1108
‘‘(D) for calendar year 1997 is 180,000,
and
‘‘(E) for calendar year 1998 and any sub-
sequent calendar year is 200,000.
‘‘(2) ALLOCATION TO STATES.—The national
school-to-work program limitation for any calendar
year shall be allocated among the States in propor-
tion to the number of their eligible participants that
are estimated to be served in approved school-to-
work programs for that year. Such estimates shall
be published by the Secretaries of Labor and Edu-
cation before the beginning of the calendar year to
which the allocation applies.
‘‘(3) ALLOCATION TO APPROVED SCHOOL-TO-
WORK
PROGRAMS.—The portion of the national
school-to-work program limitation for any calendar
year which is allocated to any State shall be allo-
cated among the approved school-to-work programs
in such State in such manner as the Secretaries of
Labor and Education shall prescribe.’’
(4) E FFECTIVE DATE.—The amendments made
by this subsection shall apply in the case of individ-
uals who begin work for the employer after Decem-
ber 31, 1993.
1109
PART II—INVESTMENT INCENTIVES
Subpart A—Research Credit
SEC. 14111. PERMANENT EXTENSION OF RESEARCH CRED-
IT.
(a) IN GENERAL.—Section 41 (relating to credit for
increasing research activities) is amended by striking sub-
section (h).
(b) C ONFORMING AMENDMENT.—Paragraph (1) of
section 28(b) is amended by striking subparagraph (D).
(c) E FFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after June
30, 1992.
SEC. 14112. MODIFICATION OF FIXED BASE PERCENTAGE
FOR STARTUP COMPANIES.
(a) 
GENERAL
RULE.—Clause 
(ii) 
of 
section
41(c)(3)(B) is amended to read as follows:
‘‘(ii) FIXED-BASE PERCENTAGE.—In a
case to which this subparagraph applies,
the fixed-base percentage is—
‘‘(I) 3 percent for each of the
taxpayer’s 1st 5 taxable years begin-
ning after December 31, 1993, for
which the taxpayer has qualified re-
search expenses,
‘‘(II) in the case of the tax-
payer’s 6th such taxable year, 1/6 of
1110
the percentage which the aggregate
qualified research expenses of the tax-
payer for the 4th and 5th such tax-
able years is of the aggregate gross
receipts of the taxpayer for such
years,
‘‘(III) in the case of the tax-
payer’s 7th such taxable year, 1/3 of
the percentage which the aggregate
qualified research expenses of the tax-
payer for the 5th and 6th such tax-
able years is of the aggregate gross
receipts of the taxpayer for such
years,
‘‘(IV) in the case of the tax-
payer’s 8th such taxable year, 1/2 of
the percentage which the aggregate
qualified research expenses of the tax-
payer for the 5th, 6th, and 7th such
taxable years is of the aggregate gross
receipts of the taxpayer for such
years,
‘‘(V) in the case of the taxpayer’s
9th such taxable year, 2/3 of the per-
centage which the aggregate qualified
1111
research expenses of the taxpayer for
the 5th, 6th, 7th, and 8th such tax-
able years is of the aggregate gross
receipts of the taxpayer for such
years,
‘‘(VI) in the case of the tax-
payer’s 10th such taxable year, 5/6 of
the percentage which the aggregate
qualified research expenses of the tax-
payer for the 5th, 6th, 7th, 8th, and
9th such taxable years is of the aggre-
gate gross receipts of the taxpayer for
such years, and
‘‘(VII) for taxable years there-
after, the percentage which the aggre-
gate qualified research expenses for
any 5 taxable years selected by the
taxpayer from among the 5th through
the 10th such taxable years is of the
aggregate gross receipts of the tax-
payer for such selected years.’’.
(b) CONFORMING AMENDMENTS.—
(1) Clause (iii) of section 41(c)(3)(B) is amend-
ed by striking ‘‘clause (i)’’ and inserting ‘‘clauses (i)
and (ii)’’.
1112
(2) Subparagraph (D) of section 41(c)(3) is
amended by striking ‘‘subparagraph (A)’’ and insert-
ing ‘‘subparagraphs (A) and (B)(ii)’’.
(c) E FFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
Subpart B—Capital Gain Provisions
SEC. 14113. 50-PERCENT EXCLUSION FOR GAIN FROM CER-
TAIN SMALL BUSINESS STOCK.
(a) G ENERAL RULE.—Part I of subchapter P of
chapter 1 (relating to capital gains and losses) is amended
by adding at the end thereof the following new section:
‘‘SEC. 1202. 50-PERCENT EXCLUSION FOR GAIN FROM CER-
TAIN SMALL BUSINESS STOCK.
‘‘(a) 50-PERCENT EXCLUSION.—In the case of a tax-
payer other than a corporation, gross income shall not in-
clude 50 percent of any gain from the sale or exchange
of qualified small business stock held for more than 5
years.
‘‘(b) P ER-ISSUER LIMITATION ON TAXPAYER’S ELI-
GIBLE GAIN.—
‘‘(1) I N GENERAL.—If the taxpayer has eligible
gain for the taxable year from 1 or more dispositions
of stock issued by any corporation, the aggregate
amount of such gain from dispositions of stock is-
1114
‘‘(B) A LLOCATION OF EXCLUSION.—In the
case of any joint return, the amount of gain
taken into account under subsection (a) shall be
allocated equally between the spouses for pur-
poses of applying this subsection to subsequent
taxable years.
‘‘(C) MARITAL STATUS.—For purposes of
this subsection, marital status shall be deter-
mined under section 7703.
‘‘(c) QUALIFIED SMALL BUSINESS STOCK.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this section, the term ‘qualified small busi-
ness stock’ means any stock in a C corporation
which is originally issued after December 31, 1992,
if—
‘‘(A) as of the date of issuance, such cor-
poration is a qualified small business, and
‘‘(B) except as provided in subsections (f)
and (h), such stock is acquired by the taxpayer
at its original issue (directly or through an un-
derwriter)—
‘‘(i) in exchange for money or other
property (not including stock), or
1115
‘‘(ii) as compensation for services pro-
vided to such corporation (other than serv-
ices performed as an underwriter of such
stock).
