1151
Subpart C—Provisions Relating to Real Estate
Investments by Pension Funds
SEC. 14144. REAL ESTATE PROPERTY ACQUIRED BY A
QUALIFIED ORGANIZATION.
(a) MODIFICATIONS
OF EXCEPTIONS.—Paragraph
(9) of section 514(c) (relating to real property acquired
by a qualified organization) is amended by adding at the
end thereof the following new subparagraphs:
‘‘(G) SPECIAL RULES FOR PURPOSES OF
THE EXCEPTIONS.—Except as otherwise pro-
vided by regulations—
‘‘(i) S MALL LEASES DISREGARDED.—
For purposes of clauses (iii) and (iv) of
subparagraph (B), a lease to a person de-
scribed in such clause (iii) or (iv) shall be
disregarded if no more than 25 percent of
the leasable floor space in a building (or
complex of buildings) is covered by the
lease and if the lease is on commercially
reasonable terms.
‘‘(ii) COMMERCIALLY REASONABLE FI-
NANCING.—Clause (v) of subparagraph (B)
shall not apply if the financing is on com-
mercially reasonable terms.
‘‘(H) QUALIFYING
SALES
BY
FINANCIAL
INSTITUTIONS.—
1152
‘‘(i) IN GENERAL.—In the case of a
qualifying sale by a financial institution,
except as provided in regulations, clauses
(i) and (ii) of subparagraph (B) shall not
apply with respect to financing provided by
such institution for such sale.
‘‘(ii) QUALIFYING
SALE.—For pur-
poses of this clause, there is a qualifying
sale by a financial institution if—
‘‘(I) a qualified organization ac-
quires property described in clause
(iii) from a financial institution and
any gain recognized by the financial
institution with respect to the prop-
erty is ordinary income,
‘‘(II) the stated principal amount
of the financing provided by the finan-
cial institution does not exceed the
amount of the outstanding indebted-
ness (including accrued but unpaid in-
terest) of the financial institution with
respect to the property described in
clause (iii) immediately before the ac-
quisition referred to in clause (iii) or
(v), whichever is applicable, and
1153
‘‘(III) the present value (deter-
mined as of the time of the sale and
by using the applicable Federal rate
determined under section 1274(d)) of
the maximum amount payable pursu-
ant to the financing that is deter-
mined by reference to the revenue, in-
come, or profits derived from the
property cannot exceed 30 percent of
the total purchase price of the prop-
erty (including the contingent pay-
ments).
‘‘(iii) P ROPERTY TO WHICH SUBPARA-
GRAPH APPLIES.—Property is described in
this clause if such property is foreclosure
property, or is real property which—
‘‘(I) was acquired by the quali-
fied organization from a financial in-
stitution which is in conservatorship
or receivership, or from the conserva-
tor or receiver of such an institution,
and
‘‘(II) was held by the financial
institution at the time it entered into
conservatorship or receivership.
1154
‘‘(iv) FINANCIAL
INSTITUTION.—For
purposes of this subparagraph, the term
‘financial institution’ means—
‘‘(I) any financial institution de-
scribed in section 581 or 591(a),
‘‘(II) any other corporation which
is a direct or indirect subsidiary of an
institution referred to in subclause (I)
but only if, by virtue of being affili-
ated with such institution, such other
corporation is subject to supervision
and examination by a Federal or
State agency which regulates institu-
tions referred to in subclause (I), and
‘‘(III) any person acting as a
conservator or receiver of an entity re-
ferred to in subclause (I) or (II) (or
any government agency or corporation
succeeding to the rights or interest of
such person).
‘‘(v) FORECLOSURE PROPERTY.—For
purposes of this subparagraph, the term
‘foreclosure property’ means any real prop-
erty acquired by the financial institution as
the result of having bid on such property
1155
at foreclosure, or by operation of an agree-
ment or process of law, after there was a
default (or a default was imminent) on in-
debtedness which such property secured.’’.
(b) C ONFORMING AMENDMENT.—Paragraph (9) of
section 514(c) is amended—
(1) by adding the following new sentence at the
end of subparagraph (A): ‘‘For purposes of this
paragraph, an interest in a mortgage shall in no
event be treated as real property.’’, and
(2) by striking the last sentence of subpara-
graph (B).
