated and from whomever received) for the use of, or the
right to use, tangible property of the corporation in any case
where, at any time during the taxable year, 25 percent or-
more in value of the outstanding stock of the corporation is
owned, directly or indirectly, by or for an individual entitled
to the use of the property (whether such right is obtained
directly from the corporation or by means of a sublease or
other arrangement).
(B) Subparagraph (A) shall apply only to a corporation
which has personal holding company income in excess of 10
percent of its ordinary gross income.
(C) For purposes of the limitation in subparagraph (B),
personal holding company income shall be computed-
'(i) without regard to subparagraph (A) or para-
graph (2),
(ii) by excluding amounts received as compensation
for the use of (or right to use) intangible property (other
than mineral, oil, or gas royalties or copyright royalties)
if a substantial part of the tangible property used in con-
nection with such intangible property is owned by the
corporation and all such tangible and intangible prop-
erty is used in the active conduct of a trade or business
by an individual or individuals described in subpara-
graph (A), and
(iii) by including copyright royalties and adjusted
income from mineral, oil, and gas royalties."
(b) EFFECTIVE DATE.-The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 1976.
SEC. 2107. WORK INCENTIVE PROGRAM EXPENSES.
(a) INCREASE IN LIMITATION BASED ON AMOUNT OF Tax.-
(1) Paragraph (2) of section 50A (a) (relating to limitation
based on amount of tax) is amended by striking out "$25,000" each
place it appears and inserting in lieu thereof "$50,000".
(2) Paragraph (4) of section 50A(a) (relating to married
individuals) is amended—
(A) by striking out "$12,500" and inserting in lieu thereof
"$25,000", and
(B) by striking out "$25,000" and inserting in lieu thereof
"$50,000".
(3) Paragraph (5) of section 50A (a) (relating to controlled
groups) is amended by striking out "$25,000" each place it appears
therein and inserting in lieu thereof "$50,000".
(4) Paragraph (3) of section 50B (e) is amended by striking
out "$25,000" each place it appears therein and inserting in lieu
thereof "$50,000".
(b) REDUCTION OF PERIOD DURING WHICH DISCHARGE OF EMPLOYEE
CAUSES RECAPTURE.-Subparagraph (A) of section 50A (c) (1) (relat-
ing to work incentive program expenses) is amended—
(1) by striking out "12 months" each place it appears and
inserting in lieu thereof "90 days",
(2) by striking out "12th calendar month" and inserting in
lieu thereof "90th calendar day", and
(3) by striking out "the calendar month" and inserting in lieu
thereof "the day".
H. R. 10612-385
(c) RECAPTURE Nor To APPLY WHERE TERMINATION Is RESULT OF
DECLINING BUSINEss-Subparagraph (A) of section 50A (c) (2)
(relating to certain terminations of employment) is amended—
(1) by striking out "or" at the end of clause (iii),
(2) by striking out the period at the end of clause (iv) and
inserting in lieu thereof a comma and "or", and
(3) by adding at the end thereof the following:
"(v) a termination of employment of an individual
due to a substantial reduction in the trade or business
operations of the taxpayer."
(d) EXTENSION OF WELFARE EMPLOYEE INCENTIVES.-Paragraph (2)
of section 50B (a) (relating to definition of Federal welfare recipient
employment incentive expenses) is amended by striking out "before
July 1, 1976," and inserting in lieu thereof "before January 1, 1980,".
(e) LIMITATION OF FEDERAL WELFARE RECIPIENT EMPLOYMENT
INCENTIVE EXPENSES TO FIRST 12 MONTHS OF EMPLOYMENT.-Sub-
paragraph (B) of section 50B (a) (1) is amended to read as follows:
(B) the amount of Federal welfare recipient employment
incentive expenses paid or incurred by the taxpayer for serv-
ices rendered during the first 12 months of employment
(whether or not consecutive)."
(f) CERTIFICATION OF WELFARE RECIPIENT EMPLOYEES BY SECRE-
TARY OF LABoR-Subparagraph (A) of section 50B (g) (1) (relating to
eligible employees) is amended by inserting "the Secretary of Labor
or by" after "certified by".
(g) TECHNICAL AMENDMENTS.-
(1) The second sentence of section 6411 (a) (relating to appli-
cation for adjustment) is amended by inserting '(or, in the case
of a work incentive program carryback, to an investment credit
carryback) after "capital loss carryback".
(2) The following provisions are each amended by inserting
", an investment credit carryback," after "net operating loss
carryback":
(A) Section 6501 (o).
(B) Section 6511 (d) (7).
(C) Section 6601 (d) (4).
(D) Section 6611 (f) (4).
SEC. 2108. REPEAL OF EXCISE TAX ON LIGHT-DUTY TRUCK PARTS.
(a) IN GENERAL.Section 6416 (b) (2) (relating to special cases in
which tax payments are considered overpayments) is amended—
(1) by striking "or" at the end of subparagraph (R)
(2) by striking the period at the end of subparagraph (S) and
inserting in lieu thereof or and
(3) by adding at the end thereof the following new
subparagraph:
(T) in the case of any article taxable under section 4061
(b), sold on or in connection with the first retail sale of a
light-duty truck, as described in section 4061 (a) (2), if credit
or refund of such tax is not available under any other provi-
sions of law."
(b) EFFECTIVE DATE.-The amendments made by this section shall
apply to parts and accessories sold after the date of the enactment of
this Act.
SEC. 2109. EXCLUSION FROM EXCISE TAX ON CERTAIN ARTICLES
RESOLD AFTER MODIFICATION.
(a) IN GENERAL-Section 4063 (relating to exemptions from
excise tax on motor vehicles) is amended by adding at the end thereof
the following new subsection:
H. R. 10612-386
"(d) RESALE AFTER CERTAIN MODIFICATIONS.-Under regulations
prescribed by the Secretary, the tax imposed by section 4061 shall not
apply to the resale of any article described in section 4061 (a) (1) if
before such resale such article was merely combined with any cou-
pling device (including any fifth wheel), wrecker crane, loading and -
unloading equipment (including any crane, hoist, winch, or power
liftgate), aerial ladder or tower, snow and ice control equipment,
earthmoving, excavation and construction equipment, spreader, sleeper
cab, cab shield, or wood or metal floor."
(b) EFFECTIVE DATE.-The amendment made by this section shall
apply to the resale of any article on or after the date of the enact-
ment of this Act.
SEC. 2110. FRANCHISE TRANSFERS.
(a) APPLICATION OF FRANCHISE RULES TO PARTNERSHIPS.-Section
751 (c) (relating to unrealized receivables of a partnership), as
amended by this Act, is amended—
(1) by striking out "farm land (as defined in section 1252
(a))," and inserting in lieu thereof "farm land (as defined in
section 1252 franchises, trademarks, or trade names
(referred to in section 1253 (a) and
(2) by striking out "1252(a)" and inserting in lieu thereof
"1252 (a), 1253 (a)".
(b) EFFECTIVE DATE.-Subsection (a) shall apply to transactions
described in sections 731, 736, 741, or 751 of the Internal Revenue Code
of 1954 which occur after December 31, 1976, in taxable years ending
after that date.
SEC. 2111. EMPLOYER'S DUTIES IN CONNECTION WITH THE RECORD-
ING AND REPORTING OF TIPS.
(a) SUSPENSION OF RULINGS.-Until January 1, 1979, the law with
respect to the duty of an employer under section 6041 (a) of the Inter-
nal Revenue Code of 1954 to report charge account tips of employees
to the Internal Revenue Service (other than charge account tips
included in statements furnished to the employer under section 6053
(a) of such Code) shall be administered-
(1) without regard to Revenue Rulings 75-400 and 76-231, and
(2) in accordance with the manner in which such law was
administered before the issuance of such rulings.
(b) EFFECTIVE DATE.-This section shall take effect on January 1,
1976.
SEC. 2112. TREATMENT OF CERTAIN POLLUTION CONTROL FACILI-
TIES.
(a) AVAILABILITY OF INVESTMENT CREDIT FOR CERTAIN POLLUTION
CONTROL FACILITIES.-
(1) IN GENERAL.-Section 48(a) (8) (relating to amortized
property) is amended by striking out "169," and by striking out
the second sentence thereof.
(2) APPLICABLE PERCENTAGE IN DETERMINING AMOUNT OF
CREDIT.-Section 46(c) (relating to qualified investment) is
amended by adding at the end thereof the following new
paragraph:
"(5) APPLICABLE PERCENTAGE IN THE CASE OF CERTAIN POLLU-
TION CONTROL FACILITIES.-Notwithstanding subsection (c) (2), in
the case of property-
"(A) with respect to which an election under section 169
applies, and
H. R. 10612-387
(B) the useful life of which (determined without regard
to section 169) is not less than 5 years,
50 percent shall be the applicable percentage for purposes of
applying paragraph (1) with respect to so much of the adjusted
basis of the property as (after the application of section 169 (f))
constitutes the amortizable basis for purposes of section 169.'
(b) DEFINITION OF CERTIFIED POLLUTION CONTROL FACILITIES.-Par-
agraph (1) of section 169 (d) (defining certified pollution control
facilities) is amended-
(1) by striking out "January 1, 1969," and inserting in lieu
thereof "January 1, 1976,";
(2) by striking out "or storing" and inserting in lieu thereof
"storing, or preventing the creation or emission of"; and
(3) by striking out "and" at the end of subparagraph (A), by
striking out the period at the end of subparagraph (B) and
inserting in lieu thereof and", and by adding at the end thereof
the following new subparagraph:
"(C) does not significantly-
(i) increase the output or capacity, extend the useful
life, or reduce the total operating costs of such plant or
other property (or any unit thereof), or
'(ii) alter the nature of the manufacturing or pro-
duction process or facility."
(c) EXTENSION OF AMORTIZATION.-Paragraph (4) of section 169 (d)
(relating to new identifiable treatment facility) is amended to read
as follows:
(4) NEW IDENTIFIABLE TREATMENT FACILITY.-
'(A) IN GENERAL-For purposes of paragraph (1), the
term 'new identifiable treatment facility' includes only tangi-
ble property (not including a building and its structural
components, other than a building which is exclusively a
treatment facility) which is of a character subject to the
allowance for depreciation provided in section 167, which is
identifiable as a treatment facility, and which is property-
(i) the construction, reconstruction, or erection of
which is completed by the taxpayer after December 31,
1968, or
"(ii) acquired after December 31, 1968, if the original
use of the property commences with the taxpayer and
commences after such date.
In applying this section in the case of property described in
clause (i) there shall be taken into account only that portion
of the basis which is properly attributable to construction,
reconstruction, or erection after December 31, 1968.