‘‘(2) ACTIVE BUSINESS REQUIREMENT; ETC.—
‘‘(A) IN GENERAL.—Stock in a corporation
shall not be treated as qualified small business
stock unless, during substantially all of the tax-
payer’s holding period for such stock, such cor-
poration meets the active business requirements
of subsection (e) and such corporation is a C
corporation.
‘‘(B) S PECIAL RULE FOR CERTAIN SMALL
BUSINESS INVESTMENT COMPANIES.—
‘‘(i) WAIVER OF ACTIVE BUSINESS RE-
QUIREMENT.—Notwithstanding any provi-
sion of subsection (e), a corporation shall
be treated as meeting the active business
requirements of such subsection for any
period during which such corporation
qualifies as a specialized small business in-
vestment company.
‘‘(ii) SPECIALIZED
SMALL
BUSINESS
INVESTMENT COMPANY.—For purposes of
clause (i), the term ‘specialized small busi-
1116
ness investment company’ means any eligi-
ble corporation (as defined in subsection
(e)(4)) which is licensed to operate under
section 301(d) of the Small Business In-
vestment Act of 1958 (as in effect on May
13, 1993).
‘‘(3) CERTAIN PURCHASES BY CORPORATION OF
ITS OWN STOCK.—
‘‘(A) REDEMPTIONS FROM TAXPAYER OR
RELATED PERSON.—Stock acquired by the tax-
payer shall not be treated as qualified small
business stock if, at any time during the 4–year
period beginning on the date 2 years before the
issuance of such stock, the corporation issuing
such stock purchased (directly or indirectly) any
of its stock from the taxpayer or from a person
related (within the meaning of section 267(b) or
707(b)) to the taxpayer.
‘‘(B) SIGNIFICANT REDEMPTIONS.—Stock
issued by a corporation shall not be treated as
qualified business stock if, during the 2–year
period beginning on the date 1 year before the
issuance of such stock, such corporation made
1 or more purchases of its stock with an aggre-
gate value (as of the time of the respective pur-
1117
chases) exceeding 5 percent of the aggregate
value of all of its stock as of the beginning of
such 2–year period.
‘‘(C) ACQUISITIONS
BY
RELATED
PER-
SONS.—For purposes of this paragraph, the
purchase by any person related (within the
meaning of section 267(b) or 707(b)) to the is-
suing corporation of any stock in the issuing
corporation shall be treated as a purchase by
the issuing corporation.
‘‘(d) QUALIFIED SMALL BUSINESS.—For purposes of
this section—
‘‘(1) IN GENERAL.—The term ‘qualified small
business’ means any domestic corporation which is a
C corporation if—
‘‘(A) the aggregate capitalization of such
corporation (or any predecessor thereof) at all
times on or after January 1, 1993, and before
the issuance did not exceed $50,000,000,
‘‘(B) the aggregate capitalization of such
corporation immediately after the issuance (de-
termined by taking into account amounts re-
ceived in the issuance) does not exceed
$50,000,000, and
1118
‘‘(C) such corporation agrees to submit
such reports to the Secretary and to sharehold-
ers as the Secretary may require to carry out
the purposes of this section.
‘‘(2) AGGREGATE CAPITALIZATION.—For pur-
poses of paragraph (1), the term ‘aggregate capital-
ization’ means the excess of—
‘‘(A) the amount of cash and the aggregate
adjusted bases of other property held by the
corporation, over
‘‘(B) the aggregate amount of the short-
term indebtedness of the corporation.
For purposes of the preceding sentence, the term
‘short-term indebtedness’ means any indebtedness
which, when incurred, did not have a term in excess
of 1 year.
‘‘(3) L OOK-THRU IN CASE OF SUBSIDIARIES.—
In determining whether a corporation meets the re-
quirements of this subsection—
‘‘(A) stock and debt of any subsidiary (as
defined in subsection (e)(5)(C)) held by such
corporation shall be disregarded, and
‘‘(B) such corporation shall be treated as
holding its ratable share of the assets of such
1119
subsidiary and as being liable for its ratable
share of the indebtedness of such subsidiary.
‘‘(e) ACTIVE BUSINESS REQUIREMENT.—
‘‘(1) I N GENERAL.—For purposes of subsection
(c)(2), the requirements of this subsection are met
by a corporation for any period if during such pe-
riod—
‘‘(A) at least 80 percent (by value) of the
assets of such corporation are used by such cor-
poration in the active conduct of a qualified
trade or business, and
‘‘(B) such corporation is an eligible cor-
poration.
‘‘(2) SPECIAL
RULE
FOR
CERTAIN
ACTIVI-
TIES.—For purposes of paragraph (1), if, in connec-
tion with any future qualified trade or business, a
corporation is engaged in—
‘‘(A) start-up activities described in section
195(c)(1)(A),
‘‘(B) activities resulting in the payment or
incurring of expenditures which may be treated
as research and experimental expenditures
under section 174, or
‘‘(C) activities with respect to in-house re-
search expenses described in section 41(b)(4),
1120
assets used in such activities shall be treated as used
in the active conduct of a qualified trade or busi-
ness. Any determination under this paragraph shall
be made without regard to whether a corporation
has any gross income from such activities at the
time of the determination.
‘‘(3) QUALIFIED
TRADE
OR
BUSINESS.—For
purposes of this subsection, the term ‘qualified trade
or business’ means any trade or business other
than—
‘‘(A) any trade or business involving the
performance of services in the fields of health,
law, engineering, architecture, accounting, actu-
arial science, performing arts, consulting, ath-
letics, financial services, brokerage services, or
any other trade or business where the principal
asset of such trade or business is the reputation
or skill of 1 or more of its employees,
‘‘(B) any banking, insurance, financing,
leasing, investing, or similar business,
‘‘(C) any farming business (including the
business of raising or harvesting trees),
‘‘(D) any business involving the production
or extraction of products of a character with re-
1121
spect to which a deduction is allowable under
section 613 or 613A, and
‘‘(E) any business of operating a hotel,
motel, restaurant, or similar business.