(c) EFFECTIVE DATES.—
(1) I N GENERAL.—The amendments made by
this section shall apply to acquisitions on or after
January 1, 1994.
(2) S MALL LEASES.—The provisions of section
514(c)(9)(G)(i) of the Internal Revenue Code of
1986 shall, in addition to any leases to which the
provisions apply by reason of paragraph (1), apply
to leases entered into on or after January 1, 1994.
SEC. 14145. REPEAL OF SPECIAL TREATMENT OF PUBLICLY
TREATED PARTNERSHIPS.
(a) G ENERAL RULE.—Subsection (c) of section 512
is amended—
1156
(1) by striking paragraph (2),
(2) by redesignating paragraph (3) as para-
graph (2), and
(3) by striking ‘‘paragraph (1) or (2)’’ in para-
graph (2) (as so redesignated) and inserting ‘‘para-
graph (1)’’.
(b) E FFECTIVE DATE.—The amendments made by
subsection (a) shall apply to partnership years beginning
on or after January 1, 1994.
SEC. 14146. TITLE-HOLDING COMPANIES PERMITTED TO
RECEIVE SMALL AMOUNTS OF UNRELATED
BUSINESS TAXABLE INCOME.
(a) G ENERAL RULE.—Paragraph (25) of section
501(c) is amended by adding at the end thereof the follow-
ing new subparagraph:
‘‘(G)(i) An organization shall not be treat-
ed as failing to be described in this paragraph
merely by reason of the receipt of any otherwise
disqualifying income which is incidentally de-
rived from the holding of real property.
‘‘(ii) Clause (i) shall not apply if the
amount of gross income described in such
clause exceeds 10 percent of the organization’s
gross income for the taxable year unless the or-
ganization establishes to the satisfaction of the
1157
Secretary that the receipt of gross income de-
scribed in clause (i) in excess of such limitation
was inadvertent and reasonable steps are being
taken to correct the circumstances giving rise to
such income.’’
(b) C ONFORMING AMENDMENT.—Paragraph (2) of
section 501(c) is amended by adding at the end thereof
the following new sentence: ‘‘Rules similar to the rules of
subparagraph (G) of paragraph (25) shall apply for pur-
poses of this paragraph.’’
(c) E FFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning on or
after January 1, 1994.
SEC. 14147. EXCLUSION FROM UNRELATED BUSINESS TAX
OF GAINS FROM CERTAIN PROPERTY.
(a) G ENERAL RULE.—Subsection (b) of section 512
(relating to modifications) is amended by adding at the
end thereof the following new paragraph:
‘‘(16)(A) Notwithstanding paragraph (5)(B),
there shall be excluded all gains or losses from the
sale, exchange, or other disposition of any real prop-
erty described in subparagraph (B) if—
‘‘(i) such property was acquired by the or-
ganization from—
1158
‘‘(I) a financial institution described
in section 581 or 591(a) which is in
conservatorship or receivership, or
‘‘(II) the conservator or receiver of
such an institution (or any government
agency or corporation succeeding to the
rights or interests of the conservator or re-
ceiver),
‘‘(ii) such property is designated by the or-
ganization within the 9-month period beginning
on the date of its acquisition as property held
for sale, except that not more than one-half (by
value determined as of such date) of property
acquired in a single transaction may be so
designated,
‘‘(iii) such sale, exchange, or disposition
occurs before the later of—
‘‘(I) the date which is 30 months after
the date of the acquisition of such prop-
erty, or
‘‘(II) the date specified by the Sec-
retary in order to assure an orderly dis-
position of property held by persons de-
scribed in subparagraph (A), and
1159
‘‘(iv) while such property was held by the
organization, the aggregate expenditures on im-
provements and development activities included
in the basis of the property are (or were) not
in excess of 20 percent of the net selling price
of such property.
‘‘(B) Property is described in this subparagraph
if it is real property which—
‘‘(i) was held by the financial institution at
the time it entered into conservatorship or re-
ceivership, or
‘‘(ii) was foreclosure property (as defined
in section 514(c)(9)(H)(v)) which secured in-
debtedness held by the financial institution at
such time.
For purposes of this subparagraph, real property in-
cludes an interest in a mortgage.’’
(b) E FFECTIVE DATE.—The amendment made by
subsection (a) shall apply to property acquired on or after
January 1, 1994.