"(B) CERTAIN PLANTS, ETC., PLACED IN OPERATION AFTER
1968.-In the case of any treatment facility used in connec-
tion with any plant or other property not in operation before
January 1, 1969, the preceding sentence shall be applied by
substituting December 31, 1975, for December 31, 1968."
(d) EFFECTIVE DATES.-
(1) The amendments made by subsection (a) shall apply to-
(A) property acquired by the taxpayer after December 31,
1976, and
(B) property the construction, reconstruction, or erection
of which was completed by the taxpayer after December 31,
1976, (but only to the extent of the basis thereof attributable
H. R. 10612-388
to construction, reconstruction, or erection after such date),
in taxable years beginning after such date.
(2) The amendments made by subsection (b) shall apply to
taxable years beginning after December 31, 1975. Such amend-
ments shall not apply in the case of any property with respect to-
which the amortization period under section 169 of the Internal
Revenue Code of 1954 has begun before January 1, 1976.
SEC. 2113. CLARIFICATION OF STATUS OF CERTAIN FISHERMEN'S
ORGANIZATIONS.
(a) IN GENERAL.Section 501 (relating to exemption from tax on
corporations, etc.) is amended by redesignating subsection (g) as (h)
and by inserting after subsection (f) the following new subsection:
(g) DEFINITION OF AGRICULTURAL.-For purposes of subsection
(c) (5), the term 'agricultural' includes the art or science of cultivating
land, harvesting crops or aquatic resources, or raising livestock."
(b) EFFECTIVE DATE.-The amendment made by this section applies
to taxable years ending after December 31, 1975.
SEC. 2114. APPLICATION OF SECTION 6013(e) OF THE INTERNAL REVE-
NUE CODE OF 1954.
(a) IN GENERAL-Section 3 of the Act of January 12, 1971, Public
Law 91-679 (84 Stat. 2064), is amended by adding at the end thereof
the following new sentences: "Upon application by a taxpayer, the
Secretary of the Treasury shall redetermine the liability for tax
(including interest, penalties, and other amounts) of such taxpayer
for taxable years beginning after December 31, 1961, and ending
before January 13, 1971. The preceding sentence shall apply solely to a
taxpayer to whom the application of the provisions of section 6013 (e)
of the Internal Revenue Code of 1954, as added by this Act, for such
taxable years is prevented by the operation of res judicata, and such
redetermination shall be made without regard to such rule of law. Any
overpayment of tax by such taxpayer for such taxable years resulting
from the redetermination made under this Act shall be refunded to
such taxpayer."
(b) EFFECTIVE DATE.-The application permitted under the amend-
ment made by subsection (a) of this section must be filed with the
Secretary of the Treasury during the first calendar year beginning
after the date of the enactment of this Act.
SEC. 2115. AMENDMENTS TO RULES RELATING TO LIMITATION ON PER-
CENTAGE DEPLETION IN CASE OF OIL AND GAS WELLS,
TRANSFERS OF OIL AND GAS PROPERTY WITHIN THE
SAME CONTROLLED GROUP OR FAMILY.
(a) RETAILER EXCLUSION.-Paragraph (2) of section 613A (d)
(relating to the retailer exclusion) is amended by inserting "(exclud-
ing bulk sales of such items to commercial or industrial users) after
"natural gas" where it first appears, and by adding at the end thereof
the following:
"Notwithstanding the preceding sentence this paragraph shall not
apply in any case where the combined gross receipts from the sale
of such oil, natural gas, or any product derived therefrom, for the
taxable year of all retail outlets taken into account for purposes
of this paragraph do not exceed $5,000,000. For purposes of this
paragraph, sales of oil, natural gas, or any product derived from
oil or natural gas shall not include sales made of such items out-
side the United States, if no domestic production of the taxpayer
H. R. 10612-389
or a related person is exported during the taxable year or the
immediately preceding taxable year."
(b) TRANSFER RULE.-
(1) IN GENERAL.-Subparagraph (B) of section 613A(c) (9)
(relating to exceptions to the transfer rule) is amended by strik- -
ing out "or" at the end of clause (i), by striking out the period
at the end of clause (ii) and inserting in lieu thereof or", and
by adding at the end thereof the following new clause:
(iiii) a change of beneficiaries of a trust by reason of
the death, birth, or adoption of any vested beneficiary if
the transferee was a beneficiary of such trust or is a
lineal descendant of the settlor or any other vested bene-
ficiary of such trust, except in the case of any trust
where any beneficiary of such trust is a member of the
family (as defined in section 267 (c) (4)) of a settlor who
created inter vivos and testamentary trusts for members
of the family and such settlor died within the last six
days of the fifth month in 1970, and the law in the juris-
diction in which such trust was created requires all or a
portion of the gross or net proceeds of any royalty or
other interest in oil, gas, or other mineral representing
any percentage depletion allowance to be allocated to the
principal of the trust."
(2) CONFORMING AMENDMENTS.-Paragraph (1) of section 613A
(d) (relating to the limitation on percentage depletion based
upon taxable income) is amended-
(A) by striking out subparagraph (A) and inserting in
lieu thereof the following:
'(A) any depletion on production from an oil or gas prop-
erty which is subject to the provisions of subsection (c),",
(B) by striking out "and" at the end of subparagraph (B),
(C) by striking out the period at the end of subparagraph
(C) and inserting in lieu thereof ", and", and
(D) by adding at the end thereof the following new
subparagraph:
"(D) in the case of a trust, any distributions to its benefi-
ciary, except in the case of any trust where any beneficiary of
such trust is a member of the family (as defined in section
267 (c) (4)) of a settlor who created inter vivos and testamen-
tary trusts for members of the family and such settlor died
within the last six days of the fifth month in 1970, and the
law in the jurisdiction in which such trust was created
requires all or a portion of the gross or net proceeds of any
royalty or other interest in oil, gas, or other mineral repre-
senting any percentage depletion allowance to be allocated
to the principal of the trust."
(c) PARTNERSHIP RULES.-
(1) Subparagraph (D) of section 613A(c) (7) (relating to the
computation of depletion in the case of partnerships) is amended
to read as follows:
"(D) PARTNERSHIPS.-In the case of a partnership, the
depletion allowance shall be computed separately by the part-
ners and not by the partnership. The partnership shall allo-
cate to each partner his proportionate share of the adjusted
basis of each partnership oil or gas property. The allocation
H. R. 10612-390
is to be made as of the later of the date of acquisition of the
oil or gas property by the partnership, or January 1, 1975. A
partner's proportionate share of the adjusted basis of part-
nership property shall be determined in accordance with his
interest in partnership capital or income and, in the case of -
an agreement described in section 704 (c) (2) (relating to
effect of a partnership agreement on contributed property),
such share shall be determined by taking such agreement into
account. Each partner shall separately keep records of his
share of the adjusted basis in each oil and gas property of
the partnership, adjust such share of the adjusted basis for
any depletion taken on such property, and use such adjusted
basis each year in the computation of his cost depletion or
in the computation of his gain or loss on the disposition of
such property by the partnership. For purposes of section
732 (relating to basis of distributed property other than
money), the partnership's adjusted basis in mineral prop-
erty shall be an amount equal to the sum of the partners'
adjusted basis in such property as determined under this
paragraph."
(2) Subparagraph (G) of section 703(a) (2) (relating to
deductions not allowed to a partnersh ) is amended by striking
out "production subject to the provisio is of section 613A (c) and
inserting in lieu thereof "wells".
(3) Subsection (a) of section 705 (re uting to the determination
of basis of a partner's interest in a par ership) is amended—
(A) by striking out "and" in P ragraph (1) (C),
(B) by striking out the period the end of paragraph (2)
and inserting in lieu thereof al ", and
(C) by adding at the end thereof the following:
'(3) decreased (but not below zero), by the amount of the
partner's deduction for depletion under section 611 with respect
to oil and gas wells."
(d) RELATED PERSON.-Paragraph (3) of section 613A (d) (relating
to the definition of related person) is amended by adding at the end
thereof the following:
"For purposes of determining a significant ownership interest, an
interest owned by or for a corporation, partnership, trust, or estate
shall be considered as owned directly both by itself and propor-
tionately by its shareholders, partners, or beneficiaries, as the case
may be."
(e) TRANSFERS OF OIL AND GAS PROPERTY WITHIN THE SAME Con-
TROLLED GROUP OR FAMILY.-Subparagraph (B) of section 613A (c)
(9) (relating to transfer of oil or gas property), as amended by sub-
section (b) (1), is amended—
(1) by striking out "or" at the en.. of clause (ii),
(2) by striking out the period at the end of clause (iii) and
inserting in lieu thereof a comma, and
(3) by adding at the end thereof the following:
'(iv) a transfer of property between corporations
which are members of the same controlled group of
corporations (as defined in paragraph (8) (D) (i) or
(v) a transfer of property between business entities
which are under common control (within the meaning
of paragraph (8) (B)) or between related persons in the
same family (within the meaning of paragraph (8)
(C)), or
H.R. 10612-391
"(vi) a transfer of property between a trust and
related persons in the same family (within the meaning of
paragraph (8) (C)) to the extent that the beneficiaries
of that trust are and continue to be related persons in
the family that transferred the property, and to the
extent that the tentative oil quantity is allocated among
the members of the family (within the meaning of
!
paragraph (8) (C)).
Clause (iv) or (v) shall apply only so long as the tentative oil
quantity determined under the table contained in paragraph (3)
(B) is allocated under paragraph (8) between the transferor and
transferee."
(f) EFFECTIVE DATE.-The amendments made by this section shall
take effect on January 1, 1975, and shall apply to taxable years ending
after December 31, 1974.
SEC. 2116. IMPLEMENTATION OF FEDERAL-STATE TAX COLLECTION
ACT OF 1972.
(a) ELECTION BY STATES To PARTICIPATE.-Section 204 (2) of
the Federal-State Tax Collection Act of 1972 is amended to read as
follows:
"(2) the first January 1 which is more than one year after the
first date on which at least one State has notified the Secretary
of the Treasury or his delegate of an election to enter into an
agreement under section 6363 of such Code."
(b) ADJUSTMENTS TO QUALIFIED RESIDENT TAXES FOR PURPOSES OF
FEDERAL COLLECTION OF STATE INDIVIDUAL INCOME TAXES.-
(1) QUALIFIED RESIDENT TAX BASED ON TAXABLE INCOME.-
(A) REQUIRED ADJUSTMENTS.-Section 6362 (b) (1) (relat-
ing to required adjustments) is amended—
(i) by striking out "and" at the end of subparagraph
(B)
(ii) by striking out the period at the end of subpara-
graph (C) and inserting in lieu thereof ", and", and
(iii) by adding at the end thereof the following new
subparagraph:
'(D) if a credit is allowed against such tax for State or
local sales tax in accordance with paragraph (2) (C), by add-
ing an amount equal to the amount of his deduction under
section 164 (a) (4) for such sales tax."