‘‘(4) ELIGIBLE
CORPORATION.—For purposes
of this subsection, the term ‘eligible corporation’
means any domestic corporation; except that such
term shall not include—
‘‘(A) a DISC or former DISC,
‘‘(B) a corporation with respect to which
an election under section 936 is in effect,
‘‘(C) a regulated investment company, real
estate investment trust, or REMIC, and
‘‘(D) a cooperative.
‘‘(5) STOCK IN OTHER CORPORATIONS.—
‘‘(A) LOOK-THRU
IN
CASE
OF
SUBSIDI-
ARIES.—For purposes of this subsection, stock
and debt in any subsidiary corporation shall be
disregarded and the parent corporation shall be
deemed to own its ratable share of the subsidi-
ary’s assets, and to conduct its ratable share of
the subsidiary’s activities.
‘‘(B) PORTFOLIO STOCK OR SECURITIES.—
A corporation shall be treated as failing to meet
the requirements of paragraph (1) for any pe-
1122
riod during which more than 10 percent of the
value of its assets (in excess of liabilities) con-
sists of stock or securities in other corporations
which are not subsidiaries of such corporation
(other than assets described in paragraph (6)).
‘‘(C) SUBSIDIARY.—For purposes of this
paragraph, a corporation shall be considered a
subsidiary if the parent owns more than 50 per-
cent of the combined voting power of all classes
of stock entitled to vote, or more than 50 per-
cent in value of all outstanding stock, of such
corporation.
‘‘(6) WORKING
CAPITAL.—For purposes of
paragraph (1)(A), any assets which—
‘‘(A) are held as a part of the reasonably
required working capital needs of a qualified
trade or business of the corporation, or
‘‘(B) are held for investment and are rea-
sonably expected to be used within 2 years to
finance future research and experimentation in
a qualified trade or business or increases in
working capital needs of a qualified trade or
business,
shall be treated as used in the active conduct of a
qualified trade or business. For periods after the
1123
corporation has been in existence for at least 2
years, in no event may more than 50 percent of the
assets of the corporation qualify as used in the ac-
tive conduct of a qualified trade or business by rea-
son of this paragraph.
‘‘(7) MAXIMUM REAL ESTATE HOLDINGS.—A
corporation shall not be treated as meeting the re-
quirements of paragraph (1) for any period during
which more than 10 percent of the total value of its
assets consists of real property which is not used in
the active conduct of a qualified trade or business.
For purposes of the preceding sentence, the owner-
ship of, dealing in, or renting of real property shall
not be treated as the active conduct of a qualified
trade or business.
‘‘(8) COMPUTER SOFTWARE ROYALTIES.—For
purposes of paragraph (1), rights to computer soft-
ware which produces active business computer soft-
ware royalties (within the meaning of section
543(d)(1)) shall be treated as an asset used in the
active conduct of a trade or business.
‘‘(f) STOCK ACQUIRED ON CONVERSION OF PRE-
FERRED STOCK.—If any stock in a corporation is acquired
solely through the conversion of other stock in such cor-
1124
poration which is qualified small business stock in the
hands of the taxpayer—
‘‘(1) the stock so acquired shall be treated as
qualified small business stock in the hands of the
taxpayer, and
‘‘(2) the stock so acquired shall be treated as
having been held during the period during which the
converted stock was held.
‘‘(g) TREATMENT OF PASS-THRU ENTITIES.—
‘‘(1) I N GENERAL.—If any amount included in
gross income by reason of holding an interest in a
pass-thru entity meets the requirements of para-
graph (2)—
‘‘(A) such amount shall be treated as gain
described in subsection (a), and
‘‘(B) for purposes of applying subsection
(b), such amount shall be treated as gain from
a disposition of stock in the corporation issuing
the stock disposed of by the pass-thru entity
and the taxpayer’s proportionate share of the
adjusted basis of the pass-thru entity in such
stock shall be taken into account.
‘‘(2) REQUIREMENTS.—An amount meets the
requirements of this paragraph if—
1125
‘‘(A) such amount is attributable to gain
on the sale or exchange by the pass-thru entity
of stock which is qualified small business stock
in the hands of such entity (determined by
treating such entity as an individual) and which
was held by such entity for more than 5 years,
and
‘‘(B) such amount is includible in the gross
income of the taxpayer by reason of the holding
of an interest in such entity which was held by
the taxpayer on the date on which such pass-
thru entity acquired such stock and at all times
thereafter before the disposition of such stock
by such pass-thru entity.
‘‘(3) LIMITATION BASED ON INTEREST ORIGI-
NALLY HELD BY TAXPAYER.—Paragraph (1) shall
not apply to any amount to the extent such amount
exceeds the amount to which paragraph (1) would
have applied if such amount were determined by ref-
erence to the interest the taxpayer held in the pass-
thru entity on the date the qualified small business
stock was acquired.
‘‘(4) PASS-THRU ENTITY.—For purposes of this
subsection, the term ‘pass-thru entity’ means—
‘‘(A) any partnership,
1126
‘‘(B) any S corporation,
‘‘(C) any regulated investment company,
and
‘‘(D) any common trust fund.
‘‘(h) CERTAIN
TAX-FREE
AND
OTHER
TRANS-
FERS.—For purposes of this section—
‘‘(1) IN GENERAL.—In the case of a transfer
described in paragraph (2), the transferee shall be
treated as—
‘‘(A) having acquired such stock in the
same manner as the transferor, and
‘‘(B) having held such stock during any
continuous period immediately preceding the
transfer during which it was held (or treated as
held under this subsection) by the transferor.
‘‘(2) DESCRIPTION OF TRANSFERS.—A transfer
is described in this subsection if such transfer is—
‘‘(A) by gift,
‘‘(B) at death, or
‘‘(C) from a partnership to a partner of
stock with respect to which requirements simi-
lar to the requirements of subsection (g) are
met at the time of the transfer (without regard
to the 5-year holding period requirement).
1127
‘‘(3) CERTAIN
RULES
MADE
APPLICABLE.—
Rules similar to the rules of section 1244(d)(2) shall
apply for purposes of this section.
