Miscellaneous Revenue Act of 1980
PL 96-605 (H.R.7956), enacted 12/28/1980

PUBLIC LAW 96-605—DEC. 28, 1980 
94 STAT. 3521 
Public Law 96-605 
96th Congress 
An Act 
To make various changes in the tax laws. 
^—'-
[H.R. 7956] 
Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled, 
Miscellaneous 
Revenue Act of 
SECTION 1. SHORT TITLE; AMENDMENT OF 1954 CODE. 
1980. 
(a) SHORT TITLE.—This Act may be cited as the "Miscellaneous 26 use i note. 
Revenue Act of 1980". 
O
b
) AMENDMENT OF 1954 CODE.—Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed 
in terms of an amendment to, or repeal of, a section or other 
provision, the reference shall be considered to be made to a section or 
other provision of the Internal Revenue Code of 1954. 
26 use i. 
TITLE I—AMENDMENTS RELATING TO 
INCOME TAX GENERALLY 
SEC. 101. TREATMENT OF COMMUNITY INCOME WHERE SPOUSES LIVE 
APART. 
(a) GENERAL RULE.—Part I of subchapter B of chapter 1 (defining 
gross income, adjusted gross income, taxable income, etc.) is amended 
by adding at the end thereof the following new section: 
"SEC. 66. TREATMENT OF COMMUNITY INCOME WHERE SPOUSES LIVE 26 USC 66. 
APART. 
"(a) GENERAL RULE.—If— 
"(1) 2 individuals are married to each other at any time during 
a calendar year; 
"(2) such individuals— 
"(A) live apart at all times during the calendar year, and 
"(B) do not file a joint return under section 6013 with each 
other for a taxable year beginning or ending in the calendar 
year; 
"(3) one or both of such individuals have earned income for the 
calendar year which is community income; and 
"(4) no portion of such earned income is transferred (directly or 
indirectly) between such individuals before the close of the 
calendar year, 
then, for purposes of this title, any community income of such 
individuals for the calendar year shall be treated in accordance with 
the rules provided by section 879(a). 
26 USC 879. 
"(b) DEFINITIONS.—For purposes of this section— 
"(1) EARNED INCOME.—The term 'earned income' has the mean-
ing given to such term by section 911(b). 
26 use 911. 
"(2) COMMUNITY INCOME.—The term 'community income' 
means income which, under applicable community property 
laws, is treated as community income. 
94 STAT. 3522 
PUBLIC LAW 96-605—DEC. 28, 1980 
"(3) COMMUNITY PROPERTY LAWS.—The term 'community prop-
erty laws' means the community property laws of a State, a 
foreign country, or a possession of the United States." 
(h) CLERICAL AMENDMENT.—The table of sections for part I of 
subchapter B of chapter 1 is amended by adding at the end thereof the 
following new item: 
"Sec. 66. Treatment of community income where spouses live apart." 
26 use 66 note. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to calendar years beginning after December 31,1980. 
SEC. 102. AMORTIZATION OF START-UP EXPENDITURES. 
(a) IN GENERAL.—Part VI of subchapter B of chapter 1 (relating to 
itemized deductions for individuals and corporations) is amended by 
adding at the end thereof the following new section: 
26 use 195. 
"SEC. 19.5. START-UP EXPENDITURES. 
"(a) ELECTION TO AMORTIZE.—Start-up expenditures may, at the 
election of the taxpayer, be treated as deferred expenses. Such 
deferred expenses shall be allowed as a deduction ratably over such 
period of not less than 60 months as may be selected by the taxpayer 
Ot)eginning with the month in which the business begins). 
"(h) START-UP EXPENDITURES.—For purposes of this section, the 
term 'start-up expenditure' means any amount— 
"(1) paid or incurred in connection with— 
"(A) investigating the creation or acquisition of an active 
trade or business, or 
"(B) creating an active trade or business, and 
"(2) which, if paid or incurred in connection with the expansion 
of an existing trade or business (in the same field as the trade or 
business referred to in paragraph (1)), would be allowable as a 
deduction for the taxable year in which paid or incurred. 
"(c) ELECTION.— 
"(1) TIME FOR MAKING ELECTION.—An election under subsection 
(a) shall be made not later than the time prescribed by law for 
filing the return for the taxable year in which the business 
begins (including extensions thereof). 
"(2) SCOPE OF ELECTION.—The period selected under subsection 
(a) shall be adhered to in computing taxable income for the 
taxable year for which the election is made and all subsequent 
taxable years. 
"(3) MANNER OF MAKING ELECTION.—An election under subsec-
tion (a) shall be made in such manner as the Secretary shall by 
regulations prescribe. 
"(d) BUSINESS BEGINNING.—For purposes of this section, an 
acquired trade or business shall be treated as beginning when the 
taxpayer acquires it." 