SEC. 14148. EXCLUSION FROM UNRELATED BUSINESS TAX
OF CERTAIN FEES AND OPTION PREMIUMS.
(a) L OAN COMMITMENT FEES.—Paragraph (1) of
section 512(b) (relating to modifications) is amended by
inserting ‘‘amounts received or accrued as consideration
1160
for entering into agreements to make loans,’’ before ‘‘and
annuities’’.
(b) OPTION PREMIUMS.—The second sentence of sec-
tion 512(b)(5) is amended—
(1) by striking ‘‘all gains on’’ and inserting ‘‘all
gains or losses recognized, in connection with the or-
ganization’s investment activities, from’’,
(2) by striking ‘‘, written by the organization in
connection with its investment activities,’’ and
(3) by inserting ‘‘or real property and all gains
or losses from the forfeiture of good-faith deposits
(that are consistent with established business prac-
tice) for the purchase, sale, or lease of real property
in connection with the organization’s investment ac-
tivities’’ before the period.
(c) E FFECTIVE DATE.—The amendments made by
this section shall apply to amounts received on or after
January 1, 1994.
SEC. 14149. TREATMENT OF PENSION FUND INVESTMENTS
IN REAL ESTATE INVESTMENT TRUSTS.
(a) G ENERAL RULE.—Subsection (h) of section 856
(relating to closely held determinations) is amended by
adding at the end thereof the following new paragraph:
‘‘(3) TREATMENT OF TRUSTS DESCRIBED IN
SECTION 401(a).—
1161
‘‘(A) LOOK-THRU TREATMENT.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), in determining whether
the stock ownership requirement of section
542(a)(2) is met for purposes of paragraph
(1)(A), any stock held by a qualified trust
shall be treated as held directly by its
beneficiaries in proportion to their actuar-
ial interests in such trust and shall not be
treated as held by such trust.
‘‘(ii) C ERTAIN RELATED TRUSTS NOT
ELIGIBLE.—Clause (i) shall not apply to
any qualified trust if one or more disquali-
fied 
persons 
(as 
defined 
in 
section
4975(e)(2), without regard to subpara-
graphs (B) and (I) thereof) with respect to
such qualified trust hold in the aggregate
5 percent or more in value of the interests
in the real estate investment trust and
such real estate investment trust has accu-
mulated earnings and profits attributable
to any period for which it did not qualify
as a real estate investment trust.
‘‘(B) 
COORDINATION
WITH
PERSONAL
HOLDING
COMPANY
RULES.—If any entity
1162
qualifies as a real estate investment trust for
any taxable year by reason of subparagraph
(A), such entity shall not be treated as a per-
sonal holding company for such taxable year for
purposes of part II of subchapter G of this
chapter.
‘‘(C) T REATMENT FOR PURPOSES OF UN-
RELATED
BUSINESS
TAX.—If any qualified
trust holds more than 10 percent (by value) of
the interests in any pension-held REIT at any
time during a taxable year, the trust shall be
treated as having for such taxable year gross
income from an unrelated trade or business in
an amount which bears the same ratio to the
aggregate dividends paid (or treated as paid) by
the REIT to the trust for the taxable year of
the REIT with or within which the taxable year
of the trust ends (the ‘REIT year’) as—
‘‘(i) the gross income (less direct ex-
penses related thereto) of the REIT for the
REIT year from unrelated trades or busi-
nesses (determined as if the REIT were a
qualified trust), bears to
1163
‘‘(ii) the gross income (less direct ex-
penses related thereto) of the REIT for the
REIT year.
This subparagraph shall apply only if the ratio
determined under the preceding sentence is at
least 5 percent.
‘‘(D) P ENSION-HELD REIT.—The purposes
of subparagraph (C)—
‘‘(i) IN GENERAL.—A real estate in-
vestment trust is a pension-held REIT if
such trust would not have qualified as a
real estate investment trust but for the
provisions of this paragraph and if such
trust is predominantly held by qualified
trusts.