‘‘(4) INCORPORATIONS AND REORGANIZATIONS
INVOLVING NONQUALIFIED STOCK.—
‘‘(A) IN GENERAL.—In the case of a trans-
action described in section 351 or a reorganiza-
tion described in section 368, if qualified small
business stock is exchanged for other stock
which would not qualify as qualified small busi-
ness stock but for this subparagraph, such
other stock shall be treated as qualified small
business stock acquired on the date on which
the exchanged stock was acquired.
‘‘(B) 
LIMITATION.—This 
section 
shall
apply to gain from the sale or exchange of stock
treated as qualified small business stock by rea-
son of subparagraph (A) only to the extent of
the gain which would have been recognized at
the time of the transfer described in subpara-
graph (A) if section 351 or 368 had not applied
at such time.
‘‘(C) SUCCESSIVE APPLICATION.—For pur-
poses of this paragraph, stock treated as quali-
fied small business stock under subparagraph
1128
(A) shall be so treated for subsequent trans-
actions or reorganizations, except that the limi-
tation of subparagraph (B) shall be applied as
of the time of the first transfer to which sub-
paragraph (A) applied.
‘‘(D) C ONTROL TEST.—Except in the case
of a transaction described in section 368, this
paragraph shall apply only if, immediately after
the transaction, the corporation issuing the
stock owns directly or indirectly stock rep-
resenting control (within the meaning of section
368(c)) of the corporation whose stock was ex-
changed.
‘‘(i) B ASIS RULES.—For purposes of this section—
‘‘(1) STOCK EXCHANGED FOR PROPERTY.—In
the case where the taxpayer transfers property
(other than money or stock) to a corporation in ex-
change for stock in such corporation—
‘‘(A) such stock shall be treated as having
been acquired by the taxpayer on the date of
such exchange, and
‘‘(B) the basis of such stock in the hands
of the taxpayer shall in no event be less than
the fair market value of the property ex-
changed.
1129
‘‘(2) T REATMENT OF CONTRIBUTIONS TO CAP-
ITAL.—If the adjusted basis of any qualified small
business stock is adjusted by reason of any contribu-
tion to capital after the date on which such stock
was originally issued, in determining the amount of
the adjustment by reason of such contribution, the
basis of the contributed property shall in no event be
treated as less than its fair market value on the date
of the contribution.
‘‘(j) T REATMENT OF CERTAIN SHORT POSITIONS.—
‘‘(1) I N GENERAL.—If the taxpayer has an off-
setting short position with respect to any qualified
small business stock, subsection (a) shall not apply
to any gain from the sale or exchange of such stock
unless—
‘‘(A) such stock was held by the taxpayer
for more than 5 years as of the first day on
which there was such a short position, and
‘‘(B) the taxpayer elects to recognize gain
as if such stock were sold on such first day for
its fair market value.
‘‘(2) O FFSETTING SHORT POSITION.—For pur-
poses of paragraph (1), the taxpayer shall be treated
as having an offsetting short position with respect to
any qualified small business stock if—
1130
‘‘(A) the taxpayer has made a short sale of
substantially identical property,
‘‘(B) the taxpayer has acquired an option
to sell substantially identical property at a fixed
price, or
‘‘(C) to the extent provided in regulations,
the taxpayer has entered into any other trans-
action which substantially reduces the risk of
loss from holding such qualified small business
stock.
For purposes of the preceding sentence, any ref-
erence to the taxpayer shall be treated as including
a reference to any person who is related (within the
meaning of section 267(b) or 707(b)) to the tax-
payer.
‘‘(k) R EGULATIONS.—The Secretary shall prescribe
such regulations as may be appropriate to carry out the
purposes of this section, including regulations to prevent
the avoidance of the purposes of this section through split-
ups, shell corporations, partnerships, or otherwise.’’
(b) O NE-HALF OF EXCLUSION TREATED AS PREF-
ERENCE FOR MINIMUM TAX.—
(1) I N GENERAL.—Subsection (a) of section 57
(relating to items of tax preference) is amended by
1131
adding at the end thereof the following new para-
graph:
‘‘(8) E XCLUSION FOR GAINS ON SALE OF CER-
TAIN SMALL BUSINESS STOCK.—An amount equal to
one-half of the amount excluded from gross income
for the taxable year under section 1202.’’
(2) CONFORMING AMENDMENT.—Subclause (II)
of section 53(d)(1)(B)(ii) is amended by striking
‘‘and (6)’’ and inserting ‘‘(6), and (8)’’.
(c) P ENALTY FOR FAILURE TO COMPLY WITH RE-
PORTING REQUIREMENTS.—Section 6652 is amended by
inserting before the last subsection thereof the following
new subsection:
‘‘(k) FAILURE
TO
MAKE
REPORTS
REQUIRED
UNDER SECTION 1202.—In the case of a failure to make
a report required under section 1202(d)(1)(C) which con-
tains the information required by such section on the date
prescribed therefor (determined with regard to any exten-
sion of time for filing), there shall be paid (on notice and
demand by the Secretary and in the same manner as tax)
by the person failing to make such report, an amount
equal to $50 for each report with respect to which there
was such a failure. In the case of any failure due to neg-
ligence or intentional disregard, the preceding sentence
shall be applied by substituting ‘$100’ for ‘$50’. In the
1132
case of a report covering periods in 2 or more years, the
penalty determined under preceding provisions of this sub-
section shall be multiplied by the number of such years.’’
(d) CONFORMING AMENDMENTS.—
(1)(A) Section 172(d)(2) (relating to modifica-
tions with respect to net operating loss deduction) is
amended to read as follows:
‘‘(2) CAPITAL
GAINS
AND
LOSSES
OF
TAX-
PAYERS OTHER THAN CORPORATIONS.—In the case
of a taxpayer other than a corporation—
‘‘(A) the amount deductible on account of
losses from sales or exchanges of capital assets
shall not exceed the amount includable on ac-
count of gains from sales or exchanges of cap-
ital assets; and
‘‘(B) the exclusion provided by section
1202 shall not be allowed.’’