(b) CLERICAL AMENDMENT.—The table of sections for part VI of 
subchapter B of chapter 1 is amended by adding at the end thereof the 
following new item: 
"Sec. 195. Start-up expenditures." 
26 use 195 note. 
(c) EFFECTIVE DATE.—The amendements made by this section shall 
apply to amounts paid or incurred after July 29, 1980, in taxable 
years ending after such date 
PUBLIC LAW 96-605—DEC. 28, 1980 
94 STAT. 3523 
SEC. 104. REVISION OF SOURCE RULES FOR INCOME FROM CERTAIN 
LEASED AIRCRAFT, VESSELS, AND SPACECRAFT. 
(a) IN GENERAL.—Subsection (e) of section 861 (relating to election 26 USC 861. 
to treat income from certain aircraft and vessels as income from 
sources within the United States) is amended to read as follows: 
"(e) INCOME FROM CERTAIN LEASED AIRCRAFT, VESSELS, AND SPACE-
CRAFT TREATED AS INCOME FROM SOURCES WITHIN THE UNITED 
STATES.— 
"(1) IN GENERAL.—For purposes of subsection (a) and section 
862(a), if- 
26 use 862. 
"(A) a taxpayer owning a craft which is section 38 property 26 USC 38. 
(or would be section 38 property but for section 48(a)(5)) 26 USC 48. 
leases such craft to a United States person, other than a 
member of the same controlled group of corporations (as 
defined in section 1563) as the taxpayer, and 
26 USC 1563. 
"(B) such craft is manufactured or constructed in the 
United States, 
then all amounts includible in gross income by the taxpayer with 
respect to such craft for any taxable year ending after the 
commencement of such lease (whether during or after the period 
of such lease), including gain from sale, exchange, or other 
disposition of such craft, shall be treated as income from sources 
within the United States. 
"(2) CERTAIN TRANSFERS INVOLVING CARRYOVER BASIS.—If the 
taxpayer transfers or distributes a craft to which paragraph (1) 
applied and the basis of such craft in the hands of the transferee 
or distributee is determined by reference to its basis in the hands 
of the transferor or distributor, paragraph (1) shall continue to 
apply to such craft in the hands of the transferee or distributee. 
"(3) CRAFT DEFINED.—For purposes of this subsection, the term 
'craft' means a vessel, aircraft, or spacecraft.". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 USC 861 note. 
apply to property first leased after the date of the enactment of this 
Act. 
SEC. 105. TAXATION OF HOMEOWNERS ASSOCIATIONS. 
(a) GENERAL RULE.—Subsection (b) of section 528 (relating to tax 26 USC 528. 
imposed with respect to certain homeowners associations) is amended 
to read as follows: 
"(b) TAX IMPOSED.—A tax is hereby imposed for each taxable year 
on the homeowners association taxable income of every homeowners 
association. Such tax shall be equal to 30 percent of the homeowners 
association taxable income.". 
O
b
) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 USC 528 note. 
apply to taxable years beginning after December 31,1980. 
SEC. 106. TREATMENT OF CERTAIN INCOME OF MUTUAL OR COOPERA-
TIVE ELECTRIC AND TELEPHONE COMPANIES. 
(a) TREATMENT OF CERTAIN INCOME FOR PURPOSES OF TAX EXEMPT 26 use 50i. 
STATUS.—Paragraph (12) of section 501(c) (relating to list of exempt 
organizations) is amended— 
(1) by striking out "(12)" and inserting in lieu thereof "(12)(A)", 
(2) by striking out the second sentence, and 
(3) by adding at the end thereof the following new subpara-
graphs: 
"(B) In the case of a mutual or cooperative telephone company, 
subparagraph (A) shall be applied without taking into account 
any income received or accrued^ 
94 STAT. 3524 
PUBLIC LAW 96-605—DEC. 28, 1980 
"Qualified pole 
rental." 
"Rental." 
26 u s e 513. 
"Unrelated 
trade or 
business." 
Supra. 
26 u s e 501 note. 
26 use 1. 
26 u s e 513 note. 
26 u s e 119 note. 
26 u s e 119 note. 
26 u s e 274. 
"(i) from a nonmember telephone company for the per-
formance of communication services which involve members 
of the mutual or cooperative telephone company, 
"(ii) from qualified pole rentals, or 
"(iii) from the sale of display listings in a directory fur-
nished to the members of the mutual or cooperative tele-
phone company. 
"(C) In the case of a mutual or cooperative electric company, 
subparagraph (A) shall be applied without taking into account 
any income received or accrued from qualified pole rentals. 
"(D) For purposes of this paragraph, the term 'qualified pole 
rental' means any rental of a pole (or other structure used to 
support wires) if such pole (or other structure)— 
"(i) is used by the telephone or electric company to support 
one or more wires which are used by such company in 
providing telephone or electric services to its members, and 
"(ii) is used pursuant to the rental to support one or more 
wires (in addition to the wires described in clause (i)) for use 
in connection with the transmission by wire of electricity or 
of telephone or other communications. 