(B) PERMITTED ADJUSTMENTS.-Section 6362 (b) (2) (relat-
ing to permitted adjustments) is amended by adding at the
end thereof the following new subparagraph:
(C) A credit is allowed against such tax for all or a
portion of any general sales tax imposed by the same State or
a political subdivision thereof with respect to sales to the tax-
payer or his dependents."
(2) QUALIFIELD RESIDENT TAX WHICH IS A PERCENTAGE OF THE
FEDERAL TAX-
(A) PERMITTED ADJUSTMENTS.-Section 6362 (c) (3) (relat-
ing to permitted adjustments) is amended—
(i) by striking out "both" and inserting in lieu thereof
"all",
(ii) by striking out "and" at the end of subparagraph
(A),
H. R. 10612-392
(iii) by striking out the period at the end of subpara-
graph (B) and inserting in lieu thereof " and", and
(iv) by adding at the end thereof the following new
subparagraph:
"(C) if a credit is allowed against such tax for State or
local sales tax in accordance with paragraph (4) (B), the
liability for tax is increased by the increase in such liability
which would result from including as an item of income an
amount equal to the amount of his deduction under section
164(a) (4) for such sales tax."
(B) FURTHER PERMITTED ADJUSTMENTS.-Section 6362 (c)
(4) (relating to further permitted adjustments) is amended
to read as follows:
"(4) FURTHER PERMITTED ADJUSTMENTS.-A tax which other-
wise meets the requirements of paragraphs (1) and (2) shall not
be deemed to fail to meet such requirements solely because it
provides for one or both of the following adjustments:
"(A) A credit determined under rules prescribed by the
Secretary is allowed against such tax for income tax paid to
another State or a political subdivision thereof.
"(B) A credit is allowed against such tax for all or a
portion of any general sales tax imposed by the same State or
a political subdivision thereof with respect to sales to the
taxpayer or his dependents."
(c) PROHIBITION ON CHARGES FOR FEDERAL COLLECTION OF STATE
INCOME TAXES.-Section 6361 (a) (relating to general rules for Fed-
eral collection and administration of State individual income taxes)
is amended by inserting, after the first sentence thereof, the follow-
ing: "No fee or other charge shall be imposed upon any State for the
collection or administration of the qualified State individual income
taxes of such State or any other State.".
(d) EFFECTIVE DATE.-The amendments made by this section shall
take effect on the date of the enactment of this Act.
SEC. 2117. CANCELLATION OF CERTAIN STUDENT LOANS.
(a) IN GENERAL-In the case of an individual, no amount shall be
included in gross income for purposes of section 61 of the Internal
Revenue Code of 1954 by reason of the discharge of all or part of the
indebtedness of the individual under a student loan if such discharge
was pursuant to a provision of such loan under which all or part of
the indebtedness of the individual would be discharged if the individ-
ual worked for a certain period of time in certain geographical areas
or for certain classes of employers.
(b) STUDENT LOAN.-For purposes of this section the term "student
loan" means any loan to an individual to assist the individual in
attending an educational organization described in section 170(b) (1)
(A) (ii) of such Code-
(1) by the United States, or an instrumentality or agency
thereof, or a State, territory, or possession of the United States, or
any political subdivision thereof, or the District of Columbia, or
(2) by any such educational organization pursuant to an agree-
ment with the United States, or an instrumentality or agency
thereof, or a State, territory, or possession of the United States,
or any political subdivision thereof, or the District of Columbia
under which the funds from which the loan was made were
provided to such educational organization.
H. R. 10612-393
(c) EFFECTIVE DATE.-The provisions of this section shall apply to
discharges of indebtedness made before January 1, 1979.
SEC. 2118. TREATMENT OF GAIN OR LOSS ON SALES OR EXCHANGES
IN CONNECTION WITH SIMULTANEOUS LIQUIDATION OF
A PARENT AND SUBSIDIARY CORPORATION.
(a) IN GENERAL-Section 337 (relating to gain or loss on sales or
exchanges in connection with certain liquidations) is amended by add-
ing the following sentence at the end of subsection (c) (2) thereof:
"This paragraph shall not apply to a sale or exchange by a
member of an affiliated group of corporations, as defined in sec-
tion 1504(a) (but without regard to the exceptions contained in
section 1504(b)), if each member of such group (including the
common parent corporation) which receives, within the 12-month
period beginning on the date of the adoption of a plan of complete
liquidation by the corporation which made the sale or exchange,
a distribution in complete liquidation from any other member of
such group is itself completely liquidated within such 12-month
period."
(b) EFFECTIVE DATE.-The amendment made by subsection (a) shall
apply to sales or exchanges made pursuant to a plan of complete
liquidation adopted after December 31, 1975.
SEC. 2119. REGULATIONS RELATING TO TAX TREATMENT OF CER-
TAIN PREPUBLICATION EXPENDITURES OF PUBLISH-
ERS.
(a) GENERAL RULE.-With respect to taxable years beginning on or
before the date on which regulations dealing with prepublication
expenditures are issued after the date of the enactment of this Act, the
application of sections 61 (as it relates to cost of goods sold), 162, 174,
263, and 471 of the Internal Revenue Code of 1954 to any prepublica-
tion expenditure shall be administered—
(1) without regard to Revenue Ruling 73-395, and
(2) in the manner in which such sections were applied consist-
ently by the taxpayer to such expenditures before the date of the
issuance of such revenue ruling.
(b) REGULATIONS To BE PROSPECTIVE ONLY.-Any regulations
issued after the date of the enactment of this Act which deal with the
application of sections 61 (as it relates to cost of goods sold), 162, 174,
263, and 471 of the Internal Revenue Code of 1954 to prepublication
expenditures shall apply only with respect to taxable years beginning
after the date on which such regulations are issued.
(c) PREPUBLICATION EXPENDITURES DEFINED.-For purposes of this
section, the term "prepublication expenditures" means expenditures
paid or incurred by the taxpayer (in connection with his trade or busi-
ness of publishing) for the writing, editing, compiling, illustrating,
designing, or other development or improvement of a book, teaching
aid, or similar product.
SEC. 2120. CONTRIBUTIONS IN AID OF CONSTRUCTION FOR CERTAIN
UTILITIES.
(a) IN GENERAL.Section 118 (relating to contributions to the cap-
ital of a corporation) is amended by redesignating subsection (b) as
subsection (c) and inserting immediately after subsection (a) the fol-
lowing new subsection:
(b) CONTRIBUTIONS IN AID OF CONSTRUCTION.-
'(1) GENERAL RULE.-For purposes of this section, the term
'contribution to the capital of the taxpayer' includes any amount
H. R. 10612-394
of money or other property received from any person (whether
or not a shareholder) by a regulated public utility which provides
water or sewerage disposal services if-
"(A) such amount is a contribution in aid of construction,
(B) where the contribution is in property which is other
than water or sewerage disposal facilities, such amount meets -
the requirements of the expenditure rule of paragraph (2),
and
'(C) such amounts (or any property acquired or con-
structed with such amounts) are not included in the taxpay-
er's rate base for rate-making purposes.
" (2) EXPENDITURE RULE.-An amount meets the requirements
of this paragraph if-
(A) an amount equal to such amount is expended for
the acquisition or construction of tangible property described
in section 1231
(i) which was the purpose motivating the contribu-
tion, and
(ii) which is used predominantly in the trade or busi-
ness of furnishing water or sewerage disposal services,
"(B) the expenditure referred to in subparagraph (A)
occurs before the end of the second taxable year after the
year in which such amount was received, and
(C) accurate records are kept of the amounts contributed
and expenditures made on the basis of the project for which
the contribution was made and on the basis of the year of
contribution or expenditure.
(3) DEFINITIONS.-For purposes of this section-
(A) CONTRIBUTION IN AID OF CONSTRUCTION.-The term
'contribution in aid of construction' shall be defined by regu-
lations prescribed by the Secretary; except that such term
shall not include amounts paid as customer connection fees
(including amounts paid to connect the customer's property
to a main water or sewer line and amounts paid as service
charges for starting or stopping services).
"(B) PREDOMINANTLY.-The term 'predominantly' means
80 percent or more.
"(C) REGULATED PUBLIC UTILITY.-The term 'regulated
public utility' has the meaning given such term by section
7701 (a) (33) except that such term shall not include any
such utility which is not required to provide water or sewer-
age disposal services to members of the general public in its
service area.
"(4) DISALLOWANCE OF DEDUCTIONS AND INVESTMENT CREDIT;
ADJUSTED BASIS.-Notwithstanding any other provision of this sub-
title, no deduction or credit shall be allowed for, or by reason
of, the expenditure which constitutes a contribution in aid of con-
struction to which this subsection applies. The adjusted basis of
any property acquired with contributions in aid of construction to
which this subsection applies shall be zero."
(b) CONFORMING AMENDMENT.-Section 362(c) (relating to special
rule for contributions to capital) is amended by adding the following
new paragraph immediately after paragraph (2) :
(3) EXCEPTION FOR CONTRIBUTIONS IN AID OF CONSTRUCTION.-
The provisions of this subsection shall not apply to contributions
in aid of construction to which section 118 (b) applies."
(c) EFFECTIVE DATE.-The amendments made by this section apply
to contributions made after January 31, 1976.
H. R. 10612-395
SEC. 2121. PROHIBITION OF DISCRIMINATORY STATE TAXES ON PRO-
DUCTION AND CONSUMPTION OF ELECTRICITY.
(a) IN GENERAL-The Act entitled "An Act relating to the power
of the States to impose net income taxes on income derived from inter-
state commerce, and authorizing studies by congressional committees
of matters pertaining thereto", approved September 14, 1959 (73 Stat.
555; 15 U.S.C. 381 et seq.) is amended by striking out title II (relating
to studies) and inserting in lieu thereof the following:
"TITLE II-DISCRIMINATORY TAXES
"Sec. 201. No State, or political subdivision thereof, may impose or
assess a tax on or with respect to the generation or transmission of
electricity which discriminates against out-of-State manufacturers,
producers, wholesalers, retailers, or consumers of that electricity. For
purposes of this section a tax is discriminatory if it results, either
directly or indirectly, in a greater tax burden on electricity which is
generated and transmitted in interstate commerce than on electricity
which is generated and transmitted in intrastate commerce."