(B) Subparagraph (B) of section 172(d)(4) is
amended by inserting ‘‘, (2)(B),’’ after ‘‘paragraph
(1)’’.
(2) Paragraph (4) of section 642(c) is amended
to read as follows:
‘‘(4) ADJUSTMENTS.—To the extent that the
amount otherwise allowable as a deduction under
this subsection consists of gain described in section
1133
1202(a), proper adjustment shall be made for any
exclusion allowable to the estate or trust under sec-
tion 1202. In the case of a trust, the deduction al-
lowed by this subsection shall be subject to section
681 (relating to unrelated business income).’’
(3) Paragraph (3) of section 643(a) is amended
by adding at the end thereof the following new sen-
tence: ‘‘The exclusion under section 1202 shall not
be taken into account.’’.
(4) Paragraph (4) of section 691(c) is amended
by striking ‘‘1201, and 1211’’ and inserting ‘‘1201,
1202, and 1211’’.
(5) The second sentence of paragraph (2) of
section 871(a) is amended by inserting ‘‘such gains
and losses shall be determined without regard to sec-
tion 1202 and’’ after ‘‘except that’’.
(6) The table of sections for part I of sub-
chapter P of chapter 1 is amended by adding after
the item relating to section 1201 the following new
item:
‘‘Sec. 1202. 50-percent exclusion for gain from certain small busi-
ness stock.’’
(e) E FFECTIVE DATE.—The amendments made by
this section shall apply to stock issued after December 31,
1992.
1134
SEC. 14114. ROLLOVER OF GAIN FROM SALE OF PUBLICLY
TRADED 
SECURITIES 
INTO 
SPECIALIZED
SMALL BUSINESS INVESTMENT COMPANIES.
(a) IN GENERAL.—Part III of subchapter O of chap-
ter 1 (relating to common nontaxable exchanges) is
amended by adding at the end the following new section:
‘‘SEC. 1044. ROLLOVER OF PUBLICLY TRADED SECURITIES
GAIN INTO SPECIALIZED SMALL BUSINESS
INVESTMENT COMPANIES.
‘‘(a) NONRECOGNITION OF GAIN.—In the case of the
sale of any publicly traded securities with respect to which
the taxpayer elects the application of this section, gain
from such sale shall be recognized only to the extent that
the amount realized on such sale exceeds—
‘‘(1) the cost of any common stock or partner-
ship interest in a specialized small business invest-
ment company purchased by the taxpayer during the
60-day period beginning on the date of such sale,
reduced by
‘‘(2) any portion of such cost previously taken
into account under this section.
This section shall not apply to any gain which is treated
as ordinary income for purposes of this subtitle.
‘‘(b) LIMITATIONS.—
‘‘(1) LIMITATION
ON
INDIVIDUALS.—In the
case of an individual, the amount of gain which may
1135
be excluded under subsection (a) for any taxable
year shall not exceed the lesser of—
‘‘(A) $50,000, or
‘‘(B) $500,000, reduced by the amount of
gain excluded under subsection (a) for all pre-
ceding taxable years.
‘‘(2) L IMITATION ON C CORPORATIONS.—In the
case of a C corporation, the amount of gain which
may be excluded under subsection (a) for any tax-
able year shall not exceed the lesser of—
‘‘(A) $250,000, or
‘‘(B) $1,000,000, reduced by the amount
of gain excluded under subsection (a) for all
preceding taxable years.
‘‘(3) SPECIAL RULES FOR MARRIED INDIVID-
UALS.—For purposes of this subsection—
‘‘(A) S EPARATE RETURNS.—In the case of
a separate return by a married individual, para-
graph (1) shall be applied by substituting
‘$25,000’ for ‘$50,000’ and ‘$250,000’ for
‘$500,000’.
‘‘(B) A LLOCATION OF GAIN.—In the case
of any joint return, the amount of gain ex-
cluded under subsection (a) for any taxable
year shall be allocated equally between the
1136
spouses for purposes of applying this subsection
to subsequent taxable years.
‘‘(C) MARITAL STATUS.—For purposes of
this subsection, marital status shall be deter-
mined under section 7703.
‘‘(4) SPECIAL RULES FOR C CORPORATION.—
For purposes of this subsection—
‘‘(A) all corporations which are members
of the same controlled group of corporations
(within the meaning of section 52(a)) shall be
treated as 1 taxpayer, and
‘‘(B) any gain excluded under subsection
(a) by a predecessor of any C corporation shall
be treated as having been excluded by such C
corporation.
‘‘(c) D EFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) PUBLICLY
TRADED
SECURITIES.—The
term ‘publicly traded securities’ means securities
which are traded on an established securities
market.
‘‘(2) P URCHASE.—The term ‘purchase’ has the
meaning given such term by section 1043(b)(4).
‘‘(3) SPECIALIZED
SMALL
BUSINESS
INVEST-
MENT COMPANY.—The term ‘specialized small busi-
1137
ness investment company’ means any partnership or
corporation which is licensed by the Small Business
Administration under section 301(d) of the Small
Business Investment Act of 1958 (as in effect on
May 13, 1993).
‘‘(4) C ERTAIN ENTITIES NOT ELIGIBLE.—This
section shall not apply to any estate, trust, partner-
ship, or S corporation.
‘‘(d) BASIS ADJUSTMENTS.—If gain from any sale is
not recognized by reason of subsection (a), such gain shall
be applied to reduce (in the order acquired) the basis for
determining gain or loss of any common stock or partner-
ship interest in any specialized small business investment
company which is purchased by the taxpayer during the
60-day period described in subsection (a). This subsection
shall not apply for purposes of section 1202.’’
(b) C ONFORMING AMENDMENT.—Paragraph (24) of
section 1016(a) is amended—
(1) by striking ‘‘section 1043’’ and inserting
‘‘section 1043 or 1044’’, and
(2) by striking ‘‘section 1043(c)’’ and inserting
‘‘section 1043(c) or 1044(d), as the case may be’’.