For purposes of the preceding sentence, the term 'rental' 
includes any sale of the right to use the pole (or other structure)." 
(b) ENGAGING :N POLE RENTALS TREATED AS NOT ENGAGING IN 
UNRELATED TRADE OR BUSINESS.—Section 513 (defining unrelated 
trade or business) is amended by adding at the end thereof the 
following new subsection: 
"(g) CERTAIN POLE RENTALS.—In the case of a mutual or coopera-
tive telephone or electric company, the term 'unrelated trade or 
business' does not include engaging in qualified pole rentals (as 
defined in section 501(c)(12)(D))." 
(c) EFFECTIVE DATES.— 
(1) SUBSECTION (a).—The amendments made by subsection (a) 
shall apply to all taxable years to which the Internal Revenue 
Code of 1954 applies. 
(2) SUBSECTION (b).—The amendment made by subsection (b) 
shall apply to taxable years beginning after December 31, 1969. 
SEC. 
107. EXEMPTION 
FOR CERTAIN 
SUBSISTENCE 
ALLOWANCES 
RECEIVED BY CERTAIN POLICE OFFICERS BEFORE JANU-
ARY 1, 1978. 
(a) GENERAL RULE.—Subsection (b) of section 3 of the Act of October 
7,1978, entitled "An Act to prohibit the issuance of regulations on the 
taxation of fringe benefits, and for other purposes" is amended— 
(1) by striking out "January 1, 1977" and inserting in lieu 
thereof "January 1,1974", and 
(2) by striking out "calendar year 1977" and inserting in lieu 
thereof "calendar year 1974,1975,1976, or 1977". 
(b) STATUTE OF LIMITATIONS.—In the case of any allowance received 
during calendar year 1974, 1975, 1976, or 1977, subsections (a)(2) and 
(e) of such section 3 shall be applied by substituting the date one year 
after the date of the enactment of this Act for "April 15, 1979" each 
place it appears. 
SEC. 108. TREATMENT OF CERTAIN EXPENSES INCLUDIBLE IN THE 
INCOME OF THE RECIPIENT. 
(a) IN GENERAL.—Subsection (e) of section 274 (relating to specific 
exceptions to application of disallowance of certain entertainment, 
PUBLIC LAW 96-605—DEC. 28, 1980 
94 STAT. 3525 
etc., expenses) is amended by inserting after paragraph (9) the 
following new paragraph: 
"(10) EXPENSES INCLUDIBLE IN INCOME OF PERSONS WHO ARE NOT 
EMPLOYEES.—Expenses paid or incurred by the taxpayer for 
goods, services, and facilities to the extent that the expenses are 
includible in the gross income of a recipient of the entertain-
ment, amusement, or recreation who is not an employee of the 
taxpayer as compensation for services rendered or as a prize or 
award under section 74. The preceding sentence shall not apply 26 USC 74. 
to any amount paid or incurred by the taxpayer if such amount is 
required to be included (or would be so required except that the 
amount is less than $600) in any information return filed by such 
taxpayer under part III of subchapter A of chapter 61 and is not 26 USC 6031. 
so included." 
(b) EFFECTIVE DATE.—The amendment made by this section shall 26 USC 274 note. 
apply to any expenses paid or incurred after December 31, 1980, in 
taxable years ending after such date. 
SEC. 109. INVESTMENT CREDIT FOR CERTAIN PROPERTY USED IN MARI-
TIME SATELLITE COMMUNICATIONS. 
(a) GENERAL RULE.—Paragraph (5) of section 48(a) (relating to 26 USC 48. 
property used by governmental units) is amended to read as follows: 
"(5) PROPERTY USED BY GOVERNMENTAL UNITS.—Property used 
by the United States, any State or political subdivision thereof, 
any international organization, or any agency or instrumentality 
of any of the foregoing shall not be treated as section 38 property. 26 USC 38. 
For purposes of the preceding sentence, the International Tele-
communications Satellite Consortium, the International Mari-
time Satellite Organization, and any successor organization of 
such Consortium or Organization shall not be treated as an 
international organization." 
Ot)) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 USC 48 note. 
apply to taxable years beginning after December 31,1979. 
SEC. 110. ACQUISITION INDEBTEDNESS. 
(a) IN GENERAL.—Section 514(c) of the Internal Revenue Code of 26 USC 514. 
1954 (defining acquisition indebtedness) is amended by adding at the 
end thereof the following new paragraph: 
"(9) REAL PROPERTY ACQUIRED BY QUALIFIED TRUST.—For pur-
poses of this section— 
"(A) IN GENERAL.—Except as provided in subparagraph Acquisition 
(B), the term 'acquisition indebtedness' does not include indebtedness. 
indebtedness incurred by a qualified trust in acquiring or 
improving any real property. 