‘‘(ii) PREDOMINANTLY
HELD.—For
purposes of clause (i), a real estate invest-
ment trust is predominantly held by quali-
fied trusts if—
‘‘(I) at least 1 qualified trust
holds more than 25 percent (by value)
of the interests in such real estate in-
vestment trust, or
‘‘(II) 1 or more qualified trusts
(each of whom own more than 10 per-
1164
cent by value of the interests in such
real estate investment trust) hold in
the aggregate more than 50 percent
(by value) of the interests in such real
estate investment trust.
‘‘(E) Q UALIFIED TRUST.—For purposes of
this paragraph, the term ‘qualified trust’ means
any trust described in section 401(a) and ex-
empt from tax under section 501(a).’’
(b) E FFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1993.
Subpart D—Discharge of Indebtedness
SEC. 14150. EXCLUSION FROM GROSS INCOME FOR IN-
COME 
FROM 
DISCHARGE 
OF 
QUALIFIED
REAL PROPERTY BUSINESS INDEBTEDNESS.
(a) I N GENERAL.—Paragraph (1) of section 108(a)
(relating to income from discharge of indebtedness) is
amended by striking ‘‘or’’ at the end of subparagraph (B),
by striking the period at the end of subparagraph (C) and
inserting ‘‘, or’’, and by adding at the end the following
new subparagraph:
‘‘(D) in the case of a taxpayer other than a C
corporation, the indebtedness discharged is qualified
real property business indebtedness.’’
1165
(b) QUALIFIED REAL PROPERTY BUSINESS INDEBT-
EDNESS.—Section 108 is amended by inserting after sub-
section (b) the following new subsection:
‘‘(c) TREATMENT
OF DISCHARGE
OF QUALIFIED
REAL PROPERTY BUSINESS INDEBTEDNESS.—
‘‘(1) BASIS REDUCTION.—
‘‘(A) I N GENERAL.—The amount excluded
from gross income under subparagraph (D) of
subsection (a)(1) shall be applied to reduce the
basis of the depreciable real property of the tax-
payer.
‘‘(B) C ROSS REFERENCE.—For provisions
making the reduction described in subpara-
graph (A), see section 1017.
‘‘(2) LIMITATIONS.—
‘‘(A) 
INDEBTEDNESS
IN
EXCESS
OF
VALUE.—The amount excluded under subpara-
graph (D) of subsection (a)(1) with respect to
any qualified real property business indebted-
ness shall not exceed the excess (if any) of—
‘‘(i) the outstanding principal amount
of such indebtedness (immediately before
the discharge), over
‘‘(ii) the fair market value of the real
property described in paragraph (3)(A) (as
1166
of such time), reduced by the outstanding
principal amount of any other qualified
real property business indebtedness se-
cured by such property (as of such time).
‘‘(B) O VERALL LIMITATION.—The amount
excluded under subparagraph (D) of subsection
(a)(1) shall not exceed the aggregate adjusted
bases of depreciable real property (determined
after any reductions under subsections (b) and
(g)) held by the taxpayer immediately before
the discharge (other than depreciable real prop-
erty acquired in contemplation of such dis-
charge).
‘‘(3) QUALIFIED REAL PROPERTY BUSINESS IN-
DEBTEDNESS.—The term ‘qualified real property
business indebtedness’ means indebtedness which—
‘‘(A) was incurred or assumed by the tax-
payer in connection with real property used in
a trade or business and is secured by such real
property,
‘‘(B) was incurred or assumed before Jan-
uary 1, 1993, or if incurred or assumed on or
after such date, is qualified acquisition indebt-
edness, and
1167
‘‘(C) with respect to which such taxpayer
makes an election to have this paragraph apply.
Such term shall not include qualified farm indebted-
ness. Indebtedness under subparagraph (B) shall in-
clude indebtedness resulting from the refinancing of
indebtedness under subparagraph (B) (or this sen-
tence), but only to the extent it does not exceed the
amount of the indebtedness being refinanced.
‘‘(4) 
QUALIFIED
ACQUISITION
INDEBTED-
NESS.—For purposes of paragraph (3)(B), the term
‘qualified acquisition indebtedness’ means, with re-
spect to any real property described in paragraph
(3)(A), indebtedness incurred or assumed to acquire,
construct, reconstruct, or substantially improve such
property.
‘‘(5) R EGULATIONS.—The Secretary shall issue
such regulations as are necessary to carry out this
subsection, including regulations preventing the
abuse 
of 
this 
subsection 
through 
cross-
collateralization or other means.’’
