267
spect to any item of income of the S corpora-
tion in the same manner as if the decedent had
held directly his pro rata share of such item.
‘‘(B) ADJUSTMENTS TO BASIS.—The basis
determined under section 1014 of any stock in
an S corporation shall be reduced by the por-
tion of the value of the stock which is attrib-
utable to items constituting income in respect
of the decedent.’’
(e) EFFECTIVE DATES.—
(1) SUBSECTIONS (a) AND (b).—The amend-
ments made by subsections (a) and (b) shall take ef-
fect on the date of the enactment of this Act.
(2) SUBSECTION (c).—The amendments made
by subsection (c) shall apply to taxable years begin-
ning after December 31, 1992.
(3) SUBSECTION (d).—The amendment made
by subsection (d) shall apply in the case of decedents
dying after the date of the enactment of this Act.
Subtitle B—Accounting Provision
SEC. 511. MODIFICATIONS TO LOOK-BACK METHOD FOR
LONG-TERM CONTRACTS.
(a) LOOK-BACK METHOD NOT TO APPLY IN CER-
TAIN CASES.—Subsection (b) of section 460 (relating to
268
percentage of completion method) is amended by adding
at the end thereof the following new paragraph:
‘‘(6) ELECTION TO HAVE LOOK-BACK METHOD
NOT APPLY IN DE MINIMIS CASES.—
‘‘(A) AMOUNTS
TAKEN
INTO
ACCOUNT
AFTER
COMPLETION
OF
CONTRACT.—Para-
graph (1)(B) shall not apply with respect to
any taxable year (beginning after the taxable
year in which the contract is completed) if—
‘‘(i) the cumulative taxable income (or
loss) under the contract as of the close of
such taxable year, is within
‘‘(ii) 10 percent of the cumulative
look-back taxable income (or loss) under
the contract as of the close of the most re-
cent taxable year to which paragraph
(1)(B) applied (or would have applied but
for subparagraph (B)).
‘‘(B) DE MINIMIS DISCREPANCIES.—Para-
graph (1)(B) shall not apply in any case to
which it would otherwise apply if—
‘‘(i) the cumulative taxable income (or
loss) under the contract as of the close of
each prior contract year, is within
269
‘‘(ii) 10 percent of the cumulative
look-back income (or loss) under the con-
tract as of the close of such prior contract
year.
‘‘(C) DEFINITIONS.—For purposes of this
paragraph—
‘‘(i) CONTRACT
YEAR.—The term
‘contract year’ means any taxable year for
which income is taken into account under
the contract.
‘‘(ii) LOOK-BACK INCOME OR LOSS.—
The look-back income (or loss) is the
amount which would be the taxable income
(or loss) under the contract if the alloca-
tion method set forth in paragraph (2)(A)
were used in determining taxable income.
‘‘(iii) DISCOUNTING
NOT
APPLICA-
BLE.—The amounts taken into account
after the completion of the contract shall
be determined without regard to any dis-
counting under the 2nd sentence of para-
graph (2).
‘‘(D) CONTRACTS TO WHICH PARAGRAPH
APPLIES.—This paragraph shall only apply if
the taxpayer makes an election under this sub-
270
paragraph. Unless revoked with the consent of
the Secretary, such an election shall apply to all
long-term contracts completed during the tax-
able year for which election is made or during
any subsequent taxable year.’’
(b) MODIFICATION OF INTEREST RATE.—
(1) IN GENERAL.—Subparagraph (C) of section
460(b)(2) is amended by striking ‘‘the overpayment
rate established by section 6621’’ and inserting ‘‘the
adjusted overpayment rate (as defined in paragraph
(7))’’.
(2) ADJUSTED
OVERPAYMENT
RATE.—Sub-
section (b) of section 460 is amended by adding at
the end thereof the following new paragraph:
‘‘(7) ADJUSTED OVERPAYMENT RATE.—
‘‘(A) IN GENERAL.—The adjusted overpay-
ment rate for any interest accrual period is the
overpayment rate in effect under section 6621
for the calendar quarter in which such interest
accrual period begins.