1138
(c) C LERICAL AMENDMENT.—The table of sections
for part III of subchapter O of chapter 1 is amended by
adding at the end the following new item:
‘‘Sec. 1044. Rollover of publicly traded securities gain into spe-
cialized small business investment companies.’’
(d) E FFECTIVE DATE.—The amendments made by
this section shall apply to sales on and after the date of
the enactment of this Act, in taxable years ending on and
after such date.
Subpart C—Modifications To Minimum Tax
Depreciation Rules
SEC. 14115. MODIFICATION TO MINIMUM TAX DEPRECIA-
TION RULES.
(a) GENERAL RULE.—Paragraph (1) of section 56(a)
(relating to depreciation) is amended by redesignating
subparagraphs (B), (C), and (D) as subparagraphs (C),
(D), and (E), respectively, and by inserting after subpara-
graph (A) the following new subparagraph:
‘‘(B) T REATMENT OF CERTAIN PERSONAL
PROPERTY PLACED IN SERVICE AFTER 1993.—
‘‘(i) IN GENERAL.—In the case of any
property to which this subparagraph ap-
plies, the depreciation deduction allowable
under section 167 shall be determined as
provided in section 168(a), except that the
method of depreciation used shall be—
1139
‘‘(I) the 120 percent declining
balance method switching to the
straight line method for the 1st tax-
able year for which using the straight
line method with respect to the ad-
justed basis as of the beginning of the
year will yield a higher allowance, or
‘‘(II) the straight line method in
the case of property for which the ap-
plicable depreciation method under
section 168(a) is the straight line
method.
‘‘(ii) P ROPERTY TO WHICH SUBPARA-
GRAPH APPLIES.—This subparagraph shall
apply to any tangible property placed in
service after December 31, 1993, except
that this subparagraph shall not apply
to—
‘‘(I) any residential rental prop-
erty or nonresidential real property
(within 
the 
meaning 
of 
section
168(e)), and
‘‘(II) any other property for
which the depreciation deduction pro-
vided by section 167(a) for purposes
1140
of the regular tax is computed under
the alternative depreciation system of
section 168(g).
‘‘(iii) COORDINATION WITH SUBPARA-
GRAPH (A).—Subparagraph (A) shall not
apply to any property to which this sub-
paragraph applies.’’
(b) E LIMINATION OF ACE D EPRECIATION ADJUST-
MENT.—Clause (i) of section 56(g)(4)(A) (relating to de-
preciation adjustments for computing adjusted current
earnings) is amended by adding at the end thereof the
following new sentence: ‘‘The preceding sentence shall not
apply to any property to which subsection (a)(1)(B) ap-
plies, and the depreciation deduction with respect to such
property shall be determined under the rules of subsection
(a)(1)(B).’’.
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 168(b) is amended
to read as follows:
‘‘(2) S PECIAL RULE FOR DECLINING BALANCE
METHOD IN CERTAIN CASES.—
‘‘(A) 150 PERCENT METHOD FOR CERTAIN
PROPERTY.—Paragraph (1) shall be applied by
substituting ‘150 percent’ for ‘200 percent’ in
the case of—
1141
‘‘(i) any 15-year or 20-year property,
or
‘‘(ii) any property used in a farming
business (within the meaning of section
263A(e)(4)).
‘‘(B) ELECTION
TO
USE
MINIMUM
TAX
METHOD.—In the case of any property (other
than property described in paragraph (3)) with
respect to which the taxpayer elects under para-
graph (5) to have the provisions of this sub-
paragraph apply, paragraph (1) shall be applied
by substituting ‘120 percent’ for ‘200 percent’
(and subparagraph (A) of this paragraph shall
not apply).’’
(2) Paragraph (5) of section 168(b) is amended
by striking ‘‘paragraph (2)(C)’’ and inserting ‘‘para-
graph (2)(B)’’.
(3) Subsection (c) of section 168 is amended—
(A) by striking paragraph (2), and
(B) by striking so much of such subsection
as precedes the table contained in paragraph
(1) and inserting the following:
‘‘(c) APPLICABLE RECOVERY PERIOD.—For purposes
of this section, the applicable recovery period shall be de-
termined in accordance with the following table:’’.
1142
(d) EFFECTIVE DATES.—
(1) I N GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to property placed in service after
December 31, 1993.
(2) 
COORDINATION
WITH
TRANSITIONAL
RULES.—The amendments made by this section
shall not apply to any property to which paragraph
(1) of section 56(a) of the Internal Revenue Code of
1986 does not apply by reason of subparagraph
(D)(i) thereof (as redesignated by subsection (a) of
this section).
Subpart D—Increase in Expense Treatment for Small
Businesses
SEC. 14116. INCREASE IN EXPENSE TREATMENT FOR SMALL
BUSINESSES.
(a) GENERAL RULE.—Paragraph (1) of section
179(b) (relating to dollar limitation) is amended by strik-
ing ‘‘$10,000’’ and inserting ‘‘$25,000’’.
(b) E FFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1992.
1143
PART III—TAX-EXEMPT BOND PROVISIONS
SEC. 14121. HIGH-SPEED INTERCITY RAIL FACILITY BONDS
EXEMPT FROM STATE VOLUME CAP.
(a) I N GENERAL.—Paragraph (4) of section 146(g)
(relating to exemption for certain bonds) is amended by
striking ‘‘75 percent of’’.
(b) E FFECTIVE DATE.—The amendment made by
subsection (a) shall apply to bonds issued after December
31, 1993.
SEC. 14122. PERMANENT EXTENSION OF QUALIFIED SMALL
ISSUE BONDS.
(a) IN GENERAL.—Subparagraph (B) of section
144(a)(12) is amended to read as follows:
‘‘(B) BONDS
ISSUED
TO
FINANCE
MANUFACTURING
FACILITIES
AND
FARM
PROPERTY.—Subparagraph (A) shall not
apply to any bond issued as part of an
issue 95 percent or more of the net pro-
ceeds of which are to be used to provide—
‘‘(i) any manufacturing facility, or
‘‘(ii) any land or property in accord-
ance with section 147(c)(2).’’.