(c) TECHNICAL AMENDMENTS.—
(1) Subparagraph (A) of section 108(a)(2) is
amended by striking ‘‘and (C)’’ and inserting ‘‘, (C),
and (D)’’.
1168
(2) Subparagraph (B) of section 108(a)(2) is
amended to read as follows:
‘‘(B) 
INSOLVENCY
EXCLUSION
TAKES
PRECEDENCE OVER QUALIFIED FARM EXCLU-
SION AND QUALIFIED REAL PROPERTY BUSI-
NESS EXCLUSION.—Subparagraphs (C) and (D)
of paragraph (1) shall not apply to a discharge
to the extent the taxpayer is insolvent.’’
(3) Subsection (d) of section 108 is amended—
(A) by striking ‘‘subsections (a), (b), and
(g)’’ in paragraphs (6) and (7)(A) and inserting
‘‘subsections (a), (b), (c), and (g)’’,
(B) by striking ‘‘SUBSECTIONS (a), (b),
AND (g)’’ in the subsection heading and insert-
ing ‘‘CERTAIN PROVISIONS’’, and
(C) by striking ‘‘SUBSECTIONS (a), (b),
AND (g)’’ in the headings of paragraphs (6) and
(7)(A) and inserting ‘‘C ERTAIN PROVISIONS’’.
(4) Subparagraph (B) of section 108(d)(7) is
amended by adding at the end thereof the following
new sentence: ‘‘The preceding sentence shall not
apply to any discharge to the extent that subsection
(a)(1)(D) applies to such discharge.’’
1169
(5) Subparagraph (A) of section 108(d)(9) is
amended by inserting ‘‘or under paragraph (3)(B) of
subsection (c)’’ after ‘‘subsection (b)’’.
(6) Paragraph (2) of section 1017(a) is amend-
ed by striking ‘‘or (b)(5)’’ and inserting ‘‘, (b)(5), or
(c)(1)’’.
(7) Subparagraph (A) of section 1017(b)(3) is
amended by inserting ‘‘or (c)(1)’’ after ‘‘subsection
(b)(5)’’.
(8) Section 1017(b)(3) is amended by adding at
the end the following new subparagraph:
‘‘(F) SPECIAL
RULES
FOR
QUALIFIED
REAL PROPERTY BUSINESS INDEBTEDNESS.—
In the case of any amount which under section
108(c)(1) is to be applied to reduce basis—
‘‘(i) depreciable property shall only in-
clude depreciable real property for pur-
poses of subparagraphs (A) and (C),
‘‘(ii) subparagraph (E) shall not
apply, and
‘‘(iii) in the case of property taken
into account under section 108(c)(2)(B),
the reduction with respect to such property
shall be made as of the time immediately
1170
before disposition if earlier than the time
under subsection (a).’’
(9) Paragraph (1) of section 703(b) is amended
by striking ‘‘subsection (b)(5)’’ and inserting ‘‘sub-
section (b)(5) or (c)(3)’’.
(d) E FFECTIVE DATE.—The amendments made by
this section shall apply to discharges after December 31,
1992, in taxable years ending after such date.
Subpart E—Increase in Recovery Period for
Nonresidential Real Property
SEC. 
14151. INCREASE 
IN 
RECOVERY 
PERIOD 
FOR
NONRESIDENTIAL REAL PROPERTY.
(a) GENERAL RULE.—Paragraph (1) of section
168(c) (relating to applicable recovery period) is amended
by striking the item relating to nonresidential real prop-
erty and inserting the following:
‘‘Nonresidential real property ..................................................
39 years.’’.
(b) EFFECTIVE DATE.—
(1) I N GENERAL.—Except as provided in para-
graph (2), the amendment made by subsection (a)
shall apply to property placed in service by the tax-
payer on or after February 25, 1993.
(2) EXCEPTION.—The amendments made by
this section shall not apply to property placed in
service by the taxpayer before January 1, 1994, if—
1171
(A) the taxpayer or a qualified person en-
tered into a binding written contract to pur-
chase or construct such property before Feb-
ruary 25, 1993, or
(B) the construction of such property was
commenced by or for the taxpayer or a quali-
fied person before February 25, 1993.