(b) EFFECTIVE DATE.-The amendment made by subsection (a)
shall take effect beginning June 30, 1974.
SEC. 2122. ALLOWANCE OF DEDUCTION FOR ELIMINATING ARCHITEC-
TURAL AND TRANSPORTATION BARRIERS FOR THE
HANDICAPPED.
(a) IN GENERAL-Part VI of subchapter B of chapter 1 (relating
to itemized deductions for individuals and corporations) is amended
by adding at the end thereof the following new section:
"SEC. 190. EXPENDITURES TO REMOVE ARCHITECTURAL AND TRANS-
PORTATION BARRIERS TO THE HANDICAPPED AND
ELDERLY.
"(a) TREATMENT AS EXPENSES.-
"(1) IN GENERAL.-A taxpayer may elect to treat qualified
architectural and transportation barrier removal expenses which
are paid or incurred by him during the taxable year as expenses
which are not chargeable to capital account. The expenditures so
treated shall be allowed as a deduction.
(2) ELECTION.-An election under paragraph (1) shall be
made at such time and in such manner as the Secretary prescribes
by regulations.
(b) DEFINITIONS.-For purposes of this section-
"(1) ARCHITECTURAL AND TRANSPORTATION BARRIER REMOVAL
EXPENSES.-The term 'architectural and transportation barrier
removal expenses' means an expenditure for the purpose of mak-
ing any facility or public transportation vehicle owned or leased
by the taxpayer for use in connection with his trade or business
individuals. more accessible to, and usable by, handicapped and elderly
"(2) QUALIFIED ARCHITECTURAL AND TRANSPORTATION BARRIER
REMOVAL EXPENSE.-The term 'qualified architectural and trans-
portation barrier removal expense' means, with respect to any
such facility or public transportation vehicle, an architectural or
transportation barrier removal expense with respect to which the
taxpayer establishes, to the satisfaction of the Secretary, that
the resulting removal of any such barrier meets the standards
promulgated by the Secretary with the concurrence of the Archi-
H. R. 10612-396
tectural and Transportation Barriers Compliance Board and
set forth in regulations prescribed by the Secretary.
"(3) HANDICAPPED INDIVIDUAL-The term 'handicapped indi-
vidual' means any individual who has a physical or mental dis--
ability (including, but not limited to, blindness or deafness) which
for such individual constitutes or results in a functional limita-
tion to employment, or who has any physical or mental impair-
ment (including, but not limited to, a sight or hearing
impairment) which substantially limits one or more major life
activities of such individual.
'(c) LIMITATION.-The deduction allowed by subsection (a) for any
taxable year shall not exceed $25,000.
"(d) REGULATIONS.-The Secretary shall prescribe such regulations
as may be necessary to carry out the provisions of this section within
180 days after the date of the enactment of the Tax Reform Act of
1976."
(b) TECHNICAL AND CONFORMING AMENDMENTS.-
(1) The table of sections for such part VI is amended by add-
ing at the end thereof the following new item:
"Sec. 190. Expenditures to remove architectural and transportation bar-
riers to the handicapped and elderly."
(2) Section 263 (a) (1) (relating to capital expenditures) is
amended—
(A) by striking out "or" at the end of subparagraph (D)
thereof,
(B) by striking out the period at the end of subsection
(E) thereof and inserting in lieu thereof a comma and the
word "or", and
(C) by adding at the end thereof the following new
subparagraph:
"(F) expenditures for removal of architectural and trans-
portation barriers to the handicapped and elderly which
the taxpayer elects to deduct under section 190."
(3) Section 1245 (a) (relating to gain from dispositions of cer-
tain depreciable property) is amended-
(A) by striking out "or 188" each place it appears in para-
graphs (2) and (3) (D) and inserting in lieu thereof "188, or
190".
(B). by striking out "or 185" in paragraph (2) (D) and
inserting in lieu thereof "185, or 190"; and
(C) by adding at the end of paragraph (2) the following
new sentence: "For purposes of this section, any deduction
allowable under section 190 shall be treated as if it were a
deduction allowable for amortization."
(4) Section 1250 (b) (3) (relating to depreciation adjustments)
is amended by striking out "or 188" and inserting in lieu thereof
"188, or 190".
(c) EFFECTIVE DATE.-The amendments made by this section shall
apply to taxable years beginning after December 31, 1976, and before
January 1, 1980.
SEC. 2123. HIGH INCOME TAXPAYER REPORT.
The Secretary of the Treasury shall publish annually information
on the amount of tax paid by individual taxpayers with high total
incomes. Total income for this purpose is to be calculated and set forth
in three ways:
H. R. 10612-397
(1) by adding to adjusted gross income any items of tax pref-
erence excluded from, or deducted in arriving at, adjusted gross
income,
(2) by subtracting any investment expenses incurred in the
production of such income to the extent of the investment income,-
and
(3) by making both of the adjustments referred to in para-
graphs (1) and (2).
In any event these data are to include the number of such individuals
with total income over $200,000 who owe no Federal income tax (after
credits) and the deductions, exclusions or credits used by them to
avoid tax.
SEC. 2124. TAX INCENTIVES TO ENCOURAGE THE PRESERVATION OF
HISTORIC STRUCTURES.
(a) AMORTIZATION OF REHABILITATION EXPENDITURES.-
(1) ALLOWANCE OF DEDUCTION.-Part VI of subchapter B of
chapter 1 (relating to itemized deductions) is amended by adding
at the end thereof the following new section:
"SEC. 191. AMORTIZATION OF CERTAIN REHABILITATION EXPENDI-
TURES FOR CERTIFIED HISTORIC STRUCTURES.
"(a) ALLOWANCE OF DEDUCTION.-Every person, at his election,
shall be entitled to a deduction with respect to the amortization of the
amortizable basis of any certified historic structure (as defined in
subsection (d)) based on a period of 60 months. Such amortization
deduction shall be an amount, with respect to each month of such
period within the taxable year, equal to the amortizable basis at the
end of such month divided by the number of months (including the
month for which the deduction is computed) remaining in the period.
Such amortizable basis at the end of the month shall be computed
without regard to the amortization deduction for such month. The
amortization deduction provided by this section with respect to any
month shall be in lieu of the depreciation deduction with respect to
such basis for such month provided by section 167. The 60-month
period shall begin, as to any historic structure, at the election of the
taxpayer, with the month following the month in which the basis is
acquired, or with the succeeding taxable year.
(b) ELECTION OF AMORTIZATION.-The election of the taxpayer to
take the amortization deduction and to begin the 60-month period
with the month following the month in which the basis is acquired, or
with the taxable year succeeding the taxable year in which such basis
is acquired, shall be made by filing with the Secretary, in such man-
ner, in such form, and within such time as the Secretary may by regu-
lations prescribe, a statement of such election.
"(c) TERMINATION OF AMORTIZATION DEDUCTION.-A taxpayer who
has elected under subsection (b) to take the amortization deduction
provided in subsection (a) may, at any time after making such election,
discontinue the amortization deduction with respect to the remainder
of the amortization period, such discontinuance to begin as of the
beginning of any month specified by the taxpayer in a notice in writ-
ing filed with the Secretary before the beginning of such month. The
depreciation deduction provided under section 167 shall be allowed,
beginning with the first month as to which the amortization deduction
does not apply, and the taxpayer shall not be entitled to any further
amortization deduction under this section with respect to such certified
historic structure.
H. R. 10612-398
"(d) DEFINITIONS.-For purposes of this section-
'(1) CERTIFIED HISTORIC STRUCTURE.-The term 'certified his-
toric structure' means a building or structure which is of a char-
acter subject to the allowance for depreciation provided in section
167 which-
(A) is listed in the National Register,
"(B) is located in a Registered Historic District and is -
certified by the Secretary of the Interior as being of historic
significance to the district, or
" (C) is located in an historic district designated under a
statute of the appropriate State or local government if such
statute is certified by the Secretary of the Interior to the Sec-
retary as containing criteria which will substantially achieve
the purpose of preserving and rehabilitating buildings of his-
toric significance to the district.
(2) AMORTIZABLE BASIS.-The term 'amortizable basis' means
the portion of the basis attributable to amounts expended in con-
nection with certified rehabilitation.
" (3) CERTIFIED REHABILITATION.-The term 'certified rehabilita-
tion' means any rehabilitation of a certified historic structure
which the Secretary of the Interior has certified to the Secretary
as being consistent with the historic character of such property or
the district in which such property is located.
'(e) DEPRECIATION DEDUCTION.-The depreciation deduction pro-
vided by section 167 shall, despite the provisions of subsection (a),
be allowed with respect to the portion of the adjusted basis which is
not the amortizable basis.
"(f) LIFE TENANT AND REMAINDERMAN.-In the case of property
held by one person for life with remainder to another person, the
deduction under this section shall be computed as if the life tenant
were the absolute owner of the property and shall be allowable to the
life tenant.
"(g) CROSS REFERENCES.-
"(1) For rules relating to the listing of buildings and structures in
the National Register and for definitions of 'National Register' and
Registered Historic District', see section 470 et seq. of title 16 of the
United States Code.
"(2) For special rule with respect to certain gain derived from the dis-
position of property the adjusted basis of which is determined with
regard to this section, see section 1245."
(2) GAIN ON DISPOSITION.-Section 1245 (a) (relating to gain
from dispositions of certain depreciable property) is amended by
striking out "or 190" each place it appears and inserting in lieu
thereof "190, or 191".
(3) CONFORMING AMENDMENTS.-
(A) The table of sections for part VI of subchapter B of
chapter 1 is amended by inserting at the end thereof the fol-
lowing new item
"Sec. 191. Amortization of certain rehabilitation expenditures for certi-
fied historic structures."
(B) Section 642 (f) (relating to amortization deductions
of estates and trust) is amended by striking out "and 188"
and inserting in lieu thereof "188, and 191".
(C) Section 1082 (a) (2) (B) (relating to basis for deter-
mining gain or loss) is amended by striking out "or 188" and
inserting in lieu thereof "188, or 191".
H. R. 10612-399
(D) Section 1250(b) (3) (relating to depreciation adjust-
ments) is amended by striking out "or 190" and inserting in
lieu thereof "190 or 191".
(4) EFFECTIVE DATE.-The amendments made by this subsec-
tion shall apply with respect to additions to capital account made-
after June 14, 1976 and before June 15, 1981.
(b) DEMOLITION.-
(1) DISALLOWANCE OF DEDUCTIONS.-Part IX of subchapter B
of chapter 1 (relating to items not deductible) is amended by add-
ing at the end thereof the following new section
"SEC. 280B. DEMOLITION OF CERTAIN HISTORIC STRUCTURES.