(b) E FFECTIVE DATE.—The amendment made by
subsection (a) shall apply to bonds issued after June 30,
1992.
1144
PART IV—EXPANSION AND SIMPLIFICATION OF
EARNED INCOME TAX CREDIT
SEC. 14131. EXPANSION AND SIMPLIFICATION OF EARNED
INCOME TAX CREDIT.
(a) GENERAL RULE.—Section 32 (relating to earned
income credit) is amended by striking subsections (a) and
(b) and inserting the following:
‘‘(a) ALLOWANCE OF CREDIT.—
‘‘(1) IN GENERAL.—In the case of an eligible
individual, there shall be allowed as a credit against
the tax imposed by this subtitle for the taxable year
an amount equal to the credit percentage of so much
of the taxpayer’s earned income for the taxable year
as does not exceed the earned income amount.
‘‘(2) LIMITATION.—The amount of the credit
allowable to a taxpayer under paragraph (1) for any
taxable year shall not exceed the excess (if any) of—
‘‘(A) the credit percentage of the earned
income amount, over
‘‘(B) the phaseout percentage of so much
of the adjusted gross income (or, if greater, the
earned income) of the taxpayer for the taxable
year as exceeds the phaseout amount.
‘‘(b) P ERCENTAGES AND AMOUNTS.—For purposes
of subsection (a)—
1145
‘‘(1) PERCENTAGES.—The credit percentage
and the phaseout percentage shall be determined as
follows:
‘‘(A) I N GENERAL.—In the case of taxable
years beginning after 1994:
In the case of an eli-
gible individual with:
The credit percentage
is:
The phaseout percent-
age is:
1 qualifying child .....
34.37 ..........................
16.16
2 or more qualifying
children .................
39.66 ..........................
19.83
No qualifying chil-
dren ......................
7.65 ..........................
7.65
‘‘(B) TRANSITIONAL
PERCENTAGES.—In
the case of a taxable year beginning in 1994:
In the case of an
eligible individual
with:
The credit percentage
is:
The phaseout percent-
age is:
1 qualifying child .
26.60 ..........................
16.16
2 or more qualify-
ing children ......
31.59 ..........................
15.79
No qualifying chil-
dren ..................
7.65 ..........................
7.65
‘‘(2) AMOUNTS.—The earned income amount
and the phaseout amount shall be determined as fol-
lows:
‘‘(A) I N GENERAL.—In the case of taxable
years beginning after 1994:
In the case of an eli-
gible individual with:
The earned income
amount is:
The phaseout amount
is:
1 qualifying child .....
$6,000 ........................
$11,000
2 or more qualifying
children .................
$8,500 ........................
$11,000
No qualifying chil-
dren ......................
$4,000 ........................
$5,000
1146
‘‘(B) TRANSITIONAL
AMOUNTS.—In the
case of a taxable year beginning in 1994:
In the case of an
eligible individual
with:
The earned income
amount is:
The phaseout amount
is:
1 qualifying child .
$7,750 ........................
$11,000
2 or more qualify-
ing children ......
$8,500 ........................
$11,000
No qualifying chil-
dren ..................
$4,000 ........................
$5,000’’.
(b) ELIGIBLE INDIVIDUAL.—Subparagraph (A) of
section 32(c)(1) (defining eligible individual) is amended
to read as follows:
‘‘(A) I N GENERAL.—The term ‘eligible in-
dividual’ means—
‘‘(i) any individual who has a qualify-
ing child for the taxable year, or
‘‘(ii) any other individual who does
not have a qualifying child for the taxable
year, if—
‘‘(I) such individual’s principal
place of abode is in the United States
for more than one-half of such taxable
year,
‘‘(II) such individual (or, if the
individual is married, the individual’s
spouse) has attained age 22 before
the close of the taxable year, and
1147
‘‘(III) such individual (or, if the
individual is married, the individual’s
spouse) is not a dependent for whom
a deduction is allowable under section
151 to another taxpayer for any tax-
able year beginning in the same cal-
endar year as such taxable year.’’
(c) INFLATION ADJUSTMENTS.—Section 32(i) (relat-
ing to inflation adjustments) is amended—
(1) by striking paragraphs (1) and (2) and in-
serting the following new paragraph:
‘‘(1) I N GENERAL.—In the case of any taxable
year beginning after 1994, each dollar amount con-
tained in subsection (b)(2)(A) shall be increased by
an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3), for the calendar
year in which the taxable year begins, by sub-
stituting ‘calendar year 1993’ for ‘calendar year
1992’.’’, and
(2) by redesignating paragraph (3) as para-
graph (2).
(d) CONFORMING AMENDMENTS.—
1148
(1) Subparagraph (D) of section 32(c)(3) is
amended—
(A) by striking ‘‘clause (i) or (ii)’’ in clause
(iii) and inserting ‘‘clause (i)’’,
(B) by striking clause (ii), and
(C) by redesignating clause (iii) as clause
(ii).
(2) Paragraph (3) of section 162(l) is amended
to read as follows:
‘‘(3) COORDINATION
WITH
MEDICAL
DEDUC-
TION.—Any amount paid by a taxpayer for insur-
ance to which paragraph (1) applies shall not be
taken into account in computing the amount allow-
able to the taxpayer as a deduction under section
213(a).’’
(3) Section 213 is amended by striking sub-
section (f).
(4) Subsection (b) of section 3507 is amended
by redesignating paragraphs (2) and (3) as para-
graphs (3) and (4), respectively, and by inserting
after paragraph (1) the following new paragraph:
‘‘(2) certifies that the employee has 1 or more
qualifying children (within the meaning of section
32(c)(3)) for such taxable year,’’.
1149
(5) Subparagraph (B) of section 3507(c)(2) is
amended by striking clauses (i) and (ii) and insert-
ing the following:
‘‘(i) of not more than the credit per-
centage in effect under section 32(b)(1) for
an eligible individual with 1 qualifying
child and with earned income not in excess
of the earned income amount in effect
under section 32(b)(2) for such an eligible
individual, which
‘‘(ii) phases out at the phaseout per-
centage in effect under section 32(b)(1) for
such an eligible individual between the
phaseout amount in effect under section
32(b)(2) for such an eligible individual and
the amount of earned income at which the
credit under section 32(a) phases out for
such an eligible individual, or’’.