"(B) EXCEPTIONS.—The provisions of subparagraph (A) 
shall not apply in any case in which— 
"(i) the acquisition price is not a fixed amount deter-
mined as of the date of acquisition; 
"(ii) the amount of any indebtedness or any other 
amount payable with respect to such indebtedness, or 
the time for making any payment of any such amount, is 
dependent, in whole or in part, upon any revenue, 
income, or profits derived from such real property; 
"(iii) the real property is at any time after the acquisi-
tion leased by the qualified trust to the person selling 
such property to such trust or to any person who bears a 
relationship described in section 267(b) to such person; 26 USC 267. 
79-194 
O—81—pt. 3 
56 : QL3 
94 STAT. 3526 
PUBLIC LAW 96-605—DEC. 28, 1980 
"(iv) the real property is acquired from, or is at any 
time after the acquisition leased by the qualified trust 
to, any person who— 
(I) bears a relationship which is described in 
26 use 4975. 
section 4975(e)(2) (C), (E), or (G) to any plan with 
respect to which such trust was formed, or 
"(II) bears a relationship which is described in 
section 4975(e)(2) (F) or (H) to any person described 
in subclause (I); or 
"(v) any person described in clause (iii) or (iv) provides 
the qualified trust with nonrecourse financing in con-
nection with such transaction and such debt— 
"(I) is subordinate to any other indebtedness on 
such property, or 
"(II) bears interest at a rate which is significantly 
less than the rate available from any person not 
described in clause (iii) or (iv) at the time such 
indebtedness is incurred. 
"(C) QUALIFIED TRUST.—For purposes of this paragraph, 
the term 'qualified trust' means any trust which constitutes 
26 use 401. 
a qualified trust under section 401." 
26 use 514 note. 
(b) No PRECEDENT.—The amendment made by subsection (a) shall 
not be considered a precedent with respect to extending such amend-
ment (or similar rules) to any other person. 
26 use 514 note. 
(c) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31,1980. 
TITLE II—AMENDMENTS RELATING TO 
PENSION PLANS 
Subtitle A—Prevention of Abuse of Certain 
Pension Plan Provisions 
SEC. 201. PREVENTION OF ABUSE OF CERTAIN PENSION PLAN PROVI-
SIONS THROUGH THE USE OF SEPARATE CORPORATIONS OR 
OTHER ORGANIZATIONS. 
26 use 414. 
(a) IN GENERAL.—Section 414 (relating to definitions and special 
rules relating to pension plan, etc.) is amended by adding at the end 
thereof the following new subsection: 
"(m) EMPLOYEES OF AN AFFILIATED SERVICE GROUP.— 
"(1) IN GENERAL.—For purposes of the employee benefit 
requirements listed in paragraph (4), except to the extent other-
wise provided in regulations, all employees of the members of an 
affiliated service group shall be treated as employed by a single 
employer. 
"(2) AFFILIATED SERVICE GROUP.—For purposes of this subsec-
tion, the term 'affiliated service group' means a group consisting 
of a service organization (hereinafter in this paragraph referred 
to as the 'first organization') and one or more of the following: 
"(A) any service organization which— 
"(i) is a shareholder or partner in the first organiza-
tion, and 
"(ii) regularly performs services for the first organiza-
tion or is regularly associated with the first organization 
in performing services for third persons, and 
PUBLIC LAW 96-605—DEC. 28, 1980 
94 STAT. 3527 
"(B) any other organization if— 
"(i) a significant portion of the business of such organi-
zation is the performance of services (for the first 
organization, for organizations described in subpara-
graph (A), or for both) of a type historically performed in 
such service field by employees, and 
"(ii) 10 percent or more of the interests in such 
organization is held by persons who are officers, highly 
compensated employees, or owners of the first organiza-
tion or an organization described in subparagraph (A). 
"(3) SERVICE ORGANIZATIONS.—For purposes of this subsection, 
the term 'service organization' means an organization the princi-
pal business of which is the performance of services. 
"(4) EMPLOYEE BENEFIT REQUIREMENTS.—For purposes of this 
subsection, the employee benefit requirements listed in this 
paragraph are— 
"(A) paragraphs (3), (4), (7), and (16) of section 401(a), 26 use 401. 
"(B) sections 408(k), 410,411, and 415, 
26 use 408, 410, 
"(C) section 105(h), and 
26 use 105 
"(D) section 125. 
26 use 1
2
5
^ 
"(5) OTHER DEFINITIONS.—For purposes of this subsection— 
"(A) ORGANIZATION DEFINED.—The term 'organization' 
means a corporation, partnership, or other organization. 