‘‘(B) INTEREST
ACCRUAL
PERIOD.—For
purposes of subparagraph (A), the term ‘inter-
est accrual period’ means the period—
271
‘‘(i) beginning on the day after the re-
turn due date for any taxable year of the
taxpayer, and
‘‘(ii) ending on the return due date
for the following taxable year.
For purposes of the preceding sentence, the
term ‘return due date’ means the date pre-
scribed for filing the return of the tax imposed
by this chapter (determined without regard to
extensions).’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to contracts completed in taxable
years ending after the date of the enactment of this Act.
Subtitle C—Provisions Relating To
Regulated Investment Companies
SEC. 521. REPEAL OF 30-PERCENT GROSS INCOME LIMITA-
TION.
(a) GENERAL RULE.—Subsection (b) of section 851
(relating to limitations) is amended by striking paragraph
(3), by adding ‘‘and’’ at the end of paragraph (2), and
by redesignating paragraph (4) as paragraph (3).
(b) TECHNICAL AMENDMENTS.—
(1) The material following paragraph (3) of sec-
tion 851 (as redesignated by subsection (a)) is
amended—
272
(A) by striking out ‘‘paragraphs (2) and
(3)’’ and inserting ‘‘paragraph (2)’’, and
(B) by striking out the last sentence there-
of.
(2) Subsection (c) of section 851 is amended by
striking ‘‘subsection (b)(4)’’ each place it appears
(including the heading) and inserting ‘‘subsection
(b)(3)’’.
(3) Subsection (d) of section 851 is amended by
striking ‘‘subsections (b)(4)’’ and inserting ‘‘sub-
sections (b)(3)’’.
(4) Paragraph (1) of section 851(e) is amended
by striking ‘‘subsection (b)(4)’’ and inserting ‘‘sub-
section (b)(3)’’.
(5) Paragraph (4) of section 851(e) is amended
by striking ‘‘subsections (b)(4)’’ and inserting ‘‘sub-
sections (b)(3)’’.
(6) Section 851 is amended by striking sub-
section (g) and redesignating subsection (h) as sub-
section (g).
(7) Subsection (g) of section 851 (as redesig-
nated by paragraph (6)) is amended by striking
paragraph (3).
(8) Section 817(h)(2) is amended—
273
(A) by striking ‘‘851(b)(4)’’ in subpara-
graph (A) and inserting ‘‘851(b)(3)’’, and
(B) by striking ‘‘851(b)(4)(A)(i)’’ in sub-
paragraph (B) and inserting ‘‘851(b)(3)(A)(i)’’.
(9) Section 1092(f)(2) is amended by striking
‘‘Except for purposes of section 851(b)(3), the’’ and
inserting ‘‘The’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after the
date of the enactment of this Act.
SEC. 522. BASIS RULES FOR SHARES IN OPEN-END REGU-
LATED INVESTMENT COMPANIES.
(a) ADDITIONAL REPORTING REQUIREMENT.—Sec-
tion 6045 (relating to returns of brokers) is amended by
adding at the end thereof the following new subsection:
‘‘(f) ADDITIONAL INFORMATION REQUIRED WITH
RESPECT TO OPEN-END REGULATED INVESTMENT COM-
PANIES.—
‘‘(1) IN GENERAL.—If any person is required
under subsection (a) to make a return regarding the
gross proceeds from any disposition of stock in an
open-end regulated investment company, such return
shall include—
‘‘(A) the basis of the stock disposed of (de-
termined by reference to the average basis of all
274
of the stock in the account from which the dis-
position was made immediately before the dis-
position), and
‘‘(B) the portion of such basis and such
gross proceeds attributable to stock held for
more than 1 year and the portion not so attrib-
utable.
Determinations under subparagraph (B) shall be
made on a first-in, first-out, basis and determina-
tions of basis and holding period shall be made in
such manner as the Secretary may prescribe.