"(a) GENERAL RULE.-In the case of the demolition of a certified
historic structure (as defined in section 191 (d) (1))
"(1) no deduction otherwise allowable under this chapter shall
be allowed to the owner or lessee of such structure for-
"(A) any amount expended for such demolition, or
(B) any loss sustained on account of such demolition; and
"(2) amounts described in paragraph (1) shall be treated as
properly chargeable to capital account with respect to the land
on which the demolished structure was located.
"(b) SPECIAL RULE FOR REGISTERED HISTOR DISTRICTS.-For pur-
poses of this section, any building or other stru ture located in a Regis-
tered Historic District shall be treated as a ce tified historic structure
unless the Secretary of the Interior has certif 1, prior to the demoli-
tion of such structure, that such structure is no of historic significance
to the district."
(2) CLERICAL AMENDMENT.-The table f sections for part IX
of subchapter B of chapter 1 is amende by adding at the end
thereof the following new item
"Sec. 280B. Demolition of certain historic structures."
(3) EFFECTIVE DATE.-The amendments made by this subsection
shall apply with respect to demolitions commencing after
June 30, 1976, and before January 1, 1981.
(c) DEPRECIATION OF IMPROVEMENTS.-
(1) METHOD OF DEPRECIATION.-Section 167 (relating to depre-
ciation) is amended by redesignating subsection (n) as (p), and
by inserting after subsection (m) the following new subsection:
"(n) STRAIGHT LINE METHOD IN CERTAIN CASES.-
"(1) IN GENERAL.-In the case of any property in whole or in
part constructed, reconstructed, erected, or used on a site which
was, on or after June 30, 1976, occupied by a certified historic
structure (as defined in section 191(d) (1)) which is demolished
or substantially altered (other than by virtue of a certified reha-
bilitation as defined in section 191 (d) (3)) after such date-
"(A) subsections (b), (j), (k), an (1) shall not apply,
"(B) the term 'reasonable allowance' as used in subsection
(a) shall mean only an allowance computed under the straight
line method.
"(2) Exception.-The limitations imposed by this subsection
shall not apply to personal property."
(2) EFFECTIVE DATE.-The amendment made by this subsection
shall apply to that portion of the basis which is attributable to
construction, reconstruction, or erection after December 31, 1975,
and before January 1, 1981.
(d) SUBSTANTIALLY REHABILITATED PROPERTY.-
(1) Section 167 (relating to depreciation) is amended by insert-
H. R. 10612-400
ing after subsection (n) (as added by subsection (c) of this
section) the following new subsection:
(o) SUBSTANTIALLY REHABILITATED HISTORIC PROPERTY.-
(1) GENERAL RULE.-Pursuant to regulations prescribed by the
Secretary, the taxpayer may elect to compute the depreciation-
deduction attributable to substantially rehabilitated historic prop-
erty as though the original use of such property commenced with
him. The election shall be effective with respect to the taxable year
referred to in paragraph (2) and all succeeding taxable years.
"(2) SUBSTANTIALLY REHABILITATED PROPERTY.-For purposes
of paragraph (1), the term "substantially rehabilitated historic
property' means any certified historic structure (as defined in sec-
tion 191 (d) (1)) with respect to which the additions to capital
account for any certified rehabilitation (as defined in section
191 (d) (3)) during the 24-month period ending on the last day of
any taxable year, reduced by any amounts allowed or allowable as
depreciation or amortization with respect thereto, exceeds the
greater of-
"(A) the adjusted basis of such property, or
(B) $5,000.
The adjusted basis of the property shall be determined as of the
beginning of the first day of such 24-month period, or of the hold-
ing period of the property (within the meaning of section 1250
(e) whichever is later."
(2) EFFECTIVE DATE.-The amendment made by this subsection
shall apply with respect to additions to capital account occurring
after June 30, 1976, and before July 1, 1981.
(e) TRANSFERS OF PARTIAL INTERESTS IN PROPERTY FOR CONSERVA-
TION PURPOSES.-
(1) INCOME TAX DEDUCTIONS FOR CHARITABLE CONTRIBUTIONS OF
PARTIAL INTERESTS IN PROPERTY FOR CONSERVATION PURPOSES.-Sec-
tion 170(f) (3) (relating to charitable contributions) is
amended-
(A) by striking out "or" at the end of subparagraph
(B) (i),
(B) by striking out "property.", at the end of subpara-
graph (B) (ii) and inserting in lieu thereof "property,",
(C) by adding after clause (ii) of subparagraph (B) the
following new clauses:
(iii) a lease on, option to purchase, or easement with
respect to real property of not less than 30 years' dura-
tion granted to an organization described in subsection
(b) (1) (A) exclusively for conservation purposes, or
(iv) a remainder interest in real property which is
granted to an organization described in subsection (b)
(1) (A) exclusively for conservation purposes.", and
(D) by adding at the end thereof the following new sub-
paragraph:
"(C) CONSERVATION PURPOSES DEFINED.-For purposes of
subparagraph (B), the term 'conservation purposes' means-
"(i) the preservation of land areas for public outdoor
recreation or education, or scenic enjoyment;
(ii) the preservation of historically important land
areas or structures; or
(iiii) the protection of natural environmental systems.".
(2) ESTATE TAX DEDUCTION FOR TRANSFER OF PARTIAL INTERESTS
IN PROPERTY FOR CONSERVATIONS PURPOSES.-Section 2055 (e) (2)
H. R. 10612-401
(relating to deductions from gross estate) is amended by strik-
ing out " (other than a remainder interest in a personal residence
or farm or an undivided portion of the decedent's entire interest
in property)' and inserting in lieu thereof (other than an inter-
est described in section 170(f) (3) (B))"
(3) GIFT TAX DEDUCATION FOR TRANSFERS OF PARTIAL INTERESTS IN
PROPERTY FOR CONSERVATION PURPOSES.-Section 2522 (c) (2)
(relating to deductions from taxable gifts) is amended by strik-
ing out " (other than a remainder interest in a personal residence
or farm or an undivided portion of the donor's entire interest in
property)" and inserting in lieu thereof (other than an inter-
est described in section 170(f) (3) (B))'
(4) EFFECTIVE DATE.-The amendments made by this subsection
shall apply with respect to contributions or transfers made after
June 13, 1976, and before June 14, 1977.
SEC. 2125. AMENDMENT TO SUPPLEMENTAL SECURITY INCOME
PROGRAM.
Section 1612 (a) (2) (A) (iii) of the Social Security Act is amended
by striking out "fifth month" and inserting in lieu thereof "seven-
teenth month".
SEC. 2126. EXTENSION OF CARRY-OVER PERIOD FOR CUBAN EXPRO-
PRIATION LOSSES
Subparagraph (D) of section 172(b) (1) (relating to years to which
loss may be carried) is amended by striking out "15" and inserting in
lieu thereof "20".
SEC. 2127. OUTDOOR ADVERTISING DISPLAYS.
(a) IN GENERAL-Section 1033 (g) (relating to condemnation of
real property held for productive use in trade or business or for invest-
ment) is amended by adding at the end thereof the following new
paragraph:
(3) ELECTION TO TREAT OUTDOOR ADVERTISING DISPLAYS AS REAL
PROPERTY.-
"(A) IN GENERAL-A taxpayer may elect, at such time
and in such manner as the Secretary may prescribe, to treat
property which constitutes an outdoor advertising display
as real property for purposes of this chapter. The election
provided by this subparagraph may not be made with respect
to any property with respect to which the credit allowed by
section 38 (relating to investment in certain depreciable
property) is or has been claimed or with respect to which
an election under section 179 (a) (relating to additional first-
year depreciation allowance for small business) is in effect.
(B) ELECTION.-An election made under subparagraph
(A) may not be revoked without the consent of the Secretary.
(C) OUTDOOR ADVERTISING DISPLAY.-For purposes of this
paragraph, the term 'outdoor advertising display' means a
rigidly assembled sign, display, or device permanently affixed
to the ground or permanently attached to a building or other
inherently permanent structure constituting, or used for the
display of, a commercial or other advertisement to the public.
(D) CHARACTER OF REPLACEMENT PROPERTY.-For purposes
of this subsection, an interest in real property purchased as
replacement property for a compulsorily or involuntarily con-
verted outdoor advertising display defined in subparagraph
(C) (and treated by the taxpayer as real property) shall be
H. R. 10612-402
considered property of a like kind as the property converted
without regard to whether the taxpayer's interest in the
replacement property is the same kind of interest the tax-
payer held in the converted property."
(b) EFFECTIVE DATE.-The amendment made by this section shall
apply to taxable years beginning after December 31, 1970.
SEC. 2128. TAX TREATMENT OF LARGE CIGARS.
(a) IN GENERAL-So much of section 5701 (a) (relating to the
manner of taxation and the rates of tax on cigars) as follows para-
graph (1) is amended to read as follows:
(2) LARGE CIGARS.-On cigars weighing more than 3 pounds
per thousand, a tax equal to 81/2 percent of the wholesale price,
but not more than $20 per thousand.
Cigars not exempt from tax under this chapter which are removed but
not intended for sale shall be taxed at the same rate as similar cigars
removed for sale."
(b) DEFINITION OF WHOLESALE PRICE.-Section 5702 is amended by
adding at the end thereof the following new subsection:
"(m) WHOLESALE PRICE.-Wholesale price' means the manufactur-
er's, or importer's, suggested delivered price at which the cigars are to
be sold to retailers, inclusive of the tax imposed by this chapter or sec-
tion 7652, but exclusive of any State or local taxes imposed on cigars
as a commodity, and before any trade, cash, or other discounts, or any
promotion, advertising, display, or similar allowances. Where the
manufacturer's or importer's suggested delivered price to retailers is
not adequately supported by bona fide arm's length sales, or where the
manufacturer or importer has no suggested delivered price to retailers,
the wholesale price shall be the price for which cigars of comparable
retail price are sold to retailers in the ordinary course of trade as
determined by the Secretary."
(c) RECORDKEEPING REQUIREMENT.-Section 5741 is amended to read
as follows:
"SEC. 5741. RECORDS TO BE MAINTAINED.
"Every manufacturer of tobacco products or cigarette papers and
tubes, every importer, and every export warehouse proprietor shall
keep such records in such manner as the Secretary shall by regulation
prescribe. The records required under this section shall be available
for inspection by any internal revenue officer during business hours."
(d) CLERICAL AMENDMENTS.-
(1) The heading of subchapter D of chapter 52 is amended to
read as follows:
"Subchapter D-Records of Manufacturers and Importers of
Tobacco Products and Cigarette Papers and Tubes, and
Export Warehouse Proprietors".