"(B) OWNERSHIP.—In determining ownership, the princi-
ples of section 267(c) shall apply. 
26 use 267. 
"(6) PREVENTION OF AVOIDANCE.—The Secretary shall prescribe Regulations, 
such regulations as may be necessary to prevent the avoidance 
with respect to service organizations, through the use of separate 
organizations, of any employee benefit requirement listed in 
paragraph (4)." 
(b) TECHNICAL AMENDMENTS.— 
(1) Paragraph (8) of section 105(h) (relating to amount paid to 26 use 105. 
highly compensated individuals under a discriminatory self-
insured medical expense reimbursement plan) is amended— 
(A) by striking out "subsection (b) or (c) of section 414" and 
inserting in lieu thereof "subsection Qo), (c), or (m) of section 
414", and 
(B) by striking out "CONTROLLED GROUPS" in the paragraph 
heading and inserting in lieu thereof "CONTROLLED GROUPS, 
ETC.". 
(2) Paragraph (4) of section 125(g) (relating to special rules for 26 USC 125. 
cafeteria plans) is amended— 
(A) by striking out "subsection (b) or (c) of section 414" and 
inserting in lieu thereof "subsection (b), (c), or (m) of section 
414", and 
(B) by striking out "CONTROLLED GROUPS" in the paragraph 
heading and inserting in lieu thereof "CONTROLLED GROUPS, 
ETC.". 
(c) EFFECTIVE DATES.— 
26 USC 414 note. 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to plan years 
ending after November 30,1980. 
(2) PLANS IN EXISTENCE ON NOVEMBER 30,1980.—In the case of a 
plan in existence on November 30, 1980, the amendments made 
by this section shall apply to plan years beginning after Novem-
ber 30,1980. 
94 STAT. 3528 
PUBLIC LAW 96-605—DEC. 28, 1980 
Subtitle B—Amendments Relating to Employee 
Stock Ownership Plans 
SEC. 221. CASH DISTRIBUTION OPTION AND PUT OPTION FOR STOCK 
BONUS PLANS. 
26 use 401. 
(a) I N GENERAL.—Subsection (a) of section 401 (relating to require-
ments for qualification) is amended by inserting immediately before 
the last sentence thereof the following new paragraph: 
"(23) A stock bonus plan which otherwise meets the require-
ments of this section shall not be considered to fail to meet the 
requirements of this section because it provides a cash distribu-
tion option to participants if that option meets the requirements 
26 use 409 
A. 
of section 409 
A(h)(2). '^ 
26 use 401 note. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
apply with respect to plan years beginning after December 31, 1980. 
SEC. 222. LIMITATION ON ANNUAL ADDITIONS TO PARTICIPANT 
ACCOUNTS UNDER EMPLOYEE STOCK OWNERSHIP PLANS. 
26 use 415. 
(a) I N GENERAL.—Subparagraph (A) of section 415(c)(6) (relating to 
special limitation for employee stock ownership plan) is amended by 
inserting ", or purchased with cash contributed," after "contributed'. 
26 use 415 note. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
apply with respect to years beginning after December 31, 1980. 
SEC. 223. VALUATION OF EMPLOYER SECURITIES IN TAX CREDIT 
EMPLOYEE STOCK OWNERSHIP PLANS. 
26 u s e 48. 
(a) I N GENERAL.—Clause (i) of section 48(n)(6)(B) (defining value for 
employer securities) is amended by striking out "the due date for 
filing the return for the taxable year (determined with regard to 
extensions)" and inserting in lieu thereof "the date on which the 
securities are contributed to the plan". 
26 use 48 note. 
Qy) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply with respect to taxable years beginning after December 
31,1980. 
SEC. 224. PARTICIPATION OE SUBSIDIARY CORPORATION IN TAX CREDIT 
EMPLOYEE STOCK OWNERSHIP PLAN. 
26 use 409A. 
(a) I N GENERAL.—Paragraph (4) of section 409A(1) (defining con-
trolled group of corporations) is amended— 
(1) by striking out the caption and inserting in lieu thereof "(4) 
APPLICATION TO CONTROLLED GROUP OF CORPORATIONS.—", 
(2) by striking out "COMMON PARENT MAY OWN ONLY" in 
the 
caption of subparagraph (B) and inserting in lieu thereof "WHERE 
COMMON PARENT OWNS AT LEAST", and 
(3) by adding at the end thereof the following new subpara-
graph: 
"(C) WHERE COMMON PARENT OWNS lOO PERCENT OF FIRST 
TIER SUBSIDIARY.—For purposes of subparagraph (A), if the 
common parent owns directly stock possessing all of the 
voting power of all classes of stock and all of the nonvoting 
stock, in a first tier subsidiary, and if the first tier subsidiary 
owns directly stock possessing at least 50 percent of the 
voting power of all classes of stock, and at least 50 percent of 
each class of nonvoting stock, in a second tier subsidiary of 
the common parent, such second tier subsidiary (and all 
other corporations below it in the chain which would meet 
26 u s e 1563. 
the 80 percent test of section 1563(a) if the second tier 
PUBLIC LAW 96-605—DEC. 28, 1980 
94 STAT. 3529 
subsidiary were the common parent) shall be treated as 
includible corporations.", 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 USC 409A 
apply with respect to qualified investment for taxable years begin- ^°^^-
ning after December 31,1978. 