‘‘(2) OPEN-END REGULATED INVESTMENT COM-
PANY.—For purposes of this subsection, the term
‘open-end regulated investment company’ means any
regulated investment company which is offering for
sale or has outstanding any redeemable security (as
defined in section 2(a)(32) of the Investment Com-
pany Act of 1940) of which it is the issuer.
‘‘(3) INFORMATION TRANSFERS.—To the extent
provided in regulations, there shall be such ex-
changes of information between brokers as such reg-
ulations may require for purposes of enabling
brokers to meet the requirements of this subsection.
275
‘‘(4) APPLICATION OF SUBSECTION.—This sub-
section shall not apply with respect to stock in any
account—
‘‘(A) which was established before January
1, 1995, or
‘‘(B) which includes any stock not acquired
by purchase.’’
(b) BASIS FOR INCOME TAX PURPOSES.—Section
1012 of such Code is amended—
(1) by striking ‘‘The basis’’ and inserting ‘‘(a)
GENERAL RULE.—The basis’’, and
(2) by adding at the end thereof the following
new subsection:
‘‘(b) SPECIAL RULES FOR STOCK IN OPEN-END REG-
ULATED INVESTMENT COMPANIES.—
‘‘(1) IN GENERAL.—In the case of any disposi-
tion of stock from a covered account—
‘‘(A) the basis of such stock shall be deter-
mined by reference to the average basis of all
of the stock in such account immediately before
such disposition, and
‘‘(B) the determination of which stock in
such account is so disposed of shall be made on
a first-in, first-out, basis.
276
‘‘(2) COVERED ACCOUNT.—For purposes of this
subsection—
‘‘(A) IN GENERAL.—The term ‘covered ac-
count’ means any account of stock in an open-
end regulated investment company if section
6045(f) applies to such account.
‘‘(B) ELECTION OUT.—The term ‘covered
account’ shall not include any account if, on the
taxpayer’s return for his first taxable year in
which a disposition from such account occurs,
the taxpayer elects to have this subsection not
apply to such account.’’
(c) COORDINATION WITH WASH SALE RULES.—Sec-
tion 1091 is amended by adding at the end thereof the
following new subsection:
‘‘(f) SPECIAL RULES FOR CERTAIN ACCOUNTS IN
OPEN-END REGULATED INVESTMENT COMPANIES.—
‘‘(1) IN GENERAL.—In applying this section to
a disposition during December of any calendar year
of stock from a covered account, any acquisition of
stock after January 15 of the following calendar
year shall be disregarded if such acquisition is a re-
sult of a dividend reinvestment pursuant to a divi-
dend reinvestment program established at the time
277
such account was opened or, if later, at least 6
months before the date of such disposition.
‘‘(2) DE MINIMIS EXCEPTION.—If—
‘‘(A) but for this paragraph, losses from
dispositions during December of any calendar
year of stock from a covered account would
have been disallowed under this section by rea-
son of acquisitions during January of the fol-
lowing calendar year, and
‘‘(B) the amount of such losses which
would have been so disallowed does not exceed
$25,
nothing in this section shall disallow such losses.
‘‘(3) COVERED ACCOUNT.—For purposes of this
subsection, the term ‘covered account’ means any ac-
count of stock in an open-end regulated investment
company if section 6045(f) applies to such account.’’
(d) MODIFICATION OF LOAD BASIS DEFERRAL RULE
FOR CERTAIN ACQUISITIONS OCCURRING AFTER DECEM-
BER 31.—
(1) Paragraph (1) of section 852(f) is amended
by striking ‘‘subparagraph (C)) shall not’’ and all
that follows and inserting ‘‘subparagraph (C)) shall
be recaptured as provided in paragraph (2). To the
extent such charge is recaptured under paragraph
278
(2), such charge shall be treated as incurred in con-
nection with the acquisition referred to in subpara-
graph (C) (including for purposes of reapplying this
paragraph).’’