(2) The table of subchapters for chapter 52 is amended by
striking out the item relating to subchapter D and inserting in
lieu thereof the following:
"SUBCHAPTEE D. Records of manufacturers and importers of tobacco
products and cigarette papers and tubes, and export
warehouse proprietors."
(e) EFFECTIVE DATE.-The amendments made by this section shall
take effect on the first month which begins more than 90 days after the
date of the enactment of this Act.
H. R. 10612-403
SEC. 2129. TREATMENT OF GAIN FROM SALES OR EXCHANGES
BETWEEN RELATED PARTIES.
(a) IN GENERAL-Section 1239 (relating to gain from sale of cer-
tain property between spouses or between an individual and a con-.-
trolled corporation) is amended to read as follows:
"SEC. 1239. GAIN FROM SALE OF DEPRECIABLE PROPERTY BETWEEN
CERTAIN RELATED TAXPAYERS.
"(a) TREATMENT OF GAIN AS ORDINARY INCOME.-In the case of a
sale or exchange of property, directly or indirectly, between related
persons, any gain recognized to the transferor shall be treated as ordi-
nary income if such property is, in the hands of the transferee, sub-
ject to the allowance for depreciation provided in section 167.
(b) RELATED PERSONS.-For purposes of subsection (a), the term
'related persons' means-
" (1) a husband and wife,
(2) an individual and a corporation 80 percent or more in value
of the outstanding stock of which is owned, directly or indirectly,
by or for such individual, or
(3) two or more corporations 80 percent or more in value of
the outstanding stock of each of which is owned, directly or
indirectly, by or for the same individual.
"(c) CONSTRUCTIVE OWNERSHIP OF STOCK.-Section 318 shall apply
in determining the ownership of stock for purposes of this section,
except that sections 318 (a) (2) (C) and 318 (3) (C) shall be applied
without regard to the 50-percent limitation contained therein. "
(b) EFFECTIVE DATE.-The amendment made by this section shall
apply to sales or exchanges after the date of the enactment of this Act.
For purposes of the preceding sentence, a sale or exchange is considered
to have occurred on or before such date of enactment if such sale or
exchange is made pursuant to a binding contract entered into on or
before that date.
SEC. 2130. APPLICATION OF SECTION 117 TO CERTAIN EDUCATION
PROGRAMS FOR MEMBERS OF THE UNIFORMED SERVICES.
Subsection (c) of section 4 of the Act entitled an Act to suspend
until the close of June 30, 1975, the duty on certain carboxymethyl
cellulose salts, and for other purposes, approved October 26, 1974 (88
Stat. 1457; Public Law 93-483), is amended by striking out "and
1975" and inserting in lieu thereof the following: "and 1975, and, in
the case of a member of a uniformed service receiving training in
programs described in subsection (a) during calendar year 1976, with
respect to amounts received during calendar years 1976, 1977, 1978, and
1979."
SEC. 2131. EXCHANGE FUNDS.
(a) CORPORATE REORGANIZATIONS.-Paragraph (2) of section 368(a)
(special rules relating to definition of reorganization) is amended by
adding at the end thereof the following new subparagraph:
"(F) CERTAIN TRANSACTIONS INVOLVING 2 OR MORE INVEST-
MENT COMPANIES.-
'(i) If immediately before a transaction described in
paragraph (1) (other than subparagraph (E) thereof),
2 or more parties to the transaction were investment com-
panies, then the transaction shall not be considered to be
a reorganization with respect to any such investment
company (and its shareholders and security holders)
H. R. 10612-404
unless it was a regulated investment company, a real
estate investment trust, or a corporation which meets the
requirements of clause (ii).
" (ii) A corporation meets the requirements of this
clause if not more than 25 percent of the value of its total
assets is invested in the stock and securities of any one
issuer, and not more than 50 percent of the value of its
total assets is invested in the stock and securities of 5 or
fewer issuers. For purposes of this clause, all members of
a controlled group of corporations (within the meaning
of section 1563 (a)) shall be treated as one issuer.
'(iii) For purposes of this subparagraph the term
'investment company' means a regulated investment com-
pany, a real estate investment trust, or a corporation
more than 50 percent of the value of whose total assets
are stock and securities and more than 80 percent of the
value of whose total assets are assets held for investment.
In making the 50-percent and 80-percent determinations
under the preceding sentence, stock and securities in any
subsidiary corporation shall be disregarded and the par-
ent corporation shall be deemed to own its ratable share
of the subsidiary's assets, and a corporation shall be
considered a subsidiary if the parent owns 50 percent or
more of the combined voting power of all classes of stock
entitled to vote, or 50 percent or more of the total value
of shares of all classes of stock outstanding.
(iv) For purposes of this subparagraph, in deter-
mining total assets there shall be excluded cash and cash
items (including receivables). Government securities,
and, under regulations prescribed by the Secretary, assets
acquired (through incurring indebtedness or otherwise)
for purposes of meeting the requirements of clause (ii)
or ceasing to be an investment company.
'(v) This subparagraph shall not apply if the stock of
each investment company is owned substantially by the
same persons in the same proportions.
(vi) If an investment company which is not diversi-
fied within the meaning of clause (ii) acquires assets of
another corporation, clause (i) shall be applied to such
investment company and its shareholders and security
holders as though its assets had been acquired by such
other corporation. If such investment company acquires
stock of another corporation in a reorganization described
in section 368 (a) (1) (B) (hereafter referred to as the
'actual acquisition'), clause (i) shall be applied to the
shareholders and security holders of such investment com-
pany as though they had exchanged with such other cor-
poration all of their stock in such investment company
for a percentage of the value of the total outstanding
stock of the other corporation equal to the percentage of
the value of the total outstanding stock of such invest-
ment company which such shareholders own immediately
after the actual acquisition. For purposes of section 1001,
the deemed acquisition or exchange referred to in the two
preceding sentences shall be treated as a sale or exchange
of property by the corporation and by the shareholders
and security holders to which clause (i) is applied."
H. R. 10612-405
(b) PARTNERSHIPS-Section 721 (relating to nonrecognition of gain
or loss on transfers to partnerships) is amended to read as follows:
"SEC. 721. NONRECOGNITION OF GAIN OR LOSS ON CONTRIBUTION.
"(a) GENERAL RULE.-No gain or loss shall be recognized to a part-
nership or to any of its partners in the case of a contribution of prop=
erty to the partnership in exchange for an interest in the partnership.
(b) SPECIAL RULE.-Subsection (a) shall not apply to gain realized
on a transfer of property to a partnership which would be treated as an
investment company (within the meaning of section 351) if the part-
nership were incorporated."
(c) CONFORMING AMENDMENT.-Sections 722 and 723 (relating to
tax basis) are each amended by striking out "contribution." and insert-
ing in lieu thereof "contribution increased by the amount (if any) of
gain recognized to the contributing partner at such time."
(d) COMMON TRUST FUNDs.-Subsection (e) of section 584 (relating
to admission to and withdrawal from a common trust fund) is
amended by inserting after the first sentence the following new sen-
tence: "The admission of a participant shall be treated with respect to
the participant as the purchase of, or an exchange for, the participat-
ing interest."
(e) TRUSTS.-
(1) IN GENERAL.Section 683 (relating to applicability of pro-
visions) is amended to read as follows:
"SEC. 683. USE OF TRUST AS AN EXCHANGE FUND.
"(a) GENERAL RULE.-Except as provided in subsection (b), if
property is transferred to a trust in exchange for an interest in other
trust property and if the trust would be an investment company
(within the meaning of section 351) if it were a corporation, then
gain shall be recognized to the transferor.
(b) EXCEPTION FOR POOLED INCOME FUNDs.-Subsection (a) shall
not apply to any transfer to a pooled income fund (within the mean-
ing of section 642 (c) (5)
(2) CONFORMING AMENDMENT.-The table of sections for sub-
part F of part I of subchapter J of chapter 1 is amended by
striking out the item relating to section 683 and inserting in lieu
thereof the following:
"Sec. 683. Use of trust as an exchange fund."
(f) EFFECTIVE DATES.-
(1) Except as provided in paragraph (2), the amendment
made by subsection (a) shall apply to transfers made after
February 17, 1976, in taxable years ending after such date.
(2) The amendment made by subsection (a) shall not apply
to transfers made in accordance with a ruling issued by the
Internal Revenue Service before February 18, 1976, holding that
a proposed transaction would be a reorganization described in
paragraph (1) of section 368 (a) of the Internal Revenue Code
of 1954.
(3) Except as provided in paragraph (4), the amendments
made by subsections (b) and (c) shall apply to transfers made
after February 17, 1976, in taxable years ending after such date.
(4) The amendments made by subsections (b) and (c) shall
not apply to transfers to a partnership made on or before the
90th day after the date of the enactment of this Act if-
(A) either-
H. R. 10612-406
(i) a ruling request with respect to such transfers
was filed with the Internal Revenue Service before
March 27, 1976, or
(ii) a registration statement with respect to such
transfers was filed with the Securities and Exchange
Commission before March 27, 1976,
(B) the securities transferred were deposited on or before"
the 60th day after the date of the enactment of this Act, and
(C) either-
(i) the aggregate value (determined as of the close of
the 60th day referred to in subparagraph (B), or, if
earlier, the close of the deposit period) of the securities
SO transferred does not exceed $100,000,000, or
(ii) the securities transferred were all on deposit on
February 29, 1976, pursuant to a registration statement
referred to in subparagraph (A) (ii).
(5) If no registration statement was required to be filed with
the Securities and Exchange Commission with respect to the
transfer of securities to any partnership, then paragraph (4)
shall be applied to such transfers—
(A) as if paragraph (4) did not contain subparagraph
(A) (ii) thereof, and
(B) by substituting "$25,000,000" for "$100,000,000" in
subparagraph (C) (i) thereof.
(6) The amendments made by subsections (d) and (e) shall
take effect on April 8, 1976, in taxable years ading on or after
such date.
SEC. 2132. CONTRIBUTIONS OF CERTAIN GOVERNME Γ PUBLICATIONS.
(a) IN GENERAL-Section 1221 (relating to d inition of capital
asset) is amended by-
(1) striking out "or" at the end of paragraph (4) ;
(2) striking out the period at the end of paragraph (5) and
inserting in lieu thereof ; or", and
(3) adding after paragraph (5) the following new paragraph:
(6) a publication of the United States Government (including
the Congressional Record) which is received from the United
States Government or any agency thereof, other than by purchase
at the price at which it is offered for sale to the public, and which
is held by--
(A) a taxpayer who SO received such publication, or
(B) a taxpayer in whose hands the basis of such publica-
tion is determined, for purposes of determining gain from a
sale or exchange, in whole or in part by reference to the basis
of such publication in the hands of a taxpayer described in
subparagraph (A).".