SEC. 225. PARTICIPATION RULES FOR TAX CREDIT EMPLOYEE STOCK 
OWNERSHIP PLAN WHICH IS ONLY EMPLOYER-PROVIDED 
ALTERNATIVE TO INDIVIDUAL RETIREMENT SAVINGS. 
(a) IN GENERAL.—Subsection (b) of section 410 (relating to eligibil- 26 USC 410. 
ity) is amended— 
(1) by redesignating paragraph (2) as (3), 
(2) by striking out "paragraph (1)" in paragraph (3) (as so 
redesignated) and inserting in lieu thereof "paragraphs (1) and 
(2)", and 
(3) by inserting after paragraph (1) the following new para-
graph: 
"(2) SPECIAL RULE FOR CERTAIN PLANS.—A trust which is part of 
a tax credit employees stock ownership plan which is the only 
plan of an employer intended to qualify under section 401(a) shall 26 USC 401. 
not be treated as not a qualified trust under section 401(a) solely 
because it fails to meet the requirements of paragraph (1) i
f
— 
"(A) it benefits 50 percent or more of all the employees 
who are eligible under the plan (excluding employees who 
have not satisfied the minimum age and service require-
ments, if any, prescribed by the plan as a condition of 
participation), and 
"(B) the sum of the amounts allocated to each participant's 
account for the year does not exceed 2 percent of the 
compensation of that participant for the year." 
(b) CONFORMING AMENDMENTS.— 
(1) The last sentence of section 401(a)(4) is amended by striking 26 USC 401. 
out "section 4100))(2)(A)" and inserting in lieu thereof "section 
410(b)(3)(A)". 
(2) Subparagraph (B) of section 401(d)(3) is amended— 
(A) by striking out "section 410(b)(2)(A)" and inserting in 
lieu thereof "section 410(b)(3)(A)", and 
(B) by striking out "section 41003)(2)(C)" and inserting in 
lieu thereof "section 410(b)(3)(C)". 
(3) The last sentence of section 408(k)(2) is amended by striking 26 USC 408. 
out "section 410(b)(2)" and inserting in lieu thereof "section 
410(b)(3)". 
(4) Clause (i) of section 408(k)(3)(B) is amended by striking out 
"section 410(b)(2)" and inserting in lieu thereof 
"section 
410(b)(3)". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 401 note. 
apply with respect to plan years beginning after December 31, 1980. 
SEC. 226. APPLICATION OF CASH OR DEFERRED ARRANGEMENT RULES 
TO CAFETERIA PLANS. 
(a) IN GENERAL.—Paragraph (2) of section 125(d) (relating to 26 USC 125. 
deferred compensation plans excluded) is amended by adding at the 
end thereof the following: "The preceding sentence shall not apply in 
the case of a profit-sharing or stock bonus plan which includes a 
qualified cash or deferred arrangement (as defined in section 
401(k)(2)) to the extent of amounts which a covered employee may 26 USC 401. 
elect to have the employer pay as contributions to a trust under such 
plan on behalf of the employee." 
94 STAT. 3530 
PUBLIC LAW 96-605—DEC. 28, 1980 
26 use 125 note. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
apply with respect to taxable years beginning after December 31, 
1980. 
SEC. 227. ELIMINATION OF WITHHOLDING TAX ON PENSIONS PAID TO 
CERTAIN NONRESIDENT ALIENS. 
26 use 871. 
(a) IN GENERAL.—Section 871(f) (relating to taxation of nonresident 
alien individuals) is amended to read as follows: 
"(1) IN GENERAL.—For purposes of this section, gross income 
does not include any amount received as an annuity under a 
26 use 403. 
qualified annuity plan described in section 403(a)(1), or from a 
26 use 401. 
qualified trust described in section 401(a) which is exempt from 
26 use 501. 
tax under section 501(a), if— 
"(A) all of the personal services by reason of which the 
annuity is payable were either— 
"(i) personal services performed outside the United 
States by an individual who, at the time of performance 
of such personal services, was a nonresident alien, or 
26 use 864. 
"(ii) personal services described in section 864(b)(1) 
performed within the United States by such individual, 
and 
"(B) at the time the first amount is paid as an annuity 
under the annuity plan or by the trust, 90 percent or more of 
the employees for whom contributions or benefits are pro-
vided under such annuity plan, or under the plan or plans of 
which the trust is a part, are citizens or residents of the 
United States. 