For purposes of this paragraph, the term ‘‘qualified
person’’ means any person who transfers his rights
in such a contract or such property to the taxpayer
but only if the property is not placed in service by
such person before such rights are transferred to the
taxpayer.
PART VI—LUXURY TAX
SEC. 14161. REPEAL OF LUXURY EXCISE TAXES OTHER
THAN ON PASSENGER VEHICLES.
(a) I N GENERAL.—Subchapter A of chapter 31 (re-
lating to retail excise taxes) is amended to read as follows:
‘‘Subchapter A—Luxury Passenger Automobiles
‘‘Sec. 4001. Imposition of tax.
‘‘Sec. 4002. 1st retail sale; uses, etc. treated as sales; determina-
tion of price.
‘‘Sec. 4003. Special rules.
‘‘SEC. 4001. IMPOSITION OF TAX.
‘‘(a) IMPOSITION OF TAX.—There is hereby imposed
on the 1st retail sale of any passenger vehicle a tax equal
1172
to 10 percent of the price for which so sold to the extent
such price exceeds $30,000.
‘‘(b) PASSENGER VEHICLE.—
‘‘(1) I N GENERAL.—For purposes of this sub-
chapter, the term ‘passenger vehicle’ means any 4-
wheeled vehicle—
‘‘(A) which is manufactured primarily for
use on public streets, roads, and highways, and
‘‘(B) which is rated at 6,000 pounds un-
loaded gross vehicle weight or less.
‘‘(2) SPECIAL RULES.—
‘‘(A) TRUCKS AND VANS.—In the case of a
truck or van, paragraph (1)(B) shall be applied
by substituting ‘gross vehicle weight’ for ‘un-
loaded gross vehicle weight’.
‘‘(B) L IMOUSINES.—In the case of a lim-
ousine, paragraph (1) shall be applied without
regard to subparagraph (B) thereof.
‘‘(c) EXCEPTIONS FOR TAXICABS, ETC.—The tax im-
posed by this section shall not apply to the sale of any
passenger vehicle for use by the purchaser exclusively in
the active conduct of a trade or business of transporting
persons or property for compensation or hire.
1173
‘‘(d) EXEMPTION FOR LAW ENFORCEMENT USES,
ETC.—No tax shall be imposed by this section on the sale
of any passenger vehicle—
‘‘(1) to the Federal Government, or a State or
local government, for use exclusively in police, fire-
fighting, search and rescue, or other law enforce-
ment or public safety activities, or in public works
activities, or
‘‘(2) to any person for use exclusively in provid-
ing emergency medical services.
‘‘(e) INFLATION ADJUSTMENT.—
‘‘(1) IN GENERAL.—In the case of any calendar
year after 1992, the $30,000 amount in subsection
(a) and section 4003(a) shall be increased by an
amount equal to—
‘‘(A) $30,000, multiplied by
‘‘(B) the cost-of-living adjustment under
section 1(f)(3) for such calendar year, deter-
mined by substituting ‘calendar year 1990’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
‘‘(2) ROUNDING.—If any amount as adjusted
under paragraph (1) is not a multiple of $100, such
amount shall be rounded to the nearest multiple of
$100 (or, if such amount is a multiple of $50 and
1174
not of $100, such amount shall be rounded to the
next highest multiple of $100).
‘‘(f) TERMINATION.—The tax imposed by this section
shall not apply to any sale or use after December 31,
1999.
‘‘SEC. 4002. 1ST RETAIL SALE; USES, ETC. TREATED AS
SALES; DETERMINATION OF PRICE.
‘‘(a) 1 ST RETAIL SALE.—For purposes of this sub-
chapter, the term ‘1st retail sale’ means the 1st sale, for
a purpose other than resale, after manufacture, produc-
tion, or importation.
‘‘(b) USE TREATED AS SALE.—
‘‘(1) I N GENERAL.—If any person uses a pas-
senger vehicle (including any use after importation)
before the 1st retail sale of such vehicle, then such
person shall be liable for tax under this subchapter
in the same manner as if such vehicle were sold at
retail by him.
‘‘(2) EXEMPTION
FOR
FURTHER
MANUFAC-
TURE.—Paragraph (1) shall not apply to use of a
vehicle as material in the manufacture or production
of, or as a component part of, another vehicle tax-
able under this subchapter to be manufactured or
produced by him.