(b) EFFECTIVE DATE-The amendment made by subsection (a)
shall apply to sales, exchanges, and contributions inde after the date
of enactment of this Act.
SEC. 2133. TAX INCENTIVES STUDY.
(a) STUDY.-The Joint Committee on Taxation, in consultation
with the Treasury, shall make a full and complete study and compara-
tive analysis of the cost effectiveness of different kinds of tax incentives,
including an analysis and study of the most effective way to use tax
cuts in a period of business recession to provide a stimulus to the
economy.
H. R. 10612-407
(b) REPORT.-The Joint Committee on Taxation shall submit to the
Committee on Finance of the Senate and to the Committee on Ways
and Means of the House of Representatives a final report of its study
and investigation together with its recommendations, including recom-
mendations for legislation, as it deems advisable.
(c) REPORTING DATE.-The final report called for in subsection (b)
of this section shall be submitted no later than September 30, 1977.
SEC. 2134. PREPAID LEGAL EXPENSES.
(a) EXCLUSION.-Part III of subchapter B of chapter 1 is amended
by inserting after section 119 the following new section:
"SEC. 120. AMOUNTS RECEIVED UNDER QUALIFIED GROUP LEGAL
SERVICES PLANS.
"(a) EXCLUSION BY EMPLOYEE FOR CONTRIBUTIONS AND LEGAL SERV-
ICES PROVIDED BY EMPLOYER.-Gross income of an employee, his spouse,
or his dependents, does not include-
" (1) amounts contributed by an employer on behalf of an
employee, his spouse, or his dependents under a qualified group
legal " services plan (as defined in subsection (b)) ; or
(2) the value of legal services provided, or amounts paid for
legal services, under a qualified group legal services plan (as
defined in subsection (b)) to, or with respect to, an employee, his
spouse, or his dependents.
(b) QUALIFIED GROUP LEGAL SERVICES PLAN.-For purposes of
this section, a qualified group legal services plan is a separate written
plan of an employer for the exclusive benefit of his employees or their
spouses or dependents to provide such employees, spouses, or depend-
ents with specified benefits consisting of personal legal services through
prepayment of, or provision in advance for, legal fees in whole or in
part by the employer, if the plan meets the requirements of subsec-
tion (c).
"(c) REQUIREMENTS.--
'(1) DISCRIMINATION.-The contributions or benefits provided
under the plan shall not discriminate in favor of employees who
are officers, shareholders, self-employed individuals, or highly
compensated.
'(2) ELIGIBILITY.-The plan shall benefit employees who qual-
ify under a classification set up by the employer and found by
the Secretary not to be discriminatory in favor of employees who
are described in paragraph (1). For purposes of this paragraph,
there shall be excluded from consideration employees not included
in the plan who are included in a unit of employees covered by
an agreement which the Secretary of Labor finds to be a collec-
tive bargaining agreement between employee representatives and
one or more employers, if there is evidence that group legal serv-
ices plan benefits were the subject of good faith bargaining
between such employee representatives and such employer or
employers.
(3) CONTRIBUTION LIMITATION.-Not more than 25 percent of
the amounts contributed under the plan during the year may be
provided for the class of individuals who are shareholders or
owners (or their spouses or dependents), each of whom (on any
day of the year) owns more than 5 percent of the stock or of the
capital or profits interest in the employer.
(4) NOTIFICATION.-The plan shall give notice to the Secre-
tary, in such manner as the Secretary may by regulations pre-
scribe, that it is applying for recognition of the status of a
qualified group legal services plan.
H. R. 10612-408
"(5) CONTRIBUTIONS.-Amounts contributed under the plan
shall be paid only (A) to insurance companies, or to organiza-
tions or persons that provide personal legal services, or indem-
nification against the cost of personal legal services, in exchange
for a prepayment or payment of a premium, (B) to organizations.-
or trusts described in section 501 (c) (20), (C) to organizations
described in section 501 (c) which are permitted by that section
to receive payments from an employer for support of one or more
qualified group legal services plan or plans, except that such
organizations shall pay or credit the contribution to an organiza-
tion or trust described in section 501 (c) (20), (D) as prepayments
to providers of legal services under the plan, or (E) a combina-
tion of the above.
'(d) OTHER DEFINITIONS AND SPECIAL RULES.-For purposes of this
section-
(1) SELF-EMPLOYED INDIVIDUAL; EMPLOYEE.-The term 'self-
employed individual' means, and the term 'employee' includes,
for any year, an individual who is an employee within the mean-
ing of section 401 (c) (1) (relating to self-employed individuals).
"
(2) EMPLOYER.-An individual who owns the entire interest
in an unincorporated trade or business shall be treated as his own
employer. A partnership shall be treated as the employer of each
partner who is an employee within the meaning of paragraph (1).
'(3) ALLOCATIONS.- Allocations of amounts contributed under
the plan shall be made in accordance with regulations prescribed
by the Secretary and shall take into account the expected relative
utilization of benefits to be provided from such contributions or
plan assets and the manner in which any premium or other charge
was developed.
"(4) DEPENDENT.-The term 'dependent' has the meaning given
to it by section 152.
"(5) EXCLUSIVE BENEFIT.-In the case of a plan to which con-
tributions are made by more than one employer, in determining
whether the plan is for the exclusive benefit of an employer's
employees or their spouses or dependents, the employees of any
employer who maintains the plan shall be considered to be the
employees of each employer who maintains the plan.
(6) ATTRIBUTION RULES.-For purposes of this section-
'(A) ownership of stock in a corporation shall be deter-
mined in accordance with the rules provided under subsec-
tions (d) and (e) of section 1563 (without regard to section
1563 (e) (3) (C)), and
"(B) the interest of an employee in a trade or business
which is not incorporated shall be determined in accordance
with regulations prescribed by the Secretary, which shall be
based on principles similar to the principles which apply
in the case of subparagraph (A).
" (7) TIME OF NOTICE TO SECRETARY.-A plan shall not be a quali-
fied group legal services plan for any period prior to the time
notification was provided to the Secretary in accordance with
subsection (c) (4) if such notice is given after the time prescribed
by the Secretary by regulations for giving such notice."
(b) EXEMPT STATUS.-Section 501 (c) (relating to exempt organi-
zations) is amended by adding at the end thereof the following new
paragraph:
(20) an organization or trust created or organized in the
United States, the exclusive function of which is to form part of
H. R. 10612-409
a qualified group legal services plan or plans, within the meaning
of section 120. An organization or trust which receives contribu-
tions because of section 120 (c) (5) (C) shall not be prevented from
qualifying as an organization described in section 501 (c) (20)
merely because it provides legal services or indemnification
against the cost of legal services unassociated with a qualified
group legal services plan."
(c) TECHNICAL AMENDMENT.-The table of sections for part III of
subchapter B of chapter 1 is amended by inserting after the item relat-
ing to section 119 the following new item
"Sec. 120. Amounts received under qualified group legal services plans."
(d) STUDY AND REPORT BY SECRETARIES OF TREASURY AND LABOR.-
(1) A complete study and investigation with respect to the
desirability and feasibility of continuing the exclusion from
income of certain prepaid group legal services benefits under sec-
tion 120 of the Internal Revenue Code of 1954 shall be made by
the Secretary of Labor and by the Secretary of the Treasury.
(2) The Secretary of Labor and the Secretary of the Treasury
shall report to the President and the Congress with respect to the
study and investigation conducted under paragraph (1) not later
than December 31, 1980.
(e) EFFECTIVE DATES.-
(1) IN GENERAL-Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 1976, and ending before January 1,
1982.
(2) NOTICE REQUIREMENT.-For purposes of section 120(d) (6)
of the Internal Revenue Code of 1954, the time prescribed by the
Secretary of the Treasury by regulations for giving the notice
required by section 120 (c) (4) of such Code shall not expire
before the 90th day after the day on which regulations prescribed
under such section 120 (c) (4) first become final.
(3) EXISTING PLANS.-
(A) For purposes of section 120 of the Internal Revenue
Code of 1954, a written group legal services plan which was
in existence on June 4, 1976, shall be considered as satisfying
the requirements of subsections (b) and (c) of such section
120 for the period ending with the compliance date (deter-
mined under subparagraph (B)).
(B) COMPLIANCE DATE-For purposes of this paragraph,
the term "compliance date" means—
(i) the date occurring 180 days after the date of the
enactment of this Act, or
(ii) if later, in the case of a plan which is maintained
pursuant to one or more agreements which the Secre-
tary of Labor finds to be collective bargaining agree-
ments, the earlier of December 31, 1981, or the date on
which the last of the collective bargaining agreements
relating to the plan terminates (determined without
regard to any extension thereof agreed to after the date
of the enactment of this Act).
SEC. 2135. SPECIAL RULE FOR CERTAIN CHARITABLE CONTRIBUTIONS
OF INVENTORY AND OTHER PROPERTY.
(a) IN GENERAL-Section 170 (relating to certain contributions
of ordinary income and capital gain property) is amended by adding
at the end thereof the following new paragraph:
H.R. 10612-410
"(3) SPECIAL RULE FOR CERTAIN CONTRIBUTIONS OF INVENTORY
AND OTHER PROPERTY.-
"(A) QUALIFIED CONTRIBUTIONS.-For purposes of this
paragraph, a qualified contribution shall mean a charitable
contribution of property described in paragraph (1) or (2)
of section 1221, by a corporation (other than a corporation_
which is an electing small business corporation within the
meaning of section 1371 (b)) to an organization which is
described in section 501 (c) (3) and is exempt under section
501 (a) (other than a private foundation, as defined in section
509 (a), which is not an operating foundation, as defined in
section 4942 (j) (3)), but only if-
"(i) the use of the property by the donee is related to
the purpose or function constituting the basis for its
exemption under section 501 and the property is to be
used by the donee solely for the care of the ill, the needy,
or infants;
(ii) the property is not transferred by the donee in
exchange for money, other property, or services;
" (iii) the taxpayer receives from the donee a written
statement representing that its use and disposition of the
property will be in accordance with the provisions of
clauses (i) and (ii) ; and
"(iv) in the case where the property is subject to regu-
lation under the Federal Food, Drug, and Cosmetic Act,
as amended, such property must fully satisfy the applica-
ble requirements of such Act and regulations promul-
gated thereunder on the date of transfer and for one
hundred and eighty days prior thereto.