"(2) EXCLUSION.—Income received during the taxable year 
which would be excluded from gross income under this subsec-
tion but for the requirement of paragraph (1)(B) shall not be 
included in gross income if— 
"(A) the recipient's country of residence grants a substan-
tially equivalent exclusion to residents and citizens of the 
United States; or 
"(B) the recipient's country of residence is a beneficiary 
developing country within the meaning of section 502 of the 
Trade Act of 1974 (19 U.S.C. 2462).". 
26 use 871 note. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
apply to amounts received after July 1,1979. 
TITLE III—AMENDMENTS RELATING TO 
ESTATE TAX 
SEC. 301. ADDITIONAL 3 YEARS ALLOWED TO AMEND GOVERNING 
INSTRUMENTS TO MEET REQUIREMENTS FOR GIFT OF 
SPLIT INTEREST TO CHARITY. 
26 use 2055. 
(a) CHARITABLE LEAD TRUSTS AND CHARITABLE REMAINDER TRUSTS 
IN THE CASE OF ESTATE TAXES.—The first sentence of paragraph (3) of 
section 2055(e) (relating to disallowance of deductions in certain 
cases) is amended— 
(1) by striking out "December 31, 1977" and inserting in lieu 
thereof "December 31,1978"; and 
(2) by striking out "December 31, 1978" each place it appears 
and inserting in lieu thereof "December 31,1981'. 
O
t
>
) EFFECTIVE DATE.— 
PUBLIC LAW 96-605—DEC. 28, 1980 
94 STAT. 3531 
(1) IN GENERAL.—The amendment made by subsection (a) shall 26 USC 2055 
apply in the case of decedents dying after December 31, 1969. "°^® 
(2) CHARITABLE LEAD TRUSTS AND CHARITABLE REMAINDER 26 use 2055 
TRUSTS IN THE CASE OF INCOME AND GIFT TAXES.—Section 514(b) ^°^^-
(and section 514(c) insofar as it relates to section 514(b)) of the 
Revenue Act of 1978 shall be applied as if the amendment made Ante, p. 219. 
by subsection (a) had been included in the amendment made by 
section 514(a) of such Act. 
TITLE IV—MISCELLANEOUS 
AMENDMENTS 
SEC. 401. TREATMENT OF CERTAIN SOCIAL SECURITY TAX WAIVER 
EXEMPTIONS. 
(a) WAIVER CERTIFICATE.— 
26 use 3121 
(1) IN GENERAL.—Notwithstanding any other provision of law, "°^®-
any waiver certificate filed by a qualified corporation (herinafter 
in this section referred to as the "corporation") under section 
3121(k)(l) of the Internal Revenue Code of 1954 (relating to 26 USC 3121. 
waiver of exemption from social security taxes by certain organi-
zations) shall be deemed not to be effective, for purposes of the 
taxes imposed by section 3101 of such Code, with respect to any 26 USC 3ioi. 
wages— 
(A) paid by the Corporation to any employee thereof after 
December 31, 1972, and before April 1, 1975, if the Corpora-
tion furnishes to the Secretary of the Treasury or his 
delegate evidence reasonably satisfactory to him that the 
Corporation as refunded, prior to February 1, 1977, to such 
employee (or to his survivors or estate) the full amount of the 
taxes imposed by section 3101 of such Code on such wages, or 
(B) paid after March 31,1975, and prior to July 1,1977, by 
the Corporation to an individual as an employee of the 
Corporation, if the Corporation furnishes to the Secretary of 
the Treasury or his delegate evidence reasonably satisfac-
tory to him that (i) such individual was not an employee of 
the Corporation on June 30, 1978, and (ii) no amount of the 
taxes imposed by section 3101 of such Code on such wages 
were withheld by the Corporation from such wages. 
(2) APPLICATION OF PARAGRAPH (D.— 
(A) EVIDENCE TO BE SUBMITTED TO SECRETARY.—The provi-
sions of paragraph (1) shall not apply to wages described in 
subparagraph (A) or (B) of such paragraph unless, prior to 
the close of the one-year period which begins on the date of 
the enactment of this Act, the Corporation furnishes to the 
Secretary of the Treasury or his delegate the evidence 
referred to in either such subparagraph. 
(B) TAX NOT IMPOSED.—If the provisions of paragraph (1) 
apply with respect to any wages paid by the Corporation to 
an employee thereof, no taxes imposed on such wages by 
section 3101 of the Internal Revenue Code of 1954 shall be 
payable, and no interest or penalty with respect to the 
imposition of taxes by such section on such wages (or with 
respect to the imposition of taxes by such section or section 
3111 of such Code on any wages paid by the Corporation 26 USC 3111. 
prior to January 1, 1978) shall be imposed or collected. 