1175
‘‘(3) E XEMPTION FOR DEMONSTRATION USE.—
Paragraph (1) shall not apply to any use of a pas-
senger vehicle as a demonstrator.
‘‘(4) EXCEPTION FOR USE AFTER IMPORTATION
OF CERTAIN VEHICLES.—Paragraph (1) shall not
apply to the use of a vehicle after importation if the
user or importer establishes to the satisfaction of the
Secretary that the 1st use of the vehicle occurred be-
fore January 1, 1991, outside the United States.
‘‘(5) COMPUTATION OF TAX.—In the case of
any person made liable for tax by paragraph (1), the
tax shall be computed on the price at which similar
vehicles are sold at retail in the ordinary course of
trade, as determined by the Secretary.
‘‘(c) LEASES CONSIDERED AS SALES.—For purposes
of this subchapter—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the lease of a vehicle (in-
cluding any renewal or any extension of a lease or
any subsequent lease of such vehicle) by any person
shall be considered a sale of such vehicle at retail.
‘‘(2) 
SPECIAL
RULES
FOR
LONG-TERM
LEASES.—
‘‘(A) TAX
NOT
IMPOSED
ON
SALE
FOR
LEASING IN A QUALIFIED LEASE.—The sale of
1176
a passenger vehicle to a person engaged in a
passenger vehicle leasing or rental trade or
business for leasing by such person in a long-
term lease shall not be treated as the 1st retail
sale of such vehicle.
‘‘(B) LONG-TERM
LEASE.—For purposes
of subparagraph (A), the term ‘long-term lease’
means any long-term lease (as defined in sec-
tion 4052).
‘‘(C) SPECIAL RULES.—In the case of a
long-term lease of a vehicle which is treated as
the 1st retail sale of such vehicle—
‘‘(i) DETERMINATION OF PRICE.—The
tax under this subchapter shall be com-
puted on the lowest price for which the ve-
hicle is sold by retailers in the ordinary
course of trade.
‘‘(ii) PAYMENT OF TAX.—Rules simi-
lar to the rules of section 4217(e)(2) shall
apply.
‘‘(iii) NO TAX WHERE EXEMPT USE
BY LESSEE.—No tax shall be imposed on
any lease payment under a long-term lease
if the lessee’s use of the vehicle under such
1177
lease is an exempt use (as defined in sec-
tion 4003(b)) of such vehicle.
‘‘(d) DETERMINATION OF PRICE.—
‘‘(1) IN GENERAL.—In determining price for
purposes of this subchapter—
‘‘(A) there shall be included any charge in-
cident to placing the article in condition ready
for use,
‘‘(B) there shall be excluded—
‘‘(i) the amount of the tax imposed by
this subchapter,
‘‘(ii) if stated as a separate charge,
the amount of any retail sales tax imposed
by any State or political subdivision there-
of or the District of Columbia, whether the
liability for such tax is imposed on the ven-
dor or vendee, and
‘‘(iii) the value of any component of
such article if—
‘‘(I) such component is furnished
by the 1st user of such article, and
‘‘(II) such component has been
used before such furnishing, and
‘‘(C) the price shall be determined without
regard to any trade-in.
1325
‘‘(1) ELECTRICITY USED IN CERTAIN ELECTRO-
LYTIC PROCESSES.—
‘‘(A) IN GENERAL.—In the case of elec-
tricity used in any electrolytic process, the tax
imposed by this section shall not apply to the
feedstock portion of such electricity.
‘‘(B) FEEDSTOCK PORTION.—For purposes
of subparagraph (A), the feedstock portion of
electricity is the portion of the electrical energy
which is incorporated into the manufactured
product.
‘‘(2) 
ELECTRICITY
USED
TO
GENERATE
PUMPED STORAGE, ETC.—The tax imposed by this
section shall not apply to electricity used in the
United States to create any hydropower source to
generate electricity. The electricity generated by
such hydropower source shall be disregarded in de-
termining the deemed Btu taxes of the electricity.
‘‘(3) USE TAX EXCEPTION.—The Secretary may
provide by regulations that the tax imposed by sub-
section (a)(2) shall not apply in cases where the Sec-
retary determines that such an exception is war-
ranted, after taking into account the protection of
revenues to the United States from this subchapter