(e) E FFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
1150
PART V—INCENTIVES FOR INVESTMENT IN REAL
ESTATE
Subpart A—Extension of Qualified Mortgage Bonds
and Low-Income Housing Credit
SEC. 14141. PERMANENT EXTENSION OF QUALIFIED MORT-
GAGE BONDS.
(a) I N GENERAL.—Paragraph (1) of section 143(a)
(defining qualified mortgage bond) is amended to read as
follows:
‘‘(1) Q UALIFIED MORTGAGE BOND DEFINED.—
For purposes of this title, the term ‘qualified mort-
gage bond’ means a bond which is issued as part of
a qualified mortgage issue.’’
(b) M ORTGAGE CREDIT CERTIFICATES.—Section 25
is amended by striking subsection (h) and by redesignat-
ing subsections (i) and (j) as subsections (h) and (i), re-
spectively.
(c) EFFECTIVE DATES.—
(1) BONDS.—The amendment made by sub-
section (a) shall apply to bonds issued after June
30, 1992.
(2) C ERTIFICATES.—The amendment made by
subsection (b) shall apply to elections for periods
after June 30, 1992.
1151
SEC. 14142. PERMANENT EXTENSION OF LOW-INCOME
HOUSING CREDIT.
(a) IN GENERAL.—Section 42 (relating to low-income
housing credit) is amended by striking subsection (o).
(b) HOME ASSISTANCE NOT TO RESULT IN CER-
TAIN
BUILDINGS
BEING
FEDERALLY
SUBSIDIZED.—
Paragraph (2) of section 42(i) (relating to determination
of whether building is federally subsidized) is amended by
adding at the end thereof the following new subparagraph:
‘‘(E) BUILDINGS RECEIVING HOME ASSIST-
ANCE.—Assistance provided under the HOME
Investment Partnerships Act (as in effect on
the date of the enactment of this subparagraph)
with respect to any building shall not be taken
under subparagraph (D) if 40 percent or more
of the residential units in the building are occu-
pied by individuals whose income is 50 percent
or less of area median gross income. Subsection
(d)(5)(C) shall not apply to any building to
which the preceding sentence applies.’’.
(c) EFFECTIVE DATES.—
(1) The amendment made by subsection (a)
shall apply to periods after June 30, 1992.
(2) The amendment made by subsection (b)
shall apply to periods after the date of the enact-
ment of this Act.
1152
Subpart B—Modification of Passive Loss Rules
SEC. 14143. APPLICATION OF PASSIVE LOSS RULES TO
RENTAL REAL ESTATE ACTIVITIES.
(a) RENTAL REAL ESTATE ACTIVITIES OF PERSONS
IN REAL PROPERTY BUSINESS NOT AUTOMATICALLY
TREATED AS PASSIVE ACTIVITIES.—Subsection (c) of sec-
tion 469 (defining passive activity) is amended by adding
at the end thereof the following new paragraph:
‘‘(7) S PECIAL RULES FOR TAXPAYERS IN REAL
PROPERTY BUSINESS—
‘‘(A) I N GENERAL.—If this paragraph ap-
plies to any taxpayer for a taxable year—
‘‘(i) paragraph (2) shall not apply to
any rental real estate activity of such tax-
payer for such taxable year, and
‘‘(ii) this section shall be applied as if
each interest of the taxpayer in rental real
estate were a separate activity.
Notwithstanding clause (ii), a taxpayer may
elect to treat all interests in rental real estate
as one activity. Nothing in the preceding provi-
sions of this subparagraph shall be construed as
affecting the determination of whether the tax-
payer materially participates with respect to
any interest in a limited partnership as a lim-
ited partner.
1153
‘‘(B) TAXPAYERS TO WHOM PARAGRAPH
APPLIES.—This paragraph shall apply to a tax-
payer for a taxable year if more than one-half
of the personal services performed in trades or
businesses by the taxpayer during such taxable
year are performed in real property trades or
businesses in which the taxpayer materially par-
ticipates.
‘‘(C) REAL
PROPERTY
TRADE
OR
BUSI-
NESS.—For purposes of this paragraph, the
term ‘real property trade or business’ means
any real property development, redevelopment,
construction, reconstruction, acquisition, con-
version, rental, operation, management, leasing,
or brokerage trade or business.
‘‘(D) S PECIAL RULES FOR SUBPARAGRAPH
(B).—
‘‘(i) CLOSELY
HELD
C
CORPORA-
TIONS.—In the case of a closely held C
corporation, the requirements of subpara-
graph (B) shall be treated as met for any
taxable year if more than 50 percent of the
gross receipts of such corporation for such
taxable year are derived from real property
1154
trades or businesses in which the corpora-
tion materially participates.
‘‘(ii) P ERSONAL SERVICES AS AN EM-
PLOYEE.—For purposes of subparagraph
(B), personal services performed as an em-
ployee shall not be treated as performed in
real property trades or businesses. The
preceding sentence shall not apply if such
employee is a 5-percent owner (as defined
in section 416(i)(1)(B)) in the employer.’’
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 469(c) is amended
by striking ‘‘The’’ and inserting ‘‘Except as provided
in paragraph (7), the’’.
(2) Clause (iv) of section 469(i)(3)(E) is
amended by inserting ‘‘or any loss allowable by rea-
son of subsection (c)(7)’’ after ‘‘loss’’.
(c) E FFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
1155
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.—
1156
‘‘(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
1157
‘‘(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.
1158
‘‘(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
1159
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—
1160
(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
1161
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—
1162
‘‘(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
1163
‘‘(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
1164
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).—
1165
‘‘(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
1166
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
1167
‘‘(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-
1168
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.’’
1169
(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
1170
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
1171
‘‘(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)’’.
1172
(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.’’
1173
(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
1174
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—
1175
(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
1176
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.
1177
‘‘(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
1178
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.
1179
‘‘(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
1180
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
1181
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.