94 STAT. 3532 
PUBLIC LAW 96-605—DEC. 28, 1980 
(C) CREDIT AGAINST TAX.—Under regulations prescribed by 
the Secretary, there shall be allowed as a one-time credit 
against the tax imposed on the Corporation under section 
26 use 3101, 
3101 or 3111 of the Internal Revenue Code of 1954 (and any 
interest or penalties imposed thereon) an amount equal to 
the sum of— 
(i) all amounts of tax imposed by section 3101 of such 
26 use 3101. 
Code which have been paid by the Corporation with 
respect to wages to which paragraph (1) applies, and 
(ii) all amounts paid by such Corporation as a penalty 
or as interest with respect to the tax imposed by section 
3101 or 3111 of such Code on such wages. 
(b) TREATMENT FOR PURPOSES OF SOCIAL SECURITY ACT.—In the 
|2 use 401, 
administration of titles II and XVIII of the Social Security Act, any 
wages paid to any individual to which the provisions of subsection (a) 
apply shall be treated as wages (within the meaning of section 209 of 
42 use 409. 
such Act) for purposes of determining— 
(1) entitlement to, or amount of, any insurance benefit payable 
to such individual or any other person on the basis of the wages 
and self-employment income of such individual, or 
(2) entitlement of such individual to benefits under title XVIII 
of such Act or entitlement of any other person to such benefits on 
the basis of the wages and self-employment income of such 
individual. 
(c) QUALIFIED CORPORATION DEFINED.—For purposes of this section, 
the term "qualified corporation" means any corporation which— 
(1) filed a waiver certificate under section 3121 of the Internal 
26 use 3121. 
Revenue Code of 1954 during 1968; 
(2) filed a second waiver certificate under such section during 
1975 believing that no other waiver certificate had been filed; 
(3) received a refund of the taxes imposed by sections 3101 and 
26 use 3101, 
3111 of such Code with respect to certain wages paid to more than 
^^^^- 
120 but less than 180 employees who did not concur in the filing 
of the second waiver certificate; and 
(4) was notified during 1977 by the Internal Revenue Service 
that the certificate had been filed during 1968. 
(d) LIABILITY FOR TAXES.—Except as provided in subsection 
(a)(2)(C)(ii), nothing in this section shall be construed to relieve the 
Corporation of any liability for the payment of the taxes imposed by 
section 3111 of the Internal Revenue Code of 1954 with respect to any 
wages paid by it to any individual for any period. 
SEC. 402. TREATMENT OF AUTHORS AND ARTISTS AS EMPLOYEES. 
26 use 7701 
(a) IN GENERAL.—An author or artist performing services under 
^°^- 
contract with a corporation shall be considered as an employee of the 
corporation for the purpose of applying the provisions specified in 
26 use 7701. 
section 7701(a)(20) of the Internal Revenue Code of 1954, if, on 
December 31, 1977, such author or artist was a participant in one or 
more of the pension, profit-sharing or annuity plans of such corpora-
tion which are described in subsection (b)(2). 
(b) DEFINITIONS.—For purposes of this section— 
(1) CONTRACT.—The term "contract" means a contract which 
during its term— 
(A) requires such author or artist to give the corporation 
first reading or first refusal on writings or drawings of 
specified types, and prohibits him from offering any such 
writing or drawing to any other publication unless it has 
been offered to and rejected by the corporation; or 
PUBLIC LAW 96-605—DEC. 28, 1980 
94 STAT. 3533 
(B) requires such author or artist to use his best efforts to 
produce work of specified types for the corporation. 
(2) CORPORATION.—The term "corporation" means a corpora-
tion which for at least 15 years prior to January 1, 1978, had in 
effect one or more pension, profit-sharing and annuity plans, 
each of which— 
(A) had contained from its inception a definition of the 
term "employee" that included the category of "authors and 
artists under contract", and 
(B) had been determined by the Secretary of the Treasury 
(taking into account the definition described in subpara-
graph (A)) to be a qualified plan within part I of subchapter 
D of chapter 1 of subtitle A of the Internal Revenue Code of 
1954 for all of such years. 
26 USC 401. 
(c) EFFECTIVE DATE.—The provisions of this section shall apply to 
taxable years ending after December 31,1980. 
Approved December 28, 1980. 
LEGISLATIVE HISTORY: 
HOUSE REPORT No. 96-1278 (Comm. on Ways and Means). 
SENATE REPORT No. 96-1036 (Comm. on Finance). 
CONGRESSIONAL RECORD, Vol. 126 (1980): 
Sept. 9, considered and passed House. 
Dec. 13, considered and passed Senate, amended; House agreed to certain 
Senate amendments, to others with amendments, and disagreed to those 
remaining; Senate agreed to certain House amendments and receded from its 
remaining amendments.