'(B) AMOUNT OF REDUCTION.-The reduction under para-
graph (1) (A) for any qualified contribution (as defined in
subparagraph (A)) shall be no greater than the sum of-
"(i) one-half of the amount computed under para-
graph (1) (A) (computed without regard to this para-
graph), and
(ii) the amount (if any) by which the charitable con-
tribution deduction under this section for any qualified
contribution (computed by taking into account the
amount determined in clause (i), but without regard to
this clause) exceeds twice the basis of such property.
"(C) This paragraph shall not apply to SO much of the
amount of the gain described in paragraph (1) (A) which
would be long-term capital gain but for the application of
sections 617, 1245. 1250, 1251. or 1252."
(b) EFFECTIVE DATE.-The amendment made by this section applies
to charitable contributions made after the date of enactment of this
Act, in taxable years ending after such date.
SEC. 2136. TAX TREATMENT OF THE GRANTOR OF OPTIONS OF STOCK,
SECURITIES, AND COMMODITIES.
(a) Section 1234 (relating to options to buy or sell) is amended to
read as follows:
"SEC. 1234. OPTIONS TO BUY OR SELL.
"(a) TREATMENT OF GAIN OR Loss IN THE CASE OF THE PURCHASER.-
"(1) GENERAL RULE.-Gain or loss attributable to the sale or
exchange of, or loss attributable to failure to exercise, an option
H. R. 10612-411
to buy or sell property shall be considered gain or loss from the
sale or exchange of property which has the same character as the
property to which the option relates has in the hands of the tax-
payer (or would have in the hands of the taxpayer if acquired
by him).
(2) SPECIAL RULE FOR LOSS ATTRIBUTABLE TO FAILURE TO EXER-
CISE OPTION.-For purposes of paragraph (1), if loss is attribut-
able to failure to exercise an option, the option shall be deemed
to have been sold or exchanged on the day it expired.
"(3) NONAPPLICATION OF SUBSECTION.-This subsection shall not
apply to-
"(A) an option which constitutes property described in
paragraph (1) of section 1221;
"(B) in the case of gain attributable to the sale or
exchange of an option, any income derived in connection with
such option which, without regard to this subsection, is
treated as other than gain from the sale or exchange of a
capital asset; and
" (C) a loss attributable to failure to exercise an option
described in section 1233 (c).
"(b) TREATMENT OF GRANTOR OF OPTION IN THE CASE OF STOCK,
SECURITIES, OR COMMODITIES.-
"(1) GENERAL RULE.-In the case of the grantor of the option,
gain or loss from any closing transaction with respect to, and
gain on lapse of, an option in property shall be treated as a gain
or loss from the sale OF exchange of a capital asset held not more
than 6 months.
" (2) DEFINTIONS.-For purposes of this subsection-
'(A) CLOSING TRANSACTION.-The term 'closing transac-
tion' means any termination of the taxpayer's obligation
under an option in property other than through the exercise
or lapse of the option.
(B) PROPERTY.-The term 'property' means stocks and
securities (including stocks and securities dealt with on a
'when issued' basis), commodities, and commodity futures.
" (3) NONAPPLICATION OF SUBSECTION.-This subsection shall not
apply to any option granted in the ordinary course of the tax-
payer's trade or business of granting options."
(b) EFFECTIVE DATE.-The amendment made by subsection (a) shall
apply to options granted after September 1, 1976.
SEC. 2137. EXEMPT-INTEREST DIVIDENDS OF REGULATED INVEST-
MENT COMPANIES.
(a) GENERAL.Section 852 (a) (1) (relating to regulated investment
companies) is amended to read as follows:
(1) the deduction for dividends paid during the taxable year
(as defined in section 561, but without regard to capital gain
dividends) equals or exceeds the sum of-
(A) 90 percent of its investment company taxable income
for the taxable year determined without regard to subsection
(b) (2) (D) ; and
(B) 90 percent of the excess of (i) its interest income
excludable from gross income under section 103 (a) (1) over
(ii) its deductions disallowed under sections 265, 171 (a) (2),
and".
(b) DIVIDENDS PAID DEDUCTION.-Section 852 (b) (2) (D) (relating
to taxable income) is amended to read as follows:
H. R. 10612-412
"(D) the deduction for dividends paid (as defined in sec-
tion 561) shall be allowed, but shall be computed without
regard to capital gain dividends and exempt-interest
dividends."
(c) EXEMPT-INTEREST DIVIDENDS.-Section 852(b) (relating to
method of taxation of regulated investment companies and share-
holders) is amended by inserting after paragraph (4) the following
new paragraph (5) :
"(5) EXEMPT-INTEREST DIVIDENDS.-If, at the close of each quar-
ter of its taxable year, at least 50 percent of the value (as defined
in section 851 (c) (4)) of the total assets of the regulated invest-
ment company consists of obligations described in section
103 (a) (1), such company shall be qualified to pay exempt-interest
dividends, as defined herein, to its shareholders.
"(A) DEFINITION.-An exempt-interest dividend means
any dividend or part thereof (other than a capital gain
dividend) paid by a regulated investment company and des-
ignated by it as an exempt-interest dividend in a written
notice mailed to its shareholders not later than 45 days after
the close of its taxable year. If the aggregate amount SO
designated with respect to a taxable year of the company
(including exempt-interest dividends paid after the close of
the taxable year as described in section 855) is greater than
the excess of-
"(i) the amount of interest excludable from gross
income under section 103(a) (1), over
"(ii) the amounts disallowed as deductions under
sections 265 and 171 (a) (2),
the portion of such distribution which shall constitute an
exempt-interest dividend shall be only that proportion of the
amount SO designated as the amount of such excess for such
taxable year bears to the amount so designated.
'(B) TREATMENT OF EXEMPT-INTEREST DIVIDENDS BY SHARE-
HOLDERS.-An exempt-interest dividend shall be treated by
the shareholders for all purposes of this subtitle as an item
of interest excludable from gross income under section 103(a)
(1). Such purposes include but are not limited to-
"(i) the determination of gross income and taxable
income,
(ii) the determination of distributable net income
under subchapter J,
(iii) the allowance of, or calculation of the amount
of, any credit or deduction, and
(iv) the determination of the basis in the hands of
any shareholder of any share of stock of the company."
(d) TECHNICAL AMENDMENT.-Section 103(g), as redesignated by
section 1305 of this Act (relating to exclusions from gross income of
interest on certain government obligations) is amended by inserting
after paragraph (23) the following new paragraph:
"(24) Exempt-interest dividends.-For treatment of exempt-interest
dividends, see section 852(b)(5)(B)."
(e) DISALLOWANCE OF DEDUCTIONS-Section 265 (relating to non-
allowance of deductions for expenses and interest relating to tax-
exempt income) is amended by adding at the end thereof the following
new paragraphs:
H. R. 10612-413
"(3) CERTAIN REGULATED INVESTMENT COMPANIES.-In the case
of a regulated investment company which distributes during
the taxable year an exempt-interest dividend (including exempt-
interest dividends paid after the close of the taxable year as
described in section 855), that portion of any amount otherwise
allowable as a deduction which the amount of the income of such
company wholly exempt from taxes under this subtitle bears to
the total of such exempt income and its gross income (excluding
from gross income, for this purpose, capital gain net income, as
defined in section 1222 (9))
'(4) INTEREST RELATED TO EXEMPT-INTEREST DIVIDENDS.-Inter-
est on indebtedness incurred or continued to purchase or carry
shares of stock of a regulated investment company which during
the taxable year of the holder thereof distributes exempt-interest
dividends."
(e) EFFECTIVE DATE-The amendments made by this section shall
apply to taxable years beginning after December 31, 1975.
SEC. 2138. COMMON TRUST FUND TREATMENT OF CERTAIN CUSTODIAL
ACCOUNTS.
(a) IN GENERAL-Section 584 (a) (1) (relating to definition of com-
mon trust fund) is amended to read as follows:
"(1) exclusively for the collective investment and reinvestment
of moneys contributed thereto by the bank in its capacity-
" (A) as a trustee, executor, administrator, or guardian, or
" (B) as a custodian of accounts-
(i) which the Secretary determines are established
pursuant to a State law which is substantially similar to
the Uniform Gifts to Minors Act as published by the
American Law Institute, and
(ii) with respect to which the bank establishes, to the
satisfaction of the Secretary, that it has duties and
responsibilities similar to duties and responsibilities of
a trustee or guardian; and".
SEC. 2139. SUPPORT TEST FOR DEPENDENT CHILDREN OF DIVORCED
ETC., PARENTS.
(a) IN GENERAL-Section 152 (relating to definition of depend-
ents) is amended by striking the word "all" in subsection (e) (2) (B)
(i) thereof and inserting in lieu thereof "each".
(b) EFFECTIVE DATE.-The amendment made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 2140. INVOLUNTARY CONVERSION OF REAL PROPERTY.
(a) IN GENERAL-Section 1033 (g) (relating to involuntary con-
versions), as amended by this Act, is amended by adding at the end
thereof the following new paragraph:
"(4) SPECIAL RULE.-In the case of a compulsory or involun-
tary conversion described in paragraph (1), subsection (a) (3)
(B) (i) shall be applied by substituting '3 years' for 2 years'
(b) EFFECTIVE DATE.-The amendment made by this section shall
apply with respect to any disposition of converted property (within
the meaning of section 1033(a) (2) of the Internal Revenue Code of
1954) after December 31, 1974, unless a condemnation proceeding
with respect to such property began before the date of the enactment
of this Act.
H. R. 10612-414
SEC. 2141. LIVESTOCK SOLD ON ACCOUNT OF DROUGHT.
(a) IN GENERAL-Section 451 (relating to general rules for taxable
year of inclusion) is amended by adding at the end thereof the fol-
lowing new subsection:
"(e) SPECIAL RULE FOR PROCEEDS FROM LIVESTOCK SOLD ON ACCOUNT
OF DROUGHT.-
"(1) IN GENERAL-In the case of income derived from the sale
or exchange of livestock (other than livestock described in sec-
tion 1231 (b) (3)) in excess of the number the taxpayer would sell
if he followed his usual business practices, a taxpayer reporting
on the cash receipts and disbursements method of accounting may
elect to include such income for the taxable year following the
taxable year in which such sale or exchange occurs if he estab-
lishes that, under his usual business practices, the sale or exchange
would not have occurred in the taxable year in which it occurred
if it were not for drought conditions, and that these drought con-
ditions had resulted in the area being designated as eligible for
assistance by the Federal Government.
"(2) LIMITATION.-Paragraph (1) shall apply only to a tax-
payer whose principal trade or business is farming (within the
meaning of section 6420(c) (3)
(b) EFFECTIVE DATE-The amendment made by this section applies
to taxable years beginning after December 31, 1975.
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.