(2) Subsection (f) of section 852 is amended by
redesignating paragraph (2) as paragraph (3) and
by inserting after paragraph (1) the following new
paragraph:
‘‘(2) RECAPTURE.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), any load charge required by
paragraph (1) to be recaptured shall not be
taken into account in determining the amount
of gain or loss on the disposition referred to in
paragraph (1)(B).
‘‘(B) SUBSEQUENT ACQUISITIONS OCCUR-
RING AFTER DECEMBER 31.—If—
‘‘(i) the acquisition referred to in
paragraph (1)(A) occurs in a calendar
year, and
‘‘(ii) the subsequent acquisition re-
ferred to in paragraph (1)(C) occurs after
December 31 of such calendar year,
subparagraph (A) shall not apply and the
amount of the load charge required by para-
279
graph (1) to be recaptured shall be included in
gross income as short-term capital gain for the
taxable year in which the subsequent acquisi-
tion referred to in paragraph (1)(C) occurs.’’
(e) TECHNICAL AMENDMENT.—Section 6724 of such
Code is amended by adding at the end thereof the follow-
ing new subsection:
‘‘(f) SPECIAL RULE FOR CERTAIN REPORTS WITH
RESPECT TO STOCK IN OPEN END REGULATED INVEST-
MENT
COMPANIES.—For 
purposes 
of 
sections
6721(e)(2)(B) and 6722(c)(1)(B), the amount required to
be reported under section 6045 shall be determined with-
out regard to subsection (f) thereof.’’
(f) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to returns and statements required for
calendar year 1995 and subsequent calendar years.
(2) SUBSECTIONS (b).—The amendments made
by subsections (b), (c), and (d) shall apply to dis-
positions after December 31, 1994.
280
SEC. 523. NONRECOGNITION TREATMENT FOR CERTAIN
TRANSFERS BY COMMON TRUST FUNDS TO
REGULATED INVESTMENT COMPANIES.
(a) GENERAL RULE.—Section 584 (relating to com-
mon trust funds) is amended by redesignating subsection
(h) as subsection (i) and by inserting after subsection (g)
the following new subsection:
‘‘(h) NONRECOGNITION TREATMENT FOR CERTAIN
TRANSFERS TO REGULATED INVESTMENT COMPANIES.—
‘‘(1) IN GENERAL.—If—
‘‘(A) a common trust fund transfers sub-
stantially all of its assets to a regulated invest-
ment company in exchange solely for stock in
such company, and
‘‘(B) such stock is distributed by such
common trust fund to participants in such com-
mon trust fund in exchange solely for their in-
terests in such common trust fund,
no gain or loss shall be recognized by such common
trust fund by reason of such transfer or distribution,
and no gain or loss shall be recognized by any par-
ticipant in such common trust fund by reason of
such exchange.
‘‘(2) BASIS RULES.—
‘‘(A) 
REGULATED
INVESTMENT
COM-
PANY.—The basis of any asset received by a
281
regulated investment company in a transfer re-
ferred to in paragraph (1)(A) shall be the same
as it would be in the hands of the common
trust fund.
‘‘(B) PARTICIPANTS.—The basis of any
stock in a regulated investment company which
is received in an exchange referred to in para-
graph (1)(B) shall be the same as that of the
property exchanged.
‘‘(3) TREATMENT OF ASSUMPTIONS OF LIABIL-
ITY.—
‘‘(A) IN GENERAL.—In determining wheth-
er the transfer referred to in paragraph (1)(A)
is in exchange solely for stock in the regulated
investment company, the assumption by such
company of a liability of the common trust
fund, and the fact that any property trans-
ferred by the common trust fund is subject to
a liability, shall be disregarded.
‘‘(B) SPECIAL RULE WHERE ASSUMED LI-
ABILITIES EXCEED BASIS.—
‘‘(i) IN GENERAL.—If in any transfer
referred to in paragraph (1)(A) the as-
sumed liabilities exceed the aggregate ad-
justed bases (in the hands of the common